Sale v. Contran Corp.

• Decision Date: 28 September 1972
• Docket Number: No. 17925,17925
• Citation: 486 S.W.2d 161
• Parties: Jim S. SALE, Appellant, v. CONTRAN CORPORATION, Appellee.
• Court: Texas Court of Appeals

Page 161

486 S.W.2d 161

Jim S. SALE, Appellant, v. CONTRAN CORPORATION, Appellee.

No. 17925.

Court of Civil Appeals of Texas Dallas.

Sept. 28, 1972.

Rehearing Denied Oct. 26, 1972.

Roy C. Coffee, Jr., Coffee, Coffee & Chantilies, Dallas, for appellant.

D. Marshall Simmons, H. Robert Powell, Jenkens, Spradley & Gilchrist, Dallas, for appellee.

GUITTARD, Justice.

Jim Sale, a securities broker, sued Contran Corporation for a fee of $130,000 on an acquisition of stock which was never completed. The trial court rendered summary judgment denying recovery, and the broker appeals. We affirm on the ground that the broker's contract made the fee contingent on a 'purchase,' which never occurred.

The contract is evidenced by a letter dated April 16, 1969, from plaintiff Jim Sale to Harold Simmons, president of defendant Contran Corporation, as follows:

'Please call me and let me know when you will be able to go with me to Lafayette, Louisiana to explore the possibility of purchasing the Brown Thrift City drug chain and wholesale operations.

'Should these negotiations lead to a purchase by you or your corporations of this chain, my fee will be four (4%) per cent of the first million dollars and one (1%) per cent of any figure above one million dollars, payable in cash upon closing of the deal.'

Depositions in the record show that Sale and Simmons made the trip contemplated in this letter. They spent one day visiting with Brown and Castile, the principal shareholders of the Brown drug chain, and looking at some of their stores. Simmons then told Sale he had already done his part, and went ahead with the negotiations without him. On May 15 Contran and the Brown shareholders signed a 'letter of intent' evidencing a tentative agreement for Contran to purchase the assets of the Brown drug chain in exchange for shares of Contran's stock to be authorized at a meeting of its shareholders. On May 20 Simmons wrote Sale proposing that Sale's commission also be paid in Contran's stock valued on the same basis as in the trade with the owners of the Brown drug chain. Simmons promised, 'We will issue your stock at the same time we issue their stock.' Sale accepted this proposal in a letter dated May 21. On July 9 Contran and the shareholders of the Brown drug chain signed an elaborate 'agreement of reorganization' by which the Brown shareholders agreed, upon specified conditions, to transfer all their stock to Contran in exchange for 1,216,667 shares of Contran's stock, plus additional shares one year after the initial exchange. For reasons to be noted later, that agreement was cancelled by mutual releases and Contran's stockholders never authorized issuance of any stock to be exchanged for the Brown stock.

Plaintiff contends that the fee is due under authorities holding that a broker is entitled to compensation if he produces a prospect able and willing to trade on terms specified by the principal or if the principal and the prospect actually agree on the terms of a trade, even though the transaction is never completed for some cause not attributable to the broker. ¹ Those authorities do not control here because plaintiff's fee was expressly contingent on 'purchase' of the Brown drug chain, and, as we interpret the contract, this contingency never occurred.

The contract must be interpreted with reference to the nature of the transaction then in contemplation. Plaintiff was engaged in the occupation of trying to put sellers and purchasers of businesses together. Acquisition of a business such as the Brown drug chain is far more complex than an ordinary real estate transaction. As exemplified by the facts shown in this record, an acquisition proceeds through various stages, including initial contact, preliminary negotiations, a letter of intent stating the basic terms of the proposed acquisition, further negotiations concerning details; preparation and signing of a comprehensive acquisition agreement specifying various conditions to the obligations of both parties; efforts to satisfy these conditions by opinions of lawyers and accountants, shareholders' meetings, amendments to articles of incorporation, and rulings from agencies such as Internal Revenue Service and Securities Exchange Commission; and finally, a 'closing' at which the necessary documents are signed and delivered and titles to property or securities transferred. ² In this process the broker is employed only to make the initial contact. Completion of his service in that respect does not in itself entitle him to compensation. His fee is contingent on the success of negotiations and other activities in which he has little part. Presumably, he offsets the uncertainty of his compensation by fixing it at an amoung somewhat larger than his client would be willing to pay without a successful result.

Our problem is to identify the contingency upon which plaintiff's compensation depended. The controlling contractural language is: 'Should these negotiations lead to a purchase * * * my fee will be * * * payable in cash upon closing of the deal.' This language specifies 'purchase' as the controlling contingency, and we must determine the meaning of that term. In the context shown by the undisputed evidence, we conclude that 'purchase' means that the process of acquisition be completed, not aborted at some intermediate stage. Neither the 'letter of intent' nor the 'agreement of reorganization' was a successful completion of the acquisition process. Success could be established only by transfer of ownership of the properties to be acquired, ³ or, at least, by a binding contract which Contran could enforce.

Plaintiff argues that the 'agreement of reorganization' was a 'purchase' because it was a valid and binding contract for acquisition of the Brown drug chain. We cannot agree. That agreement, though comprehensive in its terms and obviously drafted with great care, was not a definitive resolution of the acquisition process. Many matters to be done and determined before closing were detailed in the various conditions of the obligations of each of the parties. One of the specified conditions of Contran's obligations was an amendment to its articles of incorporation authorizing issuance of stock to be transferred in the proposed exchange. By this express provision the parties recognized that Contran could not bind itself to issue its shares without a vote of its shareholders at a meeting properly called and conducted. Since no such authorization was ever obtained, neither Contran nor the Brown shareholders were bound.

Also, at least two of the specified conditions of the obligations of the Brown shareholders were not satisfied. One was that Contran would cause its subsidiary, Ward's Cut-Rate Drug Company, to obtain $10,000,000 by sale of securities and apply that amount on Ward's short term indebtedness. Because of a market decline, the underwriters who had previously indicated willingness to take Ward's securities declined to do so. Another express condition was that no material adverse change take place in the financial conditions or operations of Contran or its subsidiaries from that submitted to the Brown shareholders. Such a change did occur, in that a subsequent audit showed that Mading-Dugan, another subsidiary of Contran, had experienced a loss of $500,000 in the previous fiscal year, rather than the $500,000 profit shown on the interim financial statement furnished to the Brown shareholders. Since these express conditions were not satisfied, the case falls within the rule that the signing of a sale contract subject to a condition does not in itself entitle the broker to compensation unless the condition is met. ⁴

Plaintiff does not contend that these conditions or any of the other various conditions specified in the 'agreement of reorganization' were satisfied so that the agreement...