McGaffee v. McGaffee, 48070

• Decision Date: 16 December 1952
• Docket Number: No. 48070,48070
• Citation: 56 N.W.2d 36,244 Iowa 879
• Parties: McGAFFEE v. McGAFFEE et al.
• Court: Iowa Supreme Court

Page 36

56 N.W.2d 36

244 Iowa 879

McGAFFEE v. McGAFFEE et al.

No. 48070.

Supreme Court of Iowa.

Dec. 16, 1952.

Rehearing Granted as to Division VI of Opinion March 13, 1953.

Lorna L. Williams and Emmert, James, Lindgren & Eller, of Des Moines, for appellant.

Eskil C. Carlson, of Des Moines, for appellees.

SMITH, Justice.

Plaintiff was 86 years old and his son, defendant Loren McGaffee 47, at the time of trial. Defendant Gretchen McGaffee is wife of her co-defendant. Long prior to the events involved here plaintiff was engaged in the sheet metal business in Des Moines under the trade name J. F. McGaffee Co. That business was never incorporated.

About 1930 (both parties are indefinite as to the date) plaintiff took his son into the business. 'I told Loren he could come and work for me. * * * I would teach him about pipe work and when we had a chance for a plumbing job he would work under the plumber and learn that trade. * * * and whenever he got the plumbing business so he could do the plumbing work * * * and get a plumber's license * * * I would take him in as a partner.'

Loren testified: '* * * my father approached me about going into business with him. I organized a corporation with Mr. Landis (1934) and called it Des Moines Plumbing and Heating Co. I received a salary from my father up to the time of the corporation but not afterwards. I drew some money from J. F. McGaffee Co. since the organization of the corporation but I never received a check for wages.'

He further said the corporation was later dissolved (1941) and 'we put the two businesses together' about the same time. 'From then on, I would say that I received earnings * * * the business divided on earnings. * * * The businesses operated together for a number of years and my source of income * * *was whatever the company could afford to pay. * * * I received wages from the two companies up to July, 1946.'

Plaintiff testified he furnished the money for organizing the plumbing corporation. 'Plumbing supplies were charged on the credit of the J. F. McGaffee Co. I paid the wages for the plumbers * * * including Mr. Landis' wages. I furnished the shop.'

Rev. Henry W. Landis was a minister of the gospel but thriftily claimed also the more worldly title of plumber, with both a master plumber's and a journeyman plumber's license. He testified: 'I suggested we incorporate * * *. There were no shares of stock issued * * * . Loren was to be the president and I was to be secretary-treasurer. We never had any directors or members meetings officially.' Apparently no stock ever issued (authorized capitalization was for $10,000) and there was no actual capital except 'I had quite a few tools * * * there was no direct moneys exchanged because it was in the depression and we had none and I had this materials and I had some customers and so did Mr. McGaffee have some customers. Mr. H. F. McGaffee Company's credit was used to obtain materials at first and after we incorporated * * * materials were bought under both names.' Plaintiff testified: 'I furnished all the money for the plumbing business. * * * Loren McGaffee had no money and neither did Henry Landis.' Loren did not testify on the subject.

Some time after Loren came into the business his wife became bookkeeper for both the sheet metal company and the plumbing corporation at $50 per month from each. Plaintiff said 'From that time on I turned the money from the business and collecting matters over to Gretchen to take care of and to pay the bills and make out the statements and trusted her with everything.' She wrote checks on plaintiff's personal account, made deposits and 'so far as I know * * * balanced the bank statement with the checkbook and picked up the bank statement each month and the cancelled checks.'

Gretchen herself thinks this employment started about 1934 'when it was necessary to pay sales tax to the state of Iowa.' Her testimony substantially corroborates plaintiff's but goes into greater detail. It explains that prior to the dissolution of the plumbing corporation the two businesses kept separate books. 'I wrote the checks for the (plumbing) company but * * * they were signed by Henry Landis and Loren McGaffee until the corporation was dissolved in June, 1941. * * * they had their own books and since then operated on a partnership basis' with 'but one set of books.'

The various exhibits in the record added some explanatory details to the picture. April 30, 1934, plaintiff, on behalf of J. F. McGaffee Co., applied to the State Board of Assessment and Review (Sales Tax Division) for a permit to engage in the plumbing, sheet metal and furnace business, under 'sole ownership.' The Des Moines Plumbing & Heating Company, Inc., certificate of incorporation issued July 16, 1934. The articles of incorporation show plaintiff had no part in its formation though he financed it except for the 'few tools,' plumber's licenses and customers, contributed by Mr Landis. The articles show only Loren and Landis as incorporators and they only join in the notice of dissolution published June 5, 12, 19, and 26, 1941.

The situation after the plumbing corporation dissolved was not materially different except for a closer merging of the two businesses. Mr. Landis testified he did not think the corporate assets were sufficient to off-set the liabilities. He never received any profits from the corporation ('just the wages I received at different times I worked') and he did not receive any profit and loss statement on dissolution. On April 23, 1942, he in writing assigned to Loren ('operating the Des Moines Plumbing and Heating Co.') a cash deposit of $100 in the hands of the city treasurer registered 'in the name of H. W. Landis (Des Moines Plumbing and Heating Co.)'.

The name of the plumbing company was retained after dissolution of the corporation, the names of both concerns being used as before. In 1944, 1945, and 1946, 'Inspection Reports' to the Iowa State Tax Commission, Division of Retail Sales and Use Tax, were made in the name of the plumbing company by L. E. McGaffee (in 1944 and 1946) and by J. F. McGaffee (in 1945). Each of these gave J. F. McGaffee as individual owner and each said there had been no 'change in ownership since permit was issued.' There are three 'Employer's Reports of Taxable Wages' dated respectively '12-31-45,' '9-30-46,' and '3-31-47.' All are in the name of J. F. McGaffee Co. and all say no 'change of ownership, or other transfer, of the business.'

The real controversy here involves a written 'Assignment and Transfer,' dated July, 1946, and signed in duplicate with the name of both companies 'by James Frank McGaffee'; and signed by James Frank McGaffee, Nina McGaffee, and Loren E. McGaffee, individually. (Nina McGaffee is plaintiff's second wife. His first wife, Loren's mother, died in 1944.) The text of said document is as follows:

'I, James Frank McGaffee, for valuable consideration in hand paid and in compliance with a promise and understanding had and made by me, I do hereby transfer, sell, set over, assign and convey to my son, Loren E. McGaffee all of the shop, stock tools, materials, equipment and all accounts and all rights of every kind and character in and to the business commonly known and J. F. McGaffee Company and Des Moines Plumbing and Heating Company, being a business operated at 1408 Harding Road, Des Moines, Iowa; and

'This conveyance includes all of the tools, equipment, materials and stock stored in the garage at 708 East Sheridan, Des Moines, Iowa, my home;

'This assignment does not convey any real estate but does convey all of the personal property and the good will, et cetera of the said J. F. McGaffee Company and Des Moines Plumbing and Heating Company;

'The assignee, Loren E. McGaffee is the sole and only partner that I have had in said business and I am transferring all of my rights in said businesses and all of my rights as a partner of the partnership to Loren McGaffee. The assignee, Loren E. McGaffee in consideration of this transfer assumes all the obligations and debts of the partnership and James Frank McGaffee represents that there are no debts or obligations created by him personally in said partnership.

'I, Nina McGaffee, the wife of James Frank McGaffee hereby joins in and consents to the hereinbefore assignment and transfer.

'Des Moines, Iowa, July __, 1946.'

Notwithstanding this transaction defendant Loren McGaffee, under date April 28, 1947, signing as 'partner', made an 'Employer's Contribution and Summary Report' to the Iowa Employment Security Commission on behalf of 'J. F. & Loren E. McGaffee d/b/a J. F. McGaffee Co. & Des Moines Plg. & Htg. Co.' It purported to cover January, February and March, 1947, and to give payroll and wage details for those months. It answered 'no' to an inquiry as to any sale of business.

A similar report, similarly signed, dated July 22, 1947, covered April, May and June 1947. The one dated 10/24/47, for July, August and September, 1947, however, was signed by Loren as 'owner,' but it still listed both men as doing business under the company names.

A partnership Income Tax Return for 'J. F. McGaffee Co. & Des Moines Plbg. & Htg.' for 1946, was signed 'Loren E. McGaffee.' But April 5, 1948, he filed with Iowa Employment Security Commission a 'Report of Employer on acquiring a Business' signed 'Des Moines Plbg. & Htg. Co. and J. F. McGaffee Co. by Loren E. McGaffee' under the title 'owner.' And December 31, 1948, he signed and filed two trade name certificates, one for each company, listing himself only as the one 'owning or having any interest in the business.'

A large number of exhibits was produced in contemplation of an accounting in event plaintiff's prayer for cancellation of the so-called assignment and transfer was sustained. The trial court however refused cancellation and upheld the validity of the instrument in question. Plaintiff has appealed from the decree dismissing his...