Case Title: BENNETT v. FOUST

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 2000-02-22T00:00:00Z

Document:
BENNETT v. FOUST2000 WY 24996 P.2d 693Case Number: 98-260Decided: 02/22/2000Supreme Court of Wyoming
 
Richard BENNETT, 
individually and Peterson Distributing Company, a Wyoming corporation jointly 
and severally, Appellant (Plaintiff), v.Ingrid FOUST, Personal 
Representative of the Estate of Lillian Bennett; and Kelly Clay, Appellees 
(Defendants).

Appeal from the District 
Court, Fremont County, D. Terry Rogers, J.

Representing 
Appellant: Gregory C. Dyekman and 
Kristen J. Schlattmann of Dray, Thomson & Dyekman, P.C., Cheyenne, WY. 
Argument by Mr. Dyekman.Representing Appellees: Thomas A. Fasse of 
Miller & Fasse, P.C., Riverton, WY for appellee Foust; and John W. Davis of 
John W. Davis, Attorney at Law, P.C., Worland, WY for appellee Clay. Argument by 
Messrs. Fasse and Davis.

Before 
LEHMAN, C.J., and THOMAS, MACY, GOLDEN, and HILL, JJ.

LEHMAN, Chief 
Justice.

[¶1] After the 
appellee personal representative entered into a contract for sale of the 
estate's corporate stock, appellant filed suit seeking to enjoin the sale, 
relying on the corporation's Buy-Sell Agreement. The district court entered 
summary judgment declaring the contract for sale valid and unimpeded by the 
Buy-Sell Agreement. We conclude that the appellant provided notice, pursuant to 
the provisions of the Buy-Sell Agreement, that the company intended to exercise 
its option to purchase the stock, thus precluding the personal representative 
from selling the stock to anyone else. Accordingly, we 
reverse.

ISSUES

[¶2] Appellant 
Richard Bennett presents two issues for our review:

1. A Buy-Sell Agreement 
executed by a corporation and its shareholders which restricts the transfer of 
stock of the corporation is not manifestly unreasonable and is therefore valid, 
binding and enforceable, and consistent with public 
policy.

2. Shareholders may not 
circumvent a Buy-Sell Agreement executed by the corporation and its shareholders 
and sell shares of a corporation to a non-shareholder when such a sale is not 
contemplated or permitted by the agreement.

[¶3] Appellees 
Ingrid Foust and Kelly Clay rephrase the issues as:

1. Did the district court 
err when it ruled that paragraph 7 of the Peterson Distributing Company's 
Buy-Sell Agreement, allowing an absolute, arbitrary veto of any and all 
transfers of shares for any reason, was "manifestly 
unreasonable?"

2. Did the district court 
commit reversible error when it ruled that third persons could make offers to 
purchase Peterson Distributing Company stock subject to meeting the valid terms 
of the Buy-Sell Agreement?

FACTS

[¶4] Peterson 
Distributing Company was formed by Richard Bennett Sr. and Lillian Bennett, 
husband and wife, and Lillian's mother, Tilda Peterson, on June 23, 1953. The 
company was created for the purpose of the wholesale distribution of malt 
beverages, with its principal place of business in Fremont County. Richard 
Bennett Sr. and Tilda Peterson passed away, and ownership of the company 
filtered down to the next generation. As of June 4, 1990, appellant Richard K. 
Bennett Jr.(Bennett) owned 55%, his sister, Linda Treadway (Treadway), owned 
35%, and their mother, Lillian Bennett, retained 10% of the available shares. 
Bennett served as President of the corporation, while Treadway served as 
secretary-treasurer.

[¶5] On July 27, 
1990, the shareholders entered into the Peterson Distributing Company Buy-Sell 
Agreement. The agreement provided procedures for the transfer of available stock 
in the event that any of the shareholders desired to sell during their 
lifetimes, received an offer from a non-shareholder, or died. The agreement 
established a mechanism for the determination of share price upon the death of 
any shareholder and provided that the corporation could veto any attempted 
transfer of stock to non-shareholders.

[¶6] Lillian 
Bennett died on September 16, 1996, and her daughter Ingrid Foust (Foust) was 
appointed personal representative of the estate. On September 26, 1996, notice 
of a special meeting of Peterson Distributing Company was sent to Foust, among 
others. The notice advised that:

Items of business to be 
covered shall be to determine persons with access to the corporate banking 
accounts, to review the Buy-Sell Agreement dated the 27th day of July, 1990 and 
to give notice to the appropriate persons of the intent to exercise the rights 
held by the corporation and/or by Richard Bennett under the terms of the 
Buy-Sell Agreement.

[¶7] At the 
special meeting held on October 10, 1996, Bennett stated in the form of a motion 
that:

On behalf of Peterson 
Distributing Company, I am giving notice to all shareholders that the 
Corporation is exercising its right pursuant to the Buy-Sell Agreement to 
purchase the shares of Lillian Bennett.

[¶8] After some 
discussion, Bennett called for a second to the motion. Receiving none, he called 
for a vote. Bennett voted his 55% for the motion, while Foust and Treadway 
abstained. No further action was taken on this motion by either the corporation 
or the estate. 

[¶9] 
Approximately two months after the corporate notice, on December 17, 1996, Foust 
entered into a contract with Kelly Clay (Clay), a competing distributor, for the 
sale of her mother's 10% interest in the corporation. They executed an escrow 
agreement, and the purchase price of $28,571.43 was placed in escrow pending 
resolution of the issues related to the Buy-Sell Agreement. Foust sent Bennett 
notice of the contract on December 30, 1996. On January 7, 1997, asserting he 
was entitled to examine the offer and escrow agreement, Bennett objected to the 
terms and conditions of the notice.

[¶10] On 
February 3, 1997, Bennett filed a complaint in district court requesting that 
the court declare the parties' rights and obligations under the Buy-Sell 
Agreement. He also asked for an order temporarily restraining and permanently 
enjoining Foust from selling to Clay. On July 7, 1997, Bennett offered to buy, 
at the same per share price offered by Clay, his pro rata share of Lillian's 
shares pursuant to the Buy-Sell Agreement's provisions for purchase by 
shareholders. On November 5, 1997, Bennett attempted to make an initial payment 
on the shares, by sending the estate $2,800.00.

[¶11] Foust and 
Clay moved for summary judgment, declaring that the sale to Clay was valid and 
subject to no impediment from the Buy-Sell Agreement. The district court found 
that Foust gave notice of intent to dispose of the shares to the corporation, 
that the corporation did not respond within the prescribed period and, 
therefore, had waived its right to purchase the shares. The court further found 
that the corporation could not veto the sale, as paragraph 7.1 of the agreement 
was an unreasonable restriction on the transfer of shares because it did not 
provide a time limit or state that consent could not be unreasonably withheld.1 The district court later found that 
the order was final pursuant to W.R.C.P. 54(b), and this timely appeal 
followed.

STANDARD OF 
REVIEW

[¶12] Summary 
judgment is appropriate when there is no genuine issue as to any material fact 
and the moving party is entitled to judgment as a matter of law. W.R.C.P. 
56(c).

[¶13] We review 
a summary judgment in the same light as the district court, using the same 
materials and following the same standards. We examine the record from the 
vantage point most favorable to the party opposing the motion, and we give that 
party the benefit of all favorable inferences which may fairly be drawn from the 
record. A material fact is one which, if proved, would have the effect of 
establishing or refuting an essential element of the cause of action or defense 
asserted by the parties.

[¶14] 40 North 
Corp. v. Morrell, 964 P.2d 423, 426 (Wyo. 1998) (citations 
omitted).

[¶15] We have 
held that summary judgment is appropriate in cases involving contracts when the 
language of the agreement is plain and unequivocal. Id.; Flying J, Inc. v. 
Booth, 773 P.2d 144, 148 (Wyo. 1989). The interpretation of an unambiguous 
contract is a question of law; and, for that reason, summary judgment is 
appropriate with respect to disputes relating to unambiguous contracts. 40 North 
Corp., 964 P.2d  at 426; Lincoln v. Wackenhut Corp., 867 P.2d 701, 703 (Wyo. 
1994).

DISCUSSION

[¶16] Foust and 
Clay contend that the corporation only has a reasonable amount of time to 
execute a purchase agreement upon the death of a shareholder. If no such 
agreement is made within a reasonable time, Foust and Clay argue that the 
personal representative is permitted to entertain offers from non-shareholders. 
Bennett counters that the plain language of the Buy-Sell Agreement does not 
provide for the sale to non-shareholders upon the death of a shareholder and 
argues that the provisions of the agreement require the corporation or the 
remaining shareholders to purchase the shares from the estate. We need not 
consider whether the agreement permits sales to non-shareholders upon the death 
of a shareholder because we find that the corporation properly exercised its 
option to purchase the shares, thereby precluding the sale to 
Clay.

[¶17] The 
agreement provides specific procedures for the purchase of shares upon the death 
of any shareholder. Paragraph 5.1 provides:

Upon the death of any 
Shareholder, except for the provision contained in paragraph 4.12 above, the Personal Representative 
of the decedent's estate, or the heirs and devisees of the decedent, as the case 
may be, shall sell to the Company and the Company shall purchase from the 
Personal Representative, or the heirs and devisees, all the decedent's shares of 
stock in the Company. If within 30 days following the death of the deceased 
Shareholder the Company shall not give notice of the intent to purchase the 
decedent's shares, then, within 90 days after the Company's 30 day notice period 
the Shareholder shall have the right to give notice of intent to purchase the 
shares upon the terms and conditions set forth herein.

[¶18] Once the 
company gives notice of its intent to purchase the decedent's shares, the 
agreement provides mechanisms for establishing the purchase 
price.

[¶19] 6. 
PURCHASE PRICE UPON DEATH OF SHAREHOLDER:

6.1 The purchase price 
shall, annually, on the date of the annual shareholders' meeting, be agreed upon 
between the Company and the Shareholders and shall be endorsed on this 
agreement.

6.2 If the Shareholders 
do not endorse the purchase price in the year preceding the decedent's death, 
they may, by agreement, use the last previously agreed upon purchase 
price.

6.3 If the parties can 
not agree to the purchase price, then the purchase price shall be established by 
a board of arbitrators. The parties hereto agree to submit the matter to 
arbitration and agree to be bound by the decision of the 
arbitrators.

[¶20] The 
agreement then provides a mechanism for the appointment of the board of 
arbitrators.

[¶21] Upon 
establishment of the purchase price, if the decedent was not covered by a key 
man insurance policy, the agreement provides:

5.5 If the value of the 
life insurance on the decendent [sic] is less than the purchase price, or if the 
decedent not be insured, then the Company shall issue to the Personal 
Representative of the estate or to the heirs and devisees of the decedent, its 
promissory note for the balance of the purchase price, payable over a period of 
ten (10) years, in equal annual installments, together with interest at 10% per 
annum on the unpaid balance. Payment shall commence one year from the purchase 
date.

[¶22] Turning to 
the effect of these provisions, we first conclude that paragraph 5.1 
establishes, upon the death of any shareholder, an option contract in favor of 
the corporation.

[¶23] An option 
is a continuing offer to sell and, even though it is conditioned for exercise 
within a limited time, the option is nevertheless an executory, unilateral 
contract. . . . The exclusive right to conclude the transaction must be vested 
solely in the optionee, and the option or must have no choice but to abide by 
the terms of the commitment.

[¶24] Covey v. 
Covey's Little America, Inc., 378 P.2d 506, 517 (Wyo. 1963). Once an option is 
exercised, it converts from a unilateral to a bilateral contract, which binds 
both parties. Madison v. Marlatt, 619 P.2d 708, 714 (Wyo. 1980) (citing Braten 
v. Baker, 78 Wyo. 273, 282, 323 P.2d 929, 931 (1958)). 

[¶25] Foust and 
Clay argue that the option was lost, because Bennett did not execute, within a 
reasonable amount of time, the promissory note mentioned in paragraph 5.5. They 
point to the well-established rule of law that,

options are to be 
strictly construed and where the option is to be exercised within a stated time 
and in a particular manner, that must be done exactly as prescribed unless, 
perhaps, there is some intervening circumstance which the law recognizes as one 
of the impossibilities which make failure of compliance an exception to the 
rule.

[¶26] Bidache, 
Inc. v. Martin, 899 P.2d 872, 874 (Wyo. 1995) (quoting Crockett v. Lowther, 549 P.2d 303, 310 (Wyo. 1976) and Covey, 378 P.2d at 517).

[¶27] We cannot 
disagree with this rule; however, execution of the promissory note is not a 
necessary predicate to the valid exercise of the corporation's option. The plain 
language of paragraph 5.1 illustrates that the option is properly exercised when 
the corporation gives notice of intent to purchase the shares. There is no 
dispute that on October 10, 1996, Bennett, on behalf of the corporation, gave 
notice to the personal representative of its intention to purchase the 
decedent's shares. Since the condition precedent to the option, i.e., the death 
of a shareholder, took place and the option was exercised by giving notice, both 
parties were bound by the resulting bilateral contract to establish the purchase 
price for the shares pursuant to paragraph 6.

[¶28] 
Unfortunately, neither party made any effort to establish the purchase price. 
Foust and Clay contend that the resulting delay was unreasonably long, and 
"`[w]hen no time for performance is specified, the law implies performance must 
be within a reasonable time and what is a reasonable time depends upon the 
circumstances of each case.'" Matney v. Webster, 808 P.2d 212, 214 (Wyo. 1991) 
(quoting Zitterkopf v. Roussalis, 546 P.2d 436, 439 (Wyo. 1976)). However, such 
an assertion cannot be reasonably defended when Foust made no attempt to 
establish a purchase price or submit the matter to arbitration as provided by 
the agreement. In addition, the record is clear that Foust entered into the 
contract for sale with Clay less than three months after notice was given by the 
company, thus embarking the parties on the present litigation. Under these 
circumstances, we cannot say that the delay was 
unreasonable.

CONCLUSION

[¶29] We hold 
that notice by the corporation of its intention to purchase the decedent's 
shares pursuant to the Buy-Sell Agreement precluded Foust from accepting Clay's 
offer. Summary judgment, therefore, was improperly granted in favor of Foust and 
Clay. With notice given, the next step in the process, pursuant paragraphs 6.1 - 
6.3 of the Buy-Sell Agreement, is to establish a purchase price or submit the 
issue to binding arbitration. As we find that the estate is bound to sell its 
shares to the corporation, we need not consider the propriety of the district 
court's finding that paragraph 7.1 is an unreasonable restriction on the 
transfer of shares.

[¶30] Reversed 
and remanded for proceedings consistent with this opinion.

Footnotes

1 Paragraph 
7.1 provides:

7. 
NON-ALIENATION OF SHARES:

7.1 No 
Shareholder shall sell, assign, pledge, hypothecate, or in any manner transfer 
or encumber any interest in all or any part of the shares of stock of the 
Company without the prior written consent of the Company and all the other 
Shareholders.

2 Paragraph 
4.1 provides:

4. 
TESTAMENTARY DISPOSITION

 4.1 It is understood and agreed that 
Lillian Bennett may dispose of her shares by testamentary bequest to Linda 
Treadway. No other testamentary gift may be made by her, nor shall any 
testamentary disposition of shares by any other Shareholder be binding upon the 
Company or the Shareholders.