## Facts

- Frederick Villar (49%) and Peter Kernan (51%) formed Ricetta’s, Inc. to operate a brick-oven pizza restaurant; Villar handled operations and Kernan handled finances.
- Kernan testified that the shareholders orally agreed they would not take salaries as owners and would receive only distributions.
- Ronald Stephan later acquired a 2% stake (1% from each shareholder) and managed the restaurant.
- After relations deteriorated, Kernan and Stephan approved a “consulting agreement” between Kernan and the corporation without Villar present.
- The consulting agreement paid Kernan $2,000 per week and limited the corporation’s ability to reduce compensation or terminate the arrangement except for specified serious misconduct.
- Kernan received $90,000 in 1994 and $24,000 in early 1995 under the consulting agreement.
- Villar sued Kernan in federal court for breach of the alleged oral no-salary agreement; the federal court certified state-law questions to the Maine Supreme Judicial Court.

## Issues

1. Whether Maine law, including 13-A M.R.S.A. § 618, precludes an action for breach of an oral agreement between shareholders of a closely held corporation prohibiting their receipt of salaries from the corporation.
2. If not precluded, what factors govern whether specific performance may remove such an oral contract from the statute of frauds for contracts not to be performed within one year.

## Decision

- The court answered the first certified question “yes”: Maine law, specifically 13-A M.R.S.A. § 618, precludes enforcement of an oral shareholder agreement governing compensation from the corporation.
- The court treated the alleged no-salary arrangement as a shareholder agreement relating to corporate affairs because it regulated how shareholders would take value from the corporation and could affect distributions.
- The court concluded § 618 validates shareholder agreements concerning corporate affairs only when in writing.
- The court rejected reliance on § 618(2) to validate a purely oral agreement, construing that subsection to preserve certain defective written agreements rather than eliminate the writing requirement.
- Because the first question was answered affirmatively, the court did not substantively reach the second question regarding specific performance and the statute of frauds.

## Legal Principles

- Under 13-A M.R.S.A. § 618, shareholder agreements relating to corporate affairs are enforceable only if memorialized in writing.
- Agreements among shareholders regulating shareholder compensation from the corporation constitute agreements relating to corporate affairs within the scope of § 618.
- A statutory writing requirement for shareholder agreements may bar equitable enforcement of an oral arrangement, making statute-of-frauds exceptions irrelevant where the corporate statute independently requires a writing.

## Conclusion

The court held that an oral agreement between shareholders of a closely held corporation barring shareholder salaries is unenforceable because Maine’s shareholder-agreement statute requires such agreements to be in writing, and it therefore declined to address statute-of-frauds and specific-performance considerations.


Villar v. Kernan, 695 A.2d 1221 (Me. 1997)