Wilcom v. Wilcom

BLOOM, Judge. In this specific performance action, the Circuit Court for Frederick County determined that appellant, Lewis Weber Wilcom (Lewis), had entered into a valid, binding contract to sell all of his shares of stock in 75-80 Dragway, Inc., a ⁸⁸ family owned corporation, to the other stockholders, Lewis’s brothers, William E. Wilcom, Michael J. Wilcom, J. Jerome Wilcom, and Anthony Wilcom (William, Michael, Jerome, and Anthony). Lewis was ordered to transfer his 799 shares to the purchasers upon receipt of $18,233.18, the purchase price calculated on the basis of a formula previously agreed upon among the parties, and he appealed. William, Michael, Jerome and Anthony were ordered to pay certain dividends to Lewis, and they cross-appealed.

We believe the trial court was entirely correct in decreeing specific performance but erred in ordering that dividends be paid to Lewis Weber Wilcom. Accordingly, we shall affirm in part and reverse in part. Background Charles and Catherine Wilcom, the parents of Lewis, William, Michael, Jerome and Anthony, formed 75-80 Drag-way, Inc., in 1960 to operate a drag race strip in Frederick County, Maryland. They gradually gave all of their stock in the corporation to their five sons but remained active in the corporation as officers.

In 1969, Charles and Catherine Wilcom and their sons entered into an agreement to restrict the sale or transfer of stock in 75-80 Dragway, Inc., in order to insure that the corporation would remain a family business. Basically, the agreement provided that a stockholder who desired to dispose of his shares could not sell or transfer them to anyone outside the family unless he first offered them to the officers and other stockholders at a price to be calculated according to a formula based on book value and net profits. In the event of the death of a stockholder, the surviving stockholders and officers would be privileged to purchase the decedent’s shares from his estate at a price calculated according to the same formula. The agreement also provided that “[sjuitable amendments to the articles of incorporation shall be adopted and kept in force by the corporation to make this agreement effective.” Other spe ⁸⁹ cific provisions of the agreement will be referred to in the discussion of the issues raised by the parties.

On November 3, 1982, Charles H. Slingluff, as attorney for Lewis Wilcom, sent to each of his client’s parents and brothers (who, with Lewis, comprised all of the officers and stockholders of 75-80 Dragway, Inc.) copies of a letter addressed to all of them, as follows: In re: Sale of Weber Wilcom Stock Gentlemen, good morning: Pursuant to instructions from my client, I hereby offer to sell unto you his outstanding shares of stock in the corporation known as 75-80 Dragway. I am, Very truly yours, Charles H. Slingluff On November 18, well within the thirty day period provided in the agreement for stockholders and officers to accept a stockholder’s offer to sell his stock, William, Michael, Jerome and Anthony responded to Lewis’s offer as follows: To: Weber Louis Wilcom [sic] The undersigned Common Stockholders of the 75-80 Dragway, Inc., a corporation organized under the laws of the State of Maryland, do hereby accept the offer to sell your outstanding shares of stock in the Corporation known as 75-80 Dragway, Inc. The Common Stockholders, William E. Wilcom, Michael J. Wilcom, Jefferson J. Wilcom, and Anthony L. Wilcom are prepared to comply and settle for the purchase of the outstanding shares of Stock in accordance with the “Agreement Restricting Transfer of Stock” dated October 1, 1969, executed by all of the then Shareholders within the time provided in the Agreement upon delivery of all of the Certificates of Stock issued to L. Weber Wilcom, properly endorsed. Counsel, Charles H. Slingluff, Esquire, representing you should contact the firm of Offutt & Horman, P.A., Attorneys for the hereinafter named Shareholders to ⁹⁰ arrange a date, time and place for the transfer and settlement on the shares of Stock. Dated this 18th day of November, 1982.

William E. Wilcom Michael J. Wilcom Jefferson J. Wilcom Anthony L. Wilcom Mr. Slingluff, by letter dated December 3, 1982, advised the purchasers’ attorney, W. Jerome Offutt, that the minimum acceptable purchase price for Lewis’s stock in 75-80 Dragway, Inc., was $150,000. Nevertheless, on December 16, 1982, Mr. Offutt wrote to Mr. Slingluff that the firm of Stoy, Malone & Company, accountants, using the formula set forth in the 1969 agreement, had valued Lewis’s stock at $18,233.18, which the purchasers were prepared to tender upon receipt of the three certificates evidencing the 799 shares registered to Lewis. A copy of the accountant’s computations was enclosed. Mr. Slingluff was requested to advise Mr. Offutt when delivery of the certificates could be made and the sale concluded in accordance with the 1969 agreement.

Mr. Slingluff’s response, on January 6, 1982, was that the amount tendered was far short of his client’s $150,000 expectation and that his client’s offer was withdrawn. Lewis’s brothers, joined by their parents, brought this specific performance action in May 1983. Lewis counterclaimed against his brothers, asserting (first count) that they had negligently failed to perform their corporate duties and (second count) that they had conspired among themselves to deprive Lewis of information about the workings of the corporation and refused to have annual stockholders’ meetings. Contentions Appellant presents several arguments.

He contends that ⁹¹ 1. the agreement is a contingent option that did not become effective because not all of the terms were complied with, 2. there was no offer and acceptance of a specified number of shares at an agreed price, 3. no money was ever tendered by the stockholders-purchasers and there was no evidence that they were ready, willing and able to perform, 4. that the appellees, as officers and directors of the corporation, breached their fiduciary duties to keep appellant informed so that he would know the value of his stock, 5. the purported acceptance did not comply with the agreement because the valuation was based on a fiscal year different from that provided in the bylaws, and 6. the evidence showed that the corporation, not the stockholders, was buying the stock. The cross-appellants raise only one issue: did the court err in awarding stock dividends to Lewis for years in which cross-appellants were entitled to ownership of Lewis’s stock? I Appellant points to the provision in the 1969 agreement that suitable amendments would be made to the articles of incorporation to make the agreement effective. He argues that since the articles of incorporation were never amended with respect to the restrictions on transfers of stock, the agreement never became effective.

There is no merit in that argument. There was no statutory requirement to amend the articles of incorporation, so amendment was not necessary to make the agreement effective. It is permissible, not mandatory, to include in articles of incorporation restrictions on transferability of stock. Md. Corps. & Ass’ns Code Ann., § 2-104(b)(2) (1985).

In any event, amendment of the corporate charter to provide notice to ⁹² prospective purchasers that transferability of stock is restricted would hardly be necessary as between the parties who executed the agreement to restrict transferability. Appellant also contends that in order for the 1969 stockholders’ agreement to be effective all shares of stock had to be bound by it and that there were 1000 shares of unissued stock (erroneously referred to by appellant as Treasury stock) that were not expressly made subject to the agreement. This contention, too, is utterly devoid of merit. The agreement provides that every share of common stock theretofore issued or which may be thereafter issued “shall be held, owned and transferred subject to all the terms, conditions and options herein contained.” The corporation was authorized to issue 5000 shares; it had issued 4000 shares, all of which were then outstanding.

On each certificate for all outstanding shares there had been typed: “Subject to the provisions of Stock Purchase Agreement dated October 1, 1969.” Presumably, if any additional shares are ever issued, the certificate will bear a similar legend. Until additional shares are issued, nothing further need be or reasonably can be done to insure that every share heretofore issued or which hereafter may be issued will be made subject to the terms of the agreement. The agreement does not refer to authorized but unissued stock. II Appellant next contends that his attorney’s “offer” letter of November 3, 1982, was not an offer but merely a solicitation for an offer.

He points to the fact that the letter does not indicate either the number of shares proposed to be sold or the price, two essential elements of any offer to sell stock. He further argues that there is not a sufficient writing to be enforceable under the applicable Statute of Frauds, Md.Com.Law Code Ann., § 8-319 (1975), which provides: ⁹³ A contract for the sale of securities is not enforceable by way of action or defense unless (a) There is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price____ Mr. Slingluff s letter was unequivocably stated to be an offer, not an invitation or solicitation to negotiate. The fact that it was addressed to his client’s parents and brothers, the officers and shareholders of the corporation, is a clear indication that the offer was made with reference to the 1969 agreement, which required a stockholder to offer his shares to officers as well as fellow shareholders if he desired to sell. There is no other logical explanation for including the parents who, having given away all their stock, would hardly be considered likely purchasers except for that agreement.

Since Mr. Slingluff’s letter offered for sale “his [Lewis’s] outstanding shares of stock” in the corporation, the number of shares being offered was ascertainable by reference to the corporate ledgers. The manner of determining the price had previously been settled in the 1969 agreement of the stockholders. Accordingly, since any terms missing from the offer itself were clearly ascertainable by reference to other documents, the offer was not too uncertain or indefinite to be accepted. As for the Statute of Frauds argument, the offer itself, signed by an authorized agent, 1 together with the 1969 agreement, signed by appellant himself, sufficiently identifies the securities offered for sale, establishes the quantity offered for sale, and defines (by fixed formula) the price per share.

That in itself would be sufficient to satisfy the statute. Furthermore, on December 16, 1982, counsel ⁹⁴ for appellees sent a confirming letter setting forth the number of shares and the calculated price for them. Appellant did not respond to that letter until