Kennett-Murray Corp. v. Bone

Decision Date01 August 1980
Docket NumberKENNETT-MURRAY,No. 78-3590,78-3590
Citation622 F.2d 887
PartiesCORPORATION, Plaintiff-Appellee, v. John E. BONE, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Theodore L. Hall, Mobile, Ala., for defendant-appellant.

Michael J. Salmon, Mobile, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Alabama.

Before AINSWORTH and CHARLES CLARK, Circuit Judges, and HUNTER *, District Judge.

AINSWORTH, Circuit Judge:

In this Alabama diversity case, Kennett-Murray Corporation (Kennett-Murray) brought suit against John E. Bone seeking recovery on a promissory note and an employment contract. Bone's defense was that no consideration existed for the note because he was fraudulently induced to sign the employment agreement. The district court granted Kennett-Murray's motion for summary judgment. On appeal, Bone argues that the district court improperly disregarded his affidavit which he claims raised a genuine issue of material fact. We agree, and accordingly reverse the grant of summary judgment.

Appellant Bone was employed by Kennett-Murray in July 1974 as the manager of its newly-acquired stockyard located in Linden, Alabama. Shortly after commencing work, Bone signed an employment contract covering the fiscal year running from May 1, 1974 until April 30, 1975. The contract provided that he would receive a weekly salary of $200 plus 50% of the stockyard's net profits. The contract also provided, in paragraph 3(a), that

(i)f the Division shall suffer a net operating loss in any year during the term of this agreement, including any extension hereof, such loss shall be applied against future net profits during the term of this agreement, including any extension thereof, so that the amount of compensation which JOHN E. BONE shall be entitled to receive shall be the net profits for the current year reduced by net losses, if any, in prior years which have been previously applied against net profits. (emphasis supplied)

The 1974 contract was for a one-year term.

On June 28, 1975, Bone met with John Speights, Vice-President of Kennett-Murray, for the purpose of signing an employment contract to replace the expired 1974 agreement. Accordingly, Bone signed a new contract as well as a promissory note evidencing his liability to the corporation in the amount of $10,487.50. The 1975 contract was similar in length and form to the 1974 agreement with one major exception. Unlike the earlier version providing that any net losses would act to offset Bone's share of future profits, the 1975 contract made Bone personally liable to the corporation for one-half of all net losses. Specifically, paragraph 3(c) of the 1975 agreement provided that

(i)n the event that the Division shall incur a net operating loss for any such fiscal year (starting with the fiscal year beginning May 1, 1974), then Employee agrees to pay to K-M an amount equal to the Employee's Percentage of any such loss. Any such sum which may be owed to K-M by Employee shall be established upon the books of K-M as a receivable from Employee. Employee shall not be entitled to receive a bonus in subsequent years until the full amount of the net operating loss incurred by such Division has been recovered, so that the bonus received by Employee in subsequent years shall be the net profits for such year, reduced by any net losses incurred in prior years. In the event that such losses shall not be recovered within the following two fiscal years, then Employee agrees to pay the amount of his outstanding account owed to K-M when requested by the Board of Directors of K-M. (emphasis supplied)

The new agreement effectively rescinded the earlier contract's provision dealing with the treatment of losses since it provided that the new loss-sharing arrangement would begin with the fiscal year commencing May 1, 1974, which included the period covered in the 1974 contract. The promissory note signed by Bone reflected this change as its face value purported to represent Bone's share of the stockyard's losses for the 1974 fiscal year.

Bone continued to manage the Linden operation until he tendered his resignation on March 14, 1977. On March 17, Kennett-Murray wrote Bone advising him of his obligations under the 1975 contract for the stockyard's losses. The letter stated that Bone's share of the losses for the fiscal year beginning May 1, 1975 and ending April 30, 1976 totalled $16,823.50 and that further losses were expected for the subsequent fiscal year in an amount to be determined by the corporation's accountant. The letter from Kennett-Murray also notified Bone that the promissory note signed on June 28, 1975 representing his share of the losses for the 1974 fiscal year was now due and payable according to the terms of the note.

Bone refused payment on any of the demands, and Kennett-Murray brought suit in federal district court seeking enforcement of the promissory note and the 1975 employment contract. 1 In his answer to the first cause of action, Bone stated that he was not indebted to Kennett-Murray on the promissory note since he owed the company nothing as of June 28, 1975, when he met with Speights to sign the new contract, and that there existed no consideration for the making of the note. With respect to the employment contract, Bone simply averred that he was "not indebted to the Plaintiff." (Rec. p. 10). Bone also requested a jury trial.

Discovery followed and Bone's deposition, of particular importance to the resolution of this appeal, was taken on February 23, 1978. In the seventy-page deposition, Bone was questioned on his complete employment history with Kennett-Murray. In light of the allegations made in the original answer, much of the deposition focused on the specific events of the June 28 meeting between Bone and Speights when the note and contract were signed. At one point in the deposition, Bone stated that Speights "didn't say anything" about either the note or the employment contract (Bone Deposition p. 27), except that Speights said he wanted the note signed so that the president of Kennett-Murray would "get off his back." (Bone Deposition p. 26). Bone admitted that he never read the contract, and explained his failure to do so because he thought that it was the same as the 1974 contract. Thus, the deposition contains statements that Speights said nothing to Bone about either document that could be construed as a fraudulent misrepresentation. Yet, other statements call this interpretation into question. With respect to the note, Bone testified that he "was led when (he) signed this note to believe that (the money) was to go back in the barn for the operation expense." (Bone Deposition p. 23). Furthermore, Bone reiterated his reasoning for not reading the contract by stating that he "thought it was just like the first one, because he (Speights) said it was the same contract." (Bone Deposition p. 60).

On April 21, Bone moved for leave to file an amended answer under Rule 15, Fed.R.Civ.Proc. 15. Kennett-Murray opposed the motion. Initially, leave to amend was denied, but upon motion to reconsider, the district court permitted amendment. Under the amended answer, Bone claimed that at the time of the signing of the promissory note, Speights told him that the "money would go back into the Linden operation" and not be an obligation of Bone's to the corporation. Bone asserted that this representation was both false and material. As regards the employment contract, Bone claimed that Speights represented that it was the same as the earlier agreement. Thus, even though Bone did not read the contract, his "failure to read said agreement was induced by the false and material representation" made by Speights and relied on by Bone. (Rec. 76).

Prior to trial, Kennett-Murray moved for summary judgment on the basis of the pleadings, the joint pre-trial order filed by the parties, and various depositions of which Bone's deposition was the most important. Bone opposed the motion arguing that genuine issues of material face existed which precluded the grant of summary judgment. Along with his written opposition to the motion, Bone submitted a two-page affidavit in which he explained parts of his earlier deposition testimony. Specifically, the affidavit supported his allegations of fraud contained in the amended answer in that Bone stated in his affidavit that Speights "said something to the effect that this contract would serve to renew my first contract and that they were just alike or that they were the same contract." 2

On August 24, 1978, the district court granted Kennett-Murray's motion for summary judgment relying primarily on statements in Bone's deposition that Speights had not made any representations about either the note or the employment contract. The district court expressly discounted the issue raised by Bone's affidavit on the ground that it was inconsistent with his deposition testimony. "The defendant's affidavit in opposition to summary judgment contradicts his own deposition with respect to whether the agent (Speights) made any representation at all to him concerning the contract and, the Court is convinced, is not to be given great weight." (Rec. 104). Judgment in favor of Kennett-Murray was entered on both counts of the complaint. 3

The only issue presented on appeal is the propriety of the grant of summary judgment. Under Rule 56, summary judgment can only be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). The burden of proof falls upon the party seeking the summary judgment, and all reasonable doubts as to the existence of a genuine issue of material fact "must be resolved against the moving party." Keiser v. Coliseum Properties,...

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