Grandon v. Ellingson

• Decision Date: 20 September 1966
• Docket Number: No. 52176,52176
• Citation: 259 Iowa 514,144 N.W.2d 898
• Parties: Eugene L. GRANDON, Appellee, v. G. L. ELLINGSON, Appellant.
• Court: Iowa Supreme Court

Page 898

144 N.W.2d 898

259 Iowa 514

Eugene L. GRANDON, Appellee, v. G. L. ELLINGSON, Appellant.

No. 52176.

Supreme Court of Iowa.

Sept. 20, 1966.

Westfall, Laird & Burington, Mason City, for appellant.

Lynch, Dallas, Smith & Harman, Cedar Rapids, for appellee.

STUART, Justice.

This is an action for specific performance of the provisions in a contract for the sale of stock in a closely held corporation which provided for the retransfer of the stock and return of a $15,000 deposit, both held in escrow, in the event purchaser could not obtain a certain loan. Seller claimed waiver of or estoppel to assert the condition and counterclaimed for the contract price of the stock. Seller demanded a jury trial of all law issues raised by the answer and counterclaim which was denied. The trial court sitting in equity found for purchaser and seller has appealed. We affirm.

On or about September 28, 1963, plaintiff entered into a contract with defendant to purchase his stock in Ottumwa Lanes, Inc., a bowling alley, and Rebco, Inc., for $60,000.14. The sale was conditioned on plaintiff obtaining a loan of $185,000 from Iowa Securities Co., Waterloo, Iowa. In compliance with the terms of the contract, the stock certificate was endorsed to plaintiff and deposited in escrow with defendant's attorneys. Plaintiff deposited $15,000 in escrow with them.

The contract provided: 'in the event the above described loan is not approved, the stock and its title shall be returned to Mr. Ellingson and with the further reservation that the $15,000 held in trust by Westfall, Laird & Burington until the approval of the loan, and in the event such loan is not secured, in addition to Mr. Ellingson's receiving this stock, Dr. Grandon shall receive a return of his $15,000.'

The same date, September 28, 1963, an election by a small business corporation to be taxed as a partnership under subchapter S, Internal Revenue Code was prepared for Ottumwa Lanes, Inc. Plaintiff-purchaser was listed as sole stockholder and he signed the consent to election under subchapter S. These forms were received by the Director of Internal Revenue on October 1, 1963. They were not timely filed and were of no validity.

Iowa Securities did not approve the loan. Defendant refused to authorize his attorneys to return the $15,000 deposit. Plaintiff brought this action for its return and asked for the opportunity 'to endorse, execute, assign, transfer and deliver the certificates for the shares of stock described in the contract, or any other instrument required to transfer and assign such shares back to defendant'.

Defendant in answer claimed plaintiff by executing and filing the election under subchapter S of the Internal Revenue Code waived the condition and was estopped from denying his obligation to purchase the stock. Defendant also filed a counterclaim under which he tendered the stock and sought to recover the full purchase price.

On the same date the answer and counterclaim were filed, defendant filed a demand for a jury trial of all issues triable at law under answer and counterclaim. Without objection, the court treated this demand as a request for separate trial of law issues and overruled the motion.

I. Defendant claims it was error for the trial court to refuse a separate trial at law of the issues raised in his answer and counterclaim. terclaim. We do not agree.

It is conceded the allegations of plaintiff's petition called for equitable jurisdiction. '* * * once equity has obtained jurisdiction of a controversy, it will determine all questions material or necessary to accomplish full and complete justice between the parties, even though in doing so it may be required to pass upon some matters ordinarily cognizable at law.' Simpson v. Bostwick, 248 Iowa 238, 244, 80 N.W.2d 339, 343.

'Where an action is properly brought in equity the defendant has no right to a trial by jury of law issues presented in the answer, and the court will retain jurisdiction and determine the legal issues presented.' (Citing cases) Beh v. Tilk, 222 Iowa 729, 731, 269 N.W. 751, 752.

Defendant claims he was entitled to a jury trial on the affirmative defenses of waiver and estoppel. Law and equity have concurrent jurisdiction of these defenses. They may be urged in either forum. They both rest on equitable principles which courts of law recognize. State ex rel. School Tp. of Douglas Tp. v. Kinkade, 192 Iowa 1362, 186 N.W. 662; 31 C.J.S. Estoppel § 64, p. 400; 31 C.J.S. Estoppel § 61a, p. 378. Equity had jurisdiction of the controversy and the raising of defenses not solely cognizable at law did not give defendant the right to a law trial on these issues.

Defendant also claims he pleaded conversion which is an action at law. Conversion was alleged here only as a basis for estoppel or waiver, not as a separate cause of action. Even if it were a legal issue here, it would not be triable separately under the general rules set out above. Sections 611.4 and 611.10 Code of Iowa preserve the right to have purely equitable issues tried in equity even if they arise in ordinary proceedings. There is no statutory counterpart providing for a law trial of purely law issues arising in an equity matter. Equity may determine all matters both legal and equitable when the controversy is properly before it. 30 C.J.S. Equity § 67, p. 919.

It is true defendant's counterclaim, if brought as an original action, was triable at law. Gingerich v. Protein Blenders, Inc., 250 Iowa 654, 95 N.W.2d 522, 524--525. However it raised the same issue involved in the petition in equity--whther the obtaining of the specified loan was a condition precedent to the completion of the sale of stock. The proper forums differ--not because the issues differ--but because law provides an adequate remedy to one party but not the other. The counterclaim was at law because a money judgment for the purchase price provided an adequate remedy for the seller. It is assumed by the parties that the purchaser under these facts could only receive adequate relief through specific performance. The one primary issue can and must be resolved in the equitable action. Nothing remains to be disposed of at law. Equity could have awarded the money judgment on the counterclaim had defendant prevailed. Mutuality of remedy is not necessary in order to invoke equitable jurisdiction for specific performance. Gingerich v. Protein Blenders, Inc., supra. Defendant is not entitled to have an issue tried at law because it is the proper forum for his remedy, when the plaintiff's remedy is in equity.

We will refer briefly to authorities cited by defendant. Gingerich v. Protein Blenders, Inc., 250 Iowa 654, 95 N.W.2d 522, holds only that a vendor of stock has an adequate remedy at law and an equitable action for specific performance is not available to him. In Folkner v. Collins, 249 Iowa 1141, 91 N.W.2d 545, 546 and Christensen v. Board of Superivisors of Woodbury Co., 251 Iowa 1259, 1265, 105 N.W.2d 102, 108, there were clearly severable issues or cause of action on which the trial court could in its discretion order separate trials under R.C.P. 186. In Poole v. Poole, 221 Iowa 1073, 1078, 265 N.W. 653, the action was properly brought in law and the issue of fraud raised in answer was cognizable in both law and equity and there was therefore an adequate remedy at law. Other issues solely cognizable in equity were to be tried separately, if necessary, after determination of the fraud issue in the ordinary proceedings. The language relied on in In Re Nathan, D.C., 98 F.Supp. 686, 690, is dictum, but in any event the matters there were severable. A finding in favor of the claimant on the note would not bar a finding in favor of the trustee in bankruptcy on the question of preference.

We hold the trial court acted properly in trying all issues in one equitable action.

II. Defendant claims plaintiff, by exercising dominion and control over the shares of stock, waived the condition precedent and is estopped from asserting the failure of the condition as a reason for not completing the purchase of the stock. The act which he claims constituted such dominion and control was the election by Ottumwa Lanes, Inc. to be taxed under subchapter S in which plaintiff signed the consent as sole stockholder. Further factual background will aid in explaining defendant's position.

Stock in Ottumwa Lanes, Inc. was owned as follows: Defendant, 24 shares; C. A. Rugger, 12 shares; and a third person, 12 shares. These three parties also had the same proportionate ownership in Rebco, Inc. which owned the building in which the bowling alley was located. The contract here involved defendant's stock only. There had been discussion concerning the purchase of the remaining 50% Interest by plaintiff but there was no contract.

Ottumwa Lanes, Inc. had shown an operating loss for income tax purposes. Under subchapter S a qualifying corporation elects to be taxed as a partnership and the income or loss is reportable by the stockholders on their individual returns. It was contemplated that plaintiff could take advantage of the loss on his personal return while acquiring an investment with sufficient cash flow to finance itself.

The Internal Revenue Code required the election to be made during the first month of the corporation's taxable year, which in this instance began September 1. Plaintiff signed the offer September 28, 1963. On the same date the forms necessary for the subchapter S election were executed by 'C. A. Rugger, secretary-treasurer' and included plaintiff's consent in which it was stated he was the owner of '48' shares. The contract was accepted and the executed copy mailed to plaintiff's attorney, Oct. 1, 1963. The election was also received by the Internal Revenue Service October 1, 1963.

The purchase was never completed because the loan was not approved. The election was not timely filed. The corporation never filed returns under the election and pla...