Miller v. Miller

• Citation: 700 S.W.2d 941
• Decision Date: 13 November 1985
• Docket Number: No. 05-83-00827-CV,05-83-00827-CV
• Parties: Judy Kay MILLER, Appellant, v. Howard Ray MILLER, Appellee.
• Court: Court of Appeals of Texas

Page 941

700 S.W.2d 941

Judy Kay MILLER, Appellant, v. Howard Ray MILLER, Appellee.

No. 05-83-00827-CV.

Court of Appeals of Texas,

Dallas.

Nov. 13, 1985.

Carl David Adams, Adams, Vorpahl & Francis, Dallas, for appellant.

W. Ted Minick, Michael J. Quilling, Winstead, McGuire, Sechrest & Minick, Dallas, for appellee.

Before GUITTARD, C.J., and CARVER ¹ and WHITHAM, JJ.

ON MOTION FOR REHEARING

GUITTARD, Chief Justice.

Our prior opinion of August 30, 1985, is withdrawn and this opinion substituted.

Judy Miller sued her former husband, Howard Miller, to rescind a shareholders' agreement regarding corporate stock acquired by Howard before their divorce and allegedly not disposed of by the parties' divorce decree. After a jury trial resulting in some findings favorable to Judy and others favorable to Howard, the trial court denied rescission and granted Howard specific performance of a purchase option provided in the shareholders' agreement. Judy contends that the trial court erred in refusing to rescind the agreement because of Howard's nondisclosure of material facts and his failure to establish that the agreement was fair to her. We agree and, consequently, reverse the judgment of the trial court in part, render judgment for Judy in part, and affirm the judgment of the trial court in part.

Factual Background

On July 15, 1978, Judy and Howard separated. Howard was employed as an engineer. Sometime in 1978, Howard and three other engineers began discussions regarding the formation of a company to design and produce a novel electronic telephone switching system to be known as the "IBX." Such a company, InteCom, Inc., was eventually formed in January 1979. At that time Howard acquired a twenty-five percent ownership interest in InteCom, represented by 250 shares of stock. Later, additional shares were issued to the founders, ultimately bringing the total shares held in Howard's name to 710,355 shares. Exxon Enterprises, Inc. was enlisted to provide financial backing. Exxon agreed to invest $1,500,000 in InteCom in exchange for 1,500,000 shares of stock. Exxon's investment was based almost exclusively on the abilities of the four founding stockholders. For that reason, Exxon demanded that the founders remain in control of InteCom and keep an interest in InteCom. Exxon's demand was embodied in the shareholders' agreement in question.

The agreement provided that a founder could not sell his shares in InteCom without offering them first to the other founders and then to Exxon. The other founders were to have thirty days in which to exercise their options to purchase the shares of the selling founder. Exxon then had thirty days in which to exercise its option to purchase those shares not sold to the other founders. A formula set out in the agreement determined the purchase price of shares sold by a founder to another founder or to Exxon. If the option was not exercised by any of the other founders or Exxon, the shares could be offered to third parties, but only at the same price the shares were offered to the other founders or Exxon. If they were not purchased by a third party within a certain period of time, they had to be reoffered to the other founders and then to Exxon at a new price determined by the formula.

The agreement also required each founder to cause his wife to sign the agreement "for the purpose of agreeing to be bound by the terms of this Agreement." The agreement provided that, in the event of a divorce, the wife had to first offer to sell her shares in InteCom, if any, to her husband at a price also to be determined by a formula set forth in the agreement. If the husband did not purchase the wife's shares within thirty days, then the remaining founders had the right to purchase the wife's shares for a period of thirty days, and then, if the remaining founders did not purchase the wife's shares, Exxon had the right to purchase the wife's shares, again for a period of thirty days. Shares not purchased by the husband, the other founders, or Exxon could then be sold to any third party for a period of ninety days at the same price and on the same conditions and terms initially offered to the founders and Exxon. At the end of the ninety-day period, the wife had to offer her shares again to her husband, then to the other founders, and then to Exxon at a new price determined by formula. Howard contends that the agreement gave him the right to acquire Judy's community interest in the shares for $2,500.

On April 10, 1979, Howard filed a petition for divorce. On the next day, April 11, 1979, before the parties divorced but after they separated, Howard approached Judy with the agreement. It is undisputed that Howard did not explain the agreement to Judy and that he failed to disclose to her certain information regarding the agreement. Howard testified that he gave the agreement to Judy to take home and asked her to return it to him by the next morning. Judy testified that when Howard handed her the agreement, she read it, signed it, and never asked Howard or anyone else any questions about it. She testified that she considered the agreement binding on her. Later Judy also read and signed another agreement concerning InteCom, a "Stock Purchase Agreement," dated July 1, 1980, which she testified she also considered binding on her.

Later, on August 23, 1980, Howard and Judy were divorced. At the time of the divorce, Howard's 250 shares of stock had grown to 710,355 through stock splits, stock dividends, and stock issues. Although there is some dispute about whether Howard and Judy discussed the agreement between its signing and the divorce, there is no dispute that Judy did not complain about the agreement until some two years after the divorce when she learned from an electronics magazine that InteCom was worth more than she had previously believed it to be worth. Then, on October 20, 1982, Judy filed this suit against Howard. After Judy's suit was filed, Howard attempted to exercise his option to purchase Judy's shares in InteCom.

In Judy's trial pleadings, she sought rescission of the shareholders' agreement and partition of the 710,355 shares of InteCom owned by Howard at the time of the divorce and alternatively actual and exemplary damages. These requests for relief were based on the theories of actual fraud and constructive fraud by breach of a confidential or fiduciary duty. Howard denied that Judy had any interest in the stock and alternatively counterclaimed for specific performance of the purchase option in the agreement and for attorney's fees.

Jury Findings

The jury found that Howard made the following representations to Judy:

(1) that the agreement was an agreement between Exxon and the founders that placed certain restrictions on the stock; and

(2) that the agreement was an agreement to get the company started.

The jury found that these representations were false and material, but that Howard did not make them with the intention that Judy rely on them in deciding whether to sign the agreement. Because of these negative answers, other issues related to the fraud claim were not reached. The jury also found that Howard failed to disclose the following to Judy:

(1) that on or about April 11, 1979, InteCom, Inc. issued to Exxon Enterprises, Inc. 1,500,000 shares of stock in InteCom at a price of $1.00 per share in return for a capital contribution to InteCom, Inc. of $1,500,000;

(2) that upon divorce the agreement of April 11, 1979, required Judy to sell to Howard and others any and all interest which she had in InteCom, Inc.;

(3) that shares of the InteCom stock held in Howard's name at that time had a fair cash market value; and

(4) that InteCom was in the process of developing the "IBX" system, which if successfully developed would be in great demand.

The jury found that these undisclosed facts were material, but that Howard had not failed to disclose them with the intention of inducing Judy to sign the agreement. Because of these negative answers, the jury did not reach other issues inquiring whether Judy would not have signed the agreement if Howard had disclosed any of these matters and whether Howard's failure to disclose any of them was a proximate cause of any loss or damage to Judy.

With respect to Judy's claim of breach of fiduciary duty, the jury found (1) that a confidential relationship existed between Judy and Howard at the time that Howard presented the agreement to Judy, (2) that Howard acted in good faith at the time he presented the agreement to Judy, and (3) that the restrictions imposed by the agreement on Judy's rights of ownership or transfer of her stock interest were reasonably related to the corporate interest of InteCom as of April 11, 1979. However, the jury answered "we do not" to the issue inquiring whether, under the facts and circumstances of the case, the agreement is fair to Judy.

Trial Court's Judgment

The trial court ruled as a matter of law that the 710,375 shares of InteCom stock had not been divided in the divorce decree and that Judy and Howard held the stock as tenants in common. Both Howard and Judy moved for judgment, and Howard additionally moved the trial court to disregard certain jury findings, including the finding of a confidential relationship between him and Judy and the finding that the agreement was not fair to Judy. The trial court ordered the stock evenly divided between Howard and Judy. However, the trial court also granted Howard's motion to disregard certain jury findings, declared the shareholders' agreement to be valid and in full force and effect, and ordered Judy to sell all her shares to Howard at the price set according to the formula in the agreement as of September 22, 1980, thirty days after the divorce decree.

In this court, Judy presents various points of error challenging the trial court's refusal to rescind the agreement. We find these points dispositive of this appeal; thus, we do not decide Judy's other...