No. 84-371 

### IN THE SUPREMECOURTOF THE STATEOF MONTANA 1985

FAYEANN MADDOX, PlaintiffandAppellant,

FRANKA. NORMAN,JR., and GLORIA NORMAN andNORMAN RANCHES, INC.

## , Defendantsand Respondents.

APPEAL FROM: DistrictCourtof the Eighteenth Judicial District, Inand for the County of Gallatin, TheHonorable Thomas Olson, Judgepresiding.

COUNSEL OF RECORD:

ForAppellant: Berg,Coil, Stokes & Tollefsen, Bozeman,Montana

For Respondent: Moore, Rice,O'Connell & Refling, Bozeman,Montana



### .APgt Filed. Submitted on Briefs: Jan. 24, 1985 Decided: April 16, 1985

ClerkMr. Justice Frank R. Morrison delivered the Opinion of the Court. This is an appeal from the District Court's judgment valuing stock,rendered on remand from the original appeal to this Court. This Court's initial decision, published j.n Maddox v. Norman (Mont.1983), 669 P.2d 230, 40 St.Rep. 1463, provides a detailed factualaccount. Faye Ann Maddox and T. Donald Norman, brother and sister,brought an action in November, 1980 against their brother Frank A. Norman Jr., mother, Gloria 

### E. Norman, and Norman Ranches, Inc., tohave a receiver appointed to sellassets of the family ranch corporation. This Court affirmed the trial judge's d.ecisionordering Faye Madd.oxto sell her 75 shares to the corporation. We remanded the case for additional testimony supportingvaluation of corporate net worth 

### and.75 shares of stock. In 1961FrankNorman, Sr. incorporated his family ranch, Norman Ranches, Inc. He deeded title to 1140 acres to the family corporation in 1963. Frank, Jr., remained on the ranch with his father and mother while Faye and Don left to pursue other lifestyles. At the time of the initial action ownershipof corporate shareswas allocated as follows: Frank,Jr. 849 shares Gloria 1 share Faye 75 shares Don 75 shares Prior to commencement of the initial action, the corporation agreed to pay $175,000 for Faye and Don's 150 shares of stock, contingent upon financing. The corporation's failure to obtain financing caused this agreement to lapse. After the complaint was filed, Don Norman entered 

### a settlement agreement with the corporation by which he transferredhis 75 shares toNorman Ranches, Inc. in exchange for $20,000 plus 20 acres of corporate land. The trial court found this settlement to be fair, reasonable and voluntary and removed Don as a party pla.intiffin the action against Norman Ranches, Inc. Faye refused the corporation's offer to settle on the same terms accepted by Don. After a bench trial the trial judge ordered Faye to sell her 75 shares of ownership in the corporation pursuant to the same terms of Don's settlement: $20,000 plus a 20 acre tract of corporate land, comparable in value to the land deeded to Don. This Court remanded the action to the District Court for evidence supporting the net value of the corporation and the appraised value of the proposed 20 acres to be transferred to Faye in return for her stock holdings. Appellant appeals the District Court's valuation ofher stock ownership. On appeal the following issues are presented.: 

### I. Whether the court erred indetermining the networth of the corporateassets. 2. Whether the court erred in employing an agricultural appraisal to evaluate corporate lands and plaintiff's share value, but applying subdivision appraisal to determine the exchange value ofplaintiff's shares. 3. Whether the court erred in failing to consider the "agreed" value of plaintiff's stock in determining her "share"value. 

### 4. Whether the gain realized by the purchase of the Gerva-issection is in part a corporateasset. Appellant's four issues may be consolidated into a singular dispositive issue: Whether the District Court awarded proper value to Faye Ann Maddox for her share of stock inNorman Ranches, Inc.On remand, this Court directed the lower court to con-- sider certain items of evidence in determining the value of appellant's stock. These specific items include: 1. A corporate balance sheet documenting assets and liabilitiesof Norman Ranches, Inc. 2. An accountingby Frank Norman, Jr., 

### of all corporate funds including corporate rental income, leaseproceeds, and loan proceeds. 3. A claim by Frank, Jr., and Gloria for any or alllabor or improvements to corporateproperty. 4. Appraisals of all the lands proposed to be transferred in exchange for Faye's corporateownership. Having received these accounting documents and appraisals into evidence, the trial judge entered its initial judgment onApril 26, 1984. In Finding of FactNo. 19,the lower court found: "19. The networth of the corporationas of December 31, 1983 is as follows: Fairmarket value of land and improvements $640,000.00 Balance of 1970 loan to Frank Norman, Jr. 52,550.00 Profits receivable fromFrank Norman,Jr. 55,800.00 Cash ( 25.00) Less FederalLand Bank note ( 52,550.00) Less improvementsmade by Normans ( 38,090.00) NET WORTH Faye's 75 shares evidenced. a 7.5 percent ownership in the family corporation. Accordingly, the trial judge calculated the fair market value of Faye Maddox's stock as $49,326.38 which is 7.5 percent of the net corporateworth, $657,685.00. The trial judge also held the expired $175,000 purchase a.greementfor 150 sha.resestablished the "top value for theseshares" and that Don's settlement agreement of $20,000 plus 20 acres of corporate land was "the lowest value for Faye Maddox's shares.

### " In Finding No. 16 the trial judge found.: 

# ".

. . Therefore, the value of Faye Maddox's shares lies somewhere between FORTY THOUSAND DOLLARS ($40,O0 0) and EIGHTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS ($87,500.00)." At the accepted appraised value of $2,000per acre, the twenty-acre tract is worth $40,000. This land value plus $20,000 in cash establishes a "floor"on thevalue of Faye's stock of $60,000 instead of the $40,000 value quoted in the initial judgment. In its amended judgment on June 12, 1984, the trial judge justified the original value of $49,326.38 for Faye's stock ownership as follows: "Findings of fact number 15 and 16 contain obvious arithmetic errors. The value of T. Donald Norman's stock'is $20,000 plus the 20 acre tract valued at $2,000 per acre, for a total value of $60,000. The court cannot rationally conclude that this established the lower value of theplaintiff's stock becauseby the very nature of a compromise settlement, the ultimate value could have been higher or lower depending on whether the facts are viewed in favor of either party. For this reason findings of fact number 15 and 16 are stricken." The trial court did not disturb its original decision ordering Faye ~addox""to transfer her 75 shares of stock in Norman Ranches, Inc. The trial judge distributed the total amount due Faye Maddox in Conclusionof LawNo. 3 as follows: 'I3

# . Plaintiff shall transfer her 75 shares of stock in Norman Ranches, Inc. to Norman Ranches, Lnc. in exchange for receiving NINE THOUSAND THREE HUNDRED TWENTY-SIX AND 38/100 DOLLARS ($9,326.38) in cash and 

### a 20 acre tract 

### of land which equals FORTY THOUSAND DOLLARS ($40,000.00) worth of real estate owned by the corporation. Norman Ranches,

### Inc. shall convey tract A or tract B 

### to Faye Ann Maddox

# ." 

### We agree with the trial court's original finding that the settlement terms offered to and accepted by T. Donald Norman establish the "floor" value of 

### 75 shares of Norman Ranches, Inc. corporate stock. Therefore, $20,000 in cash plus 20 acres of corporate land is the minimum amountwhich Faye Maddox canbe awarded for her 75 

### sharesof stock ownership in the family-ranch corporation. The trial court erred by awarding the appellant $49,326.38, an amount less than theminimum value of $20,000 in cash and 20 acres of real estate. Notwithstanding the undisputed appraised value of $2,000 per acre for the 20

acres of corporate land, the assigned cash value of $40,000 constitutesan erroneous corollaryvaluation. Even if appellantwere to sell the subject tract for a total selling price of $40,000, closing costs would considerably diminsh the actual cash realized from the sale. The probability of a contract sale also reduces the actual cash received from the sale of the twenty acres. Furthermore, the cash value of the contracts would be considerably discounted on resale. For these reasons, it is an erroneous assumption to attribute a cashva-lueof $40,000 for twenty a-cresof land. We reverse the trial court's decision and remand with the direction to pay appellant $20,000 in cash plus the 20

acres of corporate land already tendered to the trial court for transfer to appellant.

We concur: