Present: All the Justices
CHRISTIAN S. HUTTER, ET AL.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 952047 September 13, 1996
JOHN E. HEILMANN, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF LYNCHBURG
J. Michael Gamble, Judge
In this appeal, we consider whether an indemnification
agreement that the defendants had given to stockholders in return
for their guarantees of a corporate debt survived the later
conveyance by the stockholders of their corporate stock.
Christian S. Hutter, Beverly S. Hutter, Jr. (collectively
referred to as the plaintiffs), and Norwood Enterprises, Inc.,
owned all the stock in Virginia Wood Window Company, Inc., which
owned Bailey-Spencer Hardware Company, Inc. John E. Heilmann,
the sole stockholder of Norwood Enterprises, was also the
president and chief executive officer of Bailey-Spencer Hardware
Company. In 1989, the Bailey-Spencer Hardware Company borrowed
$253,000 from Crestar Bank, and the plaintiffs personally
guaranteed this loan.
Initially, each of the plaintiffs and Norwood Enterprises
"were equal one-third owners" of Virginia Wood Window Company;
each owned 500 shares of common stock. In May 1990, plaintiffs,
Heilmann, and Norwood Enterprises executed a "Buy-Sell Agreement"
for the common stock of Virginia Wood Window Company. The
Agreement provided that Virginia Wood Window Company would borrow
$745,000 from Central Fidelity Bank, which required Heilmann to
pledge certain of his real estate interests as collateral.
Christian Hutter agreed to transfer certain of his stock shares
to Norwood Enterprises so that it would then own a majority
interest in Virginia Wood Window Company.
The Agreement contained a "put option" which gave the
plaintiffs the right to require Norwood Enterprises to purchase
their shares of stock in Virginia Wood Window Company for a price
of 85% of the book value of Virginia Wood Window Company's stock.
The plaintiffs later exercised their "put options," transferred
all their remaining Virginia Wood Window stock to Norwood
Enterprises, and terminated their relationship with both
companies.
Subsequently, Bailey-Spencer Hardware Company failed to pay
Crestar Bank the amount outstanding on its loan. The plaintiffs
paid Crestar Bank $120,000 to release them from any further
liability to the bank on their personal guaranties. Plaintiffs
filed their motion for judgment against Norwood Enterprises and
John Heilmann, seeking indemnification under Article 5 of the
Agreement.
Defendants filed numerous pleadings, including a motion for
summary judgment. They asserted that, as a matter of law, the
plaintiffs lost any rights of indemnification when they conveyed
their stock in Virginia Wood Window Company. Plaintiffs also
filed a motion for summary judgment, asserting that they are
entitled to indemnification as a matter of law. The trial court
held that under the terms of the Agreement, the plaintiffs lost
their rights to indemnification when they conveyed their stock
and accordingly entered judgment in favor of the defendants. We
awarded the plaintiffs an appeal.
The following provisions in the Agreement are pertinent to
our resolution of this appeal. Article 5 of the Agreement
states:
"5.01. Indemnification. As to all debts or
obligations of the Corporation or its subsidiaries
(specifically including the Subsidiary Corporation) for
which Shareholders or guarantors are personally liable,
Shareholders and Heilmann agree to indemnify and hold
harmless each other in the same ratio and proportion as
their stock ownership (as it may exist from time to
time). For the purposes of this Article alone,
Heilmann shall be considered synonymous with Norwood."
Article 13 of the Agreement states in relevant part:
"13.01. Termination of Agreement. Except for the
provisions of Article 5 hereof, which shall survive the
termination of this Agreement, this Agreement shall
terminate upon the occurrence of any of the following
events:
. . . .
(c) Death or dissolution of all the parties
to this Agreement;
(d) The voluntary agreement of Shareholders
who are then bound by the terms hereof and who own one
hundred percent (100%) of the outstanding capital stock
of the Corporation;
. . . .
13.02. Termination of Shareholder's Obligation
and Rights. Following the sale by a Shareholder of all
of his shares of stock, or upon the Shareholder's death
or dissolution, the Shareholder shall have no further
rights or obligations under this Agreement to purchase
additional shares or to guarantee the obligations of
others hereunder, but shall have only the right and
obligation to sell and to receive payment of the
purchase price for any shares owned by him in the
manner provided hereby."
The plaintiffs contend that the plain language of the
indemnification provision requires that the defendants indemnify
the plaintiffs for all debts of Virginia Wood Window Company,
including the subsidiary corporation, for which they as
shareholders or guarantors are personally liable. The plaintiffs
say there is no dispute that they were personally liable to
Crestar Bank by virtue of their status as guarantors of the loan.
The defendants argue that the trial court properly granted
the motion for summary judgment. The defendants assert that the
plaintiffs lost their rights of indemnity under Article 5 when
they voluntarily ceased being shareholders in 1991. Moreover,
the defendants contend that the indemnification provision only
requires that they indemnify the shareholders in the same ratio
and proportion as their stock ownership and, when the plaintiffs
ceased owning stock, their "'ratio' of stock ownership was zero
and their rights to indemnity under Article 5 were the same."
We disagree with the defendants. Several familiar
principles govern our resolution of this dispute. First, when
contract terms are clear and unambiguous, we must construe those
terms according to their plain meaning. Bridgestone/Firestone v.
Prince William Square, 250 Va. 402, 407, 463 S.E.2d 661, 664
(1995); Foods First, Inc. v. Gables Associates, 244 Va. 180, 182,
418 S.E.2d 888, 889 (1992). Additionally, "[t]he law will not
insert by construction, for the benefit of a party, an exception
or condition which the parties omitted from their contract by
design or neglect." Bridgestone/Firestone, 250 Va. at 407, 463
S.E.2d at 664. Moreover, we will construe the contract as a
whole, and "[n]o word or clause is to be treated as meaningless
if any reasonable meaning consistent with the other parts of the
contract can be given to it." Vega v. Chattan Associates, 246
Va. 196, 199, 435 S.E.2d 142, 143 (1993) (quoting Ames v.
American Nat'l Bank, 163 Va. 1, 39, 176 S.E. 204, 216 (1934)).
Applying these principles here, we hold that the plaintiffs
are entitled to indemnification as a matter of law. The plain
language of Article 5 makes clear that the defendants agreed to
indemnify the plaintiffs for all debts or obligations of Virginia
Wood Window Company and Bailey-Spencer Hardware Company for which
the plaintiffs, as guarantors, are personally liable. Without
question, the plaintiffs were guarantors and personally liable to
Crestar Bank on the loan. Further, Article 5 requires the
defendants and plaintiffs "to indemnify and hold harmless each
other in the same ratio and proportion as their stock ownership."
Contrary to the defendants' contention, the plaintiffs' transfer
of their stock ownership did not adversely affect their
entitlement to indemnification because Article 5 provides that
the obligation to make indemnification is proportionate to stock
ownership, not the right to receive indemnification. Thus, we
are of the view that the defendants, who own 100% of the stock of
Virginia Wood Window Company, in accordance with Article 5, are
required to indemnify the plaintiffs for the entire amount of the
$120,000 that the plaintiffs paid to Crestar Bank.
We find no merit in defendants' argument that the
plaintiffs' rights to indemnification ceased when the plaintiffs
conveyed their shares of stock. Paragraph 14.10 of the Agreement
states, "[i]t is the desire and intent of the parties hereto
. . . that this Agreement be liberally construed and broadly
interpreted, consistent with its declared intents and purposes."
Among those intents and purposes are the desires of the
plaintiffs and defendants to indemnify each other under certain
circumstances described in Article 5. Our review of the plain
language contained in the indemnification provision, along with
Paragraph 14.10 and other provisions in the Agreement, leads us
to conclude that the plaintiffs' rights to indemnification were
not forfeited merely because they chose to convey stock as
provided in the "put option."
We also find no merit in defendants' contention that because
Article 13.01 provides that the indemnification provision "would
only survive in the event of death, dissolution, bankruptcy
and/or cessation of the business of Virginia Wood Window," the
indemnification provision terminated when the plaintiffs conveyed
their stock. The survival clause is not implicated here because
the Agreement has not been terminated according to its terms.
Hence, the Agreement remains in effect and governs the rights and
obligations of the parties, including the reciprocal rights and
obligations of indemnification.
Accordingly, we will reverse the judgment of the trial
court, and we will enter final judgment here in favor of the
plaintiffs.
Reversed and final judgment.