### IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON Februar y 20, 2 002 Session


### DON J. LONG, FOR HIMSELF AND FOR THE BENEFIT O F GENE LANGL

EY FORD, INC. V. RALPH E. LANGLEY AND EDNA ELIZABETH LANGLEY

Direct Appeal from the Chancery Court of Gibson County, Tennessee No. H-3525 The Honorable George R. Ellis, Chancellor

__________________________ No. W2001-01490-COA-R3-CV - Filed April 23, 2002

________________________ This a law suit between the two stockhold

ers of Ge ne La ngley Ford, I nc., an a utomobile dealership. The issues involve the percentag e of ownership owned by the two stockholders and whether the defendant paid himself an excessive salar y for mana

ging the business. The Chancellor held that the plaintiff owns forty -nine (49%) of the stock and the defendant owns fift y- one p erce

nt (51 %). H e fur

ther held that t he defend ant’ s sala

ry was n ot exc essiv e. We
revers e the Cha

ncellor ’s decis ion reg arding the owne rship of th

e stock a nd hold tha

t each pa rty owns fifty perc ent (50%). We affirm the Chancellor’s decision that the def endant’s salary

was reasonable.
Tenn.R.App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Reversed in Part and Affirmed in Part; and Remanded

WILL IAM B. ACREE, Sp.J., delivered the opinion of the court, in which W. Fra nk Crawford, P.J., W.S., and ALAN E. HIGHERS, J., joined.

Leo Bearma n, Jr . and E liza beth E . Chan ce, Mem phis , Tenn essee, for th e appel lant, Don J . Long.

Jesse H. Ford, I

II , Jackson, Tennesse e, for the appell ees, Ralp h E. L angley

and Edna Elizabeth Langley

..
OPINION

This is a la

wsuit betw een the t

wo stockh olders of

Gene L angley Ford, I nc., an a utomobile dealership in Humboldt, Tennessee. There are two issues presented for review. The first issue inv olv es t he p erc ent ag e of

own ers hipown ed b y

the twosha reh old ers . Th e pl ain

tif f, D on J. Long , (Lo ng) mai ntains tha t he owns f

ifty percen t (50%) o f the stoc

k, where as the defendant ,1 Ralp h E. L angley’s w ife, Ed na E lizabe th Lan gley, is a de fenda nt in this case . Ho weve r, her o nly

involvement was as a direct or of the corporation. She did not test ify i n the case and has no direct i nterest i n the outcome.
2 Ra lp h E . La ng le y (La ng le y) 1 insists that Long only owns forty-nine pe

rcent (49%). The second issue is whether the Lang ley paid himself an e xcessive salary for

managing the business for the years 1992 throug

h 2000.
The Chancellor held that Long owns forty-nine pe

rcent (49%) of the stock and that Langley ’s salary w as not excessive. Long appe als his decision.

The rele vant facts are a s follows:
Long is a re si den t o f Ar kan sas and own s an in ter est in sev era l au to mo bi le d eal ers hi ps. In 1979, Long learne d that the Ford dealership in Humboldt, Tennessee was having financial difficulties and was for sale. L ong believed that the dealership could become a successful operati on and be came inte rested in purchas ing it. Th

ere we re also ta x deduction s which wo

uld be beneficial to Long

. At the time, Langley was a salesperson at one of L ong’s dealerships. Long approached Lang ley about the Humboldt de alership , and they negotia ted an ag reemen t to buy it. Each p arty agreed to pay

$40,000.00 in cash and to jointly borrow an a dditional $80,000.00.
On March 30, 1979, Long and Langley

entered into an agreement whic h provided that Long would initially

own all of the stock in the corporation. The purpose in transferr ing the stock to Long was to allow him to utilize the tax benefits resulting from the prior losses sustained by the deale

rship. The agreement also provided that on the fir st business day of January , 1980, Long would sell

fifty -one per

cent (51 %) of the

stock to L

angley . Finally , that ag

reemen t provided that within 30 days of the tra nsfer of the stock, the parties would enter into a shareho lder’s a

greem ent which would allo w Lon g to purc hase Langley ’s stock if

certain conditions occurred.
On April 5 , 1979, the

stockhold

ers of the seller , Cox & White F ord, I nc. tran sferre d all 900 shares of stock in the corporation to Long. Long sig ned a note to Lang ley in the amount of $40,000.0 0, which r

eprese nted L angley ’s cash c ontributio n for the purchas e of the business.
Long testified that For

d Motor Company (Ford) had a requirement that the dealer/principal in a dealership own fifty-one percent (51%) of the stock and thus have total and complete control of it. Long maintaine d that it had always bee n the intent of the parties that they would be equal owne

rs of the business, and this wa s known by the Ford repres entative

with whom they were

dealing. According to L ong, the purpose of the March 30, 1979 ag reement was to show Ford that Lang ley would own fifty -one percent (51%) of the stock. L angley conceded that the parties were to share in the profits of the business on an equal basis, but contends that the3

March 30, 1979 agreement conf erred fifty -one percent (51%) ownership of the business upon him.

The parties began operating the dealership in 1979 with Lang ley manag ing the business. Long was not involved with the day to day opera

tions.
On May 20, 1980, the par ties entered into another shareholder’s ag reement which recited that Long and L

angley each owned 450 shares of Gene L angley Ford, Inc. The sha

reholder agreement included provisions which would allow either stockholde r the right to acquire the other’s stock under certain circumstance s. Under the prior agreement, only Long had that rig

ht. On the same date, Long

transferred 450 shares of stock to L angley . Three day s later, Langle y record ed the tr ansfer on the cor

porate r ecords.
For several y

ears, the parties operated the deale rship under the apparent impression that Langley had been approved as the dealer. H owever, in 1988, they learned that this was not true and renewed their efforts to designate Langle y as the dea

ler. Long wrote

Ford on August 2, 1988 informing Ford that La ngley had “fifty- one percent (51%) of the voting powe r in Gene Langley Ford, Inc.”. The

record is not clear as to what additional information, if any , was submitted t

o Ford a fter Aug ust 2 nd , but on August 9, 1988, Ford informed L angley that it had received the documents which would make L angley a fifty per

cent (50%) owner of Gene L angley Ford, Inc. Howe

ver, Ford noted several deficiencies which were to be corrected be fore the change could be processed. B y this time, Ford had cha nged its policy that a

dealer had to own at least fifty-one

percent (51%) of the dealership.
On Septem

ber 25, 1 989, For

d and Gen

e La ngley Ford, I nc. ente red into a n amendme

nt to the Ford Sales and Service Agreement. This amendment provided that Long and Langley

each owned fifty pe

rcent (50%) of the stock. L angley signed the amendment as president of Gene Langley Ford, Inc.
On May 24, 1991, the shar eholders held an annual meeting. The minutes recited that Long owned 441 shar

es and Langley 459. The minutes also re flected that by ma

jority vote of the stockholders, new certificates were to issue with L ong receiving 441 shares a nd Langley

459. Long was at the me eting and voted against reissuing stock to g ive Langley

a majority owner ship. The minutes were signed by Langley ’s wife.

There were other documents rele vant to this issue which were introduced at the trial. There was an application for a Small Business Administration loan in 1980, which re flected that Long owned for

ty-nine (49%)of the stock and Lang ley owned fif ty-one (51%) . Long testified that SBA had a requirement similar to that of Ford in that the manag ing owner must own a majority of the stock. This was not disputed by Langley . There was also a financial statement supplement submitted to Ford in 1981 reflecting the same perce ntage ownership. L angley testifie d that at th at time the parties w ere still

attemptin g to obta

in approv al of the

dealer ship in2 The recor d ref lect s t hat Langl ey r ecei ved a s ales commis sion ; how ever, it does not

ref lect the amount

or basis for t

he commission.

3 Langley reis sued hims elf a majorit y int erest of th e stock i n May 1991. The record does not r efle ct whet her he increased his sal ary immediately following t he reissuance of t

he stock. His 1991 income is not in the r ecord and is not an is sue in thi s case.
4 his name.
When Long and L

angley purchased the dealership in 1979, it was having ser ious financial difficulties. It had chang ed ownership on four or five occasions and only had nine employee s. Lang ley began with a sal ary

of $276.0 0 a week

which re mained in effec t until the e arly

1990's. 2 It was necessar

y that he work e

xtensive hours. The dealership performed very poorly throug

hout the 1980's, but by the e arly 1990' s, it had become a profitable business.

In 1 99 2, Lan gl ey b eg an pa yin g h im se lf a s ub st an ti al ly h ig he r s al ar y. 3 From 1 992 t hrough the year 2000, his salary ave

raged $173,768.00 a y

ear. Langley testified that Long was a ware of the increase in the salar y beca use he received monthly financial statements and the c orporate tax returns. Lang ley said he did not know that Long had a pro blem with h

is salary until Long sue d him.

This suit wa s filed in O ctober o f 1995. I n July of 1998, A

rnold, Spa

in, Truet t and Hew itt, P.L.L.C., Certified Public Ac countants, were appointed as Special Master. The Spec ial Master issu ed its report on Nov ember 3 0, 200 0, and the rep ort co vered t he tim e perio d of 19 92 th rough 1997. The case was tried in April, 2001.
Mike Hewitt, a partner in Arnold, Spain, Truett and Hewitt, P.L .L.C., testified at the trial as to the findings of the Special Master.
Mr. Hewitt testified that for the y ears 1992 through1997, L angley ’s salary a veraged $163,218.00 a yea

r and represented 1.61% of the ave rage annual sales of the dea lership. Mr. Hewitt concluded that Langley’s salar y was re asonable. In rea

ching this conclusion, he considered data from six automobile dealerships in West Tennessee and also data fr om Robert Morris and Associates. The latter is a firm that compiles financial data for collectors for banks which use the data to evalua te finan cial stat

ements a nd make c

redit de cisions. M

r. Hewit t testified that he was not aware of any guidelines issued by F

ord concerning salaries to be paid by its dealerships nor did he have any data concerning the aver age salaries paid to manag ers of Ford dealerships of comparable size to the Humboldt dealership.
The Special Master’s report reveale d that from 1992 through 1997, the stockholders equity increa sed from $520,807.00 to $1,533,172.00. One dividend had been paid and that was $40,000.00 to each shareholder.5

Robert Davis, a certified public accountant, with Georg e B. Jones and Company wa s called as an expert witness by Long. Mr. Davis wa s retained to offer expert opinion testimony a s to the reasonableness of L angley ’s salary. H is investigation covered the time period of 1992 through 2000. Mr. Davis evaluated the information that was provide d to him in the Special Master’ s report , and he a

lso utilized

the data base of informati on of the N ational A utomobile Dealer’s Association. The sample he utilized during this time frame ra nged from 109 to 170 Ford dealerships of similar size in the geogra phic region. Mr. Davis also relied upon his own

ex pe ri en ce in th e a ut om ob il e i nd us tr y. Mr. Davis concluded that there was a rang e of overpay ment to Langley

from $749,517.52 to $972,751.76. In Mr. Davis’ opinion, L angley should have paid himself a salary of $50,000.0 0 a y ear plus ten perc ent (10% ) of the net profit

. Mr. Davis testified (as did Mr. Hewitt) that there are no industry standards by F

ord Motor Company for salar

ies to its managers nor is there a compiled source of information for salaries paid to the

m. His opini on of a $5 0,000.00 y ear sal ary plus ten pe

rcent ( 10%) of t

he net pr ofits was just his opinion. Mr. Davis also admitted that he was not aware of Langley ’s background or the eff ort he ha d put into the busines s and was unawar e that onl y one dividen d had bee

n paid to the shareholders.

Michael Steele, a certifi ed public

accoun tant, test ified in be

half of L angley . Mr. Steele prepared the tax returns for the dealership for a number of y ears. Mr. Steele did not offer an opinion as to the reasonableness of La ngley ’s salary f

or the time period in question but did testify that during the ea

rly ye ars of the busines s, La ngley drew a v ery

minimal sa

lary which wa s well below what one in his position should earn.
The record reflects that during the year s 1992 through1997, the time period covered by the Special Master’s report, the dealership had a verage annual sales of $10,128,900.00 a nd Langley ’s average salary

was $163,218.00 or 1.61% of sales. In the years 1998 throug

h 2000, the year s which were not included in the Special Master’s report, the a verage annual sales of the dealership were $12,569,364.00, and Langley ’s average annual sala ry was $173,768.00 or 1.55% of sales

.
At the con

clusion of the trial , the Chancellor ma de the fo llowing f

indings:
“The Court finds that the plaintiff has failed to carry the burden of proof that Gene L angley paid himself an excessive salary. . . The

Court finds that in 1979, Don Long offer ed Gene Langley 51% of the Cox & White Ford, Incorpora ted, for $40,000.0 0, and to se

rve as ma nager . Gene L

angley accept ed this offer a nd has pro vided the

agreed upon con siderati on. The Court, therefore, finds Gene Langley is the owner of 51% of the dealership, and Don Long is the owner of 49% of the agency .”6

The first issue presented for review involves the per centage of ownership owned by the two shareholders. The Chancellor found that in 1979 the parties ente red into a contract whereby Langley was to receive fifty -one percent (51%) of the stock and that the pa rties were bound by that contract. Long

contends that the Chancellor erred in failing to aw ard each party an equal amount of the stock.

In a nonjury

case, Appellate Courts review the trial court’s finding s of fact de novo upon the record, accompanied by a presumption of the correctness of the findings unle ss the evidence preponderates against the finding s. Questions of law are reviewed de novo with no presumption of corr ectness . Tenn.R. App.P. 13 ( d); Luci us v. City of Memphi s, 925 S.W.2d 522, 525 (Tenn. 1996); Hawks v. City of Westmoreland , 960 S.W.2d 10, 15 (Tenn. 1997).

The Chancellor concluded as a matter of law that the March 30, 1979 agreement between the parties contractually

bound them to the fifty-one pe rcent (51%) to forty -nine (49%) percen tage se t forth in t

hat agr eement. Becau se the Cha ncellor reache d this conc lusion as a matter of law, we r eview thi s issue de

novo with n o presump tion of co rrectness. The legal question presented is whether the Ma y 20, 1980 shareholde

r’s agreement superceded the March 30, 1979 ag reement. We observe that there are two sig nificant differences in the two agreements. The second ag reement provides for an equal ownership of stock r ather than a fifty-one

percent (51%) to forty -nine (49%) division, and it gives both Long and Langley the right to purchase the other’s stock under c ertain circumstances. The first ag reement conferred this benefit only upon Long.
The ordinary

rule in contractual matters is that the last agree ment as to the same subject matter which is signed by all parties supercedes all former ag reements, and the last contract is the one which embodies the true agree ment. Bringhurst v. Tual , 598 S.W.2d 620, 622 (Tenn. App. 1980). A modification of an existing contract requires mutuality of assent and a meeting of minds. Balder

accahi v. Ruth , 256 S.W.2d 3 90, 391 (T enn. App. 1952); Batson v. Pleasant View Utility District , 592 S.W.2d 5 78, 582 (T enn. App. 1979); Rudy Heirs Assoc. v. Moore & Assoc., Inc., 919 S.W.2d 609, 612 (Tenn. App. 1995). An alteration or amendment to an existing contract must be supported by consideration. Performance of what was a lready pr omised in the original contract is not consideration to support a second contra ct. The modification of an existing agreement which imposes new obligations on one of the parties is unenforceable for lack of consideration unless it also imposes a new obligation on the other party

. Dunlop Tire and Rubber v. Service

Mercha ndise , 667 S.W. 2d 7 54, 758, 75 9 (Tenn. App. 1983 ). All con tracts in writing signed by

the party to be bound is prima f acie evidence of consideration. T.C.A. §47-50- 103. Atkins v. Kirpatrick , 823 S.W.2d 547, 552 (Tenn. App. 1991). The burden of overcoming the presumption of consideration in a validly executed contract is upon the party asserting lack of consideration. Id, at 552.7

We find that the modification of the percentage of ownership of stock in the second agreement was supported by adequate consideration. Under the second a greement, L angley obtained the right to purchase L ong’s stock upon Long ’s death or at an agree d upon price if Long desired to sell his stock. Under the 1979 agreement, L ong had the right to purchase L angley ’s stock upon Langley ’s death or withdrawal from the business, but L angley did not have similar rights.

The evi den ce s upp ort s a fin di ng t hat th e pa rti es i nt end ed e qua l o wne rsh ip . In determining the intent of the parties to a contract, the c ourse of conduct between parties is the strongest evidence of their orig inal intent. Frierson v. Int’l Ag ric. Corp. , 148 S.W.2d 2 7, 37 (Ct. App. 1940 ); Pinson & Assoc. v. Kreal , 800 S.W.2d 486, 487 (Tenn. App. 1990).
The shareholder’s agreement dated May 20, 1980, unequivocally provided tha t each shareholder own 450 shares. By a separate document of the same date, L ong transferred 450 shares to Lang ley. Three

days later, L

angley transferred the 450 shares of stock on the books of the corporation.
The 1980 distribution of equal shares to the parties remained in effect and undisturbed until May of 1991 when L angley unilaterally re

issued fifty-one ( 51%) of the stock to himself. Thus, for 11 yea

rs, the parties maintained equal ownership. Within that 11 y ear period, Lang ley was finally desig

nated as a dealer by

Ford Motor Company. On Septe mber 25, 1989, Ford and Gene L angley Ford, I nc. ente red into a n amendme

nt to the F

ord Salesand Service Ag reemen t to include Langley

as a dealer. More importantly , this agreement provided that L angley and Long each owned fifty

percent (50%) of the business, and the ag reement was signed in behalf of the corporation by L

angley . By then, F

ord had changed its requirement that the de aler must own a majority of the stock.
Perhaps, the stron gest ev

idence o f the par

ties inten t to own the

business equally

is Lang ley ’s admissi on that the

y w ere to di vide the p

rofits eq ually and that t hey paid the d

ividend in equal am ounts.
We observe that there is some evidence during this time of a diff erent intent. Long represented to both Ford and to the Small Business Administration that L angley owned fifty-one percent (51%) of the stock in the corpora tion. However, Long

offered a logical explanation which was not disputed by L angley . He testified that the reason for this representation wa s that both Ford and the Small Business Administration had requirements that the manag ing owner own a majority of the stock.

In summary , we find

the part ies intend ed to have

an equa l ownersh ip in the de alership and that t he 1980 sh arehold

er’s ag reemen t is a valid

contract betwee

n the par ties whic h is supported by adequate consideration and which supercedes the 1979 sha reholder’s agreement. Accordingly , we hold that the parties own an equal amount of shares in Gene Langley Ford, Inc.8

The second issue presented for review is whe ther Langle

y paid himself an excessive salary for mana ging th e busines s for the

ye ars 1992 t

hrough 2000. His s alary

for those ye ars averaged $173,768.00 a y ear. This is to be contrasted with his earlier salary of $276.00 a week plus an unk

nown amou

nt in salescommission s.

This issue

is in somew

hat of an unusual po sture. Th

e Specia l Master w as direc ted to render an advisory

opinion on the reasonableness of La ngley ’s salary. H owever, the time period investigated by

the Special Master was for the y ears 1992 through 1997 and does not include the years 1998 throug

h 2000 which are also at issue in this case. This distinction is significant because of the well established rule that a conc urrent finding of a Special Master and a trial court is conclu sive on ap

peal, exc ept wher

e it is upon

an issue n ot proper

to be ref erred, where it

is based on an error of law or a mixed question of fact a nd law, or where it is not supported by any material evidence. Manis v. Ma nis , 49 S.W.3d 29 5, 301 (Te nn. Ct. App . 2001); Long v. L ong , 857 S.W.2d 82 5, 828 (Te nn. Ct. App . 1997); Aussenberg v. Kramer , 944 S.W.2d 367, 370 (Tenn. Ct . App. 199 6); Archer v. Archer , 907 S.W.2d 412, 415 (Tenn. Ct. App. 1995).
The Special Master found that La ngley ’s salary f

or the yea rs 1992 through 1997 was reasonable. The Chancellor reac hed the same result by

finding that Long f

ailed to carry

the burden o f proof t

hat the sa lary was exce ssive. Ho wever, Long contendsthat this w as not a concurrent finding because the Chancellor found that the plaintiff failed to carry the burden of proof rather than finding the salary to be reasonable. We think that this is a distinction without difference. By

rejecting the claim that the salary was excessive, the Chancellor implicitly found it to be reasonable. In conc lusion, we hold that there was a concurrent finding of the Special Master a nd the Cha

ncellor that L angley ’s salar

y f or the y ears 199 2 throug

h 1997 wasreasona

ble and that the concurrent finding is conclusive on appe al.

If we were

not bound by the concurr ent finding by the

Special Master and the Chancellor, we would r

each the same re sult. Although we d o not appr

ove of L angley ’s unilate

ral acti on in setting his salar y no r do we un derstan d why

Long did not com

plain of it until he fi led this sui

t in 1995, nevertheless, we believe that Langley was entitled to this compensation.

When these

parties p urchase d the dea

lership, it was in f

inancia l difficulty a

nd remai ned in that cond ition for s everal

ye ars. Dur

ing this time frame , Langley worked l ong hour s for little pay. By the early 1990' s, the dealership had become profitable. Fr om 1992 through 1997, the stockholder’s equity incr

eased by mor

e than $1,000,000.00. Langle y’s salary for those yea

rs averaged $163,218.00 which repr esented 1.61% of the averag e annual sales.
Long’s evidenc e that the compensation was excessive was not convincing. L ong’s expert witness, Robert Da

vis, utilize d a rathe

r larg e data ba se of inf

ormation in his inves tigation , but his opinion that Langley

should have paid himself a salary of $50.000.00 a yea

r plus ten percent (10%) of the net pr

ofit was a persona l opinion a

nd was uns upported

by a ny c oncrete

data as t o the appr opriate salarie s for For

d manag ers. Fu

rthermor e, Mr. Da vis was no t aware

of cert ain circumstances peculiar to this particular dealer ship such as Langley ’s background, the effort he9

had put into the business over the ye ars, or the amount of dividends paid to the shareholders.
In summary , we find that the salary for the ye ars 1992 through1997 was reasonable a nd that Long fa

iled to est ablish by a preponderanc e of evid

ence tha t it was not

. The Special Master’s investigation did not include the y ears 1998 through 2000. During those y ears, L angley ’s aver

age a nnual sal ary

was appr oximately $10,500.0 0 a y ear mor

e than his average salary

for 1992 through 1997. However, the ave rage annual sales of the dea lership for 1998 throu gh 2000 w ere subs tantially higher than in the

earlier period, a nd La ngley ’s salar

y a s a percentage of sales wa s less than in 1992 through1997.

The evidence does not preponderate a gainst the Chancellor’s finding that L angley ’s salary for the ye ars 1998 through 2000 was reasonable. We also conc lude that the compensation was reasonable and that the plaintiff failed to establish by a preponderance of the evidenc e that it was not.
In summary , we hold that the parties own an equal amount of stock in Gene L angley Ford, Inc. and tha

t Langley ’s compensation for the y ears 1992 through 2000 was reasonable and not excessive.
The judg ment of the

trial cou rt is reve rsed in pa rt and af firmed in part. The

case is remanded to the Chancery Court of Gibson County for proceedings consistent with this opinion. The costsare divi ded equa lly b etween

the part ies.

__________________________________________ WILL IAM B. ACREE, JR., SPECIAL JUDGE