Rogers Walla Walla, Inc. v. Ballard
| Decision Date | 11 August 1976 |
| Docket Number | No. 2296--II,2296--II |
| Citation | 16 Wn.App. 81,553 P.2d 1372 |
| Parties | ROGERS WALLA WALLA, INC., an Oregon Corporation, Respondent, v. Charles H. BALLARD and Eileen M. Ballard, Appellants. |
| Court | Washington Court of Appeals |
Perry J. Robinson, Yakima, for appellants.
Evan L. Schwab, Davis, Wright, Todd, Riese & Jones, Stimson Bullitt, Riddell, Williams, Ivie, Bullitt & Walkinshaw, Seattle, for respondent.
Defendants Charles H. and Eileen M. Ballard, husband and wife, appeal from a decree of specific performance of a 'stock buy-out' agreement requiring them to sell the plaintiff, Rogers Walla Walla, Inc. ('Rogers'), 2,400 shares of its stock for the stated sum of $10,000. The decree is challenged as improper against Eileen M. Ballard individually because she had not signed the buy-out agreement and the stock ownership was subsequently alleged to have been converted to joint tenancy. The appeal also challenges the availability of specific performance as a remedy. These challenges raise three issues: (1) the effect of a designation of the shares in joint tenancy upon their original community property status; (2) whether the shares had been subject to a stock split or a stock dividend as the result of a corporate merger; and (3) whether Rogers is a close corporation. For the reasons stated below we affirm the judgment.
Charles H. Ballard became an employee of Rogers Walla Walla Canning Company in 1962. On April 1, 1964, he became its Executive Vice President, actively in charge of daily operations. On April 14, 1964, pursuant to resolution of the company's board of directors, Ballard entered into an agreement to purchase 100 shares of the company's treasury stock for $10,000. With the objective of securing 10 years of loyal service from Ballard, the agreement concluded as follows:
It is mutually agreed that if, at any time within ten years from date hereof, Ballard ceases employment or desires to sell said shares, or any portion thereof, they shall be sold only to Rogers, and said Rogers agrees to purchase said shares for $100 per share. This paragraph shall not apply in the event the company sells or disposes of all of its assets, or in the event the control of Rogers passes from the Rogers family.
A certificate representing 100 shares of Rogers $100 par value common stock was issued in the name of Charles H. Ballard.
In 1966, the board of directors became concerned over the large amount of earned surplus on the books. The board was also aware of the possibility of acquiring the controlling interest in Country Gardens, a vegetable processing corporation. In order for Rogers to reduce its earned surplus and gain control of Country Gardens, a merger was agreed upon. Consequently, Rogers' authorized capital stock was increased from 30,000 shares of $100 par value common to 1 million shares of no-par common with a stated value of $6 per share. The existing 26,911 shares of outstanding common stock and 2,398 treasury shares were split 24 to 1. Rogers acquired a total of 218,434 outstanding shares of Country Gardens stock. Country Gardens shares held as its treasury stock and by Rogers were cancelled. The balance of Country Gardens common outstanding, apparently 67,775 shares, was converted 1 for 1 into shares of the merged corporation, Rogers Walla Walla, Inc. Rogers' earned surplus was ultimately capitalized, incident to the stock split, in the amount of $1,289,596. 1
On May 1, 1967, following the stock split, Ballard exchanged his 100-share certificate for a certificate showing Charles H. Ballard and Eileen M. Ballard to be the owners 'as joint tenants with right of survivorship' of 2,400 shares of Rogers no-par common stock.
In 1971, Rogers was faced with new State Department of Ecology standards for water quality affecting its industrial waste disposal. Ballard was instructed by the board of directors to negotiate a contract with the City of Walla Walla for waste disposal. However, in an effort to secure better terms, he delayed signing the contract which resulted in the Department of Ecology imposing penalties and issuing an order terminating Rogers' industrial waste discharge permit. The board asked Ballard for his resignation for failure to carry out its orders. Following Ballard's resignation, Rogers sought return of the 1967 stock certificate and, in the pleadings, tendered the purchase price of $10,000. Ballard refused to return the certificate.
Rogers filed this action for specific performance of Ballard's 1964 agreement to resell the stock then issued to him, should his employment be terminated, on the theory that the original 100 shares were embodied in the 2,400 shares acquired in the 1967 stock split. The company also sought return of $1,680 in dividends paid to the Ballards on the stock since Mr. Ballard's resignation. The trial court, sitting without a jury, decreed specific performance and directed defendants to return the certificate representing 2,400 shares of stock upon tender of $10,000 plus interest, and entered a judgment for return of the dividends.
The court subsequently refused a motion to reopen on the question of the current value of the 2,400 shares, but did allow the Ballards to reopen to determine whether the 2,400 shares were the result of a stock dividend or stock split. The conclusion remained that a stock split had occurred.
The Ballards' chief argument on appeal proceeds as follows. As a prerequisite to a decree of specific performance, there must be an existing, valid contract binding the parties whose performance is sought. Even though a binding contract may once have existed, specific performance is improper if the contract has been abandoned or repudiated by the complaining party. 71 Am.Jur.2d, Specific Performance, § 13, pp. 27--28 (1973). In this case, Charles Ballard entered into a 1964 agreement to buy and resell 100 shares of Rogers stock, which were issued in his name but concededly held as community property. Eileen Ballard did not sign the contract. However, in 1967 the former certificate was surrendered in exchange for a new certificate for 2,400 shares, describing joint tenancy ownership and shown as such on Rogers' records. No new contract similar to the 1964 one was signed. Thus, defendants argue (1) that the 1964 agreement requiring Charles Ballard to resell his shares upon leaving employment does not apply to the 2,400 shares or at most applies to 100 shares. This is because they say the agreement was superseded when Rogers called in the 100 shares and issued 2,400 replacement shares in joint tenancy, in effect a new shareholder's agreement without continuing the restriction on the sale of stock. (2) Even assuming the 1964 contract carried through to all the 2,400 substituted shares, it cannot now be the basis for specific performance, since Rogers has consented to ownership in joint tenancy by so listing in its records, and Charles Ballard cannot be forced to convey the subject of a contract to which his cotenant, Eileen M. Ballard, is not a party, without her consent.
We agree that one contenant cannot transfer ownership of more than his share of property without the consent of the other, and that specific performance of an agreement should not lie against one who is not a party to the agreement. However, we conclude defendants cannot prevail on these theories.
Initially, although the oral arguments of trial counsel 2 have not been included in the statement of facts, it appears from the balance of the record on appeal that these theories were not presented in the superior court. Therefore, we need not consider them here. Matthias v. Lehn & Fink Prod. Corp., 70 Wash.2d 541, 424 P.2d 284 (1967). But because defendants have pressed this argument with vigor and at length on appeal, and because defendants have been represented by three different law firms since the trial began, it is appropriate that we consider its merits.
On the merits, defendants' argument runs counter to their admission that the 100 shares of stock were originally acquired as community property and the unchallenged finding of fact that all acts done by Charles Ballard were on behalf of the marital community. Since Charles agreed on behalf of the marital community to resell the stock if he left Rogers' employ, both husband and wife were obligated by the contract terms. Nevertheless, the Ballards contend that the issuance of new stock, in joint tenancy and without restriction upon its sale, had the effect of negating Eileen's aspect of the original, community obligation to resell.
Before disposing of this issue, we must consider the defendants' argument that the court's finding of a stock split of 24 to 1 is unsupported by the evidence. This is important because assuming the 1964 agreement remains viable, Ballards argue that the 1967 exchange was a 2,300 share dividend that should be unaffected by the decree of specific performance of the agreement to resell only 100 shares. The defendants contend the capitalization of earnings surplus in the amount of $3,000,000 settles the issue of dividend versus split. 3 While stock dividends are ordinarily paid out of earnings transferred to capital, a capitalization of earnings incident to an increase in the number of outstanding shares is far from conclusive as to whether the transaction is properly designated a dividend or split. 11 W. Fletcher, Cyclopedia of Corporations, §§ 5359--5362.1 (M. Wolf, Rev. ed. 1971). Plaintiff's experts identified and applied several other factors in determining the character of the transaction. We summarize these considerations as follows: (1) It is clear that Rogers' board of directors Intended the distribution be treated as a split; (2) the distribution resulted in a pronounced ratio of new shares to old; ordinarily, 25 percent is viewed as the maximum share increase for a stock dividend, as distinguished from a split 4; (3) there was no recent...
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