Opinion ID: 1785565
Heading Depth: 3
Heading Rank: 1

Heading: Stock-Pledge Agreement

Text: Tracey executed a stock-pledge agreement in favor of Pace in which he pledged 100% of his Gallop stock to secure payment of the promissory note evidencing the $47,500 loan. The stock-pledge agreement provided: 2. The pledged stock shall remain registered in the name of [Tracey] upon the books and records of [Gallop]. Provided [Tracey] is not in default under its promissory note or this agreement, [Tracey] shall retain all dividends and voting rights with respect to such stock. 3. Upon [a] default that has not been cured after seven (7) days' notice, [Pace] within a reasonable time shall be entitled to sell the stock in an arm's length transaction and apply the net proceeds to the payment of the note. That Tracey breached his obligations to repay that note is not disputed. Thus, considering these provisions of the stock-pledge agreement, the following events were conditions precedent under this agreementand should have occurred by March 13, 1997before Pace could have acquired control over the operation and business affairs of Gallop: 1. Tracey or Gallop should have defaulted on their respective obligations under the $47,500 note or the stock-pledge agreement; 2. A defaulting party should have received notice of that default and had an opportunity to cure the default but failed to timely cure that default; and 3. Pace should have foreclosed on its secured interest in the Gallop stock. [15] Additionally, in order to remove Tracey from his positions as president, director, and managing agent, the party with the controlling interest in Gallop following the foreclosure would have been required to follow usual corporate governance procedures to terminate Tracey's authority to act for Gallop that he possessed through his appointment to those positions. [16] Because only one of these required stepsthe notice of default in the McKee letterhad transpired by March 13, 1997, the stock-pledge agreement did not operate to divest Tracey of his authority to complete the assignment. Further, there is no provision in the stock-pledge agreement indicating that as a result of its execution and the subsequent default Tracey would automatically relinquish his authority to transact business for Gallop on the date of default.