Shaffer v. Terrydale Management Corp., WD

• Decision Date: 01 March 1983
• Docket Number: No. WD,WD
• Parties: James W. SHAFFER, Respondent, v. TERRYDALE MANAGEMENT CORPORATION, Appellant. 32987.
• Court: Missouri Court of Appeals

Page 595

648 S.W.2d 595

James W. SHAFFER, Respondent, v. TERRYDALE MANAGEMENT CORPORATION, Appellant.

No. WD 32987.

Missouri Court of Appeals,

Western District.

March 1, 1983.

David A. Welte, Polsinelli, White & Schulte, Kansas City, for appellant.

Albert Thomson, Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, Kansas City, for respondent.

Before SHANGLER, P.J., and PRITCHARD and DIXON, JJ.

SHANGLER, Presiding Judge.

The plaintiffs Shaffer and Burrus brought an action for declaratory judgment to determine the right of defendant Terrydale Management Corporation to exercise an option to purchase their shares under the terms of a stockholders agreement. The plaintiff Burrus died during the pendency of the action and the widow as administratrix was substituted as a party. The trial court adjudged that Shaffer and Burrus were not in the "employment" of the Terrydale Corporation within the sense of the stockholders agreement and so, upon "termination of employment," their shares were not subject to the purchase option provision of that document. The court directed Terrydale to reinstate Shaffer and Burrus on the corporate records each as owner of 50 shares of the corporation stock. The trial court adjudged also that under the stockholders agreement Terrydale had the right to exercise the option to purchase the Burrus shares upon his death. The defendant Terrydale Management Corporation appeals only from the declaratory judgment in favor of Shaffer.

Terrydale Management Corporation was created to administer the assets of a real estate investment trust of commercial properties owned by J. Russell Gramlich. The trust idea, although original with Gramlich, was given form by the plaintiff Shaffer, an attorney, and the plaintiff Burrus, a financier and banker. The investment trust was made to qualify for public issue and was underwritten by a brokerage house. [The special work to accomplish the SEC certification was done by other law firms in occasional consultation with Shaffer.] The Gramlich assets were transferred into the trust [Terrydale Realty Trust] for an equivalent value of shares. The tax laws required that an entity separate from the trustees manage the investment trust, and the Terrydale Management Corporation was formed to administer those assets. The plaintiff Shaffer performed that work and became the management corporation attorney. Gramlich then directed Shaffer to prepare a document to insure that the corporation remain a family enterprise. The result was the stockholders agreement now in contention.

The real estate trust was the device attorney Shaffer chose as the estate plan for Gramlich. In the recent past, Gramlich was bereft of his wife and had come into sole ownership of a number of commercial properties from the dissolution of a partnership enterprise, and so Gramlich turned to Shaffer for advice. Shaffer, as well as Burrus, earned his trust some time earlier when they extricated Gramlich from an imminent financial loss and transformed that real estate venture into a profitable transaction. The three, Gramlich, Shaffer and Burrus, worked together to develop the real estate investment trust. Gramlich and Shaffer worked together to formulate the management corporation and the shareholders agreement. Shaffer was not only the attorney for the management corporation, but the Gramlich personal attorney, as well. Burrus was then the executive vice-president and loan officer of Columbia Union National Bank. The Terrydale Realty Trust and the Terrydale Management Corporation became active in year 1972. Shaffer served as director, sometimes as officer, as well as counsel, for the management company from incorporation until year 1978. Shaffer served also as consultant from year 1973 through year 1979 and received a stipend of $500 per month for that separate service. Shaffer was paid additional fees for legal counsel and commissions for real estate services. Burrus also served as director of the corporation virtually from inception as well as consultant until the end of year 1979. He was paid $500 per month for the consultation duty and was paid additional commissions for loan placements.

Terrydale Management Corporation was the instrumentality devised to administer the assets of the Terrydale Realty Trust. The investment trust was comprised of the assets of Gramlich alone, and the management company was also in actual effect his sole ownership. Gramlich designated the other shareholders to Shaffer and the number of shares allotted to each. [As Shaffer explained: "It was his company."] There were seven shareholders named and to each Gramlich assigned an ownership: son John--5%, son-in-law Baker--5%; son-in-law Kostoryz--5%; employee Leach--5%; employee Dutton--5%; Shaffer--10%; Burrus--10%. Gramlich retained control with 55% of the shares. ¹

In anticipation of the incorporation of the management company, Gramlich instructed Shaffer to prepare a document to ensure the option of the corporation to redeem the stock of a shareholder who became inactive. ² That concern was prompted by an experience of dissension and deadlock as an investor in a closely held corporation. Shaffer was experienced in such matters and agreed to draft the document as Gramlich directed. In this professional exercise [as he acknowledges] Shaffer acted as counsel for both Gramlich and the Terrydale Management Corporation. In due course, a Stockholders Agreement was drafted, and contained the provision since in dispute:

In the event that any of the parties hereto (which party or his legal representative is herein called the "Disposing Shareholder") terminates his employment with the Company, dies or desires to sell, pledge, hypothecate, donate, transfer, or otherwise dispose of or incumber any of the shares of the company ... then in any such event the Company shall have and is hereby granted an irrevocable option to purchase all or any portion of its shares owned by such disposing shareholder at the purchase price hereinafter provided. [emphasis added]

The shareholders Shaffer, Burrus, son Gramlich, Baker, Kostoryz, Leach and Dutton were all signatory to the stockholders agreement, and the shares as issued recited subordination to the restrictions declared in that agreement. Gramlich was not a personal signatory, and his ownership of shares was not affected by the terms of the document. In November of 1977 the agreement was amended to relieve son Gramlich and son-in-law Kostoryz from the obligations of the restrictions. In July of 1979, Gramlich fell ill and resigned from all responsibilities with Terrydale. The son Gramlich assumed that management duty. Shaffer and Burrus ceased all active participation in Terrydale affairs by the end of the year 1979. On January 16, 1980, Terrydale [per son Gramlich now advised by new counsel] terminated the monthly $500 consultation stipend. On February 25, 1980, counsel notified Shaffer and Burrus: "[d]ue to the fact you are no longer employed by Terrydale Management Corporation" the company exercised the option vested by the stockholders agreement to purchase the 50 shares each owned in the corporation. Terrydale tendered $8,068.50 to Shaffer and Burrus for the 50 shares owned by each at the determined book value of $161.37 per share. Shaffer and Burrus refused to redeem the stock on the contentions they were neither in the employment of the company nor did they terminate any employment--so that those terms of the stockholders agreement were not operative as to them. They brought an action for declaratory judgment to vindicate that construction of the document.

The court prefaced judgment with findings of fact and conclusions of law. The court determined as propositions of law that;

neither Burrus nor Shaffer was an employee of, employed by, or under "employment" by Terrydale ...

and

the consulting arrangement that both Burrus and Shaffer had with Terrydale was terminated by the unilateral action of John Gramlich, the new President of Terrydale, without the consent or approval of Burrus or Shaffer.

The court then decreed [and thereby implicitly adjudged that Shaffer and Burrus were not in the employment of Terrydale as that term is used in the stockholders agreement] that Terrydale reinstate Shaffer and Burrus on its records as owners of 50 shares of the corporation stock. The court thus came to judgment by principles of contract construction.

Terrydale contends on appeal that the court employed wrong principles of construction--or, at least, principles unexplicated. And, indeed, the conclusion of law entered by the court that neither Burrus nor Shaffer was an employee of, employed by, or under "employment" by Terrydale amounts to an adjudication that the meaning of the contract term under employment --the very subject of the declaratory judgment action--was manifest from the term itself. Grantham v. Rockhurst University, 563 S.W.2d 147, 150[2-11] (Mo.App.1978); Restatement (Second) of Contracts § 212(2) (1981). Terrydale contends that employment and terminates are ambiguous in context and that the court erred by failure to interpret those words in accordance with the obvious purpose of the stockholders agreement as disclosed by the entire contract formation transaction: to require shareholders, become inactive, to redeem their stock to Terrydale. The trial court received the testimony of Shaffer and Gramlich on what prompted Gramlich to that undertaking, the purpose of the stockholders agreement, the Gramlich directions to Shaffer to that end, and the understanding counsel attributed to them. The court, nevertheless, made no assessment of credibility, nor found the fact from among the conflict of evidence, nor expressly construed the document before it for adjudication, but simply declared as a matter of law that "neither Burrus nor Shaffer was an employee of, employed by, or under 'employment' by Terrydale." [emphasis added]

To the extent facts were found, they...