Commercial National Bank of Charlotte v. Charlotte Supply Co.

38 S.E.2d 503, 226 N.C. 416, 1946 N.C. LEXIS 242

• Court: Supreme Court of North Carolina
• Decided: June 5, 1946
• Status: Published

Opinion

Seawell, J.

We have two transactions to consider on appeal — the 1928 contract respecting the sale of Clark’s stock to the defendant corporation, still not fully performed, and the 1939 contract under which the corporation acquired a portion of the stock theretofore promised it. The appeal raises the question whether the 1928 contract was abrogated or merely modified by the subsequent agreement and incidental transfer of stock, and if modified, to what extent; and specifically whether the provisions of the 1928 contract respecting the purchase of the Clark stock and application thereto of the insurance on Clark’s life still subsist and are applicable to the 500 shares of stock now in the hands of the plaintiff.

In the court below this question was determined on pertinent issues by the jury, but on instruction by the court to which defendants excepted. The exception, however, does not seem to be directed to the form of the instruction, but to the supposed error in law in implying that the plaintiff was entitled to recover at all upon the facts. In fact, the appellants do not raise the question whether it was the intention of the parties to rescind the existing contract and substitute a new agreement for it — except as might be deduced from the legal effect of the later instrument, which is not a jury question.

The second instrument, touching only in part the subject matter of the first, does not contain any express agreement from which the purpose of the parties can be ascertained. In its face, the 1928 contract is not mentioned at all. We are left to determine the effect of the later contract upon the former from the implications contained in the instruments and relevant circumstances competent to aid in interpretation. Redding v. Vogt, 140 N. C., 562, 564, 567, 53 S. E., 337; 12 Am. Jur., p. 1013, sec. 433; 17 C. J. S., p. 885, ss. 394, 395.

The making of a second contract dealing with the subject matter of an earlier one does not necessarily abrogate the former contract. To have the effect of rescission, it must either deal with the subject matter of the former contract so comprehensively as to be complete within itself and to raise the legal inference of substitution (Redding v. Vogt, supra, and citations), or it must present such inconsistencies with the first contract that the two cannot in any substantial respect stand together. Redding v. Vogt, supra; Myers v. Carnahan, 61 W. Va., 414, 57 S. E., 134; Am. Law Inst., Rest., Contracts, Vol. 2, p. 408; 2 Black on Rescission and Cancellation, p. 530. Where, upon inspection of the instruments and consideration of the circumstances under which they were executed, it appears that rescission has not taken place, those provisions of the former instrument which are not substantially involved in the contradictions and thereby revoked still subsist and may be enforced. Rest., Contracts, supra, Vol. 2, sec. 408; 17 C. J. S., p. 886, sec. 395, supra; 13 C. J., pp. 603 and 604, sec. 628. Before the new contract can be accepted as discharging the old, the fact that such was the intention of the parties must clearly appear. Menefee v. Rankins, 158 Ky., 78, 82, 164 S. W., 365. If upon comparison it should be found that rescission has not been effected, the two instruments must be read and construed together in ascertaining the intent of the parties and in determining what portions of the agreement are still enforceable. In such construction the rules applied to interpretation of a single contract are applicable, perhaps with added propriety. We must, of course, keep within the bounds of the writings, but the circumstances surrounding their execution, the relation of the parties and the object to be accom- plisbed, are all to be consulted in arriving at tbe intent. Lumberton v. Hood, 204 N. C., 171, 167 S. E., 641; McMahan v. R. R., 170 N. C., 456, 87 S. E., 237.

Tbe appellants present tbeir argument for rescission in somewhat inconsistent formulas: First, tbat Clark, having disposed of a substantial part of bis stock in a later transaction, made it impossible for bis executor to deliver tbe quantity of stock contracted for; and second, tbat Clark having complied with tbe main purpose of tbe contract sought to be enforced under a new and different agreement, and for a new consideration, tbe latter is necessarily substituted for ■ tbe former and works its abrogation.

In tbe first place, tbe appellants rely on tbe broad proposition of law tbat Clark by tbe voluntary transfer of 214 shares of stock to defendants (including 71 shares acquired subsequently to tbe original agreement), thereby reducing bis total stock to 500 shares, bad rendered it impossible for bis executor to deliver tbe 643 shares promised, and tbat tbe substantial difference between tbe number of shares promised and tbe number of shares tendered amounts in law to a complete failure in performance, discharging tbe defendants from tbe obligation to purchase. Edgerton v. Taylor, 184 N. C., 571, 115 S. E., 156; Wade v. Lutterloh, 196 N. C., 116, 144 S. E., 694; Seed Co. v. Jennette Bros. Co., 195 N. C., 173, 141 S. E., 542; West v. Ins. Co., 210 N. C., 234, 186 S. E., 263; Supply Co. v. Roofing Co., 160. N. C., 443, 76 S. E., 498; Ducker v. Cochrane, 92 N. C., 597. Tbat might be consistently argued and maintained under tbe cited authorities if tbe transaction bad been between outsiders and at arms length, and if it bad been simply one of purchase of stock on tbe open market as an investment, and if tbe transfer involved no more than payment of tbe purchase price. Rut these negative conditions are not present and tbe existing positive conditions are all contra. Both transactions were with tbe defendant corporation, in. which Clark was a stockholder. Tbe later agreement resulted in tbe immediate transfer to it of a portion of tbe stock originally promised, albeit defendants’ contend upon a new consideration. Tbe circumstances under which tbe contracts were made enter into tbeir interpretation, strongly repelling tbe application and conclusiveness of tbe principle appellants regard as decisive.

An inspection of tbe 1928 contract, now under immediate discussion, and tbe facts of record bearing on it, convince us tbat tbe identity of tbe stock held by Clark more importantly engaged tbe attention of tbe contracting parties than its quantity in working out tbe mutual protection which was the gist of the agreement, and that it is at present more deeply involved in tbe equities of decision. Tbe contract contemplates tbe purchase of all of Clark’s stock en bloc, referring to it by specific description. It was referred to specifically and given a character by a formal listing of each share as constituting the stock held by Clark; but, which is of more importance, the stock had a relation to the end to be accomplished which necessitated its treatment as an entirety. The purpose, in the light of the admitted facts, was to prevent Clark’s stock from going into outside hands at his death and to provide a market for it in that event which his widow could not otherwise enjoy. The purchase of the stock, its acquisition by the corporation was the desideratum, and not its investment value. This more clearly appears when we note that no purchase price was named, but only a method provided for ascertaining its value after Clark’s death, which was to be its purchase price. The whole contract' faces toward Clark’s death and the consequences that might follow upon that event — the effect on a business in which almost all the stockholders in the corporation were officers receiving salaries with little or no regard for the character or extent of the service performed. It was primarily intended to protect the status quo from outside interference. On the one part it was necessary to see that the stock did not fall into the hands of strangers through sale at the death of Clark, and on the other it was necessary to see that the stock left to Clark’s widow should not, in the process of affording protection to his associates, be left without a market, and while having a value on the books, become worthless to his widow as an income producing investment. The alternative for Clark was obvious; sale of his entire stock in the only market available, that is, within the confines of the corporation. 'With these considerations before us, it is clear that the sale of the 214 shares of stock under the 1939 agreement to the corporation to which it had been previously contracted cannot be regarded as an independent, unrelated transaction, ipso facto releasing defendants from the obligation of purchasing the remaining stock.

In this outline may also be found the answer to the view urged by counsel that corporate control was the thing bargained for in the 1928 contract, and that this, having been surrendered by Clark and acquired by defendants upon a new consideration in 1939, no further performance on their part is required. The position is expressed in the brief:

“Upon the slightest consideration of this case, it is apparent that the purpose of the individual defendants in entering into the 1928 contract was that upon Clark’s death, they would be assured of becoming the majority stockholders of the defendant Company instead of Clark’s controlling interest in the Company passing into alien hands — with all the hazards which that would imply for the jobs and fortunes of these defendants. The essential thing of value in the 1928 contract for them was the securing of hold on a sufficient number of shares to constitute, with that they already held, control of the defendant Company. . . . This brings us to the crux of the case: In 1939, Clark, for a new and separate consideration and value, conveyed to the defendants that which had been for them the essential thing of value in the 1928 contract, namely, a quantity of stock representing controlling interest in the Company. Thus Clark in effect, in 1939, lifted the heart out of the 1928 contract and for a newly given value, conveyed it to the defendants. Thereby, he incapacitated his executor from now delivering to the defendants the very essence and substance of what the 1928 contract stipulated his executor would deliver.”

It may be that some of the individual stockholders signing the 1928 contract with the corporation had the ultimate purpose of exercising corporate control by combining their holdings after the purchase of the Clark stock had been consummated. But this was not within the. terms of the instrument; it could follow only from understanding or action dehors the contract and with which it has nothing to do. The corporation agreed to purchase the stock and all of the stockholders signed in token of assent. Corporate control was not in terms or in legal effect bargained to any stockholder or group of stockholders. A contract to convey to the corporation its own stock, although a majority in amount, does not have that effect and cannot be so construed.

In fact, the shifting of corporate control to any individual or group within the circle of stockholders does not appear to have been a matter of importance to any of the contracting parties at the time. The most favorable inference with respect to the significance of corporate control to be drawn from the circumstances under which the contract was made and the conditions sought to be met falls short of appellants’ postulated defense. The inference is that it would be an additional, but by no means the whole, embarrassment if Clark’s stock went into outside hands at his death. The holding of that amount .of stock, or any considerable amount, by strangers who might be dissatisfied with the manner of conducting the corporation, and the probability of resort to legal redress, was serious enough to induce the contract and of sufficient substance to repel the suggested defense that the purpose of the original contract had been accomplished under a new agreement. On the other hand, the fact that Clark’s stock carried with it corporate control was necessary to its protection in case of his death and was the only thing that would open a way for an outside market in that event. The advantage was mutual, and the mutual protection was the basis of the agreement. There is not sufficient reason in the bare facts of the 1939 contract to infer that the parties had in mind to abrogate it. "We can see no satisfactory principle upon which the 1928 contract can be brought into comparison with the subsequent transaction other than that which we have already stated; that its primary and controlling purpose was to keep the stock out of the bands of strangers and afford Clark a market for bis stock, wbieb bis widow might not bave been able otherwise to obtain.

The intent of a contract, unlike that of a will, is necessarily composite, often concessive, essentially dual. There can be no unilateral purpose in a bilateral contract. When the purpose is once brought into the contractual relation, it becomes relative, falls into the legal perspective. Therefore, we cannot, without destroying the intent of the instrument, segregate and paramount an incidental advantage moving to either party in derogation of the correlative rights of the other.

The supposed inconsistencies raised between the two instruments by the 1939 contract are unsubstantial. It is argued that the new considerations given for the purchase of the 214 shares of stock are inconsistent with the provisions of the prior agreement, and have the effect of abrogation. The variant considerations are pointed out as: (a) The discharge of the judgment amounting to $12,735.45 held by the corporation against Clark in payment for the 214 shares transferred to the company; (b) the agreement to pay to Clark a substantial salary so long as he held 40% of the stock in the company; (e) lifting the receivership from his property.

On scrutiny it will be found that the monetary consideration was not substantially different in source and character from that which he had been promised in the 1928 contract and that which he had theretofore enjoyed as a holder of stock, and to which he was entitled by reason of their method of distributing profits; and that the termination of the receivership was a mere incident of payment of the judgment. To regard it as more would not be advantageous to appellants on equitable grounds. It would merely add to the impression that the action taken by the corporation and its stockholders was in the nature of a designed prevention of performance.

As to the price paid for the stock, it came from the surplus assets of the corporation, just as was originally intended. The 1928 contract contemplated that the insurance fund would not be sufficient to pay for the stock, and that it should be supplemented by the surplus funds of the corporation. There is this difference, however, which moved to the advantage of the defendants: Under the 1939 agreement the price fixed upon the stock was approximately $61.60 per share, while the ascertained .value for the 500 shares of stock as of Clark’s death was $102,500, resulting in a large saving to the purchasers at that time.

The salary promised Clark was merely a continuance of the method of distributing the profits of the corporation through salaries and was proportionately no greater than that paid other officer-stockholders whose services were neither obligatory nor significant, and the salary was comparable to that he had previously enjoyed. Appellants have claimed for this provision the significance it would have had if paid to a stranger for an entirely new performance; it cannot be given that effect. Tbe mere continuation of a former practice cannot have that effect.

In other respects, the provisions with respect to Clark’s salary are significant. There was no* agreement that it should be paid up to the time of his death, but only so long as he held 40% of the stock, that being the amount he then held. Its effect, therefore, was to freeze the stock in his possession so that he could not sell any of the stock on the outside market, even had there been one; and this tended to strengthen rather than defeat the objects of the original contract.

On the whole, the later transaction may be consistently regarded as a partial performance of the original contract on both sides, intended to establish a modus vivencli under the new conditions presented until the corporation should have the funds with which to complete the purchase— thus anticipating pro tanto the final delivery.

Although, as we have seen, the 1939 contract can he reconciled with the substantial provisions of the 1928 contract without abrogation of that instrument, another circumstance connected with the execution of the later instrument must receive consideration.

The record shows that the 1939 contract, under which Clark transferred to the Corporation part of the stock he had contracted to deliver, was induced and brought about by the act of the defendants themselves or those who were then concerned in the purchase of the stock, and that they admittedly received the benefit of the stock transferred. While there is some difference in the factual situations in cited cases and in the phraseology employed in the opinions on the subject, the controlling principle in all of them is clear: Where complete performance is rendered impossible by a party to a contract who has the duty of counter performance, the latter cannot take advantage of his own act and refuse performance on his part. Whitlock v. Lumber Co., 145 N. C., 120, 58 S. E., 909; Harris v. Wright, 118 N. C., 422, 24 S. E., 751; Navigation Co. v. Wilcox, 52 N. C., 481; Harwood v. Shoe, 141 N. C., 161, 53 S. E., 616; 12 Am. Jur., p. 885; 12 Am. Jur., p. 958, Text and Notes, 1415; Rest., Contracts, sec. 295 ; Morrison v. Walker, 179 N. C., 587, 103 S. E., 139; Willison on Contracts, sec. 668.

In delivering the opinion of the Court in Navigation Co. v. Wilcox, supra, and citing Lord Coke’s illustration of the rule, Chief Justice Pearson stated the principle in this language: “One who prevents the performance of a condition or makes it impossible by his own act shall not take advantage of the nonperformance.”

Justice Brown, speaking for the Court in Harwood v. Shoe, supra, says: “This rule applies with especial fitness where the party is impelled by personal interest.”

But apart from this consideration, there is little or nothing in the 1939 contract that would lead to the conclusion that the parties to the new contract intended otherwise than to create an ad interim arrangement adjusted to the new conditions until final compliance with the terms of the original contract became possible. Under the 1928 contract, and corporate approval thereof, the insurance upon Clark’s life was set apart as a trust fund, to be applied to the purchase of his stock after his death. He contributed to that fund more than one-half for the eleven years preceding that contract, and the very substantial sum of 40% from the making of that contract to his death. Looking at the situation as it affected his widow, the corporate assets which would otherwise have been hers were constantly depleted in the creation of this fund down to the time of her husband’s death. Meantime, the character of that trust fund remained the same, without any attempted corporate action to change it, and with no notice whatever to Clark of any intention to do so. The defendants are now estopped from claiming it as a part of the general corporate assets, freed from any commitment to the purpose of its creation.

As we have seen, it is incumbent upon the proponents of rescission to make it clear that the second instrument was so intended or has that effect. In passing upon that question, we are not required to assume that men have acted unreasonably or inequitably, when the contrary inference is apparent.

The purchase of Clark’s stock under the 1928 contract was by far the most important and outstanding engagement of the company, inevitably inviting attention of those making the new contract if the purpose was thereby to terminate it. It is hardly likely that business men, if they had intended that the 1939 instrument should discharge the obligation of such an important nature, would have failed to give some expression of this intention in the instrument which appellants now contend has that effect. The inference is that they did not so intend.

The conduct of the parties in dealing with the contract indicating the manner in which they themselves construe it is important, sometimes said to be controlling in its construction by the court. Smith v. Paper Co., ante, 47; Hood v. Davidson, 207 N. C., 329, 177 S. E., 5; Wearn v. R. R., 191 N. C., 575, 132 S. E., 576; Old Colony Trust Co. v. Omaha, 230 U. S., 100, 57 L. Ed., 1410. For eleven years prior to 1939, Clark held all of the stock in readiness to comply with his part of the bargain, and the defendants carried out theirs, paying the premiums on the insurance in contemplation of the purchase of the stock. After the 1939 contract they continued to pay the insurance with no indication, as we have noted, that it was not regarded as a trust fund for the purchase of the stock and with no corporate action attempting to change its charac ter, and when the insurance was collected it was deposited in a special fund. The facts of the ease strongly indicate that the obligation to purchase the stock was regarded as still outstanding.

We conclude that rescission of the 1928 contract was not in contemplation of the parties in the making of the 1939 agreement, and that no abrogation or rescission has been made of its substantially mutual obligations with respect to the purchase and sale of the stock. The obligation created by the earlier contract still applies to the 500 shares of stock now in the hands of the plaintiff executor, to be performed in accordance with the provisions of the contract.

The question presented to us upon appeal has been that of rescission or modification; the defendants raised no question as to the nature of the remedy sought. The very able argument of the contentions on both sides must account for the length of this discussion.

It is our conclusion that the result reached in the trial is in accord with the applicable principles of law and is justified by the facts of. record.

We find

No error.