Tolliver v. Mathas

• Decision Date: 23 May 1989
• Docket Number: No. 4-885,4-885
• Parties: Homer TOLLIVER, Acutus Industries, of Michigan, a Michigan Corporation, Defendants-Appellants, v. Marte MATHAS, Plaintiff-Appellee. A 223.
• Court: Indiana Appellate Court

Page 971

538 N.E.2d 971

Homer TOLLIVER, Acutus Industries, of Michigan, a Michigan Corporation, Defendants-Appellants, v. Marte MATHAS, Plaintiff-Appellee.

No. 4-885 A 223.

Court of Appeals of Indiana Fourth District.

May 23, 1989.

Rehearing Denied July 10, 1989.

David C. Jensen, Paul A. Rake, Eichhorn, Eichhorn & Link, Hammond, John W. Barce, Barce, Vann, Ryan & Howard, Fowler, for defendants-appellants.

Lowell E. Enslen, Gary K. Matthews, Enslen, Enslen & Matthews, Hammond, Thomas R. McConnell, Nolin & McConnell, Fowler, for plaintiff-appellee.

RATLIFF, Chief Judge.

ON PETITION FOR REHEARING

In our opinion dated August 24, 1987, 512 N.E.2d 187 (1987), the majority concluded that contracts between Acutus and Mathas violated a bankruptcy statute and that the contracts were, therefore, void and violative of public policy. Mathas filed a petition for rehearing which we now grant.

FACTS

In 1973, Marte Mathas and three (3) other individuals formed a corporation known as T and M Fabricating, Inc. (T and M) which provided welding services to the steel industry. Mathas managed T and M's daily operations and owned one third ( 1/3) of the outstanding shares of T and M stock. At first, T and M grew rapidly, but in 1979, the corporation began experiencing financial difficulties. On November 7, 1980, T and M filed a bankruptcy petition in the Bankruptcy Court for the Northern District of Indiana.

Acutus Industries of Michigan, Inc. (Acutus) expressed an interest in buying T and M, but agents of Acutus concluded that no deal could be negotiated as long as David Willis was a shareholder of T and M. Homer Tolliver, president of Acutus, instructed Mathas to purchase Willis's shares and told Mathas that Acutus would reimburse him for the purchase price of the shares. Mathas agreed to buy out Willis, and Tolliver agreed to reimburse Mathas by assuming Mathas's obligations under two notes. T and M's financial condition continued to deteriorate, and Mathas informed Tolliver that T and M would have to cease operation. Tolliver promised to repay Mathas for any funds Mathas expended to keep the business running, and Mathas put a total of $25,600.00 into T and M's operation. After Mathas acquired Willis's shares of T and M, T and M and Acutus agreed on a plan to purchase the assets of the corporation. The bankruptcy court approved the plan to purchase the assets of T and M, but the court was not informed of the agreements between Mathas and Acutus. After the sale, Acutus hired Mathas as a sales representative and began paying off its debts to Mathas. Within six (6) months Acutus fired Mathas and stopped payment on its debts.

On June 15, 1982, Mathas filed a complaint against Tolliver, Acutus Industries of Michigan, and Acutus Industries of Indiana alleging fraudulent breach of contract and asking for punitive damages. The case proceeded to trial, and defendants' motion for judgment on the evidence

was granted only as to Acutus Industries of Indiana. On March 15, 1985, the trial court entered judgment on the jury's verdict in favor of Mathas in the amount of $90,600.00 as compensatory damages and $95,000.00 as punitive damages. Tolliver and Acutus subsequently filed an appeal, and a majority of this court reversed the judgment of the trial court and remanded with instructions to enter judgment in favor of Tolliver and Acutus. We now grant Mathas's petition for rehearing.

ISSUES

Although the majority opinion in this case addressed only one (1) issue, on rehearing we will address each of the issues raised in the appellants' brief.

1. Is the contract between Mathas and Tolliver enforceable?

2. As the agent of a disclosed principal, was Tolliver personally liable for breach of the contract with Mathas?

3. Did the trial court properly find Acutus Industries of Michigan, a parent corporation, liable on the contract with Mathas?

4. Did the trial court properly assess punitive damages?

DISCUSSION AND DECISION

Issue One

Tolliver and Acutus argue that the contract with Mathas was uneforceable. First, they contend that the contract lacked consideration in that no legal benefit flowed from Mathas to Tolliver or Acutus. We disagree. Consideration consists of a bargained for exchange. Wavetek Indiana, Inc. v. K.H. Gatewood Steel Co. (1984), Ind.App., 458 N.E.2d 265, 269, trans. denied. In order to constitute consideration, there must be a benefit accruing to the promisor or a detriment to the promisee. Id. Detriment alone suffices as consideration. Goeke v. Merchants National Bank and Trust Co. (1984), Ind.App., 467 N.E.2d 760, 768, trans. denied. Furthermore, a promise constitutes valuable consideration. Prell v. Trustees of Baird and Warner Mortgage and Realty Investors (1979), 179 Ind.App. 642, 654, 386 N.E.2d 1221, 1229, trans. denied. Mathas clearly accrued a detriment in that he expended money to buy-out the shares of a partner whom Acutus perceived as an obstacle to the acquisition of T and M, and Mathas again advanced his own money to keep the business operating when corporate funds were low. The evidence also supports a conclusion that Tolliver and Acutus benefited from their deals with Mathas. As a result of Mathas's actions, an obstacle to Acutus's acquisition of T and M was eliminated, and T and M continued in operation for a longer period of time, making T and M a more valuable acquisition for Acutus. Contrary to the appellants' argument, the agreements between Mathas and Tolliver and Acutus were supported by consideration.

Tolliver and Acutus next argue that the agreements were unenforceable because they had an illegal purpose and violated public policy. Specifically, they argue that the agreements violated bankruptcy statutes and that enforcement of the contracts would work a fraud upon T and M's creditors. We do not agree with the appellants' application of bankruptcy law in this case. 11 U.S.C. Sec. 1129(a)(4) provided:

"The court shall confirm a plan only if all of the following requirements are met:

Any payment made or promised by the proponent, by the debtor, or by a person issuing securities or acquiring property under the plan, for services or for costs and expenses in, or in connection with the case, or in connection with the plan and incident to the case, has been disclosed to the court."

It is undisputed that the agreements between Mathas and Tolliver and Acutus were not disclosed to the bankruptcy court, although Acutus's plan to purchase T and M was properly filed with and subsequently accepted by that court. As a general rule, a contract made in violation of a statute is presumed void. Hoffman v. Dunn (1986), Ind.App., 496 N.E.2d 818, 822. However, it is only in those cases that are substantially free from doubt that we will exercise our power to declare a contract void as contravening public policy. American Underwriters, Inc. v. Turpin (1971), 149 Ind.App. 473, 477, 273 N.E.2d 761, 763, trans. denied. Courts of review hesitate to brand an "illegal" bargain void and unenforceable; we engage in a balancing test and evaluate such circumstances as the nature of the subject matter of the contract, the strength of the public policy underlying the statute, the likelihood that refusal to enforce the bargain will further the policy, and how serious or deserved would be the forfeiture suffered by the party attempting to enforce the bargain. Noble v. Alis (1985), Ind.App., 474 N.E.2d 109, 111, trans. denied.

In Weil v. Neary (1929), 278 U.S. 160, 49 S.Ct. 144, 73 L.Ed. 243, the United States Supreme Court found a contract void and unenforceable because it violated a local bankruptcy rule and contravened public policy although the agreement had benefited creditors. The Weil court concluded that the controversy concerned the actions of both parties toward the bankruptcy court and noted that a question of public policy was presented in addition to a determination of rights between the parties. However, in New Amsterdam Casualty Co. v. Madison County Trust Co. (1924), 81 Ind.App. 157, 142 N.E. 727, this court enforced an agreement between the receiver for a bankrupt corporation and that corporation's surety. The oral contract provided that the receiver would advance money and provide management to keep the financially troubled company in operation, and the surety would subsequently pay the receiver for the advances and services. The surety breached the contract. When the receiver sued the surety to collect under the terms of the agreement, the surety defended on the grounds that the contract was void as against public policy. The New Amsterdam court concluded that to permit the surety to avoid its obligations on public policy grounds would be unconscionable. Id. at 165, 142 N.E. at 729. The court noted also that the receiver's advancement of money and services had inured to the benefit of the bankrupt corporation's creditors.

The factual setting of the case before us is closely akin to that in New Amsterdam. In both cases, a party who was "vitally interested" in the welfare of a struggling enterprise induced a third party to advance money and provide services to ensure the continued viability of a financially troubled business. Likewise, in both cases creditors benefited from the continued operation of the business. Tolliver and Acutus induced Mathas to make substantial expenditures which inured to the benefit of Tolliver and Acutus. Without the amounts expended by Mathas in buying out David Willis, Acutus could not have acquired T and M's assets. Furthermore, T and M would have had to close down but for Mathas's cash advances for which Acutus promised reimbursement. We conclude, as did the court in New Amsterdam, that "[t]o permit appellant under the circumstances of this case to avoid its obligations on the ground that it was against public policy would be unconscionable." Id. The bankruptcy code is designed specifically to protect the rights of creditors, and Tolliver and Acutus are attempting to avoid...