Decker v. Juzwik

• Decision Date: 07 May 1963
• Docket Number: No. 50802,50802
• Citation: 121 N.W.2d 652,255 Iowa 358
• Parties: Loren A. DECKER, Jennis Irene Decker, Oral Musick and Willard Musick, Appellees, v. E. A. JUZWIK, Frank L. Juzwik and Glass Craft Corporation of Illinois, Appellants.
• Court: Iowa Supreme Court

Page 652

121 N.W.2d 652

255 Iowa 358

Loren A. DECKER, Jennis Irene Decker, Oral Musick and Willard Musick, Appellees, v. E. A. JUZWIK, Frank L. Juzwik and Glass Craft Corporation of Illinois, Appellants.

No. 50802.

Supreme Court of Iowa.

May 7, 1963.

Rehearing Denied July 16, 1963.

Arthur H. Johnson, Fort Dodge, for appellants.

John H. Mitchell and Herbert R. Bennett, Fort Dodge, for appellees.

LARSON, Justice.

In this suit brought by Loren A. Decker, his wife Jennis Irene Decker, Oral Musick and Willard Musick, appellees, for specific performance of a contract for the sale of a boat business in Fort Dodge, Iowa, against E. A. Juzwik, Frank L. Juzwik and Glass Craft Corporation of Illinois, appellants, the trial court found appellants had breached a purchase agreement of October 15, 1956, between the parties, and decreed specific performance and set out the method of performance. Defendants-appellants appeal.

Appellants' propositions relied upon for reversal are (1) that 'The Court erred in requiring the Juzwiks to put up $30,000.00 for a fund from which to pay the unsecured creditors of Glass Craft Corporation of Iowa and the taxes owing by it to the government', and (2) that 'The Court erred in holding that Glass Craft Corporation of Illinois must pay off the balance due on the note at the bank' and that it 'further erred in holding that any deficiency remaining after exhausting the assets of Glass Craft of Illinois, must be paid out of the $30,000.00 fund.'

In view of the fact that this appeal is tried before us de novo, a rather extensive statement of facts seems necessary. Although there are only a few areas of factual dispute, some of them play a vital part in the determination of these issues.

Being convinced of their practicability, Oral and Willard Musick in 1954 decided to build fibre glass boats for commercial sale. Each invested $8,000.00 in the business and persuaded Loren Decker to put $10,000.00 into this venture. Glass Craft of Iowa was incorporated and operated out of two buildings about 80 x 80 at the old Eno Airport in Fort Dodge. While no stock certificates were issued, it was agreed that each of the Musick brothers owned 25% of the corporation and that Loren Decker and his wife owned the other 50%. When more money was needed in the operation, Decker loaned the corporation $41,536.00 and took a note and chattel mortgage on the corporate assets. Although fibre glass boats were new, over 800 boats were made and sold in 1955. Between January 1, 1956, and October 1, 1956, some 1500 boats were made and sold, although on April 4, 1956, a fire in one of the buildings destroyed about 50% of the supplies and working tools. Even though no insurance was carried, many of the lost items were replaced and the company was back in operation in 30 days. While physical recovery was adequate, the financial loss left the corporation little or no operating capital, and in the summer of 1956 negotiations were commenced for the sale of the business.

The corporation owed taxes to the Federal and State governments of some $5,500.00, a secured note to Loren Decker in the sum of $41,536.00, a note to the Union Trust and Savings Bank of Fort Dodge in the sum of $29,927.68, and unsecured creditors in a substantial sum estimated at about $40,000.00. Decker did not wish to advance any more money in that business, but wished to dispose of his interest and liquidate his liability for the taxes and the bank note upon which he had signed as surety.

Defendant Frank Juzwik, employed as general manager of a Fort Dodge plant, and his brother Ed Juzwik, of Chicago, became interested in the enterprise and, after several meetings with the plaintiffs, decided to buy the business. On October 15, 1956, all parties met at Fort Dodge and signed Exhibit 1, a revised copy of an agreement prepared by Attorney Klein of Chicago, who was there representing the Juzwik brothers.

The pertinent part of Exhibit 1 as signed by all parties provides that the Deckers, owners of 50% of the stock of Glass Craft Corporation and holders of a chattel mortgage, as above set out, wish to sell same to the Juzwiks, that O. Musick and W. Musick, each an owner of 25% of the corporation, desire to sell one half of their interest in the corporation to the Juzwiks, that the Juzwiks desire to buy those interests, and that the sellers were to transfer those interests to the buyers, the Juzwiks. The Juzwiks were to pay and did pay to the Deckers $300.00 for their share in the corporation, and $100.00 to each of the Musicks for one half of their shares. These sums in turn were to be paid to the bank to apply on the Glass Craft Corporation note. This was done.

In addition, the agreement provided the 'Buyers hereby agree to deposit in a special account a sum of money equivalent to the value of the inventory of raw materials, work in process and supplies, computed at cost or market, whichever is lower, as of the close of business on October __, 1956, which moneys are to be used for the sole purpose of effectuating a compromise and settlement with all of the unsecured creditors of said Corporation and to pay all costs and expenses thereof.' This was not done.

The agreement further provided: 'Sellers hereby represent and warrant that as of the close of business on October __, 1956, said Glass Craft Corporation was indebted to its unsecured creditors in the aggregate sum of $_____ and was indebted to the Director of Internal Revenue and the Director of Unemployment Compensation Taxes, of the State of Iowa, in the aggregate sum of $_____ including penalties and interest to October __, 1956. Sellers hereby agree that the Buyers, their nominees or assigns, shall have the sole right to effectuate a compromise with all the unsecured creditors as they, in their sole discretion, deem advisable and feasible.'

It also provided that the sellers, who were to pay all the taxes owed by the corporation, 'will sell at the best prices obtainable, for cash, all of the existing finished inventory, the proceeds of which shall be used ot pay in full Federal withholding, Old Age Benefit and Iowa Unemployment Compensation Taxes, including penalties and interest thereon', and that any surplus remaining shall be paid to the bank to apply on the note of the corporation. This was partially done.

The buyers were to pay the Deckers $2,000.00 as the purchase price of their chattel mortgage note and mortgage, and the same were to be endorsed to them without recourse. This was done and, as provided in the agreement, the Deckers applied that sum upon a promissory note of the corporation held by the Fort Dodge bank.

In addition, the buyers agreed to form a corporation under the laws of Illinois 'to be known as Glass Craft Corporation, and they thereby agree that said Corporation will assume the payment of the principal and interest due on the Note executed by Glass Craft Corporation (of Iowa) to The Union Trust and Savings Bank of Fort Dodge, Iowa, on which the Sellers are personally liable. Payments thereon shall be made by Glass Craft Corporation (of Illinois) on the basis of Ten Dollars ($10.00) received from the sale of each fabricated boat and the aggregate of such amounts shall be paid, monthly, on or before the 15th day, to Union Trust and Savings Bank of Fort Dodge, Iowa, to apply on interest due on said Note and the balance on the principal until the entire principal due shall have been fully paid.' This was not done, although some $7,750.00 was paid by the Illinois corporation at various times from May 15, 1957, until July 1, 1958, when it was discovered the note had been renewed several times, dropping the Glass Craft Corporation of Iowa as the primary obligor.

The agreement further provided the sellers were to resign as officers and directors of Glass Craft of Iowa and turn over to the buyers all the books, records and other personal property of that corporation. This was done.

It therefore appears, without dispute, that the buyers (1) have failed to deposit any sum of money in a special account to be used for paying or effectuating a compromise and settlement with unsecured creditors, (2) have failed to liquidate the obligation to The Union Trust and Savings Bank of Fort Dodge, Iowa, and (3) have failed to keep their promise to sellers to pay the Federal Withholding taxes, Federal Old Age Benefit taxes, and the Iowa State Unemployment Compensation taxes due and owing by Glass Craft Corporation of Iowa as of October 15, 1956.

The buyers operated the old corporation for some five months, then set up the new corporation, and foreclosed their chattel mortgage against all the assets of the Glass Craft Corporation of Iowa in February, 1957. Those assets were bought in by the Juzwiks for $5,000.00 and were assigned to the Glass Craft Corporation of Illinois.

Perhaps reference to a second contract, also executed on October 15, 1956, Exhibit 2, should be made at this time. It was an agreement between the Juzwiks and the Musicks making reference to the agreement Exhibit 1 regarding the transfer of stock and other matters. It related to the issuance of stock in the Illinois corporation to the Musicks and a manner of purchase of stock by them should they desire more. It further provided: 'An employment agreement will be entered into with Musick (the Musicks) upon the election of Juzwik (the Juzwiks) to the Board of Directors of Glass Craft Corporation (of Iowa) and Glass Craft Corporation (of Illinois) upon such terms and conditions as shall be mutually acceptable to the Board of Directors of said Corporation or Corporations and to Musick (the Musicks).' (Emphasis supplied.) That employment agreement was never executed or agreed upon. Another paragraph of Exhibit 2 provided: 'In consideration of the provisions hereinabove contained, Musick (the Musicks) hereby consents and agrees that they will not become associated either directly or indirectly, as an employee, shareholder,...