PRESENT: Hassell, C.J., Lacy, Keenan, Koontz, Lemons, and Agee,
JJ., and Stephenson, S.J.
VALERIE HAMLET, ET AL.
OPINION BY
v. Record No. 060762 SENIOR JUSTICE ROSCOE B. STEPHENSON, JR.
March 2, 2007
JACKIE L. HAYES, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF HAMPTON
William C. Andrews, III, Judge
The issue in this appeal is whether the trial court erred
in sustaining the defendants' demurrers, holding as a matter of
law that the plaintiffs' bill of complaint failed to allege the
essential elements of a breach of contract suit that would
entitle the plaintiffs to the relief of specific performance.
I
Valerie Miller Hamlet, L. Raymond Miller, Jr., and Jane
Perry (collectively, the Plaintiffs or the Purchasers) filed a
bill of complaint against Jackie L. Hayes and Commonwealth Wood
Preservers, Inc. (Commonwealth or the Corporation)
(collectively, the Defendants), seeking enforcement of the
Purchasers' rights under a shareholder agreement dated January
2, 1990 (the Agreement). The Agreement was attached to the bill
of complaint as Exhibit A.
Both Hayes and Commonwealth filed demurrers to the bill of
complaint, contending that the Plaintiffs had failed to state a
claim upon which relief could be granted. The trial court, by
an order entered January 20, 2006, sustained the demurrers and
dismissed the Plaintiffs' bill of complaint. We awarded the
Plaintiffs this appeal.
II
This case was decided by the trial court on demurrer;
therefore, we review the trial court's decision de novo based
upon the facts alleged in the Plaintiffs' bill of complaint,
including the documents incorporated therein and made a part
thereof. In so doing, the Plaintiffs are entitled to the
benefit of all reasonable inferences that may be drawn from the
facts alleged. See Glazebrook v. Board of Supervisors, 266 Va.
550, 554, 587 S.E.2d 589, 591 (2003).
A
Commonwealth is a closely held corporation, and the
Agreement imposes certain restrictions and obligations on its
shareholders. All of the Purchasers and Hayes are shareholders
in Commonwealth and are parties to the Agreement, either as
direct signatories or as successors-in-interest to signatories.
Paragraph 1 of the Agreement, entitled "Voluntary transfers
of stock," prohibits a shareholder from transferring shares of
the Corporation by any means except as provided by the
Agreement. Subparagraph (a) of paragraph 1, entitled "Offer by
Shareholder," provides, in pertinent part, that "[a] Shareholder
desiring to sell or exchange all or any part of his Shares shall
give the Corporation . . . a written offer to sell such Shares
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to the Corporation (the 'Notice')." Subparagraph (b) of
paragraph 1, entitled "Acceptance of Offer," provides, in
pertinent part, that the Corporation "may at its option, by
written notice to the [selling] Shareholder and other
Shareholders . . . , elect to redeem all, or any part, or none
of the Shares of the Corporation proposed to be sold or
exchanged." Subparagraph (b) further requires the Corporation
to notify the selling shareholder and the other shareholders, in
writing within 30 days of receipt of the offer, of the number of
shares, if any, the Corporation intends to redeem. Upon receipt
of such a notice from the Corporation, each of the remaining
shareholders may purchase his "Proportionate Share" of the
shares not being redeemed by the Corporation.
The term "Proportionate Share" is defined, in subparagraph
(b), as
that portion of the shares of the Corporation offered
for sale or subject to option which the shares of the
Corporation owned by a Shareholder bear to all the
Corporation's shares owned by all the Shareholders
(other than those offered for sale or under option).
In addition, if any shares of the Corporation offered
for sale or under option are not purchased by the
first shareholder entitled thereto, the term
"Proportionate Share" shall include that portion of
the shares of the Corporation not purchased by the
Shareholder first entitled thereto which the shares of
the Corporation owned by a Shareholder bears to the
Corporation's Shares (other than those offered for
sale) owned by all Shareholders other than the
Shareholder first entitled to purchase.
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Subparagraph (b) further provides, in pertinent part, that,
"[i]f the Corporation and/or the Shareholders agree to redeem
and/or purchase all of the Offered Shares, the Purchase Price
shall be equal to the value of the sale or exchange specified in
the Notice; however, the terms for payment shall be in
accordance with the provisions of Paragraph Numbered 8 of this
Agreement."
Paragraph 8, subparagraph (b) of the Agreement applies to
the shares that are "purchased by all or some of the remaining
Shareholders" and provides that the purchase price shall be paid
at closing. Subparagraph (b) further provides, in pertinent
part, that "[n]ot less than Twenty Percent (20%) of the Purchase
Price shall be paid in cash and the balance shall be paid by the
delivery of each Shareholder's negotiable promissory note."
Subparagraph (d) of paragraph 8 addresses "Closing" and
provides, in pertinent part, that "[t]he Closing of any purchase
and sale shall take place at the office of the Corporation at a
date designated by the Corporation which shall be not more than
thirty (30) nor less than ten (10) days following the date of
exercise of the option by the purchaser(s)."
B
Millard M. Davis, a shareholder in the Corporation and
chairman of its board of directors, offered to purchase all of
Hayes' shares for $700,000 "subject to [the Corporation's]
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declining to buy [the] shares." Thereupon, Hayes offered his
shares to the Corporation by a memorandum dated August 17, 2004,
which reads as follows:
SUBJECT: Sale of Stock
You are hereby notified I have received an offer to
sell my 150 shares in Commonwealth Wood Preservers,
Inc. for $700,000 to current shareholder, Millard M.
Davis, subject to Commonwealth Wood Preservers, Inc.
declining to buy my shares.
On the same date, Commonwealth notified its other
shareholders, including the Purchasers, that its Board of
Directors had voted not to redeem Hayes' shares. Commonwealth
further notified its other shareholders, including the
Purchasers, that they had "30 days to purchase [their]
'Proportionate Share' of these shares if [they] so desire[d]."
Upon receipt of this notice, the Purchasers gave timely
notice to Commonwealth of their intentions to exercise their
rights to purchase their proportionate shares of Hayes' stock.
After receiving the notices from the Plaintiffs, Davis sent
Hayes a memorandum, dated September 17, 2004, purporting to
withdraw his offer to purchase Hayes' shares. Hayes
acknowledged receipt of the memorandum and wrote thereon, "I
withdraw my offer to sell my stock in [the Corporation]." In
their bill of complaint, the Plaintiffs stated that they "are
ready, willing, and able to perform their obligations in
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connection with the purchase of Hayes' Shares of the Corporation
under the terms of the Agreement."
III
The essential elements of a cause of action for breach of
contract are (1) a legal obligation of a defendant to a
plaintiff, (2) a violation or breach of that obligation, and (3)
a consequential injury or damage to the plaintiff. Caudill v.
Wise Rambler, 210 Va. 11, 13, 168 S.E.2d 257, 259 (1969). The
Purchasers contend that they sufficiently alleged a cause of
action against the Defendants for breach of contract.
The Purchasers contend that Hayes' written notice to the
Corporation constituted a valid offer that gave the Corporation
the right to redeem all or part of Hayes' shares and that,
pursuant to the Agreement, each of the remaining shareholders
had the right to purchase his proportionate share of the shares
not being redeemed by the Corporation. The Purchasers further
contend that they properly exercised their right to purchase
Hayes' shares by notifying the Corporation of their intentions
to do so. Thus, according to the Purchasers, they had an
enforceable contract.
Hayes contends that the Agreement only contained
restrictions on actual transfers of shares and that, because he
was not seeking to transfer his shares in violation of the
Agreement, the trial court correctly sustained the demurrers.
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Hayes asserts that the Agreement did not impose on him an
affirmative duty to sell his shares to three parties with whom
he had not negotiated and to accept only a 20% down payment with
the balance of the purchase price payable over time. Hayes
further asserts that the Agreement did not give the Plaintiffs
an option to purchase his shares and that there could be no
contract between the Plaintiffs and him because there was no
meeting of the minds. Finally, Hayes argues that there was no
basis for ordering specific performance under the Agreement.
We agree with the Purchasers' contentions and reject all of
Hayes' contentions. First, the Agreement does more than just
restrict the transfer of shares of the Corporation. The plain
language of the Agreement establishes the rights of Commonwealth
and the remaining shareholders to purchase the shares of "[a]
shareholder desiring to sell." It makes no difference under the
facts of this case whether this right is called an option or a
right of first refusal; clearly, the Agreement gave to
Commonwealth and the Purchasers the opportunity and right to
purchase the shares that Hayes sought to sell to Davis.∗ Once
∗
We conclude that paragraphs 1 and 2 of the Agreement
granted rights of first refusal and not options. " 'A right of
first refusal is distinguished from an absolute option in that
the former does not entitle the [purchaser] to compel an
unwilling owner to sell. Instead it requires the owner, when
and if he decides to sell, to offer the property first to the
person entitled to the right of first refusal.' " Landa v.
Century 21 Simmons & Co., 237 Va. 374, 380, 377 S.E.2d 416, 419
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the Purchasers exercised their right under the Agreement to
purchase Hayes' shares that the Corporation had declined to buy,
a binding contract existed requiring Hayes to transfer his
shares to the Purchasers under the terms of the Agreement.
Next, the Agreement imposes upon Hayes more than the
obligation to sell his shares to the Corporation and the
Purchasers. The Agreement also imposes upon Hayes the
obligation to accept the payment terms set forth therein.
Finally, the Agreement does provide a basis to order
specific performance. Paragraph 14 of the Agreement, entitled
"Specific Performance," provides the following:
The parties agree that it is impossible to
measure in money the damages which will accrue to a
party hereto or to the personal representatives of a
deceased Shareholder by reason of a failure to perform
any of the obligations of this agreement. Therefore,
if any party hereto or the personal representatives of
deceased Shareholder shall institute any action or
proceeding to enforce the provisions hereof by
specific performance any person, including the
Corporation, against whom such actions or proceeding
is brought, hereby waives the claim or defense therein
as such party or such personal representatives has or
have an adequate remedy at law.
Moreover, even in the absence of paragraph 14, specific
performance would be the proper remedy. Hayes' shares represent
unique personal property in a closely held corporation, which
property is not purchasable in the market. Therefore, there
(1989) (quoting Cities Service Oil Co. v. Estes, 208 Va. 44, 47,
155 S.E.2d 59, 62 (1967)).
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exists no adequate remedy at law for Hayes' failure to abide by
his obligations under the terms of the Agreement. See Thompson
v. Commonwealth, 197 Va. 208, 212-13, 89 S.E.2d 64, 67-68
(1955).
IV
For the foregoing reasons, we hold that the trial court
erred in sustaining Hayes' and Commonwealth's demurrers and
dismissing the Purchasers' bill of complaint. Accordingly, we
will reverse the trial court's judgment and remand the case for
further proceedings consistent with the views expressed in this
opinion.
Reversed and remanded.
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