Equity Investors, Inc. v. Academy Ins. Group, Inc., 51629

• Decision Date: 25 March 1981
• Docket Number: No. 51629,51629
• Citation: 625 P.2d 466,229 Kan. 456
• Parties: , 229 Kan. 668 EQUITY INVESTORS, INC., a corporation, Appellee, Cross-Appellant, v. ACADEMY INSURANCE GROUP, INC., a corporation, Appellant, Cross-Appellee.
• Court: Kansas Supreme Court

Page 466

625 P.2d 466

229 Kan. 456, 229 Kan. 668

EQUITY INVESTORS, INC., a corporation, Appellee, Cross-Appellant, v. ACADEMY INSURANCE GROUP, INC., a corporation, Appellant,

Cross-Appellee.

No. 51629.

Supreme Court of Kansas.

March 25, 1981.

Opinion for Modification June 26, 1981.

Syllabus by the Court

1. As a general rule prejudgment interest is not allowed on a claim for unliquidated damages.

2. In a civil action to determine damages for breach of contract, the record is examined and it is held the trial court did not err in using quoted bid and ask prices to determine the market value of stock on the day of the breach. The trial court erred in awarding prejudgment interest on the unliquidated claim.

Emmet A. Blaes, of Jochems, Sargent & Blaes, P. A., Wichita, argued the cause and Gary M. Austerman and Alan D. Herman, Wichita, were with him on the brief for appellee.

Robert Martin, of Martin, Pringle, Fair, Davis & Oliver, Wichita, argued the cause and Paul B. Swartz and James A. Walker, Wichita, were with him on the brief for appellant.

HERD, Justice:

Academy Insurance Group, Inc., appeals from a judgment in favor of Equity Investors, Inc., in the amount of $384,463 plus None of the facts are in dispute except those pertaining to damages. Equity Investors, Inc., a New Mexico corporation, owned two motels, a nursing home, a liquor license, some unimproved real estate and miscellaneous personal property. Victor E. Katt was its president, chairman of the board and controlling stockholder. Academy's predecessor, known as Liberty Investors, Inc., was a Kansas holding company.

interest at eight per cent from March 2, 1978, for breach of contract.

On July 16, 1971, Equity agreed to transfer all its assets and liabilities to Liberty in exchange for 501,200 shares of Liberty's stock. The stock was to be placed in a ten-year voting trust with Liberty appointing a majority of the trustees. Equity could sell no more than one per cent of the stock each year and the pledging of the stock was restricted.

The facts and circumstances surrounding the breach of contract are set forth in detail in Equity Investors, Inc. v. Ammest Group, Inc., 1 Kan.App.2d 276, 563 P.2d 531, rev. denied 223 Kan. clxxi (1977), by the Court of Appeals. The court determined there was a valid contract between the parties and that contract had been breached by Liberty. The case was returned to the trial court for a determination of the damages.

The trial court found Liberty's net worth was $492,637. This figure was arrived at by evidence of the appraised value of the properties and Katt's testimony of liabilities together with the exhibits to the contract. The trial court accepted the values most favorable to Equity. The figure is not contested.

The trial court first computed Liberty's value by using "book value" of the corporation which, simply stated, reflects the sum of plaintiff's and defendant's stockholder equities divided by the number of shares which would have been outstanding after the issuance of the 501,200 shares to Equity. The trial court rejected the evidence of fair market value of Liberty's stock on the theory it was uncertain and irrelevant. Judgment was rendered to Equity for $805,471 on November 9, 1978. Liberty moved to alter and amend the judgment, maintaining the evidence of fair market value of Liberty's stock was relevant, material and proper, and the use of "book value" improper. On July 6, 1979, the trial court sustained defendant's motion and reduced the judgment to $384,463 plus interest at eight per cent from March 2, 1978. Liberty appealed and Equity cross-appealed from the judgment.

Appellant Liberty contends the court erred in failing to determine the fair market value of the precise block of shares to be transferred to appellee pursuant to the contract.

Equity is entitled to recover the amount the corporation would have received had the contract been performed, less the assets Equity retained which were to have been tendered pursuant to the terms of the contract. 5 Corbin on Contracts § 992 (2d ed. 1964); 22 Am.Jur.2d, Damages § 47, pp. 74-75. Equity retained property worth $492,637. The trial court then had the task of determining the value of 501,200 shares of common stock in Liberty on the date of breach, September 2, 1971, and computing the difference between the two.

Since the net asset value of Equity is not contested, we are left with one remaining task. We must determine if there is any substantial competent evidence to support the trial court's judgment valuing Liberty's stock at $1.75 per share. Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 226 Kan. 70, 77, 596 P.2d 816 (1979); Crowley v. O'Neil, 4 Kan.App.2d 491, 498, 609 P.2d 198, rev. denied 228 Kan. VII (1980).

Appellant argues the trial court is compelled to follow a two-step process in valuing the shares to be transferred to Equity. The first step, according to appellant, was properly completed by computing the fair market value for freely traded over-the-counter stock as the mean price between bid and asked prices on the valuation date. The second step, appellant argues, is to determine the effect on market value of the issuance of 501,200 additional shares with a "The court is disregarding, as too indefinite, the amount of the discount.

restriction. The trial court found the evidence with regard to a blockage was too indefinite to consider, stating in its amended findings and conclusions filed July 6, 1979:

....

"The Court, in re-examining its position, finds that with the evidence between bid and ask from the testimony and discarding the discount testimony as too indefinite and resorting to the mean of bid and ask market price for the common stock of Liberty Investors, establishes the value at $1.75 a share and enters judgment in the amount of $384,463.00 in favor of the Plaintiff and against the Defendant."

We agree there is insufficient evidence to support the computation of a blockage discount. Regarding the stock valuation, Equity argues it was error to use the bid and ask quotation as any evidence of market value. It cites Pandolfo v. United States, 128 F.2d 917 (10th Cir. 1942); Kramer v. Ayer, 317 F.Supp. 254 (S.D.N.Y.1970); Opper v. Hancock Securities Corporation, 250 F.Supp. 668 (S.D.N.Y.1966); Fistel v. Christman, 135 F.Supp. 830 (S.D.N.Y.1955). All of the cited cases cast adverse reflections on the credibility of bid and ask quotes in relation to market value of stock.

It is well established that where the value of corporate stock must be ascertained if there is no ascertainable market value, actual value may be determined by valuing the corporate assets and dividends paid. Also, the nature and permanency of the corporate business and control of the stock, may be taken into consideration in arriving at the stock's fair market value. Walker v. Fleming Motor Co., 195 Kan. 328, 332-333, 404 P.2d 929 (1965); Hotchkiss v. Fischer, 139 Kan. 333, 337, 31 P.2d 37 (1934). Equity then concludes Liberty's stock value per share was $2.59 on the date of breach and that Equity should recover $805,471, the original judgment of the trial court.

We have carefully studied the pleadings, transcripts and exhibits in this case. In addition, we have calculated stock values by all of the suggested methods as well as other methods arrived at by our own research. We have attempted to apply all of the variety of ingredients for determining stock values where no market exists for the stock. We note that Liberty's earnings for the five months ending May 31, 1971...