Court Opinion

ID: 2819494
Source: CourtListenerOpinion
Date Created: 2015-07-23 07:14:43.309965+00
Date Added: 2024-06-11T11:30:52.944896
License: Public Domain

THIRD DIVISION
                              ELLINGTON, P. J.,
                         DILLARD and MCFADDEN, JJ.

                    NOTICE: Motions for reconsideration must be
                    physically received in our clerk’s office within ten
                    days of the date of decision to be deemed timely filed.
                               http://www.gaappeals.us/rules/

                                                                       July 10, 2015

In the Court of Appeals of Georgia
 A15A0040. HALL v. PROSERO, INC f/k/a FACILITYPRO.COM
     CORP.

      DILLARD, Judge.

      Lawrence W. Hall appeals the trial court’s grant of summary judgment to

Prosero, Inc., formerly known as FacilityPro.com Corp. (“Prosero”), on Prosero’s suit

to recover on a promissory note executed by Hall. Hall contends on appeal that the

trial court erred in granting summary judgment to Prosero when genuine issues of

material fact remain as to whether the note suffered from a partial failure of

consideration. For the reasons set forth infra, we affirm.

      At the outset, we note that summary judgment is proper only when no genuine

issue of material fact exists and “the moving party is entitled to judgment as a matter
of law.”1 And when ruling upon a motion for summary judgment, the opposing party

must be given “the benefit of all reasonable doubt, and the evidence and all inferences

and conclusions therefrom must be construed most favorably toward the party

opposing the motion.”2 Thus, when we review the grant or denial of summary

judgment, we conduct a de novo review of the law and evidence.3

      Viewed in the light most favorable to Hall (i.e., the nonmovant),4 the record

reflects that Hall joined Prosero in 2001 as the president and COO when the company

was struggling in the aftermath of the dot-com market crash of the early 2000s. Due

to the sudden decline in stock prices, and concurrent with Hall’s arrival, the company

decided to abandon its software-development operations and shift its focus instead

to outsourced equipment-procurement operations. Within six months of his arrival,

Hall was promoted to CEO of Prosero.

      1
       Merritt v. Marlin Outdoor Advertising, Ltd., 298 Ga. App. 87, 87 (679 SE2d
97) (2009) (punctuation omitted).
      2
          Id. (punctuation omitted).
      3
          Id.
      4
          See id.

                                          2
      Although the company continued to operate at a loss, the board of directors

decided to incentivize Hall through increased compensation. And following a

compensation meeting (in which Hall did not participate), the board offered Hall a

$50,000 raise (to a salary of $250,000) and stock options of 500,000 shares

exercisable at $1.25 per share. Then, in order to obtain potentially more favorable tax

treatment via capital gains rather than income tax, Hall exercised (on January 16,

2002) nonqualified stock options contemporaneously by executing a full-recourse

promissory note for $625,000, which was backed by the 500,000 shares of stock. The

note provided that Hall would pay interest on the original principal amount at the

Wall Street Journal prime rate plus 1/4 percent, contained an original maturity date

of January 15, 2007, and included an acceleration clause that required full payment

due within 30 days of Hall’s termination by Prosero.

      In May 2004, Hall’s employment with Prosero was terminated and, in

connection with his departure, the parties executed a separation agreement that, inter

alia, extended the maturity date of the note to January 15, 2010, and deleted the

acceleration provision. Hall also executed an amendment to the note, acknowledging

that the “entire outstanding principal and all accrued interest shall be due and payable

in full on January 15, 2010.”

                                           3
      In January 2007, majority ownership of Prosero changed, and in 2010, the new

management sought to collect upon Hall’s unpaid note.5 Then, on March 17, 2010,

Prosero filed suit against Hall for breach of contract and sought an award of attorney

fees and costs. Hall raised several affirmative defenses in response, including partial

failure of consideration.6

      Prosero subsequently filed a motion for summary judgment, which the trial

court denied in January 2012. This Court and the Supreme Court of Georgia both

declined to review an interlocutory appeal by Prosero. Then, in May 2014, and in

anticipation of trial, Prosero filed two motions in limine. The trial court, in an order

dated June 11, 2014, recast these motions as a “Collective Motion for

Reconsideration” of the court’s denial of Prosero’s motion for summary judgment.

The court then granted summary judgment to Prosero, concluding that the agreement

between Prosero and Hall was unambiguous and that “full consideration was given

to the Secured Promissory Note when Hall exercised his option to purchase Prosero’s

500,000 shares of common stock for the aggregate purchase price of $625,000.” This

      5
          It is undisputed that Hall has not paid upon the note.
      6
        See OCGA § 13-5-9 (total or partial failure of consideration may be pleaded
as a defense to enforcement of a promise). Cf. Merritt, 298 Ga. App. at 87 (holding
that a partial failure of consideration can support a claim for breach of contract).

                                            4
appeal by Hall follows, in which he contends that the trial court erred in granting

summary judgment to Prosero when there is a genuine issue of material fact as to

whether the note suffered from a partial failure of consideration. And as this Court

explained in Greene v. Johnson,7 the burden of sustaining the defense of total or

partial failure of consideration falls upon the one asserting the defense.8

      Initally, we note that Hall spends much of his brief relating the financial and

business history of Prosero before, during, and after his employment with the

company in order to question the board’s methodology and valuation of the stock at

$1.25 in January 2002. And ultimately, he contends that there is a genuine issue of

material fact as to his defense of partial failure of consideration because, according

to his expert witness, the fair-market value of the Prosero stock on January 16, 2002,

was the nominal value of $0.01 per share and not $1.25 per share. We find this

argument unavailing.

      Here, the evidence shows that Hall received full consideration because he

executed a promissory note for $625,000 to purchase 500,000 shares of Prosero stock

      7
          170 Ga. App. 760 (318 SE2d 205) (1984).
      8
        Id. at 761; accord West v. Diduro, 312 Ga. App. 591, 594 (718 SE2d 815)
(2001) (physical precedent only).

                                          5
at $1.25 a share. Indeed, Hall himself testified that the shares had some value at the

time he executed the note, and even his expert’s testimony that the shares were worth

$0.01 is evidence that the shares had at least a nominal fair-market value.

Accordingly, there is not a complete failure of consideration in this case.9

      9
         See Herrmann & Henican v. De La Perriere, 47 Ga. App. 541, 543 (1) (171
S.E. 232) (1933) (“The fact that the stock was intrinsically worthless when the contract
was made does not amount to a total failure or want of consideration, if it had a
market value when sold. It must, on the day of the sale and on the day it was tendered,
have neither a market value nor an intrinsic value to be a defense on the ground of
a total failure or want of consideration.” (emphasis supplied)); see also Coast
Scopitone, Inc. v. Self, 127 Ga. App. 124, 126 (1) (192 SE2d 513) (1972) (“Where it
appears from the evidence that the goods have some value, a plea of total failure of
consideration has not been sustained . . . .” (citations omitted)); Anchor Sign Co. of
Ga., Inc. v. PS Heating & Air Conditioning Co., 125 Ga. App. 207, 207 (186 SE2d
892) (1971) (“The evidence showed that there had not been a total failure of
consideration because the defendant had attained a benefit from the use of the air
conditioning unit. Therefore, the defendant’s only defense would have been a partial
failure of consideration.”); Herrman & Henican v. De La Perriere, 56 Ga. App. 749,
751 (194 S.E. 42) (1937) (“The defendant would also be entitled to a verdict in his
favor if it appeared from the competent evidence and to the satisfaction of the jury
that the stock was worthless both at the time of the sale and at the time of the tender,
or, in other words, that the sale was without consideration.”). See generally 17
Williston on Contracts § 51:18 (4th ed.) (discussing the defense of failure of
consideration for the sale of securities and noting that, “[i]f the parties are dealing at
arm’s length . . . and neither buyer nor seller is guilty of fraud, the defense of failure
of consideration will not, by the weight of authority, prevail, unless the stock or other
security had neither a market value, nor an intrinsic value both on the day of the
contract and on the day of tender”).

                                            6
      Likewise, there is no evidence of a partial failure of consideration in the case

sub judice. Indeed, while the defense of total failure of consideration requires a

defendant to “show that the goods were wholly without value,”10 a partial failure of

consideration is demonstrated by showing the extent of such failure “with such

particularity and certainty that the jury (or judge) could, without guesswork or

speculation, arrive at the amount.”11 This, Hall cannot do.12

      10
         Coast Scopitone, 127 Ga. App. at 126 (1); see also Jones v. Dixie O’Brien
Div., O’Brien Corp., 174 Ga. App. 67, 68 (1) (329 SE2d 256) (1985) (holding
testimony that, inter alia, “paint at issue was defective and of no value whatsoever”
was “sufficient evidence that the consideration had totally failed” (punctuation
omitted)); Fagala v. Morrison, 146 Ga. App. 377, 377 (1) (246 SE2d 408) (1978)
(holding, when defendant raised affirmative defense of total failure of consideration,
that even assuming the acquired stock “became worthless, the worthlessness of the
stock did not constitute a failure of consideration” when, in exchange for note,
defendant received “2,500 shares of stock . . . , as well as all rights, privileges, and
benefits of a shareholder, director, and officer” (emphasis supplied) (punctuation
omitted)).
      11
          Pepsico Truck Rental, Inc. v. E. Foods, Inc., 145 Ga. App. 410, 411 (1) (243
SE2d 662) (1978) (quoting Coast Scopitone, 127 Ga. App. at 126 (1)); see also
Anchor Sign Co. of Ga., 125 Ga. App. at 208 (“The proof offered must substantiate
to what extent the consideration has failed so that it would be possible for the jury or
for the court to determine the extent of failure of consideration. Absent such proof,
the defense of partial failure of consideration must fail.”); Hall v. Southern Sales Co.,
81 Ga. App. 392, 392 (58 SE2d 925) (1950) (noting that “in order to authorize a
recovery by the defendant under a plea of a partial failure of consideration . . . the
defendant must establish by the evidence some data by which a jury could determine
not only that there was a partial failure of consideration, but the extent of the failure,
that is, the amount allowable to the defendant on account of this partial failure of

                                            7
      Specifically, Hall argues that a genuine issue of material fact exists as to

whether there is a partial failure of consideration for the promissory note when,

according to his expert, the 500,000 shares of stock he received were worth $0.01 at

tender and execution, not $1.25. But contrary to Hall’s characterization, this is

actually an argument that the consideration was inadequate.13 And inadequacy of

consideration is not, in and of itself, a defense to an action on a contract.14 That said,

consideration”).
      12
         When a defendant is able to show that there has been a partial failure of
consideration, he or she is then entitled to abatement of the purchase price to the
extent the consideration may have failed. See Coast Scopitone, 127 Ga. App. at 126
(1) (“While a plea of total failure of consideration includes a partial failure, upon
proof of which the defendant is entitled to an abatement of the purchase price to the
extent the consideration may have failed, the burden of proof in establishing either
is on the defendant.” (citation omitted)).
      13
         Compare OCGA § 13-3-46 (“Mere inadequacy of consideration alone will
not void a contract.”), with OCGA § 11-3-303 (b) (“‘Consideration’ means any
consideration sufficient to support a simple contract. The drawer or maker of an
instrument has a defense if the instrument is issued without consideration. If an
instrument is issued for a promise of performance, the issuer has a defense to the
extent performance of the promise is due and the promise has not been performed. If
an instrument is issued for value as stated in subsection (a) of this Code section, the
instrument is also issued for consideration.”).
      14
         See Littlegreen v. Gardner, 208 Ga. 523, 523 (2) (67 SE2d 713) (1951)
(“[T]he mere inadequacy of consideration alone will not avoid the contract.”); Merrit,
298 Ga. App. at 89 (1) (same); see also Bonem v. Golf Club of Ga., Inc., 264 Ga. App.
573, 577 (1) (c) (591 SE2d 462) (2003) (“We note that inadequacy of consideration

                                            8
it is certainly true that inadequacy of consideration, if substantial, “is a strong

circumstance to evidence fraud”15 and, in a breach-of-contract action, the inadequacy

of consideration will “always enter as an element in estimating the damages.”16 But

Hall does not include fraud as an affirmative defense and he has not filed a

counterclaim based on fraud. As a result, the trial court correctly granted summary

judgment to Prosero because Hall cannot show a partial failure of consideration when

there was no consideration wholly valueless as to any part of the note but, instead,

as alleged by Hall, the consideration was simply inadequate in point of actual total

value to the note.17

is not in and of itself a defense to an action on a contract.”). See generally Colonial
Funeral Home, Inc. v. Gilmore, 1994 WL 521254, at *4 (Tenn. Ct. App. 1994)
(“‘Inadequacy of consideration’ is, as the term implies, a consideration not adequate
or equal in value to the thing conveyed, and where the parties contract with a
knowledge of what they are doing inadequacy of consideration is no ground for
avoiding the contract.”); 12A Fletcher Cyclopedia of the Law of Corporations § 5574
(“A distinction should be made between want or failure of consideration, which is a
defense to an action between the parties, and inadequacy of consideration, which does
not constitute a legal defense.”).
      15
           OCGA § 13-3-46.
      16
           Id.
      17
        See Griffin v. Simmons, 1872 WL 4174, at **2 (Tenn. 1872) (“In the case we
are considering, the note was given upon one entire consideration – that is, one
thousand dollars in depreciated bank papers – and this consideration went to the

                                          9
       For all of the foregoing reasons, we affirm the trial court’s grant of summary

judgment.

       Judgment affirmed. Ellington, P. J., and McFadden, J., concur.

whole note at the time it was made. There was no consideration wholly valueless as
to any part of the note. It is not therefore a case of partial want of consideration, but
it is a case where the consideration was not adequate in point of actual value to the
note given by the plaintiffs in error to the testator of the defendants in error.”); Parish
v. Stone, 1833 WL 2776, at **8 (Mass. 1833) (“Had the note been taken for two
distinct liquidated sums, consolidated, and the consideration had been wholly
wanting, or wholly failed as to one, it seems quite clear, that according to well
established principles, supported by authorities, the note, as between the original
parties, and all those who stand in such relation, as to allow the defence (sic) of want
of consideration, it would be competent to the Court to apportion the note, and
consider it good in part, and void in part, and to permit the holder to recover
accordingly.”). Cf. Bollen v. Harkleroad & Hermance, P.C., 217 Ga. App. 4, 6 (1)
(456 SE2d 73) (1995) (“It is clear that defendant’s defense in this case is one of
partial rather than total failure of consideration, in that he challenges only some of the
[legal] fees [he was charged] as excessive.”); Christopher v. Griffin, 185 Ga. App.
499, 500 (364 SE2d 892) (1988) (defense of partial failure of consideration
authorized in action for payment on certain repair and paint work performed); Brown
v. Commercial Credit Equip. Corp., 172 Ga. App. 568, 571-73 (2) (323 SE2d 822)
(1984) (finding material conflicts in evidence on defense of partial failure of
consideration in contract for the purchase of airplane when a portion of the payment
included a disputed trade-in); Greene, 170 Ga. App. at 761 (opining that defense of
partial failure of consideration was still available, despite inability to prove total
failure, in case concerning sale of accounting business that involved two promissory
notes and execution of covenant not to compete).

                                            10