Case Title: Hutter v. Heilmann

Citation: 

Docket Number: 952047

State: virginia

Court: Virginia Supreme Court

Date: 1996-09-13T00:00:00Z

Document:
Present:  All the Justices 
 
CHRISTIAN S. HUTTER, ET AL. 
 
OPINION BY JUSTICE LEROY R. HASSELL, SR. 
v.   Record No. 952047          September 13, 1996 
 
JOHN E. HEILMANN, ET AL. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF LYNCHBURG 
 
J. Michael Gamble, Judge 
 
 
In this appeal, we consider whether an indemnification 
agreement that the defendants had given to stockholders in return 
for their guarantees of a corporate debt survived the later 
conveyance by the stockholders of their corporate stock. 
 
Christian S. Hutter, Beverly S. Hutter, Jr. (collectively 
referred to as the plaintiffs), and Norwood Enterprises, Inc., 
owned all the stock in Virginia Wood Window Company, Inc., which 
owned Bailey-Spencer Hardware Company, Inc.  John E. Heilmann, 
the sole stockholder of Norwood Enterprises, was also the 
president and chief executive officer of Bailey-Spencer Hardware 
Company.  In 1989, the Bailey-Spencer Hardware Company borrowed 
$253,000 from Crestar Bank, and the plaintiffs personally 
guaranteed this loan. 
 
Initially, each of the plaintiffs and Norwood Enterprises 
"were equal one-third owners" of Virginia Wood Window Company; 
each owned 500 shares of common stock.  In May 1990, plaintiffs, 
Heilmann, and Norwood Enterprises executed a "Buy-Sell Agreement" 
for the common stock of Virginia Wood Window Company.  The 
Agreement provided that Virginia Wood Window Company would borrow 
$745,000 from Central Fidelity Bank, which required Heilmann to 
pledge certain of his real estate interests as collateral.  
Christian Hutter agreed to transfer certain of his stock shares 
to Norwood Enterprises so that it would then own a majority 
interest in Virginia Wood Window Company.   
 
The Agreement contained a "put option" which gave the 
plaintiffs the right to require Norwood Enterprises to purchase 
their shares of stock in Virginia Wood Window Company for a price 
of 85% of the book value of Virginia Wood Window Company's stock. 
 The plaintiffs later exercised their "put options," transferred 
all their remaining Virginia Wood Window stock to Norwood 
Enterprises, and terminated their relationship with both 
companies.   
 
Subsequently, Bailey-Spencer Hardware Company failed to pay 
Crestar Bank the amount outstanding on its loan.  The plaintiffs 
paid Crestar Bank $120,000 to release them from any further 
liability to the bank on their personal guaranties.  Plaintiffs 
filed their motion for judgment against Norwood Enterprises and 
John Heilmann, seeking indemnification under Article 5 of the 
Agreement.   
 
Defendants filed numerous pleadings, including a motion for 
summary judgment.  They asserted that, as a matter of law, the 
plaintiffs lost any rights of indemnification when they conveyed 
their stock in Virginia Wood Window Company.  Plaintiffs also 
filed a motion for summary judgment, asserting that they are 
entitled to indemnification as a matter of law.  The trial court 
held that under the terms of the Agreement, the plaintiffs lost 
their rights to indemnification when they conveyed their stock 
and accordingly entered judgment in favor of the defendants.  We 
awarded the plaintiffs an appeal.   
 
The following provisions in the Agreement are pertinent to 
our resolution of this appeal.  Article 5 of the Agreement 
states: 
 
 
"5.01.  Indemnification.  As to all debts or 
obligations of the Corporation or its subsidiaries 
(specifically including the Subsidiary Corporation) for 
which Shareholders or guarantors are personally liable, 
Shareholders and Heilmann agree to indemnify and hold 
harmless each other in the same ratio and proportion as 
their stock ownership (as it may exist from time to 
time).  For the purposes of this Article alone, 
Heilmann shall be considered synonymous with Norwood." 
 
 
Article 13 of the Agreement states in relevant part: 
 
 
 
"13.01.  Termination of Agreement.  Except for the 
provisions of Article 5 hereof, which shall survive the 
termination of this Agreement, this Agreement shall 
terminate upon the occurrence of any of the following 
events: 
 
 
. . . . 
 
 
 
 
(c) Death or dissolution of all the parties 
to this Agreement; 
 
 
 
 
(d) The voluntary agreement of Shareholders 
who are then bound by the terms hereof and who own one 
hundred percent (100%) of the outstanding capital stock 
of the Corporation; 
 
 
. . . .   
 
 
 
13.02.  Termination of Shareholder's Obligation 
and Rights.  Following the sale by a Shareholder of all 
of his shares of stock, or upon the Shareholder's death 
or dissolution, the Shareholder shall have no further 
rights or obligations under this Agreement to purchase 
additional shares or to guarantee the obligations of 
others hereunder, but shall have only the right and 
obligation to sell and to receive payment of the 
purchase price for any shares owned by him in the 
manner provided hereby." 
 
 
The plaintiffs contend that the plain language of the 
indemnification provision requires that the defendants indemnify 
the plaintiffs for all debts of Virginia Wood Window Company, 
including the subsidiary corporation, for which they as 
shareholders or guarantors are personally liable.  The plaintiffs 
say there is no dispute that they were personally liable to 
Crestar Bank by virtue of their status as guarantors of the loan. 
 
The defendants argue that the trial court properly granted 
the motion for summary judgment.  The defendants assert that the 
plaintiffs lost their rights of indemnity under Article 5 when 
they voluntarily ceased being shareholders in 1991.  Moreover, 
the defendants contend that the indemnification provision only 
requires that they indemnify the shareholders in the same ratio 
and proportion as their stock ownership and, when the plaintiffs 
ceased owning stock, their "'ratio' of stock ownership was zero 
and their rights to indemnity under Article 5 were the same." 
 
We disagree with the defendants.  Several familiar 
principles govern our resolution of this dispute.  First, when 
contract terms are clear and unambiguous, we must construe those 
terms according to their plain meaning.  Bridgestone/Firestone v. 
Prince William Square, 250 Va. 402, 407, 463 S.E.2d 661, 664 
(1995); Foods First, Inc. v. Gables Associates, 244 Va. 180, 182, 
418 S.E.2d 888, 889 (1992).  Additionally, "[t]he law will not 
insert by construction, for the benefit of a party, an exception 
or condition which the parties omitted from their contract by 
design or neglect."  Bridgestone/Firestone, 250 Va. at 407, 463 
S.E.2d at 664.  Moreover, we will construe the contract as a 
whole, and "[n]o word or clause is to be treated as meaningless 
if any reasonable meaning consistent with the other parts of the 
contract can be given to it."  Vega v. Chattan Associates, 246 
Va. 196, 199, 435 S.E.2d 142, 143 (1993) (quoting Ames v. 
American Nat'l Bank, 163 Va. 1, 39, 176 S.E. 204, 216 (1934)).   
 
Applying these principles here, we hold that the plaintiffs 
are entitled to indemnification as a matter of law.  The plain 
language of Article 5 makes clear that the defendants agreed to 
indemnify the plaintiffs for all debts or obligations of Virginia 
Wood Window Company and Bailey-Spencer Hardware Company for which 
the plaintiffs, as guarantors, are personally liable.  Without 
question, the plaintiffs were guarantors and personally liable to 
Crestar Bank on the loan.  Further, Article 5 requires the 
defendants and plaintiffs "to indemnify and hold harmless each 
other in the same ratio and proportion as their stock ownership." 
 Contrary to the defendants' contention, the plaintiffs' transfer 
of their stock ownership did not adversely affect their 
entitlement to indemnification because Article 5 provides that 
the obligation to make indemnification is proportionate to stock 
ownership, not the right to receive indemnification.  Thus, we 
are of the view that the defendants, who own 100% of the stock of 
Virginia Wood Window Company, in accordance with Article 5, are 
required to indemnify the plaintiffs for the entire amount of the 
$120,000 that the plaintiffs paid to Crestar Bank.   
 
We find no merit in defendants' argument that the 
plaintiffs' rights to indemnification ceased when the plaintiffs 
conveyed their shares of stock.  Paragraph 14.10 of the Agreement 
states, "[i]t is the desire and intent of the parties hereto 
. . . that this Agreement be liberally construed and broadly 
interpreted, consistent with its declared intents and purposes." 
 Among those intents and purposes are the desires of the 
plaintiffs and defendants to indemnify each other under certain 
circumstances described in Article 5.  Our review of the plain 
language contained in the indemnification provision, along with 
Paragraph 14.10 and other provisions in the Agreement, leads us 
to conclude that the plaintiffs' rights to indemnification were 
not forfeited merely because they chose to convey stock as 
provided in the "put option." 
 
We also find no merit in defendants' contention that because 
Article 13.01 provides that the indemnification provision "would 
only survive in the event of death, dissolution, bankruptcy 
and/or cessation of the business of Virginia Wood Window," the 
indemnification provision terminated when the plaintiffs conveyed 
their stock.  The survival clause is not implicated here because 
the Agreement has not been terminated according to its terms.  
Hence, the Agreement remains in effect and governs the rights and 
obligations of the parties, including the reciprocal rights and 
obligations of indemnification.   
 
Accordingly, we will reverse the judgment of the trial 
court, and we will enter final judgment here in favor of the 
plaintiffs.   
 
Reversed and final judgment.