H. B. THOMPSON and JUANITA THOMPSON v. AA SALES AND DEVELOPMENT INC.; CAROLYN SPENCER and TODD BALL
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RENDERED:
April 27, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-002565-MR
H. B. THOMPSON and
JUANITA THOMPSON
v.
APPELLANTS
APPEAL FROM CARTER CIRCUIT COURT
HONORABLE SAMUEL LONG, JUDGE
ACTION NO. 99-CI-00164
AA SALES AND DEVELOPMENT INC.;
CAROLYN SPENCER and TODD BALL
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
EMBERTON, GUIDUGLI and JOHNSON, JUDGES.
EMBERTON, JUDGE: H. B. Thompson and Juanita Thompson, husband and
wife, appeal from a summary judgment entered in favor of AA Sales
and Development, Inc., a/k/a A. A. Limestone, Inc., Carolyn K.
Spencer and Todd Ball.
On May 17, 1999, the Thompsons filed a
complaint alleging that they and Spencer and Ball entered into an
oral agreement to share in the ownership of A. A. Limestone,
Inc., and requested that the court declare them forty-nine
percent owners in the corporation.
They alleged also that
appellees violated various provisions of the Kentucky Business
Corporations Act;1 and, made a claim for unjust enrichment.
The
trial court dismissed the action holding that the Thompsons
failed to file the complaint within the time provided by the
applicable statute of limitations.
While the Thompsons’ motion
to alter amend or vacate the dismissal order was pending, they
filed a motion to amend the complaint to add allegations of
fraud.
The trial court denied the motion to alter, amend, or
vacate and held the issues raised in the motion to be moot.
In reviewing a motion to dismiss, we assume all facts
stated by the Thompsons to be true.2
On May 5, 1992, Articles of
Incorporation were filed for A. A. Limestone, Inc., with Juanita
Thompson as the incorporator.
The Thompsons home was listed as
the corporate office and Juanita was designated the registered
agent for service of process.
The Articles provided for the
issuance of one hundred shares of stock; only fifty shares were
issued, however, and forty-nine remained outstanding.
The
Thompsons submitted affidavits alleging that from 1992 through
1999 they used their experience in the coal business to obtain
leases of limestone minerals for A. A. Limestone.
In 1998, an employee reported to Juanita Thompson that
Ball directed her to prepare paperwork to remove the Thompsons’
names as owners, officers and agents for the corporation.
Juanita then contacted Ball who assured her that the Thompsons’
ownership interest was protected.
In March 1999, without notice
or a meeting of the Board of Directors, the Articles and the
1
Kentucky Revised Statutes (KRS) 271B.010, et. seq.
2
Gall v. Scroggy, Ky. App., 725 S.W.2d 867 (1987).
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corporate name were changed to AA Sales and Development, Inc.
Fifty-one votes were cast for the amendment, forty-nine shares
remained outstanding, and Carolyn Spencer signed as president of
the corporation.
After learning of the amendment, Juanita
contacted Ball to protest the action and to explain that she had
borrowed $15,000 against her home to develop limestone leases for
the corporation.
Ball responded by informing her that she and
her husband had no interest in the corporation.
The leases obtained by the Thompsons on behalf of A. A.
Limestone, Inc., were transferred to Davon, Inc., an Ohio
corporation, pursuant to an Assignment of Mineral Leases.
The
Assignment indicates that there was an Asset Purchase Agreement
dated September 30, 1998, in connection with the transfer of the
leases signed by A. A. Limestone, Inc., Carolyn Spencer,
President.
The trial court held that the complaint is barred by
the statute of limitations and the statute of frauds.
The
statute of limitations for enforcement of an oral contract is
five years from the date the cause of action accrued.3
We
disagree that the Thompsons’ action to be declared forty-nine
percent owners in the corporation is time barred.
The cause of
action would not have accrued on the date of the corporation’s
formation nor on the last date which the Thompsons performed
services for the corporation, which the appellees assert was more
than five years prior to the filing of the complaint.
3
KRS 413.120.
-3-
As stated in Owingsville & Mt. Sterling Turnpike Road
Co. v. Bondurant’s Adm’r:4
A corporation is the agent of and holds in
trust for the shareholder his interest in the
corporate property. He has the right to rely
upon the fact that the corporation will
preserve his rights to his stock in it, and
to presume that the corporation will not
assert an adverse claim to his interest as a
stockholder. It is the business of the
corporation and its officers to preserve and
maintain the rights of the stockholders in
the corporate property.
It is not averred in the answer, or as
amended, that the testator, or his personal
representative, ever had any notice whatever
that his right, or that the estate, was
denied to the stock, either by the company or
stockholders. If the plea of limitations is
available in an action like this, there was a
total failure to allege facts which would
make it so.
This court said in Mercer Co. Court v.
Springfield, M. & H. Turnpike Co., 10 Bush,
258; “If it be conceded that a corporation
can rely on lapse of time against a
stockholder who merely demands the evidence
of title to his stock (a question we do not
decide), the statute certainly will not begin
to run in its favor until the stockholder is
notified by some unequivocal act that his
right to the stock is disputed. Until he
receives such notice, he has the right to
regard the corporation as his agent, and as
holding in trust for him his interest in the
corporate property.”
We do not believe the Thompsons’ action is barred by
the statute of limitations because even if the five year statute
does apply, the Thompsons’ action did not accrue until after
March 1999, when Ball unequivocally informed the Thompsons that
4
107 Ky. 505, 508, 54 S.W. 718 (1900).
-4-
their interest in the corporation was challenged.
The trial
court erred in holding otherwise.
Without elaboration, the trial court also indicated
that the Thompsons’ claim of ownership in the corporation is
barred by the statute of frauds.
KRS 371.010 requires that
contracts for the sale of stock which cannot be performed within
one year be in writing.
To fall within the purview of the
statute, however, there must be a contract for the “sale” of
securities.
The term “sale” necessarily requires an owner’s
attempt to transfer the stock for consideration to a nonowner.
The Thompsons’ allegations are not based on a sale of the stock
from the appellees.
To the contrary, it is their contention that
the appellees never owned the entire corporation but that from
its inception the Thompsons were forty-nine percent owners.
The
statute of frauds is inapplicable to the present set of facts.
The trial court did not address the remaining
allegation made in the Thompsons’ complaint and dismissed the
complaint in its entirety based on the misconception that the
Thompsons’ complaint is based on an oral contract for the sale of
stock.
Additionally, since it dismissed the complaint with
prejudice, it refused the Thompsons’ attempt to file an amended
complaint alleging fraud.
In view of our contrary holding, we
remand this case to the trial court for further consideration of
the issues raised by the Thompsons’ complaint and their motion to
file an amended complaint.
The order of the Carter Circuit Court is reversed and
this case is remanded for further consideration.
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ALL CONCUR.
BRIEF AND ORAL ARGUMENT FOR
APPELLANTS:
BRIEF AND ORAL ARGUMENT FOR
APPELLEES:
Dwight O. Bailey
Flatwoods, Kentucky
Charles M. Johnstone, II
Charleston, West Virginia
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