Johnson v. State

Tom Glaze, Judge,

dissenting. I respectfully disagree with the majority decision. In affirming the trial court, we are permitting a result which was clearly not intended by either of the parties when they entered into their employment agreement. The majority has placed a construction on the parties’ agreement which allows the appellee to purchase one hundred shares of stock at $300 and less than one year later, the appellant is required to repurchase these same shares for the sum of $9,316. This difference in amount is due solely to the fact that appellee originally purchased the one hundred shares based on a “book value” which did not include the accounts receivable owned by appellant. Thus, we have the anomalous situation where appellee purchased shares of stock at a "book value” which did not include the asset of accounts receivable, but when he sold the shares, he did so at a "book value” which included accounts receivable. From the facts presented in this cause, I am convinced that this result was not intended by the parties. I am also persuaded that if the parties’ agreement was properly construed in light of the rules set forth in Les-Bil, Inc. v. General Waterworks Corp., 256 Ark. 905, 511 S.W.2d 166 (1974), a different, correct and more equitable result would have been reached.

This controversy centers around the definition of “book value” as that term is employed in the termination provision of the parties’ employment agreement. That provision reads as follows:

In the event the employee is also a shareholder of the employer, termination of this agreement shall not affect any rights the employee may have with regard to the stock of the employer which he owns, provided, however, that, upon termination of this agreement by either party, the employee hereby covenants and agrees that the employer may make a 100% redemption of such employee's stock at the then book value of the stock. [Emphasis supplied.]

The majority court has taken the position that the term “book value” is not ambiguous and, therefore, appellant was not entitled to present parol testimony to show the intent of the parties. On this point, I disagree.

Admittedly, the term “book value” normally means the value of the corporation as shown on the books of account of that corporation, after subtracting liabilities. Moreover, I am quite aware that generally accepted accounting principles normally require that “book value” be based on an accrual basis, which means that accounts receivable would be included when determining the value of a corporation’s stock. However, in the instant case, the facts clearly reflect that the appellant used a cash basis of accounting and, therefore, never included an accounts receivable amount when computing the value of the company stock. Given these facts, the term of “book value” as employed by the parties in their agreement, was susceptible to two separate or possible meanings. This being so, I believe a latent ambiguity exists, and the trial court should have allowed the appellant the opportunity to present parol testimony to explain what the parties intended by the term “book value” as it was used in the parties’ agreement. See Ellege v. Henderson, 142 Ark. 421, 218 S.W. 831 (1920). See also, 3A C.J.S. Ambiguity, at 409-410 (1973).1

If I am correct that a latent ambiguity exists, I am then met with the well-settled rule that the language used in a contract will be resolved against the drafter of the agreement, i.e., in this case, the appellant. This rule must, however, give way in this cause to other rules of construction in our attempt to determine the parties’ intent when they entered this employer /employee relationship. To this effect, see Les-Bil, Inc. v. General Waterworks Corp., supra. Here, the parties’ agreement employed the technical term “book value.” As noted in Les-Bil, our cases clearly recognize that when a technical term is used in a sense other than the ordinary meaning of the word, testimony is admissible to explain the meaning of the term and the question may be submitted to the trier of fact to determine in what sense the term was used. The court in Les-Bil further stated:

In determining the intention of the parties at least equal regard must be given to the rule that, in spite of the fact that words in a contract are generally to be given their usual and ordinary meaning, words of art or words connected with or peculiar to a particular trade, profession or occupation are to be given the signification attached to them by experts in such art or trade, profession or occupation unless it appears that they were used in a different sense. If, in reference to the subject matter of a contract, words have, through usage acquired a meaning different from their usual meaning, the parties must be taken to have used them in their peculiar meaning.

Although I am convinced that a clear ambiguity arose due to the parties’ use of the term “book value,” the trial court refused to allow appellant to introduce parol evidence to show what the parties meant by the use of that term. For instance, I believe the trial court erred in excluding the testimony of Julia Short, the business manager of the appellant at the time appellee was employed. Ms. Short testified that she had advised appellee that the purchase of shares of stock did not include accounts receivable, and it was not to be included in evaluating the shares when there was a termination of employment. Moreover, she informed him that the salary he was paid was from the accounts receivable, and it was for this reason appellee would receive no accounts receivable when he terminated employment. None of this testimony by Ms. Short was considered by the trial judge when he construed the parties’ agreement and decided the shares were worth over $9,000. Ms. Short’s testimony was actually bolstered by the testimony given by appellee. At trial, appellee admitted that Dr. Beard, one of appellant’s physicians and shareholders, explained that it was easy to buy into the appellant corporation because “You don’t pay much for your stock and as a consequence you didn’t take much out for your stock when you left.” Appellee testified that Dr. Beard informed him that the stock was not worth much. He also could not remember whether Julia Short explained to him that the appellant corporation used a cash basis of accounting.

Considering the rules of construction applicable to this case, I believe the trial court clearly erred in excluding the testimony of Ms. Short as well as other parol evidence indicating that the term “book value,” as employed by the parties’ agreement, was not meant to include the corporation’s accounts receivable. At the very least, I believe this matter should be remanded to the trial court for its consideration of that parol evidence which it did not consider when reaching its decision. However, my stronger belief is that this Court should, in reviewing this cause de novo, find that the parties did not intend the term "book value” to include accounts receivable. If this Court had done so, the uncontradicted evidence is that appellant’s stock actually possessed a negative value rather than the inflated amount awarded by the trial court. Since appellee paid only $300 for the shares initially, the finding and holding I urge is certainly more reasonable and fair in view of the fact he owned the shares less than one year and all the evidence leads to the conclusion that the shares were sold him at a price which was computed without any reference to accounts receivable.

Cracraft and Corbin, JJ., join in this dissent, except Corbin, J., would remand to the trial court for its consideration of the parol evidence which was excluded at the trial of this cause.

The term “latent ambiguity” in Corpus Juris Secundum is defined to mean “an ambiguity which arises not upon the words of the instrument, as looked at in themselves, but upon those words when applied to the object or subject which they describe. It is one which does not appear on the face of the language used or the instrument being considered or when the words apply equally to two or more different subjects or things, as where the language employed is clear and intelligible and suggests but a single meaning, but some extrinsic fact or evidence aliunde creates a necessity for interpretation or a choice among two or more possible meanings.”