No. 84-371
IN THE SUPREME COURT OF THE STATE OF MONTANA
1985
FAYE ANN MADDOX,
Plaintiff and Appellant,
FRANK A. NORMAN, JR., and
GLORIA NORMAN and NORMAN
RANCHES, INC. ,
Defendants and Respondents.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Thomas Olson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Berg, Coil, Stokes & Tollefsen, Bozeman, Montana
For Respondent :
Moore, Rice, O'Connell & Refling, Bozeman, Montana
Submitted on Briefs: Jan. 24, 1985
Decided: April 16, 1985
.APg t
Filed.
Clerk
Mr. Justice Frank R. Morrison delivered the Opinion of the
Court.
This is an appeal from the District Court's judgment
valuing stock, rendered on remand from the original appeal to
this Court. This Court 's initial decision, published jn
.
Maddox v. Norman (Mont. 1983), 669 P.2d 230, 40 St.Rep. 1463,
provides a detailed factual account.
Faye Ann Maddox and T. Donald Norman, brother and sis-
ter, brought an action in November, 1980 against their broth-
er Frank A. Norman Jr., mother, Gloria E. Norman, and Norman
Ranches, Inc., to have a receiver appointed to sell assets of
the family ranch corporation. This Court affirmed the trial
judge's d.ecision ordering Faye Madd.ox to sell her 75 shares
to the corporation. We remanded the case for additional
testimony supporting valuation of corporate net worth and. 75
shares of stock.
In 1961 Frank Norman, Sr. incorporated his family ranch,
Norman Ranches, Inc. He deeded title to 1140 acres to the
family corporation in 1963. Frank, Jr., remained on the
ranch with his father and mother while Faye and Don left to
pursue other lifestyles. At the time of the initial action
ownership of corporate shares was allocated as follows:
Frank, Jr. 849 shares
Gloria 1 share
Faye 75 shares
Don 75 shares
Prior to commencement of the initial action, the corpo-
ration agreed to pay $175,000 for Faye and Don's 150 shares
of stock, contingent upon financing. The corporation's
failure to obtain financing caused this agreement to lapse.
After the complaint was filed, Don Norman entered a settle-
ment agreement with the corporation by which he transferred
his 75 shares to Norman Ranches, Inc. in exchange for $20,000
plus 20 acres of corporate land. The trial court found this
settlement to be fair, reasonable and voluntary and removed
Don as a party pla.intiff in the action against Norman Ranch-
es, Inc. Faye refused the corporation's offer to settle on
the same terms accepted by Don. After a bench trial the
trial judge ordered Faye to sell her 75 shares of ownership
in the corporation pursuant to the same terms of Don's set-
tlement: $20,000 plus a 20 acre tract of corporate land,
comparable in value to the land deeded to Don. This Court
remanded the action to the District Court for evidence sup-
porting the net value of the corporation and the appraised
value of the proposed 20 acres to be transferred to Faye in
return for her stock holdings. Appellant appeals the Dis-
trict Court's valuation of her stock ownership.
On appeal the following issues are presented.:
I. Whether the court erred in determining the net worth
of the corporate assets.
2. Whether the court erred in employing an agricultural
appraisal to evaluate corporate lands and plaintiff's share
value, but applying subdivision appraisal to determine the
exchange value of plaintiff's shares.
3. Whether the court erred in failing to consider the
"agreed" value of plaintiff's stock in determining her
"share" value.
4. Whether the gain realized by the purchase of the
Gerva-is section is in part a corporate asset.
Appellant's four issues may be consolidated into a
singular dispositive issue: Whether the District Court
awarded proper value to Faye Ann Maddox for her share of
stock in Norman Ranches, Inc.
On remand, this Court directed the lower court to con--
sider certain items of evidence in determining the value of
appellant's stock. These specific items include:
1. A corporate balance sheet documenting assets and
liabilities of Norman Ranches, Inc.
2. An accounting by Frank Norman, Jr., of all corporate
funds including corporate rental income, lease proceeds, and
loan proceeds.
3. A claim by Frank, Jr., and Gloria for any or all-
labor or improvements to corporate property.
4. Appraisals of all the lands proposed to be trans-
ferred in exchange for Faye's corporate ownership.
Having received these accounting documents and apprais-
als into evidence, the trial judge entered its initial judg-
ment on April 26, 1984.
In Finding of Fact No. 19, the lower court found:
"19. The net worth of the corporation as of Decem-
ber 31, 1983 is as follows:
Fair market value of land and
improvements $640,000.00
Balance of 1970 loan to Frank
Norman, Jr. 52,550.00
Profits receivable from Frank
Norman, Jr. 55,800.00
Cash ( 25.00)
Less Federal Land Bank note ( 52,550.00)
Less improvements made by Normans ( 38,090.00)
NET WORTH
Faye's 75 shares evidenced. a 7.5 percent ownership in
the family corporation. Accordingly, the trial judge
calculated the fair market value of Faye Maddox's stock as
$49,326.38 which is 7.5 percent of the net corporate worth,
$657,685.00.
The trial judge also held the expired $175,000 purchase
a.greement for 150 sha.res established the "top value for these
shares" and that Don's settlement agreement of $20,000 plus
20 acres of corporate land was "the lowest value for Faye
Maddox's shares. " In Finding No. 16 the trial judge found.:
". . . Therefore, the value of Faye
Maddox's shares lies somewhere between
FORTY THOUSAND DOLLARS ( $40,O00) and
EIGHTY-SEVEN THOUSAND FIVE HUNDRED DOL-
LARS ($87,500.00)."
At the accepted appraised value of $2,000 per acre, the
twenty-acre tract is worth $40,000. This land value plus
$20,000 in cash establishes a "floor" on the value of Faye's
stock of $60,000 instead of the $40,000 value quoted in the
initial judgment.
In its amended judgment on June 12, 1984, the trial
judge justified the original value of $49,326.38 for Faye's
stock ownership as follows:
"Findings of fact number 15 and 16 con-
tain obvious arithmetic errors. The
value of T. Donald Norman's stock' is
$20,000 plus the 20 acre tract valued at
$2,000 per acre, for a total value of
$60,000. The court cannot rationally
conclude that this established the lower
value of the plaintiff's stock because by
the very nature of a compromise settle-
ment, the ultimate value could have been
higher or lower depending on whether the
facts are viewed in favor of either
party. For this reason findings of fact
number 15 and 16 are stricken."
The trial court did not disturb its original decision
ordering Faye ~addox""to
transfer her 75 shares of stock in
Norman Ranches, Inc.
The trial judge distributed the total amount due Faye
Maddox in Conclusion of Law No. 3 as follows:
'3
I. Plaintiff shall transfer her 75 shares of
stock in Norman Ranches, Inc. to Norman Ranches,
Lnc. in exchange for receiving NINE THOUSAND THREE
HUNDRED TWENTY-SIX AND 38/100 DOLLARS ($9,326.38)
in cash and a 20 acre tract of land which equals
FORTY THOUSAND DOLLARS ($40,000.00) worth of real
estate owned by the corporation. Norman Ranches,
Inc. shall convey tract A or tract B to Faye Ann
Maddox ".
We agree with the trial court's original finding that
the settlement terms offered to and accepted by T. Donald
Norman establish the "floor" value of 75 shares of Norman
Ranches, Inc. corporate stock. Therefore, $20,000 in cash
plus 20 acres of corporate land is the minimum amount which
Faye Maddox can be awarded for her 75 shares of stock owner-
ship in the family-ranch corporation.
The trial court erred by awarding the appellant
$49,326.38, an amount less than the minimum value of $20,000
in cash and 20 acres of real estate. Notwithstanding the
undisputed appraised value of $2,000 per acre for the 20
acres of corporate land, the assigned cash value of $40,000
constitutes an erroneous corollary valuation. Even if appel-
lant were to sell the subject tract for a total selling price
of $40,000, closing costs would considerably diminsh the
actual cash realized from the sale. The probability of a
contract sale also reduces the actual cash received from the
sale of the twenty acres. Furthermore, the cash value of the
contracts would be considerably discounted on resale. For
these reasons, it is an erroneous assumption to attribute a
cash va-lue of $40,000 for twenty a-cresof land.
We reverse the trial court's decision and remand with
the direction to pay appellant $20,000 in cash plus the 20
acres of corporate land already tendered to the trial court
for transfer to appellant.
We concur: