Emmons v. Ingebretson

• Decision Date: 07 February 1968
• Docket Number: Civ. No. 63-C-2012-C.
• Citation: 279 F. Supp. 558
• Parties: Glenn O. EMMONS, Plaintiff, v. Melvin A. INGEBRETSON and Minnie L. Ingebretson, Defendants.
• Court: U.S. District Court — Northern District of Iowa

279 F. Supp. 558

Glenn O. EMMONS, Plaintiff, v. Melvin A. INGEBRETSON and Minnie L. Ingebretson, Defendants.

Civ. No. 63-C-2012-C.

United States District Court N. D. Iowa, C. D.

February 7, 1968.

COPYRIGHT MATERIAL OMITTED

Don W. Burington, Mason City, Iowa, for plaintiff.

Edward R. Boyle, Clear Lake, Iowa, for defendants.

MEMORANDUM AND ORDER

HANSON, District Judge.

This action was instituted by plaintiff to recover for the breach of an alleged oral contract to convey a controlling block of 388 shares in the First State Bank of Thornton, Iowa. Jurisdiction is grounded upon diversity of citizenship. The plaintiff, Glenn O. Emmons, is a citizen of the State of Minnesota and the defendants, Melvin A. Ingebretson and Minnie L. Ingebretson, are citizens of the State of Iowa.

The Court must first briefly review the factual setting in which the negotiations between the parties took place and which purportedly culminated in a completed oral contract between them. Mr. Thomas Teas, who became an attorney and a spokesman for the First State Bank in August of 1962, testified that the Bank had been involved in what is commonly known as the "Fashion Farms" scheme with which this Court is intimately acquainted. The Bank had "problems with management." One Max Ingebretson had performed executive services for the Bank up until August of 1962 when his resignation was obtained. The Bank had no active management when his employment was terminated.

In August of 1962 the Bank had from $530,000.00 to $540,000.00 worth of substandard loan paper and had approximately $80,000.00 of losses. In banking parlance, a substandard loan is one in which the risk is higher than usual for any number of reasons, but which may be collectible. The Bank had a total capital of $354,000.00 consisting of $75,000.00 worth of capital stock, $125,000.00 surplus, and $154,000.00 undivided profits. In Mr. Teas' estimation, the situation at that time was "alarming" as there was a possibility of extensive litigation against the Bank, with liability perhaps as great as $2,000,000.00. The Bank had a reserve of $20,000.00 for attorney fees and bond coverage with a $120,000.00 basis and a $1,000,000.00 excess provision. The primary bond covered such things as fraud and dishonesty but the Directors really "didn't know where they were."

Mr. Teas stated that the State Banking Department was "in a mood" to set aside the assets of the Bank in August but the Board of Directors of the Bank made a decision that such an action would be undesirable. The Department took the position that it would permit the Bank to continue operation upon compliance with certain conditions: that it find long-run management which would meet the approval of the Department; that the members of the Board of Directors purchase $100,000.00 worth of the substandard paper; that a Mr. Henniman from the First National Bank of Mason City, Iowa, be temporarily engaged as a consultant to the Board; and, that Mr. Teas become a member of the Board.

The Bank's condition improved somewhat during the period between August 18 and November 23, 1962. The members of the Board of Directors purchased the $100,000.00 worth of substandard paper, Mr. Henniman spent his spare time through January 1, 1963, assisting the Bank, and Mr. Teas became a member of the Board. Also, the defendant Melvin Ingebretson purchased approximately $35,000.00 to $40,000.00 worth of the paper. He had bought about $50,000.00 worth by December 10, 1962. Mr. Teas felt that there "may have been some improvement" in the financial condition of the Bank but it was too early to be certain and the plaintiff thought that the Bank was "still in trouble" in November of 1962.

With this perspective of the financial condition of the Bank during the crucial period, the Court will explore the events which transpired in relation to the alleged consummation of a contract for the sale of the stock.

In the summer of 1962, the defendants decided that they wanted to sell their interest in the Bank. Mr. Ingebretson had been the President of the Bank and a member of the Board of Directors for over fifteen years but his age apparently prohibited him from coping with its managerial problems. The defendants owned 318 of 750 shares outstanding in the First State Bank. Mrs. Ingebretson had 160 shares of the stock registered in her name and Mr. Ingebretson owned the remaining shares. Mr. Ingebretson was actively engaged in all negotiations for both he and his wife and it is evident that he had Mrs. Ingebretson's total authority to deal with her shares. The Ingebretsons had two daughters, Maribelle Johnson and Evelyn Hiller, who had previously had control of thirty-five shares each but Evelyn Hiller's shares were registered in her husband's name at the time of the events in question.

Mr. Teas and the defendant Melvin Ingebretson were delegated the responsibility of recruiting a man capable of guiding the Bank's affairs pursuant to the demand of the State Banking Department. The possibility of plaintiff's qualification as the executive officer for the Bank was brought to Mr. Teas' attention by a mutual friend. Mr. Emmons was then employed as Cashier for the First National Bank of Emmons, Minnesota. A meeting was arranged between the plaintiff and Mr. Teas. They met in the latter part of September or the first of October at Mason City, Iowa, to discuss the matter. A considerable period of time was spent discussing the condition of the Bank, its debts, and threatened litigation against it. Mr. Teas told the plaintiff that the State Banking Department might set aside the Bank's assets and that if such action were taken, a new bank would be formed. Both were interested in the possibility of plaintiff's employment as manager of the new bank. Mr. Teas stated that plaintiff appeared to be the "right man" and so they decided to seek his endorsement by the State Banking Department. The defendant Melvin Ingebretson was not present at the meeting.

On October 8 or 10, 1962, the plaintiff and Mr. Teas traveled to Des Moines, Iowa, where they conferred with officials of the State Banking Department. Plaintiff's qualifications and the Bank's difficulties were discussed and plaintiff was told they would let him know whether or not he would be acceptable to the Department. The Department voiced its approval of plaintiff in a letter dated October 16, 1962.

Subsequent to the approval of the Banking Department, a meeting was arranged between plaintiff and the defendant Ingebretson. On October 19, the plaintiff was shown the physical plant of the Bank at Thornton. After viewing the Bank's facilities, the plaintiff, the defendant, and Mr. Teas had dinner together at the Ritz Supper Club in Clear Lake, Iowa. The financial status of the Bank was reviewed and it was agreed that plaintiff should have the opportunity to examine the books of the Bank and satisfy himself on its condition. Mr. Teas said that if there was any discussion of an agreement between the parties, it was "in a general way."

The next stage of the negotiations was reached when plaintiff returned to Thornton on October 22 to inspect the records of the Bank. The records were freely made available to him and he spent two days examining them. Plaintiff was told of the criticized loans and all aspects of the business. Plaintiff said that it "may have been" during this two day investigation when he discovered that the Bank had $537,000.00 worth of substandard paper. It also "could have been" during this time when he found out that plaintiff did not have 388 shares and that the Ingebretson's two daughters held thirty-five shares each which Mr. Ingebretson would have to acquire. He did learn that the Board of Directors was going to "take off" $100,000.00 worth of substandard paper and that Melvin Ingebretson was going to assume an additional $50,000.00 worth.

On the afternoon of October 23, plaintiff and the defendant had a conversation as to the possibility of employing plaintiff as the Bank's executive officer. Mr. Teas was present and discerned that they had "some general arrangement as to a manner of procedure." He testified that they talked of an option. According to plaintiff, no price was fixed for the stock but that an amount of $300.00 a share was mentioned.

Sometime prior to October 25, the plaintiff presented Mr. Teas with a form or draft of option contract which he attempted to follow in drawing an agreement between the parties. The form was supplied by a lending agency in Minneapolis. Mr. Teas drafted a rough first draft of an option contract in which the defendants were to convey plaintiff an option to purchase their stock in consideration of his working for the Bank and of an employment agreement between the plaintiff and the Bank. The agreements were prepared "with a lot of blank spaces."

Previous to October 25, Mr. Teas said the conversations had been: that plaintiff would be in control of the Bank except for policies promulgated by the Board of Directors; that plaintiff's salary would be limited to $12,000.00 plus bonuses because of State Banking Department restrictions; that plaintiff's vacation time and sick leave would be thirty days; and, that the plaintiff could terminate the contract upon sixty days notice but that the Board of Directors could do so only "for cause." The conversations between the plaintiff and the defendant Ingebretson were that the defendant was willing to give plaintiff an option to purchase his stock if plaintiff would go to work for the Bank.

On October 25, a conference was held between the plaintiff, the defendant, and Mr. Teas at which the parties "started to talk about agreements." Mr. Teas testified that "we visited about purchasing the stock of Mr. Ingebretson by Mr. Emmons and under what conditions." They went over a document or documents but it is not clear whether it was the form received in Minneapolis or the first draft of the contracts or both. In one...