Merdes v. Underwood, s. S-1698

CourtSupreme Court of Alaska (US)
Writing for the CourtBefore RABINOWITZ; RABINOWITZ; MATTHEWS; MATTHEWS
Citation742 P.2d 245
PartiesEdward A. MERDES, Appellant, Cross-Appellee, v. Richard V. UNDERWOOD, d/b/a Alaska Feed Company, Appellee, Cross-Appellant.
Docket NumberS-1717,Nos. S-1698,s. S-1698
Decision Date11 September 1987

Page 245

742 P.2d 245
Edward A. MERDES, Appellant, Cross-Appellee,
v.
Richard V. UNDERWOOD, d/b/a Alaska Feed Company, Appellee,
Cross-Appellant.
Nos. S-1698, S-1717.
Supreme Court of Alaska.
Sept. 11, 1987.

Page 246

D. Randall Ensminger, Fairbanks, for appellant, cross-appellee.

Lance C. Parrish, Fairbanks, Parrish Law Office, for appellee, cross-appellant.

Before RABINOWITZ, C.J., and BURKE, MATTHEWS, COMPTON and MOORE, JJ.

OPINION

RABINOWITZ, Chief Justice.

This is an appeal from a summary judgment granted to Richard V. Underwood against Edward A. Merdes based on an alleged agreement by Merdes to pay a debt owed by OHM, Inc. (OHM) to the Alaska Feed Company, an enterprise solely owned by Underwood. The principal issue is whether, as a matter of law, Merdes' actions and representations estop him from denying that he agreed to pay interest on the debt in question.

I. BACKGROUND.

In about 1970, Merdes and his wife Norma, with Jim and Linda Harding, formed OHM, a subchapter S corporation, to operate a farming business in the Delta Junction area. The Merdes were 80% shareholders and the Hardings were 20% shareholders until 1981, when the Merdes obtained 100% ownership.

Underwood delivered $64,950.64 worth of seed to OHM in Delta in 1978. Merdes, on behalf of OHM, paid $5,000 down with the remaining balance due August 1, 1978. The balance was not paid and Merdes was contacted concerning this bill in October 1978. A series of letters were thereafter exchanged between Merdes and Underwood's counsel. Eventually, Merdes assumed personal responsibility for the debt. On January 29, 1980, Merdes had delivered to Underwood's counsel a memo that stated in part:

Following through on your letter of January 8, regarding Alaska Feed--OHM debt * and our telephone conference last Friday, please consider this letter as my personal assurance that if the money due Alaska Feed is not paid from the proceeds of the sale of OHM's 540 acres at Remington Road in Delta and/or from my share of the the proceeds from the sale of Gate 21 hanger at Fairbanks International Airport, I will personally see that money due is paid before this year is up. Based upon this assurance I am relying on your word that no litigation will be filed.

$64,950.64 (original purchase)
                - 5,000.00 (pd. on acct. 5/19/78)
                ----------
                $59,950.64 (still owing, interest not
                 included)
                

Underwood's counsel subsequently wrote Merdes to clarify what Underwood sought in order to forestall litigation. The letter states in part:

I have your letter dated January 29th, 1980 wherein you agree to be personally responsible for the sum of $59,950.64.

Although it is Mr. Underwood's belief that you are responsible for the entire debt, he is willing to make the following concession based upon getting certain things cleaned up.

It is easy to establish that the original sale was at $64,950.64. $5,000.00 was paid on account, leaving a balance due of $59,950.64 as of the last delivery on June 7th, 1978. Mr. Underwood calculates interest at the rate of 1% compounded monthly, starting June 7th, 1978....

Page 247

... He would like a minimum of $1,000.00 per month to forestall litigation.

In addition, he would like a confession of judgment from the corporation for the sum of $72,426.84 including interest from 12/31/79 continuing at 1% per month, compounded monthly. He will agree not to execute, nor file any litigation against you personally provided he receives the sum of $1,000.00 per month.

[Emphasis added.] On March 15, 1980, Merdes responded:

The settlement terms you outlined are acceptable providing however, that interest on the judgment against the company is at the statutory legal rate. 1

Enclosed is our personal check for $1,000.00 which represents the first payment commencing April 1980; the next payment will be made in May and $1,000.00 thereafter until the $59,950.64 [for] which I am personally responsible is paid off.

Commencing in March 1980, Merdes, personally began making $1,000 per month payments to the Parrish Law Office for Underwood. He paid $10,000 in 1980, $12,000 in each of the years from 1981 to 1983, and $3,000 in 1984. Merdes made a total of $49,000 in monthly payments toward the debt (although the last two checks, totalling $1,000 were not cashed). He stopped payments in March 1984 "[d]ue to an unexpected cash flow [problem] around tax time."

In May 1984, Underwood's counsel wrote to Merdes that Underwood would like to receive his full twelve payments each year and that "[w]e must also resolve the interest issue and get the paperwork finished." In September 1984, Underwood's counsel again wrote Merdes, asking Merdes to sign a promissory note with interest on the debt at 12% per year. Merdes declined to execute the promissory note. Underwood then filed suit.

During the period in which Merdes made monthly payments to Underwood, Merdes and Underwood both used the same accounting firm, Interior Accounting Services, Inc. An Interior Accounting Services' employee, either Terry Burris or Lew Beyer, prepared Merdes' taxes for the years 1978 to 1984. Burris also prepared an amortization table regarding the Alaska Feed debt, for use in preparing Merdes' tax returns, which reflected 12% simple interest. Merdes took interest deductions in 1981 to 1984 that mirrored the interest shown on the amortization table.

In 1981, the Internal Revenue Service (IRS) audited Merdes' tax return. Underwood was requested to provide a letter indicating he received $12,000 in interest payments in 1981. Underwood provided the letter, which was subsequently furnished to the IRS as proof of interest payments in the Merdes audit.

Burris testified that, to the best of his recollection, he always handled the payments in question, both in the preparation of the amortization schedule and in the preparation of Merdes' return, consistent with Merdes paying interest to Underwood. Burris also testified that he was not aware of a specific agreement between Underwood and Merdes to pay interest. Likewise, Beyer had no specific recollection of whether Merdes or Underwood ever told him that Merdes agreed to pay interest on the debt. He testified that it may have been his idea to designate payments in the amortization table as interest, and that he recommended the debt be carried as interest on Merdes' tax return to save money and simplify the filing of tax returns, since reporting it as a personal debt of Merdes would eliminate the need for an OHM tax return.

Page 248

II. PROCEEDINGS.

Both parties moved for partial summary judgment. Merdes contended that any oral agreement on his part to pay interest on the OHM debt was within the statute of frauds and therefore null and void, that no consideration existed to support his agreement to pay the debt, and that he never agreed to pay any interest on the OHM debt. Underwood disagreed on each of these points. The superior court granted summary judgment in favor of Underwood, concluding that there was no genuine issue of fact as to the following: (1) Alaska Feed delivered seed worth $64,950.64 to OHM; (2) $5,000 was paid and the original balance due was $59,950.64; (3) Merdes agreed to pay Underwood $59,950.64; and that (4) Merdes' agreement was supported by consideration. The superior court further concluded that "Merdes is estopped to deny that he agreed to pay $59,950.64 with simple interest at 12 per cent [sic] beginning with his first payment" and that the first payment was tendered March 15, 1980. Judgment was entered in favor of Underwood. This appeal and cross-appeal followed.

III. DID THE SUPERIOR COURT ERR IN GRANTING SUMMARY JUDGMENT AGAINST MERDES?

Merdes contends that the superior court erred in entering summary judgment against him and that neither equitable estoppel nor quasi-estoppel provides a basis for its decision. "When reviewing a grant of summary judgment, this court 'must determine whether there was a genuine issue of material fact and whether the moving party was entitled to judgment on the law applicable to the established facts.' " Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1280 (Alaska 1985) (quoting Brock v. Alaska Int'l Indus., 645 P.2d 188, 190 n. 6 (Alaska 1982)). All reasonable inferences of fact from proffered materials must be drawn against the moving party, and in favor of the non-moving party. 699 P.2d at 1280. The party seeking summary judgment has the burden of proving that his opponent's case has no merit. Riley v. Northern Commercial Co., 648 P.2d 961, 966 (Alaska 1982). Where there is a factual dispute, the non-moving party's version of the facts is assumed correct. Mat-Su/Blackard/Stephan & Sons v. State, 647 P.2d 1101, 1102 n. 1 (Alaska 1982) (citing B-E-C-K Constructors v. State, 604 P.2d 578, 581 n. 4 (Alaska 1979)). 2

Merdes contends that statements contained in tax returns are not binding admissions, and that their accountants' tax strategy was known to Underwood and reflected at most a pragmatic way of reporting taxes. He further argues that the evidence offered showed no agreement on his part to pay interest, and that estoppel is not applicable because Underwood was not misled by the tax strategy. Underwood replies that the uncontroverted facts support the superior court's summary judgment ruling under a quasi-estoppel theory. He contends that it is unconscionable for Merdes now to assert that he did not agree to repay the Alaska Feed debt at simple 12% interest, because of Merdes' January 29, 1980 letter, his (Underwood's) forbearance from litigation and consequent deterioration of evidence, the preparation of the amortization table, Merdes' treatment of his payments for tax reporting purposes, Merdes' position that he made interest payments in the context of the tax audit, and Underwood's forbearance on his claim for compound interest.

The elements of equitable estoppel are the assertion of a position by conduct or words, reasonable reliance thereon by another party, and resulting...

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