Etheridge v. Ramzy

• Decision Date: 12 March 1973
• Docket Number: No. 47003,47003
• Citation: 276 So.2d 451
• Parties: T. H. ETHERIDGE et al. v. C. T. RAMZY et al.
• Court: Mississippi Supreme Court

Page 451

276 So.2d 451

T. H. ETHERIDGE et al. v. C. T. RAMZY et al.

No. 47003.

Supreme Court of Mississippi.

March 12, 1973.

Rehearing Denied May 7, 1973.

Watkins, Pyle, Ludlam, Winter & Stennis, William A. Pyle, Ernest G. Taylor, Jr., Jackson, for appellants.

Daniel, Coker, Horton, Bell & Dukes, Donald V. Burch, Jackson, Harold W. Davidson, Carthage, for appellees.

RODGERS, Presiding Justice:

This appeal arises out of a suit for specific performance brought in the Chancery Court of Leake County, Mississippi. The chancellor sustained the general demurrer of appellees wherein it is contended that the contract in question was too indefinite to be enforced. In prosecuting this appeal, appellants argue that the chancellor erred in his decision, and they submit that they are entitled to specific performance on the contract, or in the alternative, to damages for breach of contract.

The appellants, the estate M. D. Reagan, and other members of the family of M. D. Reagan, and the appellees-C. T. Ramzy, his wife, his son, and his daughter-each owned fifty percent (50%) of the capital stock of each of the following five corporations: R & R Milling Company, Inc.; R & R Processors, Inc.; R & R Farms, Inc.; R & R Hatchery, Inc.; and R & R Packing Company, Inc.

As a result of an increasingly acrimonious relationship between appellants and appellees, the litigants herein decided that the continued success of their jointly owned businesses would require that ownership be consolidated in one of the two families holding stock in the R & R Corporations. On June 21, 1971, a meeting was conducted at which the stockholders of the R & R Corporations discussed the possibility of entering into an agreement for the sale and purchase of R & R stock among the present shareholders. At the conclusion of this meeting, it was agreed that appellees should select a certified public accountant to study the financial and managerial aspects of the five R & R corporations. The accountant's report recommended that appellees be given the first option to purchase all of the appellants' stock in the five corporations. Pursuant to this recommendation, on June 28, 1971, C. T. Ramzy, on behalf of the appellees, and M. D. Reagan, acting for the appellants, entered into an oral agreement under which the appellees would have fifteen (15) days in which to exercise an option to buy all the stock of appellants in the five corporations. It was further agreed that if appellees failed to exercise their option within fifteen (15) days, the option to buy the five corporations would then pass to appellants.

Near the end of the first option period appellees requested that they be given an extension of time on their option to buy. In response to this request, the parties drafted a written 'Buy and Sell Agreement-letter of intent' dated July 12, 1971, which incorporated essentially the same terms as were contained in the earlier oral agreement. The written agreement is hereto attached. ¹

Under the terms of the attached 'letter of intent', appellees were given until July 15, 1971, in which to exercise their option. If appellees failed to exercise their option within the fifteen-day period, then appellants were to acquire the right to purchase appellees' stock in the corporations.

By July 17, 1971, (two days after the expiration date), appellees had not exercised their option, and the appellants thereupon notified appellees that the option to purchase had passed to them, and they (appellants) intended to purchase appellees' stock in the R & R corporations. However, when appellants drafted a second written agreement setting forth the details for the stock transfer, appellees refused to sign the agreement or to convey their one-half (1/2) interest in the R & R corporations to appellants. Hence, appellants appeal to this Court from a decision of the Chancery Court of Leake County, Mississippi, sustaining appellees' demurrer to appellants' bill of complaint seeking specific performance upon the agreement of July 12, 1971.

The validity and enforceability of the contract of July 12, 1971, forms the sole issue relating to the disposition of this appeal. Appellants contend that the July 12, 1971, contract is sufficiently certain and definite to compel appellees to enter into the new contract of August 25, 1971, wherein the exact terms of the stock transfer are enumerated.

There is an overwhelming body of law with respect to agreements to enter into future contracts which is aptly represented by the following extracts from Amercian Jurisprudence 2d Series:

'A contract is not necessarily lacking in all effect merely because it expresses the idea that something is left to future agreement.

However, unless an agreement to make a future contract is definite and certain upon all the subjects to be embraced, it is nugatory. To be enforceable, a contract to enter into a future contract must specify all its material and essential terms and leave none to be agreed upon as the result of future negotiations. Where a final contract fails to express some matter, as, for instance, a time of payment, the law may imply the intention of the parties; but where a preliminary contract leaves certain terms to be agreed upon for the purpose of a final contract, there can be no implication of what the parties will agree upon. If any essential term is left open to future consideration, there is no binding contract, and an agreement to reach an agreement imposes no obligation on the parties thereto.' (Emphasis added) 17 Am.Jur.2d Comtracts § 26, at 362 (1964).

See also 17 C.J.S. Contracts § 49, at 695-697 and 702-704 (1963).

In a like manner, Professor Corbin, in his treatise on contracts suggests:

'It is quite possible for parties to make an enforceable contract binding them to prepare and execute a subsequent documentary agreement. In order that such may be the effect, it is necessary that agreement shall have been expressed on all essential terms that are to be incorporated in the document. That document is understood to be a mere memorial of the agreement already reached. If the document or contract that the parties agree to make is to contain any material term that is not already agreed on, no contract has yet been made; and the so-called 'contract to make a contract' is not a contract at all.' (Emphasis added) 1A. Corbin, Contracts § 29, at 84-85 (1963). ²

In examining the letter of July 12, 1971, there are several indications that the letter is nothing more than a memorandum expressing an intent to enter into a future contract as opposed to an enforceable option agreement. For instance, paragraph 6 contemplates that a 'formal buy and sell agreement' be drafted in which there are to be certain underscribed covenants concerning the maintenance of an 'adequate' net worth to indebtedness ratio, as well as other covenants to control the amount of salaries to be paid to corporation officers and dividends to be paid to stockholders. Obviously, future negotiations must have been contemplated on the exact nature and contents of these covenants. The control over officers' salaries and divident payments is clearly a critical aspect of this stock transfer agreement. Due to the vagueness and uncertainty of paragraph 6, it is apparent that there was no agreement on the essential terms of the covenants mentioned in the letter of July 12, 1971.

Another element of the July 12, 1971, agreement which indicates that the parties failed to enter into an enforceable option concerns the security arrangements discussed in paragraph 8 of the letter. Paragraph 8 provides that the notes given in payment of the one million one hundred thousand dollar ($1,100,000.00) balance be secured by a pledge of all of the stock purchased under the agreement. This security arrangement is, by itself, inadequate to expressly delineate the rights of the puchaser or the obligations of the buyer. In the absence of express buidelines, this Court cannot now allow enforcement of an agreement, where to do so would be to risk the imposition of inadequate security for the buyer or unfair obligations upon the purchaser.

This Court has long recognized that an agreement must be definite and certain in order to be enforceable. See 17 Am.Jur.2d Contracts § 75 (1964). Welsh v. Williams, 85 Miss. 301, 37 So. 561 (1904) contains an exegesis of this rule of law which states:

'The elementary general rule, as frequently enunciated in reference to the enforcement of specific performance of contracts, so far as relates to the particular branch of the subject here presented for consideration, is that the contract must be specific and distinct in its terms, plain and definite in its meaning, and must show with certainty that the minds of the parties had met and mutually agreed as to all its details upon the offer made upon the one hand and accepted upon the other. If any of these requisites be lacking, specific performance will not be decreed by a court of equity.' 85 Miss. at 303-304, 37 So. at 561.

See also Jackson v. Sam Finley, Inc., 366 F.2d 148 (5th Cir. 1966); Quick and Grice v. Ashley, 227 Miss. 273, 86 So.2d 40 (1956); Garnett v. Kirkman, 33 Miss. (4 George) 389 (1856); S. Williston, The Law of Contracts § 37 (3d ed. 1957).

The above cited decisions are in line with the expression of the law contained in the Restatement of Contracts. Section 32 of the Restatement reads as follows:

'(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.' Restatement (S...