Concord Auto Action v. Rustin

United States District Court for the District of Massachusetts · 1986 · Corporations

CorporationsClose corporationsShareholder agreementsSpecific performanceclose corporationbuy-sell agreementstock restriction agreementspecific performance

Facts

Concord Auto Auction, Inc. and E.L. Cox Associates, Inc. were closely held Massachusetts corporations owned equally by three siblings, including E.L. Cox. In 1983 the shareholders signed a stock purchase and restriction agreement requiring the corporations to repurchase a deceased shareholder's stock at prices listed in paragraph 6, funded by life insurance, while also providing that share prices would be reviewed annually and that the purchase price would remain in effect unless changed by a written instrument executed by all parties. No annual meeting or revaluation occurred before Cox died in March 1984, and his administrator, Rustin, refused to tender the shares, arguing that the surviving shareholders' failure to conduct the review excused performance and made enforcement unfair because the stock was worth substantially more than the stated price. The agreement's listed prices produced a total purchase price of $374,976, essentially matching the insurance proceeds.

Issue

Whether the corporations were entitled to specific performance of the shareholder agreement at the stated paragraph 6 prices when no annual review or revaluation had occurred before the shareholder's death. Also, whether the failure to hold the annual meeting or review the price created a condition precedent, breach, fiduciary violation, unclean hands defense, or other basis to defeat enforcement and support the administrator's counterclaims.

Rule

Absent ambiguity, contracts must be interpreted and enforced exactly as written, and their interpretation is a question of law for the court. Under an unambiguous close-corporation stock purchase agreement, a deceased shareholder's administrator must tender the shares at the price set in the agreement; if the agreement states that the price remains in effect unless and until changed by written agreement of all parties, failure to conduct an annual review does not alter the stated price or create a condition precedent. Such agreements are valid and specifically enforceable absent fraud, overreaching, undue influence, duress, or mistake, and specific performance will not be refused merely because the 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 Worcester, three equal shareholders of Bay Lantern Fabrication, Inc. signed a stock-restriction agreement setting a fixed per-share repurchase price on a shareholder's death. The agreement also required annual review of price, but added that the listed price would remain effective unless changed by a written instrument signed by all shareholders. One shareholder died 14 months later, no review had occurred, and the estate refused to sell because the company had become much more valuable.

If the corporation sues for specific performance, which is the strongest argument for the corporation?

Explanation. The controlling rule is that an unambiguous stock purchase agreement in a close corporation is enforced as written. Where the agreement says the price remains in effect unless changed by a written agreement of all parties, failure to conduct the annual review does not alter the listed price. Specific performance is proper despite later appreciation in value, absent fraud, overreaching, undue influence, duress, or mistake. (Derived from Concord Auto Action v. Rustin (1986).)