Hill v. Okay Const. Co., Inc.

• Decision Date: 18 March 1977
• Docket Number: 46414,Nos. 46374,s. 46374
• Citation: 252 N.W.2d 107,312 Minn. 324
• Parties: Roger HILL et al., Respondents, v. OKAY CONSTRUCTION COMPANY, INC., Respondent-Appellant, E. E. Ranta, Appellant.
• Court: Minnesota Supreme Court

Page 107

252 N.W.2d 107

312 Minn. 324

Roger HILL et al., Respondents, v. OKAY CONSTRUCTION COMPANY, INC., Respondent-Appellant E. E. Ranta, Appellant.

Nos. 46374, 46414.

Supreme Court of Minnesota.

March 18, 1977.

Syllabus by the Court

1. Evidence is held adequate to support the jury verdict and trial court's findings that a transaction considered and intended by one of the parties to be a secured loan was in law a sale and that an attorney who represented both the buyer and the seller was negligent in failing to protect his clients from exposure to the claims of creditors.

2. Interrogatories formulated by the trial judge in a special verdict submitted to a jury in a case involving claims of legal malpractice are held adequate under the particular circumstances of this case.

3. Findings of fact made by the trial court pursuant to Rule 49.01, Rules of Civil Procedure, are held proper under the circumstances of this case and adequately supported by the evidence disclosed by the record.

4. (a) A trial court determination that an attorney was liable to his client for the amount the client had agreed to pay another as consideration for the transfer of title to certain real estate and personal property and for sums it invested in a business is held to be an improper conclusion of law.

(b) An attorney representing both the buyer and the seller in the sale of a business, who negligently exposes his clients to the claims of business creditors, may be held liable to the buyer for indemnity on account of such claims. He cannot also be held liable to the seller, who is entitled to indemnity from the buyer for the same claims.

(c) The seller of a business cannot recover from the buyer attorneys fees incurred by the seller in defending against claims of creditors, in the absence of a tender of defense to the buyer.

(d) An attorney representing both the buyer and the seller in a transaction, whose negligence resulted in litigation against both parties by creditors, is liable to both clients for attorneys fees incurred in defending against the claims of creditors.

Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, W. D. Flaskamp and John Hally Riley, Minneapolis, for appellant.

Rischmiller & Wasche and Robert Wm. Rischmiller, Minneapolis, for respondent Hill.

Hvass Weisman & King and Russell F. Pannier, Minneapolis (for Okay Constr. Co.), for respondent.

Considered and decided by the court en banc.

SHERAN, Chief Justice.

This is an appeal by defendant E. E. Ranta from a judgment entered against him in district court and from an order denying his motion for amended findings of fact, conclusions of law, and order for judgment or in the alternative for a new trial. Defendant Okay Construction Company, Inc. (Okay), also seeks review pursuant to Rule 106, Rules of Civil Appellate Procedure.

Stated generally, the problems considered in the lower court were (a) the nature of a business relationship between plaintiffs, Roger and Judith Hill, and Okay; (b) the liability for the operating debts of the business at one time owned by the Hills and allegedly purchased by Okay; (c) the professional The material facts of this case are vigorously disputed, but viewing the evidence, as we must, in a light most favorable to the verdict, they may be stated as follows:

malpractice of Ranta, an attorney, in his representation of both the Hills and Okay during the course of their transactions; and (d) the rights of the respective parties to indemnity.

In August 1971, the Hills began business under the name of Romans. Romans consisted of three separate enterprises: Romans' Personnel (an employment agency); Romans' Furniture (an interior design studio); and Romans' Audio Classics (retail sales of stereo components). Although the Hills filed articles of incorporation for Romans, they did not complete the incorporation process and continued to operate their business as a sole proprietorship.

The principal assets of Romans were the building which housed the business, located at 8012 Cedar Avenue South, Bloomington, Minnesota, and the furnishings in it. These assets were purchased in June or July 1971, for $180,000 and $15,000 respectively.

The enterprises were not successful. By the spring of 1972 the Hills were short of cash, heavily indebted, and pressed by creditors. It was during this time, about June 1972, that they met Ranta.

Roger Hill consulted Ranta regarding these financial problems, and Ranta agreed to look into the matter. A series of meetings between Ranta and the Hills followed wherein Ranta reviewed the Hills' records to ascertain their financial condition. In an effort to reduce the pressure from creditors, Ranta composed a form letter for the Hills to distribute to their creditors, requesting forbearance in collection efforts and suggesting the possibility of settling all outstanding accounts for payment of 75 percent of the balances due. There is also some evidence that Ranta represented the Hills as plaintiffs in a suit to collect one of their accounts receivable.

Near the end of June or beginning of July, Ranta told the Hills that he knew "somebody that might be interested in helping them out." That "somebody" was another of Ranta's clients, Okay.

Ranta had represented Okay continuously since its inception in the early 1950's. He believed that Okay was faced with the possibility of an accumulated earnings tax assessment by the Internal Revenue Service and had advised Felix Kvasnicka, president of Okay, that an investment of Okay's capital surplus would avoid such an assessment. Ranta felt that Romans presented an opportunity for just such an investment.

The Hills, Kvasnicka, and Ranta met in Ranta's office in July 1972 and decided to proceed with some sort of business relationship. Subsequent meetings were held to work out the details of the arrangement. It is regarding these details that the testimony of the parties differs most markedly. It is undisputed, however, that Ranta undertook to represent both the Hills and Okay in this transaction.

Roger and Judith Hill testified that they believed they were selling their entire business to Okay. In their minds, this meant transferring to Okay the physical assets of the business, the accounts receivable, and all of the liabilities of Romans. They executed an assignment of their vendees' interest in the contract for deed by which they were purchasing the Cedar Avenue property, along with a quitclaim deed for the same property. They also executed a bill of sale for all of the personalty contained in the building. These documents reflected consideration in the amounts of $20,000 and $10,000 respectively, which was the equity the Hills had in the property. The Hills testified and the trial judge found that they never received this $30,000. Roger Hill continued to run the business as a salaried employee. The Hills further understood that they had the right to repurchase their business at a future date.

On the other hand, Kvasnicka testified that it was never his intention to have Okay purchase the business of Romans; rather, from his discussions with Ranta he understood that Okay would be lending the Hills money, and in return Okay would receive title to the building and furniture as security.

Both Okay and Ranta contended that the first $30,000 advanced was to constitute payment of the consideration called for in payment for the Cedar Avenue building and the furniture. The amount of the loan was not fixed, but rather was open ended. As Romans needed more money, Okay would advance it, believing the loan was secured by a rather substantial equity in the Cedar Avenue building. The building and personal property were to be reconveyed to the Hills at some future date, if and when they repaid all sums advanced plus some percentage to cover the increased value in the property due to inflation.

In addition to this testimony, the jury considered evidence regarding the conduct of the parties which was probative of their agreement.

Funds were transferred to Romans through the establishment of a special bank account for Okay. Deposits were made by Okay into that account, and the checks drawn on it were drafted by the Hills and signed by Kvasnicka or Ernest Johnson, Okay's vice president. Roger Hill testified that Ranta approved all of the checks before they were presented to Kvasnicka or Johnson. Kvasnicka testified that he believed Ranta approved most of the checks before he signed them. Ranta denied this. It is undisputed that all the checks were executed by either Kvasnicka or Johnson.

Both Ranta and Kvasnicka participated in the selection of a new interior design manager for Romans' Furniture.

Judith Hill testified that subsequent to the transaction Kvasnicka and Johnson were introduced to Romans' employees. Ann McGee, a Romans personnel counselor, recalled that Kvasnicka was introduced as the new owner. Richard Brown, manager of the personnel division, recalled that he personally introduced Kvasnicka and Johnson, without objection from either, to some of the employees "as President and Vice-President of Okay Construction which * * * we are now a part of." Neither Kvasnicka nor Johnson was examined on this point at trial.

By far the most concrete collateral evidence of the Okay-Romans relationship consists of an application for credit made by Romans and two financial profiles of Okay, all of which were executed by Kvasnicka.

Judith Hill testified that Romans' credit was insufficient to place the fall orders for merchandise and that it became necessary to obtain from Okay some indication of its involvement with Romans. One such document was a credit application to Rotel of America, Inc., an audio supplier. The credit application consisted of a one-page document listing Romans' Audio Classics as the credit applicant and, more importantly, showing it as a subsidiary of Okay. Further, both Kvasnicka and Johnson were listed, as president and vice...