Zagoria v. Dubose Enterprises, Inc.

• Court: Georgia Court of Appeals
• Writing for the Court: SOGNIER; DEEN, P.J., and POPE
• Citation: Zagoria v. Dubose Enterprises, Inc., 296 S.E.2d 353, 163 Ga.App. 880 (Ga. App. 1982)
• Decision Date: 01 October 1982
• Docket Number: 64003,64004 and 64013,63950,Nos. 63949,63951,s. 63949
• Parties: ZAGORIA v. DUBOSE ENTERPRISES, INC. ZAGORIA & STONER, P.C., v. DUBOSE ENTERPRISES, INC. DUBOSE ENTERPRISES, INC. v. STONER. FIRST BANK & TRUST CO. v. STONER. ZAGORIA & STONER, P.C. v. FIRST BANK & TRUST CO. ZAGORIA v. FIRST BANK & TRUST CO.

Page 353

296 S.E.2d 353

163 Ga.App. 880

ZAGORIA v. DUBOSE ENTERPRISES, INC.

ZAGORIA & STONER, P.C., v. DUBOSE ENTERPRISES, INC.

DUBOSE ENTERPRISES, INC. v. STONER.

FIRST BANK & TRUST CO. v. STONER.

ZAGORIA & STONER, P.C. v. FIRST BANK & TRUST CO.

ZAGORIA v. FIRST BANK & TRUST CO.

Nos. 63949, 63950, 63951, 64003, 64004 and 64013.

Court of Appeals of Georgia.

Oct. 1, 1982.

Rehearing Denied Nov. 23, 1982.

Warren C. Fortson and Deborah S. Burks, Atlanta, for appellants in Nos. 63950 and 64004.

Bruce H. Beerman, Atlanta, for appellants in Nos. 63950 and 64004 and appellees in Nos. 63949, 63951, 64003 and 64013.

James S. Owens, Jr., Atlanta, for appellants in Nos. 63949 and 64013 and appellees in Nos. 63950, 63951, 64003 and 64004.

Robert L. Goldstucker, Atlanta, for appellants in Nos. 63949 and 64013 and appellees in Nos. 63950, 63951 and 64003.

Joseph C. Parker, Marietta, for appellants in Nos. 63951 and 64003 and appellees in Nos. 63949, 63950 and 64004.

Alan Manheim, Marietta, Jeffrey M. Smith, Atlanta, for appellees.

Richard L. Shackelford, Atlanta, for appellees in Nos. 63949, 63950, 64003, 64004 and 64013.

Teresa O. Weiner, Marietta, for appellees in Nos. 63949, 63950, 64004 and 64013.

SOGNIER, Judge.

These six appeals arose from two suits in which the issues were substantially the same and the defendants identical.

Zagoria and Stoner were co-shareholders in a professional corporation, Zagoria & Stoner, P.C., organized for the practice of law under the Georgia Professional Corporation Act, Code Ann. § 84-5401 et seq. On November 24, 1980 and November 26, 1980, Zagoria acted as closing attorney in certain real estate closings. At the first closing, Zagoria issued a check, drawn on the Citizens and Southern Bank of Cobb County on the escrow account of Zagoria & Stoner, P.C., for $3,130 to DuBose Enterprises, Inc. (DuBose) for commission as real estate broker. At the second closing, Zagoria issued a check for $673.66 on the same escrow account to purchasers, Lester L. and Donna J. DeSalvo, who endorsed and delivered the check to DuBose in payment for an indebtedness unrelated to the instant action. DuBose deposited the two checks and they were subsequently returned unpaid.

On November 25, 1980, Zagoria closed four construction loans for which First Bank & Trust Co. (First Bank) was the lender. Zagoria issued two checks to First Bank, drawn on Citizens and Southern Bank of Cobb County on the escrow account of Zagoria & Stoner, P.C. The checks to First Bank were in the amounts of $54,000, representing a "lot-release charge" and $5,071.68, representing the commitment fee in connection with the construction loans. First Bank deposited the checks and they were returned unpaid. Zagoria later paid First Bank $34,500 in partial payment on the checks.

DuBose and First Bank sued Zagoria & Stoner, P.C. and Zagoria and Stoner individually to recover on the checks. The trial court awarded summary judgment against Zagoria individually and Zagoria & Stoner, P.C. to DuBose in the amount of $3,803.66, and to First Bank in the amount of $25,066.68. The court granted Stoner's motion for summary judgment and denied motions of DuBose and First Bank for summary judgment against Stoner individually. The losing parties all appeal.

1. Case Nos. 63951 and 64003.

a. Appellants DuBose and First Bank contend that Stoner, as a shareholder, should be individually liable for the dishonored checks and should not be allowed the protection of the corporate shield from liability for the professional corporation's debts. We do not agree.

The Georgia Professional Corporation Act provides: "[S]hareholders of the [professional] corporation in their capacity as shareholders, shall enjoy the rights, privileges and immunities and shall be subject to the obligations and liabilities of [shareholders of] ... corporations organized for profit under the Georgia Business Corporation Code ... except as changed, restricted, or enlarged by the provisions of this Chapter." Code Ann. § 84-5403. Under the Business Corporation Code, shareholders are not personally liable for the corporation's debts. See Code Ann. § 22-601; Independent Gasoline Co. v. Bureau of Unemployment Compensation, 190 Ga. 613, 614, 10 S.E.2d 58 (1940), cert. denied, 311 U.S. 707, 61 S.Ct. 175, 85 L.Ed. 459 (1940). However, appellants argue that the Professional Corporation Act enlarges a shareholder's liability so that Stoner would be liable for the checks written by Zagoria. Appellants rely upon Code Ann. § 84-5407, which provides that "nothing contained in this Chapter shall change the law or existing standards applicable to the relationship between the person furnishing a professional service and the person receiving such service including ... the contract, tort and other legal liabilities and professional relationships between such persons." We agree that this provision can increase the degree of personal liability of a shareholder in a professional corporation, but only when the shareholder in question is "the person furnishing a professional service" whose relationship with "the person receiving such service" is governed by law or standards that impose personal liability greater than that of shareholders in a for-profit corporation organized under the Georgia Business Corporation Code. Since the instant case involves a professional corporation organized for the practice of law, the applicable standards are those adopted by the Supreme Court of Georgia pursuant to Code Ann. § 9-702, and the relationship governed is that of attorney and client. See e.g. Code of Professional Responsibility, Rules 3-104 to 3-107 (Code Ann., Title 9, Appendix). Therefore, only if the shareholder in the instant case was the attorney in the attorney/client relationship out of which the liability arose will such shareholder face personal liability greater than that which would have been imposed against a shareholder in a corporation organized under the Business Corporation Code. See In the Matter of the Florida Bar, 133 So.2d 554 (Fla.1961); In Re New Hampshire Bar Association, 110 N.H. 356, 266 A.2d 853 (1970); In the Matter of Rhode Island Bar Association, 106 R.I. 752, 263 A.2d 692 (1970); 4 A.L.R.3d 383.

Evidence in the instant case shows that "the person furnishing a professional service," that is, the attorney involved in the transactions in question, was Zagoria, not Stoner. Affidavits submitted by Stoner showed that Stoner rendered no services in connection with the transactions in which the checks were issued and further, that he seldom participated in the corporation's real estate practice which was handled almost exclusively by Zagoria. Appellants have presented no evidence to the contrary. Even if it were shown that Stoner was the attorney for the transactions in question, there is no evidence that either DuBose or First Bank were the clients in those transactions. In the context of a professional corporation engaged in the practice of law, the reference in Code Ann. § 84-5407 to "person receiving such service" can only be to the client for whom the attorney is rendering professional services. Any other interpretation would be contrary to the Code of Professional Responsibility requirement that obligates an attorney "to exercise professional judgment solely on behalf of his client ..." and not on behalf of third parties who may also participate in a given transaction. Code of Professional Responsibility, Rule 3-105, EC 5-21 (Code Ann., Title 9, Appendix).

The Code of Professional Responsibility recognizes the use of a professional corporation to limit liability. Rule 3-106, EC 6-6 (Code Ann. Title 9, Appendix) provides: "A lawyer should not seek, by contract or other means, to limit his individual liability to his client for his malpractice. A lawyer who handles the affairs of his client properly has no need to attempt to limit his liability for his professional activities and one who does not handle the affairs of his client properly should not be permitted to do so. A lawyer who is a stockholder in or is associated with a professional legal corporation may, however, limit his liability for malpractice of his associates in the corporation, but only to the extent permitted by law." (Emphasis supplied).

Therefore, under the Georgia Professional Corporation Act, the personal responsibility of the attorney to his client is unchanged. However, attorney-shareholders of a professional corporation who do not participate in the rendering of the services out of which a claim arises will be free from personal liability for that claim, should it mature b. Appellants DuBose and First Bank next argue that appellee Stoner entered into enforceable agreements with each of them to compensate them for losses on the unpaid checks issued by Zagoria.

The facts concerning the making of such agreements are not entirely agreed upon by the parties, but it is undisputed that the discussions between Stoner and DuBose and Stoner and First Bank during which any agreements were made occurred after the checks issued to DuBose and First Bank had been returned unpaid and that any agreements reached were oral.

DuBose's president, James R. DuBose III, states that Stoner advised that if Mr. DuBose "would continue to use him as [Mr. DuBose's] attorney, Mr. Stoner would charge him a reduced fee for his legal services in order to compensate [Mr. DuBose] for his losses." Stoner states that Mr. DuBose told him he wanted to continue to use Stoner, after which Stoner disavowed any personal liability to DuBose and told Mr. DuBose "that whenever Mr. DuBose should choose to use the professional services of [Stoner], [Stoner] would provide him with a slight reduction in fees."

First Bank's officer, David H. McGinnis, states that Stoner advised him that "if [McGinnis] would allow Defendant, Marvin J. Zagoria, additional time to make payment on these checks before taking any other action, Defendant, Michael A....