September 27, 1993
UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
No. 92-2293
WHITNEY BROS. CO., ET AL., Plaintiffs, Appellees,
v.
DAVID C. SPRAFKIN AND JOAN BARENHOLTZ, TRUSTEES OF THE BERNARD M. BARENHOLTZ TRUST, ET AL., Defendants, Appellants.
ERRATA SHEET
The opinion of this Court issued on September 9, 1993, is amended as follows:
Page 3, second complete paragraph, line 1, delete "defendant" and insert "Bernard Barenholtz's (and defendants') attorney, Samuel M."
Page 3, second complete paragraph, line 2, delete "Bernard" and insert "Mr."
Page 3, last line, substitute "first" for "third."
Page 13, line 1-2, delete ", one of whom, ironically, was a director of Whitney Brothers,".
WHITNEY BROS. CO., ET AL.,
Plaintiffs, Appellees,
DAVID C. SPRAFKIN AND JOAN BARENHOLTZ, TRUSTEES OF THE BERNARD M. BARENHOLTZ TRUST, ET AL.
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Norman H. Stahl, U.S. District Judge]
Before
Torruella, Cyr and Boudin,
Circuit Judges.
Richard B. Couser, with whom James P. Bassett, Cordell A.
Johnston, Orr and Reno, P.A., and Samuel M. Sprafkin, were on
brief for appellants. James R. Muirhead, with whom Peter D. Anderson, and McLane,
Graf, Raulerson & Middleton, Professional Association, were on
brief for appellees.
September 9, 1993
TORRUELLA, Circuit Judge. Plaintiffs/appellees are
Whitney Brothers Company ("Whitney Brothers") and Griffin M.
Stabler, Whitney Brothers' president, chief executive officer and
director. Defendants/appellants, David C. Sprafkin and Joan
Barenholtz, are the trustees of the Bernard M. Barenholtz Trust,
Whitney Brothers' majority shareholder. Plaintiffs sued to
compel defendants to sell their stock in Whitney Brothers
pursuant to a written buy/sell contract.
After two years of litigation, the district court
ordered the sale at defendants' asking price. In the order, the
district court also held that: (1) plaintiffs were entitled to
prepay the promissory note bearing the sale price; (2) interest
would begin to accrue when plaintiffs execute the note; and (3)
plaintiffs were entitled to attorneys' fees. Defendants appealed
only on the issues of prepayment and interest. Plaintiffs
subsequently moved for attorneys' fees for this appeal. W e
reverse the district court's judgment with respect to prepayment,
affirm with respect to the accrual of interest, and deny
plaintiffs' motion for attorneys' fees on this appeal.
BACKGROUND
Whitney Brothers is a New Hampshire corporation that
produces wooden learning materials. Bernard Barenholtz acquired
62.6% of the company's outstanding shares in 1969. Ten years
later, he transferred these shares to the Bernard M. Barenholtz
Trust (the "Trust") and named himself and defendant David
Sprafkin trustees. Plaintiff Griffin Stabler owns 32.7% of the
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shares, and his son, David Stabler, owns the remaining 4.7%.
On January 27, 1987, Whitney Brothers, the trustees,
and Griffin Stabler executed a written buy/sell agreement. Under
the agreement, Whitney Brothers would buy the Trust's shares
within ninety days of the death of Bernard Barenholtz and buy
Griffin Stabler's shares within ninety days of Stabler's death.
To determine the purchase price, the parties would plug an
agreed-upon appraisal into a formula to determine the purchase
price. If the parties could not agree on an appraisal, they
would each get their own and plug the average into the formula.
The contract also provided for payment by a promissory note, with
monthly installments over ten years at 10% interest per annum.
The agreement did not mention whether prepayment of the note was
permissible.
On February 3, 1987, Bernard Barenholtz's (and
defendants') attorney, Samuel M. Sprafkin wrote a letter (the
"February 3 letter") advising Mr. Barenholtz that: (1) David
Stabler, as a shareholder, should consent to the contract; (2)
the promissory note should be prepayable without penalty; and (3)
Article 4 of the contract should have an additional provision not
relevant to this appeal. Plaintiffs contend, and the district
court found, that after Bernard Barenholtz received the letter,
the parties orally agreed to the prepayment provision.
Barenholtz then placed the letter in a file with the written
contract and David Stabler signed an addendum to the contract
pursuant to Sprafkin's first suggestion.
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When Bernard Barenholtz died, on August 5, 1989, his
daughter, defendant Joan Barenholtz, assumed his trustee
position. Whitney Bros. Co. v. Sprafkin, No. 90-054-S, at 4 (D.
N.H. filed Sept. 30, 1992). A few days later, plaintiff Stabler
and defendant Sprafkin discussed the contract's required stock
sale. Id. One of the parties asked E.F. Greene to update a past
appraisal of Whitney Brothers.1 Id. Sprafkin rejected Greene's
appraisal; Whitney Brothers accepted it. Id. Relying on
Greene's appraisal, Whitney Brothers tendered to defendants a
prepayable promissory note for $1,178,000 for the stock (the
"September 1989 Tender").2 Id. at 4-5.
Instead of responding immediately, defendants secured a
significantly higher appraisal from Alfred Schimmel. Id. They
then rejected Whitney Brothers' tender by letter, without
mentioning the note's prepayment clause. When Stabler learned of
defendants' appraisal, he rejected it as too high.
Ultimately, plaintiffs sued to compel the transfer of
the stock. Ten months later, on December 13, 1990, as part of
their cross-motion for summary judgment, plaintiffs offered to
tender either $1,349,3433 immediately or, if the court found
that the agreement did not permit prepayment, that amount over
1 The parties disagree over who requested the update.
2 Defendants contend that Stabler made the tender knowing that they did not accept Greene's appraisal and planned to obtain one of their own.
3 This was the price calculated under the contract by plugging the average of the two appraisals into the formula.
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ten years at 10% interest (the "December 1990 Tender").
Defendants again rejected the tender. They now contend that they
rejected it because: (1) it omitted $145,000 worth of interest
that had accrued since November 3, 1989, 90 days after the death
of Bernard Barenholtz; and (2) it was invalid because the first
option permitted prepayment, and the second option was
conditioned upon a court judgment that prepayment was prohibited.
In response to the cross-motions for summary judgment,
the district court: (1) ordered defendants to sell their stock;
(2) found that plaintiffs were not entitled to prepay the note;
and (3) decided to hold a trial on the issue of the stock's
price. See Whitney Bros. Co. v. Sprafkin, No. 90-54-S (D.N.H.
filed June 5, 1991).
After the trial, the court issued an order in which it:
(1) required plaintiffs to pay $1,349,343 for the stock; (2)
reconsidered and reversed, sua sponte, its previous order and
ruled that plaintiffs could pay for the stock with a prepayable
promissory note; (3) ruled that interest on the note would begin
to accrue when it was executed, and not before; and (4) awarded
attorneys' fees to plaintiffs based on defendants' bad faith
conduct of the litigation. See Whitney Bros. Co. v. Sprafkin,
No. 90-054-S (D. N.H. filed Sept. 30, 1992). When the court
entered judgment on the order the following day, the court also
awarded prejudgment interest pursuant to N.H. Rev. Stat. Ann.
524:1-b, "if appropriate." Whitney Bros. Co. v. Sprafkin,
No. 1:90-cv-0054-S (D.N.H. filed Oct. 1, 1992) (emphasis added).
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Defendants appeal on only two issues: (1) the
prepayability of the note; and (2) the date from which interest
accrues. In addition, plaintiffs request attorneys' fees for
this appeal.
DISCUSSION
I. PREPAYABILITY
Article 4 of the buy/sell contract provides:
The purchase price . . . shall be paid
with a negotiable promissory note which
shall provide for the payment of the
purchase price in 10 years with interest at the rate of 10% per annum, principal and interest payable in 120 equal, consecutive monthly payments.
(emphasis added). The agreement nowhere mentions prepayment of
the proposed promissory note.
At trial, the district court conditionally allowed
evidence of a subsequent oral agreement permitting prepayment of
the note. Ultimately, the court admitted the evidence, finding
that it was not precluded by the parol evidence rule. In the
same ruling, the court found that the parties indeed entered the
alleged oral agreement.
The court erred in finding the asserted oral agreement
binding on the parties. Article 5 of the written buy/sell
contract prohibits the parties from orally altering or amending
the written contract.4 Under N.H. Rev. Stat. Ann. 382-A:2-
4 Article 5 provides:
This agreement may be altered, amended or terminated by a writing signed by all of the shareholders except David G. Stabler,
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209(2), "[a] signed agreement which excludes modification or
rescission except by a signed writing cannot be otherwise
modified or rescinded. . . ." While an attempted modification
can constitute a waiver, that waiver can be retracted absent "a
material change of position in reliance on that waiver." N.H.
Rev. Stat. Ann. 382-A: 2-209(4) and (5). Here, plaintiffs
allege no alteration of their position in reliance on a
prepayment provision. Thus, we can find no binding waiver of
and the Corporation.
Although the Article does not state in mandatory terms that alterations must be in writing, defendants argue that since
agreements may always be altered by a writing signed by the parties, the Article must have been intended to exclude oral modifications. While we do not foreclose other purposes of this clause, we agree that the purport of the provision is to require that alterations be in writing.
In addition, plaintiffs never countered defendants' argument that the Article precludes oral alterations and amendments to the contract. In response to this argument, plaintiffs, apparently characterizing the clause as an integration clause, argued that: (1) such a clause did not mandate a finding that the contract was totally integrated; (2) the contract was not a total integration; (3) the February 3 letter "contemplated an extra-contractual understanding about a term of the agreement," rather than a variation; and (4) therefore, since the court found an independent agreement, the court could find the note was prepayable. This argument ignores defendants' assertion that the clause prohibits oral alterations of the contract.
At oral argument, when questioned about the prohibition, plaintiffs' counsel simply argued that the oral agreement was not a modification because the contract did not mention prepayment. Counsel did state that Article 5 "supposedly" precludes oral
modification, suggesting a possible disagreement on that interpretation. However, since defendants raised Article 5 at the trial level, see Defendants' Objections to Plaintiffs' Cross-
Motion for Summary Judgment at 11; Defendants' Post Trial Brief
at 44-45, and on appeal, Appellants' Brief at 17-19, 21 n.7, we
construe plaintiffs' failure to argue that the Article does not prohibit oral alteration as a concession that it does.
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Article 5 by defendants.5 Plaintiffs contend that since the
written contract says nothing about prepayment, a subsequent
agreement to allow prepayment does not constitute an alteration
or amendment under Article 5. Rather, they argue that the
agreement was independent of the written contract. Apparently,
the district court agreed. Although the court did not explicitly
address Article 5, it did conclude that a prepayment provision
"does not, by its terms, vary or contradict the terms of the
Agreement. . . ." Whitney Bros. Co., No. 90-054-S (Sept. 30,
1992), at 13.6
We review this determination de novo as it centers
around the interpretation of the language of the written
contract. See In Re SPM Mfg. Corp., 984 F.2d 1305, 1311 (1st
Cir. 1993) (de novo review of bankruptcy court's interpretation
of unambiguous contract); Hermes Automation Technology, Inc. v.
Hyundai Elec. Ind., 915 F.2d 739, 745 (1st Cir. 1990)
(interpretation of plain language of release agreement was
question of law warranting de novo review).
On review, we find that the district court erred in its
5 We apply 2-209 by analogy. Although that section does not apply to the sale of securities, the purpose behind the rule -- "to protect against false allegations of oral modifications" -- equally applies to these contracts. See 2-209, comment 3.
6 This finding reversed the district court's first order which found that "[t]he prepayment term is inconsistent with the plain meaning of the Agreement, which clearly provides for payment over a period of years." Whitney Bros. Co,, No. 90-54-S (June 5,
1991), at 16-17.
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determination.7 The written buy/sell contract provision
regarding payment expressly contemplates payment over ten years
at 10% interest. If plaintiffs prepay the note, they will avoid
paying the 10% interest and thereby deviate from an express
provision of the contract. Moreover, 10% interest over ten years
amounts to a significant percentage of the contract price. Since
prepayment would substantially alter the parties' financial
positions under the contract, an agreement to permit prepayment
constitutes an alteration under Article 5.
Furthermore, although the New Hampshire Supreme Court
has never encountered this precise issue, recent holdings from
that court support our conclusion. In DeCato Brothers, Inc. v.
Westinghouse Credit Corp., 529 A.2d 952, 956 (N.H. 1987), the
court stated, "generally, absent manifest injustice, an
instrument is payable in full according to its tenor, and the
maker has no right to prepay in the absence of an express
provision providing for prepayment." Later, in Patterson v.
Tirollo, 133 581 A.2d 74, 77 (N.H. 1990) (quoting Fuller
Enterprises v. Manchester Sav. Bank, 152 A.2d 179, 181 (N.H.
1959)), the court reaffirmed that "the law is clear in New
Hampshire that negotiable instruments are 'payable at the time
fixed therein,' and in the absence of an express provision that a
mortgagor is entitled to prepay his or her note, the mortgagor
has no legal rightto pay the debt inadvance of the maturitydate."
7 We note that our analysis would not change under a more deferential standard of review as we find that the court clearly erred in this determination.
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Although these cases involve actual promissory notes,
rather than agreements to make promissory notes, by finding
prepayment precluded in the absence of a specific provision
authorizing it, the New Hampshire Supreme Court demonstrated a
belief that prepayment significantly alters the rights of the
parties involved.
Finally, plaintiffs' last-ditch argument, that
Sprafkin's February 3 letter constitutes a sufficient writing,
needs little deliberation.8 Sprafkin wrote the letter to
Barenholtz. Thus, it cannot be construed, as plaintiffs propose,
as a written offer which plaintiffs were entitled to accept
orally.
Because Article 5 of the contract precludes plaintiffs'
asserted oral agreement, the district court erred in finding the
note prepayable.9
II. INTEREST
Defendants next assign error to the district court's
8 Plaintiffs did not make this argument in response to defendants' Article 5 argument. They made the argument as a response to defendants' invocation of the statute of frauds. However, we address the issue to alleviate any doubts that the argument might have assisted them against the Article 5 prohibition.
9 Plaintiffs stress on appeal the district court's finding that the parties formed the oral agreement after executing the written
contract, and they have not challenged this finding. Additionally, they specifically argued to this court that "the evidence Plaintiffs offered was to prove a subsequent agreement .
. ." (Plaintiffs-Appellees' Brief at 29). Thus, we need not address defendants' alternative arguments that the oral agreement could not bind them if it had been formed before or at the time of the written contract.
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determination that interest will not accrue until plaintiffs
execute the promissory note. They offer two principal arguments
to support this proposition.
First, defendants find their entitlement to prejudgment
interest in N.H. Rev. Stat. Ann. 524:1-b (1992). Under that
section, when a party wins pecuniary damages, he is entitled to
prejudgment interest on the award. Defendants argue that by
finding the stock's purchase price to be that advocated by
defendants, the court granted them pecuniary damages. Defendants
were not awarded pecuniary damages, however. Rather, plaintiffs
were awarded specific performance of the contract at the price
that the court found stipulated in their cross-motion for summary
judgment. In its second order, the district court reconsidered
its summary judgment ruling and determined that since plaintiffs
offered to pay defendants' advocated price at the time, the court
should have ordered the sale at that price. Thus, the court
granted plaintiffs' cross-motion for summary judgment to the
extent that it sought to compel defendants to sell the stock at
defendants' price. See Whitney Bros. Co., No. 90-054-S (Sept.
30, 1992), at 10-11. Indeed, the court specifically referred to
plaintiffs as "prevailing parties." Id. at 19.10 Thus,
524:1-b provides no basis for awarding defendants prejudgment
10 In light of the court's conclusion that the appraisal used to calculate defendants' advocated price lacked factual foundation, see Whitney Bros. Co., No. 90-054-S (Sept. 30, 1992), at 21, the
court's statement that "the price of the securities . . . is $1,349,343" does not convince us that the court believed that to be the price contemplated by the contract.
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interest.11
Second, defendants argue that plaintiffs owe them
interest under the written contract, beginning November 3, 1989,
90 days after the death of Bernard Barenholtz. The theory is
that plaintiffs never made a valid tender within the required 90
days, and therefore defendants deserve the interest that accrued
from that date. See Lancaster Development Corp. v. Kattar, 262
A.2d 278, 280-81 (N.H. 1970) (where plaintiff was ready, willing
and able to perform, and defendant made faulty tender, plaintiff
was not responsible for interest accruing from the contracted
date of sale). Specifically, defendants claim that plaintiffs'
September 1989 tender was invalid because: (1) the note was
$170,000 less than the defendants' advocated purchase price; and
(2) the note contained a prepayment provision.
We cannot conclude that defendants are entitled to
interest under the agreement based on the September 1989 tender.
With respect to the purchase price, defendants failed to tell
plaintiffs their requested price within the prescribed ninety
days. Moreover, the district court specifically determined that
the appraisal on which their price was based was so lacking in
11 Defendants' assertion that the court's judgment which ordered "prejudgment interest pursuant to NH RSA 524:1-b, if appropriate
. . . " (emphasis added) was a judgment for interest in their favor that had to be appealed by plaintiff, lacks merit. As the court's opinion did not indicate a belief that it was awarding defendants damages by granting plaintiffs' cross-motion for summary judgment, we cannot construe the court's reference to the statute as an award of interest for defendants. Moreover, the award specifically ordered prejudgment interest only if appropriate. As we explained above, such interest would be inappropriate here.
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factual foundation that it should not have even been admitted at
trial. That plaintiffs later acquiesced to defendants' price in
order to end this disturbing litigation does not require a
finding that they were wrong to make their initial offer at the
time they made it.
Similarly, although we found that plaintiffs were not
entitled to prepay the note, we are not convinced that the
prepayment provision of the September 1989 tender rendered the
tender faulty at the time it was made. The record reveals no
evidence that defendants complained of the prepayment clause
before June 29, 1990, nine months after the tender. They cannot
now claim that the prepayment provision in the September 1989
tender stalled the sale. Cf. Elliott v. Dew, 212 S.E.2d 421
(S.C. 1975) (if defect in tender not objected to when tender is
made, cannot use defect to prevent performance of contract).
Moreover, defendants, consistently complained that
Whitney Brothers could not afford the purchase. (The district
court later found that the evidence amply supported a finding to
the contrary). Yet, at the same time, defendants demanded what
the district court found to be a trumped-up price. This suggests
that defendants were attempting to hamper the sale that the
contract required. Thus, even assuming plaintiffs' tender was
somehow faulty, as defendants were not willing to perform at the
time, they are not entitled to interest. Cf. Platsis v.
Diafokeris, 511 A.2d 535 (Md. App. 1986) (faulty tender does not
trigger accrual of interest if clear that only excessive amount
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would be accepted).
Finally, as defendants were not entitled to interest
beginning November 3, their refusal to accept the December 1990
tender because it failed to include such interest precludes the
accrual of interest from that time. In addition, defendants'
parenthetical argument that the December 1990 tender was faulty
because it was conditional also fails. When the district court
determined that prepayment was prohibited, the tender became
unconditional. Yet, defendants still refused to accept it
without interest running from November 3. Again, defendants were
at no time willing to perform. Accordingly, we affirm the
district court's decision that interest should begin to accrue
when the note is executed.
III. ATTORNEYS' FEES
As defendants won their appeal with respect to
prepayment, plaintiffs are not entitled to attorneys' fees for
that issue. In addition, although defendants' arguments with
respect to interest were unconvincing, we do not find that they
went "against the overwhelming weight of precedent," that
defendants "could set forth no facts to support [their]
position," or that "there simply was no legitimate basis for
pursuing an appeal." See Kowalski v. Gagne, 914 F.2d 299, 309
(1st Cir. 1990). Accordingly, we deny plaintiffs' motion for
attorneys' fees.
Finally, plaintiffs request a finding that if we affirm
the district court's judgment, defendants may not appeal their
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motion under Fed. R. Civ. P. 59(e) to alter the judgment with
respect to fees. Plaintiffs cite no cases that would justify
such a finding. Thus, we decline to make such a finding or
otherwise consider the issue of the award of attorneys' fees by
the district court.
Affirmed in part; reversed in part. Motion for
attorneys' fees in this court denied.
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