Essential Accounting Systems, Inc. v. Dewberry
2013 Ark. App. 388
| Ark. Ct. App. | 2013Background
- In 2008–2009 Maria Lammers, Roger Harrod (accountants), and DeWayne Dewberry (software engineer) formed Essential Accounting Systems, Inc. (EAS) to develop and market accounting/server software (STAESYS).
- On January 23, 2009, the parties signed restated articles, a stock-purchase agreement allocating 2,000 shares each, and identical employment agreements that included an assignment of Dewberry’s preexisting STAESYS software to EAS; the employment agreements left the compensation line blank.
- Lammers and Harrod provided money, equipment, development support, office space, and marketing effort over several years; Dewberry continued developing and marketed the product with them.
- In June 2011 Dewberry removed software, hardware, and corporate materials, attempted to dissolve EAS, and claimed STAESYS was his personal property.
- EAS obtained a temporary injunction, sued for conversion, breach of contract, theft of trade secrets, and sought a permanent injunction to recover property; the trial court found the employment agreement unenforceable (lack of consideration/mutuality), held STAESYS belonged to Dewberry, granted his permanent injunction, and dismissed EAS’s breach-of-contract claim.
- On appeal the court considered whether the employment agreement was supported by consideration (mutual obligations) and whether the contract transferred ownership of STAESYS.
Issues
| Issue | Plaintiff's Argument (EAS) | Defendant's Argument (Dewberry) | Held |
|---|---|---|---|
| Was the employment agreement supported by consideration / mutual obligations? | Stock/share ownership and other corporate performance (equipment, funding, resources) constituted consideration; blanks on salary were intentional deferrals. | Agreement lacked definite compensation terms and stock-acquisition details, so no consideration or enforceable contract existed. | Court held there was consideration: the right to acquire/receive 2,000 shares constituted consideration; mutuality issue is nonfatal where performance was exchanged. |
| Did EAS obtain ownership of STAESYS under the agreement? | Assignment clause transferred Dewberry’s rights in STAESYS to EAS in exchange for the employment agreement and stock. | No effective transfer because the agreement was unenforceable for lack of consideration and mutual obligations. | Court reversed trial finding; contract enforceable and assignment supported by consideration (stock issuance), so ownership issue is remanded for proceedings consistent with that finding. |
| Should EAS have received a permanent injunction to recover corporate property? | EAS sought injunctive relief to recover the software/hardware it claimed was corporate property. | Dewberry sought and obtained permanent injunction from trial court based on its holding that STAESYS remained his property. | Appellate court reversed the grant of Dewberry’s permanent injunction, reversed denial of EAS’s permanent injunction, and remanded for further proceedings. |
Key Cases Cited
- Kearney v. Shelter Ins. Co., 29 S.W.3d 747 (Ark. Ct. App. 2000) (elements of contract and consideration explained)
- Jordan v. Diamond Equip. & Supply Co., 207 S.W.3d 525 (Ark. 2005) (promise in exchange for performance removes mutuality-of-obligation problem)
- Odom Antennas, Inc. v. Stevens, 966 S.W.2d 279 (Ark. Ct. App. 1998) (mutuality of contract requires real liability on each party)
- Housley v. Hensley, 265 S.W.3d 136 (Ark. Ct. App. 2007) (standard of review for bench trials)