Continental Bankers Life Ins. Co. of the South, Inc. v. Simmons

• Decision Date: 31 August 1977
• Parties: CONTINENTAL BANKERS LIFE INSURANCE COMPANY OF THE SOUTH, INC., Appellee, v. James G. SIMMONS, Appellant. 561 S.W.2d 460
• Court: Tennessee Court of Appeals

Page 460

561 S.W.2d 460

CONTINENTAL BANKERS LIFE INSURANCE COMPANY OF THE SOUTH INC., Appellee, v. James G. SIMMONS, Appellant.

561 S.W.2d 460

Court of Appeals of Tennessee, Western Section.

Aug. 31, 1977 Certiorari Denied by Supreme Court Dec. 5, 1977.

George O. Benton, Jackson, for appellant.

Russell Rice, Jackson, for appellee.

NEARN, Judge.

Plaintiff, before it changed its name to Continental Bankers Life Insurance Company, was known as Peoples Protective Life Insurance Company and is often referred to in the record as P.P.L.I. At the outset it must be recognized that Continental and P.P.L.I. are one in the same corporate entity. P.P.L.I. was one of several subsidiaries of, and controlled by the parent, Peoples Protective Corporation. Among the subsidiaries of the controlling corporation was a corporation known as Sugar Tree Resort, Inc. Well-nigh total identity of officers and directors prevailed among the three corporations.

Defendant Simmons was engaged in the general insurance business in Jackson, Tennessee and among his best customers was the Peoples Protective conglomerate.

In May of 1975 P.P.L.I. (now known as Continental) filed suit in the Chancery Court of Madison County against Simmons for a deficiency on a note executed by Simmons. The note was in the original amount of $87,500.00, dated November 9, 1973, and secured by real property in the Sugar Tree Resort area along the Tennessee River. The complaint charged that after allowing credit for the foreclosure sale, there remained a balance due of $42,138.87 for which judgment was sought plus accrued interest and a reasonable attorney's fee.

At this point a slight digression is required for an understanding of the matter. Prior to Simmons' execution of the before mentioned note, the Peoples Protective conglomerate had fallen upon or, probably more accurately, had caused itself to fall upon hard financial times. Subsequent to the signing of the note, financial conditions worsened and the parent corporation (Peoples Protective Corporation) found it necessary to transform its holdings to cash. ¹ The Peoples Protective Life Insurance Company was probably the most financially appealing Tennessee holding of Peoples Protective Corporation. The parent corporation held all of the stock in P.P.L.I. This stock was sold to Joe Jack Merriman who, at the time of trial, was the majority stockholder of former P.P.L.I. This was not a sale of the assets of P.P.L.I., but simply a sale of stock by a controlling stockholder. Merriman changed the name of the corporation to Continental. Included among the assets of the corporation was the Simmons note now sued upon. Thus, it may be seen that Continental is not an innocent holder for value of a negotiable instrument. Continental (formerly P.P.L.I.) and Simmons are principals to the instrument and it has never been negotiated to a third party.

Defendant Simmons filed his answer and raised equitable defenses to the note. Among them was the charge that the transaction was a sham, conceived in fraud and that it suffered from a failure of consideration.

The Chancellor was of the opinion that the case should rest on legal principles alone and awarded judgment for the proven deficiency, plus interest, reasonable attorney's fees and costs.

Both sides to the controversy have appealed.

We will consider first the Assignment of Error of plaintiff Continental.

Since Continental was the successful litigant below, its appeal is in the nature of a deployment of reserve troops, that is, should its adversary be initially successful in its attack of the judgment below, the reserves are to be thrown into the breach. Additional facts necessary for consideration of Continental's appeal are that the late William H. Hall was the initial hearing Chancellor of this matter. A motion for summary judgment was filed by Continental. Chancellor Hall filed a "Memo Opinion" in which he stated his reasons for the granting of a summary judgment. Chancellor Hall died before a formal order could be signed. The succeeding Chancellor declined to enter an order based on the "Memo Opinion" and set the summary judgment motion for a rehearing whereupon he overruled the motion.

Counsel for appellee insists that the "Memo Opinion" is actually an order sustaining the motion for summary judgment and the succeeding Chancellor was therefore without authority to reverse the prior Chancellor's holding. The issue is moot. The matter is now before this Court on a record completed from a hearing on all the facts of the case. The most that could be said is that we have too much record to decide whether there is any disputed material issue of fact. Under T.C.A. § 27-303 this is a de novo appeal and we have suffered no hindrance or impediment to our decision by the act of the succeeding Chancellor.

Continental's Assignment of Error is overruled.

We now consider the Simmons appeal.

P.P.L.I. held a mortgage on undeveloped resort lots owned by its sister subsidiary Sugar Tree. In early 1973 and 1974 Peoples Protective Corporation (the parent company) and Sugar Tree were financially pinched. Sugar Tree held a public auction and sold certain resort lots on which P.P.L.I. held the mortgage. The lots did not bring enough to pay off the mortgage. P.P.L.I. was therefore left with an outstanding and now unsecured, unpaid and uncollectible indebtedness upon its books. The end of 1973 was then approaching and P.P.L.I. was required by law to file a year-end statement with the State Department of Insurance. Somehow P.P.L.I. had to satisfy this unpaid debt of Sugar Tree to avoid showing it as a non-admitted asset on the insurance report. Such adverse showing on the report would constitute an impairment of capital and result in a cease and desist order from the Insurance Commissioner.

The clear brief of counsel for Continental sets forth the virtually undisputed facts honestly and succinctly. With little addition thereto we set forth those facts as found in the brief.

The then officers of P.P.L.I. persuaded defendant Simmons to join them in a scheme whereby (1) Sugar Tree Resort, Inc. would deed to Simmons eleven of the remaining lots in the Sugar Tree Resort area; (2) Simmons would then borrow from P.P.L.I. $87,500.00 giving a trust deed on the eleven lots referred to; (3) Simmons gave to Sugar Tree Resort, Inc. a three year option to repurchase the eleven lots at the same price they were "sold" to Simmons; (4) Simmons then paid $87,500.00 to Sugar Tree Resort, Inc. as purchase price for the eleven lots; (5) Sugar Tree Resort, Inc. then paid to P.P.L.I. the sum of $71,500.00 for which payment P.P.L.I. released its note and mortgage on the property already auctioned off by Sugar Tree Resort, Inc.

The method of handling had the following results: (a) James G. Simmons wound up as owner of the fee of the eleven lots deeded to him which he continued to own until foreclosed by P.P.L.I.; (b) Sugar Tree Resort, Inc. was enabled to extricate itself from the predicament of having sold...