Yates v. Bridge Trading Co.

• Decision Date: 27 October 1992
• Docket Number: No. 60217,60217
• Citation: Yates v. Bridge Trading Co., 844 S.W.2d 56 (Mo. App. 1992)
• Parties: James M. YATES, Plaintiff-Appellant, v. BRIDGE TRADING COMPANY, et al., Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 56

844 S.W.2d 56

James M. YATES, Plaintiff-Appellant, v. BRIDGE TRADING COMPANY, et al., Defendants-Respondents.

No. 60217.

Missouri Court of Appeals,

Eastern District,

Division Three.

Oct. 27, 1992.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Dec. 3, 1992.

Application to Transfer Denied Jan. 26, 1993.

Peper, Martin, Jensen, Maichel & Hetlage, Audrey G. Fleissig, Lewis R. Mills, Robert Schultz, Diana Schmidt, St. Louis, for plaintiff-appellant.

Armstrong, Teasdale, Schlafly & Davis, Edwin L. Noel, Thomas B. Weaver, Glenn E. Davis, St. Louis, for defendants-respondents.

PUDLOWSKI, Judge.

This case involves the issuance of stock for a promissory note by a Delaware corporation having its principal place of business in Missouri. Plaintiff-appellant, James M. Yates, appeals a court tried judgment by the Circuit Court for the City of St. Louis finding the contract arising from a stock purchase agreement void under Missouri law because the consideration exchanged for the stock was a promissory note.

On appeal, Yates argues that the trial court erred in entering judgment for respondent, Bridge Trading Company, on several grounds. First, appellant argues he had tendered full payment of a promissory note signed by appellant in exchange for shares curing any defect in the consideration paid for the shares. Next, appellant states the trial court erred in that he proved respondents had converted his shares. Appellant further argues that the trial court incorrectly applied section 351.160 of the General and Business Corporation Law of Missouri because the "internal affairs doctrine" bars the application of Missouri law to a stock issuance by a corporation organized under the laws of another state. § 351.160, RSMo 1986. Appellant urges, notwithstanding the choice of law stipulation contained in the disputed stock purchase agreement, that section 351.160 by its express and defined terms does not apply to stock issuances by foreign corporations. Appellant also contends the trial court should have applied Delaware law to the stock issuance transaction based on the principles set out in the Restatement (Second) of the Conflict of Laws.

Appellant's next points of error assume that the court should have applied Delaware law and entered judgment for Yates based upon the application of that law. Appellant argues that under Delaware corporate law, stock issued in exchange for a promissory note is voidable (rather than void, as in Missouri), invoking the court's equitable jurisdiction, and balancing the equities entitles Yates to possession of the disputed shares of stock. Continuing on the assumption that the contract should be given effect in equity, appellant argues that respondents are barred by waiver, laches and estoppel from contesting the validity of the stock purchase agreement.

Appellant's final set of points centers on the effect of the dissolution and liquidation of Bridge Trading Company on its obligation under the stock purchase agreement to turn over the disputed shares to appellant.

We affirm.

I. Facts

The instant case was tried without a jury entitling this court to review both findings of fact and conclusions of law made by the trial judge. In a court tried case, we affirm the judgment of the trial judge unless there is no substantial evidence to support it, unless it is against the weight of the evidence, or unless it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). Additionally, we defer to the judgment of the trial judge in assessing the credibility of testifying witnesses. Rule 73.01(c)(2).

At the outset, we note that respondent's brief disputes certain findings of fact. The disputed findings of fact along with all relevant findings of fact have been reviewed in accordance with the standards set out above. We find that each finding of fact was supported by substantial evidence. We are not firmly convinced that any finding was against the weight of the evidence and defer to the trial court's superior ability in evaluating the credibility of testifying witnesses.

In 1974, appellant Yates and defendants Charles A. Lebens, William C. Stafford, William P. Riley and Harry L. Franc, III, founded Bridge Holding Company (Holding)- --a Missouri corporation. Holding owned two subsidiary corporations, Bridge Trading Company (Old Trading) and Bridge Data Company (Data). Both subsidiaries were organized under the laws of Delaware and had their principal place of business in Missouri. Appellant served as the president of both Data and Holding until his removal from those positions in 1986.

The purpose of this corporate triangle was to develop and market a computer system--the "Bridge System"--to receive and process "real time, last sale" information from major security exchanges. The processed information was sold to institutional investors. Data and Old Trading were formed as separate corporations to comply with various New York Stock Exchange and SEC regulations. Data developed the computer system and received and processed the raw information. Old Trading sold the processed information to institutional customers. The two subsidiaries were closely related with each depending on the other for continuing viability.

In 1977, Holding sold 100% of its stock in Old Trading to Loewi & Co., a regional brokerage firm. After 1977, Old Trading was never again owned by Holding although the companies continued to be closely affiliated because of their symbiotic relationship. As part of the sale, Data entered into an exclusive marketing arrangement with Old Trading to sell the system's services to institutional customers. In 1978, Timothy Noble and others purchased Old Trading from Loewi. In 1981 or 1982, the board of directors at Old Trading decided to recapitalize Old Trading.

In April 1983, an agreement was reached in which certain individuals including appellant were offered the opportunity to purchase Old Trading stock. The stock purchase agreement, dated April 1, 1983, stipulated that the stock in Old Trading could be purchased for $3.56 per share. The stock purchase agreement expressly contemplated that the shares would be paid for with a promissory note. The note was secured by a pledge of the stock purchased from Old Trading. The promissory note, executed by the parties to the stock purchase agreement, was a demand note, and the trial court found that demand for payment was never made upon Yates before he tendered payment in 1987. The stock purchase agreement contained certain repurchase options and transfer restrictions. The agreement additionally provided: "This agreement and all restrictions on stock transfer created hereby shall terminate on the occurrence of ... [t]he bankruptcy or dissolution of the company." The promissory note and the pledge agreement did not contain a similar restriction.

The shares when distributed--combined with some shares already owned by certain parties gave the shareholders in Old Trading the following interests:

    Shareholder       Number of Shares
                Harry L. Franc III         45,000
                Charles A. Lebens          45,000
                Timothy F. Noble           45,000
                William P. Riley,Jr.       35,000
                William C. Stafford        35,000
                Mark A. Minister           18,000
                Robert E. Hermanson        18,000
                Kenneth M. Spence          18,000
                James M. Yates             18,000
                James E. Schlueter          8,961
                

Appellant did not participate in the negotiation or drafting of the stock purchase agreement. Appellant signed the stock purchase agreement and executed a promissory note for $64,080, secured by a pledge of the shares. In April 1983, each party listed in the table above, except James Schlueter, purchased the shares offered them in the stock purchase agreement by executing a promissory note. In November and December of 1983, all of the parties, except for appellant, who had purchased the stock paid the balance on their promissory notes. Seven of the nine parties to the stock purchase transaction received bonuses from Old Trading late in 1983 which they used to pay off the balance of their promissory notes and claim their pledged shares. Appellant did not receive a bonus and made no payment on the note at that time.

At no time did appellant receive a pay check from Old Trading nor was he formally an employee of Old Trading for tax purposes. Unlike defendants Lebens Franc, Stafford, Riley and Hermanson who were paid by Old Trading, appellant received his pay from Data. He did not receive the late 1983 bonus from Old Trading as the employees of that company did. The trial court specifically found that appellant was never an employee of Old Trading in any sense of the word. Appellant was, however, an insider due to the close relationship between Data and Old Trading. His close working relationship with Old Trading was the reason behind his inclusion in the stock purchase plan.

After April 1983, appellant exercised his rights over the stock he had purchased with the promissory note. In 1986, a merger was proposed between Old Trading and Holding, the parent of Data. Appellant voted the 18,000 shares in opposition to that merger and, thereby, blocked its occurrence. In 1987, appellant again voted the 18,000 shares against another proposed merger. Appellant was listed in the proxy materials of Old Trading as the owner of 18,000 shares of Old Trading stock.

On June 30, 1987, Old Trading filed its articles of dissolution with the Secretary of State for the State of Delaware. In the process of dissolution, Old Trading transferred all of its assets to a subsidiary of Bridge Information Systems (Information) (f/k/a Holding). Information then distributed stock to the shareholders of moribund Old Trading at the rate of ten shares of Information stock for each share of Old Trading stock. During July 1987, appellant attempted to sell his shares of Old Trading to an outside company, TA Associates, for $75.00 per share but was unable to do so...