Blasingame v. American Materials, Inc.

Citation36 UCCRep.Serv. 1709,654 S.W.2d 659,35 UCCRep.Serv. 1610
Parties35 UCC Rep.Serv. 1610, 36 UCC Rep.Serv. 1709 Larry R. BLASINGAME, Plaintiff-Appellee, v. AMERICAN MATERIALS, INC., Defendant-Appellant.
Decision Date18 April 1983
CourtSupreme Court of Tennessee

Frank C. Gorrell, Jay S. Bowen and C. Dewees Berry, IV, Bass, Berry & Sims, Nashville, George O. Benton, Moss, Benton & Wallis, Jackson, for defendant-appellant.

Edwin C. Townsend, Robert N. Townsend and Edwin Townsend, Jr., Townsend & Townsend, Parsons, for plaintiff-appellee.

OPINION

FONES, Chief Justice.

We granted defendant corporation's Rule 11 application to review a judgment awarding plaintiff $429,000 for fraudulent breach of an oral employment contract, affirmed by the Court of Appeals. Briefly, the issues in this Court are the application of the general Statute of Frauds, the authority of the president and dominant person in the corporation to bind the corporation to an employment contract agreeing to sell a key employee a one-quarter stock interest in the corporation, the application of the Statute of Frauds of the investment securities chapter of the UCC, and the measure of damages for fraudulent breach of an employment contract that requires valuation of a minority stock interest in a closely held corporation.

I.

Robert S. Doggett and Melvin Cornwell organized defendant corporation for the purpose of producing emulsified asphalt and concrete for sale. The charter was issued on June 17, 1967. Doggett and Cornwell and their wives were the incorporators and the original stockholders. Both Cornwell and plaintiff had worked for other corporations that had been dominated by Doggett. Plaintiff had learned how to manufacture emulsified asphalt while working for several of those corporations and testified that only fifteen or twenty persons in Tennessee knew how to make emulsified asphalt.

In its early days, defendant corporation purchased asphalt from other sources before it acquired its own manufacturing facilities. In anticipation of producing its own asphalt, Doggett and Cornwell decided to seek out plaintiff to be in charge of that operation, and Cornwell made the first contact with plaintiff offering that employment. Doggett died before this suit was brought so that the only direct testimony about the oral employment contract came from Cornwell and Blasingame.

In July 1969, when defendant corporation made its offer to plaintiff, he was working as a truck driver in Tupelo, Mississippi, earning, according to plaintiff, $275 to $325 per week. His response to the initial contract was that he would require stock in the corporation to leave Mississippi and move to Decatur County, Tennessee. Cornwell told him that he would have to take that up with Doggett. A meeting was arranged at Doggett's home in Franklin, Tennessee, and the contract of employment was consummated on that occasion. Plaintiff's version was that he was to receive a salary, an annual bonus of five percent of gross profit or seven or eight percent of net profit, whichever was greater, and that he would be allowed to purchase 300 shares of stock in the corporation for $25,000 which could be paid for out of the annual bonuses he would receive. The 300 shares would constitute one-fourth of the stock of the corporation. The other stockholders would be Doggett, Cornwell, and Jere Fly, each owning 300 shares with their respective spouses, or a one-quarter interest in each family block of stock. Plaintiff was asked to accept a beginning salary of $150 per week. Plaintiff accepted the offer, moved his family to Parsons, Tennessee, and worked for defendant corporation until October 13, 1975.

Plaintiff was paid the following bonuses by defendant: $2,200 for 1970; $3,300 for 1971; $5,000 for 1972; $3,500 for 1973; $4,000 for 1974, a total of $18,000. He testified that he was dissatisfied with the amounts but never asked to be shown the corporate statement of earnings for any of the years involved. He told of several conversations with Doggett wherein he inquired about the acquisition of his stock and was told not to worry, that it was forthcoming. In the fall of 1971, the corporation was expanding and plaintiff told Doggett he would like to get his stock, thinking it would cost more after the expansion, but he was assured that it would not cost any more than "at the beginning." In the fall of 1972, after Doggett's son-in-law, Lochte, had purchased 300 shares of stock for $25,000 and had been employed by the corporation, plaintiff confronted Doggett about acquiring his stock. He testified that Doggett explained that his daughter and son-in-law had sold their home and had money to invest and he invited them to invest in the corporation; that the Lochte's stock was non-voting stock; and that plaintiff had nothing to worry about; that he would receive the stock. As a result of that discussion, Doggett wrote plaintiff the following letter:

Robert S. Doggett

River Circle Farm, Sneed Road

Franklin, Tennessee 37064

May 2, 1973

Dear Larry:

Re: Your Receiving Stock in American Materials, Inc.

My ideas about this have not changed and I would welcome you as a stockholder.

Of course, stock secured could not exceed 300 shares (which is the amount of blocks of stock owned by present stockholders).

I would only agree that your stock would be non-voting stock (non-voting until at such time as the corporation is out of debt to the point to which it is not necessary for any of the stockholders to personally endorse for the corporation to secure operating capital). Such stock secured on a book value basis and as above stated not to exceed 300 shares.

I am in hopes that American Materials, Inc. will prosper as it should and all concerned can realize a nice profit and income from it. There being no reason it should not if all involved do their part.

Personal regards,

/s/Robert S. Doggett

RSD:rl

Cornwell testified that Doggett told him that the letter he wrote plaintiff was not worth the paper it was written on and that he wrote it to pacify plaintiff.

In May 1974, Doggett brought Doyle Vaughn into the corporation as General Manager and Vaughn acquired 300 shares of stock for $25,000. Plaintiff again became concerned about his stock and his position in the corporation, as Vaughn was superior to him in the day-to-day operation of the corporation.

On October 13, 1975, plaintiff went to Doggett's home in Franklin, Tennessee, asked about his stock, and Doggett responded that he was sorry, but that "things had not worked out between us." Plaintiff gave notice that he would resign in thirty days, but later that same day upon his return to Parsons he learned that Doggett had fired him.

Plaintiff returned to Mississippi and started his own asphalt business. He acknowledged at trial that he had been making preparation to go into business for himself for several months before the October 1975 confrontation with Doggett. Doggett died September 1, 1976. Plaintiff filed this suit on January 21, 1977, and the case was tried on June 15 and 16, 1978.

The learned chancellor rendered written findings, dated November 10, 1978, as follows:

(1) That plaintiff carried the burden of proof, "as to the offer extended to him prior to his acceptance of his involvement with defendant corporation";

(2) That Doggett ruled the corporation with an iron hand and "they perpetrated a fraud on plaintiff, specifically mentioning the testimony that Doggett said he, 'only wrote the letter [of May 2, 1973] to pacify the plaintiff.' ";

(3) Denied plaintiff's claim for a bonus based upon a percentage of earnings but held that plaintiff was entitled to the same bonuses that other stockholders had received, "and this will continue to this date";

(4) That plaintiff was entitled to the actual value of 300 shares of defendant's stock, less a set-off of $25,000, the purchase price of the stock, none of which had ever been paid by plaintiff; and

(5) Expressly denied the remedy of specific performance prayed for in plaintiff's complaint.

In response to requests for clarification of the findings dated November 10, 1978, the chancellor ruled (1) instead of the actual value of 300 shares, plaintiff was entitled to the actual value of twenty-five percent of American Materials, Incorporated, as of November 10, 1978, 1 and (2) plaintiff was entitled to the same bonuses that other stockholders were paid, only through calendar year 1975, the year plaintiff was terminated. A reference to the clerk and master was ordered to determine the value of twenty-five percent of the corporation as of November 10, 1978, and the amount of bonus due plaintiff through calendar year 1975.

The master found that the value of twenty-five percent of defendant corporation as of November 10, 1978, was $324,988 less the $25,000 purchase price; and that stockholders had received a total of $22,000 through calendar year 1975 while plaintiff had received only $18,000. Three CPA's testified for plaintiff that the value of twenty-five percent of defendant corporation was $672,500, $657,572, and $660,419.68, respectively. The CPA called by defendant calculated the value of twenty-five percent of defendant corporation by three different methods resulting in sums of $115,350, $127,033, and $165,670. The master's finding was arrived at by averaging the highest opinion value of $672,500 and the lowest of $115,350, to which was applied a 17.5% discount because of the limited marketability of a minority interest in a closely held corporation. The master reported plaintiff entitled to a judgment in the sum of $303,988.

Both parties filed exceptions to the master's report. The chancellor held that it was improper to arrive at the actual value of the stock of defendant corporation by averaging the expert testimony. He held that the "preponderance of the evidence rule applied," and found the actual value of "300 shares of stock to be $600,000 as of November 10, 1978." The chancellor...

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