Farley v. Salow

• Decision Date: 28 March 1975
• Docket Number: No. 438,438
• Citation: 67 Wis.2d 393,227 N.W.2d 76
• Parties: George F. FARLEY et al., Respondents, v. Theodore Jeffrey SALOW, Appellant.
• Court: Wisconsin Supreme Court

Page 76

227 N.W.2d 76

67 Wis.2d 393

George F. FARLEY et al., Respondents, v. Theodore Jeffrey SALOW, Appellant.

No. 438.

Supreme Court of Wisconsin.

March 28, 1975.

Rehearing Denied June 3, 1975.

This is an action brought by the plaintiffs, George F. Farley and Irene Farley, to recover certain sums from the defendant, Theodore Jeffrey Salow, pursuant to a written agreement between the parties. The agreement involved provided for additional compensation to be paid to the plaintiffs by the defendant on the sale of their stock in Spincraft, Inc. to him under certain specified circumstances.

Spincraft, Inc. was founded by the defendant's father. The defendant's father was president of the corporation and George F. Farley, the defendant's uncle, was its vice-president. The defendant began working for the corporation full time in 1962 after graduating from law school. The corporation stock was all owned by family members except for stock owned by its attorney and its banker.

The defendant's father died in 1963. The defendant inherited a considerable number of shares and became the majority stockholder. George Farley bcame president of the corporation. Sometime after this, the defendant and George Farley had a disagreement as to the operation of Spincraft, Inc.

On May 13, 1966, a document was signed by the Farleys and the defendant granting the defendant an option to purchase all of the plaintiffs' stock in Spincraft at $10.00 per share. The option was granted with the consideration of $1,000.00 to be applied against the purchase price.

On April 19, 1967, the plaintiffs and the defendant signed a purchase agreement by which the defendant agreed to purchase and the plaintiffs agreed to sell the 3,677 shares owned by George Farley and the 3,766 2/3 shares owned by Irene Farley. The purchase price was $10.00 per share. There was a prior payment of $1,100.00. The purchase price was to be paid 'over a period of five (5) years.' The first payment was to be $14,887.53 less the down payment to be paid April 19, 1967, receipt of which is acknowledged. On the 19th of April, 1968 1969, 1970 and 1971 payments of $14,887.29 were to be made. The stock was to be endorsed by the plaintiffs, in blank, and delivered to the First National Bank of Waukesha as escrow agent 'to be held by (the bank) as security for the payment of the unpaid purchase price.' The bank was to transfer annually the number of shares for which the purchase price had been paid by the defendant. The parties agree that the terms of this purchase agreement have been met. George Farley acknowledged payment in full under the purchase agreement on or about April 22, 1971.

On April 19, 1967, the parties also signed another agreement. This agreement, as amended in writing, provides in material part:

'The parties have today executed a purchase agreement for the sale of common stock of Spincraft, Inc., by the Sellers to the Buyer;

'THEREFORE, in consideration of One ($1.00) Dollar and other good and valuable considerations:

'IT IS AGREED:

'1. Sale of Spincraft, Inc. In the event that Spincraft, Inc., is sold, merged or consolidated, to the result that the entire control shall pass from the present owners to any person, partnership, firm or corporation, then, the Sellers shall receive one-third (1/3) of the difference between Ten Dollars ($10.00) and the sale price.

'2. Escrowed Stock. The provisions of the paragraph last above shall effect all stock of Spincraft, Inc., covered by the purchase agreement, which bears even date herewith, and which stock is in the possession of First National Bank of Waukesha as Escrow Agent at the date of such sale.'

It is this agreement which is in dispute here.

At the same time, on April 19, 1967, the defendant signed a 'Supplemental Guarantee' to the plaintiffs' three children. The defendant acknowledged that they had sold to him 200 shares of Spincraft stock that day. He agreed that if Spincraft were sold, merged or consolidated so that the entire control shall pass from the ownership of the present owners to any person, partnership, firm or corporation prior to April 19, 1971, he would provide for the payment to each of the three children one-third of the difference between ($10.00) Ten Dollars and the selling price.

The defendant testified that the option had been prepared at his request by his attorneys, Lowry, Hunter & Tikalsky, and that they also prepared the purchase agreement, the agreement and the supplemental guarantee.

In 1970, negotiations took place for the sale of Spincraft to Standard International Corp., but negotiations were terminated in the fall of that year because Standard International's proposals were unsatisfactory. Negotiations were reopened at the request of Standard in early 1971. An agreement was signed for the sale of all outstanding shares of Spincraft stock (39,623 shares) on March 30, 1971. On May 4, 1971, the agreement with Standard International was amended so as to provide that the consideration paid by Standard International was to be $2,000,000 of four percent convertible subordinated notes. The sale was closed May 4, 1971. The price per share was approximately $50.47. The entire control of Spincraft passed to Standard International.

This action was brought by the plaintiffs alleging that, under the agreement dated April 19, 1967, they were entitled to one-third of the difference between $50.47 per share and $10.00 per share on the entire 7,443 2/3 shares they sold the defendant. The defendant answered denying that any amount was owed the plaintiffs and set forth an affirmative defense that the agreement applied only to stock held in escrow at the time of a sale, merger or consolidation of Spincraft and that no such stock was being held in escrow pursuant to the purchase agreement at the time of the sale to Standard International.

A jury trial was begun on May 8, 1973. After all the testimony had been received, the trial court withdrew the case from the jury with the consent of the parties. In its decision, the trial court determined that paragraph 2 of the agreement, and in particular the phrase 'on the date of such sale,' was ambiguous and applied the rule that a contract should be construed most strongly against the party who prepared it, whom the court found to be the defendant. It accepted the plaintiffs' contention that 'on the date of such sale' refers to the date of the original purchase agreement so that the plaintiffs were entitled to one-third of the difference between $50.47 per share and $10.00 per share on the entire number of shares sold to the defendant. Judgment in favor of George Farley in the amount of $56,114.32 and in favor of Irene Farley in the amount of.$57,480.24 was entered on November 6, 1973. Defendant appeals.

Foley & Lardner by Robert A. Christensen, Milwaukee, for appellant.

Ray T. McCann and Russell M. Darrow, Milwaukee, for respondents.

HANLEY, Justice.

Two issues are presented upon this appeal:

1. Is the subject contract, taking all internal references into account, so ambiguous as to require reference to the last resort principle of construction against the party who prepared it?

2. Should damages based on the value of a sum to be paid over time be reduced to the present value of the future payments?

The Agreement

The agreement in question here basically provides that additional consideration will be paid to the plaintiffs if the entire control of Spincraft passes from the present owners to a third party as a result of Spincraft being sold, merged or consolidated. Paragraph 2 provides:

'2. Escrowed Stock. The provisions of the paragraph last above shall effect all stock of Spincraft, Inc., covered by the purchase agreement, which bears even date herewith, and which stock is in the possession of First National Bank of Waukesha as Escrow Agent at the date of such sale.'

The part of this paragraph which was found to be ambiguous and subject to construction by the trial court is the last phrase 'which stock is in the possession of First National Bank of Waukesha as Escrow Agent at the date of such sale.' This phrase is ambiguous because 'date of such sale' could refer to the date of the sale by the defendant to a third party.

The defendant's position is that 'such sale' refers to a sale to a third party and additional compensation would only be due for the number of shares still held by the escrow agent for which payment had not been made. Under this view the plaintiffs would be entitled to nothing because at the time of closing of the sale to Standard International, all of the stock had been transferred to the defendant by the escrow agent after payment in full therefor had been made. See, Dittman v. Nagel (1969), 43 Wis.2d 155, 163, 168 N.W.2d 190.

The plaintiffs, on the other hand, argue that the 'date of such sale' referred to in that phrase refers to the date of the purchase agreement, April 19, 1967. Under this view which was accepted by the trial court the plaintiffs are entitled to one-third of the difference in the prices per share for all of the stock sold by them to the defendant.

The defendant contends that the trial court should not have applied the rule of construction that an ambiguous contract must be construed most strongly against the person who prepared it. Defendant contends that the record is not clear that Attorney Lowry was acting solely as the defendant's attorney when the document was prepared, although in his brief he admits that there is no question that Lowry prepared the agreement at his request. The defendant testified that Mr. Lowry was his attorney, but Mr. Lowry testified that in the past he had represented Mr. Farley, Mr. Salow and Spincraft. The defendant argues that it is manifestly unfair to apply a rule based upon the assumption that Lowry was acting adversely to Mr. Farley. However, this assumption is supported by the fact that in the supplemental agreement involving the sale by the Farley...