Ingalls Iron Works Co. v. Ingalls

• Decision Date: 30 June 1951
• Docket Number: 6 Div. 195
• Citation: 53 So.2d 847,256 Ala. 124
• Parties: INGALLS IRON WORKS CO. v. INGALLS.
• Court: Alabama Supreme Court

Page 847

53 So.2d 847

256 Ala. 124

INGALLS IRON WORKS CO. v. INGALLS.

6 Div. 195.

Supreme Court of Alabama.

June 30, 1951.

D. W. Strickland and Lange, Simpson, Robinson & Somerville, Birmingham, for appellant.

Chas. W. Greer and Francis H. Hare, Birmingham, for appellee.

BROWN, Justice.

The bill filed by appellant the Ingalls Iron Works Company, a corporation organized and existing under the laws of the State of Delaware with its principal office in the City of Birmingham, Alabama, is against appellee Robert I. Ingalls, Jr., one of its three stockholders. The bill seeks specific performance of an option contract executed by Robert I. Ingalls, Jr. to complainant on April 15, 1943, conferring the right on complainant to purchase and obligating the respondent to sell all of his stock then owned and subsequently acquired at a fixed price, and further seeks the advice and instruction of the court as to what if any right complainant has to use the stock delivered to it under the provisions of the option contract by the defendant 'as trustee only for the purpose of this option' and so endorsed, which now has and holds as such trustee.

The respondent demurred to the bill on sundry grounds, among others, that the bill was without equity. On submission on the demurrer to the bill as last amended the court sustained the demurrer and further ruled that from anything appearing on the face of the bill, it could not be amended so as to give it equity, and entered a final decree dismissing the bill. From that decree the complainant has appealed.

This ruling can be upheld, if at all, only on the theory that the bill on its face shows that the event fixed by the option for maturing the right of the complainant to exercise the option has not occurred.

The appellant's contention reduced to its final anaysis is that for and in consideration of $1,000 paid to the stockholder and his wife by the complainant, said option conferred on it the absolute right, on its election, at all times during the life of the stockholder and for thirteen months after his death, for any cause satisfactory to it, on notice to him during his life, or in case of his death to his personal representative, to have said option specifically performed, without regard to the declaration of the facts and the declarations of the circumstances surrounding the parties and attending the execution of the contract stated in the preamble immediately preceding paragraph (1), embodying the operative provisions, and without the stockholder's consent and without voluntary action on his part.

The contention of the appellee, on the other hand, is that the intention of the parties must be gathered from the four corners of the contract interpreted in the light of the occasion which gave rise to the contract, the relation of the parties and the objects to be accomplished.

These contentions call for an interpretation of said option contract in the light of the applicable law which looks to the situation of the parties at the time it was executed and for that purpose the court will place itself as nearly as possible in the position of the parties when the instrument was executed to ascertain the intention of the parties, the rights to be protected and the objects to be accomplished. Reference may be had to the state of facts as they existed when the instrument was made and to which the parties may be presumed to have had reference. Nettles v. Lichtman, 228 Ala. 57, 152 So. 450, 91 A.L.R. 1455. The rule of the cited case was applied in Williams v. Johns-Carroll Lumber Co., 238 Ala. 536, 192 So. 278 which cited with approval McGhee v. Alexander, 104 Ala. 116, 16 So. 148, 149, from which we reproduce the following: 'Contracts must be interpreted in the light of the facts surrounding the parties when they were made. There cannot be a departure from the words of a written contract they must have their full import and force. But to arrive at the true sense in which the parties employed them, courts of necessity consider the occasion which gave rise to the contract, the relation of the parties, and the object to be accomplished. Pollard v. Maddox, 28 Ala. 321. As is said by Bishop: 'The parties speak in their contract from the fountain of their mutual knowledge, and if we would properly interpret their words, we must put ourselves exactly in their position, and know just what they mutually know, with neither addition nor abatement.' Bish. Cont. § 370. * * *'

This doctrine has been repeatedly reaffirmed. Olsson v. Nelson, 248 Ala. 441, 28 So.2d 186; Coley v. W. P. Brown & Sons Lmbr. Co., Inc., 251 Ala. 235, 240, 37 So.2d 125. And in Williams v. Johns-Carroll Lumber Co., 235 Ala. 536, 192 So. 278, it was observed: '* * * the rule of law is well settled and familiar, that different writings, executed at the same time and relating to the same subject-matter, will be construed as one instrument. The intention of the parties controls, and is to be gathered from the writings to which their stipulations and agreements may be referred.',--citing Kelly v. Life Insurance Clearing Co., 113 Ala. 453, 21 So. 361, 364.

The appellant's contention is based, in part at least, on the ruling that 'Words of recital in an agreement do not have the force of contractual stipulations. Generally if the recitals in a contract are clear and the operative part is ambiguous, the recitals govern the interpretation; but if the recitals are ambiguous and the operative part is clear, the operative part must prevail.' 12 Am.Jur. 776, § 241. And the further contention is made that the recitals in the preamble are ambiguous and self contradicting, hence the court should only look to the operative provisions from the body of the instrument found in paragraph (1).-- See 17 C.J.S., Contracts, p. 733. § 314, that 'As a general rule, recitals in a contract will not control the operative clauses thereof unless the latter are ambiguous; but they may be looked to in determining the proper construction of the contract and the parties' intention.'

'Recitals in a contract should be reconciled with the operative clauses, and given effect, so far as possible; but where the recital is so inconsistent with the covenant or promise that they cannot be harmonized, the latter, if unambiguous, prevails. (Citing Wilson v. Towers, 4 Cir., 55 F.2d 199; Bellisfield v. Holcombe, 102 N.J.Eq. 20, 139 A. 817; Williams v. Barkley, 58 N.E. 765, 165 N.Y. 48; First Nat. Bank & Trust Co. of Minneapolis v. U. S. Trust Co., 184 Wash. 212, 50 P.2d 904; Scott v. Albermarle Horse Show Ass'n, 128 Va. 517, 104 S.E. 842). In other words, recitals, especially when ambiguous, cannot control the clearly expressed stipulations of the parties; (Citing Chicago Daily News v. Kohler, 360 Ill. 351, 196 N.E. 445; Irwin's Bank v. Fletcher Savings & Trust Co., 195 Ind. 669, 145 N.E. 869; Hansbarger v. Hansbarger, 206 Mich. 281, 172 N.W. 577; Martin v. Rothwell, 81 W.Va. 681, 95 S.E. 189) and where the recitals are broader than the contract stipulations, the former will not extend the latter (Citing Las Alnimas [Animas] Consol. Canal Co. v. Hinderlider, 100 Colo. 508, 68 P.2d 564, 566; Great Western Oil Co. v. Lewistown Oil and Refining Co., 91 Mont. 146, 6 P.2d 863, 866). * * * Where the language of the covenants or promises in a contract is more comprehensive than that of the recitals, the intent is to be ascertained from a consideration of the entire instrument (13 C.J. 538, Note 4).' 17 C.J.S., Contracts, p. 733, § 314.

The bill alleges in substance that said corporation is a closed corporation with three principal stockholders, Robert I. Ingalls, Sr. and his wife Mrs. E. G. Ingalls, the mother and father of the respondent, and the respondent, members of the same family.

The bill further alleges that the respondent owns 4,501 shares of stock and has been such owner since April 15, 1943, by previous unconditional gift from his father, Robert I. Ingalls, Sr., and that the total outstanding shares of stock amount to 15,000 shares, some of which have been set up as the corpus of a trust for the protection and benefit of the respondent and his minor children.

Neither the stocks in said trusts nor the trustees named therein are involved in this litigation and have no interest herein.

The three principal stockholders above named on April 15, 1943, each for like consideration in said option contract and the mutual understanding of the parties and $1,000 paid by complainant, entered into three separate but substantially identical option contracts, granting to the corporation the right to buy the stock of such stockholder at a fixed price on the occurrence of the stockholder's retirement or death.

The contract signed by each of said stockholders is substantially in the following language.

'This Option, made this 15 day of April, 1943, by Robert I. Ingalls, Jr. and his wife, Eleanor Flick Ingalls (hereinafter called Stockholder and wife, respectively), with and in favor of The Ingalls Iron Works Company, a corporation organized and existing under the laws of the State of Delaware, (hereinafter called the Corporation).

'Witnesseth:

'Whereas, of the total of 15,000 shares of the issued and outstanding capital stock of the Corporation, Stockholder is the owner and holder of 4,501 shares representing a forty-five hundred and one fifteenth thousandths (4,501/15,000) interest in the Corporation as now evidenced by certificate as follows:

'Certificate No.--17--

'Shares--4,501--

'Whereas, the present successful status of the Corporation is entirely attributable to the painstaking efforts and splendid cooperation of the stockholders and it is the desire of the Stockholder that the splendid harmony and the continuity of management be not disturbed in the event of the retirement or death of the Stockholder, by the interest of the Stockholder in the Corporation passing to outside and disinterested persons; and

'Whereas, it is the desire of the Stockholder upon...