Keys v. Rehabilitation Centers, Inc., CA-59114

• Decision Date: 12 December 1990
• Docket Number: CA-59114
• Court: Mississippi Supreme Court
• Parties: Ras KEYS and Pauline Keys v. REHABILITATION CENTERS, INC. 07-

Page 579

574 So.2d 579

Ras KEYS and Pauline Keys v. REHABILITATION CENTERS, INC.

07-CA-59114.

Supreme Court of Mississippi.

Dec. 12, 1990.

Matthew Harper, Jr., Harper Braham & Associates, Laurel, for appellants.

John S. Knowles, III, Bates Brantley & Knowles, Jackson, Eugene C. Tullos, Tullos & Tullos, Raleigh, for appellee.

Before HAWKINS, P.J., and ROBERTSON and BLASS, JJ.

ROBERTSON, Justice, for the Court:

I.

This is a suit for indemnity, contractual variety. A shareholder in a close corporation sold his interest to his co-shareholder, and the selling shareholder agreed to hold the corporation and others harmless for one-half of outstanding contingent liabilities, one of which was an uninsured tort claim arising out of the death of a child. The corporation later settled the wrongful death claim and sued the selling shareholder for his pro-rata share.

We hold the indemnity agreement created a valid and subsisting obligation in favor of the corporation. The trial court failed to submit to the jury the question whether the corporate indemnitee paid under compulsion, and we reverse and remand that this issue may be appropriately litigated.

II.

Rehabilitation Centers, Inc. is a Mississippi corporation organized in 1975. Its principal shareholders are Dr. James Otis Stephens, his wife, together with Joseph Lawrence Stephens, their son. The corporation does business in Simpson County, Mississippi, where it operates a residential center for handicapped children known as Millcreek. Rehabilitation Centers, Inc. (sometimes "Millcreek" or merely "the corporation") was the Plaintiff below and is the Appellee here.

Ras Keys and Pauline Keys are husband and wife and were shareholders in the corporation when it was formed. Ras Keys is a life-time resident of Simpson County and is the pastor of Holy Bible Church in Magee, Mississippi. Keys and Dr. Stephens first met in 1969 and were involved in several ventures before forming the corporation, of which at all relevant times Keys was the president. Keys also served as the administrator for the Millcreek school and residential center.

The life and death of young William B. Killen forms an important backdrop. William was an autistic child who was enrolled in Millcreek in 1976 when he was five years old. On Good Friday of 1982--April 9, to be exact--William became separated from the other students and was later found in a nearby creek, drowned.

Months before young William's death, Ras Keys had begun negotiating with Dr. Stephens for the sale of the Keyses' interest in Millcreek to Dr. Stephens and his son. The Keyses and the Stephenses were represented by separate lawyers. On May 13, 1982, just a little over a month after William's death, the negotiations bore fruit formally memorialized in a written purchase agreement, wherein Dr. Stephens and his son offered to purchase the Keyses' interests in the corporation and several related businesses, partnerships and the like. Ras Keys and Pauline Keys formally responded with their formal written acceptance. The parties designated July 1, 1982, as the date for closing, their primary concern timewise being that approval for the sale would have to be secured "from the Mississippi Health Care Commission and other regulatory authorities."

The purchase agreement identified each property, real, personal and mixed, the Keyses would be selling to the Stephenses and further described the purchase price, terms of payment, and included other miscellaneous provisions. Of particular concern, Article II, Section 5, provided:

Sellers shall assume and be responsible for one-half ( 1/2) of any contingent liability arising out of any act or omission occurring prior to June 30, 1982, which arises out of the operation of Partnership or Corporations; however Corporations shall pay all legal fees incurred in defense of said acts or omissions. Sellers further agree to remain as co-signers with Purchasers on mortgages payable to Standard Life Insurance Company, First National Bank and State Guaranty Bank.

On July 1, 1982, the Stephenses and the Keyses, together with their lawyers, convened for the closing of the sale. The lawyers had prepared a number of instruments to be signed at closing, including deeds to several properties and a bill of sale to be executed by the Keyses, promissory notes and a deed of trust to be executed by the Stephenses, and finally, pursuant to Article II, Section 5, a separate indemnity agreement ¹ which was executed by the Keyses and delivered to the Stephenses.

The indemnity agreement is the subject of the present action, and, as much is made of its differences in verbiage from the terms of the purchase agreement, two points should be noted. First, the indemnity agreement provides that the Keyses obligated themselves

... to indemnify and hold harmless said corporation and Dr. James Otis Stephens.

The purchase agreement is not inconsistent. It simply did not specify in whose favor the indemnity ran, providing merely that the Keyses would be responsible for one-half of any contingent liability arising out of any act or omission of the corporation prior to June 30, 1982. Second, the indemnity agreement provided that the Keyses would be responsible for one-half "of any contingent liability, action, proceedings, claims, or demands," whereas the purchase agreement merely provided that the Keyses would be responsible for one-half of any "contingent liability."

In any event, the sale was closed on July 1, 1982, without untoward event, and all was well until November 4, 1982, when the mother of William B. Killen filed an action for the wrongful death of her son in the Circuit Court of Simpson County, naming Rehabilitation Centers, Inc., and others as defendants. The Killen complaint charged that the corporation and Ras Keys, as its president and administrator, were responsible for the safety of William while he was enrolled at Millcreek and that they were negligent and careless in their duties, in consequence of which William met his death. Young Killen's mother also named Keys as a defendant and a party having liability by reason of his obligation to indemnify the corporation incident to the sale of his interest to Dr. Stephens and his son. The complaint demanded $1,500,000.00 in damages plus costs.

Of great concern to all was the fact that none of the defendants had liability insurance covering the claim for the death of the Killen boy.

Pre-trial matters proceeded apace in the wrongful death action and, in time, Millcreek saw that it had considerable exposure and decided the suit should be settled. Through counsel Millcreek contacted Ras Keys and demanded that he honor his indemnity obligations and consent to the settlement and participate therein. Keys at all times steadfastly refused, maintaining that Millcreek was without negligence and that the action could be successfully defended at trial. Notwithstanding, Millcreek effected and consummated a settlement of the wrongful death claim paying William Killen's survivors some $60,000.00. On November 30, 1983, the Circuit Court of Simpson County entered an agreed order of dismissal of the Killen wrongful death claim.

For some time thereafter, Millcreek endeavored to obtain a contribution from the Keyses. These demands were refused and finally, on June 22, 1984, Millcreek filed the present action in the Circuit Court of Simpson County, Mississippi, asserting that Ras and Pauline Keys were liable under the indemnity agreement and demanding damages by reason thereof. After considerable pre-trial wranglings, the matter was called for trial on May 20, 1987, and in due course the jury returned a verdict that the Keyses were indeed liable to Millcreek under indemnity for one-half the wrongful death settlement, or the sum of $30,000.00, and final judgment was entered thereon. The Keyses moved the Circuit Court for judgment notwithstanding the verdict or, in the alternative, for a new trial. On September 23, 1987, the Circuit Court entered its order denying the motion. The Keyses now appeal to this Court urging reversal.

III.

Formalistically, the Keyses argue that their indemnity obligations are governed by the May 13, 1982, purchase agreement and not by the indemnity agreement delivered at closing on July 1, 1982, and from this they assert a number of points suggesting reversal. The short answer is that their fundamental premise is wrong. The purchase agreement by its terms was both precatory and obligatory. It obligated the parties to buy and sell respectively, subject to conditions, but it was not the sale itself. By its terms, it contemplated a closing a little over six weeks later, or whenever the necessary administrative approvals were obtained. At closing the terms of the purchase agreement merged into the closing documents: the deeds, bill of sale, promissory notes, and the indemnity agreement. The closing documents themselves subsumed the comparable provisions of the purchase agreement. West v. Arrington, 183 So.2d 824, 827 (Miss.1966); Brown v. King, 214 Miss. 437, 58 So.2d 922, 923 (1952).

To be sure, obligations and rights conferred by the purchase agreement remained viable according to their terms and to the extent not supplanted by the closing documents. Knight v. McCain, 531 So.2d 590, 594-95 (Miss.1988). But the matter is different with respect to those rights and obligations of the purchase agreement where the parties delivered consummating agreements at closing. The purchase agreement served as a measure for the closing documents. Had one party or the other sought to secure execution of a note, a deed--or an indemnity agreement--not in conformity with the purchase agreement, the other could of right have complained. If the Stephenses had tendered to the Keyses an indemnity agreement that varied from the provisions of the purchase agreement, the Keyses of right may have complained and if, in fact, the indemnity agreement had varied substantially from...