Nunley v. Westates Casing Services, Inc.

• Decision Date: 26 October 1999
• Docket Number: No. 980099.,980099.
• Parties: Cecil NUNLEY, Plaintiff and Appellant, v. WESTATES CASING SERVICES, INC., a Utah corporation, Gene McFarland, and Betsi Magee, Defendants and Appellees.
• Court: Utah Supreme Court

989 P.2d 1077

1999 UT 100

Cecil NUNLEY, Plaintiff and Appellant, v. WESTATES CASING SERVICES, INC., a Utah corporation, Gene McFarland, and Betsi Magee, Defendants and Appellees.

No. 980099.

Supreme Court of Utah.

October 26, 1999.

Christine M. Petersen, Gordon Duvall, Pleasant Grove, for plaintiff.

Daniel S. Sam, Vernal, for defendants.

STEWART, Justice:

¶ 1 Cecil Nunley brought an action against Gene McFarland, Betsi Magee, and Westates Casing Services, Inc. (collectively "McFarland"), seeking enforcement of an agreement between these parties allowing Nunley an option to purchase 49% of Westates stock. Nunley appeals the trial court's ruling, following a non-jury trial, that (1) the parties failed to reach an agreement providing Nunley an option to purchase stock in Westates; (2) even if the parties did create an option contract, it was void under the rule against perpetuities; and (3) conduct of the parties did not create an agreement under the legal theories of part performance or equitable estoppel. Nunley also appeals the trial court's rejection of his untimely motion to amend the court's findings and judgment pursuant to Utah Rule of Civil Procedure 52(b).

¶ 2 In 1987, Cecil Nunley and Gene McFarland created Westates Casing Services, Inc., a successful oil field business that supplied and installed oil and gas well casings. McFarland made a greater capital contribution to Westates than did Nunley and so owned a greater interest. However, all 3,500 shares of Westates stock were in Nunley's name. Nunley acknowledged that he held most of these shares in trust for McFarland. Nunley was also Westates' president and chairman of the board, which included only two other members, Pat McRae and Melinda Rollins.

I. EARLY NEGOTIATIONS REGARDING COMPANY OWNERSHIP

¶ 3 In November 1989, Nunley and McFarland began negotiations to either (1) redistribute Westates shares in proportion to their initial capital contributions, or (2) create a means by which Nunley could repay McFarland for his disproportionate initial contribution of capital, thereby equalizing their ownership interests.

¶ 4 On December 8, 1989, Nunley's attorney, John Anderson, and McFarland's attorney, Bob McRae, met to discuss these issues. Afterward, Anderson wrote a memorandum for his file summarizing the meeting. The memorandum stated that the parties agreed Westates would eventually be equally owned by McFarland and Nunley. To compensate McFarland for his greater initial investment, the parties would form a new corporation called Qatar in which McFarland would own a 75% interest and Nunley a 25% interest. Westates would transfer to Qatar most of its real property and equipment, and Qatar would then lease the real property and equipment back to Westates at fair rental value. McFarland would receive 75% of the profits accrued from these rentals to reimburse him for his greater initial capital contribution. Finally, the parties planned to execute a buy/sell agreement to ensure that if McFarland died Nunley could purchase 51% of the company's stock, and if Nunley retired or died McFarland would have a means to purchase Nunley's interest.

¶ 5 The proposed buy/sell agreement McRae later drafted stated that (1) McFarland would own 6,332 shares in Westates, or a 73% interest, while Nunley would own only 2,332 shares, or a 27% interest;¹ (2) McFarland would eventually own a 51% interest in Westates and Nunley would own only a 49% interest; (3) Nunley could purchase additional shares from McFarland at the rate of $20 per share in $1,000 increments until he owned the 49% interest; (4) if either McFarland or Nunley became insolvent or was deemed legally incompetent, the surviving party reserved the right to acquire the stock interest of the incapacitated party; and (5) Qatar, of whose shares McFarland would own 75% and Nunley 25%, would own the real property of Westates.

¶ 6 Anderson sent a reply dated January 11, 1990, to McRae stating:

Nunley can concede the fact that Gene McFarland, as long as he is active in the company, can have 51% of the stock and, therefore, its control.

There needs to be a vehicle, however,. . . for Nunley to acquire the needed shares to own 51% of the company upon McFarland's death, retirement, or withdrawal from the corporation. . . .

Finally, Nunley is not in a position, without a large raise from the company, to pay McFarland cash for the 1,900 some odd shares of stock. We thought the acquisition of the rental tools to be transferred to Qatar with the inordinate rentals accruing to McFarland would easily accomplish this.

¶ 7 Anderson then sent a redraft of the proposed buy/sell agreement to McRae acknowledging that after Nunley purchased additional shares, McFarland was reimbursed for his initial larger investment:

McFarland will . . . [then] own an approximate 51% interest in Westates and Nunley will own an approximate 49% . . . . It is also the express understanding between the parties to this agreement, that at McFarland's incapacitation, death or retirement, Nunley shall have the means to acquire the shares of stock necessary to insure that Nunley owns 51% of the company.

¶ 8 Over the next six months, the parties discussed the terms of the agreement. The terms had not been decided when McRae, in a letter dated August 7, 1990, demanded that Nunley pay the $1,300 he owed for his 25% interest in Qatar, that he sign over the 3,500 shares of Westates stock in his name, and that the 3,500 shares in Westates be reallocated between them to account for their disproportionate ownership interests. Anderson responded in a letter written August 15, 1990, by stating:

Nunley does acknowledge he owes $1,300 for stock in Qatar, which amount he will arrange to borrow and pay.

Mr. Nunley's position is and always has been that Gene McFarland may own fifty-one percent (51%) of Westates and Mr. Nunley will own forty-nine percent (49%) with an option for Mr. Nunley to acquire the other two percent (2%) upon Mr. McFarland's death or retirement.

Mr. Nunley also acknowledges that Mr. McFarland will have $70,000 coming as of the present date to accommodate the unequal initial investment in the company. As was suggested at our prior meetings, this can be accomplished in several vehicles for Mr. McFarland's and Mr. Nunley's benefit. . . .

For example, the lease which has been proposed wherein Qatar appears as lessor and Westates Casing appears as lessee could be for a rental amount of $1200 per month with the $800 per month above current rental value going to the retirement of the Nunley debt.

II. THE SPECIAL DIRECTORS MEETING

¶ 9 On August 31, 1990, the parties attended a special meeting of the Westates directors (the "Special Directors Meeting") to "[r]econcile stock ownership, . . . [a]uthorize recognition of indebtedness due Gene McFarland for services rendered since date of commencing business on May 27, 1987[,]. . . [and] [i]ssue stock certificates in accordance with the reconciliation of ownership." The only written records of the meeting are two sets of meeting minutes, an original which was prepared by McRae in September 1990 (the "McRae Minutes"), and an amended version prepared by Anderson in November 1990 (the "Anderson Minutes"). The McRae Minutes were signed by only two of the three board members, Melinda Rollins and Pat McRae. Only Nunley signed the Anderson Minutes.

¶ 10 The first section of the McRae Minutes describes the issues discussed at the Special Directors Meeting. The minutes state that the parties resolved the question of stock ownership. McFarland outlined his investment in Westates and what he felt was owed to him. Based on McFarland's contributions of approximately $63,300 and Nunley's contributions of approximately $22,700, the parties agreed that McFarland owned 73% of Westates, represented by 6,332 shares, and Nunley owned 27% of Westates, represented by 2,332 shares. The minutes also note that Pat McRae canceled the 3,500 share certificate in Nunley's name and issued 6,332 shares to Betsi Magee, McFarland's daughter and his designated stock holder, and 2,332 shares to Nunley. It also reports that Nunley and Anderson discussed Nunley's purchase from McFarland of additional shares sufficient to increase his ownership interest to 49%. McFarland also indicated that he wanted Nunley to purchase the shares owned by McFarland's heirs within 90 days of his death or retirement.

¶ 11 The second section of the McRae Minutes purports to list the items to which the parties agreed at the Special Directors Meeting as follows:

1. Stock certificate[s] would issue as set forth above.

2. Westates Casing, Inc., would sign a note owing to the McFarland Family in the sum of $58,500.00² together with interest. . . .

3. Cecil Nunley will have the right to purchase up to 49 percent of the outstanding stock at the price of $15.00 per share. There shall be no time limit set for the purchase of said stock.

4. Cecil and Gene will be entitled to receive the same amount of money as salary.

¶ 12 In response to the McRae Minutes, Anderson sent a letter on November 21, 1990, to Pat McRae, Westates' secretary and one of its board members, which stated, "I have amended the minutes in order to reflect Nunley's understanding of the underlying agreement. We would have no interest in continuing to do business with McFarland or to acquire 49 percent of the stock if, ultimately, Nunley could not acquire 51 percent of the company." The Anderson Minutes, signed only by Nunley, were attached. The minutes were identical to the McRae Minutes but added a sentence to the first section which stated, "Mr. Nunley also needed an option to buy 2 percent more common stock in order to give him control of the company upon death or retirement of McFarland at market prices." The Anderson Minutes also added a sentence to the second section which stated, "Cecil Nunley will have the right to acquire additional shares of stock upon death or retirement of Gene...