Southfork Investments Group, Inc. v. Williams

• Decision Date: 18 February 1998
• Docket Number: Nos. 95-01640,95-02235,s. 95-01640
• Citation: 706 So.2d 75
• Parties: 23 Fla. L. Weekly D557, 35 UCC Rep.Serv.2d 363 SOUTHFORK INVESTMENTS GROUP, INC., Rondout Valley Campground, Inc., and E & J Properties, Inc., Appellants, v. George E. WILLIAMS, Appellee. John D. BURKEY, Appellant/Cross-Appellee, v. George E. WILLIAMS, Appellee/Cross-Appellant.
• Court: Florida District Court of Appeals

Page 75

706 So.2d 75

23 Fla. L. Weekly D557, 35 UCC Rep.Serv.2d 363

SOUTHFORK INVESTMENTS GROUP, INC., Rondout Valley Campground, Inc., and E & J Properties, Inc., Appellants, v. George E. WILLIAMS, Appellee.

John D. BURKEY, Appellant/Cross-Appellee, v. George E. WILLIAMS, Appellee/Cross-Appellant.

Nos. 95-01640, 95-02235.

District Court of Appeal of Florida Second District.

Feb. 18, 1998.

James A. Yancey of James A. Yancey, P.A., Lakeland, for Appellants Southfork, Rondout & E & J; and Jon H. Anderson of Anderson & Artigliere, P.A., Lakeland, for Appellant/Cross-Appellee Burkey.

Dennis R. Pemberton of Harper, Kynes, Geller, Watson & Buford, P.A., Clearwater, for Appellee/Cross-Appellant.

NORTHCUTT, Judge.

These appeals stem from litigation among the parties over ownership of the stock of the appellant corporations. The dispute gave rise to two final orders: an amended final

judgment awarding the stock to George Williams, and a final judgment in Williams's favor on his claim for unpaid salary. We affirm, without further comment, the latter judgment on the salary claim. We also affirm the result reached in the former judgment, but we write to clarify the extent of and bases for that result.

BACKGROUND

Williams and John Burkey were partners in the business of developing and operating recreational vehicle campgrounds through three corporate entities, Southfork Investments Group, Inc., Rondout Valley Campground, Inc., and E & J Properties, Inc. At the time of the events leading to this litigation, each of the corporations had issued 200 outstanding shares of stock. Williams and Burkey each owned half the shares of each corporation.

Owing to a deterioration in their business relationship, in 1988 Williams and Burkey negotiated an agreement under which Burkey purchased Williams's shares in the three corporations for $250,000. This transaction was accomplished with four documents, all executed at the July 1988 closing: a Capital Stock Purchase Agreement, a Capital Stock Escrow and Disposition Agreement, and two promissory notes. More will be said of the specific terms of these documents. In broad outline, Burkey paid Williams $25,000 cash and gave him two nonrecourse promissory notes, one for $215,000 and the other for $10,000. Williams delivered his stock certificates to Burkey. These were cancelled on the books of the corporations, which then issued Burkey substitute certificates reflecting his ownership of the shares. Burkey, who now owned all the outstanding shares of the corporations, deposited half of them--100 shares in each corporation--with an escrow agent as security for his payment of the two promissory notes.

Several months after the closing, Burkey executed a document entitled "Assignment and Assumption Agreement." It recited that Burkey had already acquired all of Williams's stock in the corporations in exchange for cash and two promissory notes. Curiously, it then purported to assign to each corporation Burkey's "right to acquire" the shares of that corporation. Further, the document provided that Rondout Valley and Southfork Investments would assume Burkey's obligations under the notes, pro rata based on the respective purchase prices of the shares. The document was signed simply "John D. Burkey," presumably on his own behalf. It contained no indication that Burkey, or anyone else, executed it on behalf of any of the corporations.

THE DISPUTE

In December 1988, Burkey attempted to claim a set-off against a payment due Williams under the $10,000 promissory note. Williams objected, notified the escrow agent that the note was in default, and demanded possession of the escrowed stock. When Burkey objected to the escrow agent's surrender of the stock, Williams sued Burkey. Although only half the corporations' shares had been placed in escrow, Williams contended that the purchase agreement had provided that all outstanding shares of the corporations were to be pledged as security for the promissory notes. Accordingly, he claimed that upon default in payment of the notes he was entitled to all the stock of the corporations. In addition, he sought a judgment for $8,000 in unpaid salary.

It is unnecessary to describe the details of the ensuing litigation beyond the following salient events and rulings:

1) Burkey attempted to redeem the collateral by tendering the sums due. The circuit court held that this tender was ineffective because Burkey had no right to redeem the collateral as a "debtor" under the Uniform Commercial Code.

2) The corporations, who were permitted to intervene in the litigation over Williams's objection, attempted to redeem the collateral by tendering the sums due. The court initially denied the corporations' motion for summary judgment on this issue. Although the court did not expressly rule on this question in its amended final judgment, it impliedly rejected the corporations' attempt to redeem by virtue of the last ruling described below.

3) The court held that the promissory notes were secured only by the 100 shares of each corporation that had been placed in escrow.

4) The court found that there had been a default in payment of the $10,000 promissory note, and that Williams was entitled to the shares in escrow. The court directed the escrow agent to "convey" the shares to Williams.

On appeal, no one challenges the finding that there was a default under the note. Our discussion of the other issues embodied in these rulings follows.

BURKEY'S RIGHTS

When Burkey attempted to tender the sums due Williams, he was endeavoring to exercise the debtor's right of redemption provided in the Uniform Commercial Code at section 679.506, Florida Statutes (1987). ¹ Under that statute a debtor has the right to redeem collateral by tendering fulfillment of the secured obligations at any time before the collateral is sold or the obligations are discharged by the secured party's election to retain the collateral under other provisions of the Code. "Debtor" is defined at section 679.105(1)(d) to mean "the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral[.]" Also, "[w]here the debtor and the owner of the collateral are not the same person, the term 'debtor' means the owner of the collateral[.]"

The circuit court rejected Burkey's effort to redeem the shares because it found that Burkey was not a "debtor" as contemplated by section 679.506. The court observed that Burkey had assigned his "rights to the collateral" to the corporations, and therefore could not be considered the owner of the collateral. Further, "[w]hile the definition of 'debtor' does provide that the term can include obligors even where they have no rights in the collateral, the Court finds that it would not be appropriate to consider Burkey a debtor under the undisputed facts of the case. Burkey is not truly an obligor as he has no personal liability for debt under the nonrecourse note." We agree that Burkey's effort to redeem the collateral was ineffective, but not for the reasons recited by the circuit court.

Although both parties have made persuasive arguments on the issue, the question whether the maker of a nonrecourse note is a debtor for purposes of the right of redemption set forth in section 679.506 is not squarely presented here. The reason is that in this instance the parties granted that right to Burkey by contract. The Capital Stock Escrow and Disposition Agreement provided that upon default in payment and the note holder's receipt of the escrowed shares, the holder would be entitled to sell such of the shares as necessary to satisfy his claims against the maker, "subject to the rights granted to a debtor under the Florida Uniform Commercial Code--Secured Transactions, Chapter 679, Florida Statutes (Part V)." Alternatively, the holder could retain the shares, in which case he was required to give the maker written notice of that election "and proceed in accordance with the provisions of § 679.505(2), Florida Statutes, or its successor."

Thus, notwithstanding the parties' contemplation that Burkey's promissory notes were to be nonrecourse obligations, their contract provided that if Williams elected to sell the shares, Burkey would enjoy the rights of a debtor under chapter 679. These rights necessarily included the debtor's opportunity to redeem contained in section 679.506. On the other hand, if Williams intended to retain the shares in satisfaction of the secured obligation, he was required to give written notice and proceed in accordance with section Neither do we agree that, vis-a-vis Burkey's right to redeem, his ownership of the collateral was affected by his so-called "assignment" to the corporations. For these purposes, at least, that document was simply a nullity. Although it purported to assign Burkey's "right to acquire" the shares to the respective corporations, the fact is that Burkey already owned the shares. And, although the consideration for the "assignment" apparently was to be the corporations' assumption of responsibility for paying Burkey's notes to Williams, the document did not reflect that the corporations had ever agreed or undertaken to do so. See Auerbach v. McKinney, 549 So.2d 1022, 1031 n. 2 (Fla. 3d DCA 1989) (holding that attempted assignment was invalid for lack of consideration). Whatever may have been the intended purpose of this odd instrument, it simply was not effective to transfer Burkey's ownership of the escrowed shares.

                679.505(2), Florida Statutes (1987). 2  Under that section, a debtor may object to the secured party's retention of the collateral, and thereby require him to sell it.  Again, under the escrow agreement any such sale would be subject to the debtor's right of redemption under section 679.506
                

Both as the owner of the shares in escrow, and pursuant to the contract provisions granting him the rights of a debtor under chapter 679, Burkey was entitled to redeem the...