Matthews v. Morris Sons Co.

• Decision Date: 21 February 1997
• Docket Number: No. 16064,16064
• Citation: 692 N.E.2d 1055,118 Ohio App.3d 345
• Parties: MATTHEWS, Exr., Appellant, v. MORRIS SONS COMPANY, Appellee. Second District, Montgomery County
• Court: Ohio Court of Appeals

Page 345

118 Ohio App.3d 345

692 N.E.2d 1055

MATTHEWS, Exr., Appellant, v. MORRIS SONS COMPANY, Appellee.

No. 16064.

Court of Appeals of Ohio,

Second District, Montgomery County.

Decided Feb. 21, 1997.

James I. Weprin, Dayton, for appellant.

Jonathan Hollingsworth, Dayton, for appellee.

GRADY, Judge.

This is an appeal from an order specifically enforcing the terms of an agreement between a corporation and one of its shareholders for redemption of the shareholder's stock.

The Morris Sons Company operates funeral homes in the Dayton area. It is an Ohio corporation that was organized in 1915. It is a closely held corporation owned by members of the Morris family.

In 1941, Avanelle Morris owned eight and one-third shares of stock in the Morris Sons Company, which then constituted one-sixth of its stock outstanding. That year she entered into an agreement with the corporation. The pertinent parts of that agreement provide:

"Avanelle Morris has and/or will assign and transfer in blank to the said The Morris Sons Company the certificate and/or certificates of stock representing her interest in the said Company * * *.

" * * * "In the event of the death of the said Avanelle Morris leaving a child and/or children, it is agreed on the part of the Morris Sons Company to pay to said child and/or children an amount of money equal to one- sixth the value of the capital stock of The Morris Sons Company as the same may be determined on the date of the death of the said Avanelle Morris."

Avanelle Morris did not exercise her right of redemption in the years following 1941. Instead, she acquired additional shares in the corporation. At the time of her death in 1993, she owned ten shares. Those shares then constituted 31.58 percent of the corporation's outstanding stock.

This action was commenced by Warren Matthews, executor of the estate of Avanelle Morris Matthews, who asked the court to determine the rights and duties created by the 1941 agreement and to order the Morris Sons Company to perform its duty by purchasing the required stock for its fair market value.

The case was referred to a magistrate, who found that the ten shares owned by Avanelle Matthews were worth $334,797 at the time of her death, and recommended an order requiring the corporation to purchase the ten shares from her estate for that sum.

The Morris Sons Company filed objections to the magistrate's decision. The trial court modified the magistrate's decision, and ordered:

"The 1941 buy/sell agreement clearly specified that Decedent Matthews was to transfer the certificates of stock representing her interest in the company to Defendant, be it 8 1/3 shares or ten (10) shares. The agreement also clearly specified that in return for the transfer of the stock, it would give Decedent Matthews' children a total sum equal to one-sixth the value of the capital stock. Accordingly, Plaintiff is ordered to transfer Decedent's ten (10) shares of stock to Defendant Morris Sons Company. Defendant Morris Sons is ordered to pay one hundred seventy six thousand six hundred ninety two dollars and twenty five cents ($176,692.25), or one-sixth of the value of the capital stock, in exchange for the shares."

Matthews filed a timely notice of appeal and now presents two assignments of error. Although not directly stated in his brief, Matthews's first assignment of error may be summarized as follows:

"The trial court erred in not requiring the corporation to pay the fair market value of $334,697 in exchange for Matthews' 31.58 per cent ownership interest in the corporation."

Matthews's second assignment of error states:

"The trial court erred when it found that plaintiff was required to transfer all of her ten (10) shares of stock in defendant, Morris, representing her entire 31.58% interest, but that Morris was only obligated to pay for such shares an amount equal to a one-sixth ( 1/6th) interest ($176,692.25)."

The two assignments of error are interrelated and, accordingly, we will consider them together.

Acquisition by an Ohio corporation of its own shares must be strictly in accordance with the provisions of R.C. 1701.35. Lowry v. Sunday Creek Coal Co. (1964), 2 Ohio App.2d 260, 31 O.O.2d 378, 207 N.E.2d 678. R.C. 1701.35(A)(5) permits a corporation to purchase its own shares "from a person who has purchased such shares from the corporation under an agreement reserving to the corporation the right to repurchase or obligating it to repurchase." This provision also reasonably applies to repurchase agreements made subsequent to the issuance of shares. Such agreements may provide for the redemption price of the shares concerned. However, the price paid by the corporation for them is subject to R.C. 1701.31(A), which provides:

"Whenever an outstanding redeemable share is redeemed by the corporation, or an outstanding share is purchased or otherwise acquired by the issuing corporation (otherwise than upon conversion, change, or exchange), the stated capital, if any, of the class to which such redeemed, purchased, or acquired share belongs shall thereby be reduced by an amount equal to the stated capital, if any, of such share[.]"

Therefore, unless the stated capital of the entire class of stock is reduced or eliminated pursuant to R.C. 1701.31(E), the price paid for the shares redeemed should be the amount of the stated capital of the corporation that the ownership interest of the redeemed shares represents.

The 1941 agreement limits the price the corporation is required to pay Avanelle Matthews's children to a sum equal to one-sixth of the stated capital of the corporation. At the time of her death, that was $176,692.25. The trial court correctly rejected that part of the magistrate's proposed order which would have required the corporation to pay a greater amount. Therefore, the issue remaining for determination was: How many of Avanelle Matthews's shares is her estate required by the 1941 agreement to transfer to the corporation in exchange for a payment in the amount of $176,692.25?

"Where the parties following negotiation make mutual promises which thereafter are integrated into an unambiguous contract duly executed by them, courts will not give the contract a construction other than that which the plain language of the contract provides." Aultman Hosp. Assn....