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Hymel v. Unc Inc.

decided as corrected: July 2, 1993.

NORMAN P. HYMEL, JR., PLAINTIFF-APPELLEE,
v.
UNC, INC., DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Western District of Louisiana. D.C. DOCKET NUMBER 91-CV-1665. JUDGE John M. Shaw

Before Wisdom, Jolly, and Demoss, Circuit Judges.

Author: Wisdom

WISDOM, Circuit Judge:

The holder/payee of a promissory note sued the maker to enforce the debt. The maker raised the defense of error in fact regarding the price stated in the contract. The district court found that the note clearly established the debt. In addition, the court held that evidence offered by the maker to show that he had not intended to bind himself for the amount evidenced by the note was "irrelevant" and granted summary judgment in favor of the holder. In this diversity case, we hold that under Louisiana law a genuine issue of material fact exists as to whether there was error regarding the principal cause of the contract. Further, we hold that under Louisiana law parol evidence is admissible to resolve this issue. Consequently, we vacate the district court's grant of summary judgment and remand for further proceedings consistent with this opinion.

I.

In August 1991, UNC Resources*fn1 ("UNC") purchased all of the outstanding stock in Normco Contractors, Inc. ("Normco"), a Louisiana based corporation. At the time of the sale, Norman P. Hymel, Jr. owned 67% of Normco's stock. His lawyer, Tracy Barstow, owned the remaining 33% of the stock. In exchange for his stock, Hymel received a promissory note for $2,350,000 along with other consideration.*fn2

The terms of the note provide:

Principal and interest under this Note shall be due and payable in three (3) annual payments of $50,000 each on July 31 of each of 1982, 1984 and 1986, and subject to Section 3.1(f)(ii) of the Joint Merger Agreement, an additional payment on July 31, 1986, in the amount of $2,200,000.

Section 3.1(f)(ii) of the Joint Merger Agreement states:

no payment or issuance of cash, stock or other consideration or compensation under (A) this section 3.1 (except under subsection (a)(iii)(C) thereof, the proviso at the end of this subsection (f) to the extent of the 1986 Payment defined therein and the note described in subsection 3.1(a)(iii)(B) to the extent of $50,000) (B) the Hamer Agreement or (C) paragraph 5 of said Employment Agreement, including without limitation any other payment under the notes described in subsections (a)(ii) and (a)(iii)(B) of this Section 3.1 or issuance of Equivalent UNC Stock under subsection (a)(iii)(D) of this Section 3.1, shall be made during the period commencing April 1, 1986, and continuing through July 31, 1991, except to the extent the aggregate value (on the intended date of such issuance or payments) of such cash, stock or other consideration or compensation issuable or payable (the "Current Payment Value"), when added to the aggregate value (at the time of payment or issuance) of all cash, stock and other consideration and compensation previously paid or issued under such items (the "Prior Payment Value"), does not exceed an amount equal to the sum of the 1986 payment (if made) plus 25% of the Cumulative Pre-Tax Earnings of the Surviving Corporation through March 31 immediately preceding any date on which such payment or issuance would otherwise occur, and any portion of such payment or issuance which exceeds such amount shall be deferred (pro rata) until such time (but not later than July 31, 1991) as such Current Payment Value when added to such Prior Payment Value does not exceed an amount equal to the sum of the 1986 Payment (if made) plus 25% of the Cumulative Pre-Tax Earning of the Surviving Corporation through March 31 immediately preceding the date of any such deferred payment or issuance; provided, however, that in the event that Cumulative Pre-Tax Earnings for the period commencing on the Cut-Off Date and ending on March 31, 1986 are equal to or exceed the sum of $28,800,000, Hymel shall receive Equivalent UNC Stock and/or cash having an aggregate value of $500,000 (the "1986 Payment") in addition to any amounts which may become payable under Section 3.1(a)(iii)(D), with principal and interest portions thereof being determined as set forth in Section 3.1(a)(iii)(C)(y).

UNC made all three of the $50,000 payments as scheduled. When the final $2,200,000 payment came due on July 31, 1986, UNC refused to pay because the conditions specified in Section 3.1(f)(ii) had not been met. Hymel did not object. Five years later, on July 1, 1991, Hymel demanded payment. UNC refused.

Hymel filed suit in state court to recover the final payment of 2.2 million due under the terms of the note. UNC removed the case to federal court based on diversity jurisdiction. After the case was removed and UNC answered Hymel's complaint, the case was set for a non-jury trial. Hymel immediately moved for summary judgment. UNC raised two defenses: (1) it argued that the note bound it to pay only if the contingencies listed in the Joint Merger Agreement were met; and (2) even if the note on its face did obligate it to pay the final payment, the obligation was not ultimately binding because it was based on an error of fact--namely that UNC intended to purchase Normco only if the final payment under the note was made contingent on future earnings. UNC offered three affidavits to support its second defense.*fn3

First, the district court held that the note clearly and unambiguously bound UNC to pay the final 2.2 million dollars by July 31, 1991. It then addressed UNC's asserted defense of error in fact. The court held that the sale of Hymel's Normco stock was the principal cause of the contract/note. Based on this holding, it held that UNC's evidence, offered to show an error in fact relating to the price of the stock, was "irrelevant to a determination of error".*fn4 Limiting its analysis to the "four corners" of the agreement, the court granted summary judgment in favor of Hymel. In addition, the court granted post-judgment interest at a rate of 9% per annum. UNC appeals the court's grant of summary judgment as well as its decision to set interest at 9%.

We agree with the district court's interpretation of the note; however, we hold that the district court erred in holding that evidence offered to support UNC's allegation of error regarding price was irrelevant. Consequently, we vacate the district court's grant of summary judgment ...


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