Opinion ID: 197195
Heading Depth: 3
Heading Rank: 2

Heading: Insufficiency of the Breach of Contract Evidence and Enforceability of Rights

Text: 57 The defendants assert that there is no evidence that Larry Ansin did not agree to the reduction in shares. They also deny that the foundation corporate documents of River Oaks created enforceable rights in the plaintiffs. This is simply not so. 58 As with the fraud claims, defendants rely on Simons' uncorroborated report of his phone conversation with Larry Ansin. With regard to the contract claim, Simons testified that, in early 1989, Ansin orally agreed to a reduction in his percentage of ownership. Simons does not assert that he mentioned specific numbers of shares to Ansin, nor does he claim that Ansin received any compensation for these transfers. Simons testified that Larry Ansin did not agree to transfer shares to himself or to Franks (the recipients of the shares). Simons and Keenum both acknowledged that there was no documentation of these transfers. 59 Simons described a complex reallocation of shares, undertaken to allow shares to be issued to new key personnel. However, Keenum acknowledged that 25,000 new shares were issued in 1989, and that the new employees were issued exactly 25,000 shares. This negated the reallocation as a reason for the reduction in Ansin's shares. Additionally, in the reallocation described by Keenum, only Harold Ansin had to give up shares; Simons' percentage of ownership was diluted by the new issuance, but he actually gained 1,000 shares (from the alleged transfer from Ansin). 60 Even if the jury credited Simons' description of Larry Ansin's oral consent, the jury could have reasonably inferred that Ansin only consented to dilution, and not to a transfer of shares. Additionally, when evaluating a series of events that, judging from the trial exhibits, left a heavy paper trail, the jury was entitled to draw inferences from the complete absence of contemporaneous documentation of the purported Ansin transfers. 61 Defendants also contend that the foundational documents of River Oaks did not create any rights in the Ansins with regard to transfers. Defendants do not challenge the basic premise that, under Mississippi law, such documents may form a contract. Rather, they contend that the specific transfer provisions were only for the benefit of the corporation, and thus created no rights in the shareholders. However, the plain language of the Subscription Agreement states that this Agreement shall be binding upon and shall inure to the benefit of each individual Stockholder ... and to the Company.... While the transfer provisions of the Articles of Incorporation and the By-Laws may have been primarily intended to prevent the unauthorized sale of shares to outsiders, as defendants contend, this does not mean that they served no other purpose. 62 To the contrary, the traditional common law of unauthorized transfers places heavy duties on the corporation: 63 Courts held that a corporation whose stock was transferable only on the books of the company was, to a certain extent at least, a trustee for its shareholders in respect to their stock.... [I]t had to respond in damages for any injury sustained by them in consequence of its negligence or misconduct.... This liability rested ... upon the ground of breach of contract upon the part of the company, of this undertaking to hold the stock for the benefit of the true owner of the certificate. 64 12 Fletcher Cyclopedia of the Law of Corporations § 5538, at 406 (perm. ed.1996)(footnotes omitted). Moreover, the Cyclopedia explains that: 65 The shareholders also have a right to expect that the corporation will observe its own bylaws in relation to the transfer, and it is liable for any damages resulting to them by reason of its failure to do so. 66 Id. (footnotes omitted). 67 This authority is sufficient to rebut defendants' contention that the plain language of River Oaks' transfer provisions can only be read to create rights in the corporation. The defendants point to nothing in either the documents or in Mississippi law that would require a jury to conclude that River Oaks shareholders had no rights under these documents as to transfers. Accordingly, the jury's verdict on the breach of contract claim stands.