Woodrum v. Cowan, 11817

• Court: Texas Civil Court of Appeals
• Writing for the Court: O'QUINN
• Citation: Woodrum v. Cowan, 468 S.W.2d 592 (Tex. Ct. App. 1971)
• Decision Date: 26 May 1971
• Docket Number: No. 11817,11817
• Parties: Walter WOODRUM, Appellant, v. Ray COWAN and Jake Jacobsen, Appellees.

Page 592

468 S.W.2d 592

Walter WOODRUM, Appellant, v. Ray COWAN and Jake Jacobsen, Appellees.

No. 11817.

Court of Civil Appeals of Texas Austin.

May 26, 1971.

Rehearing Denied June 23, 1971.

Schulz, Hanna & Burke, W. L. Burke, Jr., McMahon, Smart, Sprain, Wilson & Camp, J. M. Lee, Abilene, for appellant.

Mitchell, Gilbert & McLean, Wallace A. McLean, Austin, for appellees.

O'QUINN, Justice.

Walter Woodrum, now the appellant, brought this suit against Ray Cowan and Jake Jacobsen for recovery of damages for breach of a written contract.

Cowan and Jacobsen filed a motion for summary judgment, and upon final hearing the trial court granted the motion and entered judgment that Woodrum take nothing.

We reverse the judgment of the trial court and remand the cause for trial on the question of damages.

The record before the trial court and before this Court includes the pleadings of the parties, eight oral depositions, three written interrogatories, affidavits and opposing affidavits, and briefs and arguments of counsel.

Prior to and for some four months after October of 1964 Walter Woodrum was president of the Bank of Commerce of Abilene, Texas, and owned about 73,682 shares of the common stock of the bank. In October of 1964 Ray Cowan and Jake Jacobsen acquired 68,926 shares of the bank's common stock, and on the date of this acquisition Woodrum, Cowan, and Jacobsen entered into a written contract under the terms of which they pooled all of their common stock, amounting to 142,608 shares. The parties to the contract agreed not to sell any of this block of stock to any other person without agreement of all parties to the contract. The parties also agreed to vote the entire block as a unit as long as any part of the shares were the subject of a pledge agreement with the Fort Worth National Bank of Fort Worth, Texas, where the parties had borrowed $426,897.35 in acquiring the common stock.

After this agreement, Woodrum continued as president, Ray Cowan became chairman of the board of directors, and all three of the men served as directors of the Abilene bank. About four months later some discord developed between Woodrum and the other two men. Cowan as chairman of the board refused authorization for Woodrum to receive a salary as president, and during the months of March and April of 1965 Woodrum was not paid. Woodrum was asked to move his offices from the bank itself into disconnected offices in the bank building. Woodrum testified by deposition that in other ways Cowan and Jacobsen interfered with his administration and that the course of conduct pursued by Cowan and Jacobsen was intended by them to put economic duress on Woodrum and compel him to sell his stock to Cowan and Jacobsen. The record shows that Woodrum did sell his stock to Cowan and Jacobsen under terms of a written contract entered into by the three men on May 12, 1965.

The basis of this lawsuit, which Woodrum subsequently brought against Cowan and Jacobsen, is the contract the parties made on May 12, 1965, which Woodrum alleged appellees breached by selling a controlling interest in the bank without sharing with him one-third of the profit as provided in the contract.

The provision of the contract upon which Woodrum relied in bringing suit reads:

'It is agreed by and between the parties that in the event that Ray Cowan and Jake Jacobsen should sell controlling interest in the bank, or a sufficient amount of stock to amount to 51% Of the bank's authorized capital stock to any one person, firm or corporation at any time within the next 2 years at and for a profit, that the said Ray Cowan and Jake Jacobsen will pay to Walter Woodrum his 1/3 share of the profit.'

The contract also provided that 'this contract is made in consummation of, implementation to and in accordance with the agreement of October, 1964 between the parties * * *' under which each of the three men held one-third of the block of 142,608, of which Woodrum initially owned 73,682 shares.

Cowan and Jacobsen sold the entire stock holdings to a grup of five men on September 3, 1965, or within less than five months after the agreement of May 12. Under the contract, as noted, Cowan and Jacobsen agreed that if they sold a controlling interest in the bank 'to any one person, firm or corporation at any time within the next two years' for a profit, they would 'pay to Walter Woodrum his 1/3 share of the profit.'

The principal question is whether sale of the stock, which the record shows was a controlling interest in the bank, to the group who purchased the stock constituted a sale to 'one person, firm, or corporation' within the meaning and intent of the contract of May 12 . Stated more precisely, the question is whether the five principals who acquired control of the bank from Cowan and Jacobsen were so constituted legaly as to be considered a firm within the meaning and intent of the contract.

The five men who bought the stock together were business and professional men in Abilene. Two of the men, Hal McGlothlin and Jack McGlothlin, were brothers engaged in various common interests, and were the purchasers who later furnished for the group $50,000 in earnest money in connection with the purchase. David Fry was a close friend of the McGlothlins and is shown to have had considerable banking experience. By prior agreement among the purchasers, Fry later became president of the bank. Joe Corbin, who by prior agreement later became chairman of the board of directors of the bank, was a brother-in-law of the McGlothlins. The fifth member of the group was Randall Jackson, an attorney having experience in banking who was also general counsel for another bank in Abilene. Jackson later became trustee for the group in handling money borrowed by the purchasers from the Fort Worth National Bank and in making distribution from the trust account of the funds due various persons, including Cowan and Jacobsen as the sellers of the stock.

Initial negotiations in behalf of the group was handled by Randall Jackson at the request of the purchasers. In the course of the negotiations Cowan represented that he would be able to deliver to the group controlling interest in the bank. Joe Corbin testified in answer to written interrogatories that '* * * the understanding and agreement between the five people was that the controlling interest in the bank would be acquired and that it would remain as a single block so that control of the bank would remain in one single block'.

It is undisputed that the purchasers felt that control of the bank was needed to insure continuity and centralized management, affording the right to dictate policies of the bank without interference from splinter groups. They were in agreement, and Cowan concurred, that holding controlling interest was of grave importance in administration, as well as in economics, and that a control block of stock was worth more money on a per share basis. Corbin testified that the five purchasers agreed that losses previously suffered by the bank and the consequent tax losses that could be carried forward would be used as offsets against income which three of the purchasers anticipated in the future. As it later turned out the extent of the losses were greater than the purchasers expected, although they recognized in advance that some losses would be experienced.

Following the initial negotiations between Cowan and Jackson, a meeting in Baird, Texas, was attended on August 28, 1965, by Hal McGlothlin, Corbin, Fry, and Jackson, representing the purchasrs, and by Cowan, Jacobsen, and J. W. Munson, who acted as trustee for Jacobsen in making a contract to sell. Jackson took the lead in negotiations in behalf of the purchasers, which resulted in a contract by which Cowan and Jacobsen agreed to sell 163,000 shares of stock in the Bank of Commerce for $6.90 per share. Earnest money in the amount of $50,000 was deposited in the Austin National Bank in Austin, Texas. Although Jack McGlothlin was not at the meeting, he testified that he had discussed the proposed purchase in advance with the other men in the group and the agreement made by them was with his sanction.

The contract provided that Cowan and Jacobsen could vary the number of shares subject to transfer, but the figure could not be reduced below fifty-one percent of the outstanding stock of the bank .

These negotiations culminated on September 3, 1965, in Fort Worth at the Fort Worth National Bank, with transfer of the Cowan and Jacobsen block of shares, in the amount of 162,191 shares. The stock was deposited in the Fort Worth bank, with all certificates executed in blank. The five purchasers executed a joint and several note in excess of $1,000,000 to the bank for the funds with which Jackson, as trustee for the group, paid Cowan and Jacobsen. At the time of these transactions the purchasers had not decided among themselves how the stock would be apportioned, a matter to be determined by them later.

The joint and several note executed by the five purchasers was the subject of a pledge with the Fort Worth bank under the terms of which control of the Abilene bank was to be maintained by the group as long as the note was outstanding and unpaid. The note was further secured by a pledge of stocks separately owned by the two McGlothlins and by Corbin.

In connection with the sale of the stock to the group, Cowan and others transferred by deed the real estate upon which the Abilene bank was located to Jackson as trustee. Jackson testified, 'The property deeded to me as trustee was donated as contributed capital to the Bank of Commerce. It was originally deeded directly to the bank; when the bank management and the State Banking Department did not agree on the method of carrying it on the books, then a loan was secured from the First Savings and Loan Association of San Angelo, and the monies received were donated to the bank as contributed capital.'

At the time of the sale of stock in ...