Hoffman v. McLaughlin Corp., 94-343-A

• Court: Rhode Island Supreme Court
• Writing for the Court: LEDERBERG; FLANDERS
• Citation: Hoffman v. McLaughlin Corp., 675 A.2d 404 (R.I. 1996)
• Decision Date: 26 April 1996
• Docket Number: No. 94-343-A,94-343-A
• Parties: Allen R. HOFFMAN et al. v. McLAUGHLIN CORP. et al. ppeal.

Page 404

675 A.2d 404

Allen R. HOFFMAN et al. v. McLAUGHLIN CORP. et al.

No. 94-343-Appeal.

Supreme Court of Rhode Island.

April 26, 1996.

Richard P. McMahon, Marifrances McGinn, Providence. for Plaintiffs.

John B. Lawlor, Jr., Providence, Daniel V. McKinnon, Pawtucket, for Defendants.

OPINION

LEDERBERG, Justice.

This breach-of-contract case came before the Supreme Court on the appeal of the defendants, McLaughlin Corporation and Walter F. McLaughlin (McLaughlin), from a judgment on a directed verdict ¹ entered for the plaintiffs, Allen R. Hoffman (Hoffman) and Celia W. Hoffman. On appeal the defendants argued that the trial justice erred when he applied the termination clause of the contract in question so as to preclude the defendants from showing a material breach of that contract by Hoffman. Because this Court is evenly divided on this issue, the judgment of the Superior Court is sustained. We summarize the facts pertinent to the issues raised in this appeal.

Facts and Procedural History

On July 23, 1986, defendants and plaintiffs entered into an asset-purchase agreement, pursuant to which defendants acquired from plaintiffs the assets and liabilities of Manna-Hoffman Supply Company, Inc., (Manna-Hoffman) d.b.a. W.E. Davis and Company (Davis) in exchange for a stated purchase price of $500,000. At the closing, on September 30, 1986, defendants delivered a bank check payable to Manna-Hoffman in the amount of $250,000 and executed a promissory note in favor of Manna-Hoffman in the amount of $250,000, payable in monthly installments over a seven-year period. On the same date, the parties executed a security agreement, whereby Hoffman and Manna-Hoffman took a security interest in all of that company's inventory, receivables, and equipment to secure payment of the note. The parties also entered into a twelve-year consulting agreement, whereby defendants agreed to pay Hoffman $50,000 per year in monthly installments for his services as a consultant. In a separate guaranty agreement, Walter F. McLaughlin (McLaughlin) personally guaranteed payment of any obligations owed Manna-Hoffman under the promissory note and the consulting agreement.

Although both parties agreed that the consulting agreement was a crucial element of the purchase and sale "package," each characterized the agreement quite differently. The plaintiffs posited that the consulting agreement constituted deferred payment of the purchase price and consideration for the covenant against competition by Hoffman. The plaintiffs further contended that the provisions that set forth Hoffman's consulting duties were "at best incidental." The defendants, on the other hand, argued that the consulting services required of Hoffman, pursuant to the terms of the consulting agreement, represented a key contractual obligation that was subsequently breached by Hoffman.

Soon after the sale, Davis began experiencing a substantial loss in business to the point where two of its stores were forced to close by December 1988. The defendants contended that Hoffman's disregard of the managerial duties required by the terms of the consulting agreement was a substantial cause of the dramatic decline of Davis in the months immediately after the sale. McLaughlin testified that informal attempts to have Hoffman correct the problems had failed. The defendants sent letters in May and June 1988, seeking to address their grievances with Hoffman and to terminate the consulting agreement on an amicable basis. When these attempts to settle the dispute with Hoffman failed, defendants sent a written notice to Hoffman, pursuant to section 2.3 of the consulting agreement, stating that because of Hoffman's material breach, defendants were terminating the consulting agreement. Thereafter, defendants suspended payments to Hoffman, following which action Hoffman sued defendants, alleging breach of the consulting agreement.

At the close of plaintiffs' case, defendants moved to dismiss plaintiffs' complaint on the basis that the consulting agreement was unenforceable because it was an illusory contract, but the motion was denied. At the end of trial, the trial justice granted plaintiffs' motion for a directed verdict, entered judgment for plaintiffs, awarded damages for repudiation of the contract's obligations by defendants including interest and attorneys' fees in the total of $990,035.15, and dismissed defendants' breach-of-contract counterclaim.

On February 10, 1994, defendants filed a notice of appeal from the directed verdict, pursuant to G.L.1956 § 9-24-1. On October 13, 1994, this Court assigned the case to the regular calendar for full briefing and argument.

Standard of Review

In reviewing a trial justice's decision on a motion for directed verdict, this Court is bound by the same rules and...