Lincoln Land Co. v. Palfery

• Court: Georgia Court of Appeals
• Writing for the Court: DEEN; BELL, C.J., and QUILLIAN
• Citation: Lincoln Land Co. v. Palfery, 130 Ga.App. 407, 203 S.E.2d 597 (Ga. App. 1973)
• Decision Date: 26 November 1973
• Docket Number: No. 1,No. 48515,48515,1
• Parties: LINCOLN LAND COMPANY et al. v. John G. PALFERY et al

Page 597

203 S.E.2d 597

130 Ga.App. 407

LINCOLN LAND COMPANY et al. v. John G. PALFERY et al.

No. 48515.

Court of Appeals of Georgia, Division No. 1.

Nov. 26, 1973.

Rehearing Denied Dec. 6, 1973.

Syllabus by the Court

1. (a) In this action for damages by a group of owners of subdivision lots resulting from a grossly inadequate water supply, where it appeared that the corporate owner, through its promotion literature and sales representations, had knowingly induced these plaintiffs and others to purchase in the belief that an adequate water system was available when the corporation itself was well aware of the fact that this was untrue; where all assets of the defendant developer were shortly before this suit transferred to another corporation, and where the three individual defendants were the sole officers, stockholders and directors of both, it became a jury question whether the corporate entity of the original corporate defendant had been pierced so as to permit the other parties to be joined in the action. (b) The liability of Lakewood Corporation is limited to the assets transferred to it by the individual defendants, acting as officers and directors of Lincoln Land Company, from that company.

2. The Long Arm Statute enables Georgia to exercise personal jurisdiction over nonresidents as to causes of action arising out of their transaction of business in this state. Since, as stated in the preceding headnote, such a right of action is shown, the nonresident defendants Lakewood Corporation and the owners Blades, Habit and Goodwin, were properly served with process under the statute.

3. (a) The plaintiffs alleged a right of action as beneficiaries of contracts to supply water between Lincoln Land Company and lot purchasers. (b) They also alleged a right of action as beneficiaries of a trust agreement for the same purpose between Lincoln Land Company and the Bank of Gainesville as trustee of the water distribution system.

4. No error appears in relation to the nuisance count of the petition which was submitted to the jury as a claim for damages resulting from a private nuisance.

5. The court has a fairly wide discretion in the joinder or separate trial of counterclaims of the various litigants. In view of the complexity of issues raised and the fact that additional proof would be demanded it was not error to sever for separate trial the counterclaim against the lot owner plaintiffs for failure to pay tap-on fees and water bills.

6. No reversible error regarding measure of damages appears. Depreciation of rental value was pertinent to the damages sustained during the years there was a failure of water, as also was evidence of alternatives facing the defendant developer for correcting the matter.

7. A statement by a witness, not responsive to the question asked, to the effect that a certain set of facts is common knowledge was properly stricken on objection.

8. There was no error in overruling the motion for mistrial.

9. An enumeration of error that the evidence showed the claims were barred by the statute of limitation goes to the evidence as to all plaintiffs and all counts generally. Although the answers had raised the defense of statute of limitation as to certain counts of the petition, the issue was not alluded to during the trial, no ruling of the trial court was invoked, and the evidence does not demand a finding that the totality of the claims are barred.

10. The remaining enumerations of error are without merit.

The defendants Blades, Habit and Goodwin are residents of North Carolina and president, vice president and secretary respectively, as well as Board of Directors and owners of the stock of the defendants Lincoln Land Company, a McDuffie County, Georgia, corporation, and Lakewood Corporation, a South Carolina corporation. The plaintiffs are purchasers of lots in Oak Hills Estates, a real estate development in Hall County, Georgia initiated by Lincoln Land Co., and the remaining assets of which were on September 1, 1970, transferred to Lakewood Corp., along with certain liabilities in the form of notes payable, principally one to Blades in the sum of $40,537.21.

The complaint is in four counts. The first count alleges that the individual defendants caused the transfer of assets to the alter ego, Lakewood Corp., for the purpose of defrauding the plaintiffs and others similarly situated, knowing when they offered the subdivision lots for sale that the water supply was insufficient to support the subdivision but nevertheless falsely representing that it was adequate, on the basis of which the plaintiffs and others purchased lots; that they are still without adequate water, and that the transfer of assets is a scheme for rendering Lincoln Land Co. insolvent and channeling assets to the payment of Blades' note, while the lots, without an adequate water supply, are virtually worthless to the purchasers and homeowners.

Count 2 alleges in addition that the plaintiffs are beneficiaries of a contract between Lincoln Land Co. and the original lot purchasers in which an adequate water supply system is guaranteed.

Count 3 alleges that the plaintiffs are beneficiaries of a trust agreement between Lincoln Land Co. and the First National Bank of Gainesville, reciting that the company is the owner of a water system, including wells, plant and distribution system servicing the lots of Oak Hills Estates; that the FHA will not insure mortgage loans without assurance of continuous and satisfactory operation of a water system, and that the grantor, in delivering the system in trust to the grantee, has the purpose of providing an adequate water system for each of the properties connected thereto regardless of ownership. 'This indenture is for the benefit of the present and future owners of all and each of the properties now or hereafter connected to Trust Property, as well as the holders of any mortgages covering any of said properties.' The plaintiffs as beneficiaries of the trust allege status for suit for breach of the trust agreement.

Count 4 alleges that the inadequate condition of the water facilities constitutes a public nuisance deleterious to the public health, safety and comfort.

The nonresident defendants were served under the Long Arm Statute, and filed various defenses on the ground of lack of proper service, including pleas to the jurisdiction. Thereafter they moved that the jurisdictional questions be tried separately. The court overruled the motion, but provided a form of verdict in which this question would be separately decided. Also, the defendants filed a counterclaim charging delinquency of certain of the plaintiffs in failing to pay water bills. They except to the court's ruling that the counterclaim should be held for separate determination.

A trial resulted in a jury verdict finding damages of $50,000 against all defendants, and finding against all pleas to the jurisdiction. Motions for directed verdicts as to the various counts of the petition were also denied. These and other trial incidents are enumerated as error.

Smith & Millikan, Harmon T. Smith, Jr., Gainesville, Heard, Leverett & Adams, E. Freeman Leverett, Elberton, for appellants.

Tolford, Stewart & Stephens, Charles W. Stephens, Gainesville, for appellees.

DEEN, Judge.

1. (a) The evidence here shows certain things without dispute, such as that the three individual defendants Blades, Habit and Goodwin constituted all of the officers, stockholders and board of directors of Lincoln Land Co., and also all of the officers, stockholders and board of directors of Lakewood Corporation at all pertinent times; that Lincoln transferred all of its assets and liabilities to Lakewood except the management of the water system and that this removed any possibility of collection of damages out of Lincoln, which either was insolvent prior to the transfer or was rendered insolvent by the transfer. There was uncontested testimony that Lakewood was insolvent after the transfer, but it should be noted that over two thirds of the listed debts of Lincoln were comprised in a note from it to its officer Blades which was also shifted to Lakewood. No adequate reason was ever given for stripping Lincoln. One affidavit states this marks return of an unspecified development loan. It does not appear that Lakewood either gave or received anything as consideration for the assignment to it, but only that it remained an inert vehicle for the separation of Lincoln's financial affairs other than the management of the water system of the subdivision in which it had just finished selling the last few lots. Further, there is uncontroverted testimony that at this same time the water system itself was offered to a third party 'at a ridiculously low price,' according to the proposed purchaser, although he did not state the amount. At the time these negotiations took place there is some testimony to the effect that the individual defendants, as such stockholders, officers and board of directors, were aware that the aroused owners of the waterless lots were in fact contemplating legal action.

It is also uncontested that the corporation as such sold all of the lots in this subdivision to these plaintiffs, their predecessors in title, and others similarly situated, and that as to them all representations were made on corporate flyers and leaflets, as well as by the employees of the corporation, that water was abundantly available to the potential householder. It is true that these representations might have been made innocently during the first lot sales, but it is at least an authorized inference from the evidence as a whole that by 1966, when approximately half the lots were sold, the corporate management with knowledge that there was a very severe unsolved water problem continued its misrepresentations in this area and continued its sale of lots, thus aggravating the problem. Officers and directors of a corporation may be liable in an action...