Hathman v. Waters

• Decision Date: 31 July 1979
• Docket Number: No. KCD,KCD
• Citation: 586 S.W.2d 376
• Parties: Arzetta HATHMAN, Executrix of the Estate of J. E. Hathman, and Arzetta Hathman, Individually, Appellants, v. T. P. WATERS, Jr. and Carolyn Waters, Respondents. 29890.
• Court: Missouri Court of Appeals

Page 376

586 S.W.2d 376

Arzetta HATHMAN, Executrix of the Estate of J. E. Hathman, and Arzetta Hathman, Individually, Appellants, v. T. P. WATERS, Jr. and Carolyn Waters, Respondents.

No. KCD 29890.

Missouri Court of Appeals, Western District.

July 31, 1979.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Sept. 4, 1979.

Application to Transfer Denied Oct. 10, 1979.

Howard F. Sachs, Jerome T. Wolf, Kansas City, for appellants; Spencer, Fane, Britt & Browne, Kansas City, of counsel.

John David Collins, Collins & Grimm, Macon, for respondents.

Before SHANGLER, P. J., WASSERSTROM, C. J., and CLARK, J.

WASSERSTROM, Chief Judge.

J. E. Hathman and his wife Arzetta filed this suit to set aside a contract under which defendant T. P. Waters, Jr. is entitled to acquire certain capital stock of J. E. Hathman, Incorporated (hereinafter "the Corporation"). After completion of the trial and pending decision by the trial court, Hathman died and Arzetta, as executrix of his estate, was substituted in his stead. Thereafter the trial court entered judgment for defendants. Arzetta now appeals in her own right and as executrix.

Shortly after World War I, Hathman started in the general contracting business In June, 1948, Hathman, together with John W. Adams, D. W. Price, Ben W. Cassity and Lee Phillips, Jr., organized a corporation under the name J. E. Hathman Construction Company, with a capitalization of $10,000, of which Hathman subscribed to 481/2%. That corporation continued until the end of 1949, at which time the corporation was dissolved and the net assets distributed.

as a sole proprietor under the name J. E. Hathman Contracting. In December, 1947, he married Arzetta, who at the time of marriage was possessed of a residence to which she held title. In March, 1948, she sold that residence for about $13,000, $12,298.60 of which she deposited in a joint account standing in the names of the two spouses. Shortly thereafter, Hathman asked her if she would care if he drew $10,000 of that money to use in his business, to which she responded, "I do not object." The evidence shows that a check for $10,000 was drawn on April 1, 1948, by Hathman to J. E. Hathman Construction Co. from an account entitled "J. E. Hathman Contractor Personal Account." Hathman and Arzetta both testified that this $10,000 which so went into the contracting business came out of the proceeds of the house sale by Arzetta, and Hathman gave Arzetta the $10,000 cancelled check for her to keep as proof that she had given him the money to use.

Thereupon, Hathman resumed operation as a sole proprietorship. During this period of sole proprietorship he withdrew money as he desired for his own personal and family purposes as he saw fit. This operation continued until September 15, 1952, when the present Corporation was organized. The new Corporation was capitalized at $27,100, and Hathman received 51% Of the stock. The other stockholders were Cassity and Phillips, who owned respectively 91/2% And 391/2%. The Corporation continued with this management until the fall of 1953, when Phillips left the business. At that time Hathman and Cassity approached Waters, who was a graduate engineer working for another concern in St. Louis. Waters agreed to enter the employment of the Corporation under an arrangement which included his buying 35% Of the Corporation stock. At that time Hathman told Waters and Cassity, "Another five or six years I'm going to turn it over to you boys. I want to give you a good start."

In 1954 and 1955, the three stockholders entered into agreements under which each agreed to sell his respective stock upon death to the Corporation. The agreements by Waters and Cassity were funded by life insurance policies on the life of each of those men for $12,500, and the agreement by Hathman was funded by a life insurance policy in the amount of $25,000.

As the years went along, the Corporation prospered, Hathman did nothing about retiring, and the other two officers became concerned about being able financially to purchase Hathman's stock in the event of his death. Therefore, in 1963, Waters talked to Hathman about permitting him and Cassity to begin purchasing some of his stock immediately. Hathman rejected this suggestion for the reason that he wanted to retain control of the Corporation during his lifetime.

Waters then went to the Corporation attorney, Ed Brown, with the request that Brown prepare an agreement under which Waters and Cassity could acquire some of Hathman's stock and concurrently deliver to Hathman their proxies to vote the stock so purchased. After Brown prepared such an agreement, Waters presented it to Hathman, who declined to consider that approach, but stated that "I'll work out something you and Ben can live with."

Following that conversation, Hathman went to Attorney Brown in the early part of 1964, and asked him to draw up papers under which he could keep 51% Of the stock during his lifetime, Waters and Cassity would get the Corporation upon his death (except for 15% Of the stock which was to go to a nephew, Dean Hathman), and Arzetta would receive $1,000 a month out of the Corporation profits until her death. Brown turned over the assignment of drafting the requested documents to his associate Willbrand then proceeded to draft the agreement along these lines and Brown presented the draft to Waters for his review sometime in the summer of 1964. Waters discussed the proposed agreement with Cassity, after which he suggested two modifications: (1) that Hathman be paid $1,000 a month in the event of his retirement; and (2) that there be a restriction on dividends, so that only salaries and bonuses sufficient to pay income taxes could be drawn out of the Corporation. Hathman indicated acceptance of these modifications, the agreement was redrafted, and the parties all met, together with Brown and the Corporation accountant, for a signing of the agreement.

Willbrand, who reported legal objections to following the precise mechanics outlined by Hathman. Willbrand suggested instead that the Corporation agreed to purchase Hathman's stock at par value plus a promise to pay Arzetta the annuity of $1,000 a month out of profits, that the Corporation agreed to resell that stock to Waters, Cassity and Dean Hathman in the agreed proportions at par value, and that Hathman by will bequeath money to Waters, Cassity and Dean Hathman to cover their respective stock purchase obligations. Brown discussed this alternative plan with Hathman, who agreed thereto.

Brown explained the terms of the agreement and the accountant discussed the tax ramifications. During the course of the meeting, Waters asked Hathman to tell Arzetta about the agreement, but Hathman replied "She's well provided for. The stock is mine and I don't want her to know about it." This statement by Hathman about his being sole owner of the stock was in accordance with information which Waters had also received from the attorney when he had inquired about the necessity of having Arzetta join in the agreement. After the explanations and the conversation mentioned, the agreement was signed as prepared.

This arrangement between the stockholders remained unchanged until 1968, when Cassity sold out and left the Corporation. Waters then brought up the subject of changing the 1964 agreement because of Cassity's no longer being in the Corporation, and Waters expressed the thought that he should be entitled to the stock which was to have gone to Cassity. Hathman agreed. Waters then approached the attorneys to have a new agreement prepared. The attorneys did prepare a new stockholders' agreement and a new will, and they met with Hathman to go over these documents with him. A new stock agreement was signed at the Corporation office in January, 1969, and the new will was executed by Hathman on July 31, 1969. The 1969 agreement was basically the same as the 1964 agreement, except that there was no provision for the Corporation to pay par value of the stock to the Hathman estate and there was no provision for resale of stock by the Corporation.

Subsequent to the execution of the 1969 agreement and will, Hathman executed still another change to his will by a 1971 codicil. At that time, he again asked Brown to keep the executed copy of the will for the reason that he did not want Arzetta to know about the 1964 or 1969 agreements. Brown urged Hathman to make a disclosure about those arrangements to Arzetta, but Hathman replied that "it was his stock, his company; he'd do with it what he pleased."

In 1973 Arzetta did learn about the 1969 agreement and made sharp protest. Hathman's initial reaction was to tell Arzetta that if she was displeased that she should get her own lawyer and draw a new agreement. Eventually, however, Hathman came around to Arzetta's position and joined with her in the present suit to cancel the 1969 agreement.

On this appeal, Arzetta argues that the trial court erred in sustaining the contract because: (1) Arzetta's joinder in the contract was necessary to its validity, in that she had an ownership interest in the stock of the Corporation owned by Hathman by way of a resulting trust through the operation of statutory Section 451.250 (all statutory references are to RSMo 1978, unless otherwise stated); (2) such joinder was necessary

because Arzetta had an ownership interest by way of resulting trust arising out of her joint ownership of the bank account out of which $10,000 was paid into the construction business; (3) the contract was void for lack of consideration and mutuality; (4) the contract was void because induced by fraudulent means; (5) the contract was void because it was purportedly executed by the Corporation at a time when its charter had been forfeited; and (6) the contract was voidable at the instance of Arzetta because it constituted a fraud on her marital rights.

I THE CLAIMED RESULTING TRUST

The above points 1 and 2 can most...