Loading...
HomeMy WebLinkAbout96-3654 CivilPNC BANK, N.A., EXECUTOR OF THE LAST WILL AND TESTAMENT OF WILLIAM G. MAGARO, DECEASED, Plaintiff PHELARO, INC., and PHELARO OF ALLENTOWN, INC., Defendants · IN THE COURT OF COMMON PLEAS OF · CUMBERLAND COUNTY, PENNSYLVANIA · CIVIL ACTION -- LAW · No. 96-3654 CIVIL TERM IN RE: DEFENDANTS' MOTION FOR POST-TRIAL RELIEF BEFORE HOFFER, P.J., OLER and GUIDO, JJ. ORDER OF COURT AND NOW, this 22nd day of December, 1998, at, er careful consideration of Defendants' motion for post-trial relief, and for the reasons stated in the accompanying opinion, Defendants' motion is denied. John M. Eakin, Esq. Market Square Building Mechanicsburg, PA 17055 Attorney for Plaintiff BY THE COURT, esley Ole0_fi., J. 4./ Mark D. Bradshaw, Esq. 213 Market Street P.O. Box 1248 Harrisburg, PA 17101 Attorney for Defendants PNC BANK, N.A., EXECUTOR OF THE LAST WILL AND TESTAMENT OF WILLIAM G. MAGARO, DECEASED, Plaintiff Vo PHELARO, INC., and PHELARO OF ALLENTOWN, INC., Defendants : IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION -- LAW No. 96-3654 CIVIL TERM IN RE: DEFENDANTS' MOTION FOR POST-TRIAL RELIEF BEFORE HOFFER, P.J., GUIDO and OLER, JJ. OPINION and ORDER OF COURT OLER, J., December 22, 1998. In this civil case, Plaintiff in its capacity as personal representative of a decedent filed an amended complaint against Defendant corporations for repayment of loans that the decedent made to the corporations. Following a non-jury trial before the writer of this opinion, a verdict was entered in favor of Plaintiff and against Defendants: AND NOW, this 10th day of June, 1998, upon consideration of Plaintiff's complaint in the above-captioned matter, and following a non-jury trial held on Monday, April 27, 1998, and Tuesday, June 9, 1998, the Court finds in favor of Plaintiff and against Defendant Phelaro, Inc., in the amount of $109,961.30, plus interest at the legal rate from May 1, 1998, and costs of suit, and in favor of Plaintiff and against Defendant Phelaro of Allentown, Inc., in the amount of $19,914.00, plus interest at the legal rate from May 1, 1998, and costs of suit. Defendants filed a motion for post-trial relief on June 22, 1998. The motion for post- trial relief stated, in pertinent part, as follows: The verdict [was] against the weight of the evidence and contrary to law and Defendants, therefore, request that the Court grant a new trial as to the issue of payment or, alternatively, direct the entry of judgment in their favor and against Plaintiff for the following reasons: (a) The evidence presented at trial demonstrated that any and all amounts claimed by Plaintiff were repaid no later than 1988, and consequently no principal amount is due and owing at present, much less any interest. The defense of payment was raised in Defendants' Answer and Amended Answer. This issue was preserved during Defendants' trial presentation and closing arguments. (b) The claim is clearly barred by the applicable statute of limitations. This defense was raised by Defendants in and through a Motion for Summary Judgment and accompanying brief on this basis, which motion and brief are incorporated herein by reference. This issue was also raised by Defendants through their Amended Answer. This issue was preserved during Defendants' trial presentation in closing arguments. The issues presented by this post-trial motion thus involve the defenses of payment and the statute of limitations. Defendants' motion was argued before an en bane court on Wednesday, October 7, 1998. For the reasons stated in this opinion, the motion will be denied. STATEMENT OF FACTS The present action was commenced by the filing of a complaint on July 2, 1996. The nonjury trial was held on April 27, 1998, and June 9, 1998. Issues in the case included whether certain funds provided by PlaintiWs decedent to Defendant corporations were loans, whether the loans were intended to be interest-bearing, whether the loans were previously repaid, and whether Plaintiff's instant claim for repayment was time-barred. The court's verdict in favor of Plaintiff on these points was entered on June 10, 1998. The evidence at trial included the following facts. Plaintiff is PNC Bank, N.A., executor of the will of William G. Magaro, who died on June 6, 19907 Defendants are Phelaro, Inc., and Phelaro of Allentown, Inc., two Pennsylvania corporations having offices in Mechanicsburg, Cumberland County, Pennsylvania.2 The business of the corporations may be described as restaurant ownership. Plaintiff's decedent (William G. Magaro) and Richard Phelan were shareholders in Phelaro, Inc. By virtue of decedent's death, his estate assumed ownership of 50 percent of the corporate stock and Mr. Phelan retained ownership of 50 percent of the stock.3 Phelaro of Allentown, Inc., was a wholly-owned subsidiary of Phelaro, Inc.4 Between December 5, 1979, and December 28, 1982, Plaintiff' s decedent provided funds in the total amount of $89,000.00 to Phelaro, Inc., and between April 28, 1982, and May 12, 1982, he provided funds in the total amount of $35,000.00 to Phelaro of Allentown, Inc.s These funds were carded as loans in the corporate records,6 with the exception of $500.00, which was attributed to decedent's purchase of Phelaro, Inc., stock;7 the checks representing the funds generally noted that they were loans;8 and the decedent's personal ~ Plaintiff's Amended Complaint, paragraphs 1-2; Defendants' First Amended Answer with New Matter to Amended Complaint, paragraphs 1-2. 2 PlaintiW s Amended Complaint, paragraphs 4-5; Defendants' First Amended Answer with New Matter to Amended Complaint, paragraphs 4-5. 3 Plaintiff's Exhibit 11 (stipulation). n PlaintiWs Exhibit 11 (stipulation). s Plaintiff's Exhibits 1-2 (copies of checks), 11 (stipulation). 6 Plaintiff's Exhibits 5, 8 (corporate general ledgers). 7 Plaintiff's Exhibit 10 (calculation). 8 Plaintiff's Exhibits 1-2 (copies of checks). 3 ledgers recorded the transactions as loans.9 Defendant corporations, in the present litigation, were not willing to concede that the funds initially supplied by Plaintiff's decedent were loans as opposed to contributions to capital.I° However, the verdict of the trier of fact accepted the premise that the sum of $88,500.00 provided by Plaintiff's decedent to Defendant Phelaro, Inc., and the sum of $35,000.00 provided by Plaintiff's decedent to Defendant Phelaro of Allentown, Inc., were loans to the corporations. On June 1,1981, Defendant Phelaro, Inc., repaid $11,000.00 to Plaintiff's decedent, resulting in an outstanding principal balance on the loan by Plaintiff's decedent to that corporation of $77,500.007~ The corporate records of Phelaro, Inc., so indicated in the following years.~2 On October 24, 1989, Defendant Phelaro of Allentown, Inc., repaid $33,000.00 to Plaintiff's decedent, resulting in an outstanding principal balance on the loan by Plaintiff's decedent to that corporation of $2,000.00.~ 3 The corporate records of Phelaro of Allentown, Inc., so indicated.~4 Interest was paid by Phelaro, Inc., on its debt to Plaintiff's decedent from August 12, 1988, to May 18, 1990, in amounts of $500.00, at least once each month? The checks of Plaintiff's Exhibit 3 (personal ledger of decedent). lo See Defendants' First Amended Answer with New Matter to Amended Complaint, Plaintiff' s Exhibit 10 (calculation). Plaintiff's Exhibit 5 (general ledger of Phelaro, Inc.) Plaintiff's Exhibit 10 (calculation); Defendant's Exhibit 4 (check). Plaintiff' s Exhibit 8 (general ledger of Phelaro of Allentown, Inc.). See PlaintiWs Exhibit 10 (calculation). The total amount of interest paid was $46,000.00. Id. 4 Phelaro, Inc.,16 corporate records of Phelaro, Inc.,~7 and tax returns of Plaintiff's decedent so indicated,ia Interest was also paid on loans to Phelaro, Inc., by two companies in which Plaintiff's decedent was a principal? When Plaintiff's decedent died in June of 1990, the interest payments to him stopped. No interest payments were made by Phelaro of Allentown, Inc., on its debt to Plaintiff's decedent.2° The loans by Plaintiff's decedent to the corporations were not the subject of traditional written notes, but they were the subject of written entries in the corporate records as well as notations on the checks constituting the loans? The intended terms of the loans with respect to interest and time of repayment were of necessity a matter of deduction from the evidence.22 In this regard, with respect to interest (and as noted previously), it appeared that substantial payments denominated "interest" in the corporate records were made on the loan to Phelaro, Inc., during decedent's lifetime, and that payments denominated interest were also made on loans to Phelaro, Inc., from companies in which decedent was a principal.23 Supported by this evidence, and implicit within the verdict, was the fact-finder's rejection 16 Plaintiff's Exhibit 7 (checks). 17 Plaintiff's Exhibit 6 (cash disbursements record of Phelaro, Inc.); N.T. 159-60. Ig Plaintiff's Exhibit 9 (tax returns). 19 These companies were Variety Machines and Variety Investments. See N.T. 65, 159-61; Plaintiff's Exhibit 6 (cash disbursements record of Phelaro, Inc.); Plaintiff's Exhibit 5 (general ledger of Phelaro, Inc.). 20 Plaintiff's Exhibit 10 (calculation); N.T. 35. 2~ Plaintiff's Exhibit 11 (stipulation). 22 PlaintiWs decedent was not, of course, available to testify at trial as to the parties' intentions. Nor did Mr. Phelan testify, perhaps because of the Dead Man's Act. 23 See notes 15-19 supra and accompanying text. 5 of Defendants' position that the advances from Plaintiff's decedent to the corporations were intended to be interest-free. Plaintiff's willingness to accept a minimal, legal interest rate of 6% resolved any further factual difficulty as to interest. With respect to the intended time of repayment of the loans, which was a factor bearing upon the issue of the statute of limitations, one of Defendants' witnesses summarized the rather unstructured operation of the businesses by Plaintiff's decedent and Mr. Phelan as follows: "IT]hey pay when they please is when they pay, and that's the way they operated.'24 However, common sense would indicate that a request for repayment on the part of Plaintiff's decedent (or his successor in interest) was one intended prerequisite for collection of the debt. In addition, the suggestion in Defendants' answer with new matter to Plaintiff's amended complaint that the monies were not intended to be repaid until cash became available in the ordinary course of business for this purpose does not seem unreasonable? In this regard, Phelaro, Inc., appeared to have been massively in debt at all times pertinent to this case,26 and Phelaro of Allentown, Inc., seemed to have been similarly situated? Stated differently, the verdict of the court indicated its unwillingness to find, based on the evidence presented, that a demand for payment and a debt-free condition in either corporation was shown to have occurred which would have commenced the running of a statute of limitations so as to bar the present action. In 1981 or 1982, or perhaps later, as the result of a default by a party on an agreement of sale with Phelaro of Allentown, Inc., $160,000.00 in income was placed in a certificate 24 N.T. 142. 25 Defendants' First Amended Answer with New Matter to Amended Complaint, at 2. Defendants did not concede, however, that the payments by PlaintiWs decedent to the corporations were loans. Id. 26 See PlaintiWs Exhibit 5 (Phelero, Inc., general ledger) (debts of over a half million dollars). 27 N.T. 78-80. of deposit held by that corporation? On August 28, 1987, this money was divided by Plaintiff' s decedent and Mr. Phelan, by means of two $80,000.00 checks payable to them from Phelero of Allentown, Inc.29 The nature of the $80,000.00 payment by Phelaro of Allentown, Inc., to Plaintiff's decedent constituted the primary issue in this case. Defendants maintained that it represented a repayment on funds advanced to the corporations by Plaintiff's decedent, and argued that any obligations upon which Plaintiff brought suit no longer existed? Plaintiff maintained that the payment did not represent a repayment of the loans to the corporations but, instead, was intended to be a distribution of future profits? The court's verdict supported the Plaintiff on this point, and a number of matters in evidence may be mentioned in this regard. First, the loans to which the $80,000.00 was supposedly applied remained unchanged on the corporate books as outstanding corporate obligations after the payment. Second, substantial interest payments were made on the loan to Phelaro, Inc., after the payment. Third, a substantial payment of principal was made on the loan to Phelaro of Allentown, Inc., after the payment. Fourth, the amount of loans outstanding did not correspond to the amount of the payment. Fiflla, the payment, which was made by Phelaro of Allentown, Inc., far exceeded the amount of the outstanding loan to that corporation, and no corporate records suggested that one corporation had undertaken to pay the debts of another.32 Sixth, the payment to Plaintiff's decedent and the payment to Mr. Phelan were treated on books of Phelaro of Allentown, Inc., as advances; neither was shown 80. 28 N.T. 77-79. 29 Plaintiff's Exhibit 11 (stipulation); Defendants' Exhibits 3(a), 3(b) (checks); N.T. 30 N.T. 172. 3~ N.T. 80, 176. 32 N.T. 98-99. as a loan repayment? Seventh, the apparent symmetry of an equal division of the certificate of deposit between shareholders would have been broken by treating one payment (to Plaintiff's decedent) as reimbursement for a loan--a financially neutral occurrence--and the other payment (to Mr. Phelan) as a distribution of income3n--a financially positive occurrence. Finally, one of Defendants' witnesses at trial, a certified public accountant who performed accounting services for the corporations at the time of the payments and whose duties included preparation of the corporate ledger sheets,35 replied "absolutely not" when asked whether the $80,000.00 payment to Plaintiff's decedent was a loan reimbursement? Following the nonjury trial, as noted previously, a verdict was entered in favor of Plaintiff. The findings and conclusions of law, express or implicit, in the verdict were that Plaintiff's decedent had loaned various sums to Defendant corporations, that the outstanding principal balances on the loans as of the trial were $77,500.00 (Phelaro, Inc.) and $2,000.00 (Phelaro of Allentown, Inc.), that interest at the rate of 6% per annum was due on the loans as of May 1, 1998, in the amounts of $32,461.30 (Phelaro, Inc.) and $17,914.00 (Phelaro of Allentown, Inc.),~7 and that Plaintiff's recovery was not barred by the statute of limitations. ~ION Statement of law. Several principles of law are pertinent to a discussion of the issues raised in Defendants' motion for post-trial relief. First, in a nonjury trial, the trial court in 33 N.T. 97-98. 34 Mr. Phelan was owed nothing by Phelaro of Allentown, Inc., and about $27,000.00 by Phelaro, Inc. N.T. 94-95; Plaintiff's Exhibit 5 (general ledger of Phelaro, Inc.). 35 N.T. 99. 36 N.T. 92. In what might be considered an attempt to facilitate avoidance, or perhaps evasion, of taxes, Plaintiff's decedent directed his personal bookkeeper to characterize the payment on his record of the bank deposit as "Repayment of Loan." N.T. 153-55; Defendant's Exhibit 5 (bank deposit record). 37 See Plaintiff's Exhibit 10 (calculation). 8 its capacity as trier of fact "is free to believe all, part or none of the evidence." Hodges v. Rodriguez, 435 Pa. Super. 360, 366, 645 A.2d 1340, 1343 (1994). Second, the test to be applied in reviewing a motion for a new trial based upon the weight of the evidence is whether the fact-finder's "verdict was so contrary to the evidence as to shock one's sense of justice and to make the award of a new trial imperative so that right may be given another opportunity to prevail." Dierolfv. Slade, 399 Pa. Super. 9, 15, 581 A.2d 649, 652 (1990). Resolution of this issue is "generally committed to the sound discretion of the trial court." Id. Third, "[al judgment notwithstanding the verdict [on the basis of the evidence] should be granted only in a clear case where no two reasonable minds could fail to agree that the verdict was improper." Greer v. Bryant, 423 Pa. Super. 608, 612, 621 A.2d 999, 1002 (1993). In reviewing a motion for judgment n.o.v, made on this basis, a court should "consider only the evidence which supports the verdict and give the verdict winner the benefit of any doubt and any inference deducible from the evidence." Id. at 613,621 A.2d at 1002. Fourth, payment is an affirmative defense in Pennsylvania. Pa. R.C.P. 1029. In the usual case, the burden of proving the defense of payment rests upon the party asserting it. Schmidtv. Paul, 377 Pa. 377, 105 A.2d 118 (1954). Finally, where a debt is evidenced by a writing and is payable on demand, "the time within which an action or proceeding on it must be commenced shall be computed from the later of either demand or any payment of principal or of interest on the instrument." Act of July 6, 1976, P.L. 586, § 2, as amended, 42 Pa. C.S. § 5527(2); see Lazzarotti v. ,luliano, 322 Pa. Super. 129, 469 A.2d 216 (1983).. Application of law to facts. In the present case, it is believed that the evidence does not warrant either an award of a new trial based upon its weight or the entry of judgment notwithstanding the verdict based upon its sufficiency. The trial judge's findings in favor of Plaintiff with respect to the nature and terms of the advances by Plaintiff's decedent to 9 Defendant corporations, and the nature of the $80,000.00 payment to Plaintiff's decedent from one of the Defendants, were consistent with the majority of the evidence presented at trial and have not proven shocking to the conscience of the court en banc; nor were the findings of the trial judge so devoid of support in the record as to warrant a conclusion that no reasonable person could agree with the verdict. The court's finding that collection of the debts was subject to a demand for payment and was intended to be deferred to a point after the corporate debtors had become financially viable was consistent with the general forbearance of Plaintiff's decedent during his lifetime, his interest as a shareholder in the success of the corporations, and the suggestion of such a condition precedent in Defendants' new matter. Under these circumstances, and in view of the evidence as to the persistent indebtedness of the corporations, it can not be said that the verdict was contrary to law in that it failed to preclude recovery on the basis of the statute of limitations. For the foregoing reasons, the following order will be entered: ORDER OF COURT AND NOW, this 22nd day of December, 1998, after careful consideration of Defendants' motion for post-trial relief, and for the reasons stated in the accompanying opinion, Defendants' motion is denied. BY THE COURT, John M. Eakin, Esq. Market Square Building Mechanicsburg, PA 17055 Attorney for Plaintiff /s/J. Wesley Oler, Jr. J. 10 Mark D. Bradshaw, Esq. 213 Market Street P.O. Box 1248 Harrisburg, PA 17101 Attorney for Defendants 11