Hayes v. Kerns, 85-506

• Decision Date: 21 May 1986
• Docket Number: No. 85-506,85-506
• Citation: 387 N.W.2d 302
• Parties: Steven H. HAYES, Appellee, v. M.E. KERNS, Appellant, Kerns-Hayes Implement Company, Defendant.
• Court: Iowa Supreme Court

Page 302

387 N.W.2d 302

Steven H. HAYES, Appellee, v. M.E. KERNS, Appellant Kerns-Hayes Implement Company, Defendant.

No. 85-506.

Supreme Court of Iowa.

May 21, 1986.

W. Don Brittin, Jr., of Nyemaster, Goode, McLaughlin, Emery & O'Brien, P.C., Des Moines, and Erwin L. Buck of Buck Law Offices, Britt, for appellant.

William B. Serangeli of Smith, Schneider & Stiles, P.C., Des Moines, for appellee.

Considered en banc.

REYNOLDSON, Chief Justice.

Plaintiff Steven H. Hayes filed this action in Hancock County, seeking various legal and equitable remedies after his purchase of an interest in a John Deere dealership in Britt, Iowa. The seller, defendant M.E. Kerns, counterclaimed for the balance of the purchase price note, and Hayes responded with several affirmative defenses. Trial court gave only partial relief to each party. Kerns has appealed, and Hayes has cross-appealed.

We dismiss the appeal in part and reverse the district court judgments and decrees in part.

Trial testimony disclosed that in the summer of 1977 Hayes was earning approximately $30,000 per year as an out-of-state corporate employee. He wanted to return to Iowa and acquire an interest in a business. Kerns, who owned and managed a John Deere dealership in Britt, was interested in acquiring a "junior partner." These parties, brought together by Hayes' father, a local farmer, began exploring ways that Hayes could purchase an interest in the dealership on an installment basis.

Hayes confirmed through the records of Kerns' corporation that for a number of years John Deere Company had paid the dealership, then designated as Kerns Implement Company, a six percent "volume discount" on annual sales toward the end of each calendar year. These rebates had totaled $48,499.05 in 1977 and $57,775.70 in 1978. For years, following this payment, Kerns had declared year-end bonuses for himself in the sums of $20,000 to $25,000, plus dividends. At the same time, the retained earnings of the corporation had increased substantially.

Hayes, who had little capital, testified Kerns assured him that annual bonuses and dividends, paid from the volume discounts, would be available to assist him in making annual payments toward an interest in the business. Kerns denied making these statements.

The parties eventually entered into a ten-year agreement under which Kerns' corporation would hire Hayes for ten months. At the end of that time Kerns would determine whether Hayes would continue. If so, Hayes could purchase from Kerns forty-nine percent (245 of 500 shares) of the company's common stock. Later, Hayes could purchase the remaining shares.

After the trial period Hayes purchased the forty-nine percent interest for nearly $266,000. He paid $50,000 down (including $45,000 borrowed from his father), and executed a promissory note for the balance. This note was payable in annual installments of approximately $21,500, plus eight percent interest. Hayes pledged his shares of stock as security, and his wages were raised from $15,000 per year to $18,000 per year. The company's articles of incorporation were amended to change its name to Kerns-Hayes Implement Company.

Trial court found that following this transaction Hayes was frozen out of any management role in the business. Kerns continued to operate it solely for his own purposes and benefit, ignoring Hayes' interests. Kerns paid a bonus only reluctantly for the year 1979, and, breaking tradition, refused to pay any bonus for 1980. During the critical time in the relationship of these parties, however, the retained earnings of Kerns-Hayes Implement Company increased from $406,039 in 1979 to $502,968 in 1982.

Hayes paid the 1980 and 1981 installments on the purchase price note even though he became disillusioned and left the company early in 1981. August 13, 1982, he brought this action against Kerns and the corporation, alleging common law fraud, securities law fraud, intentional and negligent misrepresentation, and failure to register the sale of the securities. Hayes' prayer for relief requested a rescission of the stock purchase agreement, liquidation of the corporation for oppressive acts, ¹ and various compensatory and punitive damages.

Kerns counterclaimed, seeking to recover the balance due on Hayes' promissory note. Hayes' answer to the counterclaim included several affirmative defenses. He alleged that the fraudulent and oppressive acts against him relieved him of any obligation to make payments on the note. Hayes also alleged a violation of the Iowa Uniform Securities Act, fraud and deceit, negligent misrepresentation, failure of consideration, violation of Iowa Code chapter 554, unjust enrichment, and misrepresentation.

The trial court incorporated in its "Order, Judgment and Decree" filed January 23, 1985, a master's findings of fact. The court concluded Kerns had acted in bad faith in defeating Hayes' reasonable expectation of receiving some annual bonuses and dividends, had entered into improper personal loans and leases with the corporation, had improperly used corporate funds and equipment for his personal benefit, and had oppressed Hayes, the minority stockholder.

Although trial court's findings of fact described a persistent course of conduct by Kerns that constituted oppression of Hayes as a minority stockholder ² and might well be viewed as a failure of consideration, trial court's conclusion inexplicably stated, "[t]here is no merit to plaintiff's affirmative defenses to defendant's counterclaim." Nonetheless, the court, ordering that "[a]ll issues raised that should have been brought in equity shall be transferred to equity," held that because Kerns oppressed Hayes, the latter was liable only for principal and interest payments on his note accruing up to, but not after, the date of the filing of his petition. The court rendered judgment in favor of Kerns

for all principal and interest payments accrued to the date of the petition, in the amounts provided by law and by the agreement between the parties. Defendant shall further be awarded judgment for interest, at the amount provided by law, for the period from the date of the petition to the date of this Order, Judgment and Decree.

Defendant shall certify to Clerk of Court the amount due.

The court ordered Kerns to reimburse the corporation for certain sums improperly expended for personal purposes, and further ordered the corporation to be dissolved and its assets liquidated.

Pursuant to the court's direction, Kerns filed a "Certificate of Amount Due," which included the 1982 installment of principal and interest, together with a subsequent variable-interest computation, all totaling $58,321.21. Hayes filed a resistance, asserting Kerns should have used the Iowa Code section 535.3 ten percent rate rather than the variable rate. Kerns responded, relying on provisions in the promissory note and certain provisions in Iowa Code sections 535.2 and 535.3.

On the basis of these filings trial court addressed the interest controversy with a ruling dated February 22, 1985, that varied from the contentions of both parties. The court directed the defendant to "forward to the court a Judgment Entry consistent with Paragraph 6 of this Order [relating to interest]."

The record as now established by the filings and oral submission discloses Kerns prepared and forwarded a "Supplemental Judgment, Order and Decree." In this instrument, which was signed by the trial court and filed March 13, 1985, Kerns gratuitously added the provision, "It is further ORDERED, ADJUDGED and DECREED that the balance of the promissory note in the amount of $151,086.94 be and the same is hereby canceled, and plaintiff has no further obligation thereunder except the payment of the judgment entered herein."

Kerns' Notice of Appeal was served April 9, 1985. It purports to appeal from the March 13 supplemental judgment, order, and decree, and states an appeal is not intended from "the Order, Judgment and Decree filed ... January 23, 1985, except to the extent it addressed in an interlocutory manner the matters with respect to which final judgment was entered ... March 13, 1985." Hayes' cross-appeal was served April 11, 1985.

Hayes filed a motion to dismiss Kerns' appeal for lack of jurisdiction. He asserted the January 23, 1985, order canceling the balance of the promissory note was a final judgment. Because more than thirty days had expired prior to filing of this appeal, Hayes contended the appeal was untimely. A single justice of this court ordered this issue to be submitted with the appeal. Hayes filed a motion to reconsider this ruling and a three-justice panel of this court overruled the motion to dismiss. See Iowa R.App.P. 22(f).

In this appeal Hayes again has challenged our jurisdiction to consider the issue of his liability for the installments due on the note following the filing of his petition, asserting that issue was determined in the January 23, 1985, judgment and decree from which no appeal was taken. While contending Hayes cannot cross-appeal from trial court's failure to grant him total rescission because he did not appeal from the judgment and decree dated January 23, 1985, Kerns argues that he can appeal the court's cancellation of the note installments due after the petition was filed because of the redundant provision he wrote into the judgment and decree filed March 13, 1985. We first address this question of our jurisdiction to decide those issues other than the one involving interest.

I. The jurisdictional issue.

We explore this question in light of principles that, while well-recognized, nonetheless are difficult to apply.

Iowa Rule of Appellate Procedure 5(a) mandates that appeals to this court must be taken within thirty days from the entry of the order, judgment, or decree. The requirements of this rule are mandatory and jurisdictional. Failure to comply with rule 5(a) requires dismissal of the appeal. Kunau v. Miller, 328 N.W.2d...