First Sec. Bank of Idaho, N.A. v. Murphy

• Decision Date: 24 August 1998
• Docket Number: No. 23485,23485
• Citation: 964 P.2d 654,131 Idaho 787
• Parties: FIRST SECURITY BANK OF IDAHO, N.A., as trustee of the David Johnson Trusts; Dorothy Johnson; Connie Johnson; Sherry Johnson; and Mike Johnson, Plaintiffs-Appellants, v. Donald MURPHY, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 654

964 P.2d 654

131 Idaho 787

FIRST SECURITY BANK OF IDAHO, N.A., as trustee of the David Johnson Trusts; Dorothy Johnson; Connie Johnson; Sherry Johnson; and Mike Johnson, Plaintiffs-Appellants, v. Donald MURPHY, Defendant-Respondent.

No. 23485.

Supreme Court of Idaho.

Aug. 24, 1998.

Rehearing Denied Oct. 13, 1998.

White, Peterson, Pruss, Morrow & Gigray, P.A., Nampa; Todd A. Rossman and Eric S. Rossman, for Plaintiffs-Appellants. Eric S. Rossman argued.

Alexanderson, Davis, Rainey & Whitney, Caldwell; David L. Whitney, for Defendant-Respondent. David L. Whitney argued.

WALTERS, Justice.

This is an appeal from the district court's award of summary judgment in favor of the defendant shareholder and general manager of Ace Supply, Inc., arising out of the interpretation of a shareholders' agreement providing for a corporate buy-back of stock upon the death of a shareholder of the closely held corporation. We vacate the order granting summary judgment to the defendant and remand the case for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

In 1969, the three shareholders of Ace Supply, Inc., drew up an agreement to restrict the sale of the corporation's stock to third parties and, upon the death of a shareholder, to insure the transfer of stock into compatible hands and to provide a market for the widow's share of any community stock. The agreement contemplated that the corporation would purchase the stock in the event of a death and that the purchase would be funded by proceeds of an insurance policy on the life of the shareholder. In 1975, the shareholders' agreement was amended to provide that the buy-back of a deceased shareholder's stock would be limited by the extent of the life insurance proceeds and that any remaining shares owned by the decedent would be purchased by the surviving shareholders who were signatories to the agreement. The amendment further restricted the right of the corporation to borrow against any cash surrender values of the life insurance policies maintained on any of the parties to the agreement, except under specific conditions.

The signatories to the 1975 shareholders' agreement were Delwin G. Woerman, David G. Johnson and Donald Murphy. When Woerman died sometime in the mid-1970's, the corporation purchased his shares of stock and those held in an authorized trust he had created for his family members. Of the shares held in trust, 516 were purchased by Johnson and his wife, Dorothy. At the time, Johnson also owned 1,425 shares as his separate property.

As evidenced by Certificate No. 46 which was dated September 30, 1981, David Johnson's separate property shares (1,425 less 20 shares conveyed to Mike Johnson, or 1,405 shares) were transferred to David Johnson and Dorothy Johnson, husband and wife. From that time, all of the Ace Supply, Inc., stock owned by David and Dorothy Johnson, 1,901 shares, was held as community property.

In 1984, David Johnson, a majority shareholder of the corporation, died unexpectedly. As a result of his death, Ace Supply Inc., was called upon, pursuant to the shareholders agreement, "to purchase as much of the stock of the deceased stockholder as can be purchased by death benefit proceeds from life insurance held by the corporation upon the life of such deceased stockholder, to the extent permitted by law." The corporation applied the life insurance proceeds to purchase David Johnson's stock in accordance with the shareholders' agreement. The payoff value of the insurance, which was reduced by the amount of outstanding loans against the life insurance policy, however, was insufficient to purchase all of the stock owned by David Johnson. A total of 1,636 shares were purchased, and there remained 265 shares, which when assessed at the agreed-upon value of $1,158 per share, created a deficiency of $306,000 owing to David Johnson's estate.

Seeking payment of the deficiency, the estate of David Johnson filed a creditor's claim in the Chapter XI bankruptcy proceedings begun by Ace Supply, Inc., in 1986. Under section 3 of the confirmed bankruptcy plan, the claim of the estate of David G. Johnson under the shareholders' agreement, as one of the Class 12 claims, was to be paid fifty percent (50%) on the fifth anniversary of the plan and fifty percent (50%) on the sixth anniversary of the plan. After the failure of the corporation to make the March 1995 payment, Dorothy Johnson, the children of David Johnson's first marriage, and First Security Bank of Idaho as Trustee of the David Johnson Trusts brought suit against Donald Murphy, alleging breach of the provision of the shareholders' agreement requiring the purchase of "the stock of the deceased shareholder." ¹

Murphy answered the plaintiffs' complaint and denied any obligation under the shareholders' agreement to purchase the remaining The parties filed cross-motions for summary judgment. Following a hearing on the motions, the district court found that David Johnson's separate and community property shares were subject to the agreement. As to Dorothy Johnson's community property shares, however, the district court found that they were not bound by the shareholders' agreement because of a lack of mutuality between Dorothy Johnson and Murphy. The district court also found that, by borrowing against the insurance policies, David Johnson had breached the shareholders' agreement, that the breach was material and that it could properly be raised by Murphy as a defense to the plaintiffs' breach of contract claim. Concluding that David Johnson's breach excused performance under the agreement by Murphy, the district court entered summary judgment in Murphy's favor and subsequently awarded fees and costs to Murphy under I.R.C.P. 54(e) and I.C. § 12-120(3). The plaintiffs filed a timely appeal contesting the district court's summary judgment order and the award of fees.

shares, asserting various affirmative defenses. First, Murphy alleged that Dorothy Johnson's shares were not subject to the buy-back agreement. Murphy also alleged that David Johnson had breached the agreement by unilaterally taking loans against the life insurance policies in violation of the shareholders' agreement, thereby discharging any duty on Murphy's part to purchase the decedent's shares following the incomplete stock buy-back upon David Johnson's death.

STANDARD OF REVIEW

In an appeal from an order granting summary judgment, this Court's standard of review is the same as the standard used by the district court in ruling on a motion for summary judgment. Thomson v. Idaho Ins. Agency, Inc., 126 Idaho 527, 887 P.2d 1034 (1994); Farm Credit Bank of Spokane v. Stevenson, 125 Idaho 270, 272, 869 P.2d 1365, 1367 (1994). Summary judgment is appropriate if "the pleadings, depositions, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Thomson, 126 Idaho at 529, 887 P.2d at 1036.

We have held that the filing of cross-motions for summary judgment by opposing parties does not in itself establish that there is no genuine issue of material fact. Casey v. Highlands Ins. Co., 100 Idaho 505, 507, 600 P.2d 1387, 1389 (1979); Farmer's Ins. Co. v. Brown, 97 Idaho 380, 544 P.2d 1150 (1976). This is particularly so when the opposing motions seek summary judgment based upon different issues or theories dependent on a different set of material facts. Riverside Development Co. v. Ritchie, 103 Idaho 515, 519 n. 1, 650 P.2d 657, 661 n. 1 (1982). Where the evidentiary facts are not disputed and the trial court rather than a jury will be the trier of fact, summary judgment is appropriate, despite the possibility of conflicting inferences because the court alone will be responsible for resolving the conflict between those inferences. Id. at 519, 650 P.2d at 661. In order to determine whether either party is entitled to summary judgment, this Court must examine each motion separately, reviewing the record and the reasonable inferences that can be drawn from it in favor of each party's opposition to the motions for summary judgment. City of Chubbuck v. City of Pocatello, 127 Idaho 198, 201, 899 P.2d 411, 414 (1995).

ANALYSIS

The appellants argue that the district court erred in awarding summary judgment to Murphy. They dispute the district court's conclusion that Dorothy Johnson's community property shares of stock were not subject to the shareholders' agreement, challenging the court's finding of lack of mutuality of obligation. The appellants rely on I.C. § 32-912 and contend that David Johnson's signature on the 1975 amendment to the shareholders' agreement was sufficient to bind Dorothy Johnson's community property shares, thus putting her shares within the buy-back provisions of the shareholders' agreement and obligating Murphy to purchase her shares upon David Johnson's death. The appellants argue that their position is consistent with the expressly stated The issue before the district court at the hearing on the motions for summary judgment centered on whether Dorothy Johnson's community property shares were considered part of "the stock of the deceased stockholder." Pursuant to the agreement, "the stock of the deceased stockholder" was to be purchased initially by the corporation with death benefit proceeds from life insurance and then by the surviving signatories to the agreement, in this case, Murphy. Addressing this issue, the district court ruled:

purpose of the agreement, as amended, that "all of the capital stock of the corporation be owned by persons interested and compatible with the business of the Corporation."

It seems clear, as a matter of law, that in using the phrase "stock of the deceased stockholder" the parties meant to include all stock that could be encumbered by the stockholder's signature at the time of the execution of the agreement. The parties meant to include all of the...