530 F.2d 91 (5th Cir. 1976), 74--3823, Funding Systems Leasing Corp. v. Pugh
|Citation:||530 F.2d 91|
|Party Name:||FUNDING SYSTEMS LEASING CORPORATION, Plaintiff-Appellee, v. Garland B. PUGH, Sr., Individually and d/b/a Georgia Tractor and Equipment Company, Defendant-Appellant.|
|Case Date:||April 19, 1976|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Fred H. Hodges, Jr., Macon, Ga., for defendant-appellant.
J. Timothy White, Atlanta, Ga., for plaintiff-appellee.
Appeal from the United States District Court for the Middle District of Georgia.
Before BROWN, Chief Judge, and THORNBERRY, Circuit Judge, and MILLER [*] Associate Judge.
THORNBERRY, Circuit Judge:
Plaintiff Funding Systems Leasing Corporation commenced this Georgia diversity action for deceit 1 against Garland
Pugh, individually and doing business as Georgia Tractor & Equipment Company, to recover damages arising out of the default of E. F. Anderson & Son, Inc., on a logging equipment lease. The district court, sitting without a jury, found for Funding Systems and assessed damages against Pugh. On appeal Pugh challenges (1) two crucial findings bye the district court, (2) the failure of the district court to apply Ga.Code Ann. § 105--303, and (3) the formula used to measure damages. For the following reasons, we affirm the judgment of the district court.
Appellant Pugh was a creditor of financially troubled E. F. Anderson & Son, which operated a pulpwood and timber business in Barnesville, Georgia. To help E. F. Anderson & Son in obtaining needed working capital, Pugh assigned a promissory note, signed by E. F. Anderson and his son and payable to Georgia Tractor & Equipment Company, to a Georgia bank. In return, Pugh acquired proxy control of all the outstanding stock of E. F. Anderson & Son. After this transaction, all records of E. F. Anderson & Son were kept in Pugh's Byron, Georgia, office, some fifty miles from the site of E. F. Anderson & Son's operations in Barnesville. A bookkeeper, hired by Pugh and paid equally by Pugh and E. F. Anderson & Son, maintained the latter's books at Pugh's office. Approximately six months after Pugh gained proxy control, E. F. Anderson approached Pugh with the idea of purchasing additional logging equipment from Pugh's company. At about the same time, a representative of Funding Systems conferred with Pugh about purchasing equipment, which would in turn be leased by Funding Systems to a third party immediately after purchase. Funding Systems's usual method of operation was to locate a potential lessee of equipment, make firm arrangements for a lease, and at that point purchase the equipment contemplated in the lease. Without disclosing his relationship to E. F. Anderson & Son, Pugh suggested the company as a possible lessee of logging equipment. The district court found--and appellant Pugh challenges this finding--that Pugh prepared a misleading and fraudulent financial statement concerning E. F. Anderson & Son. The erroneous financial statement was hand-delivered by Pugh to representatives of Funding Systems and was relied on by Funding Systems in accepting E. F. Anderson & Son as a lessee. With the exception of a down payment, E. F. Anderson & Son completely defaulted on the lease and went into bankruptcy. The district court found, and appellant concedes, that the logging equipment was sold to Funding Systems at a price substantially above that suggested by the manufacturer of the equipment. Damages were assessed against Pugh in an amount equal to the difference between the manufacturer's suggested selling price for the logging equipment and the price at which Pugh in fact sold the equipment to Funding Systems. See Record on Appeal, Vol. I, at 66--68. The determination of liability hinged on the district court's finding that Pugh prepared the misleading financial statement and that Funding Systems exercised due diligence in its dealings with Pugh and E. F. Anderson & Son. As with the finding that he was primarily responsible for the preparation of the financial statement, Pugh also challenges the determination that Funding Systems exercised due diligence. Finally, the district court held that Pugh was under no duty to disclose his proxy relationship with E. F. Anderson & Son to Funding Systems, and the latter has not cross-appealed that holding.
We turn first to the district court's finding that Pugh was primarily
responsible for the preparation of the misleading financial statement. The district court focused on three factors that inculpated Pugh. First, Pugh handled all the negotiations leading up to the purchase of the equipment and its leasing to E. F. Anderson & Son, and it was not until the details of the transaction had been fully agreed upon by Pugh and Funding Systems that the latter directly contacted E. F. Anderson & Son. As an indication of the control Pugh exercised, plaintiff stressed the hand-delivery of the financial statement, which was accompanied by a cover letter signed by Pugh. Second, the district court properly found that the bookkeeper mentioned above, who actually prepared the financial statement from records maintained in Pugh's office, was 'employed' by Pugh. See Record on Appeal, Vol. I, at 64. Third, Pugh demonstrated a familiarity with the affairs of E. F. Anderson & Son that would have made possible...
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