Rodway v. Arrow Light Truck Parts, Inc.

• Decision Date: 26 April 1989
• Parties: George A. RODWAY and Wilbur L. Shell, Plaintiffs, v. ARROW LIGHT TRUCK PARTS, INC., an Oregon corporation; Edgar A. Remington and Gregory V. Remington, Defendants. Gregory V. REMINGTON, Respondent, v. Joseph CODY, Appellant. A8611-06737; CA A47704.
• Court: Oregon Court of Appeals

Page 1349

772 P.2d 1349

96 Or.App. 232

George A. RODWAY and Wilbur L. Shell, Plaintiffs, v. ARROW LIGHT TRUCK PARTS, INC., an Oregon corporation; Edgar

A. Remington and Gregory V. Remington, Defendants.

Gregory V. REMINGTON, Respondent, v. Joseph CODY, Appellant.

A8611-06737; CA A47704.

Court of Appeals of Oregon.

Argued and Submitted Nov. 21, 1988.

Decided April 26, 1989.

Fred A. Granata, Portland, argued the case and filed the brief for appellant.

Steven C. Johnson, argued the cause for respondent. On the brief was Donald K. Robertson and Robertson & Johnson, Portland.

Before BUTTLER, P.J., and WARREN and ROSSMAN, JJ.

WARREN, Judge.

Third-party defendant Cody appeals a judgment based on the trial court's interpretation of an indemnity agreement.

On May 10, 1983, defendants Edgar Remington (Edgar) and Gregory Remington (Gregory) signed a lease between plaintiffs, as lessors, and defendant Arrow Light Truck Parts, Inc. (Arrow), Edgar and Gregory for premises to be used for Arrow's business. As of that date, the Articles of Incorporation for Arrow had been filed, but there had been no election of officers and directors and no shares had been issued. Edgar's signature on the lease was followed by the word "President." There was no title after Gregory's signature. Edgar testified that, although he wrote "President" after his signature, at the time of signing the lease there actually were no officers, only an intention by both of the Remingtons and Cody to become shareholders, officers and directors of Arrow, which they had done by the time the business begun operations on June 1, 1983.

In the spring or early summer of 1984, Gregory was removed from his positions as director and officer of Arrow, after which he was no longer involved with the corporation, except as a shareholder. He testified that he sold his shares to Cody at a very low price on December 21, 1984, ¹ in order to be absolved of any personal liability that he had undertaken for the corporation. He testified that he told Cody that he "wanted to be washed of it, and not be liable for anything" and that he asked the corporation's attorney to draft an agreement with an indemnity clause that would relieve him of "all liabilities as far as any debts or lease or anything." Cody testified that he did not recall any discussion of the indemnity clause, which follows:

"It is further expressly agreed that Cody, as further consideration for the transfer of said shares to Cody, shall indemnify and hold harmless [Gregory] Remington from any or all damage, expense, lien, claim, demand, taxes, or action, for which [Gregory] Remington may be found personally liable due to his status or activity as officer, director, or shareholder of Arrow Light Truck Parts, Inc., at any time from the date of formation of the corporation to the date of this agreement."

Beginning in December, 1984, the lessees failed to pay the rent and eventually accrued a liability of $20,000. Plaintiffs brought an action against defendants, including Gregory, for the unpaid rent and for other alleged damages to the premises. Gregory brought a third-party complaint against Cody, asking Cody to pay any damages awarded plaintiffs in the primary action against Gregory and to reimburse his litigation expenses, including attorney fees.

The trial court first heard plaintiffs' case. It found for plaintiffs but dismissed all claims for damages, except the rent and the value of a radiant heater. It then heard Gregory's third-party complaint and gave him a judgment for indemnity and defense expenses.

Cody argues that the indemnity provision did not cover Gregory's signing the lease in that he did not incur liability "due to his status or activity as an officer, director or shareholder." He first argues that Gregory incurred personal liability because he was a party to the lease, not because he was a guarantor of the corporate debt. Cody did not present this argument below, and we will not consider it.

Cody next argues that the corporation was not formed until after Gregory signed the lease, so that his obligation is personal. Gregory clearly had not formally become an officer, director or shareholder when he signed, although the corporation existed, because the Articles of Incorporation had been filed. ² ORS 57.316; ORS 57.321.

Evidence of the circumstances under which an agreement is made may be used in construing the meaning attributed by the parties to the words used in the instrument. ORS 42.220. When the stock sales agreement was signed, Gregory was no longer an officer or director of the corporation, having held those positions for about a year, and he no longer had any interest, except as a minority shareholder. The focus of Gregory's argument is that he was severing all ties with Arrow by the sale and was willing to sell to Cody at a low price so that he no longer would have any liability for any act that he had undertaken to further the interests of the corporation, including during the formative stages.

A contract with unambiguous terms is generally construed according to the plain meaning of those terms. However, extrinsic evidence may be used to show that there are latent ambiguities. ORS 41.740. In this case...