Horne v. Drachman

• Decision Date: 14 July 1981
• Docket Number: 37127,Nos. 37015,s. 37015
• Citation: 280 S.E.2d 338,247 Ga. 802
• Parties: HORNE, et al. v. DRACHMAN, et al. DRACHMAN, et al. v. HORNE, et al.
• Court: Georgia Supreme Court

Page 338

280 S.E.2d 338

247 Ga. 802

HORNE, et al. v. DRACHMAN, et al.

DRACHMAN, et al. v. HORNE, et al.

Nos. 37015, 37127.

Supreme Court of Georgia.

July 14, 1981.

Robert H. Hishon, William E. Hoffmann, Jr., Trotter, Bondurant, Miller & Hishon, Frank J. Beltran, Carroll, Greenfield, Beltran & Ellis, Atlanta, for E. G. Horne et al. in both cases.

Gregory J. Digel, William M. Rich, Burt DeRieux, Greene, Buckley, DeRieux & Jones, Atlanta, for Oscar Drachman et al. in both cases.

SMITH, Justice.

After appellee Drachman was removed from the Board of Directors and terminated as an employee of appellant Superior Rigging and Erecting Company, he brought this action against Superior and Horne, Superior's President and majority stockholder. Drachman, who sued both individually and in his capacity as a minority stockholder, sought the following relief: liquidation of Superior, specific performance of stock repurchase provisions in his contract with appellants, an accounting from Horne to Superior for assets he diverted, and actual and punitive damages against Horne. Before trial, the court granted partial summary judgment for appellants as to liquidation and several other matters. A jury trial was held on the remaining issues, and the jury was instructed to return a special verdict by answering ten specific questions. In accordance with these answers, the court ordered specific performance of the stock repurchase agreement at a price of $53,000.00 per share, and awarded Drachman $6,000.00 actual damages and $175,000.00 punitive damages. Appellants filed a motion for new trial. The trial court granted the motion solely on the issue of punitive damages for the reason that "$175,000.00 is vastly greater ... than other awards approved by our appellate courts."

Appellants appeal from the judgment requiring specific performance of the repurchase agreement and awarding damages to appellee. Appellee cross-appeals from the jury determination that the price of his stock is $53,000.00 per share and from the award of a new trial on the punitive damages issue. We affirm on condition; otherwise reversed.

1. Appellee's contract with appellants provides for the repurchase of a stockholder's shares upon termination of employment. The pertinent provisions are as follows: "12. Termination of Employment. Notwithstanding anything or any provision in this Agreement, the Corporation shall have the right at any time, to terminate the employment of any of the Stockholders and any Stockholder shall have the right at any time to terminate his employment with the Corporation. In the event of termination of employment for any reason, the terminating Stockholder shall sell to the Corporation and the Corporation shall purchase from the terminating Stockholder, all of the shares of Stock owned by him, ... at the Purchase Price as set forth in paragraph 9, and payment therefor shall be made as provided for Purchase Payment in paragraph (3) of paragraph 1.

"9. Purchase Price. The Purchase Price shall be $12,000.00 per share of Stock, and shall first be used to discharge any lien or encumbrance upon the Stock being purchased. Approximately 12 months from the date of this Agreement, and each 12 months thereafter, the parties hereto will revise the Purchase Price to conform to changing conditions and such Purchase Price shall remain valid until further revised or until 12 months shall have passed, whichever is earlier, and if there has been no revised Purchase Price within 13 months of a date when the Purchase Price is to be set, then the Certified Public Accountant or Certified Public Accounting Firm who or which, at the date of setting the Purchase Price, is then the Auditor of the books of the Corporation, shall revise the Purchase Price last set by Agreement up or down so as to reflect the changed conditions thereafter." In their first enumeration of error, appellants contend these provisions are unenforceable. They advance three arguments. None is meritorious.

a) First, appellants contend the agreement is fatally defective because it lacks a specific purchase price. We cannot agree.

The buy-out agreement is not rendered legally unenforceable merely because it contemplates a variation in purchase price. "In order to induce desired individuals into (remaining with a) closely held corporation ..., the (repurchase) price must be attractive ... While a precise method of evaluating the stock might be desirable, (repurchase) agreements often allow a lot of leeway." Fletcher, Cyclopedia of Corporations, Vol. 12, § 5461.8 (Perm.Ed.1971). A periodic redetermination of a share's value is necessary to provide a fair purchase price to the individual whose employment has been terminated. See Drennon Food Products v. Drennon, 104 Ga.App. 19, 120 S.E.2d 902 (1961). Accord, McTeague v. Treibits, 388 So.2d 309 (Fla.App.1980); 18 Am.Jur.2d Corporations § 316. See generally Murrey v. Specialty Underwriters, Inc., 233 Ga. 804, 213 S.E.2d 668 (1975). Cf. Hardin v. Rosenthal, 213 Ga. 319, 98 S.E.2d 901 (1957) where no provision was made for arriving at the stock's value.

b) Next, appellants assert the provision requiring Superior's auditor to revise the purchase price of the stock (in the event it has not been otherwise revised) was a condition precedent to the corporation's duty to perform which has not occurred. We cannot seriously consider the argument that this clause was intended to make appellants' obligation conditional. Under the agreement, the corporate auditor is required to revise the price if the parties fail to do so; the auditor performs on the parties' behalf. The contract does not speak in terms of condition precedent, nor can such a characterization fairly be implied.

Under the terms of the agreement, the auditor's revision constitutes a promise of performance conditioned upon certain events. 17 Am.Jur.2d Contracts § 320. " 'Where the language is unambiguous and but one reasonable construction of the contract is possible, the court must expound it as made.' Cato v. Aetna Life Ins. Co., 164 Ga. 392, 398, 138 S.E. 787 (1927)." Kushner v. Southern Adventist Health and Hospital System, Inc., 151 Ga.App. 425, 427, 260 S.E.2d 381 (1979).

c) Finally, appellants contend the contract is unenforceable due to lack of "mutuality." We disagree.

The directors and officers of the corporation were under a duty to act in good faith. See Code Ann. § 22-713; see also Comolli v. Comolli, 241 Ga. 471, 246 S.E.2d 278 (1978). Because of this good faith obligation, the fact that the auditor may be called upon to set the price does not create "such indefiniteness or uncertainty as will prevent the agreement from being an enforceable contract." Corbin on Contracts, Vol. 1, § 97. See Fletcher, supra, § 5617; 17 Am.Jur.2d Contracts § 350. See generally, Collins v. Universal Parts Co., 260 So.2d 702 (La.App.1972); Bank of California v. First Mortgage Co., 6 Wash.App. 718, 495 P.2d 1057 (1972).

2. In their second enumeration, appellants contend that the parties' contract is unenforceable because a covenant not to compete contained therein is both void and non-severable. Alternatively, appellants argue that if the covenant is valid for the reason that it is ancillary to the sale of a business, then the trial court erred in excluding evidence that Drachman violated the covenant.

The restrictive covenant states: "11. Restriction Against Competition. Upon termination of employment of any Stockholder with the Corporation, such Stockholder shall not, for a period of two (2) years following the date of such termination, either for himself or as an agent or employee of any person, partnership, corporation or legal entity, engage within an area of 125 miles of the present City Limits of the City of Atlanta, Georgia, in the business of moving or erecting, setting up or dismantling machinery or equipment, or in the business of steel erection, or in the business of the rental of cranes, welding machines, air compressors, gantries or scaffolding, which the parties agree are businesses in which the Corporation is now engaged; provided, however, that if the Corporation, in the interim between the date of this Agreement and the date of termination of employment should discontinue, within such area, any part of the types of businesses immediately above stated, this restriction shall not apply to any such discontinued type of business." The trial court ruled this covenant was unenforceable as a matter of law, and severed it from the remaining portions of the agreement.

The covenant fails to specify the activities that Drachman is prohibited from performing. In effect, he cannot be an employee "in any capacity" with a competitor. We must conclude, as did the trial court, that the covenant is impermissibly overbroad and therefore unenforceable. Howard Schultz & Assoc. v. Broniec, 239 Ga. 181, 236 S.E.2d 265 (1977). See T.V. Tempo, Inc. v. T.V. Venture, Inc., 244 Ga. 776, 262 S.E.2d 54 (1979). We note that "(t)he covenant not to compete in this case was not made by the seller in conjunction with the sale of a business; it was made by the buyer in conjunction with the acquisition of an interest in a business." Redmond v. Royal Ford, Inc., 244 Ga. 711, 261 S.E.2d 585 (1979). Cf. Jenkins v. Jenkins Irrigation, 244 Ga. 95, 259 S.E.2d 47 (1979). ¹

Since the covenant not to compete is invalid, we must determine whether the trial court erred in finding the covenant severable from the remaining provisions of the agreement. "If the contract is severable, ... the invalid provision does not render other provisions of the contract void. (Cits.)" Austin v. Benefield, 140 Ga.App. 96, 99, 230 S.E.2d 16 (1976).

"The issue of the severability of a contract is determined by the intention of the parties, as evidenced by the terms of the contract. Code Ann. § 20-112; Spalding County v. Chamberlin & Co., 130 Ga. 649, 654, 61 S.E. 533 (1908)." Dozier v. Shirley, 240 Ga. 17, 18, 239 S.E.2d 343 (19...