Morris v. People's Bank & Trust Co. of Natchitoches

• Decision Date: 22 May 1991
• Docket Number: No. 89-1242,89-1242
• Citation: 580 So.2d 1029
• Parties: Huey P. MORRIS and Susie T. Morris, Plaintiffs-Appellants, v. PEOPLE'S BANK & TRUST COMPANY OF NATCHITOCHES, Louisiana; People's Bancshares of Natchitoches, Inc.; Sam J. Friedman; Peter E. Cloutier, Jr.; Gary S. DeBlieux; Hertzog DeBlieux; Walter C. Jones; John A. Luster; G.F. Thomas, Jr.; Lovan B. Thomas; R. Stacy Williams; and Kenneth D. McCoy, Jr., Defendants-Appellees. 580 So.2d 1029
• Court: Court of Appeal of Louisiana — District of US

Page 1029

580 So.2d 1029

Huey P. MORRIS and Susie T. Morris, Plaintiffs-Appellants, v. PEOPLE'S BANK & TRUST COMPANY OF NATCHITOCHES, Louisiana People's Bancshares of Natchitoches, Inc.; Sam J. Friedman Peter E. Cloutier, Jr.; Gary S. DeBlieux; Hertzog DeBlieux; Walter C. Jones; John A. Luster; G.F. Thomas Jr.; Lovan B. Thomas; R. Stacy Williams; and Kenneth D McCoy, Jr., Defendants-Appellees.

No. 89-1242.

580 So.2d 1029

Court of Appeal of Louisiana, Third Circuit.

May 22, 1991.

Rehearing Denied June 24, 1991.

Cooper & Pierson, Mary O. Pierson, Baton Rouge, Cleveland, Barrios, Kingsdorf & Casteix, Carl W. Cleveland, New Orleans, for plaintiffs-appellants.

McCoy & Hawthorne, Kenneth D. McCoy, Jr., Natchitoches, Willie D. Maynor, Baton Rouge, Watson, Murchison, Crews, Arthur & Corkern, Daniel T. Murchison, Natchitoches, Mayer Smith & Roberts, Caldwell Roberts, Shreveport, Hargrove, Guyton, Ramey & Barlow, Billy R. Pesnell, Shreveport, Luster, Conine & Brunson, John W. Luster, Natchitoches, Cook, Yancey, King & Galloway, Herschel Richard, Jr., Shreveport, for defendants-appellees.

Before DOMENGEAUX, C.J., and GUIDRY and LABORDE, JJ.

DOMENGEAUX, Chief Judge.

Huey P. Morris and his wife, Susie T. Morris, brought this suit for specific performance and damages against People's Bank and Trust Company of Natchitoches (People's Bank), People's Bancshares of Natchitoches, Inc. (Bancshares), certain directors of People's Bank and Bancshares ¹, and Kenneth D. McCoy, Jr. Morris' claims against McCoy and Sam J. Friedman were dismissed via summary judgment and his claims against People's Bank, Bancshares, and the remaining directors were dismissed pursuant to exceptions of no cause of action.

In this appeal, Morris contends the trial court erred in sustaining the defendants' exceptions of no cause of action and in granting McCoy's motion for summary judgment. In the related case of the same caption, Court of Appeal No. 90-1239, Morris contends the trial court erred in granting Friedman's motion for summary judgment. Our decision in that case is rendered this date and is reported at 580 So.2d 1037 (La.App.3d Cir.1991).

FACTS

Morris' petition asserts the following facts which, for purposes of reviewing defendants' exceptions of no cause of action, we presume to be true. In 1984, Huey P. Morris was offered employment as president and chief executive officer of People's Bank. Sam Friedman recruited Morris and negotiated the terms of his employment with the Bank. Friedman was the Bank's majority shareholder. Ultimately, Morris entered into an employment contract with the Bank which provided that Morris would serve as president and chief executive officer for a three year period. The contract was drafted by Kenneth D. McCoy and contained the following stock purchase provision which is the subject of this litigation:

9. Employee obligations and restrictions.

(a) Employee recognizes and agrees that, by virtue of the employment granted under this Agreement, he will have and will be offered numerous opportunities to acquire shares of stock in the Bank or Holding Company which controls the Bank. Upon the effective date of this Agreement, the Employee owns no shares of stock in the Bank, and there is presently no Holding Company in control of the Bank. Upon the termination or expiration of this Agreement, for any reason whatsoever, the Employee shall be obligated to sell to the Bank or its designee all shares of stock in the Bank or in any Holding Company which controls the Bank, which the Employee shall hold or control, directly or indirectly, at a price equal to the average per share price of the three (3) immediately preceding bona fide sales registered upon the stock transfer books of the Bank, or the Holding Company, or at a price equal to the purchase price paid by Employee plus any increase in book value of that purchase during the term of this agreement whichever is greater, and the Employee shall not be free to sell or transfer such shares to any third party unless the Bank or its designee shall fail to purchase the same within a period of sixty (60) days after the termination of this Agreement. However, the Bank shall be unconditionally obligated to purchase the stock in accordance with this paragraph.

(b) Employee's spouse, Susie T. Morris, enters into this Agreement solely for the purpose of binding herself to the provisions of the aforesaid paragraph, and to agree that she will in consideration of the employment herein secured by her spouse, transfer to the Bank or its designee, all the right, title and interest she may have under the laws of the State of Louisiana in and to all shares of stock in the Bank or the Holding Company, pursuant to the aforesaid paragraph, in the event of termination or expiration of this Agreement for any cause whatsoever.

(c) Employee represents and warrants to the Bank that: (i) Employee is under no contractual or other restriction or obligation compliance with which is inconsistent with the execution of this Agreement, the performance of obligations hereunder or the rights of the Bank hereunder; and (ii) Employee is under no physical or mental disability that would hinder the full performance of his obligations under this Agreement.

Essentially, Morris and People's Bank agreed that at the termination of Morris' employment, he would sell, and the Bank would purchase, any shares of stock Morris owned in the Bank or its holding company at a price no less than that which Morris originally paid for the stock.

At the time of Morris' employment it was anticipated by all parties that a holding company would soon be formed which would own all of the stock of the Bank. In addition to his duties as president and chief executive officer of the Bank, Morris also served as president and chief executive officer of the holding company after its formation until the termination of his employment by resignation. The stockholders of the Bank received holding company stock in exchange for Bank stock when the holding company was formed. The holding company owns the stock of the Bank.

During the course of his employment with People's Bank, Morris purchased 48,265 shares of stock in Bancshares. He paid over $440,000.00 for these shares. In 1987, Morris declared his intent to resign from People's Bank and offered to sell his stock to the Bank. The Bank refused to purchase the stock. Bancshares likewise refused to purchase the stock. Sam Friedman orally agreed to purchase the stock but never actually did so. In April of 1988, Morris resigned as president and chief executive officer of People's Bank and Bancshares.

Morris filed suit against People's Bank, Bancshares, and certain directors alleging breach of contract, violations of Louisiana securities laws, negligent misrepresentation, and detrimental reliance. Morris raised an additional cause of action against Sam Friedman, breach of an oral agreement to purchase securities. Against Kenneth McCoy, Morris asserted a claim for legal malpractice as McCoy was the attorney who drafted the employment contract between Morris and People's Bank. ²

PEOPLE'S BANK

The Louisiana Supreme Court in Hero Lands Co. v. Texaco, Inc., 310 So.2d 93 (La.1975), explained the purpose and function of an exception of no cause of action:

The function of the peremptory exception of no cause of action is to test the legal sufficiency of the petition. The correctness of the well-pleaded allegations of fact is conceded, the issue is whether the face of the petition presents a case which legally entitles the mover to the redress sought. It is the sufficiency of the petition or motion in law which is put at issue by the exception....

If a petition states a cause of action as to any ground or portion of the demand, the exception of no cause of action must be overruled....

In considering a petition against which an exception of no cause of action has been raised, every reasonable interpretation must be accorded its language in favor of maintaining the sufficiency of the petition and affording the litigant an opportunity to present his evidence.... Pleadings must be reasonably construed so as to afford litigants their day in court, to arrive at the truth and to avoid a miscarriage of justice.... [Citations omitted.]

310 So.2d at 96; see also City Stores Co. v. NEI Corp., 357 So.2d 1364 (La.App. 4th Cir.1978).

Morris asserts in his petition a cause of action for detrimental reliance. La.C.C. art. 1967 changed Louisiana law by incorporating detrimental reliance as a basis for the enforceability of obligations. La.C.C. art. 1967, comment (a); Kethley v. Draughon Business College, 535 So.2d 502 (La.App.2d Cir.1988). Under Article 1967, a promise becomes an enforceable obligation when it is made in a manner that induces the other party to rely on it to his detriment. La.C.C. art. 1967, comment (d). The court may grant either specific performance or damages to the disappointed promisee. Kethley. The article provides:

Art. 1967. Cause defined; detrimental reliance

Cause is the reason why a party obligates himself.

A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee's reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable.

The doctrine of detrimental reliance was codified in 1985, but it is not actually new in Louisiana. Our courts have long recognized the German theory of culpa in contrahendo, which permits a plaintiff to recover damages which result from his change of position caused by reliance upon an unenforceable contract. See Note, Obligations--Measure of Recovery for Change of Position Under Unenforceable Contract--Culpa in Contrahendo, 25 Tul.L.Rev. 133 (1950), and cas...