Brown v. Knox, 83-587

• Decision Date: 08 February 1985
• Docket Number: No. 83-587,83-587
• Citation: 361 N.W.2d 540,219 Neb. 189
• Parties: Richard L. BROWN, Appellee and Cross-Appellant, v. Kenneth B. KNOX and Marilyn M. Knox, Husband and Wife, et al., Appellants and Cross-Appellees.
• Court: Nebraska Supreme Court

Page 540

361 N.W.2d 540

219 Neb. 189

Richard L. BROWN, Appellee and Cross-Appellant, v. Kenneth B. KNOX and Marilyn M. Knox, Husband and Wife, et al., Appellants and Cross-Appellees.

No. 83-587.

Supreme Court of Nebraska.

Feb. 8, 1985.

John R. Hall of Anderson, Vipperman, Hinman, Hall & Kovanda, Grand Island, for appellants and cross-appellees.

Cunningham, Blackburn, VonSeggern, Livingston, Francis & Riley, Grand Island, for appellee and cross-appellant.

KRIVOSHA, C.J., BOSLAUGH, WHITE, HASTINGS, CAPORALE, and SHANAHAN, JJ., and COLWELL, D.J., Retired.

PER CURIAM.

Richard Brown brought suit in the district court for Hall County against Kenneth and Marilyn Knox for specific performance of an oral contract for Brown's acquisition of 50 percent of the shares of First Holiday Tour and Travel, Inc. We modify and affirm the judgment of the district court.

An action for specific performance of a contract is equitable in nature. Matthews v. Matthews, 215 Neb. 744, 341 N.W.2d 584 (1983). In its appellate review of suits in equity, the Supreme Court reviews the record de novo and reaches an independent conclusion irrespective of the decision reached in the trial court. See Neb.Rev.Stat. § 25-1925 (Reissue 1979). However, this standard of review is subject to the well-established rule that where credible evidence is in conflict on a material issue of fact, the Supreme Court will consider the fact that the trial court observed the witnesses and accepted one version of the facts over another. Ryan v. Kolterman, 215 Neb. 355, 338 N.W.2d 747 (1983); Burton v. Annett, 215 Neb. 788, 341 N.W.2d 318 (1983).

In the summer of 1979 Brown was transferred from Grand Island to Omaha as manager of Roberts Dairy. Sometime in January 1980 and as a result of a change in Roberts' ownership, Brown was discharged by Roberts. Ken Knox, a Grand Island acquaintance of Brown, contacted Brown about the possibility of a business relationship involving the two. Knox owned shares in Knox Construction Company. After a couple of meetings between the parties, Brown went to work for Knox Construction at a salary of $500 a week, with the understood objective that Brown would seek businesses as joint opportunities for Brown and Knox. In March 1980 Brown moved his family to Grand Island.

Brown looked over several possible business opportunities for Knox and himself. One such business was First Holiday Tour and Travel, Inc., in Grand Island. In April 1980 Knox and his wife, Marilyn, with Brown explored a possible purchase of First Holiday. A preliminary draft of an agreement for purchase of First Holiday stock designated Knoxes and Brown as the purchasers, who would ultimately form a corporation and substitute the newly formed corporation as purchaser in the transaction for acquisition of First Holiday stock. However, an accountant advised Knoxes and Brown that it would be better for tax purposes that an existing corporation rather than a new corporation purchase First Holiday. At this time Knoxes owned Marilyn's Figurama, Inc. (Figurama), that is, each of the Knoxes owned one-half of the shares of Figurama and were directors of that corporation. Concerning Figurama, Knoxes and Brown decided to "shell it out" (liquidate all corporate assets) and then use Figurama as a holding company in the acquisition of First Holiday.

Knox Construction Company would assist in financing the acquisition of First Holiday by making a loan to Figurama, namely, $50,000 for a downpayment on the First Holiday purchase price, with interest at an annual rate of 10 percent, a favorable rate at the time. Further, according to Brown, as soon as Figurama liquidated its assets after acquiring all the shares of First Holiday, Figurama would then transfer to Brown one-half of the purchased shares of First Holiday. The balance of the purchase price for First Holiday stock, according to Knoxes and Brown, would be paid from income produced by the operations of First Holiday.

On May 30 Figurama signed an agreement for purchase of all issued and outstanding shares of First Holiday (200 shares), made a downpayment on the purchase price, and delivered its corporate promissory note to pay the balance of the purchase price for the First Holiday shares. The contract called for a purchase price of $120,000, of which $65,000 was allocated for First Holiday shareholders' covenant not to compete. Knoxes and Brown signed their "personal guarantee" for Figurama's performance of all obligations imposed on Figurama under the agreement regarding First Holiday.

Figurama acquired all shares of First Holiday. Marilyn Knox and Brown conducted the daily business of First Holiday. Brown became vice president and general operating officer of First Holiday at an annual salary of approximately $26,000. First Holiday paid Marilyn Knox an annual salary of $12,800 in 1981 and $14,650 in 1982. Ken Knox had no active role in the everyday operations of First Holiday.

In August 1980 the parties considered but did not sign a document regarding their previous oral agreement for acquisition of the shares of First Holiday. However, Knoxes and Brown, on August 1, did sign a "STOCK OPTION CONTRACT," which in part provided:

NOW THEREFORE, for the above reasons and in consideration of a mutual covenant herein contained, it is agreed as follows:

1. Ken Knox and Marilyn Knox, hereinafter referred to as Grantors, hereby grant to Richard L. Brown, hereinafter referred to as Grantee, the right, option and privilege, of purchasing 50% of the voting shares at a price to be determined upon exercise of option of the stock of Marilyn's Figurama, Inc.

2. Said option shall be effective immediately upon the signing hereof and shall continue until such time as the option is exercised or until mutual termination by the parties hereto.

3. Said option shall be exercised no later than thirty days after receipt of notice by Grantee from Grantor of the liquidation of assets and liabilities associated with the business operation known as Marilyn's Figurama located as [sic] 208 North Wheeler Avenue, Grand Island, Nebraska. Said notice shall be sent by Grantor to Grantee at the above address by certified mail.

4. With respect to operations of Marilyn's Figurama, Inc., as related to First Holiday Tour and Travel, Inc., Grantee shall be liable for any related losses, loans or indebtedness of both companies as well as be the benefactor of any rewards or incomes. This shall be in direct proportion to Grantees ...