Atlantic Veneer Corp. v. Sears, 56991

• Decision Date: 29 August 1975
• Docket Number: No. 56991,56991
• Citation: 232 N.W.2d 499
• Parties: ATLANTIC VENEER CORPORATION, Appellee, v. Carroll SEARS and Lois M. Sears, Appellants.
• Court: Iowa Supreme Court

Page 499

232 N.W.2d 499

ATLANTIC VENEER CORPORATION, Appellee, v. Carroll SEARS and Lois M. Sears, Appellants.

No. 56991.

Supreme Court of Iowa.

Aug. 29, 1975.

Charles L. Elson, Leon, for appellants.

Elton A. Johnston, of Johnston & Miles, Corydon, for appellee.

Heard by MOORE, C.J., and MASON, RAWLINGS, LeGRAND and McCORMICK, JJ.

RAWLINGS, Justice.

Action by plaintiff, Atlantic Veneer Corporation, resulted in judgment on promissory note against defendant, Carroll Sears, and he appeals. We affirm.

Plaintiff Atlantic is a North Carolina corporation engaged in manufacture of wood products. Defendant Sears was at all times here concerned in the log-buying business. March 6, 1965, these parties entered into a written agreement whereby plaintiff agreed to make available to defendant a revolving fund of working capital by which the latter could effect log purchases. As a part of this agreement Atlantic was permitted to repurchase logs from Sears at a price favorable to both. This 1965 contract specifically required each party to render, at least once every 30 business days, a strict accounting of debits and credits.

Throughout the following years the parties engaged in some buy and sell dealings not contemplated by their contract. More specifically, in some instances, 'cost plus' transactions were consummated under which defendant would be reimbursed the purchase price of logs secured for plaintiff and additionally receive a commission plus expenses.

November 3, 1970, defendant executed and delivered to plaintiff a promissory note for $54,299.06, payable on demand. Sometime thereafter there were further log buying ventures which, in effect, reduced defendant's indebtedness to $47,743.76.

July 7, 1971, plaintiff commenced the instant action for recovery of the last above stated balance owing on the note. In answer to plaintiff's petition defendant alleged the note was procured by fraud and that there was no consideration for same because plaintiff had not regularly accounted to defendant in accord with the March 1965 contract. By counterclaim defendant also requested an accounting as to transactions between the parties and judgment for any balance resultantly found due to defendant. By answer thereto plaintiff alleged it had made timely accountings and settlement between the parties had been effected by virtue of the aforesaid note. Additionally, during trial, with leave of court granted, plaintiff amended its answer to defendant's counterclaim thereby alleging the November note had been executed by defendant and delivered to plaintiff in full settlement of all accounts between the parties and defendant was estopped to have benefit of an accounting.

Evidence in accord with defendant's request for an accounting was introduced in full. After introduction of all testimony trial court granted plaintiff judgment against defendant for $47,743.76. In so doing the court found defendant had failed to prove plaintiff had either (1) fraudulently induced him to execute the note or (2) failed to periodically supply a debit and credit accounting in accord with the original agreement.

In support of a reversal defendant asserts five issues. Reduced to bare essentials he thereby contends trial court erred in (1) holding plaintiff did not fraudulently induce defendant to give the November 3, 1970 note; (2) allowing plaintiff's in-course-of-trial amendment of its answer to defendant's counterclaim thereby alleging final settlement and estoppel; (3) holding the note was a final settlement of all preexisting obligations between the parties.

I. Before entertaining defendant's contentions we first consider our scope of review.

Generally, an action on contract is treated as one at law. See Brammer v. Allied Mutual Insurance Company, 182 N.W.2d 169, 172 (Iowa 1970).

Conversely, accounting issues are usually deemed to stand in equity. See Engel v. Vernon, 215 N.W.2d 506, 512 (Iowa 1974); 1 Am.Jur.2d, Accounts and Accounting, § 44; 1 C.J.S. Accounting § 14.

As above stated, plaintiff commenced an action at law for recovery on the November 1970 note. By counterclaim, however, defendant sought an accounting. Apparently trial court proceeded on the premise this issue was determinable in equity, albeit validity of the contract must be resolved at law. See generally 27 Iowa L.Rev. 451 (1942). All issues, legal and equitable, were tried to the court. Further in this regard, we have repeatedly held a cause is reviewed as tried below. See In re Estate of Dallman, 228 N.W.2d 187, 189 (Iowa 1975); Davis v. Hansen, 224 N.W.2d 4, 5 (Iowa 1974). Therefore, our review on the question as to validity of the contract is governed by this well established rule in the case of In re Estate of Dallman, supra:

"(F)indings of fact by the trial court have the effect of a special verdict and are equivalent to a jury verdict. If supported by substantial evidence and justified as a matter of law, the judgment will not be disturbed on appeal. * * * It follows, the rule does not preclude inquiry into the question whether, conceding the truth of a finding of fact, the trial court applied erroneous rules of law which materially affect the decision."

On the other hand, as to trial court's disposition of the accounting issue, our review is do novo. See Engel v. Vernon, cited above.

And as this court said in Ontjes v. McNider, 224 Iowa 115, 120, 275 N.W. 328, 331 (1937):

'(W)e see no insuperable difficulty in reviewing the equitable issues by trial De novo, while considering the alleged errors asked to be corrected in the law action, in an appeal from the final judgment on the merits.'

II. As heretofore noted, it is initially contended trial court erroneously found defendant was not fraudulently induced to execute the above mentioned note. This claim is apparently premised upon certain entries in plaintiff corporation's books.

Defendant's Exhibit A is a copy of a ledger account maintained by plaintiff. Debit and credit entries therein reflect transactions between the parties commencing January 31, 1965. As of June 30, 1969, defendant owed plaintiff a balance of $52,311.21. A subsequent entry, again dated June 30, 1969, discloses defendant's account was credited by a $26,111.21 write-off. This facially reduced to $26,200 defendant's stated balance. Further additions and subtractions by way of debit and credit entries to defendant's June 30, 1969 account of $26,200 resulted in a balance of $31,187.85. Plaintiff later redebited defendant's account in the amount of the previous June 30, 1969, $26,111.21 write-off. This redebit, when added to defendant's previously noted balance of $31,187.85, made a total of $57,299.06 owing to plaintiff.

As stated, defendant executed a note payable to plaintiff for such sum, being the balance then shown on plaintiff's ledger. In an attempt to defeat recovery thereon, defendant contends plaintiff was obligated to inform him of the June 30, 1969 write-off before he signed the November note and failure to do so resulted in fraudulently inducing him to execute the instrument for a greater sum than was owing.

The essential elements of fraud are set forth in Phoenix v. Stevens, 256 Iowa 432, 436, 127 N.W.2d 640 (1964), and need not be here repeated. Moreover, the burden was upon defendant to establish every element of such defense asserted by him. See Phoenix v. Stevens, supra; Lamasters v. Springer, 251 Iowa 69, 73, 99 N.W.2d 300 (1959).

There is no need to dwell at length on defendant's instant assignment. Our examination of the record fails to disclose defendant was in any manner deceived or injured by the aforesaid write-off and redebit. In fact, this book transaction was merely an intercorporate entry effected entirely for tax purposes. Illustratively, trial court stated:

'This (June 30 write-off) was entirely an internal matter of the company. Their outstanding advance account with Mr. Sears was not being reduced. Their certified public accountants advised them through a correcting entry to transfer that amount (26,111.21) from Mr. Sears' account, crediting him and debiting the log purchase account which would have the effect of showing an increased cost of logs purchased. This is logical.'

In brief, trial court correctly found defendant had failed to carry his burden of proof on the asserted defense of fraud in connection with the giving of said November 1970 note.

Defendant's first contention in support of a reversal is devoid of substance.

III. We next entertain defendant's claim to the effect trial court abused its discretion in allowing the in-course-of-trial amendment of plaintiff's answer to defendant's counterclaim. Leave to file same was granted over defense counsel's objection during examination of defendant's first witness.

Relevant here is Iowa R.Civ.P. 88 which provides:

'Any pleading may be amended before a pleading has been filed responding to it. The court, in furtherance of justice, may allow later amendments, * * * which do not substantially change the * * * defense.'

Allowance of an amendment to a pleading is the rule and denial the exception, although an amendment is not permissible which will substantially change the issue. Additionally, a trial court has considerable discretion as to whether an appropriate request for leave to amend should be granted or denied and we will reverse only where a clear abuse of discretion is shown. See Mora v. Savereid, 222 N.W.2d 417, 422 (Iowa 1974); Galbraith v. George, 217 N.W.2d 598, 601 (Iowa 1974); Madison Silos, Div. of Martin Marietta Corp. v. Wassom, 215 N.W.2d 494, 497 (Iowa 1974).

Looking now to the pleadings, paragraph 2, count III of plaintiff's original answer to defendant's counterclaim contains this relevant allegation:

'(A)nd (plaintiff) admits that true accountings were made from time to time, and furnished by Plaintiff to Defendant, including a full and complete accounting on or about September 30, 1970, which culminated in the approval...