D.G. Porter, Inc. v. Fridley, 10803

• Decision Date: 04 September 1985
• Docket Number: No. 10803,10803
• Citation: 373 N.W.2d 917
• Parties: 41 UCC Rep.Serv. 1823 D.G. PORTER, INC., Plaintiff and Appellee, v. Gaylord FRIDLEY, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 917

373 N.W.2d 917

41 UCC Rep.Serv. 1823

D.G. PORTER, INC., Plaintiff and Appellee, v. Gaylord FRIDLEY, Defendant and Appellant.

Civ. No. 10803

Supreme Court of North Dakota.

Sept. 4, 1985.

Mackoff, Kellogg, Kirby & Kloster, Dickinson, for plaintiff and appellee; argued by James D. Geyer, Dickinson. Appearance by Ward M. Kirby, Dickinson.

Greenwood, Greenwood & Greenwood, Dickinson, for defendant and appellant; argued by Dann E. Greenwood, Dickinson.

ERICKSTAD, Chief Justice.

The defendant, Gaylord Fridley, appeals from a judgment for damages awarded in favor of the plaintiff, D.G. Porter, Inc. (Porter), by the District Court of Stark County. Fridley has also appealed from an order denying his motion to disqualify Porter's counsel in this case. We reverse the judgment and remand for further proceedings to redetermine Porter's damages, and we affirm the order denying Fridley's motion to disqualify Porter's counsel.

On December 5, 1983, the parties entered a written agreement whereby Fridley agreed to purchase from Porter a bar-cabaret-restaurant business known as the Esquire Club which is located in Dickinson. The sale of this ongoing business was conditioned upon the transfer to Fridley of the retail liquor license held by Porter. The sale included the assignment of the lease for the premises in which the business was conducted and a transfer of "the good will of the business as a going concern, stock in trade, furniture, fixtures and equipment, transferable insurance policies and all contracts which may have been entered into by Seller in connection with such business, and all other property (except cash and receivables) used by Seller in such business, ..." The agreed purchase price was $250,000 of which Fridley agreed to pay $50,000 on the closing date and the balance in four subsequent annual installments of $50,000 each. In addition, the agreement provided that Fridley would separately purchase the Esquire Club inventory at Porter's cost payable on the date the agreement was executed. The agreement provided that the retail liquor license would be transferred within 60 days from the date of execution of the agreement and that the final closing would then occur upon two day's notice from either party.

On the date the agreement was executed, Fridley took physical possession of the premises, paid approximately $33,000 for the inventory which was transferred to him, and commenced operating the business. On December 6, 1983, the lease of the business premises was assigned to Fridley, and on February 6, 1984, the retail liquor license was transferred to him.

On February 20, 1984, Fridley sent Porter a notice of his intent to rescind the purchase agreement. At that time no closing had occurred, and Fridley had not paid the $50,000 down payment. On April 1, 1984, Fridley vacated the premises and took with him the remaining inventory.

On March 5, 1984, Porter filed this action alleging that Fridley breached the agreement and seeking the agreed purchase price of $250,000. Fridley filed a counterclaim seeking rescission of the agreement and other appropriate relief on the ground that Porter had induced Fridley to purchase the Esquire Club by fraudulently misrepresenting its gross monthly income.

Following a bench trial, the court determined that Porter had not fraudulently induced Fridley to purchase the business but that Fridley had breached the agreement by failing to make the required $50,000 down payment and by noticing, without justification, his intent to rescind. The trial court entered a judgment awarding Porter the contract price of $250,000 plus interest and costs. In its judgment, the trial court also declared that Porter possesses a security interest in the Esquire Club entitling Porter to sell the business and to apply the proceeds, less reasonable expenses of resale, to the amount owed by Fridley.

On appeal from the judgment Fridley has raised, in essence, the following issues:

(1) Whether or not the trial court committed reversible error "in executing the findings of fact prepared by trial counsel";

(2) Whether or not the trial court's determination that Porter did not fraudulently induce Fridley to purchase the Esquire Club was clearly erroneous;

(3) Whether or not the trial court erred in its determination that the purchase agreement was not void for untimely transfer of the retail liquor license; and

(4) Whether or not the trial court applied an incorrect measure of damages.

Prior to discussing the foregoing issues, we will discuss and resolve Fridley's appeal from the trial court's order denying his motion to disqualify Porter's counsel. In this litigation, Porter is represented by Ward Kirby and James Geyer of the Mackoff Kellogg, Kirby & Kloster, P.C., Law Firm (Mackoff Law Firm). On June 13, 1984, eight days before the scheduled trial of this litigation, Fridley moved to disqualify the Mackoff Law Firm from representing Porter on the ground that two attorneys in the law firm, Gordon Schnell and Paul Kloster, had represented and continued to currently represent Fridley on other matters. Fridley asserts that Attorney Schnell represents him on an oil well matter and that Attorney Kloster represents him on a condemnation proceeding.

In response to those assertions, Attorneys Schnell and Kloster filed affidavits. Through affidavit, Attorney Schnell asserts that he has never been retained by nor represented Fridley. Schnell states that during 1983, he represented Gray Petroleum, Inc., to prepare "a Partial Assignment of Oil, Gas and Mineral Leases with Respect to an interest in the 'Emmons Wells' which was sold to Gaylord Fridley by Gray Petroleum, Inc." Schnell states that he has performed other legal work for Gray Petroleum, Inc., on behalf of William R. Everett who was a previous officer and director of Gray Petroleum, Inc. This work did involve determination of payments affecting Gray Petroleum, Inc., limited partnerships and Fridley.

Through affidavit, Attorney Kloster asserts that his only dealing with Fridley involved his representation of the estate of Rachel Fridley, Gaylord Fridley's mother, in a condemnation proceeding commenced by Northern Border Pipeline Company in federal court. Fridley was one of the personal representatives for the estate. That litigation was dismissed pursuant to a stipulation of dismissal during June 1982. Attorney Kloster states that his services for the estate were effectively terminated during December 1981. Kloster informed Fridley that under the settlement Northern Border Pipeline Company would be liable to pay for crop damages occurring in 1982 or subsequent crop seasons. Thereafter Kloster, communicating with Fridley about a possible claim for crop damages in 1982, informed Fridley that he would need additional information if he were to assist with this claim. When no additional information or communication was forthcoming, Kloster concluded that Fridley was not requesting his services and that no attorney/client relationship was thereby created.

Having reviewed the entire record on this matter, we conclude that the trial court did not abuse its discretion in denying Fridley's request to disqualify Porter's counsel in this litigation. It is readily apparent, upon reviewing the affidavits and other materials regarding this issue, that there was no possible conflict or impropriety which could have resulted from the Mackoff Law Firm's representation of Porter in this case in view of the unrelated and relatively inconsequential involvements that members of the Mackoff Law Firm may previously have had with Fridley.

On appeal from the judgment, Fridley asserts that the trial court committed reversible error "in executing findings of fact prepared by trial counsel." This Court has previously stated that it does not approve of the practice of a trial judge uncritically accepting proposed findings of fact drafted by counsel. Schmidt v. Plains Electric, Inc., 281 N.W.2d 794 (N.D.1979). We have also determined, however, that findings of fact will not be found clearly erroneous on appeal merely because they were prepared by counsel for the prevailing party and thereafter adopted verbatim by the trial judge. Warner v. Johnson, 213 N.W.2d 895 (N.D.1973). When the trial judge affixes his signature to the findings of fact they become the findings of the court irrespective of whether or not they have been prepared by counsel. Vetter v. Vetter, 267 N.W.2d 790 (N.D.1978). In this case, the trial judge requested proposed findings to be submitted by counsel for both parties, and the judge subsequently adopted the findings prepared by Porter's counsel. We conclude that the trial court's actions in this regard did not constitute reversible error.

Fridley asserts that the trial court's determination that Porter did not fraudulently induce him to purchase the Esquire Club was clearly erroneous. The issue of fraud is treated as a question of fact, and the trial court's determination of that issue will not be set aside on appeal unless it is clearly erroneous. Hall GMC, Inc. v. Crane Carrier Company, 332 N.W.2d 54 (N.D.1983); Quandee v. Skene, 321 N.W.2d 91 (N.D.1982). An allegation of fraud must be proved by evidence that is clear, satisfactory and convincing. Jones v. Jones, 310 N.W.2d 753 (N.D.1981).

Fridley asserts that prior to entering the purchase agreement Porter led him to believe that the business would generate $7,000 per month. He also alleges that prior to entering the agreement he was told by Ron Borg, the manager of the Esquire Club, that past monthly gross income from the Esquire Club operations had been $50,000--$60,000 in liquor and $10,000--$12,000 in food. Fridley asserts that subsequent to entering the purchase agreement he examined the past records of the Esquire Club which showed that the gross receipts were less than those amounts. Thereafter, Fridley notified Porter of his intent to rescind the purchase agreement on the...