Hughes v. Mitchell Co., Inc.

• Decision Date: 09 April 2010
• Docket Number: 1060109 and 1060201.
• Parties: Connie HUGHES, as personal representative of the estate of Charles J. Hughes, deceased v. The MITCHELL COMPANY, INC. The Mitchell Company, Inc. v. Connie Hughes, as personal representative of the estate of Charles J. Hughes, deceased.
• Court: Alabama Supreme Court

49 So.3d 192

Connie HUGHES, as personal representative of the estate of Charles J. Hughes, deceased

v.The MITCHELL COMPANY, INC.

The Mitchell Company, Inc.

v.Connie Hughes, as personal representative of the estate of Charles J. Hughes, deceased.

1060109 and 1060201.

Supreme Court of Alabama.

April 9, 2010.

Irvin Grodsky, Mobile, for appellant/cross-appellee Connie Hughes, as personal representative of the estate of Charles J. Hughes, deceased.

Donald J. Stewart and Ian D. Rosenthal of Cabaniss, Johnston, Gardner, Dumas & O'Neal, LLP, Mobile, for appellee/cross-appellant The Mitchell Company, Inc.

PER CURIAM.

On December 17, 2003, Connie Hughes, as personal representative of the estate of Charles J. Hughes, deceased ("Hughes"), sued The Mitchell Company, Inc., in the Mobile Circuit Court seeking recovery of past-due monthly installments on a promissory note. Both parties filed motions for a summary judgment as to all claims. The trial court entered a summary judgment in favor of Hughes in the amount of $1,677.01 plus interest and in favor of The Mitchell Company as to any additional amounts sought. Hughes appeals; The Mitchell Company cross-appeals. In case no. 1060109, we affirm the summary judgment in part, reverse it in part, and remand. In case no. 1060201, we affirm the summary judgment.

Facts and Procedural History

On or about January 25, 1996, Ken Christian and Julian Graddick purchased all the existing stock of Pleasure Island Realty, Inc. ("PIR"), a real-estate-sales, -leasing, and -management business, from Charles Hughes and Connie Hughes for a total purchase price of $650,000. As part of the consideration paid to the Hugheses, Christian and Graddick agreed to execute a written promissory note (hereinafter referred to as "the Hughes note") in the amount of $233,000 and payable in monthly installments, with interest at 8% per annum, of $1,948.91 for 20 years beginning on February 1, 1996 (hereinafter referred to as "the Hughes indebtedness"). The Hughes note was not produced in evidence. It has never been located, and Connie Hughes stated in her affidavit that she has never seen it. The Hugheses received the February and March 1996 payments on the Hughes indebtedness pursuant to the Hughes note.

On March 20, 1996, The Mitchell Company entered into a "purchase and sale agreement" with PIR, providing for the sale of certain property-management contracts held by PIR. The purchase and sale agreement specified a purchase price of $682,500, to be made up of a cash component, a $100,000 promissory note, and the assumption by The Mitchell Company of some of PIR's preexisting indebtednesses. Specifically, the purchase and sale agreement provided that The Mitchell Company "shall assume and pay in accordance with its terms that certain promissory note in the original amount of $233,133.00, by [PIR], as maker, in favor of [Charles] Hughes, as payee," a copy of which was referenced in the purchase and sale agreement as attached, although the note was not attached. The purchase and sale agreement also required The Mitchell Company to execute and deliver a promissory note payable to PIR in the amount of $100,000, with interest at 7% commencing March 31, 1996, to be paid in a payment of $25,000 with accrued interest on September9, 1996, with the balance of $75,000 and accrued interest to be paid on March 31, 1997 (hereinafter referred to as "the purchase note"). The purchase and sale agreement included a purchase-price-adjustment clause:

"The Purchase Price shall be increased or decreased on and as of March 31, 1997 in accordance with this Paragraph 3(c) (the 'Purchase Price Adjustment') and the remaining principal balance of the Purchase Note on that date shall be increased or decreased to reflect the Purchase Price Adjustment. If, during the period commencing March 31, 1996 and ending March 31, 1997 (the 'Adjustment Period'), gross rental commission income (but excluding housekeeping and maintenance fee income) actually received by [The Mitchell Company] from the Contracts and Future Contracts is less (or more) than $289,098.00, the Purchase Price shall be reduced (or increased) $2.36 for each $1.00 of shortfall (or overage) and the amount then due on the Purchase Note, including beginning principal and interest from March 31, 1996 on such new principal amount, shall be recalculated and paid. The Purchase Price Adjustment reduction or increase, if any, shall not be limited in amount. Any Purchase Price Adjustment decrease in excess of the amount of principal remaining unpaid under the Purchase Note shall be paid in cash by [PIR] to [The Mitchell Company] on or before April 15, 1997, and Ken Christian hereby personally guarantees the payment thereof."

The Mitchell Company paid the purchase note off early on June 24, 1996, for a discounted payment of $50,000.

After March 31, 1997, The Mitchell Company calculated the purchase-price adjustment and determined that PIR and Christian, as guarantor, owed The Mitchell Company a purchase-price adjustment of $171,549.13. PIR and Christian refused to pay the purchase-price adjustment, and The Mitchell Company then sued PIR and Christian in the Baldwin Circuit Court. See Mitchell Co. v. Pleasure Island Realty, Inc., Baldwin Circuit Court, CV-97-1109. On April 7, 1998, the circuit court entered judgment against PIR and in favor of The Mitchell Company in the amount of $171,549.13. That judgment has not been satisfied. The Mitchell Company and Christian agreed to a settlement and to a release of The Mitchell Company's claims against Christian personally for a payment of $20,000 made on December 20, 1999.

On July 9, 1997, Charles Hughes filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Alabama. In the disclosure statement and schedules filed under oath in that proceeding, Charles Hughes represented to the bankruptcy court and to his creditors that he owned only an "Undivided 1/2 interest in note receivable, Mitchell Co., full balance $222,277.00-Debtor owns 1/2 int." An order confirming Charles Hughes's Chapter 11 bankruptcy plan was entered by the bankruptcy court on May 18, 1998, and the bankruptcy case was closed on July 22, 1998. Charles Hughes died on December 7, 1999.

As of December 15, 1999, the unpaid balance on the judgment awarding the purchase-price adjustment, including accrued interest, was approximately $187,000, with ongoing interest accruing at the rate of 12%. In accordance with the Hughes note, The Mitchell Company had timely paid scheduled monthly payments on the Hughes indebtedness through December 1999. By letter of January 12, 2000, The Mitchell Company informed Connie Hughes that effective January 2000it would no longer be servicing PIR's obligation under the Hughes note. The Mitchell Company's position was based on its belief that it had no further obligation under the purchase and sale agreement with PIR to make payments on the Hughes indebtedness because the unpaid balance owed by PIR on the judgment, after applying both the $20,000 settlement payment from Christian and the accrual of the statutory 12% rate of interest on unpaid judgment, more than offset the remaining installments due on the Hughes indebtedness as those installments fell due.

On July 10, 2000, Connie Hughes individually sued The Mitchell Company as a third-party beneficiary of The Mitchell Company's contractual obligations to PIR under the purchase and sale agreement (that action will hereinafter be referred to as " Hughes I "). The Mitchell Company filed a motion to dismiss the action, asserting that Charles Hughes, who was deceased, was the sole payee of the Hughes indebtedness and, thus, that The Mitchell Company had no obligation to pay Connie Hughes individually. The circuit court held that the estate of Charles Hughes was an indispensable party and conditionally granted The Mitchell Company's motion to dismiss, the condition being that Charles Hughes's estate be added as a party within 30 days. The estate of Charles Hughes was added as a plaintiff, and both sides filed summary-judgment motions. The circuit court determined that

"Connie Hughes, as personal representative of the Estate of Charles Hughes, Sr. is entitled to summary judgment in her favor as a matter of law against [T]he Mitchell Company, Inc. for $60,416.21 principal, representing monthly payments through July 31, 2002, interest of $1912.66, representing interest on the principal portion of said monthly payments through July 31, 2002, and interest hereafter accruing,"

and that

"The Mitchell Company, Inc. is entitled to summary judgment as matter of law in its favor dismissing the claim of Connie W. Hughes, individually."

The Mitchell Company appealed, and this Court affirmed, without an opinion, the circuit court's judgment. Mitchell Co. v. Hughes (No. 1020023), 886 So.2d 904 (Ala.2003) (table).

Following the disposition of Hughes I, The Mitchell Company satisfied the judgment entered against it but failed to make any further payments that came due after July 31, 2002. On December 17, 2003, Hughes sued The Mitchell Company for recovery of the past-due monthly installments accruing from August 1, 2002, through December 17, 2003. Both parties filed summary-judgment motions. The circuit court entered a final judgment disposing of all claims, as follows:

"In considering de novo the arguments and authorities advanced by the parties in this case upon the facts presented, this Court concludes (a) that [The] Mitchell [Company's] position that it is legally entitled to offset the unpaid balance of its judgment against [PIR], with interest accrued and accruing at the judgment rate of 12%, against installments on the Hughes indebtedness as they mature is well taken; (b) that, consistent with the Order and Judgment in [ Hughes I ], [The] Mitchell [Company's] computation of the application of that offset is subject to adjustment based on a partial waiver of $77,625.00 of the offset

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