Smith v. First Commerc. Bank of Huntsville, 2040382.

• Decision Date: 10 February 2006
• Docket Number: 2040382.
• Citation: 962 So.2d 221
• Parties: Charles Mac SMITH and Beverly V. Smith v. FIRST COMMERCIAL BANK OF HUNTSVILLE, INC.
• Court: Alabama Court of Civil Appeals

962 So.2d 221

Charles Mac SMITH and Beverly V. Smith v. FIRST COMMERCIAL BANK OF HUNTSVILLE, INC.

2040382.

Court of Civil Appeals of Alabama.

February 10, 2006.

Rehearing Denied April 28, 2006.

Certiorari Denied March 9, 2007 Alabama Supreme Court 1051125.

Andrew J. Smithart III, Tuscaloosa: and Robert R. Hembree, Guntersville, for appellants.

Stuart M. Maples of Johnston, Moore, Maples & Thompson, Huntsville; and Kenneth B. Cole, Jr., of Cole & Associates, LLC, Huntsville, for appellee.

CRAWLEY, Presiding Judge.

Charles Mac Smith and Beverly V. Smith appeal from a judgment entered on a jury verdict in favor of First Commercial Bank of Huntsville, Inc. ("the Bank"), on the Bank's claim alleging breach of contract and on the Smiths' counterclaims alleging abuse of process, breach of an oral contract, interference with business relations, fraud, suppression, and conspiracy. We affirm the judgment in favor of the Bank on the Smiths' counterclaims; we reverse the judgment in favor of the Bank on its breach-of-contract claim and remand the cause with instructions to enter a judgment in favor of the Smiths on that claim.

In the summer of 1998, Charles "Mac" Smith, a longtime customer of the Bank, decided to go into the new-house construction business with Russell E. Rogers, the proprietor of RER, Inc. On June 8, 1998, the Bank loaned Smith $105,000 to purchase half of the outstanding shares of RER stock ("the Smith loan"). The Smith loan was secured by a second mortgage on the Smiths' personal residence and a guaranty by RER. Smith and Rogers agreed to a division of labor whereby Rogers retained overall management and control of RER, including sales, accounting, and record-keeping, and Smith took charge of the actual construction process.

On July 28, 1998, the Bank provided the construction financing for RER's building of two houses, one in the Biltmore Bend subdivision and one in the Stratford Square subdivision ("the construction-financing loans"). On that date, RER executed two promissory notes, each in the amount of $344,000, to the Bank. The notes were secured by real-estate mortgages on the two properties and by personal guarantees from Mac Smith and Rogers.

In the fall of 1998, Smith and Rogers decided to dissolve their business relationship. On November 23, 1998, Smith resigned as an officer and director of RER and Rogers agreed to pay him $105,000 for his stock within 5 days. Soon thereafter, however, Rogers informed Smith that RER was experiencing financial difficulties and could not come up with the funds to pay for Smith's stock.

Rogers approached the Bank about obtaining a loan to purchase Smith's shares, but the Bank rejected his loan application. Rogers told the Bank that he needed to find a way to buy out Smith and to have RER's guaranty on the Smith loan released. Rogers insisted that the Bank had mistakenly characterized RER's guaranty on that loan as "continuing and unlimited" — thus making RER contingently liable for Smith's other indebtedness¹ to the Bank, rather than liable only for the indebtedness reflected by the Smith loan. The Bank agreed with Rogers that the RER guaranty of the Smith loan should not have been characterized as unlimited and continuing. Rogers inquired whether the Bank would release the RER guaranty and agree to a sale by RER of the Biltmore Bend and Stratford Square properties to Smith. The Bank agreed to release the RER guaranty of the Smith loan in exchange for RER's paying the Bank $51,000, with the $51,000 to be applied by the Bank to Smith's indebtedness. The Bank also agreed to the transfer of the Biltmore Bend and Stratford Square properties from RER to Smith under certain conditions.

Rogers then proposed to Smith an alternate plan for repurchasing Smith's shares of RER stock. That plan provided that Smith would give up his interest in RER in exchange for the equity in the Biltmore Bend and Stratford Square houses of which Smith had been supervising the construction. The proposed dissolution agreement provided that Smith would assume the construction loans for the two houses, would complete the construction, and would realize any profit made upon the sale of the properties.

Two contracts were signed on March 18, 1999, to reflect the agreements reached between and among Smith, Rogers, RER, and the Bank. The first agreement, entitled a "Settlement and Release" was executed by Mac Smith and Russell E. Rogers, individually and as president of RER. The second agreement, entitled "Agreement to Convert Debt to Non-Recourse, to Release Guaranty, and for Limited Waiver of Due-on-Sale Clause," was executed by Mac Smith; Beverly V. Smith; Rogers, individually and as president of RER; and David Kimrey, as senior vice president of the Bank.

The settlement and release agreement provides, in pertinent part:

"This Settlement and Release (hereinafter `AGREEMENT') is made this day, March 18, 1999, by, between, and among Russell E. Rogers (hereinafter `ROGERS'), Charlie M. (Mac) Smith (hereinafter `SMITH') and RER, Inc. (hereinafter `CORPORATION').

"Recitals

"WHEREAS, SMITH is the owner of 2500 shares of the CORPORATION's common stock (the `Shares') that he originally purchased from ROGERS; and,

"WHEREAS, ROGERS is the CORPORATION's only other stockholder; and,

"WHEREAS ROGERS and SMITH entered into a Buy and Sell Agreement between themselves and the CORPORATION on June 9, 1998 (the `Buy/Sell'); and,

"WHEREAS, ROGERS and SMITH entered into a Shareholder Repurchase Agreement between themselves and the CORPORATION dated November 23, 1998 (the `PURCHASE AGREEMENT'); and,

"WHEREAS SMITH has resigned as both an officer and director of the CORPORATION, and said resignation is hereby accepted, pursuant to the Purchase Agreement; and,

"WHEREAS, the CORPORATION owns two lots upon which residences are being constructed, each being subject to a mortgage in favor of First Commercial Bank of Huntsville (hereinafter, `BANK'); and,

"WHEREAS, SMITH is personally indebted to the BANK in the original amount of $105,000.00, which was guaranteed by the CORPORATION (the `SMITH LOAN'); and,

"WHEREAS, certain disputes have arisen between ROGERS and SMITH with respect to claims by each against the other and claims by each against CORPORATION; and,

"WHEREAS, ROGERS, SMITH, and CORPORATION have agreed to compromise and settle those disputes in a manner and fashion which is intended and will benefit CORPORATION; and,

"WHEREAS, ROGERS, SMITH, and CORPORATION have agreed that the terms of the settlement are fair and equitable to CORPORATION, SMITH and ROGERS, taking into consideration all relevant factors, including the claims of the respective parties; and

"WHEREAS, ROGERS, SMITH, and CORPORATION have agreed that the transfers herein are made for a good and valuable consideration, with due consideration being given by each party to the respective values of the assets being transferred by each party, the liabilities being herein assumed, the indemnity being provided and the prospective relations of the parties in the future.

"NOW, THEREFORE, this agreement, WITNESSETH: that for and in consideration of the mutual promises and covenants hereinafter expressed and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by each party hereto, the parties have agreed as follows:

"Section 1. Modification of Obligations. To the extent not previously performed, the obligations of SMITH, ROGERS, and the CORPORATION under both the Purchase Agreement and the Buy/Sell are extinguished and replaced by the terms of this Agreement.

"Section 2. Redemption of Stock and Conveyance of Lots. The CORPORATION and ROGERS hereby agree to redeem from SMITH all 2500 shares of common stock in exchange for the transfer by CORPORATION (with SMITH assuming all liability associated with the property being transferred) of Lot 19 of Biltmore Bend, Phase Two, and Lot 19 of Stratford Square, each of which is further described in attached exhibit `A,' incorporated herein by reference (the `LOTS') at the closing described below.

"The LOTS shall be conveyed to SMITH or his nominee subject to the lien for property taxes, which are not yet due and payable, and the existing mortgages to the BANK ... (collectively the `LOT MORTGAGES')."

(Capitalization in original.) The nonrecourse agreement provides, in pertinent part:

"This agreement made by and among RER, Inc. (`RER'), Russell Rogers, Jr., Charlie M. Smith (cumulatively, `Guarantors') and First Commercial Bank of Huntsville (`Lender') this 18th day of March 1999, as follows:

"RECITALS

"WHEREAS, RER is currently the owner of properties which are secured by [two] Mortgages [reciting the place of recordation in the office of the Madison Probate Judge];

"WHEREAS, said Mortgages secure the obligations reflected in [two] certain Commercial Fixed Rate Revolving or Draw Note[s] dated July 28, 1998, [each] in the original principal amount of $344,000 (cumulatively, `Notes');

"WHEREAS, Guarantors guarantee the Notes pursuant to Guarantees dated July 28, 1998 (cumulatively `Guarantees');

"WHEREAS, RER is also indebted to Lender pursuant to an Unlimited Continuing Guaranty (`RER Guaranty') dated June 8, 1998, guaranteeing other debts of Charlie M. Smith;

"WHEREAS, the Mortgages, the Notes, the Guarantees, the RER Guaranty and other documents executed by RER provide additional security to the Lender and represent the loan documents executed by RER in this matter (cumulatively `Loan Documents');

"WHEREAS, RER desires to sell its interest in the property encumbered by the Mortgages to Charlie M. Smith or his assigns, subject to the Lender's approval;

"WHEREAS, RER and Rogers desire to have their respective guarantees released and to have the Notes modified to reflect that they shall be non-recourse as against RER, and the Lender has agreed to such in exchange for the payment by RER and Rogers to the Bank of $51,000;

"WHEREAS, Charlie...