SLONE'S FOODTOWN, INC.; DAVID WILLIS; AND RUTH ANN WILLIS v. TERRY W. SLONE, EDITH SLONE, VIRGIL SLONE, AND BETHEL SLONE
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RENDERED: May 7, 1999; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1997-CA-002557-MR
SLONE'S FOODTOWN, INC.;
DAVID WILLIS; AND RUTH ANN WILLIS
APPELLANTS
APPEAL FROM SCOTT CIRCUIT COURT
HONORABLE DAVID KNOX, JUDGE
ACTION NO. 96-CI-00098
v.
TERRY W. SLONE, EDITH SLONE,
VIRGIL SLONE, AND BETHEL SLONE
APPELLEES
OPINION
AFFIRMING
* * * * * * * * * *
BEFORE:
GUDGEL, CHIEF JUDGE; GUIDUGLI AND SCHRODER, JUDGES.
GUIDUGLI, JUDGE:
This is an appeal from an order of the Scott
Circuit Court holding that Terry W. Slone is a shareholder in
Slone’s Foodtown, Inc.
We affirm.
Virgil Slone (Virgil) and Bethel Slone (Bethel) are the
parents of Terry Slone (Terry), Gary Slone (Gary), and Ruth Ann
Slone (Ruth).
Terry is married to Edith Slone (Edith) and Ruth
is married to David Willis (David).
Linda Slone (Linda) is a
former wife of Gary.
Prior to 1968, Virgil Slone operated a grocery store
business.
Either at the time the business was commenced, or
shortly thereafter, Virgil Slone brought his son Gary into the
business.
In 1969, the business was incorporated as Slone’s
Foodtown.
Upon incorporation, Virgil and Gary each received 500
shares of stock.
The Articles of Incorporation authorized the
issuance of 1,000 shares of stock.
As of January 1, 1970, the aforementioned 1,000 shares
in Slone’s Foodtown, Inc. were issued as follows:
200 shares to
Linda; 200 shares to Gary; 200 shares to Bethel; 200 shares to
Virgil; and 200 shares to Terry.
Terry began working at Slone’s Foodtown in 1968.
According to his testimony, he left the store in late 1973,
disenchanted because of his role in the business.
At about the
same time, Terry and Gary held discussions related to the sale of
Terry’s stock.
Terry testified that he agreed to sell his stock
for $100,000.00, with the company buying the stock.
Gary
testified that the agreed upon consideration for the shares was
between $50,000.00 and $60,000.00.
It is undisputed that, for a
time, Terry received payments for his stock at the rate of
$1,000.00 per month, with taxes being deducted from that amount.
Terry received verifiable payments of $43,000.00 from January 1,
1974, to February 6, 1978.
The payments were received from
Slone’s Foodtown, not Gary.
Terry’s original ownership of 200 shares in Slone’s
Foodtown was represented by Stock Certificate No. 5.
Though
Terry admits that he agreed to sell his stock, he testified that
he did not sign over or deliver the Stock Certificate to Gary.
Gary, however, testified that Certificate No. 5 was signed over
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to him after Terry was paid for the stock.
At some point in
time, the back of Stock Certificate No. 5 bore the signature of
Terry purporting to transfer the 200 shares to Gary.
Former
Slone’s Foodtown office worker Louise Rose signed as a witness to
the transaction.
She testified that she could not recall the
circumstances but stated that she would not have signed as a
witness unless she, in fact, had witnessed the signing of the
document.
The information on the back of Stock Certificate No. 5
relating to the purported transfer of the 200 shares from Terry
to Gary and Terry’s signature have been whited out.
information and signatures are still legible.
on the Certificate is not legible.
Some of the
However, the date
Terry testified that he did
not sign the Certificate, and that he does not know why portions
are whited out.
The trial court declined to make a finding
regarding who was responsible for obliterating Stock Certificate
No. 5, preferring to let that matter remain unresolved, since it
did not believe that that issue had any bearing upon the issue of
whether Terry transferred or re-transferred his stock, and
because it placed greater weight on other evidence in the record
in arriving at its ultimate decision.
The trial court ultimately entered a finding that, at
some point in time, Terry did in fact sign Certificate No. 5,
transferring his 200 shares of stock to Gary Slone.
Gary
testified that Stock Certificate No. 5 was signed when Terry was
paid in full for the stock.
In late 1977, Terry came back to work for Slone’s
Foodtown.
Terry testified that the $1,000.00 per month payments
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for his stock ceased, but that he then received regular paychecks
as a result of his employment.
Terry testified that the
corporation did not pay for the balance of the stock and that he
did not discuss the cessation of his stock payments with Virgil
or with anyone else.
He testified that there was no agreement
that he would not sign over the stock until the stock was fully
paid.
He testified that there was no mention that he would be
getting the stock back.
In the fall of 1984, Gary became dissatisfied with the
store operations, and expressed a desire to sell the stock owned
by him and his wife Linda.
On November 1, 1984, by a document
styled STOCK SALE AND PURCHASE AGREEMENT (Agreement), Slone’s
Foodtown, Inc. agreed to purchase the 400 shares of stock owned
by Gary and Linda.
The agreement recognized that “Guarantors
presently own all of the other issued and outstanding shares of
common stock in Foodtown . . . .”
signed that document as Guarantors.
Virgil, Bethel, and Terry
that document as Sellers of stock.
Gary and Linda also executed
As a part of that
transaction, Virgil, Bethel, Terry, and Edith, by STOCK PLEDGE
AND SECURITY AGREEMENT (Security Agreement), dated December 6,
1984, pledged 600 shares of stock in Slone’s Foodtown in order to
guarantee Slone’s Foodtown, Inc.’s debt to Gary and Linda from
the sale of the stock.
By AMENDMENT, dated December 6, 1984, the
parties agreed that the Guarantors could convey stock to David so
long as Gary and Linda’s security interest in the stock was
recognized.
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Terry testified that, in 1984, Virgil told him that the
prior sale of his stock would be treated as if it never occurred.
In addition, the corporation subsequently, over time, executed
various documents acknowledging that Terry owned an interest in
the corporation, including an APPLICATION FOR LICENSE under the
Perishable Agricultural Commodities Act, which was signed by
David on January 8, 1996, and which list Terry and Edith as each
owning 10% of the corporate stock, and Gary and Linda as each
owning 20%; a document relating to the food stamp program, which
lists Terry as an owner in the business, dated December 2, 1994,
and signed by Helen Lindon as bookkeeper; and certain income tax
returns for the corporation from 1986 to 1994, which acknowledged
that Terry was an owner in the business.
Moreover, an unsworn handwritten document, obtained in
March 1996, signed by Virgil, states that Virgil gave Terry 200
shares of stock in 1984 and an additional 100 shares in 1995.
corporate records reflect those transactions.
No
David testified
that he believed in 1984 that Terry owned stock.
In January 1996, Gary told David that he, not Terry,
owned the 200 shares represented by Stock Certificate No. 5 and
that David should check the certificates.
David thereupon
examined the certificates and discovered the obliterated
transaction on the back of Stock Certificate No. 5.
David
accepted the obliteration as confirmation that Gary, and not
Terry, owned the stock represented by Stock Certificate No. 5.
On February 12, 1996, Virgil, Bethel, Ruth Ann, and David held a
meeting at which they decided to terminate the employment of
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Terry and Edith and remove them from the Board of Directors of
the corporation.
of this decision.
On February 15, Terry and Edith were informed
Terry and Edith then initiated this suit.
The
trial was bifurcated with the phase-one portion of the
proceedings limited to the issue of whether Terry was a
stockholder in the corporation.
In June 1997, the trial court
entered a ruling that the appellants were estopped from denying
that Terry was a stockholder in the company.
The judgment was
made final and appealable pursuant to Rules of Civil Procedure
54.02 and this appeal followed.
The trial court held that the appellants were estopped
from denying Terry’s ownership of the 200 shares represented by
Stock Certificate No. 5 based upon various facts set forth in the
1984 documents executed in conjunction with the corporation’s
purchase of Gary and Linda’s stock.
The trial court cited Dingus
v. FADA Service Co., Inc., Ky. App., 856 S.W.2d 45 (1993), as its
authority that directors and shareholders of a corporation may be
estopped from challenging another stockholder’s ownership of
stock.
There are a wide range of theories under which a party
may be estopped from asserting particular rights or defenses.
See 31 C.J.S. Estoppel and Waiver § 1 et. seq.
The trial court
did not specifically identify the estoppel theory upon which it
relied; however, it specifically identified the 1984 contract
documents executed in conjunction with the corporation’s
repurchase of Gary and Linda’s stock, and the facts recited
therein, as the basis for its conclusion that the appellants were
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estopped from denying Terry’s ownership in Stock Certificate No.
5.
Hence, though not specifically identified as such in its
order, the trial court, we conclude, relied upon “estoppel by
contract” in its decision.1
Estoppel by contract binds a party to the terms of his
own contract unless the contract is set aside or annulled for
fraud, accident, or mistake.
(1996).
31 C.J.S. Estoppel and Waiver § 55
Estoppel by contract includes “estoppel to deny the
truth of things agreed upon and settled by the terms of the
contract.”
(1927).
Goodin v. Turner, 222 Ky. 132, 300 S.W. 327, 328
Estoppel by contract is applicable to the action at bar.
Under this estoppel theory, in the absence of fraud, accident, or
mistake, “[i]f, in making a contract, the parties agree on or
assume the existence of a particular fact as the basis of their
negotiations, they are estopped to deny the fact as long as the
contract stands.”
31 C.J.S. Estoppel and Waiver § 55 (1996).
Under the Stock Sale and Purchase Agreement (Agreement)
dated November 1, 1984, the “Sellers” were Gary and Linda and the
“Guarantors” were Virgil, Bethel, Terry, and Edith.
The contract
includes the following prefatory statements:
WHEREAS, Gary Slone and Linda Slone presently
own a total of 400 shares of the common stock
of Slone’s Foodtown, Inc., a Kentucky
corporation, which together constitutes forty
percent (40%) of the issued and outstanding
shares of common stock in said corporation;
and
1
The appellants likewise concluded that the trial
court relied on estoppel by contract. The appellees contend that
the trial court did not rely on estoppel by contract but that
estoppel by contract would in fact serve to estop the appellants
from denying Terry’s status as a stockholder.
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WHEREAS, Guarantors presently own all of the
other issued and outstanding shares of common
stock in Foodtown . . . .
WHEREAS, Foodtown has agreed to purchase all
of the above-stated stock in Foodtown
presently owned by Sellers and Sellers have
agreed to sell said stock to Foodtown, all in
accordance with the terms and conditions
hereinafter set forth
Paragraph 4 (four) of the agreement provided that the
Guarantors shall execute and deliver to
Sellers a pledge and security agreement
evidencing the first lien of Sellers on 600
shares of common stock in Foodtown owned by
Guarantors.
On December 6, 1984, the Agreement was amended so as to permit
the Guarantors
to sell and transfer to [David and Ruth Ann]
a portion of the SIX HUNDRED (600) shares of
common stock held in Foodtown by the
Guarantors[.]
The amendment further provided that
[i]n consideration of the agreement by
Sellers to amend the Agreement as set forth
above, David Willis and Ruth Ann Willis
hereby join in this Amendment to ratify and
confirm the Agreement and evidence their
agreement to be bound by the terms thereof[.]
On December 6, 1984, a Stock Pledge and Security Agreement
undersigned by Virgil, Bethel, Terry, and Edith provided that the
Guarantors
hereby pledge, transfer and hypothecate 600
shares of the issued and outstanding common
stock in Foodtown, evidenced by
certificate(s) numbered
No. 3, No. 4 And
No. 5 , attached hereto and made part
hereof, unto [Gary and Linda] . . . to secure
and guarantee the unpaid balance of the
purchase price to be paid by Slone’s
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Foodtown, Inc., a Kentucky corporation . . .,
in which the Guarantors own all of the issued
and outstanding common stock, to [Gary and
Linda] pursuant to [the Agreement].
The 1984 documents indicate that the Guarantors —
Virgil, Bethel, Terry, and Edith — together owned 600 shares of
Foodtown stock as of December 6, 1984.
The documents also show
that Gary and Linda, together, owned 400 shares as of that date.
These 1,000 shares account for all shares authorized by the
Articles of Incorporation, and all shares then issued and
outstanding.
The documents refute Gary’s claim of ownership of
Stock Certificate No. 5 and, moreover, set forth that the
corporation did not hold Stock Certificate No. 5 as treasury
stock in December 1984.
All parties to the appeal were parties to the 1984
documents.
By operation of estoppel by contract, to the extent
that the parties agreed on or assumed the existence of particular
facts, they are estopped from denying those facts.
Estoppel and Waiver § 55 (1996).
31 C.S.S.
In this regard, the trial court
made the following two findings:
(1) All parties, in the 1984 documents,
expressly acknowledged that Terry Slone was a
stockholder in the corporation at the time
those documents were executed.
(2) With respect to the keeping of corporate
records and stock transfer documents, the
corporation was typically lax in record
keeping, including the keeping of minutes.
Based upon the acknowledgment in the 1984
documents by all principals in the
corporation that Terry Slone was a
stockholder, and considering the
corporation’s laxity in keeping corporate
records and minutes, an undefined event or
set of circumstances or understandings
occurred prior to the execution of the 1984
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documents which resulted in the
acknowledgment and assumption on the part of
all principals in the corporation that Terry
Slone was a shareholder in the corporation of
200 shares represented by Certificate No. 5.
Findings of fact made by the trial court cannot be set
aside unless they are clearly erroneous.
CR 52.01.
The
documents state that “Guarantors [Virgil, Bethel, and Terry]
presently own all of the other issued and outstanding shares of
common stock in Foodtown.”
Moreover, Terry signed as a
guarantor, thereby pledging his stock ownership interest in
Foodtown for the payment of the stock purchase to Gary and Ruth
Ann.
The parties’ acquiesence to Terry’s pledging of his stock
as security is sensible only if the parties acknowledged that
Terry owned stock.
The foregoing serves as substantial evidence
for the trial court’s first finding, and accordingly the finding
may not be set aside.
Likewise, finding two, to the effect that an undefined
event or set of circumstances or understandings occurred prior to
the execution of the 1984 documents which resulted in the
acknowledgment and assumption on the part of all principals in
the corporation that Terry Slone was a shareholder in the
corporation of 200 shares represented by Certificate No. 5 is not
a clearly erroneous finding.
David admits that he assumed Terry
was a shareholder in 1984 and that he maintained this belief
until Gary claimed ownership of Stock Certificate No. 5.
Virgil
acknowledged that he assumed Terry was a stockholder from the
time he returned to work for the company, and this remains his
understanding to the present.
The documents specifically refer
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to Stock Certificate No. 5 as being owned by the Guarantors, and
stock certificate No. 5 was originally issued in Terry’s name.
All stock is accounted for in the documents.
Neither Virgil nor
Bethel have ever claimed ownership of Stock Certificate No. 5.
Gary and Linda acknowledged in the documents that they owned only
400 shares.
The corporation is listed in the documents as having
no treasury stock.
Based upon the foregoing, the trial court was
not clearly erroneous in concluding that all principals
acknowledged and assumed that Terry was the owner of Stock
Certificate No. 5.
Inasmuch as the parties agreed on or assumed that Terry
was the owner of the 200 shares represented by Stock Certificate
No. 5 at the time the 1984 documents were executed, and that was
a basis for their negotiations in forming the contract, we
conclude that the elements for estoppel by contract are met.
The
appellants offer alternative interpretations of the 1984 contract
documents; however, we cannot say that the trial court was
clearly erroneous in making its findings as to the parties’
understanding and intent in forming the 1984 contract.
Further,
based upon the trial court’s findings, we conclude that by
operation of estoppel by contract, David Willis, Ruth Ann Willis,
Virgil Slone, Bethel Slone, and Slone’s Foodtown, Inc., are
estopped from denying that Terry W. Slone and Edith Slone are
shareholders in Slone’s Foodtown, Inc.
For the foregoing reasons the judgment of the trial
court is affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEES TERRY W.
SLONE AND EDITH SLONE:
David A. Weinberg
Lexington, Kentucky
Richard M. Rawdon, Jr.
Georgetown, Kentucky
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