DeVries v. Westgren

287 A.2d 437, 446 Pa. 205, 1971 Pa. LEXIS 622

• Court: Supreme Court of Pennsylvania
• Decided: December 31, 1971
• Docket: Appeal, 80
• Status: Published

Opinions

Opinion by

Me. Justice Jones,

Appellees brought an action in equity for specific performance to compel the appellant to offer his shares of stock in Aztec Metals, Inc., to appellees. After a hearing, the court below entered a decree nisi ordering appellant to offer his 360 shares at $60.00 per share. Along with the original exceptions filed by both sides, appellant filed an additional exception requesting that the appellees be ordered to purchase appellant’s shares at $60.00 per share. The court below dismissed all exceptions and affirmed the decree nisi. This appeal followed.

Pursuant to a founders agreement, appellant and the appellees executed a stock purchase agreement which pertinently provided: “Upon the termination of employment with the Company of any Individual Shareholder for any reason whatsoever, except for reason of death of such Individual Shareholder, such Individual Shareholder shall offer all of his Common Stock in the manner, upon the terms and at the prices set forth hereafter.” After reciting the time and manner of the required offer, the agreement established a formula for determining the price per share: “The price at which each share of Common Stock of the Company is to be offered for purchase . . . shall be an amount equal to the sum of (a) the Base Price per share [$60.00] plus (b) the amount, if any, of Accumulated Net Earnings Per Share . . . .” (Emphasis added) Notice of these restrictions was printed on each stock certificate.

It is apparent that this litigation was initiated by the termination of appellant's employment with Aztec Metals, Inc. Due to the unambiguous language in the stock restriction allowing termination of employment “for any reason whatsoever,” the propriety of appellant’s discharge has no legal significance in the context of this appeal.

The point stressed by the appellees in the court below and not now contested concerned the price to be paid for each share. Since Aztec Metals, Inc., suffered a loss per share of $110.00, the appellees argued that appellant must transfer his stock for no consideration. Stated differently, appellees contended that the price formula requires that net loss be deducted from the base price per share in order to derive the offering price. We are in complete agreement with the adjudication of the court below that the price formula did not encompass any net loss deduction: “The words ‘if any’ in the context ‘. . . plus (b) the amount, if any, of accumulated net earnings . . .’ can only mean if there is a plus of accumulated net earnings.”

Once it Avas determined that the price per share would be $60.00, the appellees reversed their stance and stated they no longer wished to buy appellant’s shares. Although the terms of the stock restriction do not force the remaining shareholders to acquire the stock and permit a departing shareholder to freely dispose of his stock if the remaining shareholders reject his offer or fail to accept his shares Avithin a specified time, appellant contends that the appellees bound themselves to purchase his shares by filing a bill for specific performance which stated, inter alia, that the appellees stand “ready, Avilling and able to purchase all of [appellant’s] shares in Aztec Metals, Inc.”

The initial problem presented by this appeal stems from the fact that the stock purchase agreement technically does not create an option but rather a right of first refusal since it does not appear that the appellant made an irrevocable offer when he executed the stock purchase agreement. See, IA Corbin on Contracts §§259-261A (1963); Gatewood Co. v. Hospital, 438 Pa. 329, 265 A. 2d 115 (1970). Instead, the appellees seemingly lack any power of acceptance until the appellant first offers his shares. However, unlike a right of first refusal whereby the appellant could elect to retain his shares and never sell to anyone, the stock purchase agreement requires the appellant to offer his shares to the remaining shareholders upon the termination of his employment. In our view, the requirement that appellant offer his shares, whether or not he wished to retain them, lends a quality of irrevocability to the stock purchase agreement and justifies our treatment of this agreement as an option contract. As optionees under this contract, the appellees had but two alternatives—acceptance or rejection. In failing to note that the appellees already possessed a power of acceptance due to the contractual requirement that appellant offer his shares upon discharge, the court below fell prey to the carefully couched language of appellees’ complaint which only requested that appellant offer his stock to them. We, therefore, conclude that the appellees accepted and exercised their “option” to purchase appellant’s stock when they filed their bill for specific performance. Cf., Kennedy v. Herring, 270 Ala. 73, 116 So. 2d 596 (1959); Nichols v. Sanborn, 320 Mass. 436, 70 N.E. 2d 1 (1946); 81 C.J.S. Specific Performance §47b (1953).

We are of the opinion that any other result would be most injurious to public policy. Although the appellees were “ready, willing and able” to acquire appellant’s shares for no consideration, they are not “ready, willing and able” to pay |60.00 per share. Acceptance of the argument advanced by the appellees would allow litigants to utilize a bill for specific performance and indirectly receive an advisory opinion of the price provisions of this stock purchase agreement which is impermissible absent an exercise of the option. Cf., Philadelphia v. Philadelphia Transportation Co., 404 Pa. 282, 171 A. 2d 768 (1961). Moreover, if the appellees are permitted to deny their readiness, willingness and ability to perform—the allegations upon which their complaint was based—the appellant and our judicial system will have been needlessly burdened by this litigation. To accept appellees’ argument that appellant may now freely dispose of his shares to third persons ignores the economic realities of the situation. Accordingly, the court below is directed to order the appellees to purchase the appellant’s shares at $60.00 per share.

The decree, as modified, is affirmed. Costs on appellees.

Mr. Justice Eagen dissents and would affirm decree of court below. Mr. Justice Pomeroy took no part in the decision of this case.