Opinion ID: 1059533
Heading Depth: 2
Heading Rank: 1

Heading: Countryside's Appeal

Text: Countryside argues that the four agreements executed in June 1997 should be construed as a package or as parts of a single transaction. Countryside asserts that, when the agreements are viewed in that manner, the condition precedent contained in paragraph 3(e)(4) of the Employment Agreement requiring Dr. Peyton to be in compliance with every material term is not limited to the terms of the Employment Agreement but includes his obligation to pay for his purchase of stock in a timely fashion. Thus, Countryside contends that Dr. Peyton is not entitled to receive any severance pay not only because he failed to comply with that condition precedent but also because he committed the first material breach of the terms of the agreements. In response to Countryside's argument, Dr. Peyton rejects the theory that the four agreements should be viewed as a package and advances four reasons why he has not forfeited his right to receive severance pay. First, he claims that, even if his nonpayment of the stock purchase installments constituted a breach of the Employment Agreement, Countryside was not damaged. According to Dr. Peyton, this is so because Countryside was required under the Stockholders' Agreement to buy back Dr. Peyton's stock in Countryside upon his termination of employment. Next, Dr. Peyton contends that Countryside is estopped from claiming any breach relating to Dr. Peyton's failure to make the stock purchase payments because Dr. Lower allegedly agreed to wait on Dr. Peyton's payments until the dispute concerning whether those payments were to be made with pre-tax or post-tax dollars could be resolved. Third, Dr. Peyton contends that, since the Stock Purchase Agreement was not between Countryside and Dr. Peyton, compliance with that agreement was not a condition precedent to Countryside's obligation under the Employment Agreement to pay Dr. Peyton severance pay. Finally, Dr. Peyton argues that the Stock Purchase Agreement was not an agreement in force after the effective date of his termination from employment and thus was not subject to the condition precedent contained in paragraph 3(e)(4) of the Employment Agreement. The first step in analyzing this issue is to determine whether the four agreements executed in June 1997 should be construed together as one instrument or contract. This Court has repeatedly stated that [w]here two papers are executed at the same time or contemporaneously between the same parties, in reference to the same subject matter, they must be regarded as parts of one transaction, and receive the same construction as if their several provisions were in one and the same instrument. Oliver Refining Co. v. Portsmouth Cotton Oil Refining Corp., 109 Va. 513, 520, 64 S.E. 56, 59 (1909); accord First Am. Bank of Va. v. J.S.C. Concrete Constr., Inc., 259 Va. 60, 67, 523 S.E.2d 496, 500 (2000); Daugherty v. Diment, 238 Va. 520, 524, 385 S.E.2d 572, 574 (1989); J.M. Turner & Co. v. Delaney, 211 Va. 168, 171-72, 176 S.E.2d 422, 425 (1970); Bolling v. Hawthorne Coal & Coke Co., 197 Va. 554, 566, 90 S.E.2d 159, 167 (1955); Texas Co. v. Northup, 154 Va. 428, 440-41, 153 S.E. 659, 662 (1930); Luck v. Wood, 144 Va. 355, 357, 132 S.E. 178, 178 (1926). Where a business transaction is based upon more than one document executed by the parties, the documents will be construed together to determine the intent of the parties; each document will be employed to ascertain the meaning intended to be expressed by the others. Daugherty, 238 Va. at 524, 385 S.E.2d at 574 (citing American Realty Trust v. Chase Manhattan Bank, 222 Va. 392, 403, 281 S.E.2d 825, 830 (1981)). We recognize that Dr. Peyton, Dr. Lower, and Countryside were not signatories to all four of the 1997 agreements. The Stockholders' Agreement was the only one that all three parties executed. The two employment agreements were executed by Countryside and the respective physician, and both Dr. Lower and Dr. Peyton signed the Stock Purchase Agreement. Nevertheless, we conclude that in the present case the four agreements executed in June 1997 should be regarded as parts of one transaction and construed as one and the same instrument. Oliver Refining Co., 109 Va. at 520, 64 S.E. at 59. We reach this conclusion because all the parties knew about the agreements and executed them at the same time as part of a single transaction to accomplish an agreed purpose, i.e., to effect Dr. Peyton's purchase of 50 percent of the stock in Countryside, and to structure both his and Dr. Lower's employment relationship with Countryside and the internal operating procedures of Countryside in light of the fact that Dr. Peyton was now an equal shareholder. See Gordon v. Vincent Youmans, Inc., 358 F.2d 261, 263 (2d Cir.1965) (New York law requires that all writings that form part of a single transaction and are designed to effectuate the same purpose be read together, even though they were executed on different dates and were not all between the same parties); Cushman v. Smith, 528 So.2d 962, 964 (Fla.Dist.Ct.App.1988) (instruments entered into on different days but concerning the same subject matter may under some circumstances be regarded as one contract and interpreted together); Atlas Indus., Inc. v. National Cash Register Co., 216 Kan. 213, 531 P.2d 41, 46-47 (1975) (two documents construed together when parties complied with provisions of interrelated documents although one document was not executed by party to transaction); Schlein v. Gairoard, 127 N.J.L. 358, 22 A.2d 539, 540-41 (1941) (where several instruments are made as part of one transaction, relating to the same subject-matter, they may be read together as one instrument ... even when the parties are not the same, if the several instruments were known to all the parties and were delivered at the same time to accomplish an agreed purpose); Baker v. Wilburn, 456 N.W.2d 304, 306 (S.D.1990) (writings executed together as part of single transaction should be interpreted together and it is not critical whether the documents were executed at exactly the same time or whether the parties to each agreement were identical). Despite Dr. Peyton's argument that the agreements should not be viewed as a package, we believe that he has treated them in that manner as evidenced by his acknowledgement before both this Court and the circuit court that all four agreements had to be signed together or there would not have been a deal. In reaching this conclusion, we are also persuaded by the fact that some of the agreements contain explicit references to the other agreements. For example, a provision in each of the employment agreements states that, upon the termination of the employment of that respective physician, the purchase of any capital stock of Countryside owned by that physician shall be governed by provisions with respect thereto in the Bylaws of the Corporation, any Stockholders' Agreement then in effect and by the governing statute. (Emphasis added.) A section in the Stockholders' Agreement limits the Book Value of Dr. Peyton's stock to the amount of the purchase price as defined in the Stock Purchase Agreement between Dr. Lower and Dr. Peyton. Finally, in the Stock Purchase Agreement, the sale of stock to Dr. Peyton is subject to the terms of a Stockholders' Agreement ... to be executed as a condition of Closing. Thus, we conclude that the circuit court erred in refusing to construe the four agreements as a package or as if their several provisions were in one and the same instrument. Oliver Refining Co., 109 Va. at 520, 64 S.E. at 59. By limiting its view to the terms of each separate document, the circuit court determined that Dr. Peyton had satisfied the condition precedent in paragraph 3(e)(4) of the Employment Agreement and was thus entitled to receive severance pay. Because the court looked at each agreement in isolation, it never specifically addressed the questions whether Dr. Peyton's failure to pay for his purchase of stock in a timely fashion was a material breach of the agreements, viewed as one instrument, and whether such a breach would preclude Dr. Peyton from enforcing his right to receive severance pay. Accordingly, we now turn to those questions. In doing so, we apply the principle that [g]enerally, a party who commits the first breach of a contract is not entitled to enforce the contract. Horton v. Horton, 254 Va. 111, 115, 487 S.E.2d 200, 203 (1997) (citing Federal Ins. Co. v. Starr Elec. Co., 242 Va. 459, 468, 410 S.E.2d 684, 689 (1991); Hurley v. Bennett, 163 Va. 241, 253, 176 S.E. 171, 175 (1934)). There is, however, an exception to that general rule when the breach did not go to the `root of the contract' but only to a minor part of the consideration. Horton, 254 Va. at 115, 487 S.E.2d at 203 (quoting Federal Ins., 242 Va. at 468, 410 S.E.2d at 689; Neely v. White, 177 Va. 358, 366, 14 S.E.2d 337, 340 (1941)). Nevertheless, when the first breaching party commits a material breach, that party cannot enforce the contract. Horton, 254 Va. at 115, 487 S.E.2d at 204. A material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract. Id. Upon construing the four agreements in the present case as parts of one transaction, Oliver Refining, 109 Va. at 520, 64 S.E. at 59, we conclude that Dr. Peyton committed the first material breach when he failed to make his monthly payments for the purchase of stock in Countryside in accordance with the terms of the Stock Purchase Agreement. It is not disputed that Dr. Peyton did not bring his stock purchase payments current at the closing and waited until August before he made the lump-sum payment, which covered only the months of January through July. Nor is it disputed that he never made any other payments. We believe that Dr. Peyton's failure to make his stock purchase payments goes to the root of the transaction. The four agreements were executed in order to effect Dr. Peyton's purchase of 50 percent of the stock in Countryside and to structure the relationship between the three parties in light of the fact that he was now an equal shareholder rather than a mere employee. If Dr. Peyton and Dr. Lower had not executed the Stock Purchase Agreement, the other three agreements would not have been necessary. Furthermore, the terms of Dr. Peyton's Employment Agreement, as an equal shareholder in the professional corporation, were more lucrative than the terms of his first employment contract with Countryside. A significant benefit for Dr. Peyton was the elimination of the restrictive covenant that had been part of his first employment contract. Thus, Dr. Peyton's failure to pay the consideration for his 50 shares of stock in Countryside defeated the essential purpose of the transaction consummated in July 1997 with the execution of the four agreements and was, therefore, a material breach as a matter of law. See Horton, 254 Va. at 115, 487 S.E.2d at 204. Accordingly, as the first party to commit a material breach, Dr. Peyton cannot enforce the contract provision regarding severance pay. [5] See id. Not only was Dr. Peyton the first party to commit a material breach, he also failed to fulfill the condition precedent in paragraph 3(e)(4) of the Employment Agreement, requiring compliance in all material respects with every material term with this Agreement. When the four agreements are viewed as one instrument, that condition precedent pertains to the entire transaction and makes Dr. Peyton's obligation to pay for his purchase of stock a condition precedent to Countryside's obligation to pay Dr. Peyton severance pay. Thus, whether Dr. Peyton's failure to pay for his stock is viewed as a first material breach or as a failure to fulfill the condition precedent, he cannot enforce the provision pertaining to severance pay. Accordingly, we conclude that the circuit court erred in awarding severance pay to Dr. Peyton and will reverse that part of the court's judgment. In reaching this conclusion, we recognize that the severance pay represented the collections for services that Dr. Peyton had rendered before the effective date of his termination from employment. That fact does not change our decision. However, Dr. Peyton argues that, since the terms of the Stockholders' Agreement obligated Countryside to buy back Dr. Peyton's stock at the same price that he had paid for it, neither Countryside nor Dr. Lower suffered any damages because of Dr. Peyton's failure to make his required payments, thereby allegedly rendering his breach immaterial. [6] Dr. Peyton's argument overlooks the fact that, because of his status as a 50 percent shareholder in Countryside, he gained certain employment benefits, including the elimination of the restrictive covenant, that he had not enjoyed under his first employment contract with Countryside. For this reason and the reasons already stated, we conclude that Dr. Peyton's breach was not immaterial. See id. at 116, 487 S.E.2d at 204 (proof of a specific amount of monetary damages is not required when the evidence establishes that the breach was so central to the parties' agreement that it defeated an essential purpose of the contract). Furthermore, this Court has stated that the first party to commit a material breach can neither enforce the contract nor maintain an action on it. Hurley, 163 Va. at 253, 176 S.E. at 175. We are also not persuaded by Dr. Peyton's assertion that Countryside and Dr. Lower are estopped from claiming a breach by Dr. Peyton. The basis of this argument is Dr. Lower's testimony that he agreed to wait for the payments and did not press Dr. Peyton for those installments that were due either at the closing or for the ensuing months. Dr. Peyton also states that Dr. Lower did not object to a possible restructuring of the stock purchase arrangement so that the payments could be made with pre-tax dollars. According to Dr. Peyton, he relied on Dr. Lower's alleged acquiescence and, thus, asserts the defense of estoppel. Although it is not clear whether Dr. Peyton is arguing a theory of estoppel or waiver, he has not established the necessary elements of either theory. See Employers Commercial Union Ins. Co. of Am. v. Great Am. Ins. Co., 214 Va. 410, 412-13, 200 S.E.2d 560, 562-63 (1973) (discussing elements of estoppel); Horton, 254 Va. at 117, 487 S.E.2d at 204 (discussing waiver). Furthermore, the conduct to which Dr. Peyton alludes is that of Dr. Lower. Dr. Peyton has not identified any conduct or acquiescence by Countryside that would support his claim of estoppel. Yet, under the terms of the Employment Agreement, Countryside, not Dr. Lower, had the potential obligation for paying Dr. Peyton severance pay and is the party claiming a breach by Dr. Peyton.