Charles Fisher v. First Stamford Bank and Trust Company

751 F.2d 519, 39 U.C.C. Rep. Serv. (West) 1765, 1984 U.S. App. LEXIS 15740

• Court: Court of Appeals for the First Circuit
• Decided: December 20, 1984
• Docket: 59, Docket 84-7258
• Status: Published

Opinions

CARDAMONE, Circuit Judge:

We affirm a judgment for plaintiff and reject his employer’s attempt to avoid its obligation under a stock option contract. In an attempt to set aside the agreement defendant argues that its principal officer lacked authority to enter into such an agreement, that the contract was not supported by adequate consideration and was not in writing, that legal conditions precedent to its performance had not occurred, and that to enforce a stipulation against it made by its counsel in open court subjected it to manifest injustice. One who obtains performance from another while maintaining an option to refuse its own performance obviously views the bargain as a “heads I win, tails you lose” bet. Arguments supporting that inequitable supposition contravene the “policy of preventing people from getting other people’s property for nothing when they purport to be buying it.” Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227, 271, 29 S.Ct. 280, 296, 53 L.Ed. 486 (1909) (Holmes, J., dissenting), and will not carry the day in court.

I

In 1971 Norman Reader, with the help of others, including plaintiff Charles Fisher, organized the First Stamford Bank and Trust Company. Each of the founders received five-year options to purchase shares of the Bank’s common stock. Reader was the principal organizer and president. Recognizing that Fisher was well-known in the community and active in Stamford civic and religious organizations, Reader sought his help in getting this small banking institution off the ground. Fisher was appointed vice-president and became the Bank’s first employee. He established the Bank’s presence in the community by soliciting accounts, doing public relations work, and assisting in the opening of branch offices for the small accounts that the Bank was organized to serve. The Bank conceded that he was a valued employee.

In January 1976 plaintiff decided to move to Florida for health reasons. Before departing, Fisher had a conversation with Reader during which Reader allegedly offered him an option to purchase 1,000 shares of the Bank’s common stock at $20 per share in exchange for his promise to perform services during the summer and fall of 1976 in connection with the Bank’s opening of a contemplated new main office. As a consequence, Fisher returned to Stamford in July 1976 and began work as the Bank’s consultant, helping with the opening of the new office until he returned to Florida in November. He was paid $4,000 for his services and expenses.

• On June 8, 1976, just prior to his return to Stamford from Florida, the Bank’s shareholders passed a resolution authorizing its board of directors to grant stock options to plaintiff and certain other employees. Fisher’s option was to enable him to purchase 1,000 shares of the Bank’s common stock at $20 per share until December 31, 1981. The board of directors never acted on the stockholder resolution.

In July 1979 plaintiff learned of an impending sale of the Bank’s assets to People’s Savings Bank and attempted to exercise his stock option. The Bank rejected his tender of $20,000 for 1,000 shares of its stock. At the time of the offer, the stock was selling for $23 per share. Shortly after the completion of sale of the Bank’s assets to the larger bank, the price of defendant’s stock rose to $77 per share.

Plaintiff thereupon filed a diversity complaint in the United States District Court for the District of Connecticut (Gagliardi, J., sitting by designation), seeking damages for breach of the stock option agreement. At trial, the parties agreed to submit two questions of fact to the jury as follows:

Has plaintiff established by a preponderance of the evidence that the Bank agreed in 1976 to grant plaintiff an additional option to purchase 1000 shares of the Bank’s common stock at $20.00 per share until December 31, 1981 in exchange for plaintiff providing certain services to the Bank?

If “Yes,” then ...

Has plaintiff established by a preponderance of the evidence that plaintiff had fully satisfied all of the terms and conditions of such agreement at the time he attempted to exercise the option in 1979?

The jury answered both interrogatories in the affirmative. The trial judge thereafter decided all other issues of law and fact and entered judgment for plaintiff in the amount of $57,560 pursuant to the parties’ stipulation on damages. The Bank appeals claiming that: (1) Reader lacked authority to enter into a stock option contract with plaintiff; (2) the concededly oral contract was barred by the statute of frauds, and not supported by adequate consideration; (3) Connecticut law relating to stock options rendered the contract invalid; and (4) the trial court erroneously computed the damages.

II

The Bank, citing Connecticut statutory law that authorizes a corporation to issue stock options entitling the holders to purchase them only “on such terms as the board of directors may determine”, Conn. Gen.Stat. § 33-344(a), argues that a stock option offer made by Reader as president, without action by the board of directors is unauthorized and unenforceable. Nonetheless, a board of directors may ratify its president’s unauthorized action. 2 W. Fletcher, Cyclopedia of the Law of Private Corporations § 773 (perm. ed. 1969). Whether principal ratified its agent’s unauthorized act is generally a question of fact decided by a jury. See Slotkin v. Citizens Casualty Co., 614 F.2d 301, 317 (2d Cir. 1979), cert. denied, 449 U.S. 981, 101 S.Ct. 395, 66 L.Ed.2d 243 (1980); E. Paul Kovacs & Co. v. Alpert, 180 Conn. 120, 126, 429 A.2d 829, 832 (1980) (nature and extent of an agent’s authority is a question of fact). The Bank urges that the trial judge’s failure to instruct the jury on ratification was reversible error. It concedes nonetheless that before trial the parties expressly agreed that the jury would consider only whether a contract existed and whether plaintiff had fulfilled his part of the agreement. The parties also agreed that “all remaining questions will be left for the Court as questions of law as to whether or not there was estoppel, whether or not the agreement would come within the Statute of Frauds and as to whether or not the bank was authorized to grant the option without stockholder approval.” In light of the parties’ agreement to submit only those specified questions to the jury to be decided by it in the form of a special verdict, defendant’s argument fails.

In ruling on defendant’s judgment n.o.v. motion, Judge Gagliardi concluded that the board’s ratification could be inferred from a number of facts in the record: Reader’s position as president and director; his assurances to plaintiff that the stock option would be “taken care of”; and the shareholder’s resolution prior to plaintiff’s return to Connecticut from Florida. But the trial judge incorrectly viewed this evidence “in the light most favorable to plaintiff.” Had ratification been submitted to the jury, plaintiff would have been required to prove it by a preponderance of the evidence. Usually the jury decides questions of fact and, on a motion for judgment n.o.v., the judge reviews the jury’s conclusions in a light most favorable to the non-movant. Sirota v. Solitron Devices, Inc., 673 F.2d 566, 573 (2d Cir.1982). By reviewing the ratification issue in the light most favorable to the plaintiff, the trial judge acted as if the jury had actually determined the ratification issue, which of course it had not. In effect, the trial court viewed the ratification issue as though it had been waived by defendant. While we could remand for Judge Gagliardi to rule again, it is unnecessary to do so in light of the facts he relied upon. The totality of the circumstances in this case amply demonstrate that the board of directors ratified Reader’s act. See Cohen v. Holloways’, Inc., 158 Conn. 395, 409, 260 A.2d 573 (1969).

Ill

The Bank argues that the stock option agreement was invalid for lack of consideration. We disagree. Fisher’s performance of consulting services to assist the Bank in opening its Bedford Street main office constituted completion of his side of the bargain and as such fully supported his insistence that the Bank complete its side of the bargain and grant him the promised stock option. The Bank further contends that as a matter of law the agreement was not sufficiently definite as to its material terms to be entitled to enforcement. The first question submitted to the jury fully covered this issue. The jury found that the agreement sufficiently defined the obligations of the parties. Hence, Judge Gagliardi properly rejected this argument.

We turn next to whether the Statute of Frauds, Conn.Gen.Stat. § 42a-8-319, barred the oral agreement between Reader and Fisher. As the jury found that plaintiff had fully performed his promise under the agreement, the defense that this oral contract is barred by the statute of fraud is unavailing. In general, a contract for the sale of securities is not enforceable unless there is a writing signed by the party against whom enforcement is sought. Conn.Gen.Stat. § 42a-8-319(a). Yet, a contract may be enforceable without a writing to the extent that “payment has been made.” Conn.Gen.Stat. § 42a-8-319(b). Provision of labor or services may constitute such payment for a stock option. See Burns v. Gould, 172 Conn. 210, 217, 374 A.2d 193, 200 (1977). In the present case, the promisee’s full performance of the oral contract for the sale of securities takes the contract out of the statute altogether because payment in full for the stock has been made.

IV

Appellant Bank further claims that the trial court should have applied Conn. Gen.Stat. § 36-88 to invalidate the stock option granted plaintiff. Section 36-88 of the Connecticut General Statutes deals with the situation in which a bank increases its authorized stock and issues that stock. The trial judge found no evidence that the Bank’s authorized stock was insufficient to cover the option. Moreover, the Bank is the party required to comply with the terms of § 36-88, and it may not in good conscience argue that because it failed to take the proper legal steps to make its promised consideration available, plaintiff may not enforce his claim after performing his part of the contract.

V

Upon the jury’s verdict, the trial court entered judgment for plaintiff in the amount of $57,560. The court based the award on a stipulation placed in the record at the close of the evidence. It provided that ■

if plaintiff was successful he would be entitled to recover the difference between the cost of the stock as reflected in the option, that is $20 a share, and the amount which has thus far been distributed to stockholders based upon the sale of the assets which is $77 a share for a total of $57,000 which represents $57 a share times 1,000 shares.

Generally, a stipulation of fact that is fairly entered into is controlling on the parties and the court is bound to enforce it. Stanley Works v. F.T.C., 469 F.2d 498, 506 (2d Cir.1972), cert. denied, 412 U.S. 928, 93 S.Ct. 2750, 37 L.Ed.2d 155 (1972); Fenix v. Finch, 436 F.2d 831, 837 (8th Cir.1971). But a court is not governed by a stipulation on a question of law. Swift & Co. v. Hocking Valley Ry. Co., 243 U.S. 281, 289, 37 S.Ct. 287, 289, 61 L.Ed. 722 (1917). The stipulation in this case was not as to fact or law, it was on the issue of damages, which may be removed by stipulation from consideration by the jury.

There is no dispute over the method of calculation of damages in the stipulation. See 22 Am.Jur.2d Damages § 52 (1965) (citing authority for computing damages in actions for breach of contract to sell stock as of a date later than the date of the breach, as opposed to measuring the damages as of the date of the breach). Instead, defendant urges that the trial court should have considered plaintiff’s duty to mitígate damages under Connecticut law. Willametz v. Goldfeld, 171 Conn. 622, 627, 370 A.2d 1089 (1976). Ordinarily, it is left to the jury to determine whether plaintiff in the exercise of ordinary care and at reasonable expense could have mitigated defendant’s damages. The fact that the stipulation on damages was silent about mitigation does not foreclose consideration of that issue. But here, counsel discussed matters of enhancement and reduction in their colloquy upon entering into the agreement on damages. Counsel for the Bank reserved the right to urge reduction only in connection with its statute of fraud performance argument. Since at that time the opportunity for plaintiff to mitigate damages by purchase of stock at $23 per share was long past, the matter of mitigation should have been called to the court’s attention if the parties wished to preserve the argument.

Finally, defendant claims that it should be relieved from the effects of the stipulation to avoid manifest injustice, relying upon Carnegie Steel Co. v. Cambria Iron Co., 185 U.S. 403, 22 S.Ct. 698, 46 L.Ed. 968 (1902). In Carnegie evidence was introduced contrary to the facts of a stipulation and the Supreme Court held that upon giving notice in time to prevent prejudice, a party may repudiate any fact inadvertently incorporated in its stipulation. Id. at 444, 22 S.Ct. at 714. Here neither side offered evidence on either damages or mitigation. It would have been an improvident exercise of discretion for the trial court to set aside the stipulation and thereby abrogate the intent of the parties who had entered into it. Plainly, it was not unreasonable to require defendant’s attorney to have anticipated the mitigation issue at the time of the damage stipulation. See, e.g., Fed.R.Civ.P. 16(c). We find no injustice in reaching this conclusion. First, there was no proof that any stock was available for plaintiff to purchase at $23 per share at the time he attempted to exercise his option. Second, the Bank cannot cast a duty upon Fisher, at the expense of his own interests, to make an expenditure in order to minimize the Bank’s damages. See Camp v. Cohn, 151 Conn. 623, 627, 201 A.2d 187 (1964). At the time of the breach, there was a serious risk that negotiation for the sale of defendant’s assets to the People’s Savings Bank might fall through. It later became evident that the expenditure would have mitigated plaintiff’s damages; but to require the innocent party to make such an expenditure compels him to incur risks beyond those for which he contracted. Hindsight may not serve as a basis to decrease damages plaintiff is otherwise entitled to recover.

Accordingly, we affirm the judgment.