Wisconics Engineering, Inc. v. Fisher, No. 2-883A276

Docket NºNo. 2-883A276
Citation466 N.E.2d 745, 39 UCC Rep. Serv. 1151
Case DateJuly 31, 1984
CourtCourt of Appeals of Indiana

Page 745

466 N.E.2d 745
Blue Sky L. Rep. P 72,074, 39 UCC Rep.Serv. 1151
WISCONICS ENGINEERING, INC., Niall C. Fitzpatrick, and John
Zenner, Appellants (Defendants Below),
v.
Cecil C. FISHER, Appellee (Plaintiff Below).
No. 2-883A276.
Court of Appeals of Indiana,
Second District.
July 31, 1984.

Page 747

Grant F. Shipley, Livingston, Dildine, Haynie & Yoder, Fort Wayne, for appellants Wisconics Engineering, Inc. and Niall C. Fitzpatrick.

William N. Mills, Mills & Northrop, Huntington, for appellee.

SULLIVAN, Judge.

This is an interlocutory appeal, duly certified by the trial court, from summary judgment on Count I of a three-count complaint. The action concerns default on a promissory note executed in favor of Cecil C. Fisher, plaintiff below, by Wisconics Engineering, Inc., and guaranteed by Niall C. Fitzpatrick and John Zenner, defendants below, appellants herein. The trial court entered summary judgment on the note in favor of Fisher for the unpaid balance, prejudgment interest, attorney fees, and costs in the total sum of $389,666.90.

Appellants present the following issues:

Page 748

(1) Whether the trial court committed procedural error in granting summary judgment in favor of Fisher;

(2) Whether the trial court erred in determining that appellants' affirmative defense of common law fraud was not supported with sufficient evidentiary matter to raise a factual issue regarding fraud, thereby avoiding summary judgment;

(3) Whether the trial court erred in determining that the Indiana Securities Act was inapplicable to the sale of stock in this case;

(4) Whether, under Sec. 9-505 of the Uniform Commercial Code, Fisher retained the stock collateral in satisfaction of the note indebtedness, thereby discharging the obligors; 1

(5) Whether, under Sec. 3-606 of the Uniform Commercial Code, Fisher impaired the stock collateral, so as to release the guarantors from their obligation on the promissory note; 2 and

(6) Whether there is sufficient evidence to support the trial court's award of attorney fees in the amount of $1206.

We reverse except insofar as the trial court determined adversely to appellants upon their defense of common law fraud.

FACTS

This litigation arises out of a transaction for the purchase of Fisher Engineering, Inc. (Fisher Engineering) of Huntington, Indiana. Fisher Engineering is in the business of manufacturing electrical components and circuitry for the United States Department of Defense. Until appellants purchased the company in July, 1980, Fisher Engineering had been a closely-held, family-run enterprise. Cecil C. Fisher (Fisher), the president and sole shareholder, had operated the business since 1950. The corporate financial statements which appear in the record for the years 1976 through 1979 and the monthly statements through June, 1980, show that the company was operated profitably during most of that time under Fisher's guidance and direction.

Early in 1980, appellants, Niall C. Fitzpatrick (Fitzpatrick) and John E. Zenner (Zenner), both of whom are experienced businessmen possessing considerable business credentials and financial resources, learned of Fisher Engineering through a business broker whom they employed. Subsequently, they contacted Fisher expressing an interest in purchasing his company. Fisher was interested in selling his business and negotiations ensued. After numerous communications between the parties during the spring and early summer of 1980, Fitzpatrick and Zenner reached an agreement with Fisher for the purchase of Fisher Engineering by means of a stock transaction wherein Fitzpatrick and Zenner, through their corporation, Wisconics Engineering, Inc. (Wisconics) would acquire 100% of the outstanding shares of Fisher Engineering stock. Wisconics, a Delaware corporation of which Fitzpatrick and Zenner are each 50% shareholders, was formed solely for the purpose of purchasing and holding the Fisher Engineering stock. The agreed purchase price for the Fisher Engineering shares was $750,000, to be financed by a $217,500 cash down payment with the remaining $532,500 to be paid in twelve equal installments of $44,375 plus interest of 11% per annum over a three year period. The installment debt on the stock is evidenced by a promissory note executed on July 28, 1980, in favor of Cecil C. Fisher, payee, by Wisconics. The note is personally guaranteed by Fitzpatrick and Zenner and is secured by a stock pledge to Fisher of all the outstanding shares of Fisher Engineering. The note contains, inter alia, a provision

Page 749

entitling Fisher to declare the note in default if the net worth of Fisher Engineering fell below $300,000 or below the amount of any unpaid balance due on the note after June 30, 1981, and an acceleration clause wherein, upon any material breach, Fisher was entitled to declare all principal and interest owing on the note immediately due and payable.

On July 28, 1980, the day the transaction herein occurred, the parties executed, in addition to the note, a pledge agreement and an installment stock purchase agreement. Under the terms of the pledge agreement, Fisher was to hold the Fisher Engineering shares as security for the note indebtedness and was to receive any and all dividends declared on the stock. Wisconics was to retain voting rights to the shares except in the event of default upon the note. Upon completion of this transaction, Fisher resigned his position as President and director of Fisher Engineering. The officers' and directors' positions were then assumed by Fitzpatrick and Zenner.

On April 3, 1982, Wisconics defaulted on the note by failing to pay the installment then due or any installment due thereafter. There is no factual dispute among the parties concerning the fact of appellants' default on the note. However, the parties vehemently disagree on the events which occurred after Fitzpatrick and Zenner purchased Fisher Engineering and which ultimately resulted in default. Herein lies the sources of appellants' affirmative defense of fraudulent misrepresentation. 3

Fisher's version of events culminating in default differs considerably from that of appellants. According to Fisher, upon assuming control of the company, appellants set about to systematically loot it of all of its assets leaving it with a negative net worth when they finally did default on the note. Fisher claims that over half of the company's assets of some $606,000 on the date of sale were in government securities and other highly liquid assets. He claims that appellants misappropriated these assets and caused them to be transferred to Wisconics in exchange for non-interest bearing unsecured promissory notes, or to personal accounts in Continental Illinois Bank, or to John Zenner personally. The result of this alleged systematic misappropriation of funds and assets was to leave Fisher Engineering unable to meet its contract obligations, unable to pay its creditors and suppliers, unable to pay the utility bills, unable to insure the goods manufactured for the government as required by the government contracts, and finally, unable to pay the employees who remained at Fisher Engineering throughout the time in which these events occurred.

Page 750

On April 13, 1982, Fisher notified appellants of their default under the terms of the note and of his decision to exercise the acceleration provision by declaring the unpaid balance of $310,625 immediately due and payable.

On July 23, 1982, after having learned of the company's insolvency, of the misappropriated cash transfers, and of a number of lawsuits against Fisher Engineering by its creditors, Fisher elected to vote the stock, which he held pursuant to the pledge agreement, to install himself as President and resume control of the corporation. After that date, Fitzpatrick and Zenner were denied access to their offices, the property, and the corporate records.

In the face of pending litigation and insolvency, Fisher placed the corporation in a Chapter 11 bankruptcy reorganization proceeding wherein Fisher Engineering continued to operate, under Fisher's control, as the newly created debtor-in-possession.

A supplemental record was filed with this court on January 12, 1984, while this case was pending on appeal, which informs us that the Fisher Engineering stock has been finally disposed of, relative to this action, at a judicial sale held on October 10, 1983, for a price of $34,737.22. The purchaser of the stock was Cecil Fisher who, as judgment creditor, takes the stock in partial satisfaction of his judgment.

On September 3, 1982, Fisher filed a motion for summary judgment on the note arguing that there were no material factual issues regarding his right to the unpaid balance. Appellants filed their response in opposition to the motion on October 15, 1982, along with Fitzpatrick's affidavit supporting their position. The trial court heard arguments on the motion and denied summary judgment on October 19, 1982. In November, Fisher obtained new counsel, and in December, filed a second motion for summary judgment on the Note. Fisher's Notice of Motion and accompanying memorandum addressed one issue only: Whether appellants were entitled to rely on Fisher's representations. Appellants again filed a response in opposition to the motion consisting of a memorandum, another affidavit by Fitzpatrick which is identical to the first, and a copy of Fisher Engineering's bankruptcy petition, presumably, to establish evidence of Fisher's alleged retention and impairment of the collateral. One court day prior to the summary judgment hearing--February 11, 1983--Fisher filed five additional affidavits in support of his motion and another memorandum of law raising the additional issue of whether the anti-fraud provision of the Indiana Securities Act was applicable to the facts of this case. The trial court conducted a hearing on the second motion on February 14, 1983, taking the motion under advisement, and,...

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53 practice notes
  • Lynk v. LaPorte Superior Court No. 2, No. 85-1526
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • April 24, 1986
    ...for reconsideration of the judge's denial of Lynk's motion for judgment on the pleadings, see Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745, 752 (Ind.App.1984)), but this advice is almost certainly futile. Although Lynk did fail to articulate his constitutional claim when he asked f......
  • Allen v. Coates, No. 94-505
    • United States
    • Court of Appeal of Florida (US)
    • October 10, 1995
    ...148, 697 P.2d 1013 (1985); Schmode's, Inc. v. Wilkinson, 219 Neb. 209, 361 N.W.2d 557 (1985); Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745 (Ind.Ct.App.1984); ITT Terryphone Corp. v. Modems Plus, Inc., 171 Ga.App. 710, 320 S.E.2d 784 (1984); Shultz v. Delaware Trust Co., 360 A.2d 57......
  • Bicknell v. Stanley, No. TH90-13-C
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Southern District of Indiana)
    • August 28, 1990
    ...a misrepresentation of or failure to disclose a future fact does not constitute fraud. See, e.g., Wisconsin Engineering, Inc. v. Fisher, 466 N.E.2d 745, 756 (Ind.App.1984) (fraud cannot be predicated upon promises to be performed in the future, and opinions or expressions of value ordinaril......
  • Vaughn v. General Foods Corp., No. 85-1847
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • September 9, 1986
    ...are known as "puffing," "trade talk," or "sales talk" and do not constitute actionable fraud. See Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745, 756 (Ind.App.1984); Kluge v. Ries, 66 Ind.App. 610, 117 N.E. 262 (1917); Voorhees v. Cragen, 61 Ind.App. 690, 112 N.E. 826 (1916). We beli......
  • Request a trial to view additional results
53 cases
  • Lynk v. LaPorte Superior Court No. 2, No. 85-1526
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • April 24, 1986
    ...for reconsideration of the judge's denial of Lynk's motion for judgment on the pleadings, see Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745, 752 (Ind.App.1984)), but this advice is almost certainly futile. Although Lynk did fail to articulate his constitutional claim when he asked f......
  • Allen v. Coates, No. 94-505
    • United States
    • Court of Appeal of Florida (US)
    • October 10, 1995
    ...148, 697 P.2d 1013 (1985); Schmode's, Inc. v. Wilkinson, 219 Neb. 209, 361 N.W.2d 557 (1985); Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745 (Ind.Ct.App.1984); ITT Terryphone Corp. v. Modems Plus, Inc., 171 Ga.App. 710, 320 S.E.2d 784 (1984); Shultz v. Delaware Trust Co., 360 A.2d 57......
  • Bicknell v. Stanley, No. TH90-13-C
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Southern District of Indiana)
    • August 28, 1990
    ...a misrepresentation of or failure to disclose a future fact does not constitute fraud. See, e.g., Wisconsin Engineering, Inc. v. Fisher, 466 N.E.2d 745, 756 (Ind.App.1984) (fraud cannot be predicated upon promises to be performed in the future, and opinions or expressions of value ordinaril......
  • Vaughn v. General Foods Corp., No. 85-1847
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • September 9, 1986
    ...are known as "puffing," "trade talk," or "sales talk" and do not constitute actionable fraud. See Wisconics Engineering, Inc. v. Fisher, 466 N.E.2d 745, 756 (Ind.App.1984); Kluge v. Ries, 66 Ind.App. 610, 117 N.E. 262 (1917); Voorhees v. Cragen, 61 Ind.App. 690, 112 N.E. 826 (1916). We beli......
  • Request a trial to view additional results

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