Guth v. Hamlet Associates, Inc.
| Decision Date | 06 September 1985 |
| Docket Number | No. 821140,821140 |
| Citation | 230 Va. 64,334 S.E.2d 558 |
| Parties | , 41 UCC Rep.Serv. 1316 Herbert GUTH, et al. v. HAMLET ASSOCIATES, INC., et al. Record |
| Court | Virginia Supreme Court |
Larry W. Thomas, Washington, D.C. (Cameron, Hornbostel, Adelman & Butterman, Washington, D.C., on briefs), for appellants.
Thomas P. Dugan, Fairfax (Hall, Surovell, Jackson & Colten, P.C., Fairfax, on brief), for appellees.
Present: All the Justices.
This is a controversy arising from a series of financial transactions between two individuals. Principally, we deal with questions involving the Uniform Commercial Code and the statute of limitations.
On July 17, 1980, appellants Herbert J. Guth (hereinafter, Guth) and Joanne Guth, his daughter, filed this suit against appellees Hamlet Associates, Inc., and Robert Greenberg for approximately $40,000.00. In a six-count amended motion for judgment, the plaintiffs sought recovery of the foregoing amount as compensatory damages and added a claim for $25,000.00 punitive damages, arising from dealings between Guth and Greenberg beginning in 1973.
Subsequently, defendants filed a pre-trial motion for summary judgment and the trial court sustained the motion in November 1981 pertaining to one count only of the complaint. In a March 1982 jury trial, the court sustained defendants' motion to strike the plaintiffs' evidence at the conclusion of the plaintiffs' case-in-chief. In the April 1982 order appealed from, the court entered judgment in favor of the defendants "as to all counts." At the trial, the only testimonial evidence came from Guth.
During the early 1970s, Guth, a resident of Maryland, and Greenberg, a resident of Northern Virginia, were acquainted and were employed full-time by the same federal agency. According to Guth, "Greenberg was known around the agencies as one involved in various financial matters...." Prior to the transactions in question, Guth had been "involved" in a mortgage investment club of which Greenberg was the treasurer.
In 1970, Greenberg "formed" Hamlet Associates, Inc. The corporate business address was Greenberg's home address. Greenberg and his wife were the sole stockholders. He was president of Hamlet. She was vice-president and secretary of the corporation.
Hamlet was formed mainly for the purpose of using corporate assets to invest in other activities, such as the purchase of health club contracts. Greenberg, acting for the corporation, would buy at a discount installment contracts between health clubs and their patrons. The health club customers would then make payments directly to Hamlet. Hamlet's profit, if any, would be the difference between the price it paid for the contract and the amount paid by the health club patron.
Initially, the corporation operated on funds loaned to it by Greenberg individually.
Thereafter, Greenberg obtained corporate funds from other sources, including Guth.
On November 14, 1973, Guth "loaned" $5,000.00 to Hamlet. This was the first in the series of transactions giving rise to this controversy. In return, Greenberg executed and delivered to Guth the following typewritten document which Greenberg had prepared on corporate stationery:
"HAMLET ASSOCIATES INC.
P.O. Box 1268
Springfield, Virginia 22151
November 14, 1973
Hamlet Associates, Inc., a Virginia corporation located at 7506 Hamlet St., Springfield, Va., 22151, acknowleges [sic] receipt of five thousand dollars ($5000.00) as a loan from Joanne Guth. These funds will be used by the corporation to purchase discounted sales contracts and for other corporate business.
Hamlet Associates, Inc. agrees to pay interest on this loan at the rate of one percent (1%) per month on the unpaid balance. As interest is earned, it will be added to the unpaid balance and earn interest at the at the [sic] above rate. Hamlet Associates, Inc. will provide the lender with reports of the status of this account every six months.
Either the lender or the corporation may elect to have interest paid on a monthly basis in lieu of being added to the unpaid balance upon written notification to the other party.
The lender may request repayment of the unpaid balance by providing written notification requesting the borrower to arrange for payment after a ninety (90) day period. The borrower may at its option, either pay off the loan in full or repay the loan in twelve (12) monthly installments.
The borrower may arrange for repayment of the loan by providing written notification with a ninety (90) day waiting period. Repayment may be either in full or on an installment basis.
This document supercedes the handwritten note of the same date
By /s/ Robert Greenberg
Robert Greenberg, President
Loan Repayment Guaranteed:
/s/ Robert Greenberg
Robert Greenberg"
Guth explained that the note was made payable to Joanne Guth, his daughter, because previously he had made other loans to Greenberg, which had been repaid, using names of family members for those "investments." Greenberg had no discussions with the daughter. Guth testified that the provisions in the fourth and fifth paragraphs regarding repayment were included because the loan proceeds were being used to purchase health club installment contracts and "it would be difficult for Mr. Greenberg to pay off this money immediately so there was a provision to pay it off over a period of time."
On January 9, 1974, Guth paid another $5,000.00 to Greenberg (the Second Transaction). Another document was prepared and executed by Greenberg, and delivered to Guth memorializing that transaction. This document was identical to the writing in the First Transaction, except it named Herbert Guth as the lender, it bore the January 1974 date, and it did not contain the final sentence referring to a handwritten note. Again, Greenberg executed the instrument on behalf of the corporation and individually as guarantor.
On May 23, 1974, Guth "made another loan of $4,000.00" (the Third Transaction). Greenberg supplied Guth with a different writing in connection with this transaction. On a carbon copy of the note used in the Second Transaction, Greenberg placed the following handwritten statement under the foregoing date:
"Receipt of $4,000.00 acknowledged in accordance with above. This is a temporary receipt to be replaced by two notes
Robert Greenberg" Guth testified that the terms of the Third Transaction were "precisely the same" as the terms for the first two loans. Guth never received any notes to replace the handwritten receipt although he asked for them "repeatedly."
On March 13, 1975, Guth loaned the corporation $5,000.00 (the Fourth Transaction). Greenberg did not personally guarantee this obligation and no written document was prepared setting forth the terms of that transaction.
During the period 1974-80, Guth had "sporadic, but continuing" conversations with Greenberg about "how matters were proceeding with the health clubs." During the early part of that period, Greenberg indicated that "it was going fine," and "they were doing well." Guth received written status reports from Greenberg as required by the notes. These reports were prepared on corporate stationery and were received through 1976. Generally, the reports showed monthly interest earned and the balance of principal and interest due the lender. Guth received no status reports after December 31, 1976.
In addition, Guth received copies of Internal Revenue Service forms 1099, "Statement for Recipients of Interest Income," for the years 1974, 1975, and 1976. These forms were prepared in the name of Hamlet for the accounts of both Guth and his daughter. Also, Guth testified that two payments were received "by check" in the amount of $500.00 each on the daughter's account in April and May, 1977.
During 1977, when Guth failed to receive a status report, he called Greenberg by telephone to inquire about "how the thing was going...." According to Guth, Greenberg said "things were going not too badly." Later in 1977, Guth "started asking more questions" of Greenberg and learned that one of the health clubs with which Greenberg was dealing had closed. However, Guth "got the impression" that the customers had been assigned to another exercise facility and would continue to pay on their contracts. Thus, he thought there was not "any great cause for [alarm]." But at one point in 1977 Greenberg advised Guth that he "had written off his own loans" to the corporation and he encouraged Guth to do likewise on his 1977 income tax returns. Guth testified he did not follow the advice in 1977 but that he did "write off" the loans later, probably on his 1980 tax return.
In August 1978, Guth "was requesting" Greenberg to repay the loans. Greenberg told Guth that "his lawyer [was] looking into the problem, ..." and "that he would discuss specifically on how he would repay the loan in a few months." In January of 1979, according to Guth, Greenberg told him that his lawyer was "pursuing recovery from the health spas." At that time, Guth said, he "was given to understand" that Greenberg "would make a settlement with me to pay off these loans."
In a letter addressed to Greenberg dated March 31, 1980, an attorney for Guth and his daughter demanded repayment of the outstanding balances of the four loans consisting of principal and accrued interest. After this suit was filed in July of 1980, counsel for the plaintiffs made another demand for repayment in a letter dated August 20, 1980 addressed jointly to Hamlet and Greenberg.
The plaintiffs' amended motion for judgment sought recovery on several theories against the defendants jointly and severally. The first three counts were based on the writings of the First, Second, and Third Transactions. The fourth count sought recovery of the amount allegedly due under the Fourth Transaction on the basis of a loan "which defendants promised to repay." The fifth count sought recovery of the amounts...
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