Niu v. Pangram Corp. v. Kaisheng Fan, Jia Mi, Dong Li v. Hongjun Yuan

The parties were shareholders in the Pangram corporation formed for the purpose of selling auto parts. They executed a Shareholder Agreement on March 21, 2001, which contained a provision stating that the agreement would terminate if all the shares were held by one shareholder. The relationships between the parties subsequently deteriorated when they could not agree over the management of the business. In November of 2001, the parties held a shareholder meeting wherein the plaintiffs relinquished their shares to defendant Yuan leaving him the remaining sole shareholder and president of the company. Each of the four relinquishing shareholders signed a separate “First Amendment to the Shareholder Agreement” entitling them to a return of the value of their shares in the company. At some point thereafter, Yuan determined that he made a poor bargain and refused to honor the signed agreements.

Plaintiffs filed suit in the Law Division, Special Civil Part for the value of their stock. Defendant filed a counterclaim arguing that the plaintiffs violated the original agreement by failing to return office equipment and failing to submit the matter to arbitration. The trial court found that the amended agreements were valid contracts agreed to by all the parties. It also found that contrary to their title, the “Amended Agreements” were not intended as amendments to the original agreement, but rather constituted agreements to terminate the original agreement by placing all the shares in the hands of a sole shareholder. Since the original agreement terminated, the trial court found that an arbitration provision in the original agreement was inapplicable. The trial court dismissed Yuan’s counterclaim finding that there was no evidence the plaintiffs failed to return corporate property.

The Appellate Division substantially affirmed the findings of the trial court holding that the primary purpose of the Amended Agreement was to terminate the original Agreement rather than to amend it. The Appellate Division found, however, that in one aspect the Amended Agreement did amend the original contract. The stated purchase price for shares was slightly higher in the Amended Agreement and it held that this anticipated the possibility that the shareholders might voluntarily sell their shares back to the corporation and set a purchase price. Finally, the Appellate Division held that the Agreement terminated when Yuan became the sole shareholder of the corporation and the arbitration provision in the original Agreement did not apply.