Simpson v. Joc Coal, Inc.

• Decision Date: 04 October 1984
• Docket Number: No. 83-SC-586-DG,83-SC-586-DG
• Citation: 677 S.W.2d 305
• Parties: James W. SIMPSON, Movant, v. JOC COAL, INC., JOC Coal (Kentucky) Inc., Joc Oil Exploration Company, Inc., Hydrocarbon Industries, Ltd., and JOC Oil Company, S.A., Respondents.
• Court: United States State Supreme Court — District of Kentucky

Page 305

677 S.W.2d 305

James W. SIMPSON, Movant, v. JOC COAL, INC., JOC Coal (Kentucky) Inc., Joc Oil

Exploration Company, Inc., Hydrocarbon Industries,

Ltd., and JOC Oil Company, S.A.,

Respondents.

No. 83-SC-586-DG

Supreme Court of Kentucky.

Oct. 4, 1984.

Paul E. Braden, Corbin, for movant.

Phillip Lewis, Hyden, Gerald W. Simmons, Cincinnati, Ohio, for respondents.

LEIBSON, Justice.

Movant, James W. Simpson, a minority shareholder in Skyuka Mining Corporation, recovered judgment in Clay Circuit Court against respondents, the JOC Companies, for $907,603.92, representing the value of Simpson's twenty-three (23) shares of stock in Skyuka as determined by the trial judge. This value was determined by computing the price per share the JOC Companies had agreed to pay to the majority shareholders under an agreement dated September 12, 1975.

Simpson was the president of Skyuka Mining. On April 18, 1975, JOC Companies had purchased all of the assets and liabilities of Skyuka for a maximum price of $9,000,000, of which $4,750,000 was guaranteed as a minimum and the balance of $4,250,000 was contingent upon future production. $1,500,000 was paid down and the balance was to be paid in installments at various intervals, with the first payment due September 30, 1975. This balance was represented by a Promissory Note. The Promissory Note was Skyuka's sole asset. Skyuka was a "subchapter S" corporation for tax purposes, and any monetary benefits accruing to Skyuka passed through directly to its shareholders. Simpson received his proportionate share of the $1,500,000 paid up front, but has received no additional compensation.

Between April and September 1975, conditions in the coal market began to deteriorate. In addition, the JOC Companies began to complain about the assets they had purchased. They undertook renegotiations with the majority shareholders which culminated in the agreement of September 12, 1975, the effect of which was to buy out these shareholders and transfer controlling interest in Skyuka to the JOC Companies. These shareholders were paid $39,461.04 per share for sixty shares of stock, and agreed there would be no more "flow through" of "monetary benefits to the shareholders" from JOC Companies' note.

Simpson was not a party to the modification agreement. However, his interest was recognized:

"[T]he parties to this agreement acknowledge that two Shareholders named in the Agreement, namely James W. Simpson and [blank] are not parties to this agreement. It is, however, understood and agreed that the JOC Companies will undertake to conclude a similar arrangement with James W. Simpson under which said James W. Simpson will also consent to a similar ammending [sic] of the Agreement."

This commitment is made somewhat ambiguous by the further statement that since Simpson "was not a party to the Purchase Agreement (another part of the package) ... the consideration for said Simpson's agreeing to such an ammendment [sic] of the Agreement will undoubtedly be based on some consideration which differs from the consideration specified in this agreement."

Another clause important to this transaction because it highlights the fact that Simpson had a substantial interest in the pass through of payments from JOC Companies to Skyuka which would terminate by reason of the agreement is the following:

"The JOC Companies agree to indemnify and hold the Shareholders named herein harmless from and against any and all claims, actions, damages or liabilities arising out of or by reason of said Shareholders entering into this agreement separate and apart from James W. Simpson."

Not surprisingly, JOC Companies made no further payments on the promissory note to Skyuka (except for bookkeeping entries in a Caribbean bank "without a physical transfer of cash"). The trial court found that "No good faith effort to negotiate with the plaintiff was ever made," a reasonable conclusion from the record.

Based on the agreement of September 12, 1975 and the testimony of record, the trial court also found that "by the same re-modified Agreement, the defendants agreed and obligated themselves, in consideration of the cancellation of the April Agreement, to enter a similar Agreement with the plaintiff, James W. Simpson." It concluded that:

"The defendants, are as a matter of law, jointly and severally liable to the plaintiff for the fair reasonable market value of his twenty-three (23) shares of stock in SKYUKA as a third party beneficiary of the September 12, 1975 Agreement. ... He, Simpson, is legally empowered to enforce the beneficial portions of this Agreement; he was a contemplated and intended beneficiary."

On appeal the Court of Appeals decided that Simpson had "no enforceable third-party beneficiary rights" and reversed. The Court of Appeals concluded that he was merely an incidental and not an intended beneficiary of the September 12, 1975 Agreement, citing Long v. Reiss, 290 Ky. 198, 160 S.W.2d 668 (1942) and Ball v. Cecil, 285 Ky. 438, 148 S.W.2d 273 (1941) as authority for this conclusion. It further concluded that "The portion of the September 12 Agreement concerning Simpson appears to be, at best, an agreement to agree," unenforceable because too indefinite and uncertain in its terms, citing Walker v. Keith, Ky., 382 S.W.2d 198 (1964). We have concluded that the record supports the trial judge's findings and conclusions that Simpson was an intended third party beneficiary and that the contract obligation of JOC Companies is sufficiently definite and certain in its terms to be enforceable. The findings of the trial judge are controlling unless "clearly erroneous." Largent v. Largent, Ky., 643 S.W.2d 261, 263 (1982). For reasons that will be stated, the cases cited by the Court of Appeals are not applicable in present circumstances. We reverse the Court of Appeals and affirm the trial court on these issues.

The rule stated in both Ball v. Cecil, supra, and Long v. Reiss, supra, is:

"It is settled in this State, as well as most jurisdictions in America, that a third party for whose benefit a contract is made may maintain an action thereon; however, he must have been a party to the consideration or the contract must have been made for his benefit, and the mere fact that he will be incidentally benefited by the performance of the contract is not sufficient to entitle him to enforce it." 148 S.W.2d @ 274; 160 S.W.2d @ 673.

The Long opinion continues "[A] third person may enforce a promise made for his benefit even though he is a stranger both to the contract and to the consideration. ... [I]t is not necessary that any consideration move from the third-party; it is enough if there is a sufficient consideration between the parties who make the agreement for the benefit of the third party." 160 S.W.2d @ 673.

The Long opinion then discusses the exception to the "American Majority Rule," which is that "the mere fact that a third person would be incidentally benefited does not give him a right to sue for its breach." Id. at 673.

In Long the court would not enforce the contract because the...