SUNNYSIDE HOMES OF ROCKLEDGE, INC.; KEVIN MOE; MICHAEL MORLEY; AND PHILLIP HUTCHINGS v. WENDELL E. GORDON
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RENDERED: MARCH 10, 2006; 2:00
NOT TO BE PUBLISHED
P.M.
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001719-MR
SUNNYSIDE HOMES OF ROCKLEDGE, INC.;
KEVIN MOE; MICHAEL MORLEY; AND
PHILLIP HUTCHINGS
APPELLANTS
APPEAL FROM MARSHALL CIRCUIT COURT
HONORABLE DENNIS R. FOUST, JUDGE
ACTION NO. 03-CI-00037
v.
WENDELL E. GORDON
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
TACKETT, TAYLOR, AND VANMETER, JUDGES.
TAYLOR, JUDGE:
Sunnyside Homes of Rockledge, Inc., Kevin Moe,
Michael Morley, and Phillip Hutchings (also hereinafter referred
to collectively as appellants) bring this appeal from an August
19, 2004, order of the Marshall Circuit Court granting a motion
for partial summary judgment in favor of Wendell E. Gordon.
affirm.
We
Joe Owen and Michael Noonan developed and operated two
assisted-living facility businesses in Florida known as
Sunnyside Homes of Rockledge, Inc. (Rockledge) and Sunnyside
Homes of St. Cloud, Inc. (St. Cloud).
In early 2000, Owen and
Noonan approached Gordon to borrow money for the Rockledge
facility.
In March 2000, Gordon loaned Rockledge four-hundred
and fifty thousand dollars ($450,000.00).
To secure repayment,
Rockledge tendered a promissory note to Gordon.
due and payable on September 30, 2001.
The note was
The note was also
personally guaranteed by Owen, and his wife Karen Owen
(collectively referred to as the Owens), and Noonan, and his
wife Keri Noonan (collectively referred to as the Noonans).
Rockledge also executed and delivered a mortgage in favor of
Gordon and Karen Owen to secure repayment.1
In the summer of 2001, Owen and Noonan entered into
negotiations with Moe, Morley, and Hutchings for the sale of
Rockledge.
In November 2001, Noonan allegedly contacted Moe,
Morley, and Hutchings and represented that Noonan, Owen and
Gordon had come to an agreement that would provide for the sale
of Rockledge.
Presumably, Gordon was involved because the note
indebtedness was past due and could not be assumed without his
permission.
Moe, Morley, and Hutchings subsequently purchased
1
There is no explanation in the record why Karen Owen was a mortgagee to this
transaction, nor is there a legal description of the real property located in
Florida that was pledged as collateral.
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all of Rockledge’s issued and outstanding shares of stock in
January 2002.
On January 23, 2002, a Promissory Note Extension and
Guaranty Agreement was executed which provided that Gordon and
Rockledge had agreed to extend the maturity date of the note to
December 1, 2002.
The instrument also added Moe, Morley, and
Hutchings as guarantors of the Promissory Note.
The Owens and
Noonans also agreed to the extension and their guaranty
obligations remained in full force and effect.
In January 2003, the maker (Rockledge) and guarantors
of the note were in default under the terms of the note
extension and guaranty executed in January 2002.
On January 23,
2003, Gordon filed a complaint in the Marshall Circuit Court to
enforce the promissory note against Rockledge, the Owens, the
Noonans, Moe, Morley, and Hutchings.
Therein, Gordon requested
judgment in the full amount of the original note of $450,000.00,
plus accrued interest and attorney’s fees.
No answer or responsive pleading was filed by any of
the parties to the complaint.
However, on February 28, 2003, a
second Promissory Note Extension and Guaranty Agreement was
executed by the parties.
This note extension was also
personally guaranteed by Moe, Morley, and Hutchings and extended
the maturity date on the indebtedness to July 1, 2003.
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This new
note also required Rockledge and the guarantors to pay all past
due interest at or prior to its execution.2
On September 12, 2003, Gordon filed a motion to amend
his complaint and alleged that the unpaid note balance had not
been paid when due and sought judgment for the entire balance in
the amount of $451,000.00, plus interest and attorney’s fees.
The Noonans and Owens filed cross-claims against appellants.
On
December 8, 2003, Rockledge, Moe, Morley, and Hutchings filed an
answer and counterclaim against Gordon alleging that Gordon
committed fraud, intentional or negligent misrepresentation, and
civil conspiracy as concerned the Rockledge acquisition by Moe,
Morley and Hutchings.
On February 18, 2004, Gordon filed a motion for
partial summary judgment.
The motion was premised in part on
appellant’s failure to respond to discovery requests served in
December 2003.
In June 2004, Gordon filed a second motion for
summary judgment against appellants.
After hearing arguments
from counsel in July 2004, the court granted Gordon’s motion on
July 22, 2004, holding that there were no genuine issues of
material fact regarding the execution of the note and guaranty,
and that the note was in default.
2
The order was made final and
Apparently, upon execution of the note extension and payment of past due
interest, the litigation was held in abeyance pending payment of the entire
principal balance on July 1, 2003.
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appealable by inclusion of Ky. R. Civ. P. (CR) 54.02 language on
August 19, 2004.
This appeal follows.
Before beginning our analysis, we must determine the
appropriate standard of review.
Summary judgment is proper
where no genuine issues of material fact exist and the moving
party is entitled to judgment as a matter of law.
Kraft, 916 S.W.2d 779 (Ky. 1996).
Scifres v.
When ruling upon a motion for
summary judgment, the circuit court is required to view the
record in a light most favorable to the nonmoving party, and any
doubts are resolved in his favor, Steelvest, Inc. v. Scansteel
Service Center, Inc., 807 S.W.2d 476 (Ky. 1991).
As noted in
Steelvest, “a party opposing a properly supported summary
judgment motion cannot defeat it without presenting at least
some affirmative evidence showing that there is a genuine issue
of material fact for trial.”
Id. at 482.
We begin our analysis by noting that the claims of
Rockledge, Moe, Morley, and Hutchings arise from different
transactions involving the loan indebtedness owed to Gordon.
Rockledge is the original maker of the promissory note that was
created when Gordon made the loan to Rockledge in March 2000.
The guaranty indebtedness of Moe, Morley, and Hutchings arose
from their guaranty of the original note indebtedness in
subsequent note extensions made in January 2002 and February
2003.
Rockledge and the guarantors have asserted the same
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allegations in their counterclaim against Gordon - that being
fraud, intentional misrepresentation, and conspiracy - which the
circuit court effectively treated as affirmative defenses.
If
proven, these defenses could excuse their obligation to repay
the note indebtedness.
However, the meager record before this
Court on appeal does not support the claims or defenses by
either Rockledge or the guarantors.
As concerns Rockledge, both the Owens and Noonans,
prior owners of Rockledge’s stock, acknowledge in their answers
to discovery requests that the note indebtedness was a valid and
a legitimate obligation of Rockledge.
Moe, Morley, and
Hutchings purchased the Rockledge stock with actual knowledge of
the Gordon indebtedness.
The transfer of the stock in no way
legally altered Rockledge’s obligation to repay Gordon’s loan.
Owens’ counsel, at the hearing on Gordon’s motion for summary
judgment in July 2004, acknowledged on the record that the
indebtedness owed to Gordon was valid and enforceable.
The
allegation that the Owens and Noonans may have converted the
loan proceeds in no way alters Rockledge’s liability on the
note.
Our thorough review of the record fails to disclose any
disputed issue of material fact that would preclude Rockledge’s
obligation to Gordon as maker of the note indebtedness and thus
summary judgment was properly entered against Rockledge.
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As noted, the obligations of Moe, Morley, and
Hutchings is that of guarantors, not makers.
Our focus is thus
on the guaranty executed in February 2003, which extended the
repayment obligation on the promissory note to July 1, 2003.
This note extension and guaranty incorporated all of the terms
and obligations of the original promissory note which was agreed
to by appellants.
In Kentucky, a guaranty is classified as
either one for payment or collection.
A guaranty that is
subject to no conditions and contains an absolute promise to pay
the outstanding indebtedness guaranteed is a guaranty of
payment.
Liberty Nat’l Bank and Trust Co. v. Russ, 668 S.W.2d
567 (Ky.App. 1984).
A guaranty of collection is one conditioned
upon the creditor being required to pursue his claim against a
debtor, including any collateral, before proceeding against the
guarantors.
38 AM. JUR. 2D Guaranty § 106 (1999).
To determine whether a guaranty is one of payment or
collection, the language set forth in the guaranty must be
closely examined to determine the intent of the parties.
McGowan v. Wells’ Trustee, 184 Ky. 772, 213 S.W. 573 (1919).
A
plain reading of both the promissory note and the note extension
and guaranty agreement entered into in February 2003, clearly
reflects that the guaranty obligation of Moe, Morley, and
Hutchings was absolute, specific, and unconditional.
Thus,
Gordon could maintain an action against the guarantors upon
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default of Rockledge without demand for payment by Rockledge and
without first proceeding against Rockledge or any collateral
pledged to secure the debt.
Having determined that Moe, Morley, and Hutchings
executed a guaranty of payment, we now address the defenses or
claims asserted by appellants that arguable preclude summary
judgment being entered against them.
Moe, Morley, and Hutchings
assert that Gordon participated in a fraud and otherwise made
material misrepresentations and further knew that the Owens and
Noonans converted funds from Rockledge.
They further allege
that Gordon conspired with the Owens and Noonans to induce Moe,
Morley, and Hutchings to purchase the Rockledge stock.
First, we note that there is absolutely no evidence
whatsoever in the record that would indicate that Gordon
participated in any way whatsoever in either ownership or
management of the Rockledge and St. Cloud facilities.
There is
no evidence that Gordon participated in any business decision
with the Owens or Noonans regarding either facility.
The only
evidence presented to the circuit court was that Gordon was a
creditor of Rockledge based upon a loan made in March 2000, from
which the note indebtedness and subsequent guarantees arose.
Secondly, there is absolutely no evidence in the
record that Gordon was involved in the sale of Rockledge stock
to Moe, Morley, and Hutchings.
The affidavits of Hutchings and
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Moe submitted in response to the motion for summary judgment
fail to establish that Gordon was in any way involved with the
sale transaction.
Gordon was involved in the transaction to the
extent that the outstanding note indebtedness owed to him as a
creditor of Rockledge was in default at the time of the stock
sale and he agreed to extend the note indebtedness upon Moe,
Morley, and Hutchings becoming guarantors of the debt.
This
conduct does not look to a conspiracy; but rather due diligence
by Gordon.
The guarantors also argue that even if Gordon wasn’t
directly involved in the fraud or misrepresentations allegedly
made by the Owens and Noonans, then at minimum he was
“negligent.”
There exists no cause of action in Kentucky
against a creditor of a business for negligence, where the stock
or assets are being sold and the prior owners have committed
fraud against the new purchasers in the sale.
Gordon, as a
creditor, owed absolutely no duty whatsoever to Moe, Morley, or
Hutchings in regard to their exercise of due diligence in the
purchase of the Rockledge stock.
While the circuit court did not make specific findings
in concluding that there were no genuine issues of fact, we
believe the circuit court could have also dismissed all claims
against Gordon for fraud or misrepresentation upon the failure
of appellants to plead these claims with particularity as
-9-
required by CR 9.02.
At minimum, this rule requires that
appellants plead the time, place, and substance of the fraud or
facts misrepresented by Gordon.
410 S.W.2d 717 (Ky. 1966).
Scott v. Farmers State Bank,
The answer and counterclaim filed by
appellants fails to state with any specificity or particularity
the alleged acts or omissions by Gordon that could legally
excuse the performance of their obligations under the guaranty.
Notwithstanding the foregoing analysis, the actions of
appellants subsequent to acquiring the stock of Rockledge in
January 2002 is totally inconsistent with the claims that have
been asserted against Gordon in this action.
After acquiring
the stock, appellants executed two note extension and guaranty
agreements.
The February 2003 agreement reflects that
appellants paid almost fifty thousand dollars ($50,000.00) in
back interest and late fees prior to the execution.
The
agreement does not reflect any protest or reservation of rights
by the guarantors concerning any claims that they may have had
against Gordon regarding the note indebtedness.
guarantors benefited from the note extension.
Clearly, the
Yet, in their
answer and counterclaim, filed on December 8, 2003, (almost two
years after the execution of the original note extension and
guaranty agreement) appellants assert claims against Gordon
regarding the debt and their guaranty thereof. Interestingly,
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appellants assert no claims against Gordon for conduct arising
after execution of the second extension in February 2003.
As a general rule a party to a contract cannot accept
benefits under the contract while at the same time contesting
its validity.
28 AM. JUR. 2D Estoppel and Waiver § 65 (2000).
Since there are no claims or defenses against Gordon arising
after February 28, 2003, we are of the opinion that appellants
are equitably estopped from pursuing claims against Gordon on
the note indebtedness as it would be unconscionable for
appellants to now maintain a position totally inconsistent with
their acquiescence to and subsequent benefit received from the
note extension.
Kentucky Hosp. Ass’n Trust v. Chicago Ins. Co.,
978 S.W.2d 754 (Ky.App. 1998).
Finally, appellants argue that the granting of summary
judgment was premature because they were not permitted
sufficient time to take discovery.
We find this argument
troubling when local counsel for appellants admitted at the
summary judgment hearing in July 2004 that he had never met his
clients.
Since the original complaint in this action was filed
in January 2003, appellants had more than ample time to review
the records of the business (which they took control of in
January 2002) to determine if there were any claims or defenses
regarding the note indebtedness to Gordon.
When Rockledge and
the guarantors defaulted again in July 2003, counsel for Gordon
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filed a motion to amend his complaint in September 2003, which
was still some ten months before the court heard oral arguments
on the motion for summary judgment in July 2004.
Under the
facts and circumstances of this case, we believe appellants had
ample opportunity to take discovery from Gordon.
requires no more.
The law
See Hasty v. Shepherd, 620 S.W.2d 325
(Ky.App. 1981).
For the foregoing reasons, the order granting summary
judgment by the Marshall Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANTS:
BRIEF AND ORAL ARGUMENT FOR
APPELLEE:
John C. Tilly
Kemp, Ison, Harton, Tilley &
Holland, LLP
Hopkinsville, Kentucky
George E. Long II
Benton, Kentucky
ORAL ARGUMENT FOR APPELLANTS:
Duncan Cavanah
Kemp, Ison, Harton, Tilley &
Holland, LLP
Hopkinsville, Kentucky
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