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Docket No. 96862-Agenda 8-March 2004.

MARTIN ROTH et al., Appellees, v. GERALD J. OPIELA et al.,
Appellants.

Opinion filed June 17, 2004.
 

CHIEF JUSTICE McMORROW delivered the opinion of the court:

This case concerns the proper interpretation of a stock purchaseagreement between a closely held corporation and its shareholders. Thestock purchase agreement at issue contains a mandatory buy-sell provisionwhich provides that, upon the death of a shareholder in the corporation,the shareholder's estate must sell the shareholder's stock back to thecorporation. An amendment to the agreement further provides, however,that if the shareholder has "specifically bequeathed or otherwise given" thestock to a direct descendant or descendants, then the mandatory buy-sellprovision will not apply. The question regarding the stock purchaseagreement which we must decide is this: When a shareholder of thecorporation dies without a will, and his descendants inherit by intestatesuccession, can it be said that the shareholder "gave" his descendants theirinheritance so as to fall within the exception to the mandatory buy-sellprovision of the stock purchase agreement? The appellate court concludedthat the answer to this question is "yes," if it is proven that the shareholderwas aware of the laws of intestacy. No. 5-02-0492 (unpublished orderunder Supreme Court Rule 23). We conclude that the correct answer tothe question is "no" and, for that reason, reverse the judgment of theappellate court.

BACKGROUND

The following facts, which are not in dispute, are taken from thepleadings and other materials of record. Great Southwest Oil & GasCorporation (Great Southwest) is a Nebraska corporation doing businessin Illinois. At the time of its incorporation, Great Southwest had threeshareholders, Richard Roth, Gerald J. Opiela and Frank J. Weber. Eachshareholder owned 1,000 shares of stock.

On May 9, 1989, the three shareholders entered into a stockpurchase agreement with Great Southwest. In this agreement, theshareholders and the corporation expressed a desire to have the stock ofGreat Southwest "remain closely held in order to promote harmoniousmanagement of the Corporation's affairs." To this end, the agreementincluded a mandatory buy-sell provision which provides that, "[u]pon thedeath of a shareholder, his estate shall sell and the Corporation shallpurchase the shares which were owned by the deceased Shareholder athis death."

On March 18, 1997, Gerald J. Opiela conveyed his shares of GreatSouthwest stock to a qualified terminable interest property trust.

On December 22, 1997, Great Southwest and the three shareholdersadopted a five-paragraph amendment to the stock purchase agreement.The majority of this amendment relates to the creation of a right on thebehalf of the original stockholders to transfer stock to a direct descendantwithout the approval of the other shareholders. Paragraph one of theamendment expressly authorizes the original shareholders to "make atransfer, by gift or otherwise,"of Great Southwest stock to a directdescendant, provided that the aggregate number of shares so given doesnot exceed 249. Paragraphs two and three of the amendment set forthoptional buy-sell provisions which, in the event of certain triggering events,give an original shareholder the first option to buy back stock that hasbeen given to a direct descendant.

The fourth paragraph of the amendment to the stock purchaseagreement, which is the provision at issue in this case, sets forth anexception to the mandatory buy-sell provision of the stock purchaseagreement. Paragraph four states that the buy-sell provision will not takeeffect if an original shareholder dies "having specifically bequeathed orotherwise given" his shares of Great Southwest stock to a directdescendant or descendants. Paragraph five of the amendment states thatno transfer made pursuant to the amendment will be effective until thetransferee agrees, in writing, to be bound by the terms of the stockpurchase agreement.

On December 24, 1997, Frank Weber transferred 100 shares ofGreat Southwest stock to each of his two sons. That same day, RichardRoth also transferred 100 shares of Great Southwest stock to each of histwo children, Martin Roth and Kerry Roth Zerla. All the children signedstatements indicating their agreement to be bound by the terms of thestock purchase agreement.

Richard Roth died intestate on February 4, 2001. Under Illinois'statute of descent (755 ILCS 5/2-1(a) (West 2000)), 50% of Richard'sestate was inherited by his widow, Rebecca Roth. The remaining 50% ofRichard's estate went to his children, with each child receiving 25%. OnApril 7, 2001, Rebecca executed a disclaimer to any interest in herhusband's Great Southwest stock, pursuant to section 2-7 of the ProbateAct of 1975 (755 ILCS 5/2-7 (West 2000)). Because of the disclaimer,the 400 shares of Great Southwest stock that would have passed byintestate succession to Rebecca went, instead, to the children, with eachchild receiving 50%. Thus, in total, each child was to inherit 400 shares ofthe 800 shares of stock owned by Richard at the time of his death.Together with the previous 100 shares of Great Southwest stock whichthey had received, the children were to own 500 shares of stock each, ora combined one-third of the corporation's outstanding shares.

On April 18, 2001, Richard Roth's children, the plaintiffs in this case,filed a complaint for declaratory judgment in the circuit court of CrawfordCounty. Plaintiffs sought a declaration that they had the right to inherit the800 shares of Great Southwest stock which were owned by Richard atthe time of his death. The complaint named as defendants Gerald J.Opiela, both individually and as trustee of the qualified terminable interestproperty trust dated March 18, 1997, Frank J. Weber and GreatSouthwest.

Plaintiffs and defendants filed cross-motions for summary judgment.In support of their motion, plaintiffs contended that the mandatory buy-sellprovision of the stock-purchase agreement was not applicable to the 800shares of Great Southwest stock owned by Richard Roth. According toplaintiffs, the fact that Richard died intestate and that Rebecca Roth issuedthe disclaimer meant that the 800 shares of stock had been "otherwisegiven" to them as described in the amendment to the stock purchaseagreement. Therefore, plaintiffs alleged, the exception to the mandatorybuy-sell provision applied and Richard's estate was under no obligationto sell the shares of stock to the corporation.

Defendants disagreed. Defendants argued that, under the law ofIllinois, intestacy does not constitute an affirmative act of giving and,therefore, that Richard had not "otherwise given" the 800 shares of stockto plaintiffs. Thus, in defendants' view, the exception to the mandatorybuy-sell provision did not apply and Richard's estate was required to sellthe shares of stock to Great Southwest. Following a hearing, the circuitcourt granted defendants' motion for summary judgment.

On appeal, the appellate court reversed. The appellate court stated:

"We agree with the trial court that the term 'otherwise given' isnot ambiguous because this term implies a conscious act ofgiving; however, we cannot agree with the trial court's grantingof a summary judgment. The record before us fails to indicatewhether or not Richard Roth intended to give all of his shares tothe plaintiffs. While Richard Roth did not specifically bequeaththe shares to the plaintiffs, there was no showing that he did notintend for his children to inherit the stock. The fact that he gaveeach of his children 100 shares of stock prior to his deathsuggests that he may have wanted them to inherit the stock. Mr.Roth may have been cognizant of the laws of intestacy and mayhave known that his widow would disclaim her interest in thestock. On the record before us, we cannot be sure whether Mr.Roth's intestacy was a conscious act of giving or an act ofindifference." No. 5-02-0492.

Having concluded that summary judgment was inappropriate, theappellate court remanded the cause for trial. Defendants thereafter filed apetition for leave to appeal in this court, which we allowed.

ANALYSIS

Summary judgment is proper where "the pleadings, depositions, andadmissions on file, together with the affidavits, if any, show that there is nogenuine issue as to any material fact and that the moving party is entitledto judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2000);Robidoux v. Oliphant, 201 Ill. 2d 324, 335 (2002). We review the grantof summary judgment de novo. Guillen v. Potomac Insurance Co. ofIllinois, 203 Ill. 2d 141, 149 (2003).

Before this court, the parties do not dispute the essential facts.Plaintiffs and defendants agree that Richard Roth died intestate, thatRebecca Roth issued a disclaimer to the 800 shares of Great Southweststock which Richard owned at the time of his death and that, under thelaws of intestate succession, the stock would ordinarily devolve toplaintiffs. The parties do contest, however, the meaning of paragraph fourof the amendment to the stock purchase agreement and its application tothis case. Paragraph four of the amendment states:

"If an original SHAREHOLDER dies having specificallybequeathed or otherwise given his shares of stock in theCORPORATION to a direct descendant or descendants, thenthe provisions of the STOCK PURCHASE AGREEMENT formandatory sale and purchase of stock by the CORPORATIONand the other SHAREHOLDERS shall not be applicable, andsaid transfer shall be permissible, and the CORPORATIONshall retain all proceeds from any life insurance policy whichinsured said SHAREHOLDER as for the absolute property ofthe CORPORATION."

As they did in the courts below, plaintiffs acknowledge that RichardRoth did not "specifically bequeath" his 800 shares of Great Southweststock to them. Plaintiffs emphasize, however, that the amendment to thestock purchase agreement pertains to shares that are "otherwise given"(emphasis added) to a descendant or descendants. Plaintiffs again assertthat, through the laws of intestate succession, Richard "effectivelyconveyed" his shares of stock to plaintiffs once Rebecca Roth executedher disclaimer. Thus, in plaintiffs' view, the 800 shares of stock were"otherwise given" to them.

Defendants, in response, maintain that intestacy is not an act of givingand, therefore, that Richard did not give the stock to plaintiffs in any senseof the term. In support of this position, defendants cite two decisions fromour appellate court, Genung v. Hagemann, 103 Ill. App. 2d 409 (1968),and In re Estate of Anderson, 195 Ill. App. 3d 644 (1990).

At issue in Genung was an antenuptial agreement between EleanorGenung and Gilbert Genung. The agreement provided, in part, that"nothing herein shall be construed to be a bar to either party to thisagreement giving any property of which they may be possessed to theother party by will or otherwise." Gilbert died intestate. Eleanor thereafterfiled a declaratory judgment action in which she maintained that, becausethe antenuptial agreement stated that property could be given by will or"otherwise," she had a right to an intestate's share of her late husband'sestate. The defendants disputed this construction of the antenuptialagreement and maintained that to give property "by will or otherwise"meant that an affirmative act of either making a will or inter vivos gift wasrequired. The appellate court agreed, stating:

"The statement that either party may give property to the otheris followed by the statement that each shall 'control' theirpersonal estate and do with it 'whatsoever they wish and will,by his or her orders or directions, or by will ... .' (Emphasisadded.) We believe this indicates an intention that an affirmativeact of ordering, or directing, or making a will, is intended if theother is to take property over which he or she has by theagreement given up all rights. We do not construe the agreementto mean that a failure to act, such as intestacy, is the 'giving' orthe 'doing with the properties' specified in the agreement."Genung, 103 Ill. App. 2d at 417.

In Anderson, which involved the interpretation of a prenuptialagreement, the appellate court agreed with, and followed, the logic ofGenung. Anderson, 195 Ill. App. 3d at 651. In so doing, the court notedwith approval the Genung court's conclusion that "[i]ntestacy wasanalogous to a failure to act." Anderson, 195 Ill. App. 3d at 651.

We find the appellate court's holdings in Genung and Andersonpersuasive and applicable here. In this case, the phrase "otherwise given"appears in the amendment to the stock purchase agreement immediatelyafter the words "specifically bequeathed"-words which connote anaffirmative action taken on the part of the original shareholder. Further, asnoted previously, the phrase "otherwise given" is found in the body of anamendment that is largely concerned with creating a right on behalf of theoriginal stockholders to transfer stock by gift to direct descendants. In thiscontext, it is appropriate to give the words "otherwise given" their plainand ordinary meaning and to assume that the words refer to someaffirmative act of transfer, such as an inter vivos gift.

The appellate court below agreed that the phrase "otherwise given"unambiguously refers to "a conscious act of giving." The court reasoned,however, that if Richard Roth was aware of the laws of intestacy, and ifhe was aware that his widow would disclaim any interest in his stock, thenit could be said that he "gave" the 800 shares of stock to plaintiffs. Wedisagree. Intestacy, by definition, is not taking action with respect to thedistribution of one's estate. See, e.g., Genung, 103 Ill. App. 2d at 417.To hold, as the appellate court did, that intestacy could be "a consciousact of giving" is to adopt a contradiction. It is the equivalent of saying thatnot taking action is, in fact, acting. We reject that proposition. AccordGenung, 103 Ill. App. 2d at 417; Anderson, 195 Ill. App. 3d at 651.The 800 shares of Great Southwest stock at issue in this case were notgiven to plaintiffs by Richard Roth. Rather, the stock devolved to plaintiffsby operation of law, i.e., through intestate succession and Rebecca Roth'sdisclaimer.

Plaintiffs cite Brown v. Momar, 201 Ga. App. 542, 411 S.E.2d 718(1991), as persuasive authority for their contention that the 800 shares ofstock were "otherwise given" to them. That case is of no relevance heresince it involved the interpretation of a will rather than the question ofwhether intestacy could be considered an act of giving.

In the case at bar, the 800 shares of stock owned by Richard Rothat the time of his death were not "specifically bequeathed or otherwisegiven" to plaintiffs. Accordingly, the exception to the mandatory buy-sellprovision, as set forth in paragraph four of the amendment to the stockpurchase agreement, is inapplicable. The circuit court therefore properlygranted summary judgment in favor of defendants.

CONCLUSION

For the forgoing reasons, the judgment of the appellate court isreversed. The judgment of the circuit court granting defendants' motion forsummary judgment is affirmed.

Appellate court judgment reversed;

circuit court judgment affirmed.