Kristerin Development Co. v. Granson Inv.

• Decision Date: 15 October 1986
• Docket Number: No. 85-293,85-293
• Parties: KRISTERIN DEVELOPMENT CO., an Iowa Corporation, Appellant, v. GRANSON INVESTMENT, a Partnership; Kenneth L. Grandquist, an Individual and Partner; Dale V. Nelson, an Individual and Partner; John L. Grandquist, an Individual and Partner; Loren Meggison, an Individual and Meggison Real Estate Incorporated, Appellees.
• Court: Iowa Supreme Court

Page 325

394 N.W.2d 325

KRISTERIN DEVELOPMENT CO., an Iowa Corporation, Appellant, v. GRANSON INVESTMENT, a Partnership; Kenneth L. Grandquist, an Individual and Partner; Dale V. Nelson, an Individual and Partner; John L. Grandquist, an Individual and Partner; Loren Meggison, an Individual and Meggison Real Estate Incorporated, Appellees.

No. 85-293.

Supreme Court of Iowa.

Oct. 15, 1986.

John R. Hearn, Des Moines, for appellant.

R. Ronald Pogge of Hopkins & Huebner, P.C., Des Moines, for appellees Granson Inv., Kenneth L. Grandquist, Dale V. Nelson and John Grandquist.

Ronald L. Sutphin of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, Des Moines, for appellees Loren Meggison and Meggison Real Estate Inc.

Considered by REYNOLDSON, C.J., and LARSON, SCHULTZ, WOLLE and NEUMAN, JJ.

REYNOLDSON, Chief Justice.

This is a law action for damages based on an alleged contract for the sale of an apartment building, brought by plaintiff corporation Kristerin Development Co. (Kristerin), against the seller, defendant partnership Granson Investment (Granson), its partners, and its brokers, Loren Meggison and Meggison Real Estate, Inc. The controversy presents unusual issues of contract and partnership law. We granted further review to examine the court of appeals decision. The court of appeals held trial court was right in dismissing the action against the partners and brokers, and in sustaining Granson's motion for judgment notwithstanding the verdicts awarding compensatory and punitive damages on a fraud count, but erred in sustaining Granson's motion to direct a verdict against Kristerin on a breach of contract count. We affirm the court of appeals decision and remand to the district court.

The evidence presented in this case disclosed that in 1976 defendants Kenneth L. Grandquist, John Grandquist, and Dale V. Nelson formed Granson, the defendant partnership. The written partnership agreement executed at that time neither specified the business of the partnership nor designated the number of partners required to execute conveyances of partnership real estate.

In 1976 this partnership purchased from Robert G. and Viola Erickson a twelve-plex apartment building located at 3707 Grand Avenue in Des Moines. Before closing, Ericksons mortgaged the property to Marshalltown Savings and Loan Association. This mortgage contained a due-on-sale clause. The accompanying promissory note provided for decreasing penalties if paid off with funds from another lender before August 10, 1981.

In the summer of 1980 Granson retained defendant Loren Meggison, a licensed real estate broker, and his sales company, defendant Meggison Real Estate, Inc., to serve as its agent in selling the apartment building. Purchase negotiations with Kaser Development, Inc., of which Peter G. Kaser was president, broke down. Kaser Development, Inc., then formed a joint venture with plaintiff Kristerin, in which Robert Netteland was a principal, to acquire the property. These joint venturers intended to sell the apartments as condominiums. This new organization, K J Joint Venture (KJ), renewed the purchase negotiations. ¹

Several meetings followed, variously involving Netteland, Kaser, Loren Meggison, and Kenneth L. and John Grandquist. Granson wanted Kaser's personal guarantee on the contract. Kaser was determined that the deal be structured in a nonrecourse manner. KJ's evidence indicated Kenneth L. Grandquist, Granson's chief negotiator, waived the request for Kaser's personal guarantee at the conclusion of the negotiations; Granson presented conflicting testimony.

KJ retained attorney Harlan Hockenberg to draft the contract. After communications from Netteland and Meggison, Hockenberg modified an "offer" form to incorporate the alleged oral agreement of the parties. ² This agreement was executed by the principals for KJ and delivered to Granson, where it was signed by partners Nelson and John Grandquist.

There is another conflict in the evidence at this point. Granson introduced evidence to show the offer was placed on Kenneth L. Grandquist's desk for his approval, but he neither approved nor signed it, and it was removed from his desk and delivered to KJ without his consent. Kenneth L. Grandquist testified he would not have executed the document until Kaser agreed to be liable personally, and until KJ assumed responsibility for any prepayment penalty imposed by the savings and loan association.

Kristerin, on the other hand, introduced evidence to show that Meggison, Granson's agent, delivered the contract to KJ after it had been executed by two of the partners. When they noted the contract was not signed by Kenneth L. Grandquist, Netteland, Kaser, and Hockenberg each made separate telephone calls to Meggison for an explanation. Meggison told each of them Kenneth L. Grandquist did not want to sign because he was having marital problems, but that the partnership intended to be bound and the signatures of two partners would bind the partnership. Netteland further testified he telephoned Kenneth L. Grandquist, who told him, "[T]he deal is good. It only takes a couple of partners to bind it anyway, so don't worry about it."

There is little dispute that after the contracts were distributed the buyer and seller both engaged in activities that appeared to advance the objectives of the offer and acceptance. Granson furnished KJ with information on current tenants. Meggison, the seller's agent, obtained a necessary certificate of occupancy for KJ. Granson had the abstract continued and delivered to KJ for examination. KJ's attorney found an apparent defect in the title that took weeks to resolve, and involved a telephone call from John Grandquist to the attorney.

Finally, on December 4, 1980, Granson's lawyer wrote a letter to KJ, in care of Kaser, that referred to the title problem and the savings and loan prepayment penalty, and informed KJ of Granson's "cancellation of the Offer to Buy dated September 10, 1980." KJ's attorney "rejected" this purported cancellation. Kristerin's subsequent efforts to reach a different agreement were unsuccessful.

Kristerin also sought to show that during this interval Kenneth L. Grandquist was negotiating with others for the sale of the apartment complex. Kristerin thus sought to create the inference Granson was attempting to bind KJ to the contract it held while still seeking a better sale on the basis that KJ's contract could be declared not binding, absent Kenneth L. Grandquist's signature.

January 4, 1983, Kristerin sued Granson and its partners for breach of contract, praying for damages and for attorney fees as provided by the contract. This petition was amended to allege, alternatively, misrepresentation by the same defendants, and by Loren Meggison and Meggison Real Estate, Inc. ³ This count asserted these defendants represented that less than three of the Granson partners could legally bind the partnership, Granson and its partners agreed to be and were legally bound by the contract, and other asserted misrepresentations not relevant here. Kristerin alleged these statements were untrue, were made by defendants with reckless disregard for their truth or falsity, and were relied on by KJ to its detriment. Kristerin prayed for compensatory and punitive damages.

At the conclusion of Kristerin's evidence, trial court directed a verdict in favor of the individual partners and for Loren Meggison. It directed a verdict in favor of Granson on the contract count, reasoning that all three partners were required to execute the contract before the partnership would be bound by the written agreement. After all the evidence was submitted, trial court directed a verdict in favor of Meggison Real Estate, Inc., on the ground the buyer did not rely on representations made by Meggison after it obtained the same information from Kenneth L. Grandquist.

Submission of the fraud count was bifurcated with respect to punitive damages. After the jury returned a $100,000 verdict for Kristerin, additional evidence was submitted relating to Granson's financial condition. The jury then returned a plaintiff's verdict for $20,000 in punitive damages.

Trial court sustained Granson's motion for judgment notwithstanding these verdicts, ⁴ and overruled its motion for new trial.

Appealing, Kristerin contends trial court erred in dismissing the breach of contract count, in entering a judgment notwithstanding the verdicts in favor of Granson, in directing verdicts for Loren Meggison and Meggison Real Estate, Inc., in dismissing its claims against the individual partners, and in not including loss of profits as a distinct element of damages. Granson "conditionally" cross-appeals, asserting that in the event trial court's ruling granting judgment notwithstanding the verdicts is set aside, it should be granted a new trial on the fraud count.

We transferred the case to the court of appeals. That court reversed and remanded, holding trial court erred in determining there was no contract as a matter of law and in dismissing the partners as parties in the contract action. The court of appeals further held trial court committed no error when it sustained the motion for judgment n.o.v. on the fraud count and in dismissing the action against Meggison and his company. We agree. To the extent necessary, we discuss these issues in the divisions that follow.

I. Directed verdict on the contract count.

Kristerin contends trial court erred in determining, as a matter of law, that no contract was created. At trial, Granson contended its partners had an oral agreement that all three partners' signatures were required to bind the partnership on a real estate conveyance. Trial court apparently found Granson's evidence persuasive on this point and directed a verdict for the partnership on the contract claim.

Implicated here is the Uniform Partnership Act, Iowa Code chapter 544. Section 544.9 provides:

1. Every partner is an agent of the partnership...