Appeals from the United States District Court for the Northern District of Illinois, Western Division. No. 05 C 50094-Philip G. Reinhard, Judge. Appeals from the United States District Court for the Northern District of Illinois, Western Division. No. 05 C 2585-Philip G. Reinhard, Judge.
The opinion of the court was delivered by: Sykes, Circuit Judge.
Before KANNE, WILLIAMS, and SYKES, Circuit Judges.
Kenneth Nelson and Richard Curia dispute the terms of a stock purchase agreement the two entered into in 1989 and then modified several times over the next decade. In the 1989 agreement, Nelson sold Curia a small number of shares in two automobile dealerships; the contract also gave Curia a series of options to purchase all remaining shares pursuant to a defined valuation formula. A 1993 modification of the agreement contains language suggesting that the parties terminated Curia's options and specified instead that his right to purchase additional shares was left to future agreement of the parties. Other language in this and subsequent modifications, however, also suggests that Curia's option to purchase additional shares in one of the dealerships may have survived the 1993 modification. The district court granted summary judgment in Curia's favor after concluding that the contract and its modifications, read together, unambiguously gave Curia the option to purchase the remaining shares in one of the dealerships.
We reverse. The contract as modified is reasonably susceptible to both parties' interpretation and is therefore ambiguous regarding the survival of the options. Accordingly, extrinsic evidence is required to clarify what the parties meant, and summary judgment compelling the sale of shares was inappropriate.
In 1989 Kenneth Nelson and Richard Curia entered into a stock purchase agreement providing that Nelson would sell Curia a minority block of shares in two automobile dealerships, Ken Nelson Pontiac-GMC, Inc. (known as "Auto Plaza"), and Ken Nelson Nissan, Inc. (known as "Auto Mall"). Prior to the agreement, Nelson owned all 8,180 shares of outstanding capital stock in Auto Plaza and all 1,200 shares in Auto Mall. Paragraph 1 of the agreement provided that Curia was to pay Nelson $100,000 in exchange for 1,000 shares of Auto Plaza and 144 shares of Auto Mall. Paragraph 4 of the agreement, titled "Options to Purchase Additional Shares," gave Curia three options to purchase additional stock in the two corporations. The first option gave Curia the right to purchase an additional 1,000 shares of Auto Plaza and 144 shares of Auto Mall for $100,000. The second allowed Curia to purchase a 49% stake in both corporations by acquiring 2,009 shares of Auto Plaza and 300 shares of Auto Mall. The final option gave Curia the right to acquire all remaining shares in the two corporations provided he "also offer[ed] to purchase the land and four buildings of [Auto Plaza]." Rather than specify a price, Paragraph 4 of the 1989 agreement set forth a valuation formula for the latter two options.
Some time passed before Curia could complete the initial transaction, apparently because he encountered some difficulty borrowing the funds necessary to make the initial $100,000 purchase and to exercise the first $100,000 option. After some delay he secured a $200,000 loan, and in 1990 he purchased the shares specified in the initial transaction and exercised the first of the options. By this time, however, the number of shares in the two corporations had changed-Auto Plaza now had 10,000 outstanding shares and Auto Mall now had 1,500. Nelson transferred 2,000 shares in Auto Plaza and 300 shares in Auto Mall to Curia.
In 1993 the parties decided to modify their original agreement. The reason for the modification is not entirely clear, although it appears to relate to the change in the number of shares in the corporations. The preamble to the 1993 modification offers some additional explanation. The recitals in the modification agreement state that Nelson and Curia had made a "mutual mistake . . . in determining the fair market value of the capital stock [of Auto Plaza and Auto Mall] and in evaluating the minority interest" the parties had intended. Accordingly, the parties stated their intention to "modify the [1989 agreement] to reflect the re-evaluation of the minority interest . . . and to correct the mutual mistake of the parties." The recitals also lay out the revised per-share price that should have applied in 1989 to achieve the intended minority interest. Exhibit A to the modification shows that the parties calculated the intended price by applying a revised valuation formula and then discounting the share price by 30%.
The 1993 modification also included the following language in Paragraph 5, titled "Purchase of Additional Shares":
Curia shall have the right to purchase additional shares of stock in said corporations upon those terms and conditions subsequently agreed upon by the parties hereto. The purchase price for said additional shares of stock shall be determined by adding to the total net worth of each corporation a figure representing the accumulated LIFO (last in first out) reserve and dividing the total sum thereof by the number of shares of each corporation.
(Emphasis added.) The parties dispute the effect of Para-graph 5-particularly its first sentence-on the options contained in the 1989 agreement. Nelson believes the first sentence rendered the remaining options in the 1989 agreement inoperative. Curia argues that whatever that sentence means precisely, the modification agreement read as a whole makes it clear that the parties intended to maintain his option to purchase all remaining shares. The second sentence of Paragraph 5 sets forth a valuation formula for any of the "said additional shares." That formula differs from the one applicable to the options provided for in the 1989 agreement and matches the formula used in the 1993 modification to calculate the book value of shares in the two companies as of 1989. Curia maintains that the presence of this modified valuation formula means that his option to purchase all remaining shares survived the 1993 modification.
Nelson and Curia entered into two subsequent modification agreements, one in 1997 and one in 2000. The district court held, and the parties now agree, that the 1997 agreement-which involved a third party's purchase of stock-effectively terminated any remaining right that Curia might have possessed to purchase any additional shares in Auto Mall. The 2000 modification, entitled "Amendment to Modification Agreements," was the last of the parties' modification agreements. One evident purpose for this final modification was to memorialize the parties' intent with respect to share transfers in the event that either party died. According to this last modification, Curia would "immediately purchase" from Nelson 400 shares of stock in Auto Plaza in the event that Nelson died while the 1989 agreement and the 1993 modification were still "in force." The parties also modified the valuation formula that would apply should the parties need to calculate "[t]he purchase price of the 400 shares of stock and the remaining 7600 shares of stock." This valuation formula differed from both the one stated in the 1993 modification and the one stated in the 1989 agreement. This modification further explained that in the event that Curia died first, Nelson would repurchase Curia's stock according to the new formula. Finally, the modification stated that if Nelson died first, Curia agreed to provide compensation to Nelson's relatives and estate "until such time as Curia purchases all of the remaining shares of Nelson's stock."
In 2004 the parties began discussing Curia's buyout of Nelson's interest in the corporations. Apparently these discussions stalled, and in March 2005 Curia notified Nelson that he was exercising the second option under the 1989 agreement to acquire the shares necessary to give him control over 49% of the outstanding capital stock in the corporations. Curia included in this letter his own calculation as to the number of shares he was purchasing. He also noted that he was exercising his option "pursuant to Section 4 of the [1989 agreement] . . . for the consideration and upon the terms set forth in the [1989 SPA] and the [1993 modification]." A day ...