Beckman v. Carson, 84-922

• Citation: 372 N.W.2d 203
• Decision Date: 31 July 1985
• Docket Number: No. 84-922,84-922
• Parties: Glenn C. BECKMAN and Charlene K. Beckman, and Glenn Beckman Chevrolet, Buick, Pontiac, Ltd., an Iowa Corporation, Appellants, v. Virgil CARSON and Carson Motors, an Iowa Corporation, Appellees.
• Court: Iowa Supreme Court

Page 203

372 N.W.2d 203

Glenn C. BECKMAN and Charlene K. Beckman, and Glenn Beckman Chevrolet, Buick, Pontiac, Ltd., an Iowa Corporation, Appellants, v. Virgil CARSON and Carson Motors, an Iowa Corporation, Appellees.

No. 84-922.

Supreme Court of Iowa.

July 31, 1985.

Bruce L. Braley and David J. Dutton of Mosier, Thomas, Beatty, Dutton, Braun & Staack, Waterloo, for appellants.

Max E. Kirk and Philip A. Hershner of Ball, Kirk, Holm & Nardini, P.C., Waterloo, for appellees.

Considered by REYNOLDSON, C.J., and McCORMICK, SCHULTZ, CARTER, and WOLLE, JJ.

WOLLE, Justice.

The plaintiffs, a corporate automobile dealership (Beckman Chevrolet) and its owners Glenn C. and Charlene K. Beckman, brought this breach of contract action against Carson Motors, a prospective corporate buyer of certain dealership assets, and Virgil Carson (Carson), its sole officer and stockholder. Pursuant to two written agreements--a "sales agreement" and related "interim agreement"--Carson Motors as agent for the plaintiffs commenced operating Beckman Chevrolet on a temporary basis, anticipating that within about two months it could secure franchise agreements with General Motors (GM), obtain its own Iowa dealer's license, and then complete its purchase of the assets of Beckman Chevrolet. Plaintiffs claimed that defendants breached the agreements when they withdrew from the transaction sixteen days after the agreements were executed. Defendants Carson Motors and Carson alleged in their answer and counterclaim that they were entitled to rescind the agreements because during this interim period Beckman Chevrolet surrendered its Iowa dealer's license, an act constituting a substantial breach of the agreements. Following a bench trial, the trial court found that Carson Motors was entitled to rescission and rendered judgment for defendants. On appeal, plaintiffs contend that the court erred (1) in failing to apply to this transaction Iowa Code chapter 322A concerning motor vehicle franchisers, (2) in finding that Beckman Chevrolet had substantially breached its agreements with Carson Motors, and (3) in overruling objections to certain testimony presented by defendants. We find no error and affirm.

In 1981 Beckman Chevrolet purchased the inventory and business assets of an automobile dealership in Traer, Iowa, and the Beckmans in their individual names purchased the real estate on which it was located. Beckman Chevrolet then obtained an Iowa dealer's license and became an authorized dealer of the Chevrolet, Buick and Pontiac divisions of GM by entering into franchise agreements with them. In early 1981, the Beckmans entered into negotiations to sell Beckman Chevrolet to Carson, a longtime friend with whom they previously had business dealings. The negotiations culminated in two agreements prepared by the Beckmans' attorney and executed by the corporate entities on June 3, 1981.

Under the sales agreement, Carson Motors agreed to purchase certain listed assets of Beckman Chevrolet--motor vehicles, parts and accessories, and other business assets--and also agreed to purchase the business premises from the Beckmans. Beckman Chevrolet was to retain ownership of certain other assets, including its accounts receivable. The corporate assets were to be delivered to Carson Motors on the date of final closing, to take place "within 15 days of the date of receipt of approval of this agreement and transfer of the dealership by General Motors, or approval of Buyer as dealer by General Motors." The sales agreement also contained the following clause concerning the Beckman Chevrolet franchises with GM and its divisions:

Seller's Notice to General Motors. Immediately upon the execution and delivery of this agreement, the Seller shall notify Chevrolet Division, Pontiac Division and Buick Division of General Motors of this agreement and contemplated transfer from Seller to Buyer, and Seller shall cooperate with Buyer in the processing of Buyer's application to become a dealer. Buyer will, immediately upon execution and delivery of this agreement, file the necessary application with Chevrolet Division, Pontiac Division and Buick Division of General Motors to assume this dealership and shall proceed to process said application with diligence in order to qualify as dealer in lieu of Seller. It is expressly agreed and understood that the obligation of both parties to close this transaction is conditioned upon Buyer receiving a signed dealer sales and service agreement from said divisions of General Motors on or before the 15th day of June, 1981. In the event said dealer's agreement cannot be obtained from said divisions of General Motors on or before the 15th day of June, 1981, this agreement in its entirety, and the escrow agreement, which is part hereof, shall be null and void and all monies shall be returned to Buyer.

An interim agreement, executed simultaneously with the sales agreement, provided that Carson Motors would operate Beckman Chevrolet as its agent until Carson Motors was approved as an authorized dealer by GM. Carson Motors was to retain all profits generated during the interim period, subject to a monthly rental fee owing to Beckman Chevrolet for use of the facilities. One effect of the interim agreement was to extend beyond June 15, 1981, the time within which Carson Motors might obtain signed dealer's agreements with the designated divisions of GM; but the interim agreement retained the condition that GM approve Carson Motors as an authorized dealer in Traer before the sale could be completed.

Carson Motors began managing Beckman Chevrolet as its agent on June 8, 1981, operating under the Iowa dealer's license and GM franchises of Beckman Chevrolet. The death knell for the sales transaction sounded on June 15, 1981, when Glenn Beckman decided to surrender the Beckman Chevrolet dealer's license to the Iowa Department of Transportation. Beckman had previously pleaded guilty to tampering with odometers, and before the agreements with Carson Motors were signed he had been notified that the department would be holding a hearing on whether the Iowa dealer's license should be revoked because of those violations. Before the hearing scheduled for June 15, and without notifying Carson that he would do so, Beckman voluntarily surrendered the dealer's license, with revocation to be effective on June 19. Beckman testified that he did so to avoid the adverse publicity which a license revocation hearing might have engendered. Beckman said he believed Carson Motors had the right at that time to obtain its own Iowa dealer's license from the department and further understood that if Carson Motors would apply for its own license the department would immediately issue the license and authorize Carson Motors to operate under the GM franchises of Beckman Motors. On June 19, however, Carson notified the Beckmans that Carson Motors was not going to complete the purchase, stating that revocation of the Iowa license of Beckman Chevrolet was one of the reasons he was withdrawing from the transaction.

Plaintiffs' petition at law sought compensatory and punitive damages on the theory that Carson Motors and Carson had wrongfully breached the sales and interim agreements. Defendants included in their answers and counterclaims the contention that revocation of the Beckman Chevrolet dealer's license constituted a substantial breach of the agreements, warranting rescission.

Following a bench trial, the trial court first determined that Iowa Code section 322A.12 (1981) did not automatically transfer the GM franchise to Carson Motors, then concluded that Carson Motors was entitled to rescission because plaintiffs had substantially breached the agreements. Our review of plaintiffs' assignments of error is at law, not de novo, because this action was filed and tried as an action at law. Iowa R.App.P. 4, 14(f)(1).

I. Construction of Iowa Code section 322A.12 (1981).

Plaintiffs contend that the revocation of Beckman Chevrolet's Iowa dealer's license did not constitute a substantial breach of the agreements because Iowa Code section 322A.12 (1981) automatically transferred to Carson Motors all of its rights under the GM franchises. That statute provides:

Notwithstanding the terms, provisions, or conditions of any agreement or franchise, subject to the provisions of subsection 2 of section 322A.11, in the event of the sale or transfer of ownership of the franchisee's dealership by sale or transfer of the business or by stock transfer or in the event of change in the executive management of the franchisee's dealership the franchiser shall give effect to such a change in the franchise unless the transfer of the franchisee's license under chapter 322 is denied or the new owner is unable to obtain a license under said chapter, as the case may be.

The trial court found section 322A.12 inapplicable here for two reasons. It found that the transaction involved only a sale of assets, not a sale of the dealership or franchise, and it then found:

The agreement between the parties also contemplated all along that the defendant would make application for and obtain his own franchises from the various divisions of General Motors.

We need not decide whether the form of this transaction--a sale of business assets--fell outside the scope of section 322A.12, because we agree with the second reason given by the trial court. The agreements clearly expressed the parties' intent that interim operation of the business would be conducted under the established license and franchises of Beckman Chevrolet. A principal purpose of the interim agreement was to continue the existing operation "until approval of buyer as dealer by Chevrolet, Pontiac and Buick divisions of GM," and the sales agreement explicitly provided that closing of the sales transaction was "conditioned upon buyer receiving a signed dealer sales and service agreement from said divisions of General Motors." Even though the...