Bell v. Vickers

• Decision Date: 26 September 1990
• Docket Number: Nos. 21759-CA,s. 21759-CA
• Citation: 568 So.2d 160
• Parties: Charles N. BELL, Jr., et al., Plaintiffs/Appellees, v. E. Felton VICKERS, et ux., Defendants/Appellants. to 21761-CA.
• Court: Court of Appeal of Louisiana — District of US

Page 160

568 So.2d 160

Charles N. BELL, Jr., et al., Plaintiffs/Appellees, v.E. Felton VICKERS, et ux., Defendants/Appellants.

Nos. 21759-CA to 21761-CA.

Court of Appeal of Louisiana Second Circuit.

Sept. 26, 1990.

Davenport, Files & Kelly by Thomas W. Davenport, Jr., Monroe, for plaintiffs/appellees.

Kidd & Kidd by Paul Henry Kidd, Monroe, for defendants/appellants.

Before MARVIN, FRED W. JONES, Jr. and SEXTON, JJ.

FRED W. JONES, Jr., Judge.

In these consolidated actions involving the enforcement of a guarantee and indemnification agreement and the collection of promissory notes arising out of the formation and liquidation of a corporation, defendants, Felton and Betty Vickers, appealed judgments in favor of plaintiffs, J.W. and Alvena Johnson and Charles and Judith Bell.Finding no error, we affirm.

Issues Presented

On appeal defendants present the following assignments of error:

1) The trial court erred in failing to include defendants' requests for certain interrogatories;

2) The trial court erred in failing to submit any special interrogatory on defendants' primary defense and principal cause of action, fraud in the inception, to the jury; and,

3) The trial court erred in denying defendants' motion for judgment notwithstanding verdict and/or alternatively motion for a new trial.

Factual Context

This complex factual litigation arises from the formation of a corporation, Mid-South Power Equipment, Inc.(Mid-South).It was incorporated in October 1980 by Charles Bell, J.W. Johnson, Robert Hansbrough and Edward Brown for the purpose of sales of lawn and garden equipment.Hansbrough had been a sales representative in the wholesale distribution of lawn and garden products and was to be the key manager.On December 19, 1980 the four original incorporators obligated themselves to First National Bank of West Monroe (First National Bank) to obtain for the corporation a letter of credit in the amount of $100,000 in favor of Coleman Company, Inc., a supplier of Mid-South.The letter of credit was obtained by the four incorporators executing a $1,000,000 chattel mortgage on all of the inventory of Mid-South and by their personal guarantees.The letter of credit was not listed as a liability on Mid-South's financial statements.On March 25, 1981 the four incorporators executed a guarantee agreement in favor of Simplicity Manufacturing, another supplier.As of May 31, 1981 Mid-South owed Coleman Company a sum in excess of $100,000 under the letter of credit issued by First National Bank.On June 1, 1981 Coleman drafted $63,797.22 against the $100,000 letter of credit pursuant to an agreement between Coleman and First National Bank.This draft reduced Mid-South's obligation to Coleman as of June 30, 1981 to $50,215.56.To cover this draft payment to Coleman a note for that amount was executed in favor of First National Bank on June 10, 1981 and was signed by Bell and Brown on behalf of Mid-South.The note was secured by the four incorporators' personal guarantees and the $1,000,000 chattel mortgage on the inventory.

In early July 1981 Hansbrough discussed with the Vickers their possible purchase of Mid-South stock.The Vickers were neighbors and Mr. Vickers became interested in the corporation after seeing some of the equipment at Hansbrough's home.Mrs. Vickers had previously worked with Hansbrough.Hansbrough set up a meeting at the office of Harvey Marcus, the corporate accountant, for the Vickers to discuss the purchase.After his meeting with the Vickers, Hansbrough discussed with the other stockholders the Vickers' interest in purchasing stock and all of the stockholders agreed the Vickers would have to personally endorse the obligations of Mid-South as a prerequisite to the purchase.After further negotiations in which the Vickers were shown the financial statements of the corporation, allegedly advised it was in good financial condition and a good investment, they purchased $50,000 of stock on July 14, 1981.The stock was purchased using funds that Mrs. Vickers had received in life insurance proceeds after the death of her first husband.The Vickers contended that at the time of purchase they were not informed about the $100,000 letter of credit issued in favor of Coleman Company nor were they told the June 30, 1981 financial statement of the corporation which they had examined did not include the $63,800 note to First National Bank.Further, there were no disclosures made to them at this time about the other stockholders' intent to have them personally endorse the obligations of the corporation.

At the end of July 1981Betty Vickers went to work for Mid-South as bookkeeper and "Girl Friday".In this capacity Mrs. Vickers began to receive notices of notes payable to First National Bank at the end of August 1981.Mrs. Vickers found that one of the notices from First National Bank was for a note in the amount of $63,800 for which Mid-South had no ledger entry.She checked the financial statements for the six months ending June 30, 1981 and discovered the note was not listed.After discovering the omission of the note from the financial statement, the Vickers allegedly demanded to get their money back from their investment but without success.The evidence indicates the omission of this note from the financial statement which was shown to the Vickers prior to their investment was simply a clerical error.

The stockholders of the corporation had a meeting on September 17, 1981 at which a resolution was passed directing the Vickers to sign personal guarantees for the corporate debts of Mid-South.The need for additional capitalization of the corporation was discussed as operations had begun with less than the required projected capital.The minutes of the meeting reflect that in Hansbrough's opinion, additional capital contributions of at least $100,000 needed to be made within the next year.Mrs. Vickers was elected treasurer of the corporation and to the board of directors.

Hansbrough and Brown later desired to terminate their stock ownership in Mid-South since they were concerned with its financial condition and wanted to limit their liability to corporate creditors arising from the guarantee agreements they had signed.Hansbrough wanted to leave management of the corporation as he felt the stockholders, primarily the Vickers, had lost confidence in him.The parties agreed Hansbrough could sell his stock to Mid-South for $1 and the remaining parties agreed to hold him harmless and indemnify him from any liability arising under guarantee agreements.The parties also agreed Brown could sell his shares of stock to the corporation for $1 and his liability under the guarantee agreements would be limited to $17,500.Two separate acts of sale of corporate stock were executed on September 3, 1982.The acts of sale specifically provided that the agreements terminated and replaced a guarantee and indemnification agreement executed by the shareholders on December 1, 1981.That previous guarantee and indemnification agreement had provided that the entities covered thereby were First National Bank, Louisiana Bank and three suppliers of equipment and had been signed by Felton Vickers.

On the same date the acts of sale were executed, the parties signed a new guarantee and indemnification agreement whereby they apportioned among themselves their solidary liability to corporate creditors in proportion to their new stock ownership interest.After the purchase of Hansbrough and Brown's shares, the Bells owned 40% of the outstanding stock, the Vickers 40% and the Johnsons 20%.Therefore, the agreement provided that the guaranteed corporate debts and liabilities would be borne by the parties in this proportion.Although it appears the possibility of liquidation of the corporation was discussed during this period of time, the parties elected to continue operations.

As the corporation continued to need further capitalization defendants invested an additional $10,000 and Johnson and Bell each invested $35,000 on September 15, 1982.Mid-South issued a $35,000 note to Johnson, which note was endorsed by Bell and Betty Vickers.Mid-South also issued a $35,000 note to Bell which was endorsed by Johnson and Betty Vickers and a $10,000 note to Betty Vickers which was endorsed by Bell and Johnson.On September 28, 1982 Mid-South issued a $15,000 note to Bell which was personally endorsed by Johnson and Betty Vickers.On September 29, 1982 Mid-South issued a $11,500 note endorsed by Bell and Betty Vickers.The note was later made payable to Johnson.On February 16, 1983 Mid-South issued a note for $12,912.83 payable to Bell which was endorsed by Betty Vickers and Johnson.

Eventually, despite the efforts of the parties, the condition of the corporation did not improve and liquidation was undertaken.The parties believed the corporation failed due to a combination of factors such as high interest rates and the poor economy which forced the bankruptcy of many small lawn and garden retailers during this period of time.When called upon to make their proportionate payments the Vickers were unable to do so.Fearing they would be unable to meet their financial obligations under the September 3, 1982 guarantee and indemnification agreement, defendants asked the Bells to meet those obligations for them.To secure their debt to the Bells defendants executed a collateral mortgage note, a collateral mortgage and a limited pledge agreement on April 25, 1983.The collateral mortgage note for $33,000 was secured by a mortgage on the Vickers' home and pledged to secure the liability of the Vickers to the Bells that would result from the Bells' personal payment to First National Bank of any portion of the Vickers' share of the corporate debt due the bank in accordance with the guarantee agreement.First National Bank later made demand upon Mid-South for the payment of the balance due on the corporate promissory note and the...