Worrell v. Multipress, Inc.

543 N.E.2d 1277, 45 Ohio St. 3d 241, 9 U.C.C. Rep. Serv. 2d (West) 1208, 1989 Ohio LEXIS 231
CourtOhio Supreme Court
DecidedSeptember 13, 1989
DocketNo. 88-535
StatusPublished
Cited by61 cases

This text of 543 N.E.2d 1277 (Worrell v. Multipress, Inc.) is published on Counsel Stack Legal Research, covering Ohio Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Worrell v. Multipress, Inc., 543 N.E.2d 1277, 45 Ohio St. 3d 241, 9 U.C.C. Rep. Serv. 2d (West) 1208, 1989 Ohio LEXIS 231 (Ohio 1989).

Opinions

Moyer, C.J.

We observe at the outset that defendants do not appeal the appellate court’s decision regarding the validity of the oral contract of employment. We therefore restrict our review to the damages awarded for the wrongful discharge, the transfer of stock, the jury instructions regarding libel, and the plaintiff’s cross-appeal claiming that he was wrongfully denied prejudgment interest.

I

First we consider whether plaintiff should have been denied recovery for defendants’ breach of the oral contract to transfer ten percent of Multipress, Inc. corporate stock to him.

During the latter half of 1982, Worrell and Theodore P. Schwartz worked as promoters in obtaining an option for the purchase of a manufacturing business, the Multipress product line of the Denison Division of the Abex Corporation. Because they had no operating capital of their own, they sought financing from a number of banks and private investors. Finally, defendant Charles Grim agreed to provide approximately $700,000 of the necessary financing. In exchange, Grim demanded one hundred percent control and ownership of all the shares in the newly formed corporation — Mul-tipress, Incorporated. Grim promised each man a position in the company as long as he performed satisfactorily, and agreed that both Worrell and Schwartz would each own ten percent of the stock of Multipress when the corporation was formed. Although plaintiff requested, and Grim agreed, that their agreement be reduced to writing, Grim never did so. Subsequently, Grim informed the men that it would be better not to place the stock in their names, but that he would hold the stock for them. The purchase of Denison Multipress was concluded in [244]*244November 1982, and Multipress, Inc. began operating with Worrell serving as president and Schwartz as executive vice president.

In July 1983, Grim decided to place Multipress stock for public sale and a draft of the stock prospectus was prepared which contained no mention of Worrell’s and Schwartz’s ownership interests. When Worrell and Schwartz complained to Grim, he made it clear that all he had to offer them was a job and asked whether they wanted to remain members of the team. Schwartz accepted, but Worrell asked to meet with the corporation’s attorney regarding his stock ownership. In response, Grim fired Worrell.

The General Assembly adopted portions of Uniform Commercial Code (“UCC”) 8-102 in R.C. 1308.01, which provides in pertinent part:

“(A) As used in sections 1308.01 to 1308.44 of the Revised Code, unless the context otherwise requires:

“(1) A ‘certificated security’ is a share, participation, or other interest in property of or an enterprise of the issuer or an obligation of the issuer which is:

“(a) Represented by an instrument issued in bearer or registered form;

“(b) Of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment[.]”

A review of cases in other jurisdictions reveals that UCC 8-102 specifically applies to the sale of such securities as are commonly traded in securities exchanges or markets or which are commonly dealt with as mediums of investment.1 Furthermore, contracts for the sale or purchase of securities are covered by the Statute of Frauds pursuant to R.C. 1308.34,2 and must be in writing to be enforceable. See Riley v. Interep Associates, Inc. (N.D. Ga. 1982), 533 F. Supp. 486, 487. The question therefore is whether the transaction under review here was a “sale” of securities.

Although “sale of securities” is not defined in UCC Chapter 8, UCC 2-106 (1) [R.C. 1302.01(A)(11)] provides that: “A ‘sale’ consists in the passing of title from the seller to the buyer for a price.” Here the question can be resolved based on whether Grim’s promise that ten percent of Multipress’ stock would be transferred to Worrell constituted a “sale” as defined in the UCC. We think the promise to convey did not amount to a “sale.” The arrangement between Grim and Worrell was one of promoter-investor. See Henderson v. Joplin (1974), 191 Neb. 827, 217 N.W. 2d 920; see, also, Annotation, Validity and Construction of Preincorporation Agreement between [245]*245Promoters as to Future Employment (1976), 66 A.L.R. 3d 1138 (preincor-poration agreements between promoters regarding employment and stock division will generally be honored absent a showing of fraud or bad faith between the parties).

Grim agreed to provide financing for the purchase of Denison Multipress as negotiated by Worrell and Schwartz with Abex Corp. The negotiations between Grim and Worrell and Schwartz resulted in eighty percent ownership for Grim and twenty percent ownership for Worrell and Schwartz in the new corporation. No price or fee was to be forthcoming, either immediately or at a future date, from either party in exchange for the ownership interest in the newly formed corporation. Had Grim’s promise been for an option to purchase the stock in the future for a price, the contract would have been subject to the writing requirement of the Statute of Frauds pursuant to R.C. 1308.34. See Mildfelt v. Lair (1977), 221 Kan. 557, 561 P. 2d 805; Quinn v. Beverages of West Virginia, Inc. (W.Va. 1976), 224 S.E. 2d 894; Scarpinato v. National Patent Development Corp. (S. Ct. 1973), 75 Misc. 2d 94, 347 N.Y. Supp. 2d 623. We hold that an oral promise to convey stock which does not require payment of a price, either immediately or as an option for purchase in the future, is not a “sale of securities” within the meaning of R.C. 1308.34, and such oral promise to convey is an enforceable agreement not subject to the Statute of Frauds.

Because we find that no “sale” was contemplated as part of the agreement between Grim and Worrell, we reverse the court of appeals to the extent that this transaction was not for the sale of securities. We therefore need not reach the question of whether promissory estoppel removes this transaction from the Statute of Frauds’ writing requirement. The award of damages for breach of the contract to transfer the stock is affirmed.

Defendants do not appeal the amount of damages awarded plaintiff. The stock of a closely held corporation that is not listed on an exchange and has no public market may be valued by what a willing buyer “ ‘would pay to a willing seller who was not acting under compulsion.’ ” (Citation omitted.) Bowers Steel, Inc. v. DeBrooke, supra, at 373; see, also, Equity Investors, Inc. v. Academy Insurance Group, Inc. (1981), 229 Kan. 456, 625 P. 2d 466, for an alternate method of valuation. The record indicates that Grim was unable to place the stock on the public market and no other “sales” were made to third parties. Although there are numerous exhibits and testimony in the record dealing with the value of Multipress, Inc., the only substantial testimony relating to the value of the stock was that offered by Schwartz. He stated that Grim gave him for no remuneration ten percent of the corporate stock, and Schwartz estimated its worth at approximately $300,000. The measure of damages here places Worrell in the same position he would have been in had no breach occurred. Desnick v. Mast (1976), 311 Minn. 356, 249 N.W. 2d 878. In view of the fact that defendants presented no ascertainable alternative valuation, the damages award stands as determined by the jury.

II

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543 N.E.2d 1277, 45 Ohio St. 3d 241, 9 U.C.C. Rep. Serv. 2d (West) 1208, 1989 Ohio LEXIS 231, Counsel Stack Legal Research, https://law.counselstack.com/opinion/worrell-v-multipress-inc-ohio-1989.