Kruse, Kruse & Miklosko, Inc. v. Beedy

• Decision Date: 24 August 1976
• Docket Number: No. 3--1073A130,3--1073A130
• Citation: 353 N.E.2d 514,170 Ind.App. 373
• Parties: , 20 UCC Rep.Serv. 217 KRUSE, KRUSE & MIKLOSKO, INC., et al., Defendants-Appellants, v. Robert BEEDY, Executor of the Estate of Raymond H. Clark, Deceased, Plaintiff-Appellee, Union Commerce Bank of Cleveland, Ohio, as Executor of the Estate of John M. Dempsey, Deceased, Intervening Defendant-Appellee.
• Court: Indiana Appellate Court

Page 514

353 N.E.2d 514

170 Ind.App. 373, 20 UCC Rep.Serv. 217

KRUSE, KRUSE & MIKLOSKO, INC., et al., Defendants-Appellants, v. Robert BEEDY, Executor of the Estate of Raymond H. Clark Deceased, Plaintiff-Appellee Union Commerce Bank of Cleveland, Ohio, as Executor of the Estate of John M. Dempsey, Deceased, Intervening Defendant-Appellee.

No. 3--1073A130.

Court of Appeals of Indiana, Third District.

Aug. 24, 1976.

Rehearing Denied Oct. 28, 1976.

David A. Kruse, Kruse & Kruse, Charles L. Quinn, Smith & Quinn, Auburn, for appellants.

Wilson E. Shoup, Angola, James R. Solomon, Robert J. Schmoll, Hoffman, Moppert, Solomon, Miller & Thompson, Fort Wayne, for appellees.

HOFFMAN, Judge.

On September 1, 1970, plaintiff-appellee Raymond H. Clark, as seller, (on behalf of certain principal shareholders), and defendant-appellant Kruse, Kruse & Miklosko, Inc. (K.K. & M., Inc.), as purchaser, entered into a written contractual agreement regarding the sale and transfer of 500 of the then outstanding 680 shares of capital stock in a corporate entity known as Eaton Creek Trout Club, Inc. (Trout Club). The respective rights, duties and obligations of the parties under the terms of such agreement represented the central issues in the trial court. The trial court ultimately entered judgment in favor of the plaintiff ordering, among other things, the cancellation of the agreement in question and the termination of their rights with respect to the shares, and finding plaintiff-appellee Clark to be entitled to repossess the shares and retain a down payment in the amount of $70,000 on behalf of the represented shareholders and granting certain injunctive relief. Defendants-appellants K. K. & M., Inc., Joseph Miklosko, Dean Kruse and Russell Kruse then filed a motion to correct errors which was overruled by the trial court, and subsequently perfected this appeal.

The agreement was in the nature of a conditional sales contract. For its part, K. K. & M., Inc. engaged to pay a total purchase price of $385,000 for the shares. Of this amount, Clark, as seller, acknowledged the receipt of a down payment of $70,000 at the time of the execution of the instrument, and K. K. & M., Inc. undertook to pay the balance of $315,000, within one year (on or before September 1, 1971) together with interest computed and payable annually at a rate of 8%. Although it was understood that K. K. & M., Inc. would seek financing under a prior, separate agreement with a lending institution known as Mortgage Loan & Correspondents, Inc. the agreement here at issue expressly provided that a 'failure to obtain such financing shall not relieve Purchaser of its obligation * * *.' In addition, it was provided, among other conditions, that until the purchaser 'shall have paid the entire purchase price, with interest, the parties: Shall * * * cause to be paid promptly as the same shall become due all taxes owing by said corporation; * * *.' A default was defined under the terms of the agreement as a failure on the part of the purchasers 'to pay an installment of principal or interest as the same shall become due', or, among other things, 'to perform any other of its promises, covenants, and agreements as herein provided', if such failure continued for 30 days 'after mailing of notice' to the purchasers. It was further agreed that '(u)pon the occurrence of any event of default * * * all rights of Buyers under and by reason of this Agreement and in and to the said shares of stock shall forthwith cease and terminate and Sellers shall immediately be entitled to recover the same * * *; and Buyers shall thereupon be liable to Sellers for any injury, damage, or loss occurring to Sellers by reason of such default * * *; and Buyers shall upon any such default forfeit and surrender all right and claim to any and all payments theretofore made by them and Sellers shall be entitled to keep and retain the same as their own.'

For his part, Clark promised to deposit in escrow with The First National Bank of Fremont (First National) endorsed certificates representing the 500 subject shares of stock in the Trout Club for delivery to K. K. & M., Inc. upon timely payment of the final amount of consideration. Clark also agreed that while not in default, K. K. & M., Inc. would be entitled to all voting rights incidental to ownership of the shares, to '(p)ossession of the real estate represented by said shares', and to make improvements thereon. Further, it was stipulated that, '(t)his agreement contains the entire understanding and agreement of the parties and supersedes and replaces in all respects every other agreement, understanding, or arrangement.'

Plaintiff-appellee Clark filed his complaint in the Steuben Circuit Court on August 27, 1971, naming as defendants K. K. & M., Inc., Joseph Miklosko, Dean V. Kruse, Russell Kruse, First National and eleven insurance companies. Therein, Clark asserted, inter alia, that defendants K. K. & M., Inc., Joseph Miklosko, Dean V. Kruse and Russell Kruse had breached the above described agreement in that they had failed to cause to be paid promptly all taxes owed by the Trout Club as the same became due. Clark further alleged that such breach continued after the giving of the agreed notice, and that thereafter K. K. & M., Inc. had indicated in writing its intention not to pay the balance of the purchase price on the due date. Clark requested a judgment (1) terminating all rights of K. K. & M., Inc. in the shares of stock, (2) declaring himself to be entitled to immediate possession thereof, (3) directing First National to deliver back the shares of stock, (4) enjoining Joseph Miklosko, Dean V. Kruse and Russell Kruse from continuing in possession and control of the Trout Club and its 'property and assets', (5) terminating their employment and tenure as employees, agents, directors and officers of the Trout Club, and (6) awarding damages in the amount of $10,000. As against the aforementioned insurance companies, Clark sought permanent injunctive relief prohibiting the payment of certain proceeds of insurance to any party other than himself on behalf of the Trout Club.

Defendant First National filed a petition seeking the joinder, as additional parties defendant, of mortgage Loan & Correspondents, Inc. (Mortgage Loan), an Illinois Corporation, and Colonial National Bank, New Burgh, Indiana (Colonial National). Therein, it was alleged that under the agreement of September 1, 1970, First National was named as escrow agent, and that on the same date an additional escrow agreement was, with the knowledge of Clark, executed between K. K. & M., Inc., Mortgage Loan and First National. Under the terms of that agreement, Mortgage Loan undertook to deposit in escrow its check to the order of K.K. & M., Inc. in the sum of $50,000. The check was to be delivered to K. K. & M., Inc. by the escrow agent upon its receipt from K. K. & M., Inc. of a fully executed promissory note in the amount of $50,000. Thereafter, at an undisclosed time, a rider to such agreement was executed authorizing Mortgage Loan to withdraw the note at any time and negotiate it to such banking institution as it might select. Subsequently, Mortgage Loan gave further escrow instructions to First National indicating the withdrawal of the promissory note and its negotiation to Colonial National. Any payments made to First National upon the note were to be forwarded to Colonial National. In view of the fact that the complaint sought the termination of the escrow agreement and the return of the shares held in escrow, it was claimed that Mortgage Loan and Colonial National were necessary and proper parties to the disposition of the issues raised thereby. First National's petition was later granted by the trial court.

Defendants K. K. & M., Inc., Joseph Miklosko, Dean V. Kruse and Russell Kruse claimed that the clubhouse of the Trout Club represented the subject-matter of the agreement and, by reason of the fire occurring on July 28, 1971, at the club-house, sought to be excused from timely performance. The defendants-appellants further claimed fraudulent conduct and misrepresentation on the part of defendant Mortgage Loan to which they had looked for financing, and also alleged intermeddling on the part of plaintiff in the timely settlement and collection of fire insurance proceeds. By counterclaim, they sought reformation and/or rescission of the agreement giving as grounds therefor the following: a breach of warranty of title to the stock placed in escrow by reason of a claim to 150 of the subject shares by intervening defendant Union Commerce Bank of Clevelend, Ohio (Union Commerce), as Executor of the Estate of John M. Dempsey, deceased (a represented shareholder) and a claim of a lien upon the shares by Mortgage Loan and Colonial National; mutual mistake, or unilateral mistake on the part of K. K. & M., Inc. taken together with fraud on the part of Clark in regard to the consideration recited in the agreement; illegality of the contract due to Clark's failure to properly notify and register the stock with the Secretary of State of Indiana and with the Securities and Exchange Commission; and a failure of consideration by reason of alleged failure on the part of Clark to assign certain promissory notes held by represented shareholders and pay back wages owed by the Trout Club under proper authority. Defendants sought a restoration of the status quo prior to the making of the agreement including equitable restitution by Clark for improvements allegedly made to the Club and a return of the $70,000 down payment. Further, appellants sought a return of the 500 shares held in escrow.

Intervening defendant Union Commerce claimed ownership of 150 of the subject shares. In its amended counterclaim, and cross-claim against First National, Union Commerce alleged that while Clark did have lawful authority to sell any and all of the shares of stock owned by John M. Dempsey, Clark...