Title: Vickers v. First Mississippi Nat. Bank

State: mississippi

Issuer: Mississippi Supreme Court

Document:

458 So. 2d 1055 (1984) James Dwight VICKERS and William Thomas, Jr., Trustee v. FIRST MISSISSIPPI NATIONAL BANK. No. 54408. Supreme Court of Mississippi. October 31, 1984. *1056 J. Murray Akers, Greenville, for appellant. James K. Dukes, Dukes & Jernigan, Hattiesburg, Michael E. Friedlander, Washington, D.C., for appellee. Before ROY NOBLE LEE, P.J., and DAN M. LEE and ROBERTSON, JJ. ROBERTSON, Justice, for the Court: This case presents the substantive question whether, in the context of a third party beneficiary contract, a promisee/shareholder in the beneficiary corporation may on proper proof recover damages of and from his promisor consistent with our recent decision in Bruno v. Southeastern Services, Inc., 385 So. 2d 620 (Miss. 1980). Assuming at least a partially affirmative answer to the substantive question, the case also presents the procedural question whether on this record such rights as the promisee/shareholder may have may be adjudicated summarily consistent with Rule 56, Miss.R.Civ.P. Substantively, we recognize as valid in this state a rule of law which affords a promisee/shareholder a right to recover foreseeable damages sustained by him or her individually flowing from the promisor's breach of duties imposed upon that promisor and owing to the promisee/shareholder in his or her individual capacity. Procedurally, we hold that the Circuit Court erred when it granted summary judgment in favor of the promisor dismissing in their entirety the promisee/shareholder's claims. We reverse in part and remand for trial. The cast of characters is as follows: (1) James D. Vickers is an adult resident citizen of the Greenville, Mississippi/Lake Village, Arkansas area. He was the original Plaintiff below and is one of the Appellants here. He is the "promisee/shareholder" and is sometimes referred to below merely as "Vickers". (2) William Thomas, Jr., is an adult resident citizen of Greenville, Mississippi, who is the lawfully appointed, qualified and serving Trustee of the Estate of James D. Vickers, Bankrupt. Trustee Thomas was a Plaintiff below and is an Appellant here under authority of an order of the United States Bankruptcy Court for the Northern District of Mississippi filed February 9, *1057 1981, in In Re James Dwight Vickers, No. GBK 78-00147. (3) First Mississippi National Bank is a banking association organized, chartered and existing under the laws of the United States and having its principal place of business in Hattiesburg, Mississippi. The Bank was the sole Defendant below and is the Appellee here. In much of the discussion that follows, the Bank is the promisor. (4) Toche Enterprises, Inc. and Jays & W, Inc. are two separate corporations each of which, at all times relevant hereto, was chartered and existing under the laws of this state. Neither of these corporations is a formal party in this action. Collectively, they are referred to below as "Toche". Toche is the beneficiary in the third party beneficiary setting discussed below. The facts of this case and the inferences therefrom and interpretations to be made thereof and ultimately the legal conclusions to be drawn therefrom are hotly disputed. Because of the present posture of the matter, however, summary judgment having been granted in favor of the Bank and against Vickers, we here state the facts in a light reasonably favorable to Vickers.[1] In the year 1975, Toche operated a marine construction and repair facility in Ocean Springs, Mississippi. All stock in the Toche corporation was owned by four members of the Toche family. As 1975 drew to a close, the corporation was indebted to First Mississippi National Bank for over $800,000 and its payments were in arrears. James D. Vickers is a member of a family with substantial experience in the marine construction business, operating primarily through Greenville Shipbuilding Corporation based in Greenville, Mississippi. In December of 1975 and early January of 1976, officers of the Bank engaged Vickers in negotiations regarding his possible acquisition of the Toche facility in Ocean Springs. These negotiations culminated on January 19, 1976, with the execution of a written agreement between (1) James D. Vickers, (2) First Mississippi National Bank and (3) the four members of the Toche family in their individual capacities as stockholders. Toche, the corporation, was not a party to the agreement, although it was obviously a third party beneficiary thereof. The agreement of January 19, 1976, provided, inter alia: (1) that the Toche family members should transfer ownership of all stock to Vickers; (2) that the Bank would loan the Toche Corporation $1,435,000 at 7% per annum repayable over 24 months in four semi-annual payments; (3) that certain indebtedness including the over $800,000 owed by Toche to the Bank would be extinguished ("refinanced") with the loan proceeds; (4) that Vickers would personally guarantee that portion of the loan from Bank to Toche which constituted new money (approximately $500,000) and further guarantee any other sums advanced by the bank to Toche; (5) that, in addition, the Bank would provide Toche a line of credit up to $3,000,000.00 for interim construction financing; and (6) that in the event of the Bank's foreclosure upon Toche collateral, such proceeds would be applied first to that part of the indebtedness guaranteed by Vickers. Immediately thereafter, Vickers went to Ocean Springs and took over the operation of the Toche marine construction facility. He caused Toche to begin purchases of steel, welding machines and other materials necessary for the construction of vessels. In March of 1976, through Vickers' efforts Toche had obtained contracts for *1058 the construction of marine hulls and began this work. It is in this connection that one of Vickers' primary complaints arises, to wit: the alleged failure of the Bank to provide Toche with interim ship construction financing. Again because of the summary judgment posture of the case, the rest of the story will be told in Vickers' own words as they appear in his affidavit of June 22, 1982. On April 12, 1982, Vickers and his Trustee in Bankruptcy commenced this action by filing their complaint in the Circuit Court of Forrest County, Mississippi, naming the Bank as a Defendant. In his complaint Vickers demanded damages of and from the Bank for what amounts to all losses he sustained as a result of the Bank's alleged breach of certain contractual obligations alleged to exist by virtue of the January 19, 1976, agreement, a copy of which was attached to the complaint. The Bank did not answer but rather on May 18, 1982, filed a motion to dismiss, Rule 12(b)(6), Miss.R.Civ.P., or, in the alternative, for summary judgment, Rule 56, Miss.R.Civ.P., asserting, essentially, three grounds, to wit: Vickers' alleged lack of standing, the failure of the complaint to state a claim upon which relief can be granted, and judicial estoppel. The motion was heard on affidavits submitted by the respective parties and memorandum briefs filed by their counsel. On July 16, 1982, the Circuit Court adjudged that there were no genuine issues of material fact and that First Mississippi National Bank was entitled to judgment as a matter of law and, accordingly, entered final judgment in favor of the Bank and against Vickers and his trustee. En route, the Circuit Court stated: Vickers and his Trustee have timely perfected their appeal to this Court. The matter has been competently briefed and argued and is now ripe for decision. The procedure whereby in a civil action final judgment may be entered summarily and without plenary trial on the merits has been a part of our law since January 1, 1982. Rule 56, Miss.R.Civ.P. Its contours and nuances are becoming familiar and established. See Brown v. Credit Center, Inc., 444 So. 2d 358 (Miss. 1983); Bourn v. Tomlinson Interests, Inc., 456 So. 2d 747 (Miss. 1984); Biggers v. Fox, 456 So. 2d 761 (Miss. 1984); Dethlefs v. Beau Maison Development Corporation, 458 So. 2d 714 (Miss. 1984); Dennis v. Searle, 457 So. 2d 941 (Miss. 1984); Pearl River County Board of Supervisors v. South East Collections, Inc., 459 So. 2d 783 (Miss. 1984). For present purposes, we need keep well in mind the admonition of the Advisory Committee in its Comment to Rule 56: In Brown v. Credit Center, Inc., we stated: *1061 Not all disputed issues of fact may be sufficient to defeat a motion for summary judgment or to require trial on the merits; only material issues of fact. Put another way, if, viewing the evidence in the light most favorable to the party against whom the motion has been made, that party's claim or defense still fails as a matter of law, summary judgment generally ought to be granted, even though there may be hot disputes regarding non-material facts. As will be apparent, this principle has importance with respect to a part of our decision in this case. Another principle of relevance here is that found in Rule 56(d), Miss.R.Civ.P., to the effect that the Court has authority where appropriate to enter a partial summary judgment on those issues where there are no material disputes of fact and where the moving party is entitled to judgment as a matter of law, leaving the remainder of the case for trial. Brown v. Credit Center, Inc., 444 So. 2d at 363; Dennis v. Searle, 457 So. 2d at 944. In Brown we stated: Again, as will be apparent, this principle has relevance to the case at bar. Finally, Vickers reminds us of his right to trial by jury secured by virtue of the constitution of this state. In light of Miss. Const. Art. III § 31 (1890) wherein litigants are vested with that right, Brown correctly admonishes that On the other hand, there is no denial of that right where under the facts tendered the moving party is entitled to judgment as a matter of law. In such instances, granting the motion no more denies a litigant his right to trial by jury than does the sustaining of a demurrer or granting of a peremptory instruction under our former practice. The Circuit Court's memorandum opinion sustaining the motion for summary judgment makes clear that it is based upon the notion that Vickers has no standing to sue. As we perceive it, the Circuit Court's opinion does not question that the complaint states a claim against the Bank upon which relief can be granted (to employ the parlance of Rule 12(b)(6), Miss.R.Civ.P.). It merely holds that this claim may be asserted only by the corporation, Toche, and that Vickers is a "secondary party" with no independent standing to sue. The Circuit Court relies on Bruno v. Southeastern Services, Inc., 385 So. 2d 620 (Miss. 1980) which squarely holds that, where the basis of the suit is a wrong to the corporation, The Bruno opinion further states that The facial similarities of the case at bar to Bruno become reality when we remember that Vickers has sued for recovery of "damages from the loss of income from and the profits of Toche Enterprises, Inc., the loss of his investments, loss of sums due to the United States Internal Revenue Service, ..." Under the rule in Bruno these are in law claims of the corporation *1062 for damage to the corporation with respect to which redress must be sought only in a stockholder's derivative suit. Bruno v. Southeastern Services, Inc., 385 So. 2d at 622. Vickers has no standing to assert these claims in his individual capacity. To that extent, the circuit judge was correct and the portion of his judgment which is sustained by the rule in Bruno must be affirmed. Indeed, counsel for Vickers conceded the point at oral argument. While it includes a Bruno-type claim, the Vickers complaint goes far beyond. Significant for present purposes are the allegations that the Bank had substantial contractual obligations to Vickers individually, as distinguished from those obviously running in favor of the corporation. The alleged breach of obligations said to be owing to Vickers individually forms a part of the basis for this action. A review of the agreement of January 19, 1976, suggests that James D. Vickers is a party to it in his individual capacity and that the Bank undertook substantial obligations owing to Vickers, although for the benefit of the corporation. Moreover, in addition to the Bruno-type damages sought, Vickers and his trustee also claim that Vickers, individually and not just derivatively, has been damaged, and recovery is sought therefor. Vickers' primary claim over and above those precluded under Bruno is that the Bank breached its obligations to provide interim financing for the construction of marine vessels. To be sure, this is an obligation the beneficiary of which was the corporation. Vickers makes clear in his affidavit, however, the importance of interim financing in the ship construction business and the fact that he would never have become involved in Toche or undertaken any of the obligations imposed upon him personally by the agreement of January 19, 1976, had the Bank not made a commitment for interim construction financing. According to Vickers, having cast his lot with Toche, he had no choice, when the Bank failed to provide the necessary interim construction financing, but to invest his own money. As set forth in his affidavit, Vickers alleges that he put close to a million dollars of his own money into the business as a proximate result of the Bank's failure to honor obligations said to have been imposed upon it by paragraph 9 of the January, 1976, agreement. That money cannot now be salvaged. In addition, Vickers claims that he incurred substantial expenses in searching for interim financing to replace that originally promised but subsequently denied by the Bank. Without doubt, we are here considering an obligation on the part of the Bank owed to and enforceable by Vickers individually. Back in the Spring of 1976, he could have brought an action for specific performance. There is no reason on principle why he should not now be allowed to prosecute an action for foreseeable damages he has sustained as a proximate result of the breach by the Bank of the obligations it had undertaken in paragraph 9 of the agreement. We certainly cannot say on this record that damages of this nature were not reasonably foreseeable by the Bank back on January 19, 1976, as likely to result if it failed to perform its obligation to provide interim construction financing. See Wright v. Stevens, 445 So. 2d 791, 798 (Miss. 1984). Fundamentally, Vickers asserts a claim predicated upon his contract with the Bank. That contract contains a feature which classifies it as a third party beneficiary contract. In the present context, Bank (promisor) has made promises to Vickers (promisee) for the benefit of Toche (beneficiary). No one would deny the promisee the right to seek specific performance in the event of the promisor's breach of obligations owing to the beneficiary. Restatement of Contracts 2d § 307 (1979). Our perusal of the treatises reveals a near unanimous view that a promisee may sue a breaching promisor for damages as well. Farnsworth, Contracts 735-736 (1982); Calamari and Perillo, Contracts 629-630 (2d ed. 1977); 4 Corbin, Contracts 237-244 (1951); 2 Williston, Law of Contracts *1063 1131-1134 (rev.ed. 1936). Professor Farnsworth's statement is representative: The effect of the lower court's decision and of the argument advanced here by the Bank is that Bruno alters this general rule where the promisee is a shareholder in the beneficiary corporation. What and all Bruno holds, however, is that a promisee plaintiff has no standing to sue and recover from a promisor where all damages claimed were in fact sustained by the corporation beneficiary and where the losses incurred by the promisee were wholly derivative from the losses to the corporation. As stated, Bruno, announces a salutary rule. It protects defendant promisor from a multiplicity of suits and promotes the efficient use of judicial resources. Put another way, to the extent that a shareholder may under our law bring a derivative action, he has no standing to sue in his own name. Across the country there exists a well-recognized complement to Bruno which implements in this context the general rule taken from the treatises cited above. The Fifth Circuit in Empire Life Insurance Co. of America v. Valdak Corp., 468 F.2d 330 (5th Cir.1972) put it this way Other authorities to like effect include: Buschmann v. Professional Men's Association, 405 F.2d 659, 663 (7th Cir.1969); Dann v. Studebaker-Packard Corporation, 288 F.2d 201, 211 (6th Cir.1961); Eden v. Miller, 37 F.2d 8, 9-10 (2d Cir.1930); and Banker's Trust Co. v. Steenbum, 95 Misc.2d 967, 409 N.Y.S.2d 51, 63-65 (1978). One leading case with somewhat analogous facts is the Second Circuit's decision in Eden v. Miller. There the complaint alleged that the promisee plaintiffs (individuals) entered into an oral agreement with the promisor defendant on terms which provided that a freight forwarding corporation, the beneficiary, was to be organized, financed and operated. The plaintiffs agreed to and did organize the corporation with $40,000 in cash as working capital and entered into its employ. They asserted their best efforts to its management and operation. The defendant agreed to provide the corporation with $60,000 in cash as working capital and to use his best efforts to secure business for it. The plaintiffs by their complaint alleged a breach of contract and damages to them as individuals. The defendant moved to dismiss on the grounds that the plaintiffs, as individuals, stated no cause of action and that such cause of action, if it existed, belonged to the corporation. The motion to dismiss was granted by the district court. In reversing, the Court of Appeals said: The rule derived from the cases cited above is logically consistent with Bruno. The apparent rationale underlying it is sound. This rule and its rationale undergird today's decision not because the courts from which they emanate have any authority in this state but because sound legal principles and reasoning have power wherever they are encountered without regard to origin. Berkline Corp. v. Bank of Mississippi, 453 So. 2d 699, 701 (Miss. 1984). We thus recognize as valid in Mississippi a rule providing that a third party beneficiary contract, wherein the promisee is a shareholder of the beneficiary corporation, may vest in the promisee rights against the promisor enforceable in a direct action by the promisee for damages. Where the promisor's act(s) or omission(s) constitute(s) a substantial breach of a duty imposed by the contract upon the promisor and correlatively a right held by the promisee, as an individual and not in his shareholder capacity, the promisee may in addition to any other remedies available in law recover of and from the promisor such reasonably foreseeable damages as the promisee may have sustained as a proximate result of the breach. Restatement of Contracts 2d §§ 346 et seq. (1979); Wright v. Stevens, 445 So. 2d 791, 797-798 (Miss. 1984). The promisee has standing to maintain any such action and enforce any such direct rights (as distinguished from derivative rights) in his individual capacity and in his own name. This is so even though the same act(s) or omission(s) may also give rise to a claim by the beneficiary against the promisor although, of course, no double recovery will be allowed. The judgment summarily entered by the Circuit Judge must in significant part be reversed. The Circuit Judge was wrong when he held that on his complaint Vickers had no standing to sue with respect to the non-Bruno claims. Indeed, he was wrong in trying to force the entire complaint into the Bruno straightjacket. Beyond that, there are genuine and substantial issues of material fact intertwined with the question whether the January 19, 1976, agreement imposed binding and subsisting duties upon the Bank, and thus vested rights in Vickers. If these matters be established in the affirmative, there remain on this record genuine issues of material fact which must be resolved before there can be a judicial determination of the scope and contours of those correlative duties and rights. Finally, of course, there are substantial fact questions suggested by this record on the matters of causation, forseeability and damages. In this context, the judgment entered summarily below is affirmed to the extent, and only to the extent that, it precludes Vickers and his Trustee prosecuting an action for damages suffered (a) by the corporation and (b) by Vickers derivatively in his capacity as a shareholder of the corporation. To this extent, the judgment entered in the Bank's favor below is converted into a partial summary judgment. Rule 56(d), Miss.R.Civ.P. The judgment below is reversed insofar as it precludes Vickers and his Trustee from seeking recovery of damages, if any, sustained by Vickers in his individual capacity as a proximate result of the Bank's breach, if any, of a valid and subsisting duty or duties, if any, owed by Bank to Vickers individually. The case is remanded for plenary trial on the merits of the issues just stated and for such further proceedings as may be appropriate not inconsistent with this opinion. A postscript. The facts stated here have been slanted in Vickers' favor. This is both necessary and proper in that summary judgment was entered against him. No fact stated here should by virtue of this opinion be taken as established for purposes of trial on remand. *1065 Indeed, all are enjoined to discern from these pages not so much as a whisper of a suggestion how any question of evidentiary or ultimate fact ought to be resolved, or, for that matter, what final judgment ought ultimately to be entered. Such are for trial on the merits. AFFIRMED IN PART; REVERSED IN PART AND REMANDED. PATTERSON, C.J., WALKER and ROY NOBLE LEE, P. JJ., and BOWLING, HAWKINS, DAN M. LEE, PRATHER and SULLIVAN, JJ., concur. [1] These facts are drawn from the uncontroverted allegation of Vickers' complaint, from his affidavit made upon personal knowledge on June 22, 1982, Rule 56(e), Miss.R.Civ.P., and upon concessions made by First Mississippi National Bank in its version of the facts. [2] The Bank contends that the October 6 agreement superseded the one made January 19. Vickers argues several theories as to why the October 6 agreement does not control. We regard this as a matter involving substantial factual components hotly and genuinely disputed, not appropriate for resolution via summary judgment.