Shelley West sold her chiropractic practice to Matthew Diduro and Christopher Bragg (hereinafter collectively "Buyers"). Buyers subsequently defaulted on the promissory note given in connection with the sale, and West sued them on the note, for breach of contract and for other claims. Buyers counterclaimed, and both parties filed motions for partial summary judgment. The trial court denied West's motion and granted Buyers' motion in part. Following a jury trial, judgment was entered in favor of West on her claim for conversion of certain accounts receivable; and in favor of Buyers on certain counterclaims and for attorney fees on Buyers' counterclaim for breach of contract. West appeals from the trial court's orders on the parties' motions for partial summary judgment and from the judgment entered following the jury trial. For the reasons set forth below, we affirm in part and reverse in part, and we remand for further proceedings in accordance with this opinion.
As to West's challenge to the trial court's adverse rulings on summary judgment, we apply the following standard of review:
So viewed, the record reflects that West operated a chiropractic practice incorporated as Healthsource Chiropractic of Johns Creek P.C. ("Healthsource PC"), of which she was sole owner. On March 26, 2008, West sold this practice to Buyers for $185,000, pursuant to a Purchase Agreement executed by the parties that day. The Purchase Agreement provided that $135,000 of the purchase price was to be paid in cash, with the remaining $50,000 to be financed by a promissory note from Buyers to West. Upon execution of the Purchase Agreement, Buyers gave West a promissory note in the amount of $50,000 (the "Note"); however, Buyers tendered at that time only $125,000 of the $135,000 remaining on the purchase price. Buyers apparently made an oral promise to pay the $10,000 shortfall at some later time. As contemplated by the Purchase Agreement, West executed a Non-Compete Agreement in favor of Buyers. When the parties executed the Purchase Agreement, Buyers did not request any stock certificates in Healthsource PC, and no stock certificates were transferred at that time. After this transaction, Buyers took over the operation of the practice but failed to make payments under the Note, which contained an acceleration clause. Buyers also failed to pay the $10,000 shortfall on the purchase price.
Two months after the sale of her business, West filed suit against Buyers, asserting claims for breach of contract based on Buyers' default under the Note, failure to pay over certain accounts receivable collections, and failure to pay the $10,000 remaining on the purchase price; conversion, based on Buyers' alleged fraudulent negotiation of checks made out to West; fraud, based on Buyers' use of tax identification numbers and "approved preferred provider" status, which West alleged belonged to either Healthsource PC or West, in connection with Buyers' billing various insurance companies; and assault and battery against Diduro, based on an incident alleged to have occurred on April 18, 2008. On July 21, 2008, Buyers answered and asserted counterclaims against West, based on breach of contract, conversion, fraud, defamation, false light, tortious interference with contract, and intentional infliction of emotional distress. On December 29, 2008, Buyers amended their answer to assert failure of consideration as a defense to West's claim on the Note, based on West's failure to convey the stock in Healthsource PC when the Purchase Agreement was executed.
West filed a motion for partial summary judgment on the $50,000 Note, which the
Buyers also moved for partial summary judgment. Their motion was granted in part and denied in part by the trial court's order entered May 6, 2010 (the "May 2010 Order"). The trial court ruled that the Purchase Agreement unambiguously contemplated a stock sale, as well as an asset sale; that the consideration for the sale was the stock in Healthsource PC; and that the Buyers had not received any stock in Healthsource PC when the Purchase Agreement was signed. Therefore, the court concluded that the Purchase Agreement, Note, and Non-Compete Agreement "were executed and delivered without substantial consideration," because West had not transferred the Healthsource PC stock certificates to Buyers upon execution of the Purchase Agreement.
In its May 2010 Order, the court granted partial summary judgment to Buyers on the following issues: (1) West's claim for the $50,000 owing under the Note; (2) West's claim for the $10,000 shortfall in the purchase price, on the ground that West breached the Purchase Agreement by conveying a DRX unit used in the practice to a third party a few days before the Purchase Agreement was executed on March 26, 2008; (3) West's claim for conversion of Healthsource PC's accounts receivable collected after March 26, 2008; and (4) West's fraud claim, based on her allegation that Buyers improperly used tax identification numbers and "approved provider status" associated with Healthsource PC or West. The trial court also granted summary judgment to Buyers and against West as to their claim that West breached the Purchase Agreement by failing to transfer ownership of the DRX unit. The May 2010 Order denied Buyers' motion for partial summary judgment as to the following issues, thus reserving them for trial: (1) West's claim for conversion of Healthsource PC's pre-March 26, 2008, accounts receivable; (2) West's claim against Diduro for assault and battery; (3) West's claim for punitive damages based on the alleged assault and battery; (4) Buyers' counterclaims against West for defamation and tortious interference with Buyers' business relationships, based on Buyers' allegations that West made derogatory statements to third parties; and (5) Buyers' counterclaim against West based on West's alleged breach of her agreement in the Purchase Agreement "to create a smooth transition" of the practice.
The case was then tried before a jury, which awarded West $389 on her claim for conversion of pre-March 26, 2008, accounts receivable, but found against West and in favor of Buyers on West's assault and battery claim. On Buyers' claim against West for breach of contract, the only issues presented to the jury were the amount of damages owed to Buyers for the breach and the amount of attorney fees Buyers were entitled to recover. On this claim, the jury awarded Buyers $0 in damages and $84,983 attorney fees. The jury awarded Buyers $100,000 on Buyers' other counterclaims but awarded no punitive damages against West. West appeals from the adverse orders on summary judgment and from the judgment entered on the jury's verdict.
1. The April 2009 Order. In her motion for partial summary judgment, West sought to recover against Buyers on the Note. Buyers responded, asserting that the Note lacked consideration because West had conveyed the DRX unit to a third party before the execution of the Purchase Agreement and because she had removed certain items from the Healthsource PC offices and she had defamed Buyers after the sale. In its April 2009 Order, the trial court concluded that West was not entitled to judgment on the Note because fact issues remained as to whether it lacked consideration. This ruling was in error, and we reverse.
"It is well established that a plaintiff seeking to enforce a promissory note establishes a prima facie case by producing the note and showing that it was executed. Once that prima facie case has been made, the plaintiff is entitled to judgment as a matter of law unless the defendant can establish a
Buyers interposed the defense of lack of consideration.
As this Court explained in Greene v. Johnson,
The Purchase Agreement in the case at bar did not contemplate a closing to take place in the future. Rather, it served as a record or memorandum of what actually occurred at the March 26, 2008, transaction. Although it contained certain promises of future performance, e.g., West's promise "to assist in an orderly transition of the practice," the Purchase Agreement more closely resembled an executed bill of sale for personal property than an executory contract for the sale of a business. It follows that the Purchase Agreement bound West to convey only the assets owned by the practice on March 26, 2008. This Agreement did not restrict, nor was there any other agreement to restrict, her ability to alienate assets before that date. Buyers' claim that West's earlier conveyance of the DRX unit somehow breached the not-yet-executed Purchase Agreement thus falls to the ground.
Despite any later quarrels which arose between the parties after the Purchase Agreement was signed, the Note was supported by adequate consideration at the time of its execution, because Buyers took immediate possession of West's business and began operating it as their own. Thus, the trial court erred in denying West's motion for summary judgment against Buyers on West's claim to recover under the Note. West is entitled to
2. The May 2010 Order. As to the various rulings entered by the trial court in its May 2010 Order and challenged on appeal,
(a) The trial court concluded that Buyers were entitled to judgment as a matter of law on West's claim for recovery under the Note, on the ground that (1) the Purchase Agreement was a contract for the sale of the shares of stock in West's professional corporation; (2) West had failed to deliver this stock to Buyers; and (3) therefore, there was a failure of consideration for the Note. This ruling was in error, and we reverse.
In the first place, as discussed in Division 1 above, it is clear that the Note was not "executed and delivered without substantial consideration," contrary to the trial court's May 2010 ruling. Further, whether the sale was intended to convey assets or stock, Buyers have not proven damages resulting from West's failure to transfer Healthsource PC stock certificates.
We cannot agree with the trial court that the Purchase Agreement contemplated a sale of stock, rather than an asset sale. Although the Non-Compete Agreement signed by West recites that "Buyers are acquiring all of the outstanding corporate stock held by [West] in [Healthsource PC]," this preamble is mere surplusage.
Shares of stock in a corporation are, of course, not an asset of the corporation; rather, they are an asset of the person or entity that owns the stock. Therefore, West's promise to transfer assets of Healthsource PC did not imply a promise to transfer her stock in the corporation.
(b) The trial court granted partial summary judgment to Buyers on West's claim for the $10,000 shortfall in the purchase price, reasoning that West failed to convey the DRX unit upon execution of the Purchase Agreement. This ruling was in error, and we reverse. As explained in Division 1 above, West's conveyance of the DRX unit to a third party prior to execution of the Purchase Agreement did not breach West's obligations under the Purchase Agreement. Thus, West's claim for the unpaid portion of the purchase price should have been reserved for trial.
(c) The trial court also erred in summarily adjudicating in favor of Buyers their claim that West breached the Purchase Agreement by failing to transfer ownership of the DRX unit. Neither the Purchase Agreement nor any of the other agreements
To be sure, the Purchase Agreement required West to transfer to Buyers all assets of Healthsource PC. But this obligation applied to assets actually owned by the corporation on March 26, 2008, when the Purchase Agreement was signed. By that date, West had already conveyed the DRX unit to a third party, as was her right. If there had been a signed agreement to purchase, with a closing date at a time in the future, then transfers of assets in the interval between the agreement to purchase and the closing might have constituted a breach of contract. But in the case before us, the Purchase Agreement is the complete and entire agreement between the parties, by reason of its merger clause; and as discussed above, this Agreement does not require West to transfer the DRX unit to Buyers. It requires only that West transfer equipment and assets that the business owned on March 26, 2008. Parol evidence of agreements between the parties regarding the DRX unit is not of the slightest probative value in interpreting the Purchase Agreement, which the trial court termed an unambiguous contract.
(d) We affirm the trial court's grant of summary judgment in favor of Buyers as to West's fraud claims. West alleged that Buyers improperly used tax identification numbers and "approved provider status" associated with Healthsource PC or West in billing for services. To the extent that these items belonged to Healthsource PC and not West personally, West is not the proper party to bring an action for their misuse. Further, under the Purchase Agreement, "all tangible and intangible assets" of the corporation were transferred to Buyers. Therefore, they had the right to use the items at issue.
West asserts that "approved provider status" is based on "credentialing" by the insurance companies and applies to her personally and not to other chiropractors. Even if she is completely correct about this, the harm being done is to the insurance companies, and it is up to them—not West—to seek redress if they object to Buyers' use of West's "approved provider status."
(e) The trial court correctly denied Buyers' motion for partial summary judgment on their counterclaims against West for defamation and tortious interference with business relations, and these claims were properly reserved for trial.
(f) The trial court erred in reserving for trial Buyers' claim that West had breached, in the trial court's words, "the agreement to create a smooth transition." There was no such agreement. Under the Purchase Agreement, West actually agreed to "remain at the practice without compensation on an as needed basis not to exceed thirty (30) calendar days following the sale of the practice to assist in an orderly transition of the practice."
In summary, the only issues properly remaining for determination at trial are West's claim for the $10,000 shortfall in the purchase price;
3. The trial. Because the trial court erred (in part) in its rulings on the parties' motions for partial summary judgment, the instructions to the jury given at trial and the verdict form provided to the jury
Judgment affirmed in part and reversed in part, and case remanded with direction.
PHIPPS, P.J., concurs. McFADDEN, J., concurs in judgment only.