Sherman v. Ward

KARWACKI, Judge. In this appeal we are asked to review the construction by the Circuit Court for Harford County of a shareholder’s agreement creating a voting trust. The issue is who is entitled to serve as the third trustee of that trust. The two contestants for that position are Catherine Eileen Bosely, the surviving widow of Melvin G. Bosely, and Roy A. Bosely, the nominee of the children of Melvin G. Bosely.

Judge Brodnax Cameron, Jr. entered a declaratory judgment in favor of Mrs. Bosely. The circumstances under which this controversy arose are undisputed. Melvin G. Bosely died testate on January 8, 1985. At the time of his death, Mr. Bosely owned 50 percent of the common stock of Art Builders, Inc., a Maryland corporation engaged in real estate development.

The owner of the remaining 50 percent of Art Builders stock is R. Walter Ward. All of the stock of the corporation is subject to the terms of a shareholders’ agreement dated October 31, 1982 (the Agreement). The express purpose of the Agreement was to “provide continuity of ownership and management of the corporation after the death of a shareholder.” The Agreement effected that purpose by requiring that, upon the death of either Mr. Bosely or Mr. Ward, all shares of stock in Art Builders would be transferred to a voting trust to be held by three trustees. Section 12(b) of the Agreement identified the trustees as follows: (b) Trustees.

The trustees of the voting trust shall be the surviving Shareholder, Carlton R. Sherman, and a third trustee, who shall be selected according to the following priorities. The third trustee shall be the de ²¹⁶ ceased Shareholder’s executor or administrator, provided that such executor or administrator must be a natural person. If the deceased Shareholder’s executor or administrator is not a natural person, then the third trustee shall be the deceased Shareholder’s surviving spouse, provided that such spouse must be a principal beneficiary of the deceased Shareholder’s estate. If such surviving spouse is not a principal beneficiary of the deceased Shareholder’s estate or if the deceased Shareholder has no surviving spouse, the principal beneficiaries of the deceased Shareholder’s estate shall elect a natural person to serve as the third trustee.

Notwithstanding the provisions of this Section 10(d) [1] , the third trustee shall in all events be a natural person other than the surviving Shareholder or Carlton R. Sherman. Mr. Bosely was married to Catherine Eileen Bosely when he executed the Agreement. His children, who dispute her right to act as the third trustee of the voting trust, are the issue of a prior marriage of Mr. Bosely. Mr. Bosely executed his will on November 30, 1984, after he became aware that he was suffering from a terminal illness.

A codicil thereto was dated December 12, 1984, but did not materially affect his previous testamentary design. Under his will, Mrs. Bosely was bequeathed certain tangible personal property and an income for life from a trust comprising one-third of the estate. She was given limited rights to invade the corpus of that trust but no power of appointment over the corpus. The residue of the estate was bequeathed to a trust for the benefit of Mr. Bosely's children.

Carlton R. Sherman was named the trustee of each trust under the will and also the executor of Mr. Bosely’s will. Mrs. Bosely, on January 21, 1985, as permitted by Md. Code (1974, 1985 Supp.), § 3-203 of the Estates and Trusts Article, 2 elected to take one-third of the net ²¹⁷ estate instead of the property left to her under the will. Carlton R. Sherman is a certified public accountant who had been retained by Mr. Bosely, Mr. Ward, and Art Builders since 1977. The appellants and the appellees agree that the terms of the Agreement are unambiguous, and the trial court so found.

The disagreement is over the effect of the language employed. Therefore, we begin our analysis by reciting some well settled principles. Where the language of a contract, considered in light of its subject matter and its object and purpose, is clear and unambiguous, the issue of its proper construction is a matter of law for the court. H & R Block, Inc. v. Garland, 278 Md. 91 , 359 A.2d 130 (1976); Della Ratta, Inc. v. Amer.

B. Com. Dev., 38 Md.App. 119 , 380 A.2d 627 (1977). And, in construing the contract, the court will apply an objective test to its interpretation. It must be presumed that the parties meant what they expressed.

The inquiry should focus on what a reasonable person in the position of the parties to the contract would have thought the contract language meant rather than what the contracting parties actually intended it to mean. Roged, Inc. v. Paglee, 280 Md. 248, 254 , 372 A.2d 1059 (1977), Orkin v. Jacobson, 274 Md. 124, 128-29 , 332 A.2d 901 (1975); Kasten Constr. v. Rod Enterprises, 268 Md. 318, 328-29 , 301 A.2d 12 (1973); U.S.I.F. Triangle v. Rockwood Dev. Co., 261 Md. 379, 383-84 , 275 A.2d 487 (1971); Seldeen v. Canby, 259 Md. 526, 531 , 270 A.2d 485 (1970); Della Ratta, Inc. v. Amer. B. Com.

Dev., supra. Mr. Bosely and Mr. Ward, in order to provide continuity of the ownership and management of Art Builders after the death of either, agreed that when the first of them died, all of their stock would be transferred to three trustees of a voting trust. The survivor of them and their trusted accountant, Mr. Sherman, would serve as two of the trustees. As to the identity of the third trustee, they set these priorities as we construe them from the language they employed in § 12(b) of the Agreement: ²¹⁸ First—The deceased shareholder’s executor or administrator, provided that such executor or administrator must be a natural person (lines 6-9) 3 other than the surviving shareholder or Carlton R. Sherman (lines 22-26).

Second—If the deceased shareholder’s executor or administrator is not a natural person [or if that position is held by the surviving shareholder or Carlton R. Sherman (lines 22-26)], then the third trustee shall be the deceased shareholder’s surviving spouse, provided that such spouse must be a principal beneficiary of the deceased shareholder’s estate (lines 9-15). Third—If such surviving spouse is not a principal beneficiary of the deceased shareholder’s estate or if the deceased shareholder has no surviving spouse, the principal beneficiaries of the deceased shareholder’s estate shall elect a natural person to serve as the third trustee (lines 15-22) other than the surviving shareholder or Carlton R. Sherman (lines 22-26). This construction effectuates the intention of the parties to the Agreement. They had agreed that Mr. Sherman could not be the third trustee since he already would be filling one of the other two trustee positions.

They expressed this in lines 22-26 of § 12(b) of the Agreement. Consequently, that expressed intention must be given effect when reading the three expressed priorities for filling the positions of the third trustee. Sagner v. Glenangus Farms, 234 Md. 156, 167 , 198 A.2d 277 (1964) (a “contract must be construed in its entirety and, if reasonably possible, effect must be given to each clause”). Furthermore, the parties’ disqualification of Mr. Sherman from acting as the third trustee is important from the standpoint of their intention with regard to their second and third priorities for the position of the third trustee.

The second priority must have contemplated the possibility that one of them would name as the executor of his will either ²¹⁹ the survivor of them or Mr. Sherman; otherwise the condition to operation of the third priority would have been unnecessary. Moreover, our interpretation of § 12(b) of the