Lockwood v. Capano ( 2014 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
DONALD A. LOCKWOOD and §
DARIN A. LOCKWOOD, § No. 89, 2014
§
Defendants Below- §
Appellants, § Court Below: Superior Court
§ of the State of Delaware in and
v. § for New Castle County
§
LOUIS J. CAPANO, III, §
§ C.A. No. 10C-11-228
Plaintiff Below- §
Appellee. §
Submitted: October 29, 2014
Decided: November 10, 2014
Before HOLLAND and RIDGELY, Justices, and BOUCHARD,
Chancellor.*
ORDER
On this 10th day of November 2014, it appears to the Court that:
(1) Defendants-Below/Appellants Donald A. Lockwood (“Donald”) and
Darin A. Lockwood (“Darin”) (collectively, the “Lockwoods”) appeal from a
Superior Court order denying, in part, their renewed cross-motion for summary
judgment and granting, in part, the renewed cross-motion for summary judgment
of Plaintiff-Below/Appellee Louis J. Capano, III (“LIII”). The Lockwoods raise
one claim on appeal. The Lockwoods contend that the trial court erred by granting
summary judgment in favor of LIII and that it should have entered judgment in
*
Sitting by designation pursuant to art. IV, § 12 of the Delaware Constitution and Supreme
Court Rules 2(a) to fill up the quorum as required.
their favor. We find a material dispute of fact on the issue of contract formation
that precludes summary judgment for any party. Accordingly, we reverse and
remand for further proceedings consistent with this Order.
(2) This action arises from a failed business venture that originated in 2004.2
LIII and his father, Louis J. Capano, Jr. (“LJC”) (collectively, the “Capanos”),
formed Milton Investments, LLC (“Milton”), in which they were the sole
members. Donald and Darin Lockwood formed, and were the sole members of,
Lockwood Brothers II, LLC (“LBII”). In December 2004, Darin and LIII, as
authorized members of their respective companies, signed an agreement to form a
new company, North Milton Development Group, LLC (“NMDG”). Under
NMDG, the parties executed a series of agreements in connection with the
purchase of land located outside of Milton, Delaware (the “Rust Property”). The
parties planned to use the Rust Property for both commercial and residential real
estate development.
(3) In order to purchase the Rust Property, NMDG entered into a loan
agreement with Wilmington Trust Company (“WTC”) for two loans. The first was
a 2004 acquisition loan for $7,130,000 (the “Acquisition Loan”), and the second
was a 2007 loan for $1,000,000 (the “Working Capital Loan”) (collectively, “the
Loans”). The Loans were originally represented to the trial court as having been
2
Unless otherwise noted, the facts are taken directly from the Superior Court’s January 09, 2014
Memorandum Opinion. Capano v. Lockwood, 2014 WL 606608 (Del. Super. Jan. 9, 2014).
2
guaranteed by all of the principals of Milton and LBII. But LJC never signed the
loan documents, and during depositions testified that he did not personally
guarantee the loans. LIII admits that he personally guaranteed the Loans, but there
is no copy of his execution of some critical documents.
(4) One day prior to NMDG’s formation, a contribution agreement (the
“Contribution Agreement”) was created. The third recital of the Contribution
Agreement states that Donald and Darin “are each guarantors of the Acquisition
Loan” along with LJC and LIII. Section 2 of the Contribution Agreement provides
that in the event a “demand” was made by WTC upon “one or more but not all of
the guarantors,” the Lockwoods, on the one hand, and the Capanos, on the other
hand, would have reciprocal rights of contribution against the other two
individuals, jointly and severally, for payments made in excess of their liability
share. The Lockwoods each signed the Contribution Agreement and forwarded it
to LIII. LIII, however, failed to produce a signed copy of the Contribution
Agreement. LJC also never signed the Contribution Agreement and failed to
execute any documents to commit to the personal guarantee.
(5) The downturn in the housing market precluded NMDG’s planned
development for the Rust Property. By August 2010, NMDG was behind on its
loan payments. On September 24, 2010, WTC’s then-Vice President Jeremy
Abelson (“Abelson”) sent an email to LIII stating:
3
Louis, we sent an email to Darin notifying him of the need to
pay the October 1 payments for the two North Milton loans.
These invoices have still not been paid for September 1. This is
a quarter end, so it’s extra “special.” Thanks for your
anticipated help on this matter.3
(6) The parties failed to produce LIII’s response to this email. Five days
later, Abelson sent another email to LIII, which stated: “Louis, sorry the nag, but
the two loans are still due for 9/1. Will these two loans be paid for September?”
LIII responded minutes later with “Will go to the bank today[]” and Abelson
thanked him. Thereafter, LIII alone paid 100% of the monthly payments on the
Loans through April 2011, totaling $192,509.20 on the Acquisition Loan and
$26,999.78 on the Working Capital Loan.
(7) The original complaint in this case was filed in November 2010, and the
case has been extensively litigated since that time. In November 2013, LIII and
the Lockwoods filed renewed cross-motions for summary judgment. The trial
court heard argument on the cross-motions and on January 9, 2014, issued a
Memorandum Opinion granting in part and denying in part both motions. In so
doing, the trial court required the Lockwoods’ contribution on the Acquisition
Loan, but found that that the Contribution Agreement did not apply to the Working
Capital Loan. The trial court entered a Final Order of Judgment on January 27,
2014. This appeal followed.
3
Capano, 2014 WL 606608, at *2.
4
(8) “The entry of summary judgment is appropriate only when the record
shows that there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. In an appeal from a trial court’s decision to
grant summary judgment, this Court’s scope of review is de novo . . . .”4 “A
conditional contract is an executory contract, the performance of which depends on
a condition.”5 “A condition precedent is either an act of a party that must be
performed or a certain event that must happen before a contractual right accrues or
a contractual duty arises.”6 “One may also speak of a condition precedent to the
formation or existence of a contract.”7 “Thus, when the parties to a proposed
contract have agreed that the contract is not to be effective or binding until certain
conditions are performed or occur, no binding contract will arise until the
conditions specified have occurred or been performed.”8 “[T]he parol evidence
rule does not prevent the introduction of evidence to show that a written instrument
is delivered on condition, oral or written . . . .”9
4
LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 191 (Del. 2009) (internal citations
omitted).
5
13 Williston on Contracts § 38:1 (4th ed.) (internal citations omitted).
6
Id. at § 38:7 (4th ed.) (internal citations omitted); see also USH Ventures v. Global Telesystems
Group, Inc., 796 A.2d 7, 10–11 (Del. Super. 2000) (addressing conditions precedent to formation
of a contract).
7
13 Williston on Contracts § 38:7 (4th ed.) (internal citations omitted).
8
Id.
9
Id. at § 38:17 (4th ed.) (internal citations omitted).
5
(9) The Lockwoods argue that the Contribution Agreement never became a
binding contract because all four parties were required to sign it.10 They argue that
LIII’s failure to produce a signed copy of the Contribution Agreement and LJC’s
failure to sign the Contribution Agreement prevented the creation of a contract
between the parties. Accordingly, the Lockwoods contend that the signature of all
four parties was a condition precedent to the Contribution Agreement’s formation.
(10) We find that there exists a genuine issue of material fact as to whether
having all four parties sign the Contribution Agreement constituted a condition
precedent to the contract’s formation. Accordingly, we reverse and remand this
matter so that this factual determination can be made at a trial. We note that even
if it is determined that the signature of each of the four parties was a condition
precedent and the Contribution Agreement is not a valid contract, LIII may still
have a basis to pursue equitable relief on an amended complaint.11 If necessary,
the President Judge may seek the designation of the trial judge to sit as Vice
Chancellor pursuant to Del. Const., art. IV, § 13(2) to complete the disposition of
the case.12
10
See Appellant Darin Lockwood’s Op. Br. at 12; Appellant Donald Lockwood’s Op. Br. at 12.
11
See Levy v. HLI Operating Co., Inc., 924 A.2d 210, 220 (Del. Ch. 2007) (“An equitable right
of contribution arises when one of several obligors liable on a common debt discharges all, or
greater than its share, of the joint obligation for the benefit of all the obligors. To succeed on a
contribution claim, a party must show concurrent obligations existed to the same entities, and
that the obligors essentially insured the same interests and the same risks.”) (internal citations
omitted).
12
Del. Const., art. IV, § 13(2).
6
NOW, THEREFORE, IT IS ORDERED that the judgment of the Superior
Court is REVERSED and this matter is REMANDED for further proceedings
consistent with this Order.
BY THE COURT:
/s/ Henry duPont Ridgely
Justice
7