Steffen v. Herr

Henderson, J., delivered the opinion of the Court. This appeal is from a decree of an equity court dismissing a bill filed July 14, 1961, for rescission of a written contract and the recovery of $2,500.00 paid for the purchase of stock. The case turns on the proper construction of the contract. On November 1, 1957, Ray E. Herr, a resident of Florida and the owner of all the outstanding 787 shares of the common stock of Herr Electric Company entered into an agreement with ⁴⁸¹ Joseph E. Mullen of Glen Burnie and Heinie C. Steffen of Landsdowne, Maryland.

The agreement recited that Mullen and Steffen were employees who had rendered valuable services, that Herr was unable to devote as much time to the business of the corporation as he had in the past, and that Herr “desires that the said Joseph E. Mullen and Heinie C. Steffen take a more active interest in the business of the Corporation, not only as employees, but as officers and stockholders.” The agreement then provided that Herr “agrees to sell” 24%, or 189 shares, to each of the named employees, at a total price of $9,250.00 or $48.94 per share and they each agreed to pay $25.00 per week on account of the purchase price, with 4% interest on the unpaid balances, with the right of prepayment to reduce interest charges. Restrictions were imposed on the sale of stock, but the stock was to remain in the hands of the seller until fully paid. There was a provision for purchase upon death, the stock certificates were indorsed as being subject to the terms of the agreement, and there was a mutual covenant clause as to the actions relating to the affairs of the corporation. The agreement is completely silent, however, as to what could or should be done in the event of default in the payment of the weekly installments.

It was shown in the testimony, that Steffen’s salary was increased from $125.00 to $150.00 per week to enable him to make the payments called for in the agreement, that he paid $1,000 down and $25.00 was deducted from his salary each week. He was discharged in October, 1958 but later re-employed as a salesman. At that time he had paid $2500.00 to the company. Steffen left the company in June, 1960.

Steffen demanded repayment of the payments he had made on account. Herr refused, but agreed to turn over the shares if the balance of $6750 was paid. On July 27, 1961, Herr sold all the 787 shares of the corporation to third parties, at a price of $28,200, or $35.83