Brown v. Floding

• Decision Date: 17 September 1931
• Docket Number: 8155.
• Citation: 160 S.E. 604,173 Ga. 400
• Parties: BROWN v. FLODING.
• Court: Georgia Supreme Court

160 S.E. 604

173 Ga. 400

BROWN v. FLODING.

No. 8155.

Supreme Court of Georgia

September 17, 1931

On Rehearing October 2, 1931.

Syllabus by Editorial Staff.

Contract providing for organization of new corporation to take over assets purchased by one contracting party and providing for other party's remaining in business for ten year period held enforceable against former, in view of latter's part performance.

The contract provided for organization of corporation to take over assets of former bankrupt corporation which had been purchased by one of contracting parties, and further provided that the other contracting party, who had carried on the business before bankruptcy, should remain in the business for a period of ten years and not engage in similar business. The breach complained of was the default of the first party on the note given for the purchase price of the assets, as result of which the seller foreclosed on its lien.

Federal court judgment in suit wherein present plaintiff set up breach of contract held res judicata of subsequent claim for damages for same breach.

In the federal court the present plaintiff set up breach of contract substantially as alleged in the present suit and urged sale of property covered by the contract, which contemplated organization of corporation to operate business with assets of former bankrupt corporation. The present plaintiff procured in the federal court an order directing that the assets referred to be sold and the proceeds be divided on account of the breach of contract.

Error from Superior Court, Fulton County; Virlyn B. Moore, Judge.

Suit by W. E. Floding against P. F. Brown, in which the Atlanta Trust Company intervened. Judgment in favor of plaintiff and intervener, and defendant brings error.

Reversed.

RUSSELL C.J., dissenting.

Contract providing for organization of new corporation to take over assets purchased by one contracting party and providing for other party's remaining in business for ten year period held enforceable against former, in view of latter's part performance.

On October 9, 1929, W. E. Floding filed this suit in Fulton superior court, seeking to recover of Brown $25,000 damages. To his petition he attached a certain contract made with Paul Brown, under date of April 15, 1927, and alleged that Brown was indebted to him in the sum of $25,000 on account of the breach of said contract, the nature of the breach being that petitioner had been engaged in the lodge regalia and special garment manufacturing business for twenty-five years; that large sums of money had been expended in advertising his business under the name of Floding; that he had a personal following who purchased products from him; that in the year 1926 his business became involved in bankruptcy, and all of his assets were offered for sale in the United States court by a trustee in bankruptcy, which assets were purchased by the Lane Cotton Mills, a corporation; that on the day following the sale to the Lane Cotton Mills he made a verbal agreement with Brown to buy back the assets so sold for $40,000; that said assets were worth the face value of $100,000, and were being used as a going business; that he made with Brown a contract by which Brown agreed to buy the assets from the Lane Cotton Mills for the benefit of himself and plaintiff, and thereafter November 24, 1926, the Lane Cotton Mills sold all the property to Brown, accepting his promissory notes with certain security therefor; that at the time of the consummation of said sale the plaintiff (Floding) was in possession of and had a beneficial interest in the property that the purchase price due Lane Cotton Mills by Brown was to be first paid out of the assets of the business which was to be established; that balance of the assets to be owned by Floding & Brown as partners; that it was understood that a corporation was to be organized, and that title to the assets and business was to be put in the corporation, and the stock divided; and that the plaintiff was to contribute, as a part of the consideration, his skill, services, and good will in the operation of the business.

Floding further alleged that on April 15, 1927, a contract in writing was made between the parties, which contract is attached to the petition; that according to the terms of the agreement Floding enlarged and extended the business and increased its organization and promptly put the business upon a profitable basis; that within a few months it was earning $1,500 per month, and he paid out of the earnings $12,000 upon the note given by Brown to the Lane Cotton Mills for the purchase price of said assets; that Brown breached his contract in not paying the balance of the indebtedness due the Lane Cotton Mills; that on September 26, 1927, Lane Cotton Mills foreclosed in Fulton superior court its lien on all the assets and obtained against Brown a judgment and special lien upon all the assets so purchased; that afterward Brown caused a fraudulent suit to be brought against himself by the Real Estate Loan Company, in the form of a general creditor's bill; that this suit was a sham; that Brown did not owe the Real Estate Loan Company any sum whatsoever, nor did he have any other creditors, and at that time he was solvent; that Brown consented to all the prayers of that suit and to the appointment of a receiver; that the court appointed receivers, who did not take charge of any property that belonged to Brown, except the assets of said business; that the suit was at the instance of Brown; that as a consequence expensive litigation resulted; that at the end of that litigation the assets were sold by a commissioner in the United States court, which resulted in a loss to petitioner of his entire interest in said business, except $2,000 which he received after the Lane Cotton Mills' debt had been paid; that the case in Fulton superior court was removed to the United States court, and that court recognized plaintiff's interest in said property under the contract between him and Brown, and ordered the payment of his proportionate part of the residue after the expense of administration and the Lane Cotton Mills' debt had been paid; that the United States court also recognized that the suit was fraudulent, and the judgment was against Brown on all issues made in said court; that, as a result of Brown's breach of said contract and his failure to pay the note of the Lane Cotton Mills, Floding had been damaged $25,000; and that the value of said business exceeded $25,000. He prayed for judgment against Brown in that sum, and for injunction against a suit brought by Brown against Floding in the municipal court of Atlanta. A restraining order was passed.

Brown filed a demurrer, an answer, and a special plea in bar. The answer denied the allegations as above set forth, except that Brown signed the contract attached to the petition. The plea in bar set up a complete adjudication of all the issues involved, growing out of said contract, by virtue of the judgment in the United States court in the case of Real Estate Loan Company v. Paul F. Brown (D. C.) 23 F. (2d) 329, in which court Floding filed his intervention and set up the breach of said contract, and procured from that court a favorable consideration and adjudication. Copies of the intervention and of the order and decree of the court are attached to the answer. The plea in bar further set up that Floding was estopped by his solemn admissions in judicio from setting up, prosecuting, and maintaining the breach action for the reason that in the United States court he took a...