BILL H. WALMSLEY, Judge.
Appellant Essential Accounting Systems, Inc. (EAS), appeals from the trial court's order granting a permanent injunction to appellee DeWayne Dewberry upon finding that the parties' contract transferring Dewberry's property to the corporation was unenforceable. On appeal, EAS argues that the parties had a valid contract, that the property at issue belonged to EAS, and that EAS should have been granted a permanent injunction. We reverse and remand.
In 2008, Maria Lammers and Roger Harrod, both accountants, decided to form a corporation with Dewberry, a software engineer. The purpose of the collaboration initially was to develop accounting and billing software for use in Lammers's and Harrod's accounting practices. The goal eventually evolved into creating a "server solution," which they could market and sell. Articles of incorporation for EAS were first signed on December 15, 2008. On January 23, 2009, restated articles of incorporation were signed along with a stock purchase agreement. "Schedule A" of the stock purchase agreement provided that Lammers, Harrod, and Dewberry each owned 2000 shares of stock. On this date, all three also signed an employment agreement with an incorporated "trade secrets, confidential information, and non-competition agreement." The blank for the amount of compensation remained unfilled on all three employment agreements.
STAESYS was software developed by Dewberry in 1998 that they decided to use in the corporation. It was transferred to the corporation in paragraph four of Dewberry's employment agreement, which provides as follows:
Lammers said that for two and a half years, the corporation further developed STAESYS and added other technologies to it. Lammers said that she and Harrod contributed to the development of STAESYS through buying equipment and software, paying for travel and other expenses, developing a business plan, researching grants, marketing the product, and integrating accounting knowledge and procedures into the computer systems. Lammers also allowed Dewberry to work out of a private suite in her office. Lammers prepared a document titled "Preliminary List of Capitalization Costs," which listed corporation expenses she and Harrod had paid for through May 1, 2011. She said that she would not have made these purchases, including equipment requested by Dewberry, if STAESYS was not the property of EAS. When the product was ready to be marketed, Dewberry prepared brochures and videos, and they together made presentations to multiple organizations. The brochure Dewberry made states that STAESYS had been "transferred to the Essential Accounting Systems, Inc. at its inception."
In June 2011, Dewberry went to the office at night and removed software, hard drives, manuals, and schematics. He also removed the contents of the corporation's safe-deposit box, closed the corporation's bank account, and filed articles to dissolve EAS with no notice to Lammers and Harrod. Upon discovering this, Lammers and Harrod had the dissolution revoked.
Dewberry testified that the items he took were his personal property. He testified that he always believed that he owned STAESYS because an agreement was never reached for his salary and how they were going to do business under the contract. He said that he kept working because Lammers and Harrod made him think they would be getting income from
On June 20, 2011, EAS filed suit against Dewberry alleging that he had absconded with corporate property. EAS sought a preliminary injunction ordering Dewberry to immediately return all of the property and preventing him from selling, copying, or altering the computer-related applications, software, and hardware. EAS also pled claims of civil conspiracy, theft of trade secrets, breach of fiduciary duty, conversion, and breach of contract. Dewberry filed an answer and counterclaimed for breach of contract, theft of trade secrets, and conversion. The trial court granted EAS's motion for a temporary injunction and ordered the surrender of specified property to the custody of the court.
Prior to the final hearing, an agreed order was entered severing the claims for injunctive relief from the other causes of action. The issues of ownership of the property and injunctive relief would be decided first in a separate trial. The final hearing was held on May 3, 2012.
The trial court issued a letter opinion and order finding that the employment agreement was unenforceable due to "the total lack of consideration and mutuality." The court found that the employment agreements imposed no real obligations upon EAS, Lammers, or Harrod. The court found that the only consideration provided to Dewberry was a one-third share of any profits, which he obtained through his stock ownership, not through the employment agreement. The court stated that Dewberry had effectively given away two-thirds ownership of his software and received nothing in return. Thus, the court concluded that the STAESYS software and other property belonged to Dewberry and granted his request for a permanent injunction. The trial court denied EAS's request for a permanent injunction and dismissed its breach of contract claim.
EAS subsequently filed a motion for new trial or reconsideration on August 2, 2012. It was deemed denied after thirty days. On September 24, 2012, the trial court entered a corrected order with an expanded Rule 54(b) certificate. EAS filed a timely notice of appeal.
The standard of review for bench trials is whether the circuit court's findings were clearly erroneous or clearly against the preponderance of the evidence. Housley v. Hensley, 100 Ark.App. 118, 265 S.W.3d 136 (2007). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been made. Id. Further, when there is testimony in conflict on the issue of whether the parties agreed to the terms of a contract, a factual question arises that is to be determined by the trial court. Bowen v. Gardner, 2013 Ark.App. 52, 425 S.W.3d 875. However, a trial court's conclusion on a question of law is reviewed de novo and is given no deference on appeal. Id.
In order for a contract to exist, there must be: (a) competent parties, (b) subject matter, (c) legal consideration, (d) mutual agreement, and (e) mutual obligations. Kearney v. Shelter Ins. Co., 71 Ark.App. 302, 29 S.W.3d 747 (2000). Consideration is any benefit conferred or agreed to be conferred upon the promisor to which he is not lawfully entitled, or any prejudice suffered or agreed to be suffered
EAS argues that the consideration for Dewberry's agreement was his ownership interest in the corporation, which the corporation was obligated to provide and did so provide. EAS argues that the shareholders willingly deferred salary until the venture became profitable. Thus, EAS claims that the blank compensation line in the employment agreements does not evidence lack of consideration because the parties did not intend to receive a salary at that time. EAS contends that through its shareholders and officers it also supplied equipment, the costs of development, accounting knowledge, marketing research, and other forms of consideration. EAS argues that Dewberry needed the resources of EAS to complete the software.
Dewberry argues that under the terms of the employment agreement, he was entitled to compensation and the right to acquire stock. He claims that because the agreement did not provide the amount or timing of compensation or any terms related to any right to acquire certain stock, including the amount, price, or timing, there was no consideration in the contract. Dewberry argues that the employment agreement did not rise to the level of a contract, but instead served as evidence of the parties' intent to work together and come to a formal agreement in the future.
The concept of "mutual obligations" has been explained by our supreme court as follows:
Odom Antennas, Inc. v. Stevens, 61 Ark.App. 182, 186-87, 966 S.W.2d 279, 281 (1998) (citing Townsend v. Standard Indus., Inc., 235 Ark. 951, 954, 363 S.W.2d 535, 537 (1962)). Our supreme court has also said that mutuality of obligation becomes a nonissue when consideration has otherwise been conferred upon one of the parties. Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (2005). A promise in exchange for performance does not require mutuality of obligation. Id.
EAS argues that there is no lack of mutuality because it performed under the contract by providing Dewberry with one-third ownership in the corporation. EAS contends that Dewberry accepted the benefits of the contractual relationship and performed under the contract for years without raising any claim to the properly at issue. Dewberry argues that EAS did not have any obligations to him under the employment agreement.
We conclude that Dewberry's 2000 shares of stock supplied the necessary consideration to form a valid contract. The employment agreement provides for the
We hold that the trial court's finding that the contract was unenforceable is clearly erroneous. Because we reverse and remand on this ground, it is not necessary to address EAS's alternative argument that it should prevail on a detrimental-reliance claim. We reverse the grant of Dewberry's request for a permanent injunction, reverse the denial of EAS's request for a permanent injunction, and reverse the dismissal of EAS's breach of contract claim. We remand for further proceedings consistent with this opinion.
Reversed and remanded.
WHITEAKER and WOOD, JJ., agree.