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12/07/90 GEORGE CHRISTACOS v. BLACKIE'S HOUSE BEEF

December 7, 1990

GEORGE CHRISTACOS, APPELLANT
v.
BLACKIE'S HOUSE OF BEEF, INC., APPELLEE



Appeal from the Superior Court of the District of Columbia; Hon. Henry H. Kennedy, Trial Judge

Rogers, Chief Judge. Schwelb and Farrell, Associate Judges.

The opinion of the court was delivered by: Farrell

The primary question on this appeal is whether the principle that ownership of stock in a corporation is not ownership of an interest in the corporate assets may be applied so as to defeat the manifest intent of parties to an agreement. Specifically, we must decide whether, when appellant sold 100% of the stock -- but not the assets -- of a closely held corporation to a third party, he triggered a provision in a previous agreement to pay an additional $50,000 to the person (appellee) from whom, in the name of the corporation, appellant had purchased a restaurant. In accordance with the trial court's findings as to the parties' intent, we answer the second question yes and hence the first question no. We therefore affirm the judgment in favor of appellee.

I.

On July 22, 1983, appellant Christacos and appellee, Blackie's House of Beef, Inc. (Blackie's), entered into a written agreement of sale which provided that Christacos would purchase a bar and restaurant (then known as "The Black Beret" and later renamed "Christini's") located at 1140 Connecticut Avenue, N.W., for $300,000. Christacos agreed to pay Blackie's $100,000 in cash and the balance of $200,000 by means of a promissory note secured by a security agreement, payable in equal installments over five years. Before settlement, Christacos, with the consent of Blackie's owner, Ulysses Augur, formed a close corporation known as 1140 Connecticut Avenue, Inc. *fn1 As the trial court found, Christacos advised Augur that Christacos would hold the entire 3,300 outstanding shares of common stock. On October 25, 1983, a bill of sale was executed whereby Blackie's sold the business to 1140 Connecticut Avenue, Inc. The bill of sale incorporated the July 22, 1983 agreement of sale. Less than eight months after the October 25, 1983 closing, Christacos transferred all 3,300 shares of the 1140 Connecticut Avenue, Inc., stock to Nasser Zolfaghari for $75,000. Christacos did not inform Augur of the transfer and did not have his consent to the transfer. Apparently by a separate agreement between Christacos and Zolfaghari, Christacos, his wife, and his cousin remained sole officers and directors of the corporation.

At the center of the dispute here is paragraph 2(d) of the agreement of sale between Blackie's and Christacos, which refers to the $200,000 promissory note and then states as follows:

Said note shall be secured by a Financing Statement and Security Agreement in accordance with the Uniform Commercial Code of the District of Columbia on the items being sold, including fixtures, equipment, lease, licenses and replacements thereof. The Security Agreement securing said assets shall restrict the transfer of the assets being sold hereunder. In the event that the Buyer desires to sell said business during the three-year period after settlement, and Seller is willing to consent to same, Buyer must pay to Seller the sum of $50,000.00 cash, in addition to the price called for herein, at the time he transfers ownership of said assets to another party. *fn2 (Emphasis added.)

Christacos contends that the trial Judge, as trier of fact in this bench trial, erred in finding that when Christacos sold 100% of the stock of 1140 Connecticut Avenue, Inc., he triggered the duty to make the additional $50,000 payment called for in paragraph 2(d). Appellant maintains that his sale of the 3,300 shares of the corporation's stock did not constitute a sale of the business and a transfer of its assets, and that therefore, the $50,000 extra payment provision was not activated.

In reaching a contrary Conclusion, the trial Judge credited the testimony of Ulysses Augur that the purchase price of $300,000 was $50,000 below the fair market value of the restaurant at the time of sale and that the price was reduced in consideration of Christacos' owning and actively managing the restaurant for a period of three years after settlement. Specifically, Augur wanted Christacos, a veteran restaurateur, to remain the owner and on-premises manager to ensure Blackie's obligations to the landlord, Charles E. Smith Management, Inc., with whom Augur had a long-standing business relationship and to whom he would remain personally liable on the lease for five years. The trial Judge found that Christacos was aware of the concerns of Augur in insisting on the $50,000 extra payment clause in case of a premature transfer, and that he understood and agreed to the obligations it imposed on him.

On these facts the trial Judge concluded that the sales agreement was unambiguous and that Christacos' sale of 100% of the stock of 1140 Connecticut Avenue, Inc., to Zolfaghari was a sale and transfer of the "business" or "assets" within the meaning of paragraph 2(d):

When defendant Christacos assigned his 3,300 shares to Mr. Zolfaghari, he relinquished all rights of ownership and control of the business. Mr. Zolfaghari, as the sole stockholder, had the right to dictate business policy, and, indeed, the right to divest himself entirely of the stock. The fact that defendant Christacos remained as president of the corporation is, neither in form nor function, the equivalent of ownership.

Having found the contract unambiguous in conditioning a transfer of ownership in this manner on Augur's consent and the payment of an additional $50,000, the Judge declined to consider parol evidence offered by Christacos that, although he was not on the premises after the first year, he remained personally involved in operating the restaurant and made all payments on the promissory note in timely fashion, thus satisfying Augur's fundamental concerns.

II.

Applying normal principles of contract interpretation, we hold that the trial Judge was correct in finding that the provision for an additional payment was implicated by the sale of the entire stock of the corporation to Zolfaghari. "Fundamentally, when interpreting a contract, 'the court should look to the intent of the parties entering into the agreement.'" Dodek v. CF16 Corp., 537 A.2d 1086, 1093 (D.C. 1988) (citations omitted). Because "intent is properly an objective, not subjective, issue," id., in determining the parties' intent the court looks to "what a reasonable person in the position of the parties would have thought the disputed language meant." 1010 Potomac Assocs. v. Grocery Mfrs. of America, Inc., 485 A.2d 199, 205 (D.C. 1984). When "the document is facially unambiguous, its language should be relied upon as providing the best objective manifestation of the parties' intent." Id. But as part of the reasonableness inquiry, this court recognizes "the presumption that the reasonable person knows all the circumstances surrounding the making of the contract," Intercounty Construction Corp. v. District of Columbia, 443 A.2d 29, 32 (D.C. 1982). Therefore, although "extrinsic evidence of the parties' subjective intent may be resorted to only if ...


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