Hirschkorn v. Severson, 10104

• Decision Date: 17 May 1982
• Docket Number: No. 10104,10104
• Citation: 319 N.W.2d 475
• Parties: Norman HIRSCHKORN, Leon Bellmore, Robert Koering, and Electrical Builders, Inc., Plaintiffs and Appellants, v. Wesley N. SEVERSON, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 475

319 N.W.2d 475

Norman HIRSCHKORN, Leon Bellmore, Robert Koering, and Electrical Builders, Inc., Plaintiffs and Appellants, v. Wesley N. SEVERSON, Defendant and Appellee.

Civ. No. 10104.

Supreme Court of North Dakota.

May 17, 1982.

Garry A. Pearson, of Pearson & Christensen, Grand Forks, for plaintiffs and appellants.

P. W. Lanier, Jr., of Lanier, Knox & Olson, Fargo, for defendant and appellee.

VANDE WALLE, Justice.

Norman Hirschkorn, Leon Bellmore, and Robert Koering are the majority stockholders and directors of Electrical Builders, Inc. These gentlemen and Electrical Builders, Inc., brought an action against Wesley N. Severson, a stockholder and retired director of Electrical Builders, Inc., seeking to establish the existence of an oral contract for the sale of Severson's stock upon retirement. Severson filed a counterclaim, in equity, seeking payment of dividends for the two preceding years. The trial court ruled that there was no oral contract and dismissed the action. The court found in favor of Severson on the counterclaim, holding that he is entitled to $95,374.56 as his share of the profits of Electrical Builders. The court awarded prejudgment interest at the rate of 10 percent. This appeal followed. We affirm the judgment as modified.

I

In 1959, George Hilstad and Wesley Severson formed Electrical Builders, Inc., an electrical construction business. Norman Hirschkorn, Leon Bellmore, and Robert Koering were employed as electricians. Through the gradual issuance of stock, these three men became part-owners of the corporation. A five-year stock distribution plan, formulated on January 8, 1968, envisioned the following distribution of stock: Severson and Hilstad: 52 percent; remaining stockholders: 48 percent. On the same day a resolution pertaining to the book value of the corporation's stock was passed:

"Be it further resolved that by means of judicious management of the corporation business, every effort shall be made to maintain the Book Value of issued shares of stock at approximately $250 per share."

On June 1, 1968, the members of the corporation entered into a stock-purchase agreement. This agreement, which provides for the purchase of the shares of a deceased stockholder, also gives the corporation the pre-emptive right to purchase the shares of any stockholder who "desires to dispose ... of his stock during his lifetime." ¹ The agreement contains a clause which states that all prior agreements among the parties respecting the stock of the corporation are revoked.

The book value of the corporate stock was maintained at $250 per share, and at the end of the "five year" period ² the ownership of Electrical Builders was as follows:

When Arnold Sandness retired in 1974 he sold his stock to the corporation at book value. Hilstad, on his retirement, wrote a letter to the corporation offering his stock for sale, first to the corporate entity and alternatively, to appellants Hirschkorn, Koering, and Bellmore. ³ The corporation declined Hilstad's offer and his stock was sold to Hirschkorn, Koering, and Bellmore at book value, i.e., $250 per share.

Wesley Severson retired from active service in the corporation in December 1978 and from the board of directors on July 9, 1979. On May 14, 1980, the corporation informed Severson that it was "[exercising] its right to acquire [his stock]" at $250 per share. After Severson's refusal to sell his stock, the corporation created an escrow account and deposited $49,442.08 therein. Upon advice of counsel, the corporation paid no dividends for the fiscal years ending March 31, 1980, and 1981. Rather, the corporate directors distributed the profits via salary increases, bonuses, and benefits totaling $365,700. (The corporation reported as income $245.09 for fiscal year 1980 and $1,379.94 for fiscal year 1981.)

Hilstad, the retired founder and director, testified that he and Severson had discussed the sale of stock upon retirement "numerous times." He also referred to January 1968 as the date an agreement on the matter was reached. He said that the "gentlemen's agreement" referred to in his letter of retirement [see fn. 3], is the "agreement we talked about every year when we kept the book value down to $250 a share, when we retired we would sell the stock at book value to the corporation ..."

The gist of Hirschkorn's, Bellmore's, and Koering's testimony is that there were "discussions" concerning the sale of stock upon retirement and that an agreement was reached wherein Hilstad and Severson agreed to sell their stock at book value upon retirement. The board of directors' meeting on January 8, 1968, was cited as the date of these discussions, although Koering also testified that the agreement was mentioned in subsequent years.

Severson stated that he had never entered into a contract to sell his stock at retirement. He testified that all the business of the January 1968 meeting was accurately recorded in the minutes. No contract providing for the sale of stock at retirement was recorded. A letter from Severson to the corporation's bonding company was received into evidence. ⁴

An additional document, a memorandum written by an official of the bonding company, was received into evidence. The official, discussing a meeting with Hilstad, wrote: "George said that they had intentionally kept the corporate net worth down to make it easier for the younger members of the firm to purchase stock and that ultimately these younger members would own the corporation at the point that George and Wes chose to retire. ⁵

The nub of this controversy is the existence of an oral contract requiring Severson to sell his stock at book value upon his retirement. The trial court found that "there was never any oral agreement between the parties hereto."

The burden of proof rests on one who seeks to have a contract specifically performed to establish the terms of the contract upon which he relies. Rieger v. Rieger, 175 N.W.2d 563 (N.D.1970). The existence of a contract is a question of fact for the trier of fact. See Tallackson Potato Co., Inc. v. MTK Potato Co., 278 N.W.2d 417 (N.D.1979); 17A C.J.S. Contracts Sec. 611. Accordingly, appellate review of this determination is governed by the "clearly erroneous" standard of Rule 52(a), N.D.R.Civ.P.

The oral evidence considered by the trial court consisted essentially of the appellants' assertions that the parties had entered into an oral contract providing for the sale of stock upon retirement and the appellee's contention that no such contract existed. The appellants did not specify an exact date on which the alleged oral contract was made; "January 1968," January 8, 1968," and "numerous occasions" were all referred to as the occasions for making or confirming the contract. The testimony describing the oral contract does not clearly identify the alleged offerees; both the corporation and the shareholders are mentioned as potential buyers.

The relevant documents received at trial and relied on by the appellants are: (1) Hilstad's letter offering the stock to the corporation and, alternatively, to the junior members [see fn. 3]; (2) Severson's letter to the bonding company [see fn. 4]; and (3) the memorandum written by the official of the corporation's bonding company.

The documents do not provide direct evidence of the alleged oral contract. The inferences which could reasonably be drawn from the documentary evidence are not incompatible with Severson's testimony denying the existence of an oral contract. For example, different inferences regarding the existence of an oral contract can reasonably be drawn from Hilstad's retirement letter. The corporate bylaws and the stock-purchase agreement dated June 1, 1968, provide that any stockholder who "desires" to sell his stock during his lifetime must first offer the stock to the corporation. Hilstad's offer giving the corporation the right of first refusal is as consistent with a nonobligatory sale in accordance with these provisions as it is with an offer made under the alleged oral contract. The mention of a "long-standing gentlemen's agreement" does not convince us that the trial court was mistaken in finding that no oral contract existed. In both common and legal parlance, a "gentlemen's agreement" refers to an "unsigned and unenforceable agreement made between parties who expect its performance because of good faith." Black's Law Dictionary, 5th Ed. 1979, p. 618.

Likewise, Severson's letter to the bonding company is susceptible of differing interpretations. After discussing the purchase of Hilstad's stock at a "very low value," Severson wrote: "This was in accordance with our 'Buy-Sell Agreement' and the same consideration will be given the balance of the stock in the event any of us leaves the company." [See fn. 4.] Severson testified that this sentence means that he would think about selling his stock at a "very low value." The appellants argue that "even a grade school student" would gather that Severson meant that he would sell his stock on the same terms as did Hilstad.

Under Rule 52(a) the resolution of conflicting testimony and the evaluation of the witnesses' credibility is for the trial court. See Wright & Miller, Federal Practice & Procedure : Civil Sec. 2586. As we explained in Hoge v. Burleigh Cty. Water Management Dist., 311 N.W.2d 23, 28 (N.D.1981), in summarizing the rules which govern our review of the trial court's findings:

"The trial court's findings are to be given the same weight as a jury verdict and, in reviewing those findings, the evidence must be viewed in a light most favorable to the findings. Eakman v. Robb, 237 N.W.2d 423, 429 (N.D.1975). On appeal it is not the function of this court to substitute its judgment for that of the trial court. Rolfstad v. Hanson, 221 N.W.2d 734, 737 (N.D.1974). We must give due regard to the opportunity of the trial court to judge the credibility of witnesses, and, unless clearly erroneous, the...