Thursday, August 13, 2009

Court reviews enforceability of an indemnity agreement and possible evidentiary errors, including violation of the statute of frauds and the parol evidence rule

WENDELL P. BAUGH, III, ET AL. v. HERMAN NOVAK, ET AL. (Tenn. Ct. App. August 13, 2009)

This case arises out of a business agreement between the parties. Plaintiffs executed a note to purchase a company. The note contained a stock transfer restriction. Subsequently, Plaintiffs entered into a business agreement with Defendants. The subject of that agreement is disputed in this lawsuit, but Plaintiffs contend that Defendants purchased one-half of the company and executed an indemnity agreement to indemnify Plaintiffs for one-half of the note on the purchase of the company. After operating for nearly ten years, the company failed.

At trial, Plaintiffs sought to enforce the indemnity agreement, and Defendants counterclaimed to recover $73,000.00 that they paid to Plaintiffs before they allegedly executed the contract. The trial court found in Plaintiffs' favor. Defendants now appeal claiming that the trial court made several evidentiary errors, that the contract is unenforceable because it violated the statute of frauds, that parol evidence regarding the terms of the contract was inadmissible, and that the corporation cannot continue its existence and sell stock after dissolution. We reverse the trial court's determination based on our finding that the contract is unenforceable as a matter of public policy.

Opinion may be found at:

Highers's dissenting opinion may be found at: