Warwick v. Matheney, 89-CA-0072
| Decision Date | 10 June 1992 |
| Docket Number | No. 89-CA-0072,89-CA-0072 |
| Citation | 603 So.2d 330 |
| Parties | James E. WARWICK and Barbara Rhea Warwick v. Cecil B. MATHENEY. |
| Court | Mississippi Supreme Court |
Dana E. Kelly, Phelps Dunbar Firm, Jackson, for appellant.
Dale Hubbard, Ferrell & Hubbard, Jackson, and Mignon Mestayer DeLashmet, Mobile, Ala., for appellee.
En Banc.
James E. Warwick and his wife Barbara Rhea Warwick appeal a jury verdict of $92,000 entered against them in a breach of contract action brought against them by Cecil B. Matheney in the circuit court of the First Judicial District of Hinds County. Matheney cross-appeals the lower court's refusal to award him prejudgment interest. Finding no reversible error, we affirm.
In October, 1983, Cecil B. Matheney, a motor vehicle appraiser for a bank, purchased the Ford dealership in Raymond from George Cooper. No person can be a franchised dealer in Ford Motor Company (Ford) vehicles without its and Ford Motor Credit Corporation's (Ford Motor Credit) approval. Cooper also owned the building and approximately ten acres of land where the Raymond dealership was located, and in the sale of the franchise, Cooper and Matheney entered into a long-term lease of this property.
Matheney formed Matheney Ford, Inc., a close corporation with himself the sole owner of 4,000 authorized shares. This corporation owned and operated the Ford dealership business in Raymond.
Ford dealers pay Ford Motor Company for their cars when they are manufactured and ready for shipment. Conventionally, dealers finance their purchases of new cars through Ford Motor Credit, which pays Ford the dealer's cost of the unit. Until the dealer sells the unit, he owes Ford Motor Credit, and is obligated, upon its sale, to immediately notify and pay Ford Motor Credit its loan on the car.
Failure of a dealer to promptly pay Ford Motor Credit on sale of the car is called "float" in the trade, and is an unauthorized and disapproved use of Ford Motor Credit's funds.
Because Matheney Ford lacked sufficient working capital, its operations were financially unsuccessful.
On October 18, 1984, Gene Trahan, branch manager for Ford Motor Credit in central Mississippi, wrote Matheney Ford that it was suspending its new vehicle wholesale line. Matheney Ford was $300,000 over its authorized credit line, a check to Ford Motor Credit for sale of a new car had not cleared, the financial statements furnished Ford Motor Credit appeared inaccurate, and the dealership was losing money.
Matheney and Trahan had discussions of Matheney Ford's problems and the credit corporation did a field credit review of Matheney Ford's operations and its financial records. A December 31, 1984, financial statement on a Ford Motor Credit form showed a $54,678 loss for 1984. The dealership continued consistently losing money in 1985. Another financial statement on Ford Motor Credit's form dated April 30, 1985, showed a loss of $95,686.
On May 28, 1985, Trahan wrote Matheney listing certain conditions which had to be met before the credit corporation would reopen its financing, or "floor planning" of Matheney Ford's vehicles. One requirement was an additional $100,000 cash investment in the business.
James E. Warwick and his wife Barbara Rhea Warwick were interested in becoming a Ford dealer. In some manner they met Matheney in May, 1985, and in short order their mutual desires were communicated. At the time the only experience the Warwicks had in the automobile business was selling used cars wholesale. Matheney told them that because they had no experience as a franchised automobile dealer, it would be easier to get the franchise transferred to them ultimately if they first presented Ford Motor Company and Ford Motor Credit with a contract showing the Warwicks as investors.
The Warwicks' lawyer prepared all contracts between the Warwicks and Matheney and Matheney Ford.
On June 4, 1985, three written contracts were executed between the Warwicks and Matheney Ford and Matheney, individually.
The first contract, entitled "Agreement for Issuance and Purchase of Corporate Shares," obligated Matheney Ford to amend its articles to authorize the issuance of 3,843 additional shares, and for the Warwicks to purchase these shares for $200,000 cash. Upon this payment the Warwicks would own 49% of the corporate shares of the corporation.
This contract made the Warwicks' investment contingent upon the express approval by Ford and Ford Motor Credit.
The second contract gave the Warwicks a thirty-day option from closing to purchase two percent (2%) of the additional authorized shares from Matheney for $100. This was to enable the Warwicks, upon approval by Ford and the credit corporation of their investment contract, to purchase and own a total of 51% of the outstanding shares of Matheney Ford.
The third contract required the Warwicks and Matheney to mutually hire a manager to operate and manage the business. The manager would immediately purchase one-half of Matheney's remaining 49% ownership shares in Matheney Ford, and the manager would also be given an option to purchase Matheney's remaining half of the corporate shares.
While the second and third contracts are essential to the understanding between the parties, litigation arose only from the first contract. This contract is a ten-page document. It required the Warwicks to deposit $5,000 in escrow to assure compliance. It concludes with the following provisions:
Furthermore, if Ford Motor Company or Matheney Ford shall, for any reason, fail or refuse to grant approval, as contemplated by this Agreement, then the Escrow Agent shall promptly refund the entire sum to the Warwicks.
Paragraph 4 of the contract reads:
4. Approval of Ford Motor Company and Ford Motor Credit Company. This sale is contingent upon approval by Ford Motor Company and Ford Motor Credit Company. It is understood that the Ford dealership transferred hereby cannot be owned and/or operated by any party or parties except upon the approval of Ford Motor Company and the execution by Ford Motor Company and such other party of all necessary and appropriate documents, whereby said party becomes a Ford dealer. In the event that Ford Motor Company refuses to approve the Warwicks as investors in this dealership, or for any other reasons refuses to execute any and all necessary documents, then all obligations of the Warwicks hereunder shall cease and the Warwicks shall be entitled to a refund of any and all amounts paid pursuant to this Agreement. Furthermore, Ford Motor Credit Company must grant approval for credit and floor planning purposes. In the event that Ford Motor Credit Company so refuses, there shall be no further obligation on the part of the Warwicks and any and all amounts paid pursuant to this Agreement shall be immediately refunded.
No time limit in which Ford and Ford Motor Credit were to approve was set out in the contract.
Attached to the contract as Exhibit A are the financial statements of December 31, 1984, and April 30, 1985, above referred to. Exhibit B to the contract is a listing of the furniture, fixtures, parts, and motor vehicle inventory and a memorandum agreement between Cooper and Matheney dated July 8, 1983, and Exhibit C is a copy of the lease agreement between Cooper and Matheney dated October 10, 1983.
Under the contract Matheney Ford and Matheney warranted that the corporation was in good standing, and that they knew of no reason to believe there were any other liabilities against the corporation than those shown on these statements. Matheney, under the contract, agreed among other things to indemnify and hold the Warwicks harmless for any liabilities not disclosed by the April 30, 1985, financial statement.
At the time the contract was executed, there was a deed of trust held by the First National Bank in Jackson on Matheney's residence to secure the debt owed by Matheney Ford. The contract obligated the Warwicks to make a reasonable effort to get this deed of trust cancelled.
About a week after the contract was signed, Matheney and the Warwicks went to New Orleans and met with Messrs. Bob Jones, Everett Witt and M.J. Thomas, officials of Ford Motor Company, relative to their agreement with a view of obtaining company approval of the Warwicks. Thomas was regional manager of Ford.
Matheney's certified public accountant, Cecil W. Harper, had prepared the tax returns for the business, and who had for all months in 1985 made an extensive review of its financial records. The Warwicks' certified public accountant was Jon Ready. All of Matheney Ford's and all of Harper's work products were made available for inspection by the Warwicks and Ready. Ready did go to the business and examine the financial records but never contacted Harper. The Warwicks were at the business on a daily basis.
Some time in June, 1985, the Warwicks learned that Ford Motor Credit had previously suspended its floor planning of Matheney Ford's new cars.
On July 17, 1985, the Warwicks executed and delivered the following letter to Matheney:
HAND-DELIVERY
Mr. Cecil B. Matheney
Matheney Ford, Inc.
Raymond, Mississippi
Matheney Ford, Inc.
Raymond, Mississippi
Gentlemen:
It has come to our attention that material breaches have occurred in the Agreement For Issuance And Purchase Of Corporate Shares entered into on June 4, 1985 by and among James E. Warwick and Barbara Rhea Warwick, Matheney Ford, Inc. and Cecil B. Matheney, and that significant events have transpired since the date of execution which materially and adversely affect Matheney Ford Inc.'s business and prospects for business. Therefore, it is with regret that we must advise you that we hereby exercise our right to terminate the aforementioned agreement. As you are aware, we have diligently and tirelessly attempted to carry out and conclude this transaction; however, no reasonable prospect for completing our agreement now exist[s].
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