JOHN DEERE LANDSCAPES v. TERRY GAGEL, JR, INDIVIDUALLY AND D/B/A GAGEL CONTRACTING A/K/A ENVIROWISE, INC. D/B/A GAGEL CONTRACTING, DEFENDANT
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RENDERED: JULY 14, 2006; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2005-CA-000372-MR
JOHN DEERE LANDSCAPES
v.
APPELLANT
APPEAL FROM SHELBY CIRCUIT COURT
HONORABLE WILLIAM F. STEWART, JUDGE
ACTION NO. 03-CI-00276
TERRY GAGEL, JR, INDIVIDUALLY
AND D/B/A GAGEL CONTRACTING A/K/A
ENVIROWISE, INC. D/B/A GAGEL
CONTRACTING, DEFENDANT
APPELLEES
OPINION
VACATING AND REMANDING
** ** ** ** ** ** ** **
BEFORE: McANULTY1 AND SCHRODER, JUDGES; ROSENBLUM, SENIOR JUDGE.2
ROSENBLUM, SENIOR JUDGE:
John Deere Landscapes3 (John Deere),
appeals from a judgment of the Shelby Circuit Court entered upon
1
Judge William E. McAnulty, Jr., concurred in this opinion prior to his
resignation effective July 5, 2006, to accept appointment to the Kentucky
Supreme Court. Release of the opinion was delayed by administrative
handling.
2
Senior Judge Paul W. Rosenblum sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
Kentucky Revised Statutes (KRS) 21.580.
3
John Deere Landscapes is also referred to in the record as John Deere
Landscapes, Inc.
an involuntary dismissal pursuant to Kentucky Rules of Civil
Procedure (CR) 41.02(2)4 determining that charges made to the
John Deere credit account of Envirowise, Inc. d/b/a Gagel
Contracting (Gagel Contracting), a company owned by Terry Gagel,
Jr. (Terry), are not subject to a personal guaranty executed by
Terry guaranteeing the Gagel Contracting account.
The charges
to the account were made by a company owned by Terry’s son,
Casey Gagel (Casey).
For the reasons stated below, we vacate
the judgment in favor of the appellees and remand.
On April 6, 2001, Terry, on behalf of himself and his
company, Gagel Contracting, entered into a business relationship
with McGinnis Farms, Inc. (McGinnis Farms), to purchase
landscaping materials.5
Incident to this, Terry executed an
Application for Credit in the name of Gagel Contracting.
This
credit account was assigned the Account Number 19503012593.
In
conjunction with establishing the credit account, Terry also
executed a Personal Guaranty in which he guaranteed payment of
the account in the event of default by Gagel Contracting.
Among
other things, the Personal Guaranty required Terry to provide
written notice if he desired to terminate his obligation under
4
This dismissal has been referred to in the record as a “directed verdict.”
However, this term is a misnomer. In a bench trial “directed verdicts” are
not rendered midtrial as they are pursuant to CR 50.01 in a jury trial;
rather, the case is involuntarily dismissed pursuant to CR 41.02(2).
5
The Appellees did not file a brief in this appeal. By way of sanction,
where necessary and appropriate, we have accepted the Appellant’s statement
of the facts as correct. CR 76.12(8)(c)(i).
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the guaranty.
Representing McGinnis Farms in the transaction
was store manager Bret Dormire.
On January 1, 2002, McGinnis Farms merged with John
Deere.
Pursuant to the terms of the merger, John Deere was the
surviving corporation of the merger and McGinnis Farms was the
nonsurviving corporation.
John Deere store.
Dormire remained on as manager of the
Based upon the conduct of the parties, as
further discussed below, it appears that it was presumed that
the previously established Gagel Contracting credit account and
Terry’s supporting personal guaranty remained in effect.
Subsequent to this, Terry’s son, Casey, sought to
begin his own landscaping business, and organized a company
called Gagel Lawn & Landscaping, Inc. (Gagel Lawn &
Landscaping).
According to John Deere, to facilitate the
endeavor, Terry and John Deere orally agreed that Casey would be
permitted to charge materials to his father’s John Deere credit
account, and the parties understood that Terry’s personal
guarantee would extend to any charges to the account incurred by
Gagel Lawn & Landscaping.
On March 8, 2002, Casey’s company, Gagel Lawn &
Landscaping, entered into a contract with Wadsworth Golf
Construction Company to provide landscaping work on a golf
course construction project.
In apparent reliance upon the
aforementioned agreement between McGinnis Farms and Terry
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executed prior to the merger, Gagel Lawn & Landscaping sought to
charge purchases to Gagel Contracting’s credit account with John
Deere, which John Deere had carried forward following the
merger.
John Deere established a job line account for the golf
course project on the Gagel Contracting credit account, and
Gagel Lawn & Landscaping commenced obtaining landscaping
materials (primarily tree plantings) for the project.
Despite a
$10,000.00 per month credit limitation on the Gagel Contracting
account, Gagel Lawn & Landscape eventually charged in excess of
$140,000.00 to the account.
The invoices to those charges were
sent to Gagel Contracting or, on some occasions, picked up at
the John Deere facility.
It appears that Terry did not express
objection to the billings.
Wadsworth Golf Course made four
payments to Gagel Lawn & Landscaping totaling in excess of
$126,000.00; however, those funds were never applied to pay the
Gagel Contracting account.
Eventually, Casey walked off the golf course project
without completing the job.
When Dormire learned that Casey had
walked off the job, he called a meeting with Terry and Casey to
discuss the outstanding debt.
to pay the bill.
Terry and Casey, however, refused
Shortly thereafter, Terry sent a letter to
John Deere on Gagel Contracting letterhead.
in relevant part, as follows:
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The letter stated,
RE:
Account # 49619 – Gagel Contracting.
As of this date, August 26, 2002, I am
placing a charge stop on this account.
Since I am signatory to this account I feel
I must take this drastic action to not incur
any further debt.
If you want to insure that you will receive
payment this year then I suggest you place a
lien on the Wadsworth Golf Court, Brady
Built homes, Ball Homes, and Trademark
Homes. I apologize for this inconvenience
and the additional work, but this has to be
done to insure your payment.
The debt relating to the golf course work was never
paid.
On January 17, 2003, John Deere filed a Complaint against
Terry Gagel and Gagel Contracting in Jefferson Circuit Court
seeking a judgment in the amount of $143,043.99 plus interest
and attorney fees.
Circuit Court.
The action was later transferred to Shelby
Eventually, trial on the matter was scheduled
for July 1, 2004.
However, neither Terry nor counsel appeared
on the scheduled trial date.
The trial court permitted John
Deere to go forward with its case, and the plaintiff presented
the direct testimony of Bret Dormire.
At the conclusion of
Dormire’s direct testimony, the trial court held in favor of
John Deere, and judgment was subsequently entered in accordance
therewith.
The defendants subsequently moved to vacate the
judgment on the basis that they had not been properly noticed of
the trial date.
The trial court set aside the judgment and
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scheduled a trial date for August 10, 2004.
At the second
trial, the direct testimony of Dormire given at the July 1,
2004, trial was judicially noticed, and the August 10, 2004,
proceedings commenced with the cross-examination of Dormire.
At
the conclusion of the cross-examination John Deere announced
closed.
Thereupon the trial court involuntarily dismissed the
lawsuit pursuant to CR 41.02(2), thereby holding in favor of the
defendants.
On October 21, 2004, the trial court entered its
Findings of Fact, Conclusions of Law, and Final Judgment as
follows:
FINDINGS OF FACT
The Complaint arises out of the Plaintiff’s
claim against the Defendant for the recovery
of an unpaid account balance for landscape
materials. The Defendant denies he was
obligated on this account and denied the
indebtedness.
The evidence does not support the
Plaintiff’s contention that the Defendant is
indebted to them because of a personal
guaranty the Defendant executed with
McGinnis Farms, Inc., in April 2001. The
Court finds that the Defendant owed no money
to McGinnis Farms, Inc., when it merged with
John Deere Landscapes on January 1, 2002.
The Plaintiff established by testimony that
John Deere Landscapes did business with the
Defendant’s son, Casey Gagel and his son’s
company, Gagel Lawn & Landscape, LLC, and
the Court finds it was this indebtedness
upon which this action was predicated. The
debt claimed is subsequent to the
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Defendants’ obligation to McGinnis Farms and
relates to a different account between John
Deere Landscapes and Casey Gagel and Gagel
Lawn & Landscape, LLC. The Defendants
guaranty did not extend to this account.
The amounts claimed are for monies owed to
John Deere Landscapes for goods and services
provided to the defendant’s son’s company,
primarily for a golf course job in Ohio.
The Defendant is not liable for this account
or any debt to the Plaintiff.
CONCLUSIONS OF LAW
At the close of the Plaintiff’s case in
chief the Defendant moved for a directed
verdict based on the insufficiency of the
evidence as a matter of law. The Court
having made its findings herein and as
recorded on the videotape of the proceedings
does hereby direct a verdict for the
Defendant and enters that attached Final
Judgment dismissing with prejudice the
Complaint of the Plaintiff against the
Defendant.
The trial court denied John Deere’s motion to alter,
amend or vacate the judgment.
This appeal followed.
John Deere contends that the trial court erred in
directing a verdict in favor of the appellees.
The appellant
argues that the credit account that Gagel Contracting executed
with McGinnis Farms, and the corresponding guaranty of Terry
Gagel, Jr., survived the merger of John Deere and McGinnis
Farms, and that Terry is accordingly personally liable for the
default upon the Gagel Contracting account.
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We begin with a general statement of our standard of
review.
Under CR 52.01, in an action tried without a jury,
“[f]indings of fact shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge the credibility of the witnesses.”
Owens-Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 414
(Ky. 1998); Uninsured Employers' Fund v. Garland, 805 S.W.2d
116, 117 (Ky. 1991).
In the usual case, “[a] factual finding is
not clearly erroneous if it is supported by substantial
evidence.”
Id.
However, this case involves a dismissal of the
lawsuit midtrial following the presentation of the plaintiff’s
evidence pursuant to CR 41.02(2), the bench trial equivalent of
a directed verdict under CR 50.01.
CR 43.01 placed the burden
and risk of non-persuasion on John Deere as to the issues upon
which the trial court made findings.
In a bench trial, “[w]hen
the trial court makes a finding of fact adverse to the party
having the burden of proof and his is the only evidence
presented, the test of whether its finding is clearly erroneous
is not one of support by ‘substantial evidence,’ but rather, one
of whether the evidence adduced is so conclusive as to compel a
finding in his favor as a matter of law.”
Morrison v.
Trailmobile Trailers, Inc., 526 S.W.2d 822, 824 (Ky. 1975).6
6
We also note that “the considerations of the trial court on a motion to
dismiss in a bench trial are quite different from those on a motion for a
directed verdict in a jury trial. . . . The trial court does not, as in the
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However, as always, an appellate court reviews legal issues de
novo.
Hunter v. Hunter, 127 S.W.3d 656 (Ky. App. 2003).
We first consider whether the credit account which
Gagel Contracting established with McGinnis Farms survived the
merger.
It unquestionably did.
Kentucky Revised Statutes (KRS)
273.291 provides, in relevant part, as follows:
When a merger or consolidation has been
effected:
. . . .
(1) The several corporations parties to the
plan of merger or consolidation shall be a
single corporation, which, in the case of a
merger, shall be that corporation designated
in the plan of merger as the surviving
corporation, and, in the case of a
consolidation, shall be the new corporation
provided for in the plan of consolidation.
. . . .
(3) Such surviving or new corporation shall
have all the rights, privileges, immunities
and powers and shall be subject to all the
duties and liabilities of a corporation
organized under KRS 273.161 to 273.390.[7]
(4) Such surviving or new corporation shall
thereupon and thereafter possess all the
rights, privileges, immunities, and
franchises, as well of a public as of a
private nature, of each of the merging or
consolidating corporations; and all
property, real, personal and mixed, and all
case of a motion for a directed verdict [in a jury trial], indulge every
inference in the plaintiff's favor.” Morrison at 824.
7
KRS 273.161 to 273.390 addresses general matters concerning corporations,
none of which are directly relevant in this proceeding.
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debts due on whatever account, and all other
choses in action, and all and every other
interest, of or belonging to or due to each
of the corporations so merged or
consolidated, shall be taken and deemed to
be transferred to and vested in such single
corporation without further act or deed;
and the title to any real estate, or any
interest therein, vested in any of such
corporations shall not revert or be in any
way impaired by reason of such merger or
consolidation.
(5) Such surviving or new corporation shall
thenceforth be responsible and liable for
all the liabilities and obligations of each
of the corporations so merged or
consolidated; and any claim existing or
action or proceeding pending by or against
any of such corporations may be prosecuted
as if such merger or consolidation had not
taken place, or such surviving or new
corporation may be substituted in its place.
Neither the rights of creditors nor any
liens upon the property of any such
corporation shall be impaired by such merger
or consolidation. (Emphasis added).
"[O]bviously, the facility of corporate mergers . . .
provided by applicable statutes would be completely thwarted if
the benefit of a merging corporation's . . . contracts were
denied to the surviving corporation."
v. Department of Liquor Control,
A.2d 1156, 1170 (Conn. 1989).
All Brand Importers, Inc.
213 Conn. 184, 210-211, 567
Based upon the foregoing, we
conclude that the credit contract that Gagel Contracting
executed with McGinnis Farms survived the corporate merger.8
8
While not pled by John Deere, by way of dicta we note a troubling aspect to
this case. Following the merger, Gagel Lawn & Landscaping commenced
purchases from John Deere in connection with the golf course project. These
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For substantially the same reasons as just discussed,
we also conclude that Terry’s Personal Guaranty survived the
merger.
We further note that a corporate merger does not affect
the validity of a guarantee held in favor of the merging
corporation.
See Metro Corrugated Containers v. Owens-Illinois
Glass Co., 185 F.Supp 359 (D.C.N.Y. 1960).
Further, the rights
of a company under a guarantee agreement survive the merger of
that company with another, even though the originally-guaranteed
company is not the survivor corporation of the merger.
Corp. v. Farooqi, 207 A.D.2d 873 (N.Y.A.D. 1994).
McKesson
Based upon
this, Terry Gagel, Jr.’s Personal Guaranty survived the merger
and continued to back the Gagel Contracting account just as it
did prior to the merger.9
purchases were billed to the Gagel Contracting account and sent to the
company, placing Terry on notice of the charges. The invoices identify Gagel
Contracting as the debtor. According to Dormire’s unrefuted testimony,
except for those picked up at the John Deere facility, the invoices were sent
to Gagel Contracting. For example, the billings for April 2002 were
$25,134.33 and the billings for May 2002 were $25,542.16. Terry and Gagel
Contracting did not object to the billings.
It is wholly inconsistent for the appellees to now deny the assignment
of the McGinnis Farm account to John Deere after sitting idly by while these
sums were billed to the McGinnis Contracting account without objection. "It
is the general rule that a party may not keep silent when he ought to speak
and allow other parties to be misled to their prejudice by his silence."
Furst & Thomas v. Smith, 280 Ky. 601, 133 S.W.2d 941, 942 (Ky. 1939). As
such, upon a proper pleading by the Appellant, the Appellees would have been
estopped from denying that the McGinnis Farm/Gagel Contracting credit account
was effectively assigned to John Deere and survived the merger. (We also
note than in his August 26, 2002, letter to John Deere Terry expressed that
it was his state of mind that the account had carried forward and was backed
by his personal guaranty, and in response to an interrogatory propounded by
the Appellant the Appellees unequivocally identified the debt as the
responsibility of Gagel Contracting).
9
We note that the personal guaranty executed by Terry would not be valid
under Kentucky law because it does not contain a maximum aggregate liability
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We next consider the trial court’s findings of fact
that “[t]he debt claimed is subsequent to the Defendant’s
obligation to McGinnis Farms and relates to a different account
between John Deere Landscapes and Casey Gagel and Gagel Lawn &
Landscape, LLC.
account.”
The Defendants guaranty did not extend to this
These findings are clearly erroneous.
The only witness to testify at trial prior to the
involuntary dismissal was John Deere Store Manager Bret Dormire.
Dormire steadfastly maintained that all charges for the golf
course job were charged to the Gagel Contracting account.
Moreover, the invoices are captioned Gagel Contracting, and the
invoices were sent to Gagel Contracting’s business address.
And, as previously discussed, Terry Gagel’s personal guarantee
continued to back the Gagel Contracting account.
Further, no
invoices were billed to Gagel Lawn & Landscaping and no bills
were sent to that entity.
Contrary to the trial court’s
finding, Dormire testified that Casey’s company, Gagel Lawn &
Landscaping, did not have a “separate account” with John Deere,
of the guarantor or a date on which the guaranty terminates. See KRS
371.065. However, the credit agreement of the parties specifies that Georgia
law will apply to the parties’ credit agreement. Georgia law requires only
that a personal guaranty must identify the debt, the promisee, and the
promisor. See Roach v. C.L. Wigington Enterprises, Inc, 539 S.E.2d 543
(Ga.App. 2000). Georgia law should be applied under these circumstances.
See Wallace Hardware Co., Inc. v. Abrams 223 F.3d 382 (6th.Circ 2000)
(Guaranty's choice-of-law provision, stating that it was to be "governed by
and construed in accordance with" Tennessee law, was enforceable, even though
debtor-retailer and guarantors were located in Kentucky and guaranty did not
comply with Kentucky statute governing necessary formalities of enforceable
guaranties).
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and that the charges were made to Gagel Contracting’s account.10
The only evidence in the record is that John Deere charged
Casey’s purchases to the Gagel Contracting account as orally
authorized by his father, Terry Gagel.
Based upon the foregoing, the trial court’s October
21, 2004, Findings of Fact, Conclusions of Law, and Final
Judgment is fatally unsound and is accordingly vacated.
Upon retrial, the trial court should apply the law as
outlined herein.
However, in addition, the trial court should
resolve the terms of the oral agreement between the parties
concerning Casey’s authority to charge purchases to the Gagel
Contracting account, and make specific findings concerning that
issue pursuant to CR 52.01.
If it is found that the parties had
a valid oral agreement permitting the charges, the trial court
should find Gagel Contracting and Terry Gagel liable for the
debt associated with charges made by Casey to the account,
except, however, any charges subsequent to Terry Gagel’s August
26, 2002, letter to John Deere placing a stop on the account,
would, of course not be subject to the personal guarantee.
If
it is determined that there was not a valid oral agreement, the
10
Dormire did testify that as a bookkeeping matter a separate “job line” was
established within the Gagel Contracting account to track charges made by
Casey on the golf course project. However, this would appear to be merely in
accordance with sensible accounting practices and not, as concluded by the
trial court, the establishment of a “separate account.”
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appellees should be held not liable upon the charges to the
account.
For the foregoing reasons the judgment of the Shelby
Circuit Court is vacated, and the cause is remanded for
additional proceedings consistent with this opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Elizabeth H. Turner
Richard Alphin
Louisville, Kentucky
No brief filed by Appellee.
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