Opinion ID: 2030074
Heading Depth: 1
Heading Rank: 5

Heading: Contractual Redemption Rights

Text: The first issue we address is that presented by Andrew's first assignment of errorwhether the district court erred in determining that the attempted redemption of the Estate's stock was controlled by the 1960 agreement and that the terms of the 1960 agreement had not been satisfied. We note, initially, that the parties to this case do not dispute that stock transfer restrictions such as those at issue in this case are generally enforceable under Nebraska law. See, Neb. Rev. Stat. § 21-2046 (Reissue 1997); Elson v. Schmidt, 140 Neb. 646, 1 N.W.2d 314 (1941). As previously noted, the district court concluded in this case that the 1960 agreement was controlling with respect to stock redemption and that redemption had been waived because a meeting to determine the book value of the stock was not held within 30 days of R.W.'s death, as the 1960 agreement required. The district court erred in its analysis of this issue. Even if Pennfield could be said to have waived redemption of the Estate's stock by not strictly complying with the terms of the 1960 agreement, the district court erred in not considering the effect and terms of the subsequent stock redemption agreements. Pennfield, Bill, Andrew, and the Estate were all bound by the 1988 agreement, which was expressly intended to confirm[,] restate, formalize and clarify the 1948 and 1960 agreements. The 1988 agreement specifically provides for redemption of stock and deference of redemption for tax purposes under circumstances that are effectively identical to the course of action that Pennfield actually pursued. The 1990 agreement expressly confirmed and ratified the 1960 agreement as restated in the 1988 agreement. [3] The terms of a written executory contract may be orally modified by the parties thereto at any time after its execution and before a breach has occurred, without any new consideration. Whorley v. First Westside Bank, 240 Neb. 975, 485 N.W.2d 578 (1992). Whatever the terms of the 1960 agreement may have been, the 1988 agreement clearly allowed the parties to delay redemption for federal estate tax purposes. Even if Pennfield had waived redemption under the 1960 agreement, that right was extended under the 1988 agreement and further reinforced by the 1990 agreement. The court erred in concluding otherwise. Bill argues on appeal that there can be no redemption under the 1988 agreement since there has been no activating event since the agreement was signedbecause R.W. died in 1987, no shareholder has died since the 1988 agreement was reached. Brief for appellee Bill at 9. But it is plain from the 1988 agreement that it was intended to apply to the shares that were, at that time, held by R.W.'s estate. This is also evidenced by the fact that the 1990 agreement specifically invoked the 1948, 1960, and 1988 agreements as the basis for Pennfield's 1990 purchase of stock from the Estate. Bill further argues that the parties had abandoned the 1960 agreement through their conduct. This argument is without merit for the reasons explained above. The 1960 agreement was confirmed and restated by the 1988 agreement, and Bill offers no argument that the 1988 agreement was ever abandoned. Bill also points out that the 1988 agreement permits Pennfield to waive the right to redeem the stock, if the stock will pass by will or testamentary disposition, to an employee of Pennfield who had endorsed the 1988 agreement. However, the record reflects that while a waiver of Pennfield's right to redeem was prepared, none has been adopted. Whether Pennfield can waive redemption under the 1988 agreement is not an issue in this appeal, given the record before us. Andrew's second assignment of error takes issue with the district court's further conclusion that even if Pennfield had a right of redemption under the 1960 agreement, it would be improper to enforce the agreement in the present case, because of what the court determined to be the intent of the parties to that agreement. The court also erred in this regard. First, the court correctly concluded that the 1960 agreement was unambiguous, and none of the parties challenge this finding on appeal. Thus, as the court noted, the intent of the agreement should be determined from the plain language of the document. But the court concluded, from the plain language, that the 1960 agreement evidenced an intent to keep the corporation's shares within the Winstrom family and, specifically, with [Bill]. There is little support in the 1960 agreement for the conclusion that Bill was to be the favored owner of Pennfield stock. Rather, the 1960 agreement took place when R.W. owned 30 shares of stock, and Bill and Dean each owned 20 shares. The 1960 agreement evinces an intent to keep ownership of the stock among R.W., Dean, and Bill, but does not indicate any preference for Bill. In fact, while the 1960 agreement addresses who were to be the stockholders, it in no way addresses who was to own the majority of stock. Moreover, the court's analysis again fails to consider the provisions of the 1988 and 1990 agreements, which clearly anticipated that parties other than Bill would come into possession of Pennfield stock. In 1988, all the outstanding Pennfield stock was in the possession of Bill or the Estate. The 1988 agreement was signed by Bill as the then president of Pennfield, Bill in his capacity as a shareholder, and Bill as the personal representative of the Estate. In other words, Bill functionally entered into the 1988 agreement with himself. But the 1988 agreement expressly permitted, notwithstanding the redemption provision, inter vivos transfers from one stockholder to another stockholder who was signatory to the agreementwhich Andrew became, in 1990, when he endorsed the 1988 agreement and Pennfield sold Andrew some of the stock it had redeemed from the Estate. The 1988 agreement makes little sense unless it was contemplated that Pennfield stock would be owned by someone other than Bill. [4] The court also supported its conclusion with the observation that Andrew was never intended to become the majority shareholder. But that observation, whether or not it is correct, is not based upon the plain language of the relevant, unambiguous agreements. Those agreements permit the redemption of stock from the Estate under the circumstances presented here, even if Bill did not expect them to have the effect of making him a minority shareholder; Andrew's desire to become majority shareholder is not an unlawful object. See Baum v. Baum Holding Co., 158 Neb. 197, 62 N.W.2d 864 (1954). Although a party may in retrospect be dissatisfied with a bargained-for provision, an appellate court will not rewrite a contract to provide terms contrary to those which are expressed. Spanish Oaks v. Hy-Vee, 265 Neb. 133, 655 N.W.2d 390 (2003). The district court also found, in essence, that Pennfield's right of redemption under the 1960 agreement was subordinate to what the court determined to be R.W.'s intent, evidenced by his will, that Bill have his stock. We first note that if the court's reasoning were correct, the parties would have acted improperly in 1990, when Pennfield purchased 16.24 shares of stock from the Estate and sold 15.89 shares of that stock to Andrew. [5] But more important, while R.W. devised his stock to Bill, R.W. was also certainly aware that the stock was subject to the 1960 agreement. The general rule is that while restrictions on the transfer of shares might not be applied to testamentary dispositions in the absence of express terms that refer to such transfers, express share transfer restriction agreements will be enforced. See, e.g., Sorlie v. Ness, 323 N.W.2d 841 (N.D. 1982); Vogel v. Melish, 31 Ill. 2d 620, 203 N.E.2d 411 (1964); Taylor's Administrator v. Taylor, 301 S.W.2d 579 (Ky. 1957); Kerr v. Porvenir Corp., 119 N.M. 262, 889 P.2d 870 (N.M. App. 1994); Avrett and Ledbetter Roofing and Heating Co. v. Phillips, 85 N.C. App. 248, 354 S.E.2d 321 (1987); In re Est. of Riggs, 36 Colo. App. 302, 540 P.2d 361 (1975); In re Estate of Martin, 15 Ariz. App. 569, 490 P.2d 14 (1971). Cf., Lauritzen v. Davis, 214 Neb. 547, 335 N.W.2d 520 (1983) (holding that right to purchase stock under stock restriction agreements descended to heirs of third-party beneficiaries of agreements); F.H.T., Inc. v. Feuerhelm, 211 Neb. 860, 320 N.W.2d 772 (1982) (concluding, without discussion of issue, that buy-out stock transfer provision expressly referring to probate transfers was enforceable). See, also, F.B.I. Farms, Inc. v. Moore, 798 N.E.2d 440 (Ind. 2003); Boston Safe Dep. & Tr. Co. v. North Attleborough Chapt. American Red Cross, 330 Mass. 114, 111 N.E.2d 447 (1953); Dixie Pipe Sales, Inc. v. Perry, 834 S.W.2d 491 (Tex. App. 1992) (holding general restrictions on stock transfer extend to testamentary disposition). See, generally, 12 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 5460 (perm. ed., rev. vol. 2004 & Cum. Supp. 2005). The 1960 agreement quite specifically provides for redemption of stock in the event of the death of a shareholder, and the 1988 agreement provides even more expressly for redemption of stock that is subject to testamentary disposition. They are enforceable here against Bill and the Estate, especially given that R.W. and Bill signed the 1960 agreement, and Bill and the Estate signed the 1988 agreement. R.W.'s will evinces an intent to leave his stock to Bill, but both R.W. and Bill also signed an agreement limiting R.W.'s power to devise his stock, and Bill (as both an individual and personal representative of the Estate) signed subsequent agreements disposing of the stock that R.W. meant Bill to have, and reaffirming the restrictions placed upon transfer of the remaining shares. [6] Finally, Bill argues that he already completed transfer of the disputed shares, since, acting as secretary of Pennfield, he directed that the transfer be recorded on Pennfield's stock ledger. But the fact that Bill was in a position to note a transfer of stock in the corporate records cannot defeat an otherwise effective right to redeem the stock under a valid stock repurchase agreement. A transfer in violation of restrictions on the transfer of corporate stock is voidable in equity. See, e.g., Groves v. Prickett, 420 F.2d 1119 (9th Cir. 1970) (applying California law), F.B.I. Farms, Inc., supra . See, generally, 12 Fletcher et al., supra, § 5453. In other words, Bill's technical completion of the stock transfer does not provide a defense to a claim that the transfer occurred in violation of the relevant stock transfer restriction agreements. Andrew's assignments of error have merit. The plain language of the stock transfer restriction agreements does not support the construction placed upon them by the district court, and the district court erred in concluding that the terms of R.W.'s will could supersede the specific restrictions on stock transfer due to the death of a shareholder.