Appellees W. S. Stuckey, Jr., Lynda Stuckey Franklin (the “Stuckeys”) and Citizens Corporation (“Citizens”) sued appellant Hal M. Smith, Jr., for specific performance of a stock option agreement, or in the alternative for a declaratory judgment. A jury granted the Stuckeys and Citizens specific performance under the agreement and awarded them attorney fees in the amount of $14,687.75. Smith appeals from the denial of his motions for directed verdict on the ground that the stock option agreement was void under the rule against perpetuities. He also appeals the trial court’s denial of his motion for directed verdict on the issue of attorney fees.
In 1984, Stuckey Timberlands, Inc. began soliciting options to purchase shares of Citizens Bank & Trust Company (the “Bank”) at a price of $1,700 per share. Smith gave Stuckey Timberlands an option to purchase 92 of his 292 Bank shares. After Stuckey Timberlands acquired enough options to purchase 90 percent of the 2,000 out *104 standing shares of the Bank, it assigned the options to Citizens. The Stuckey family are the shareholders of Citizens, a holding company formed for the purpose of acquiring the Bank.
Before Citizens’ acquisition of the Bank could be completed, the holders of 38 shares of the Bank’s stock who had previously indicated that they would be willing to sell their shares elected to retain them. Smith agreed to sell an additional 38 of his shares so Citizens could acquire a total of 1,800, or 90 percent, of the outstanding shares. This left Smith with a total of 162 shares.
In connection with these transactions the Stuckeys and Smith negotiated an agreement regarding the disposition of Smith’s remaining Bank shares. Smith was concerned that the price he received upon the sale of his shares might be discounted due to his minority status. The Stuckeys for their part eventually hoped to acquire control through Citizens of all the Bank stock.
Under the parties’ agreement, Smith was granted the option after January 29, 1988, to compel the Stuckeys to purchase, through Citizens, Smith’s remaining Bank stock. The agreement also gave Citizens the option to purchase Smith’s stock at any time after January 29, 1995. The agreement contained no time limitation for exercising the options, but did specify a formula for determining the purchase price on the exercise of either option.
Smith never exercised his option under the agreement, but Citizens notified Smith by letter dated February 7, 1995, that it intended to exercise its option to purchase Smith’s shares. The parties disagreed, however, over the price to be paid for the stock. After the parties were unable to resolve their differences, Citizens attempted a tender under the agreement. Smith refused the tender, contending that it did not reflect the proper purchase price under the option agreement.
The Stuckeys and Citizens sued Smith for specific performance under the option agreement, or in the alternative, asked the court for a declaratory judgment of the parties’ rights. After discovery, each side moved for summary judgment, but the trial court denied both motions. In denying Smith’s motion, the trial court rejected his argument that the rule against perpetuities (the “Rule”) barred enforcement of the option agreement.
At trial Smith made two motions for directed verdict at the close of the evidence presented by the Stuckeys and Citizens, and later renewed the motions at the close of all the evidence. In one motion Smith reasserted his prior argument that the agreement was void under the Rule. In his other motion Smith argued that there was no evidence to support an award of attorney fees. The court denied these motions.
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1. The first issue to be addressed is whether the Rule
1
applies to the parties’ stock option agreement. The law in Georgia is unclear as to whether the Rule is applicable to property other than interests in real estate. In one 80-year-old case, the Supreme Court of Georgia found a trust deed conveying stock to be invalid under the Rule.
Shewmake v. Robinson,
But in later cases, the Supreme Court has declined to apply the Rule to property or rights that do not represent an interest in real estate. See
Southern Airways Co. v. DeKalb County,
While the Supreme Court’s later decisions raise strong doubt as to whether the Rule should be extended to personal property, we are bound under
Shewmake
to assume that the Rule would apply to the parties’ stock option agreement. See also
Bagwell v. Henson,
2. Even assuming the Rule applies, however, we hold that “there was no attempt here to affirmatively create a perpetual right to exercise the option . . .; but there was only the absence of a time limitation . . . [and in such circumstances Georgia courts have] held that
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the optionee had a reasonable time in which to exercise the option.”
Brown v. McInvale,
In
Brown,
this Court considered whether the Rule barred enforcement of a stock option agreement that contained no time limitation for the exercise of the option. We held that the
Brown
agreement, which provided that the option could be exercised upon the expiration of 24 months, “must be exercised immediately upon the expiration of the twenty-four months or within a reasonable time thereafter.”
Brown v. McInvale,
Smith argues that this case is distinguishable from
Brown
because the parties’ option agreement provides that it is binding upon the Stuckeys and their heirs “so long as [they] own or [their] heirs own any shares of stock of Citizens Corporation” and also that it is binding upon Smith and his heirs. We do not read this language as establishing a time period for the exercise of the options or as intending to create a perpetuity. Rather, this language simply provides that should one of the parties die during the reasonable period allowed under the agreement, the options are enforceable against that party’s heirs. Accordingly, this case may be distinguished from those cases cited by Smith in which the parties’ agreement evidenced an intent to create a perpetuity. See, e.g.,
Thomas v. Murrow,
“Having construed the [stock option agreement] as requiring performance within a reasonable time, we take an additional step and find that twenty-one years would be unreasonable and that the contract therefore does not create a perpetuity” in violation of the Rule.
Read v. GHDC, Inc.,
3. However, we reverse the trial court’s denial of Smith’s motion with regard to attorney fees. A review of the record shows the existence of a bona fide controversy 3 as to the issue of the purchase price to be paid under the agreement. The agreement defined the purchase price to include a calculation of “the product of 200 times 1.18 multiplied by the book value of each share of stock in Citizens Bank & Trust Company as shown on its most recent call report filed with the Federal Reserve Bank of Atlanta (or its successor).” The parties’ dispute centered around what was meant by the term “book value.” Smith contended that the term should be interpreted under FDIC requirements in existence at the time the agreement was signed in 1985, while the Stuckeys and Citizens contended that the term should be interpreted under current FDIC requirements, which included a 1994 change affecting the calculation of book value.
“ ‘The existence of such a bona fide controversy would preclude a recovery of OCGA § 13-6-11 attorney’s fees on the theory that [Smith] had been stubbornly litigious or caused [the Stuckeys and Citizens] unnecessary expense, notwithstanding that the jury ultimately resolved the controversy in favor of [the Stuckeys and Citizens]. [Cits.]”’
Pulte Home Corp. v. Woodland Nursery &c.,
Nor does the record contain any evidence of bad faith to support the award of attorney fees. “ ‘[I]t is well settled that the “bad faith” contemplated by (OCGA § 13-6-11) is bad faith “connected with the transaction and dealings out of which the cause of action arose,” rather than bad faith in defending or resisting the claim after the cause of action has already arisen. [Cits.]’ ”
Brown v. Baker,
Judgment affirmed in part and reversed in part.
Notes
Although Georgia adopted the Uniform Statutory Rule Against Perpetuities in 1990, OCGA § 44-6-200 et seq., this case arises under an earlier version of the Rule because it involves an interest created prior to May 1, 1990. OCGA § 44-6-205 (1).
The earlier statute, which was repealed when the uniform rule was adopted, provided, “Limitations of estates may extend through any number of lives in being at the time when the limitations commence, and 21 years, and the usual period of gestation added thereafter. The law terms a limitation beyond that period a perpetuity and forbids its creation. When an attempt is made to create a perpetuity, the law will give effect to the limitations which are not too remote and will declare the other limitations void, thereby vesting the fee in the last taker under the legal limitations.” OCGA § 44-6-1 (a), repealed by Ga. L. 1990, p. 1837, § 1, effective May 1, 1990.
In this instance, Citizens notified Smith by letter dated nine days after the option first became exercisable under the parties’ agreement and ten years after the parties signed the agreement. It appears, therefore, that Citizens’ attempt to exercise its option was within the
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reasonable time allowed by the parties’ agreement. See
Shiver v. Benton,
Smith also correctly argues that a bona fide controversy exists as to whether the stock option agreement was void under the rule against perpetuities. As that issue was decided by the court prior to trial, the jury was unaware of this controversy when it made its findings.