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Hall v. Prosero, Inc.

Court of Appeals of Georgia

July 10, 2015


Reconsideration denied July 29, 2015 -- Cert. applied for.

Note. DeKalb Superior Court. Before Judge Scott.

Friedman, Dever & Merlin, H. Michael Dever, Genevieve H. Dame, for appellant.

Troutman Sanders, Vincent C. Bushnell, Alan W. Bakowski, for appellee.

DILLARD, Judge. Ellington, P. J., and McFadden, J., concur.


Page 217

Dillard, Judge.

Lawrence W. Hall appeals the trial court's grant of summary judgment to Prosero, Inc., formerly known as 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.

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."

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]

Page 218

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 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]

Initially, 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 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]

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

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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]

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, 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]

Page 220

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.

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