Century Inn, Inc. v. Century Inn Realty, Inc.

• Decision Date: 20 October 1986
• Citation: 358 Pa.Super. 53,516 A.2d 765
• Parties: CENTURY INN, INC., a Pennsylvania corporation, Appellant, v. CENTURY INN REALTY, INC., a Pennsylvania corporation; Joan Bigelow, Nancy Scheirer and Robert Scheirer, Appellees.
• Court: Pennsylvania Superior Court

Page 765

516 A.2d 765

358 Pa.Super. 53

CENTURY INN, INC., a Pennsylvania corporation, Appellant, v. CENTURY INN REALTY, INC., a Pennsylvania corporation; Joan Bigelow, Nancy Scheirer and Robert Scheirer, Appellees.

Superior Court of Pennsylvania.

Argued May 22, 1986.

Filed Oct. 20, 1986.

J. Shane Creamer, Philadelphia, for appellant.

Ira S. Lefton, Pittsburgh, for appellees.

Before BROSKY, KELLY and ROBERTS, JJ.

KELLY, Judge:

This appeal arises from a dispute between the appellant, Century Inn, Inc. ("Century Inn"), and appellees, Century Inn Realty, Inc., Joan Bigelow, Nancy Scheirer, and Robert Scheirer ("Century Realty"). On February 7, 1978, Century Inn brought an action in equity seeking, inter alia, to enjoin Century Realty from interfering with the operation of the restaurant known as Century Inn. The case was called for trial on July 10, 1979. ¹ On that date, the parties were able to negotiate a settlement agreement. The terms of the somewhat complex agreement, which involved the conveyance of property interests and the issuance of a mortgage, were placed upon the record in open court. In the months and years that followed, the parties attempted unsuccessfully, with the assistance of the court, to draft the terms of the documents necessary for carrying out the agreement which had been reached. Finally, when almost seven years had elapsed from the date of the stipulation, the court directed the parties to prepare a set of documents which would be acceptable to each of them. This was done, and after reviewing the documents, the court below prepared its own documents, "attempting to retain as much as possible the language of the respective parties...." The court then made two sets of changes to the documents, based upon the comments and exceptions of the parties, and prepared a final draft of the documents. On August 20, 1985, the court ordered the parties to appear on September 27, 1985 for the purpose of executing the documents. Century Inn appealed this order. ² Because we conclude that the court below erred in ordering Century Inn to execute documents which varied from the terms of the earlier settlement agreement, we vacate the order of the court below and remand for further proceedings.

In order to fully understand the issue which is raised in this appeal, it is necessary to review the tangled facts underlying the parties' dispute. As determined by the court below, the three real parties in interest in this sordid family disagreement are Gordon Harrington, Joan Bigelow and Nancy Scheirer. Gordon, Bigelow and Scheirer are the three children of Mary Harrington. Century Inn was incorporated by Mary Harrington ³ in 1970. Mary Harrington owned certain real property, which she began leasing to Century Inn in April, 1970. Century Inn operated a restaurant on the premises. In 1976, Mary Harrington formed a second corporation, Century Realty. Mary Harrington was the sole shareholder, sole director, and secretary-treasurer of Realty; she elected her son, Gordon Harrington, as president.

Mrs. Harrington transferred the real estate which she owned and which had been leased to Century Inn to Realty. Realty ratified the lease, so that the property continued to be leased to Century Inn for its restaurant business. In December 1976, Mrs. Harrington transferred 39,000 shares of the 100,000 shares of Realty to her children in equal parts of 13,000 each; she retained 61,000 shares.

Mrs. Harrington died in June, 1977. At the time of her death, she also held the majority of the shares of Century Inn stock; each of the three children held 2,000 of the shares, with Mary Harrington holding 9,000 shares. The situation which arose with the death of Mrs. Harrington ultimately led to the litigation now before us. The three children, Gordon Harrington, Bigelow, and Scheirer, were the co-executors of Mrs. Harrington's estate. According to the terms of Mrs. Harrington's will, Gordon Harrington received a life estate in Mrs. Harrington's 9,000 shares of Century Inn stock. A dispute arose as to whether Scheirer and Bigelow, as majority trustees, or Gordon Harrington as tenant of the life estate, could vote the shares of Century Inn stock which were formerly held by Mrs. Harrington.

In December, 1977, the orphan's court division of the Washington County Court of Common Pleas awarded Gordon Harrington an advance distribution of the 9,000 shares. This effectively resulted in a redistribution of the previously equally distributed voting powers within Century Inn. Gordon Harrington now could vote a total of 11,000 shares, while his two siblings together held voting power over 4,000 shares. ⁴

Scheirer and Bigelow called a special meeting of the other corporation, Century Realty, in January, 1978. As stated previously, the three held equal shares in Realty. At the meeting, Bigelow and Scheirer moved that Century Inn be removed from the leased premises, and that Realty take over the restaurant facility. Harrington voted against this move.

In February 1978, Harrington, claiming that he had been physically barred from the premises of the leasehold, brought a suit in equity on behalf of Century Inn. Century Inn sought to enjoin Realty from interfering with the operation of the business.

As previously stated, the parties after extensive negotiation reached a settlement on July 10, 1979. The terms of the agreement were placed upon the record by the judge in open court. The stipulation provided for the sale of the interest of Bigelow and Scheirer in both corporations to their brother, Harrington. The practical effect of this transaction would be to pass control to Harrington of both the real estate upon which the restaurant is located and the management of the restaurant itself. Harrington was to pay the sum of $300,000 to Bigelow and Scheirer for their interest; $260,000 of the $300,000 was to be secured by a first mortgage of the property owned by Realty, "to be amortized over twenty years as a level payment direct reduction mortgage at an interest rate of seven percent." (Transcript of Stipulation, p. 2). The payment of the $260,000 by Harrington was to be secured by the execution of a judgment note. The remaining sum of $40,000 was to be paid to Bigelow and Scheirer in accordance with the stipulation.

Under the terms of the stipulation, Bigelow and Scheirer were to surrender possession of the restaurant property by midnight of July 15, 1979. After extensive negotiations, the parties indicated to the court that they could not reach an amicable agreement regarding the language of the documents necessary for carrying out the agreement. The court on September 11, 1979 directed that Gordon Harrington assume immediate possession and control of the operation of the restaurant. On November 13, 1980, the court directed Harrington to deposit the current sum of all the payments agreed upon to the prothonotary of Washington County, and to each month thereafter deposit the contemplated mortgage payment. In accordance with these orders, Harrington to date continues to occupy the premises and operate the restaurant; the agreed upon mortgage payments have been timely paid, and are held in an escrow account for the benefit of Bigelow and Scheirer.

The court diligently continued its efforts to work with the parties in reaching an agreement regarding the language to be contained within the mortgage and the promissory note. Finally, the court draft its own proposed documents and ordered that the parties appear for the purpose of executing those documents.

The enforceability of settlement agreements is determined according to principles of contract law. If all of the material terms of the bargain are agreed upon, our courts will enforce the settlement. See Kazanjian v. New England Petroleum Corporation, 332 Pa.Super. 1, 480 A.2d 1153 (1984); Zager v. Gubernick, 205 Pa.Super. 168, 208 A.2d 45 (1965). As this Court stated in Kazanjian, supra:

Of course, preliminary negotiations do not constitute a contract. However, if the parties orally agree to all the terms of a contract between them and mutually expect the imminent drafting of a written contract reflecting their previous understanding, the oral contract may be enforceable. Skrocki v. Caltabiano, 505 F.Supp. 916 (1981) (applying Pennsylvania law); Ketchum v. Conneaut Lake Company, 309 Pa. 224, 163 A. 534 (1933).

480 A.2d at 1157. In Kazanjian, the court held that, since the record revealed that the parties had orally agreed to "each and every term that was later formalized by the writing," the oral agreement was binding and could be enforced. 480 A.2d at 1159.

In the case at bar, the settlement which was placed upon the record in open court contains every term necessary to consummate the transfer. Joan Bigelow and Nancy Scheirer agreed to "sell all their right, title and interest in the property"; they waived all rights to distribution of any shares of the property and surrendered their interest as remaindermen. The financial terms were stated with particularity: the purchase price for the property was set at $300,000; $260,000 of this amount was to be "secured by first mortgage to be amortized over twenty years as a level payment direct reduction mortgage at an interest rate of seven percent," with the balance of $40,000 to be paid from the assets of Century Realty....