Superscope, Inc. v. Kincaid

CLARK, Judge. The sole issue presented to us for review is whether the court erred in denying plaintiffs’ motion for a preliminary injunction to enjoin the foreclosure proceedings pending resolution of the action against defendant. The burden is on plaintiffs to establish their right to a preliminary injunction. In order to justify issuance of a preliminary injunction, plaintiffs must show a likelihood of success on the merits of their case and either that they are likely to sustain irreparable loss unless the injunction is issued or that issuance is necessary for the protection of plaintiffs rights during the course of litigation. Pruitt v. Williams, 288 N.C. 368, 218 S.E. 2d 348 (1975). Issuance of an injunction is a matter of discretion to be exercised by the trial court, after weighing the equities and the advantages and disadvantages to the parties. Its purpose is to preserve the status quo until trial can be had on the merits. Huskins v. Hospital, 238 N.C. 357, 78 S.E. 2d 116 (1953). On appeal from an order granting or denying a preliminary injunction, this Court is not bound by the findings of fact of the trial court, but may review and weigh the evidence and find the facts for itself. Pruitt v. Williams, supra. We think that plaintiffs’ evidence was sufficient to show the likelihood of success at trial on the merits. Their evidence tends to show the following: that defendant violated company policies concerning reimbursement for business-related travel, entertainment and car expenses; that he retained duplicate checks for his salary that he was mistakenly issued due to clerical error; that he breached his fiduciary duties owed to the company and breached [676] his employment contract by not withdrawing as shareholder of firms doing business with plaintiffs and by conducting business with these firms to the profit and advantage of the other firms. The company’s profits and goodwill suffered due to his inattention to his managerial duties and responsibilities and by the lack of inventory controls in his operation of the company. The deed of trust executed by plaintiff Marantz specifically incorporates by reference the terms of the stock purchase agreement. In the stock purchase agreement defendant promised to use his “best efforts” to preserve the business and goodwill of the company. The promissory note also specifically recites that it is subject to the terms of the stock purchase agreement: “This Promissory Note is issued under and is subject to all of the terms and conditions of the Agreement [stock purchase agreement] and all documents executed and delivered in connection therewith, and is secured by a Security Agreement as described in Article 3.5 of the Agreement and delivered to Payee pursuant to said Agreement. The obligations of the undersigned to pay said installments shall be subject to the obligations of the parties as provided in the Agreement. ” (Emphasis added.) The forecast of plaintiffs’ evidence, therefore, indicates a likelihood that they will be able to establish that they were entitled to withhold payments on the note to defendant since defendant breached his employment agreement, his fiduciary duties and the stock purchase agreement. Turning to the second element which must be proved by plaintiffs, we find that injunctive relief is necessary to protect plaintiffs’ rights pending resolution of the original litigation. The note and security deed of trust, which defendant seeks to foreclose, were a part of the transaction involving the sale to plaintiffs of all the outstanding stock of Marantz Piano Company by defendant and others. The transaction included an employment contract in which defendant was hired as President and Chief Operating Officer of the piano manufacturing business. The defendant in his answer and counterclaim, filed 26 September 1980, alleged breach of the employment contract and default on the note secured by the deed of trust. Plaintiffs in their reply denied [677] the failure to pay defendant his pro-rata share which he claimed was due on the note. The defendant in January 1981 sought a foreclosure under the power of sale in the deed of trust as provided by Article 2A, Chapter 45, General Statutes of North Carolina. If not protected by issuance of a temporary injunction the plaintiffs would have to pay the sum claimed, though at issue in this litigation, to avoid foreclosure sale of the corporate property described in the deed of trust. In Investors, Inc. v. Berry, 293 N.C. 688, 239 S.E. 2d 566 (1977), plaintiffs brought an action to have declared void a default judgment which established a laborer’s and materialmen’s lien on the property owned by plaintiffs. The trial court refused to grant to plaintiffs a preliminary injunction prohibiting sale of the lands under execution issued on that judgment. The Supreme Court ruled that the trial court erred in denying the preliminary injunction because plaintiffs had sufficiently shown the likelihood of success upon the trial of their case on its merits and that injunctive relief was necessary for the protection of the plaintiffs’ property during the course of the litigation in order to avoid the creation of a cloud on title. Where an injunction is sought to restrain the sale of property upon a deed of trust or other lien, and there is a serious controversy as to default or the amount due, the courts in North Carolina have generally continued the injunction to the final hearing. See Realty Corp. v. Kalman, 272 N.C. 201, 159 S.E. 2d 193 (1967); Smith v. Bank, 223 N.C. 249, 25 S.E. 2d 859 (1943); Teeter v. Teeter, 205 N.C. 438, 171 S.E. 620 (1933); Wentz v. Land Co., 193 N.C. 32, 135 S.E. 480 (1927); Sanders v. Insurance Co., 183 N.C. 66, 110 S.E. 597 (1922); 9 Strong’s N.C. Index 3d Mortgages and Deeds of Trust § 19.5 (1977). We concede that the case before us differs from the line of cases cited above in that plaintiffs’ claim is unliquidated and based on breach of the management contract rather than the usual controversy over default or the amount paid on the debt, but it is clear in this case that the promissory note, deed of trust, security agreement, and employment agreement, were signed at the same time and related to the same subject matter. Under these circumstances these instruments must be construed together as part of the same transaction. The record on appeal [678] reveals a bona fide controversy arising under this transaction, a controversy that should be resolved before there is a foreclosure sale of the corporate property which was the subject of the transaction. The order denying the preliminary injunction is Reversed. Judges Arnold and Whichard concur.