Lake Cable, Inc. v. Trittler

• Decision Date: 30 January 1996
• Docket Number: No. 67289,67289
• Citation: 914 S.W.2d 431
• Parties: LAKE CABLE, INC. and Gerald Buhrow, Plaintiffs/Respondents, v. Oliver TRITTLER, Jr., Personal Representative for the Estate of Oliver Trittler, Defendant/Appellant.
• Court: Missouri Court of Appeals

Page 431

914 S.W.2d 431

LAKE CABLE, INC. and Gerald Buhrow, Plaintiffs/Respondents, v. Oliver TRITTLER, Jr., Personal Representative for the Estate of Oliver Trittler, Defendant/Appellant.

No. 67289.

Missouri Court of Appeals,

Eastern District,

Division Five.

Jan. 30, 1996.

Appeal from the Circuit Court of St. Louis County; Honorable Richard T. Enright, Judge.

Kenneth J. Mallin, Coburn & Croft, St. Louis, for appellant.

Dale L. Rollings, Rollings, Gerhardt, Brochers, Stuhler, Carmichael & Gartner, P.C., St. Charles, for respondent.

CRANE, Chief Judge.

Defendant, personal representative of an estate, appeals from the judgment of the trial court in plaintiffs' favor on a petition for specific performance of a corporate stock restriction agreement. The trial court found that the plaintiff corporation had exercised its option to purchase decedent shareholder's stock, that the agreement required defendant to sell decedent's shares of the plaintiff corporation to the corporation for book value, and that the book value of decedent's stock, as defined in the agreement, was $300.00. Defendant appeals, contending that the agreement lacked consideration and that the term "book value" was erroneously interpreted, resulting in a calculation of a substantially insufficient value. We affirm.

We view the facts in the light most favorable to the plaintiffs. On July 21, 1982 decedent, Oliver Trittler, incorporated Lake Cable, Inc. (Lake Cable) as a Missouri corporation. Trittler, Gerald Buhrow, and Thomas Reese were the three original shareholders. Each made initial capital contributions of $500.00 and were issued fifty shares of Lake Cable stock. Trittler's Lake Cable stock certificate, dated July 22, 1982, bore the legend: "The transfer of the shares of this corporation is restricted by a Shareholders Agreement, a copy of which is on file at the Office of the Corporation." The Articles of Incorporation authorized Lake Cable to issue 3,000 shares.

At the time they were forming the corporation, Trittler, Buhrow, and Reese decided to enter into a restrictive stock agreement. Buhrow testified:

We wanted some kind of agreement so we would know who would be our partner. We didn't want anyone else involved. It was kind of a buddy thing. We was very close friends, all of us, and we didn't want anybody else involved, and that's when we decided to do an agreement to restrict the sale of stock.

On August 2, 1982 Lake Cable's directors authorized Lake Cable to enter into an agreement with shareholders restricting the sale of Lake Cable stock.

On September 3, 1982 Lake Cable and each of the three Lake Cable shareholders entered into an agreement denominated "Agreement Restricting Sale of Stock" (the Agreement). The Agreement subjected each share of Lake Cable stock then outstanding or thereafter issued to the terms of the Agreement and provided that no shareholder could dispose of Lake Cable stock without first complying with the Agreement which gave Lake Cable a first right to purchase any shares and then gave other shareholders a successive right to purchase those shares. If Lake Cable or a shareholder elected to purchase the shares, paragraph 3 of the Agreement defined the purchase price as:

the amount of the book value of said common stock as of the end of the month immediately preceding the giving of such notice. Book value shall be determined by general accounting principals [sic] consistently applied in accounting for the corporation's operations.

Paragraph 6 of the Agreement further provided that in the event of the shareholder's death Lake Cable (or a shareholder, if Lake Cable elected not to do so)

shall have a first option ... to purchase any or all of the common stock of such decedent, at a price to be determined by the same method hereinabove provided, (book value as of the last day of the month preceding the death of the stockholder)....

The Agreement required each Lake Cable stock certificate to bear a reference to the Agreement.

Buhrow and Reese each testified that the three owners had discussed the pitfalls of a book value repurchase formula at least two or three times prior to execution of the Agreement. During each of the discussions Trittler supported using book value rather than fair market value.

In April, 1984 Reese surrendered his fifty shares to avoid a conflict of interest arising from his position as the general manager of a company doing business with Lake Cable. Reese refused to accept any money from Lake Cable when he surrendered his shares. Reese's surrender left Trittler and Buhrow each with one half of the outstanding stock in Lake Cable.

Trittler died on February 20, 1991. Pursuant to the Agreement Lake Cable, through its president, Buhrow, attempted to exercise its rights under the Agreement to purchase Trittler's outstanding stock for book value. Lake Cable tendered a check for $300.00 to defendant, personal representative for Trittler's estate, for the purchase of Trittler's fifty shares of stock. Lake Cable offered the money based on a valuation prepared by the corporation's certified public accountant, Christopher Hermann. Using the principles consistently applied in accounting for Lake Cable's operations, the cash basis method, Hermann calculated Lake Cable's book value on January 31, 1991 to be negative $39,617.75. The only positive book value which Lake Cable had at that time was the value of the 100 outstanding shares of common stock, which Hermann valued at $600.00.

To ensure that his personal right to purchase Trittler's shares did not lapse, twenty days after Lake Cable tendered $300.00 to Trittler, Buhrow, acting on his own behalf, communicated to defendant a personal interest in purchasing the stock pursuant to the terms of paragraph 6 of the Agreement. Buhrow tendered a personal check for $300.00 to defendant for the purchase of Trittler's fifty shares of stock. Defendant did not return the stock certificate or cash either of the $300.00 checks. Lake Cable and Buhrow filed this action on May 14, 1991 seeking specific performance of the Agreement.

The trial court found that the Agreement was enforceable, that Lake Cable consistently used the cash basis method of accounting, and that Lake Cable's book value, calculated by this method, was a negative $39,617.75. It ordered defendant to return Trittler's stock certificate to Lake Cable in exchange for $300.00. Defendant appeals from this judgment.

On appeal of a court-tried case, we will sustain the judgment of the trial court unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law. Rule 73.01(c); Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We accept the evidence and inferences favorable to the prevailing party and disregard all contrary evidence. Unlimited Equip. Lines, Inc. v. Graphic Arts Centre, Inc., 889 S.W.2d 926, 932 (Mo.App.1994). We defer to the factual findings of the trial judge, who is in a superior position to assess credibility. Id. However, we independently evaluate the court's conclusions of law. Id.

Defendant first contends that the trial court erred in concluding there was consideration for the Agreement because the Agreement does not reflect any exchange of consideration and Buhrow and Reese testified that the parties did not pay or exchange any money at the time it was signed. Defendant also asserts that the Agreement was a promise to give an option to purchase future shares, which he contends, is not consideration.

We disagree with these contentions. In the first place, a finding of consideration does not depend on the existence of a consideration clause or a money payment. Secondly, as explained below, sufficient consideration supports the Agreement.

The Agreement restricts the right to transfer stock in two situations: when the shareholder decides to dispose of his stock and when the shareholder dies. When the shareholder wants to dispose of his stock, the Agreement requires that he give written notice of his desire to sell to Lake Cable and Lake Cable may then elect to purchase some or all of those shares. If Lake Cable fails to so elect, any of the remaining shareholders may elect to purchase the stock by giving notice. Upon the death of a shareholder, Lake Cable is given a "first option" to purchase the shareholder's stock. If Lake Cable does not elect to "exercise this option" the remaining shareholders are given the option.

In both situations it is clear that the Agreement does not create an "option contract" but rather creates a "right of first refusal." An option consists of a continuing and irrevocable offer which the optionor cannot withdraw during a stated period. It vests the optionee with a power of acceptance, and when the optionee accepts the offer in the prescribed manner, the option is deemed to have been exercised as to create a binding bilateral contract. 1A ARTHUR L. CORBIN, CORBIN ON CONTRACTS, §§ 259, 260 (1963). This Agreement is not an option contract because it is not an offer and could not therefore create a power of acceptance. Rather, it is a transaction by which the corporation and, in succession, the...