Hanewald v. Bryan's Inc.

429 N.W.2d 414 (1988)


On July 19, 1984, Keith and Joan Bryan incorporated Bryan's Inc. (D1) to engage in and operate a general retail clothing and related item store. Keith was elected as president and Joan as secretary-treasurer. George Bryan was elected vice-president, appointed registered agent, and designated manager of the prospective business. One hundred shares of common stock were issued with a par value of $1,000 per share. Keith and Joan each received 50 shares without payment or other consideration. Ds did loan $10,000 cash to D1 and personally guaranteed a $55,000 loan from a bank. With these funds, D1 purchased inventory and assets from Hanewald (P). They bought the inventory, furniture, and fixtures of the business for $60,000, and leased the building for $600 per month for a period of five years. D1 paid P $55,000 in cash and gave him a promissory note for $5,000, due August 30, 1985. D1 operated at a loss for four months, after which time it closed and Keith and Joan attempted to rescind its lease with P. They packed and removed the remaining inventory and delivered it for resale to other stores in Montana operated by the Bryan family. All creditors of D1, including Keith and Joan, were paid off except for P. P sued D1 and Ds for breach of the lease agreement and the promissory note. Ds counterclaimed, alleging that P had fraudulently misrepresented the business's profitability in negotiating its sale. The trial court entered judgment against D1 for $38,600 plus interest. It did not hold Ds liable. P appealed.