Farmers Bank, Pilot Mountain v. Michael T. Brown Distributors, Inc.

• Decision Date: 11 January 1983
• Docket Number: No. 372PA82,372PA82
• Citation: 307 N.C. 342,298 S.E.2d 357
• Parties: FARMERS BANK, PILOT MOUNTAIN, North Carolina v. MICHAEL T. BROWN DISTRIBUTORS, INC. (formerly Ned Pell Distributors, Inc.), Brenda M. Brown, Executrix of the Estate of Michael Brown, Brenda M. Brown, Vida M. McCanless, Phillip H. Pell, and O.M. Needham, Jr.
• Court: North Carolina Supreme Court

Page 357

298 S.E.2d 357

307 N.C. 342

FARMERS BANK, PILOT MOUNTAIN, North Carolina v. MICHAEL T. BROWN DISTRIBUTORS, INC. (formerly Ned Pell Distributors, Inc.), Brenda M. Brown, Executrix of the Estate of Michael Brown, Brenda M. Brown, Vida M. McCanless Phillip H. Pell, and O.M. Needham, Jr.

No. 372PA82.

Supreme Court of North Carolina.

Jan. 11, 1983.

Badgett, Calaway, Phillips, Davis, Stephens, Peed & Brown by Richard G. Badgett and Herman L. Stephens, Winston Salem, for defendants.

Otis M. Oliver and Finger & Parker by Raymond A. Parker, II, Elkin, for plaintiff.

CARLTON, Justice.

I.

Of the original defendants in this action, only Phillip H. Pell and O.M. Needham, Jr., are involved in this appeal.

R.W. Smith, vice-president of Farmers Bank in Pilot Mountain, N.C., was plaintiff's sole witness and testified as follows:

Defendants, Needham and Pell, came to Smith's office at the bank sometime before 15 February 1977. Defendants told Smith they were selling their interests in the company they helped manage, Ned-Pell Distributors, Inc., and asked Smith if the bank would continue to carry the line of credit it previously had extended to the company. It was suggested the transaction be accomplished by issuing a new promissory note which would consolidate and renew three notes Needham and Pell had signed earlier in their capacity as corporate officers. The bank was to continue to extend the line of credit if:

(a) Michael Brown, president of Ned-Pell Distributors, Inc., together with his wife, Brenda M. Brown, and his mother-in-law, Vida M. McCanless, signed the promissory note as makers; and

(b) Defendants signed a guaranty agreement in which they guaranteed full and prompt payment of the note.

Smith further testified that the condition that Brown, his wife and mother-in-law sign the promissory note as makers was strictly defendants' requirement:

I stated in my deposition to the effect that cosigners were a requirement for Mr. O.M. Needham and Mr. Phil Pell. I meant by that statement, that it was a requirement of theirs, that this was a condition that they outlined, of one of the things that would happen if we would continue this line of credit.

Record at 15.

Smith also testified that the condition that defendants sign the guaranty agreement was the bank's requirement:

It was a requirement of the bank that Mr. Needham and Mr. Pell sign the guaranty agreement. Mr. Needham and Mr. Pell had been overseeing the operation, although the actual management was divested [sic] in Mr. Brown. Mr. Needham and Mr. Pell had been overseeing the management of Ned-Pell and the bank felt that we were in a good financial position as long as Mr. Needham and Mr. Pell operated or oversaw the operation. But at the time they sold their interest in this to Mr. Brown, we felt that there had to be some type of obligation on the part of Mr. Needham and Mr. Pell toward this loan.

Record at 14.

The record indicates the bank's condition--that defendants sign the guaranty agreement--was fulfilled. Defendants' term--that Brown, his wife and mother-in-law sign the note as makers--was not met, however. In an earlier action, it was found that the purported signatures of Brown's wife and mother-in-law on the note were forgeries. Summary judgment was granted the two women on all plaintiff's claims against them. Brown has since died. Smith testified that he thought there were no funds in Brown's estate, and that Ned-Pell Distributors, Inc., was insolvent and no longer existed. It appears, therefore, that defendants are the only parties to whom the bank can realistically look for payment.

This action involves, as Judge Long stated just prior to hearing evidence at trial, "the fairly narrow issue ... as to whether there was a condition precedent involving this guaranty agreement." From the outset, defendants have contended that a condition precedent to their liability under the guaranty agreement was that the bank obtain the signatures of each of the individual co-makers, but that the bank failed to do so because the signatures of Brown's wife and mother-in-law were forgeries. Judge Long concluded that no such condition precedent existed and entered judgment for the bank and against Pell and Needham for the unpaid principal of $60,000, interest to date of judgment of $16,200, and attorney's fees in the amount of $7,631.25.

The Court of Appeals affirmed, reasoning primarily that the evidence supported the trial court's findings and the findings supported the conclusion that no condition precedent existed.

II.

The question dispositive of this appeal is whether the trial court's findings of fact are adequate to support its conclusion of law that the bank's procurement of valid signatures of Brenda M. Brown and Vida M. McCanless as co-makers on the note was not a condition precedent to defendants' liability under the guaranty agreement. The answer, readily apparent from a review of our applicable statutory and case law, is that the findings of fact are inadequate.

G.S. 1A-1, Rule 52(a)(1) (1969) requires that "[i]n all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon and direct the entry of the appropriate judgment." Under that rule, three separate and distinct acts are required of the trial court. It must (1) find the facts specially, (2) state separately the conclusions of law resulting from the facts so found, and (3) direct the entry of the appropriate judgment. See Woodard v. Mordecai, 234 N.C. 463, 470, 67 S.E.2d 639, 644 (1951) (stating similar duties under G.S. 1-185 (1953), the statute G.S. 1A-1, Rule 52(a)(1) (1969) replaced). Here, we are concerned with the first requirement, that the trial court find the facts specially.

In Quick v. Quick, 305 N.C. 446, 290 S.E.2d 653 (1982), this Court recently emphasized again the cruciality of this requirement. We said:

Rule 52(a) does not, of course, require the trial court to recite in its order all evidentiary facts presented at hearing. The facts required to be found specially are those material and ultimate facts from which it can be determined whether the findings are supported by the evidence and whether they support the conclusions of law reached. "Findings of fact may be defined as the written statement of the ultimate facts as found by the court, signed by the court, and filed therein, and essential to support the decision and judgment rendered thereon." 76 Am.Jur.2d Trial § 1251 (1975). In other words, a proper finding of facts requires a specific statement of the facts on which the rights of the parties are to be determined, and those findings must be sufficiently specific to enable an appellate court to review the decision and test the correctness of the judgment. 89 C.J.S. Trial § 627 (1955).

In Woodard v. Mordecai, 234 N.C. at 470, 472, 67 S.E.2d at 644, 645, this Court explained:

There are two kinds of facts: Ultimate facts, and evidentiary facts. Ultimate facts are the final facts required to establish the plaintiff's cause of action or the defendant's defense; and evidentiary facts are those subsidiary facts required to prove the ultimate facts. (Citations omitted.) G.S. 1-185 requires the trial judge to find and state the ultimate facts only. (Citations omitted.)

....

... Ultimate facts are those found in that vaguely defined area lying between evidential facts on the one side and conclusions of law on the other. (Citations omitted.) In consequence, the line of demarcation between ultimate facts and legal conclusions is not easily drawn. (Citation omitted.) An ultimate fact is the final resulting effect which is reached by processes of logical reasoning from the evidentiary facts. (Citations omitted.) Whether a statement is an ultimate fact or a conclusion of law depends upon whether it is reached by natural reasoning or by an application of fixed rules of law. (Citations omitted.)

In summary, while Rule 52(a) does not require a recitation of the evidentiary and subsidiary facts required to prove the ultimate facts, it does require specific findings of the ultimate facts established by the evidence, admissions and stipulations which are determinative of the questions involved in the action and essential to support the conclusions of law reached.

As stated by this Court, per Justice Exum, in Coble v. Coble, 300 N.C. 708, 712, 268 S.E.2d 185, 189 (1980):

The purpose of the requirement that the court make findings of those specific facts which support its ultimate disposition of the case is to allow a reviewing court to determine from the record whether the judgment--and the legal conclusions which underlie it--represent a correct application of the law. The requirement for appropriately detailed findings is thus not a mere formality or a rule of empty ritual; it is designed instead "to dispose of the issues raised by the pleadings and to allow the appellate courts to perform their proper function in the judicial system." Montgomery v. Montgomery, 32 N.C.App. 154, 158, 231 S.E.2d 26, 29 (1977); see, e.g., Crosby v. Crosby, 272 N.C. 235, 158 S.E.2d 77 (1967).

Id. at 451-52, 290 S.E.2d at 657-58 (original emphasis).

As noted above, the narrow issue at trial was "whether there was a condition precedent involving this guaranty agreement," in short, whether a condition precedent ¹ existed with respect to defendants' liability under the guaranty agreement. We note "[t]he existence of such a condition [precedent] depends upon the intent of the parties as gathered from the words they have employed, and it will be interpreted according to general rules of construction." 17A C.J.S., Contracts, § 338, at 318 (1963). Specifically, then, the trial court was to determine whether the parties intended the term that three valid signatures appear on the note to operate as a condition precedent to defendants' liability under the guaranty agreement. Because the...