Foster v. Nix, 68976
| Decision Date | 08 March 1985 |
| Docket Number | No. 68976,68976 |
| Citation | 327 S.E.2d 833,173 Ga.App. 720 |
| Parties | FOSTER et al. v. NIX. |
| Court | Georgia Court of Appeals |
Stanley E. Harris, Jr., James P. Gerard, Savannah, for appellants.
John M. Tatum, Savannah, for appellee.
Dr. Gerald Nix brought a suit seeking to recover under the terms of an indemnity agreement against Wayne and Patricia Foster. The defendants answered the claim, setting up various defenses and subsequently by amendment added other defenses. During the pretrial interim, both sides conducted extensive discovery and various motions were filed and ruled upon.
The case was tried before a jury which returned a verdict for the plaintiff in the principal amount sought, $48,012.70, plus attorney fees. Judgment was duly entered thereon and the defendants, whose motions for directed verdict made at the close of plaintiff's evidence and at the close of all the evidence had been denied, appeal to this court.
The facts out of which this controversy arose are basically as follows.
Upon learning that Reeves Hardware and Furniture in Clarkesville, Georgia, was offering its motorcycle and marine business for sale, Nix and Eugene Boyd decided to purchase the dealership. Boyd recommended to Nix that Wayne Foster be brought into the enterprise.
In order to carry out the purposes of the business, a corporation was to be formed which would be styled acronymically NaBaF, Inc., a combination of the first initials of the names Nix, Boyd and Foster. At first, Nix was to hold a bare majority of the stock with Boyd the minority shareholder, but then Boyd and Foster were to divide the minority shares equally. Subsequently, as a result of his own employer's ultimatum, Boyd withdrew entirely. Thus, it was finally proposed that Nix, the supplier of the necessary finances, would have 51% of the stock and Foster, the provider of direct day-to-day management of the business, would receive 49% of the shares.
While the internal composition of the proposed corporation was progressing, Nix borrowed $30,000 from First National Bank of Habersham County for the purpose of depositing earnest money for the sale with Reeves Hardware. Then on October 7, 1974, Nix executed as "Dr. E. Gerald Nix d/b/a NaBaF" a promissory note for $150,000 with First National. The maturity date of the note was October 7, 1975. The proceeds from this loan were deposited in a bank checking account under Nix's name "d/b/a NaBaF." Subsequently, this account became the corporate bank account. Foster was authorized to and did write checks on the account. During the month of October 1974 before NaBaF, Inc., was formally incorporated, Nix wrote a check for $30,684.80 which paid off his loan of $30,000 from the bank and Foster wrote two checks of $64,629.09 (October 14, 1974) and $42,764.14 (October 19, 1974) to Reeves Hardware for inventory and equipment. These payments were made pursuant to a sales agreement entered into between Nix and Reeves Hardware on October 10, 1974. The details of the agreement were more fully spelled out in a subsequent "agreement for sale of businesses" between Reeves Hardware and NaBaF, Inc., dated October 31, 1974, and referenced in the October 10 agreement.
The record reveals NaBaF, Inc., was incorporated under the laws of Georgia by the Hall Superior Court on October 31, 1974, and the Secretary of State's certificate attesting to such fact issued on November 1, 1974. 1
On October 31, 1974, Foster, his wife and Nix entered into an indemnification agreement which recited: that the Fosters desire that NaBaF, Inc., obtain a loan from First National in the amount of $150,000 but the bank has refused to make such loan without the personal guaranty of Nix; that the Fosters have requested Nix to guarantee the loan, but he is unwilling to do so unless the Fosters execute the agreement. The terms of the agreement were that in consideration of Nix delivering to First National a personal guaranty of the $150,000 loan made by the bank to NaBaF, Inc., the Fosters convenanted: "(a) To save and hold harmless [Nix] from any and all liability and/or claims and/or damages and/or expenses (including attorneys' and counsel fees) and/or losses that [Nix] may sustain, or become liable or answerable for, or shall pay, upon, or in consequence of, such loan guaranty, or any renewal or extension thereof; (b) That the vouchers, or other proper evidence, showing payment by [Nix] of any such liability and/or claim and/or damages and/or expenses (including attorneys' and counsel fees) shall be conclusive evidence against the [Fosters] of the fact and amount of the liability of the [Fosters] to [Nix]."
By instrument dated November 10, 1974, NaBaF, Inc., executed a $150,000 promissory note with a maturity date of October 7, 1975, to First National. The note was secured by Nix's property, which had been used to secure his previous note for $150,000, plus inventory and equipment of the corporate business. The signatories to the note were Nix as president of NaBaF, Inc., and Foster as secretary. A typed entry on top of the promissory note reads: "replaces note of Dr. E. Gerald Nix, d/b/a NaBaF dated October 7, 1974." Concurrent with the note, Nix in his individual capacity executed a guaranty agreement with First National. On the face of the $150,000 promissory note of October 7, 1974, given by Nix in his individual capacity is the handwritten message: There was no specific showing as to when this memorandum was made.
November 4, 1974, is the date listed for the director's consent for an organization meeting of NaBaF, Inc., whereat the articles of incorporation were approved, the bylaws were adopted, officers elected, forms of seal and share certificates adopted; also approved were the form and plan of the subscription of shares, the opening of a bank account, etc.
On December 14, 1974, the corporation's joint meeting of directors and shareholders recognized that Eugene Boyd had declined participation in the corporation and had resigned as a director. Foster and his wife were elected to the board of directors.
During the trial a serious issue was raised regarding whether many of the documents were actually executed on the dates given on such documents. Two letters from counsel involved in the incorporation of NaBaF, Inc., to Nix which were written in January 1975 tended to show that the sales agreement between NaBaF, Inc., and Reeves Hardware was not yet finalized and likewise with regard to several of the instruments involving the corporate formation documentation. Foster also testified that his address specified on the October 31, 1974, agreement of indemnification was that of a house he did not purchase until December of that year. Also, there is a note of May 11, 1976, from an individual who did bookkeeping for NaBaF, Inc., which pointed out there was no entry indicating either Nix or Foster had paid for their shares under the stock subscription agreement. 2
Therefore we use these dates as a means of identification without in any way intimating that such dates were conclusively established by the proof.
On October 4, 1975, there issued a promissory note from NaBaF, Inc., to First National. It had a face amount of $150,000, provided for monthly payments, and was secured by Nix's property previously listed in the other two notes for the same amount plus inventory and equipment of NaBaF. This note was listed as "renewal" and under "cash proceeds" referred to "R#23999" the customer number of Nix's October 7, 1974, $150,000 promissory note. Nix executed the note as President of NaBaF, Inc., and also executed the guaranty of payment provision of such note in his individual capacity. Foster signed the note as secretary of NaBaF, Inc.
The business of the corporation did not flourish and it began to flounder financially. As conditions worsened, unavailing efforts were made to find a purchaser for the business. The minutes of the corporation of November 1977 show a resolution to sell the corporate property and assets in order to pay off the outstanding liabilities of NaBaF, Inc. In December 1977 at another corporate meeting the two Fosters were removed from the board of directors.
On March 3, 1978, pursuant to Nix's offer, the corporation sold him its business and assets for $73,170.51, the total listed amount of its inventory, equipment and parts. Although the corporation operated both a motorcycle and a boat dealership and had paid $1,000 for good will and $29,000 for a covenant not to compete with Reeves Hardware, it received nothing for these items under its sales agreement with Nix.
On April 3, 1978, attorneys for First National wrote Nix that the corporation's promissory note dated October 4, 1975, was in default and the bank demanded payment of Nix as the personal guarantor thereof. Since NaBaF, Inc., paid $78,067.93 of the total amount owing of $126,080.63, Nix was required to pay off only the balance of $48,012.70. After paying that amount, Nix sought recovery of such sum from the two Fosters under the terms of the agreement of indemnification which they executed dated October 31, 1974. The refusal to meet this demand culminated in the instant action being brought by Nix. Held:
1. In our discussion of the legal principles pertinent to the facts of this case the promissory notes involved shall be referred to respectively as note 1 (October 7, 1974), note 2 (November 10, 1974) and note 3 (October 4, 1975).
The defendants, in support of their contention that the evidence demanded a verdict in their favor, raise four issues.
Did the indemnity agreement extend to any loan except one between the corporation and the bank?
Did the indemnity agreement extend to an original undertaking rather than a substitution, assumption or renewal of the original undertaking?
Was the instrument given by the corporation to the...
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