Concord Auto Action, Inc. v. Rustin

United States District Court for the District of Massachusetts · Corporations

CorporationsClose corporationsShareholder agreementsSpecific performanceContract interpretationclose corporationbuy-sell agreementstock purchase restriction

Facts

Three siblings each owned one-third of the stock of Concord Auto Auction, Inc. and E.L. Cox Associates, Inc., and in 1983 they executed a stock purchase and restriction agreement providing that, upon a shareholder's death, the corporations would buy the decedent's shares at the price set in paragraph 6. The agreement set specific per-share prices and stated that prices would be reviewed at least annually, but also provided that the purchase price would remain in full force and effect unless and until changed by a written instrument executed by all parties. No annual meeting or formal revaluation occurred before E.L. Cox died on March 14, 1984, and the administrator, Lawrence Rustin, refused to tender the shares, arguing that the surviving shareholders failed to hold the annual review and that the stock was worth substantially more than the stated price. The corporations had life insurance sufficient to fund the stated purchase price of $374,976.

Issue

Whether the administrator of a deceased shareholder's estate could refuse to tender the decedent's shares under a close-corporation stock purchase agreement because no annual review or revaluation occurred before death and because the stock's actual value had increased above the agreement's stated price. Also, whether those circumstances created defenses of breach, unclean hands, fiduciary breach, unfairness, or a Chapter 93A violation sufficient to defeat specific performance.

Rule

Absent ambiguity, contracts must be interpreted and enforced exactly as written. In a close-corporation stock purchase agreement that requires annual review of share price but also provides that the stated price remains in effect unless and until changed by a written instrument executed by all parties, the existing price controls when no revaluation occurs. Such agreements are valid and specifically enforceable against a deceased shareholder's administrator absent fraud, overreaching, undue influence, duress, or mistake, and specific performance is not denied merely because the contract price is inadequate or excessive.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Portland, Maine, three equal shareholders of Pine Harbor Equipment, Inc. signed a buy-sell agreement stating that on a shareholder's death, the corporation must purchase the decedent's shares at $500 per share. The agreement also says the price must be reviewed annually, but that the stated price remains effective unless and until all shareholders adopt a new price in a signed writing; no such writing was ever executed before Dana Lee died.

Dana's estate refuses to tender the shares, arguing that the annual review clause made a new valuation mandatory and that the old price expired when no review occurred. What is the strongest response?

Explanation. The majority enforced an unambiguous stock-purchase agreement exactly as written. Where the agreement requires annual review but also states that the existing price remains effective until changed by a signed writing, the provisions are reconciled by treating the old price as controlling if no revaluation occurs. The estate therefore remains obligated to tender at the stated price. (Derived from Concord Auto Action, Inc. v. Rustin (n.d.).)