BEFORE HAWKINS, PRATHER AND ANDERSON
ANDERSON, JUSTICE, FOR THE COURT:
This is an appeal from an action of the Chancery Court of Warren County dismissing a complaint filed by Billy L. Fought (Fought) and Elza Fought against Brady M. Morris (Morris) and Vicksburg Tool and Manufacturing, Inc.
The Foughts assign the following errors on appeal:
1. THE CHANCELLOR ERRED IN FAILING TO FIND A BREACH BY MORRIS OF FIDUCIARY RELATIONSHIP.
2. THE CHANCELLOR ERRED IN FAILING TO FIND THE FOUGHTS' STOCK WAS INTENTIONALLY AND FRAUDULENTLY UNDERVALUED.
3. THE CHANCELLOR ERRED IN FAILING TO ALLOW THE FOUGHTS OTHER ACTUAL AND PUNITIVE DAMAGES.
Finding that Morris breached his fiduciary duty, we reverse and remand the case for further proceedings.
In 1974, Fought and Morris, along with Clayton A. Strong (Strong) and John S. Peyton (Peyton), organized Vicksburg Mold and Die, Inc., for the purpose of designing and manufacturing
plastic and metal products, each having twenty-five shares. All four were experienced machinists and employed by the company. Morris was unanimously elected president because of his managerial experience and Fought was elected vice-president.
The shareholders entered into a stock redemption agreement, section two of which provided:
In the event any stockholder should desire to dispose of any of his stock in the Company during his lifetime, he shall first offer to sell all of his stock to the company. The offer shall be based on a price determined in accordance with the provisions of Paragraph 6 hereof. Any share not purchased by the Company within thirty days of receipt of such offer shall be offered to the other stockholders, each of whom shall have the right to purchase such portion of the stock offered for sale as the number of shares owned by him on such date shall bear to the total number of shares owned by all the other stockholders; provided, however, that if any stockholder does not purchase his full proportionate share of the stock, the unaccepted stock may be purchased by the other stockholders. If the offer is not accepted by the Company or the other stockholders within thirty days of receipt thereof, the stockholder desiring to sell his stock shall have the right to sell it to any other person, but should not sell it without giving the Company and the remaining stockholders the right to purchase such stock at a price and on the terms offered by such other person.
In 1979, Strong sold his stock in accordance with the stock redemption agreement to the corporation. Strong's shares were divided equally among the remaining three stockholders, with the exception of one share to each of their spouses.
At the time of Strong's stock sale, the corporation was profitable, but by late 1981 or early 1982, business declined. The shareholders ceased to receive wages from the Company and were given the freedom to seek other employment while maintaining their shareholder status in the corporation. Peyton chose to work at another company, while Fought and Morris remained with the corporation.
In May 1983, Peyton decided to sell his shares in the corporation. It is disputed as to whether or not the sale was at Fought's suggestion. Peyton's sale, however, is what
initiated the conflict and dissention between Fought and Morris and consequently led to the lawsuit filed by the Foughts. Peyton's stock was not sold in accordance with the stock redemption agreement. Peyton initially negotiated with Fought's neighbor," Red "Johnson, at Fought's suggestion. This negotiation, however, was not consummated, and Peyton sold his stock to Morris for the consideration of $4,000, transfer of an insurance policy and release as guarantor from a bank note for the corporation.
The record is undisputed that Morris bypassed the stock redemption agreement in purchasing Peyton's stock. Fought objected to the sale of Peyton's stock, making a counter-offer to purchase his pro-rata share; however, Peyton rejected the counter-offer because Fought would not release him as a guarantor from the bank note.
The chancellor found that Morris wanted all of Peyton's stock while Fought only wanted his pro-rata share of it. The chancellor further found that the Foughts could not complain that the terms of the stock redemption agreement were violated because Peyton and Strong were not made parties to the action. The chancellor concluded, therefore, that (1) there was no legal authority for finding a corporate officer guilty of breach of fiduciary duty for acquiring additional stock in an open scramble between stockholders; (2) there was no evidence that Morris possessed any knowledge unknown to Fought; Morris simply had the financial resources to obtain Peyton's release as personal guarantor on the bank note; and (3) there was no evidence to prove any corporate payment on the bank note which influenced the bank to release Peyton as a guarantor.
The chancellor also found that the Peyton-Morris September letter, dated prior to Peyton's offer to the corporation, was not a final offer and acceptance, but rather a prospective agreement conditioned upon Peyton's satisfaction of the requirements of the stock ...