Cambron v. Moyer

• Decision Date: 27 July 1994
• Docket Number: No. 92-1805,92-1805
• Citation: 519 N.W.2d 381
• Parties: 25 UCC Rep.Serv.2d 218 Norma J. CAMBRON, As Executor of the Estate of Roger D. Cambron, Deceased, and Cambron Tire Service, Inc., Appellees, v. James L. MOYER, and DJNB, Inc., Appellants.
• Court: Iowa Supreme Court

Page 381

519 N.W.2d 381

25 UCC Rep.Serv.2d 218

Norma J. CAMBRON, As Executor of the Estate of Roger D. Cambron, Deceased, and Cambron Tire Service, Inc., Appellees, v. James L. MOYER, and DJNB, Inc., Appellants.

No. 92-1805.

Supreme Court of Iowa.

July 27, 1994.

Patrick J. McNulty and Stephanie L. Glenn of Grefe & Sidney, Des Moines, for appellants.

Mason J. Ouderkirk of Ouderkirk Law Firm, Indianola, for appellees.

Considered by McGIVERIN, C.J., and CARTER, LAVORATO, NEUMAN, and ANDREASEN, JJ.

McGIVERIN, Chief Justice.

This case involves various questions arising out of an alleged contract for the sale of stock in a closely held corporation. We conclude that the trial court committed reversible error in failing to address the applicability of the statute of frauds contained in article eight of the uniform commercial code, Iowa Code ch. 554 (1991).

We therefore reverse the judgment of the district court and remand the cause for a new trial.

I. Background facts and proceedings. Roger D. Cambron, now deceased, was the husband of plaintiff Norma J. Cambron, the executor of decedent's estate. Prior to his death, Roger operated Cambron Tire Service in Indianola for DJNB, Inc., an Iowa corporation all of whose shares were owned by defendant James L. Moyer. This arrangement resulted from a transaction in 1986 in which Moyer purchased for $490,000 the business's assets from Cambron Tire Service, Inc., the corporation under which Roger had owned the business. Moyer in turn formed DJNB, Inc., and sold the tire business to it. Moyer or his corporation made installment payments on the purchase price of the 1986 sale agreement through January 6, 1992, approximately two months after Roger's death.

After the tire service business failed to operate up to expectations, Moyer attempted to sell the stock in DJNB to Roger. In September 1991, during the course of their negotiations, Moyer's attorney prepared a "Stock Purchase Agreement" that proposed to sell Roger all the shares of stock in DJNB for $140,000. Moyer also prepared a "Settlement Agreement and Release" that would have relieved Moyer of any further obligations arising out of the 1986 sale. Moyer signed these two documents and sent them to Roger. Roger never signed them.

On October 18, 1991, Roger gave Moyer a check for $80,000 on the account of his corporation, Cambron Tire Service, Inc., that contained a notation "for payment on Cambron Tire." According to plaintiff Norma Cambron, the parties agreed that the sale transaction would become final upon Roger's obtaining of bank financing for the remainder of the purchase price. Roger died on October 31 having never obtained financing. His estate requested Moyer to return the $80,000. Moyer refused.

The plaintiff estate and Cambron Tire Service, Inc. then brought this action against defendants Moyer and his corporation, DJNB, Inc., to recover the money Roger paid. Moyer counterclaimed, seeking enforcement of the stock purchase agreement and demanding the remaining $60,000 allegedly still due by Roger. For the purposes of this case, the parties regarded the estate and Cambron Tire Service, Inc. to have an identical interest. Also, for purposes of simplicity, we shall refer to the parties in the singular, e.g. "Cambron's estate" and "Moyer."

Cambron's estate first raised the affirmative defense to defendant's counterclaim that the alleged 1991 contract failed to comply with the statute of frauds of article eight of the uniform commercial code (Iowa Code section 554.8319), but the court refused to rule on or instruct the jury on that defense. The estate also raised the affirmative defenses of waiver by defendant and impossibility of performance by plaintiff of any contract.

After trial, a jury, in response to special verdict questions, determined that a contract existed between Roger and Moyer for the purchase of DJNB, Inc., but that the estate was excused from performing the contract based on impossibility and waiver. The verdicts did not specify whether the contract was oral or written.

The court granted Moyer's motion for judgment notwithstanding the verdict on the finding of waiver. The court overruled plaintiff's motion for judgment notwithstanding the verdict which again raised the statute of frauds issue.

In its judgment on the verdict, the court allowed Moyer to keep the $80,000, excused the estate from completing performance on the stock purchase agreement, forgave the remainder of the payments due by Moyer for the 1986 purchase of the tire service by Moyer and DJNB, and awarded Moyer a refund of payments made by him on the 1986 purchase agreement after Roger's death. In addition, the trial court awarded Moyer attorney fees based on a clause in the proposed stock purchase agreement that Moyer had signed and sent to Roger but which Roger had not signed.

Defendants Moyer and DJNB appealed and the plaintiff estate cross appealed.

All parties assert multiple assignments of error. However, under our view of the case, one issue is controlling on this appeal: the trial court's failure to address whether Iowa Code section 554.8319 (statute of frauds for sales of securities) precluded enforcement of the alleged transaction in this case. Plaintiff Cambron preserved error on this issue, including the filing of a motion for judgment notwithstanding the verdict that relied on section 554.8319. We agree with plaintiff that the court erred in failing to first address this issue. Rather than directing entry of judgment as requested by plaintiff Cambron, however, we believe the proper remedy is to remand for a new trial of the case. See Iowa R.App.P. 26.

II. Statute of frauds. Cambron's estate contends that the trial court erred in refusing to address and instruct the jury on its defense that the contract alleged by Moyer was a contract for the sale of securities under Iowa Code section 554.8102 and therefore unenforceable under the statute of frauds provision contained in section 554.8319. We agree.

A. Before we address the statute of frauds issue, we must first determine whether the alleged contract for the sale of securities in this case falls under article eight of the uniform commercial code, Iowa Code chapter 554, at all. Article eight "sets forth rules relative to the transfer of the rights that constitute securities and to the establishment of those rights against the issuer and other parties." Iowa Code § 554.8101 (official comment) (West Supp.1994).

Section 554.8102(1)(a) provides:

1. In this Article, unless the context otherwise requires a. A "certified security " is a share, participation, or other interest in property of or an enterprise of the issuer or an obligation of the issuer which is

i. represented by an instrument issued in bearer or registered form;

ii. of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and

iii. either one of a class or series or by its terms divisible into a class or series of shares, participations, interests, or obligations.

A slim minority of jurisdictions have concluded that shares in closely held corporations do not fall within the scope of this definition. In Rhode Island Hospital v. Collins, 117 R.I. 535, 368 A.2d 1225, 1227 (1977), the court reasoned that the shares in that case were not securities under article eight because the holder of such shares had no reasonable expectation of dividends derived from the profits of the enterprise. Similarly, in Blasingame v. American Materials, Inc., 654 S.W.2d 659, 664 (Tenn.1983), the court opined that whether the shares before it were covered under article eight was a question of fact and that the party asserting coverage under article eight failed to sustain his burden of proof on that issue.

We believe these cases are in the minority for a good reason: they fail to adhere to the language of the code. Section 554.8102 does not require factual inquiries as to whether the holder had a reasonable expectation of a dividend or whether the shares were in fact dealt in on securities exchanges. See Katz v. Abrams, 549 F.Supp. 668, 671 (E.D.Pa.1982) (citing Pantel v. Becker, 89 Misc.2d 239, 391 N.Y.S.2d 325, 326 (Sup.Ct.1977)). Instead, it is enough that the shares are "of a type" traded on the exchanges, even if they are not so traded in fact. Jennison v. Jennison, 346 Pa.Super. 47, 499 A.2d 302, 304-05 (1985). And it is enough that the shares could be recognized as a "medium of investment," even if they are never used as such in fact. Id.; see Bahre v. Pearl, 595 A.2d 1027, 1035 (Me.1991), overruling Zamore v. Whitten, 395 A.2d 435, 441 (Me.1978). See generally Tracy A. Powell, Note, Stock in a Closely Held Corporation: Is It a Security for Uniform Commercial Code Purposes?, 42 Vand.L.Rev. 579 (1989) (concluding the policies of the code and the intent of the drafters support inclusion of closely held stock in article eight).

The intent of the drafters to include shares of closely held corporations is further evinced in Iowa Code section 554.8204, which allows for restrictions to be made on the transfer of article eight securities. See Jennison, 499 A.2d at 305. Such restrictions are typically found only on shares in close corporations; if the drafters had intended to exclude such shares from article eight, they would not have included a section specifically referring to them. Id.

Neither party disputes that the shares in this case satisfy the other two requirements of section 554.8102; they are in registered form and classified as common shares. We therefore join the vast majority of jurisdictions and conclude that the alleged contract for the sale of corporate shares here falls under the scope of article eight.

B. The trial court failed to consider whether article eight applied to this transaction. Therefore, as we have noted earlier, it did not rule on or instruct the jury on the applicability of its statute...