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CHARLES F. KRAUSE STUART H. SPEISER DONALD W. MADOLE JOHN A. KRAUSE v. GREAT LAKES HOLDINGS (04/26/89)

argued: April 26, 1989.

CHARLES F. KRAUSE; STUART H. SPEISER; DONALD W. MADOLE; JOHN A. KRAUSE, TRUSTEE FOR JOAN A. KRAUSE, KENT C. KRAUSE, PAUL E. KRAUSE AND JENNIFER A. KRAUSE; ERIC R. WILLIAMS; TIMOTHY H. WILLIAMS; JOHN F. ANDREWS, TRUSTEE FOR STEVEN N. WILLIAMS AND DEBORAH R. WILLIAMS; DOROTHY R. WILLIAMS; L. STANTON WILLIAMS; RICHARD W. REED, JR., TRUSTEE FOR CHRISTOPHER B. REED, LUCINDA M. REED AND MELISSA M. REED; MALCOLM W. REED, JR.; MARY R. HIRT AND JOHN W. HIRT, TRUSTEES FOR MARCIA H. REIGELUTH, CAROLYN S. HIRT, SUSAN D. HIRT AND CONSTANCE V. HIRT; MARY R. HIRT; SUZANNE K. REED; GARNET R. REED; NANCY R. ATKINSON; DOROTHY V. REED; RICHARD W. REED, JR.; ROBERT M. REED; PHYLLIS R. ANDREWS AND JOHN F. ANDREWS, TRUSTEES FOR JOHN R. ANDREWS, JUDITH F. ANDREWS AND KAREN W. ANDREWS; JOHN F. ANDREWS; PHYLLIS R. ANDREWS; CAROLYN C. REED, INDIVIDUALLY AND AS CUSTODIAN FOR DAVID M. REED, JR., DOUGLAS REED AND JENNIFER S. REED; WILLIAM M. FUREY; FANBANK & COMPANY, A MASSACHUSETTS STATE BANK; ELIZABETH R. FUREY; RICHGARN CORP., A NEVADA CORP.; GARNET CORP., A NEVADA CORP.; MWR CORP., A NEVADA CORP.; CO-ALCO CORP., A NEVADA CORP.; DAVID M. REED; AND D.C.R. ENTERPRISES, A DELAWARE CORP., APPELLANTS,
v.
GREAT LAKES HOLDINGS, INC., AND CALVERT COAL INC. V. PENN POCAHONTAS COAL CO., A DELAWARE CORPORATION



Appeal from the Order October 3, 1988 in the Court of Common Pleas of Somerset County, Civil Division, No. 454 of 1983.

COUNSEL

William M. Wycoff, Pittsburgh, for appellants.

Roger L. Longtin, Johnstown, for Calvert Coal Inc., appellee.

Montemuro, Johnson and Cercone, JJ.

Author: Cercone

[ 387 Pa. Super. Page 59]

This case involves consolidated appeals from two orders of the Court of Common Pleas of Somerset County. On October 3, 1988, appellants' motion to amend their complaint was denied. On the same date, the lower court granted appellees' motion for summary judgment on Counts II, III, IV and V of the complaint. We affirm in part and reverse in part.

This action was commenced by appellants, former stockholders in a liquidated corporation, Environmental Power, Ltd. (EPL) on November 10, 1983. Appellants named Penn

[ 387 Pa. Super. Page 60]

Pocahontas Coal Company (PPC) as defendant in the action. In their complaint, appellants alleged that PPC had defaulted on an installment note in which PPC had promised to pay a certain principal amount to agents of appellants. Appellants further alleged that PPC and three other corporations (Calvert Coal Company, Newcoal Newco, Inc., and G.L. Corporation) had entered into a written agreement with Richard W. Reed and D.G. Sisterson & Company, as agents for the former stockholders of EPL, on February 8, 1980, which provided for the rescheduling of payments due from PPC under the installment note. Appellants complained that PPC had failed to make the rescheduled payments and therefore was in default under the terms of the 1980 agreement and demanded judgment on the note.

On May 15, 1984, appellants moved for summary judgment on the complaint. Prior to the lower court's decision on that motion, a petition to intervene was filed by GL Corporation, a predecessor corporation to appellee Great Lakes Holdings, Inc. (GL).*fn1 GL and Calvert Coal Company alleged that they were parties to the February 8, 1980 agreement, and that they had made advances to PPC which had not been repaid, alleging that according to the terms of the 1980 agreement, PPC's indebtedness to GL took priority over PPC's indebtedness to appellants on the installment note. Therefore, GL and Calvert requested permission to intervene.

On August 31, 1984, the lower court granted GL and Calvert's petition to intervene and denied appellants' motion for summary judgment. In denying the summary judgment motion, the lower court held that "[t]he pleadings and affidavits in this case present a genuine conflict of fact and law as to the proper interpretation of the February 8, 1980 agreement." The lower court concluded that it could not grant summary judgment "[w]ithout more evidence as to the true intent of the parties to that agreement . . . ." On May 8, 1985, GL and Calvert, appellees herein, filed a

[ 387 Pa. Super. Page 61]

    complaint against appellants and PPC, in which they reiterated the allegations contained in the petition to intervene. Appellees requested that the lower court declare PPC's debt on the advances made by them to PPC as having priority over PPC's debt to appellants on the installment note.

Appellants then filed an amended complaint in September, 1985. The amended complaint was filed "to include claims against the intervening plaintiffs . . . ." Count I of the amended complaint essentially reiterated the allegations against PPC as set forth in the original complaint. Count II was directed against GL and alleged that Jay Pritzker, agent of GL, entered into an oral agreement with appellants on November 15, 1979, under which GL agreed to assume responsibility for payment of PPC's obligations under the installment note in consideration for which appellants agreed to accept a suspension of payments. Appellants further alleged in Count II that although they had performed their obligations under the oral agreement, GL had failed to pay the outstanding debt on the note. In Count III of the amended complaint, appellants alleged that "the representations and promises made by GL Corporation in its oral agreement with [appellants]" were false, that GL knew them to be false at the time the representations were made, and that GL made such representations for the purpose of inducing appellants not to take immediate legal action against PPC. Further, appellants alleged that they relied on GL's representations on February 8, 1980 when they entered into the written agreement rescheduling PPC's payments on the note. Appellants also alleged in Count III that GL "shifted assets and diverted corporate opportunities from PPC."*fn2

Counts IV and V of the amended complaint were brought against PPC, GL and Calvert Coal as "Debtors" under the February 8, 1980 agreement. In Count IV, appellants alleged that by executing the agreement, the "Debtors" were liable to appellants as sureties under 8 P.S. ยง 1. In Count

[ 387 Pa. Super. Page 62]

V, the allegation was that the "Debtors" had made false representations in the 1980 agreement and at the time of its execution. Appellants also alleged that the "Debtors" had shifted assets and diverted corporate opportunities from PPC.

After a period of discovery, appellees (intervening plaintiffs), filed a motion for summary judgment as to Counts II, III, IV, and V of appellants' amended complaint. Prior to the disposition of this motion, appellants moved to amend the complaint to permit the filing of a second amended complaint. Appellants stated that the basis for the motion to amend was that during the course of discovery, additional information had been obtained which "demonstrated the existence of additional causes of action."

The proposed second amended complaint alleged a "[s]econd cause of action against defendant Great Lakes Holdings, Inc." In the second cause of action against GL, appellants alleged that "GL has used its control and domination over PPC to defraud [appellants] . . . ." Further, appellants alleged that PPC had been acquired "with the specific intent by Defendant GL's principals to take advantage of PPC's corporate opportunities . . . ." Appellants also set forth in their proposed second amended complaint a third cause of action against Calvert Coal Company and GL "for equitable subordination." Appellants alleged that certain loans to PPC by GL and Calvert "were made by entities in the nature of proprietors rather than creditors," and that GL and Calvert had breached their fiduciary duty to PPC. Appellants requested relief in the form of disallowance of the loans made by GL and Calvert to PPC as contributions to capital, or, in the alternative, that the court exercise its equitable powers to subordinate such loans in favor of appellants.

The lower court granted appellees' motion for summary judgment as to Counts II, III, IV and V of the amended complaint and denied appellant's motion for leave to amend. Appellants have timely appealed the orders of the lower court.

[ 387 Pa. Super. Page 63]

We will first address the lower court's grant of summary judgment in favor of appellees.*fn3 A motion for summary judgment may be granted only if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Pa.R.C.P., Rule 1035(b), 42 Pa.C.S.A. Summary judgment may be entered only in those cases which are clear and free from doubt. Young v. Eastern Engineering and Elevator Company, Inc., 381 Pa. Super. 428, 554 A.2d 77 (1989).

In passing on a motion for summary judgment, the court must examine the record in the light most favorable to the nonmoving party . . . . It is not the court's function to decide issues of fact but solely to determine if there is an issue of fact to be tried . . . . Any doubt must be resolved against the moving party . . . . The court, in ruling on a motion for summary judgment, must ignore controverted facts contained in the pleadings . . . . The court must restrict its review to the material authorized by Rule 1035 to be filed in support of and in opposition to the motion for summary judgment and only those allegations in the pleadings that are uncontroverted.

Washington Federal Savings and Loan Association v. Stein, 357 Pa. Super. 286, 515 A.2d 980, 981 (1986) (citations omitted) (emphasis in original).

Appellants first contend that the lower court erred in dismissing Count II of the amended complaint because there are genuine issues of material fact as to whether the parties entered into an enforceable oral agreement on November 15, 1979. It is established law in this Commonwealth that parties may bind themselves contractually prior to the execution of a written document through mutual manifestations of assent, even where a later formal document

[ 387 Pa. Super. Page 64]

    is contemplated. George W. Kistler, Inc. v. O'Brien, 464 Pa. 475, 347 A.2d 311 (1975). Where the parties have settled upon the essential terms of the contract, and the only remaining act to be done is the formalization of the agreement, the latter is not inconsistent with the existence of a present contract. Field v. Golden Triangle Broadcasting, Inc., 451 Pa. 410, 305 A.2d 689 (1973), cert. denied 414 U.S. 1158, 94 S.Ct. 916, 39 L.Ed.2d 110 (1974). If the parties agree on essential terms and intend them to be binding, a contract is formed even though the parties intend to adopt a formal document with additional terms at a later date. Johnston v. Johnston, 346 Pa. Super. 427, 499 A.2d 1074 (1985). However, where the parties contemplate that their agreement cannot be considered complete before it is reduced to writing, no contract exists until the execution ...


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