Johnston v. Gilley

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273 S.E.2d 513 (1981)

D. R. JOHNSTON v. James R. GILLEY and Smith W. Bagley.

No. 8026SC531.

Court of Appeals of North Carolina.

January 6, 1981.

*514 Caudle, Underwood & Kinsey, P.A., by Lloyd C. Caudle and John H. Northey, III, Charlotte, for plaintiff-appellee.

Brooks, Pierce, McLendon, Humphrey & Leonard by Hubert Humphrey, Jr., and Reid L. Phillips, Greensboro, for defendant-appellant.

WELLS, Judge.

Defendant Bagley argues that the trial court erred (1) in concluding that G.S. 1-75.4(5)[1] authorized the trial court to exercise *515 in personam jurisdiction over him; and (2) that the trial court erred in concluding that the court's exercise of in personam jurisdiction over him did not violate due process of law. Defendant's argument follows the two-step analysis suggested by our Supreme Court in Dillon v. Funding Corp., 291 N.C. 674, 675-76, 231 S.E.2d 629, 630-31 (1977) and followed in Buying Group, Inc. v. Coleman, 296 N.C. 510, 513, 251 S.E.2d 610, 613 (1979).

The "long arm" statute has been the subject of a number of recent decisions of our appellate court and the federal courts. These cases have consistently held that the provisions of the statute are to be liberally construed in favor of finding personal jurisdiction, consistent with due process limitations under the Fourteenth Amendment to the United States Constitution.

The facts, shown by admissions or affidavits before the trial court, tend to show the following circumstance and events. In April 1973, Bagley was a resident of Forsyth County, and a principal shareholder, officer and director of The Washington Group Inc., a North Carolina corporation. In April 1973, Washington Mills-Retail, Inc., a North Carolina corporation and a subsidiary of The Washington Group, acquired all or substantially all of the capital stock of Johnston Mills Company, and in the process, entered into the agreement with Johnston. The agreement in pertinent part provided for the employment of Johnston for a period of eighteen years and required Johnston to provide specified services, some of which were to maintain liaison between Johnston Mills and banks in the metropolitan Charlotte, North Carolina area. It also required him to maintain an office in the metropolitan Charlotte area. We hold that these provisions specifically include services to be performed in North Carolina, and are in themselves sufficient to bring this case within the provisions of the long-arm statute. In addition, the contract called on plaintiff to perform a variety of other services, which included serving as an officer or director of Johnston Mills, Washington-Retail, and The Washington Group, all North Carolina corporations, and assisting Johnston Mills in its relationships with city, county, and state governments. These contractual provisions clearly imply services to be performed to some extent in North Carolina. On these facts defendant simply cannot prevail on his argument that the statute does not authorize in personam jurisdiction over defendant Bagley.

We now turn to the minimum contacts aspect of this case. In Buying Group, supra, our Supreme Court stated the minimum contacts standard as follows:

The constitutional standard to be applied in determining whether a State may assert personal jurisdiction over a nonresident defendant is found in the landmark case of International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945): "[D]ue process requires only that in order to subject a [nonresident] defendant to a judgment in personam,... he have certain minimum contacts with [the forum State] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" We noted in Chadbourn, Inc. v. Katz, 285 N.C. 700, 208 S.E.2d 676 (1974), that the "minimum contacts" standard delineated in International Shoe did not mean that all due process restrictions on the personal jurisdiction of state courts had been removed. *516 In Chadbourn, quoting from Hanson v. Denckla, 357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958), we stressed that while application of the minimum contacts standard "will vary `with the quality and nature of defendant's activity, ... it is essential in each case that there be some act by which defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws.'" Absent such purposeful activity by defendant in the forum State, there can be no contact with the forum State sufficient to justify personal jurisdiction over defendant. Accord, Hanson v. Denckla, supra; Chadbourn, Inc. v. Katz, supra.

Buying Group, supra, at 515, 251 S.E.2d at 614.

Applying that standard to this case, in light of Bagley's residence in the state and his participation in the management of those North Carolina corporations which acquired Johnston Mills' stock, another North Carolina corporation, it is clear that Bagley's contacts with Johnston Mills, the employer, and Johnston, the employee, were neither casual nor fortuitous.[2] As a guarantor of the promises made by Johnston Mills and Washington-Retail, Bagley manifested a direct and substantial interest in these transactions, purposely availed himself of the privilege of conducting activities within North Carolina, and invoked in one aspect or another the benefit and protection of the laws of North Carolina.[3] These were mutual promises and obligations entered into by people residing in the state and corporations chartered by the state. It was manifestly proper for the trial court to conclude that the maintenance of this suit in North Carolina against Bagley did not offend "traditional notions of fair play and substantial justice."[4]

Defendant argues that because he moved out of the state in 1975 and has not resided in the state since that time, the constitutionally required minimum contacts no longer exist and that these circumstances defeat jurisdiction. Defendant cites no authority for this proposition and we know of none. We hold that the minimum contacts standard can be reasonably applied only to the circumstances and events giving rise to the promises referred to in G.S. 1-75.4(5), and not to the circumstances giving rise to a breach. It does not seem reasonable to assume that the General Assembly intended the "long arm" of the statute to be cut off at the elbow by the mere transience of defaulting promisors. See Pope v. Pope, 38 N.C.App. 328, 331, 248 S.E.2d 260, 262 (1978).

Defendant also argues that because defendant here is a guarantor of Johnston Mills' contract, his obligation, if any, to plaintiff is to pay the debt of another and not to pay for plaintiff's services ergo, Bagley is not a "defendant" who has promised to pay for services, as that term is used in the statute. It is settled law that a guarantee of payment is an absolute promise, a direct and original undertaking by one person to answer for the payment of a debt or the performance of some contract or duty in case of default of another person who is liable for such payment or performance in the first place. See Investment Properties v. Norburn, 281 N.C. 191, 188 S.E.2d 342 (1972); SNML Corp. v. Bank, 41 N.C.App. 28, 36, 254 S.E.2d 274, 279, disc. rev. denied, 298 N.C. 204 (1979). It is, therefore, clear, and we so hold, that as a guarantor of the contract with Johnston, Bagley is a defendant within the meaning of G.S. 1-75.4(5)(a), (b) and (c).

Defendant also argues that if the court did not have in personam jurisdiction over Bagley, service by registered mail under G.S. 1A-1, Rule 4(j)(9)b of the Rules of Civil Procedure was invalid. In that we have found in personam jurisdiction, this argument is without merit.

*517 We hold that the trial court had in personam jurisdiction over the defendant Bagley in this case, that Bagley was properly served with process in this case, and that the order of the trial court should be and is




[1] G.S. 1-75.4(5), commonly referred to as the "long arm" statute, provides in pertinent part as follows:

(5) Local Services, Goods or Contracts.In any action which:

a. Arises out of a promise, made anywhere to the plaintiff or to some third party for the plaintiff's benefit, by the defendant to perform services within this State or to pay for services to be performed in this State by the plaintiff; or

b. Arises out of services actually performed for the plaintiff by the defendant within this State, or services actually performed for the defendant by the plaintiff within this State if such performance within this State was authorized or ratified by the defendant; or

c. Arises out of a promise, made anywhere to the plaintiff or to some third party for the plaintiff's benefit, by the defendant to deliver or receive within this State, or to ship from this State goods, documents of title, or other things of value....

* * * * * *

[2] See Buying Group, supra, at 516, 251 S.E.2d 610.

[3] See Buying Group, supra.

[4] International Shoe Co. v. Washington, supra, 326 U.S. at 316, 66 S. Ct. at 158, 90 L. Ed. at 102.

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