Villar v. Kernan
Supreme Court of Maine
695 A.2d 1221 (1997)
In 1988, Frederick Villar (plaintiff) and Peter Kernan (defendant) started Ricetta’s, Inc. (Ricetta’s), a pizza business. Villar owned 49 percent and Kernan owned 51 percent of the business. According to Kernan, Villar and Kernan agreed orally that they would only receive distributions and not salaries. Later, Ronald Stephan, the manager of Ricetta’s, acquired 1 percent of Ricetta’s from Villar and 1 percent from Kernan. In 1994, Kernan entered into a consulting agreement with Ricetta’s that paid Kernan $2,000 weekly. The agreement was approved by Kernan and Stephan at a shareholder’s meeting that Villar did not attend. Under the agreement, Kernan received $90,000 in consulting fees in 1994 and $24,000 in 1995. Villar filed suit against Kernan in federal district court, alleging breach of oral contract. The district court found that there was an oral agreement between Villar and Kernan prohibiting Kernan from receiving a salary from Ricetta’s. The district court found that unless the relevant state statute precluded the enforcement of an oral shareholder agreement, the agreement was enforceable in equity despite the statute of frauds. However, the district court could not find controlling precedent on the issue and certified to the Supreme Court of Maine the question of whether state law precluded a claim for breach of an oral contract between corporate shareholders regarding salary.
Rule of Law
Holding and Reasoning (Dana, J.)
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