Burt v. Burt Boiler Works, Inc.

Citation360 So.2d 327
PartiesMack L. BURT et al. v. BURT BOILER WORKS, INC., Raymond E. Burt, et al. 77-198.
Decision Date30 June 1978
CourtSupreme Court of Alabama

M. R. Nachman, Jr. and Griffin Sikes, Jr., of Steiner, Crum & Baker, Montgomery, for appellants.

Charles M. Crook, Montgomery, for appellees.

SHORES, Justice.

Burt Boiler Works, Inc. is a close corporation formed in Alabama in 1962. At the time of incorporation, 1700 shares of stock were issued to its three incorporators: William Raymond Burt (decedent) 850 shares; William Albert Burt (decedent's father) 849 shares; and Consuelo Burt (decedent's mother) 1 share.

Prior to incorporation, the business had been operated by members of the Burt family as a partnership. As is frequently the case, the owners and operators of the business did not want the fact of incorporation to substantially change the day to day operation of the business and they adopted a plan which would limit share ownership to persons approved by the original shareholders or their successors. Although there are various kinds of restrictions on transfer of the stock, which may be adopted (see O'Neal, Close Corporations, § 7.05), the Burt family adopted a first option provision whereby the corporation was granted a right of first refusal to purchase.

The original charter and by-laws of the corporation specifically provided that prior to any transfer of its stock, the owner must first offer to sell the stock to the corporation at market value or book value, whichever was higher. If the corporation declined to exercise this option to purchase, the remaining stockholders then had the same right to purchase in proportion to their respective stock ownership. The restriction specifically applied to testamentary transfer or disposition of the stock as well as inter vivos transfers.

William Albert Burt, decedent's father and one of the three original incorporators, died in 1963. The corporation did not exercise its option to purchase his 849 shares and they were distributed in accordance with William Albert Burt's will to Consuelo, his widow, 424 shares; to Mack Burt, Jean Myrick, Margaret Thomas, Thomas Burt, Helen Ciniglio and David Albert Burt (his children), 68 shares each; and to decedent, his son and one of the original incorporators, 17 shares.

In 1969, Helen Ciniglio, after the corporation declined to exercise its option to purchase her shares, sold her 68 shares to her sister, Margaret Thomas.

Consuelo Burt died in 1971. Her will bequeathed her 425 shares of stock equally to her children. The corporation exercised its option to purchase only five of these shares and the remaining 420 shares were distributed 60 shares to each of her children, William Raymond (decedent), Mack, Jean, Margaret, Thomas, David Albert and Helen.

Margaret Thomas died on December 3, 1973, and the corporation exercised its option to purchase her 196 shares under the restrictive provision, which, in addition to being set out in the charter and by-laws, had also been made subject to a stockholder agreement executed in 1973. The restriction contained in all three instruments is, in pertinent part, as follows:

" 'No share of stock may be transferred, assigned, sold, or otherwise disposed of by the owner thereof unless such share has first been offered to the corporation at the book or market value thereof, whichever is higher; and if the corporation does not exercise this privilege of purchase, then the other stockholders shall have the same privilege of purchase in proportion to their respective stock ownership in the corporation.

" 'If a stockholder dies, the corporation may purchase the shares of stock of such deceased stockholder at the book or market value thereof at the time of purchase, whichever is higher; and if the corporation does not exercise this privilege of purchase of such shares of stock of a deceased stockholder, then the remaining stockholders shall have the same privilege of purchase in proportion to their respective stock ownership in the corporation.

" '. . .' "are

The stockholders' agreement contained and the charter and by-laws were amended to include a provision that, if the corporation exercised its option to purchase the shares of a deceased stockholder, it would have ten years in which to pay the purchase price.

William Raymond Burt died on November 24, 1976. At that time, he was president and general manager of the corporation and one of three directors of the corporation along with Mack L. Burt and Thomas H. Burt, his brothers, who had acquired their stock in the corporation under the wills of their father and mother.

At the time of his death, William Raymond Burt owned 927 shares of the company's stock, approximately 62% Of the shares outstanding. By will, he left all but 11% Of his stock to his children, in varying amounts: Raymond E. Burt, 32%; Hampton Granger Burt, 16%; James R. Burt, 16%; Howard Allen Burt, 16%; and Dorothy Jean Burt Faulkner, 9%. He bequeathed 7% Of his stock to his sister, Helen Ciniglio, and 4% To his sister, Jean B. Myrick. As a result of the manner in which Mr. Burt's will bequeathed his stock, his children became the owners of approximately 55% Of the outstanding stock and his brothers and sisters became the owners (including the stock which they already owned) of approximately 45%. He named two of his children co-executors of his will.

A few days after Mr. Burt died, his two brothers, the surviving members of the board of directors, held a special meeting of the board on November 29, 1976, and filled the vacancy created by Mr. Burt's death by appointing their sister, Jean Myrick. Each of these three was designated a corporate officer. The newly constituted board then elected to exercise, on behalf of the corporation, the option to purchase the 927 shares owned by the decedent at the time of his death. The board notified the children of Mr. Burt of this decision by letter which informed them that the corporation would purchase the stock at book value.

Thereafter, on December 8, 1976, the co-executors, acting in that capacity and as individuals holding 55% Of the company stock, gave notice of a special meeting of the stockholders to be held on December 22, 1976. There having been no annual meeting of stockholders in 1976, the notice also designated the meeting as a "substitute annual meeting." At this meeting, the co-executors voted the stock of the decedent to elect a new board of directors. The new board removed the old board members as officers of the company and replaced them with Raymond Edward Burt, Dorothy Jean Burt Faulkner and James R. Burt, all children of the decedent. The new board rescinded and set aside the decision of the old board to exercise the corporate option to acquire the stock of the decedent under the restrictive agreement.

When the old board members refused to relinquish control of the corporation to the newly elected officers, the children of the decedent commenced this litigation. They sought to have the court declare their actions as stockholders of the company valid, that the meeting of stockholders and directors on December 22, 1976, was valid and lawful; and that the decision of the old board to exercise the option to buy the decedent's stock had been lawfully rescinded and set aside. Alternatively, they asked the court (if it did not agree with their primary contentions) to determine the amount they were entitled to receive for the stock in their father's estate.

By counterclaim, the minority stockholders sought specific performance of the stock transfer restrictions and provisions of the charter, by-laws and agreement and asked the court to order the transfer of the stock of the decedent to the corporation. They contended that the action of the co-executors and their attempts to exercise any rights as stockholders of the company in calling the stockholders meeting, electing a new board and rescinding the action of the old board was null and void. They asked the court to declare that the old board members were duly elected and remained the actual officers and directors of the corporation.

Both sides filed motions for summary judgment supported by affidavits and other evidence. The court held a hearing on these motions and entered summary judgment in favor of the children of the decedent (the majority stockholders) and against the brothers and sisters of the decedent (minority stockholders). The latter appealed.

The trial court's order states the issues as follows:

"The threshold legal question presented by these motions can be generally stated as follows: Where William Raymond Burt, deceased, devised by will his 62 percent bloc of stock in Burt Boiler Works, Inc., which stock was subject to an option to purchase by that corporation, may Mr. Burt's executors vote upon and otherwise participate in the corporate decision of whether the corporation will exercise its option? Upon a thorough review of the affidavits and other documents submitted by both parties in connection with the Motions for Summary Judgment, and upon consideration of extensive briefs and arguments of counsel, the Court concludes that there is no genuine dispute as to any of the material facts relative to this question. Upon close questioning by the Court, coun...

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