American Scale Corporation, a closely held Kentucky corporation with its principal place of business in
Louisville, Kentucky, was incorporated in February 1985 to engage in the sale and
repair of industrial and commercial scales. Daniel Coyle was president and Steven
Schwartz was vice president. They were the sole shareholders. At the time of
incorporation, Coyle and Schwartz each received 200 shares of stock in exchange for
their capital contributions of $10,000.
In early March 1986, Schwartz had an automobile accident in which his passenger was seriously injured.
Schwartz’s passenger filed suit against American Scale because it had provided
insurance coverage on Schwartz’s vehicle. Coyle became concerned that Schwartz’s
activities would expose American Scale to further liability. He was particularly
displeased with Schwartz’s actions in transporting an underage female, who was
purportedly Schwartz’s girlfriend, in a vehicle insured by American Scale.
As a result, Coyle informed Schwartz that he no longer desired to be in a 50–50 shareholder relationship with
him. Coyle told Schwartz that unless Schwartz agreed to transfer 1 percent of his
shares to Coyle, thereby permitting Coyle to assume majority control of American
Scale, Coyle would either seek dissolution of American Scale or withdraw and begin
operating a business in competition with American Scale. On March 21, 1986, Coyle
and Schwartz executed a share-transfer agreement wherein Schwartz transferred 1
percent of his American Scale shares to Coyle. The agreement specifically stated that
Coyle would thereafter own a 51 percent interest in American Scale, leaving Schwartz
as owner of the remaining 49 percent of American Scale’s shares.
About two years later, on August 25, 1988, Coyle and Schwartz made a buy–sell agreement that they titled
“Stockholders’ Cross-Purchase Agreement.” The agreement provided for the
repurchase of a shareholder’s stock in the event of death, disability, or voluntary
withdrawal of that shareholder. Specifically, the agreement stated that if Coyle or
Schwartz died, or otherwise attempted to dispose of his shares, the other shareholder
would have the right to purchase those shares. In addition, the agreement gave the
majority shareholder an option to purchase all of the minority shareholder’s stock at
any time upon a 60-day written notice.
The agreement provided a stock-valuation method for determining a per share price in the event either of the
provisions was triggered:
Unless altered as herein provided, for the purpose of determining the purchase price to be paid for the stock of a Stockholder,
the fair market value of each share of stock shall be, as of August 25, 1988, $250.
The Stockholders shall redetermine the value of the stock within 60 days following the end of each fiscal year. If the
Stockholders fail to make the required annual redetermination of value for a particular
year, the last previously recorded value shall control.
Over the course of the next 12 years, neither Coyle nor Schwartz attempted to revaluate the price of American
Scale’s shares as provided in the agreement. Hence, the initial buyout price of $250
per share was never changed.
In a letter dated November 20, 2000, Coyle informed Schwartz that he was exercising his option as majority
shareholder to purchase Schwartz’s stock for $250 per share. Schwartz refused to
tender his shares to Coyle and filed suit against Coyle seeking to invalidate the buyout
agreement. Schwartz argued that the shareholders had abandoned the agreement by
not changing the buyout price for 12 years. Schwartz also argued that the buyout price
was so low as to constitute a penalty. In response to Coyle’s motion for summary
judgment, the trial court ruled that the shareholders had not abandoned the
agreement. However, the court agreed with Schwartz that forcing him to sell all of his
stock at the price of $250 per share was a penalty and, therefore, unenforceable. The
trial court ordered a current valuation of the stock be undertaken before Schwartz
could be compelled to transfer his shares. Coyle appealed to the Kentucky Court of
In his appeal, Coyle argues that the trial court erred by finding that the stock-valuation provision was
unenforceable as a penalty.
While Coyle and Schwartz never revaluated the stock, this fact alone does not render the provision
unenforceable. Schwartz, as owner of 49% of American Scale’s outstanding shares, had the
right under the corporation’s bylaws to call for a special meeting to revaluate the listed price
of American Scale’s shares. Schwartz has admitted in his deposition testimony that he never
made such a request. Hence, by sitting on his rights for over 12 years, Schwartz took the risk
that Coyle would exercise the majority-purchase option at a time when the actual value of
American Scale’s shares was in excess of the $250 price originally listed in the
stock-valuation provision. Schwartz is not entitled to have the courts rewrite the parties’
agreement simply because he believes he is receiving the short end of the bargain.
Accordingly, we reverse the trial court’s finding that the stock-valuation provision listing a
price of $250 per share was unenforceable.
The terms of the stock-valuation provision listed an original price of $250 per share. The provision
further stated that the fair market value shall be $250 “unless altered as herein provided”
via the “mutual agreement” revaluation method. Since the parties failed to revaluate the
price of American Scale’s shares, $250 is the “last recorded value” with respect to the price
of the corporation’s shares. Therefore, the majority-purchase option and the
stock-valuation provision entitle Coyle to purchase all of Schwartz’s stock at a price of $250
Finally, we address Schwartz’s claim that the trial court erred by finding that Schwartz and Coyle did
not abandon the stock-valuation provision of the cross-purchase agreement. Specifically,
Schwartz argues that by completely ignoring the cross-purchase agreement’s requirement
that both shareholders “shall re-determine the value of the stock within 60 days following
the end of each fiscal year” and record the same, as well as their intention to revalue their
shares in American Scale, Schwartz and Coyle unequivocally acted in a manner inconsistent
with the existence of the cross-purchase agreement.
We disagree and hold that the trial court did not err by finding that Coyle and Schwartz did not
abandon their rights under the stock-valuation provision. “A contract may be rescinded or
discharged by acts or conduct of the parties inconsistent with the continued existence of the
contract, and mutual assent to abandon a contract may be inferred from the attendant
circumstances and conduct of the parties. . . . While as a general rule a contract will be
treated as abandoned or rescinded where the acts and conduct of one party inconsistent
with its existence are acquiesced in by the other party, to be sufficient the acts and conduct
must be positive and unequivocal.”
In the instant case, while Coyle and Schwartz never revaluated American Scale’s stock in the years
following the execution of the cross-purchase agreement, this fact, standing alone, does not
constitute “positive and unequivocal” acts which could lead to a finding of abandonment.
The stock-valuation provision itself provided a default price for the stock in the event the
parties failed to revaluate the shares. Therefore, Coyle and Schwartz contemplated that they
might not always conduct a revaluation. Accordingly, the failure of Coyle and Schwartz to
conduct an annual revaluation of American Scale’s shares did not constitute an
abandonment of the stock-valuation provision.
Judgment reversed in favor of Coyle.
Krupinski v. Deyesso 2016 WL 1252726 (R.I. Super. Ct. 2016)
In February 1995, Ronald Krupinski met with Frank Viola and William Deyesso to discuss investing in an adult entertainment club,
to be named “Centerfolds,” in Providence, Rhode Island. At the meeting, Krupinski claims it was agreed
that he was to receive a 33 percent ownership interest in Centerfolds, and when the club opened, he
would work as a manager and earn a salary of $52,000 annually plus bonuses.
In May 1995, Viola purchased Scharnhorst as the operating entity for Centerfolds. Viola, Deyesso, and others became officers and
shareholders of Scharnhorst in December 1995 through appropriate corporate action.
Following the purchase, Krupinski began preparing the club for its opening, which officially occurred in February 1996. Due to an
issue with the adult entertainment license, the club was forced to close shortly after opening. As a result of Centerfold’s temporary
forced closure, Krupinski agreed to reduce his ownership interest in the club to 25 percent.
Krupinski again served as a manager of the club when it reopened in August 1996. Krupinski served in that capacity until July 1997,
when he claims he was terminated without cause and without justification. Krupinski did not have a
written employment agreement during his tenure as manager.
Deyesso claims Krupinski was terminated due to his participation in a purported credit-card scam through the altering of customer
receipts, improper conduct with the club’s employees, and excessive drinking.
The site where Providence Centerfolds operated was taken by eminent domain in 2001. Once Centerfolds closed and Deyesso failed
to timely locate a new building, Deyesso proceeded to open other clubs in Massachusetts under the name
Centerfolds, using some of the tangible property from the Providence club. Krupinski alleges that
Deyesso breached the original agreement with him by excluding him from participating in those new,
On October 7, 2005, Scharnhorst’s corporate charter was revoked by the Rhode Island Secretary of State due to its failure to file its
Annual Report for the year 2005. Krupinski’s original complaint was filed on July 10, 2007, and the
current, operative complaint was filed on February 8, 2012. On April 12, 2012, the court issued a decision
dismissing Counts II through VIII of the complaint. Accordingly, the only remaining cause of action in
this matter—which is now the subject of defendant’s summary judgment motion—is Count I, setting forth
a claim for breach of contract brought individually against Deyesso.
Deyesso argues that he was acting on behalf of Scharnhorst in his capacity as director when he terminated Krupinski’s
employment and is thus not personally liable. To that end, Deyesso maintains that Krupinski’s employment
agreement—as a claimed preincorporation contract—subsequently became the obligation of Scharnhorst
when the corporation was purchased. Scharnhorst, according to Deyesso, ratified the employment agreement
at the agreed upon salary of $52,000 per year. Krupinski, in response, contends that the oral agreement was
entered into with Deyesso personally. Moreover, Krupinski argues that any assumption of the agreement by
Scharnhorst does not automatically relieve Deyesso of any personal liability. Essentially, to prevail on
summary judgment, Deyesso must prove that he was excused from any and all liability when Scharnhorst
assumed the employment agreement.
“[A] preincorporation contract may be adopted, accepted, or ratified by a corporation when properly organized, resulting
in corporate liability on the contract.” Katz v. Prete, 459 A.2d 81, 86 (R.I. 1983). A corporation impliedly
adopts a preincorporation contract when it accepts the benefits of the contract and renders performance in
accordance therewith. Id. Adoption of a preincorporation contract results in corporate liability on the
There can be no dispute that an oral agreement was made between Deyesso, Viola, and Krupinski, and that, under the
terms of the agreement, Krupinski was to serve as a manager of the club. Additionally, there can be no
dispute that Krupinski received compensation from Scharnhorst for services provided in accordance with the
terms of the agreement. Thus, there can be no dispute that Scharnhorst accepted the benefits of the contract
and thereby adopted it. In support of his Motion for Summary Judgment, Deyesso now urges the Court to
find that he made the contract as Scharnhorst’s promoter, and that he was released from liability upon
The term “promoter” has been defined in case law as “every person acting, by whatever name, in the forming and
establishing of a company at any period prior to the company becoming fully incorporated.” Gerffert Co. v.
William J. Hirten Co., 815 F. Supp. 2d 521, 528 (D.R.I. 2011) (quoting Dickerman v. N. Trust Co., 176 U.S.
181, 203–04 (1900)). This definition is consistent with the principle that “a corporation should have a full
and complete organization and existence as an entity before it can enter into any kind of a contract.” Ireland
v. Globe Milling & Reduction Co., 20 R.I. 190, 38 A. 116, 117 (1897). Under Gerffert and Ireland, it may be
said that a promoter is an individual who makes a contract on behalf of an entity that lacks the capacity to
enter into the transaction. Because Deyesso did not make a contract on behalf of Scharnhorst prior to the
company becoming fully incorporated, under Gerffert and Ireland, he may not be considered a promoter.
However, according to the Supreme Court of Ohio, the legal principles governing the relationship between a corporation
and its promoters are not based upon the principles enunciated in Ireland, but are instead “derived from the
law of agency.” Ill. Controls, Inc. v. Langham, 70 Ohio St. 3d 512, 522 (1994). Because a corporation may not
have agents prior to becoming fully incorporated, see, e.g., Rees v. Mosaic Techs., Inc., 742 F.2d 765, 768 (3d
Cir. 1984), under Ill. Controls, a finding that a contract was made on behalf of an entity lacking legal capacity
to make contracts is not a condition precedent to a determination that the individual who made the contract
was acting as a corporate promoter.
For purposes of the instant dispute, this Court is not required to ascertain the nature of the rules governing Deyesso’s
claim. Instead, the Court finds that the motion for summary judgment may be resolved on the basis that
“whether a person is actually a promoter is a question of fact to be determined by the trier of fact.” McDaniel
v. Serv. Feed & Supply, Inc., 271 Md. 371, 376 (1974) (citing 1 Fletcher, Cyclopedia Corporations § 189); see
also [Indus. Nat’l Bank v. Peloso, 121 R.I. 305, 307 (1979)].
For the foregoing reasons, Deyesso’s Motion for Summary Judgment is denied with respect to the breach of contract
allegations stemming from Krupinski’s signing of the promissory note and his termination as manager
because resolution of such issues are [sic] factual in nature and improper for the Court to determine on
Defendant’s motion for summary judgment denied with respect to the breach of contract allegations.[Note: There have been no
further hearings regarding this case. At the end of the above opinion, the court concluded that “Counsel for
Defendant shall present an order consistent herewith which shall be settled after due notice to counsel for
How to Write a “Brief”
Use the following “IRAC” (Issue Rule Application Conclusion) format:
Issue: What question must be answered in order to reach a conclusion in the case? The Issue
must be expressed in the form of a legal question which, when answered, gives the result in the
case. Make it specific (e.g. “Has there been a false imprisonment if the plaintiff was asleep at
the time of ‘confinement’?”) rather than general (e.g. Did the defendant owe a duty of care to the
plaintiff when the plaintiff was trespassing on the defendant’s property?). Some cases present
more than one issue; if there is more than one issue, it is OK to write more than one, but be
sure to list the principal one and focus on that.
Rule: The Rule is the law that applies to the principal issue. It should be stated as a general
principal, (e.g. A duty of care is owed whenever the defendant should anticipate that her
conduct could create a risk of harm to the plaintiff.) not a conclusion to the case being briefed,
(e.g. “The plaintiff was negligent.”). Typically, the Rule can be expressed in one or two
Application: The Application is a discussion of how the Rule applies to the facts of the case.
Essentially, the Application section is a description of the relevant facts, the parties’ arguments
and positions in the case, and the court’s thought process by which it answered the Issue and
established the Rule. While the Issue and Rule are normally only one or two sentences each,
the Application section of a brief should be two to four paragraphs long. It should be a written
debate, not simply a statement of the Conclusion. Whenever possible, present both sides of any
issue. Do not begin with your Conclusion. The Application section shows how you can track the
court’s reasoning on paper and is the most difficult skill you will learn. It is also permissible to
put the relevant facts of the case in a separate section of the Brief.
Conclusion: What was the result of the case? Did the appellate or supreme court affirm,
reverse or reverse and remand the lower court’s decision?
The case gives you a background of the facts along with the judge’s reasoning and
conclusion. When you brief cases, you are summarizing the judge’s opinion. Briefs should not
have to exceed more than two pages in length.
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