Nineteen Corp. v. Guaranty Financial Corp.
| Decision Date | 17 March 1969 |
| Docket Number | No. 5--4697,5--4697 |
| Citation | 246 Ark. 400,438 S.W.2d 685 |
| Court | Arkansas Supreme Court |
| Parties | NINETEEN CORPORATION, Appellant, v. GUARANTY FINANCIAL CORPORATION, Appellee. |
John Harris Jones, Pine Bluff, for appellant.
Coleman, Gantt, Ramsay & Cox, Pine Bluff, for appellee.
This litigation originated in the Chancery Court of Jefferson County, Arkansas. The appellee was the plaintiff in the lower court. The complaint alleges that Guaranty Financial Corporation, the plaintiff, was the owner of all of the outstanding capital stock of Universal Insurance Company. That on or about October 1, 1967, it entered into a written contract with the defendant, Nineteen Corporation, a corporation organized and existing under and by virtue of the laws of Texas, whereby the plaintiff agreed to sell and the defendant agreed to purchase all of the outstanding common stock of the Universal Insurance Corporation pursuant to a written contract, a copy of which was attached to the complaint. The contract recites a cash consideration of $141,000 and a further consideration of the transfer of $175,000 in principal amount of first real estate mortgage loans qualifying as investments under the insurance laws of the State of Arkansas. The total consideration was therefore $316,000. The execution of this contract is admitted by the defendant, Nineteen Corporation.
The first sentence of paragraph 3 of the complaint reads as follows: 'Subsequent to the execution of the contract for the sale of stock between the parties made Exhibit 'A' to this complaint, H. M. Weisenbaker, president of the defendant, requested the plaintiff to conclude the sale of the stock of Universal Insurance Company (which will hereafter be referred to for simplicity as 'Universal') by the exchange of a promissory note of Nineteen Corporation to be secured by a collateral pledge of the stock being purchased from Universal Insurance Company and a first mortgage lien upon certain real estate in Oklahoma City in lieu of the amount to have been paid in cash under the said contract for sale of stock.' This sentence was also admitted to be true by defendant.
The next sentence of paragraph 3 of the complaint, that is, the second sentence, alleges as follows: 'In addition he requested that the amount of the qualifying first real estate mortgage loans to be transferred by the defendant to the plaintiff under the contract for sale of stock be reduced from $175,000 as therein provided to $147,557.24, which was the principal balance of first real estate mortgage loans held by Universal on October 23, 1967.' The defendant denied the allegations of said second sentence of said paragraph 3 but admitted as alleged by the complaint that on October 23 it made, executed and delivered to the plaintiff its collateral promissory note and pledge agreement in the sum of $145,772.27 as described in the third sentence of said third paragraph. This new note was secured by a pledge agreement in which the 150,000 shares of common stock of the insurance company were pledged and there was also mortgaged an interest in certain real property in Oklahoma.
The original written contract of sale which provided for a consideration of $141,000 in cash and $175,000 in mortgage loans further provided that the $175,000 worth of mortgage loans paid as a portion of the consideration would be transferred by Guaranty Financial Corporation to the insurance company in exchange for first mortgage loans then on hand in the insurance company. No cash consideration was ever paid. A note in the sum of $145,772.27 was delivered on October 23rd to plaintiff, Guaranty Financial Corporation. On the same date, pursuant to the contract of sale, the then existing officers and directors of the insurance company resigned and the new stockholder, Nineteen Corporation, elected new officers and directors. The new officers and directors then transferred to Guaranty Financial Corporation the notes and mortgages held by the insurance company which had a principal amount of $147,557.24. Nineteen Corporation, however, never transferred any mortgage notes to Guaranty Financial Corporation which might be exchanged for the mortgage notes of the insurance company as contemplated by the contract of sale.
The complainant then sued and asked judgment for the amount of the note with interest and for the principal value of the mortgages, making a total amount of $293,329.51 plus interest and attorneys fees. It requests foreclosure of the pledge on the common stock of the corporation.
The defendant's original answer alleged a mutual rescission of the sale and note on or about October 26, 1967. It appears that on or about said date the officers of the insurance company, who had been elected by the defendant Nineteen Corporation, resigned. Guaranty Financial Corporation then nominated and elected new directors and officers of the insurance company and the mortgage notes which had been transferred from the insurance company to Guaranty Financial Corporation were retransferred by Guaranty Financial Corporation to the insurance company. Defendant Nineteen Corporation then filed its amended and substituted answer and counterclaim and in this answer made the admissions and denials above referred to. The defendant also pleaded that the note and mortgage described in paragraph 3 of the complaint were usurious and void and pled usury as a full and complete defense. Defendant prayed that the complaint be dismissed, that plaintiff be ordered to surrender to defendant the stock of the insurance company, that the collateral promissory note, pledge agreement and real estate mortgage be cancelled and annulled, and all other proper relief.
At the time of the trial only one witness testified for the plaintiff. This witness was Mr. McCarty, who was the president of Guaranty Financial Corporation. The original contract of sale was introduced. The testimony then was that there were various negotiations for the amendment of the contract whereby in lieu of the $141,000 cash payment...
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