Meridian Bowling Lanes, Inc. v. Brown

• Citation: 90 Idaho 403,412 P.2d 586
• Decision Date: 28 March 1966
• Docket Number: No. 9604,9604
• Parties: MERIDIAN BOWLING LANES, INC., a corporation, Plaintiff-Appellant, v. T. C. BROWN and Evelyn Luis, Administratrix of the Estate of James Luis, Deceased, Defendants-Respondents.
• Court: United States State Supreme Court of Idaho

Page 586

412 P.2d 586

90 Idaho 403

MERIDIAN BOWLING LANES, INC., a corporation, Plaintiff-Appellant, v. T. C. BROWN and Evelyn Luis, Administratrix of the Estate of James Luis, Deceased, Defendants-Respondents.

No. 9604.

Supreme Court of Idaho.

March 28, 1966.

Clemons, Skiles & Green, Boise, for appellant.

Hawley, Troxell, Ennis & Hawley, Boise, for respondents.

SPEAR, Justice.

This action was instituted by appellant for a determination that a land sale contract (a contract of sale and purchase of improved real estate) was in fact a security transaction, and for the recovery of alleged usurious interest plus the statutory penalty. The matter was tried before the lower tribunal, sitting without a jury, and judgment was entered for the respondents, and the complaint dismissed with prejudice. Such judgment is here appealed.

The only question on appeal is whether the transaction entered into by the parties constituted a loan or a purchase and sale of property.

Early in 1959 Eugene J. Quintieri became interested in constructing a bowling alley in Meridian, Idaho. At that time, and for approximately fourteen years, Quintieri had been a manager of the Beall Pipe and Tank Corporation, a substantial business in Boise, Idaho. Quintieri investigated the feasibility of such a venture, and made preliminary inquiries concerning acquisition of land and bowling equipment, and the construction of a building suitable for a bowling alley. In March, 1959, appellant corporation was formed for the purpose of erecting and operating the proposed bowling establishment, with Quintieri as president and principal shareholder. In furtherance of the corporate purposes, appellant attempted to acquire from the Meridian Athletic Association a parcel of land upon which to erect the bowling alley, and proposed to pay for the land by transferring 30 shares of its capital stock (par value $100 per share, for the total value of $3000) to the Meridian Athletic Association in payment for the land. The Association accepted this offer, subject to the condition that is appellant did not construct a bowling alley on such property the Association reserved the right to return the stock to appellant and retain the property. In compliance with this arrangement 30 shares of capital stock in appellant corporation were transferred to the Meridian Athletic Association. The Association had a warranty deed prepared conveying the land to appellant, but the deed was never executed (being merely attested to by the Secretary but not signed by any authorized officer) and was never delivered to appellant. In furtherance of the bowling alley venture, appellant, through Quintieri, secured from Wise-Varner Builders, Inc., building plans and a proposal for the construction of the bowling alley, as well as other proposals for the wiring of the building, air-conditioning and the construction of a public address system. Quintieri had previously contracted for the purchase of bowling fixtures and equipment. Quintieri, representing appellant, encountered difficulty, however, in attempting to obtain financing for the construction of the building. He tried to borrow the necessary funds from banks but found these institutions were unwilling to lend money for the construction of a bowling alley. He then contacted real estate brokers, including Glen E. Green, who brought Quintieri into contact with respondents.

Respondent Brown was a Boise business man, engaged in the business of manufacturing pumice block and the wholesale of building supplies. He also did some independent construction work. Luis, the other respondent, was a retired restaurateur and delicatessen owner, and since his retirement had built and sold, on contract, several buildings. Neither of respondents were in the business of lending money nor, prior to this transaction, had they ever made loans secured by real estate.

There is a definite conflict in the evidence at this point. Quintieri testified that he proposed borrowing $45,000 from respondents for appellant corporation. Respondents deny this, and testified the only matter discussed was the building of a bowling alley on property to be acquired by them near Meridian, Idaho, and a sale of the improved property to appellant. After several meetings an attorney was contacted by respondent Brown, and a conference was arranged with the attorney, Quintieri, Brown and Luis. The attorney was advised by all the parties that a purchase and sale agreement was desired and no mention was ever made of a loan between the parties. As a result of the prior negotiations between Quintieri and respondents, and the conference with the attorney, the document in issue here was regularly executed on April 27, 1959 (Plfs. Exh. No. 7). It is entitled 'Land Sale Agreement' and on its face amounts to a straightforward purchase and sale agreement. Under its terms respondents agreed to construct a bowling alley on certain described land (being the same land the Meridian Athletic Association had previously agreed to transfer to appellant) and to sell the land and building to appellant. Appellant, as purchaser, agreed to pay $3000 at the time of the execution of the agreement; $15,628 into escrow at the time of the execution of the agreement, to be delivered to respondents, as vendors, when the building was two-thirds completed; and a balance of $64,650 with accruing interest at 8% per annum in 144 monthly installments of $700.16 each. Title was to be retained by respondents until all payments had been made, but possession of the land and building was to be given appellant on substantial completion of the building. Pursuant to this transaction, a new deed was regularly executed and delivered by the Meridian Athletic Association transferring the land to respondents. Consideration for this transfer was the sum of $3000. Appellant made a down payment of $3000 at the time of the execution of the agreement with respondents; concurrently respondents paid the Meridian Athletic Association $3000 for the deed to the land and the Association in turn paid $3000 to appellant for the 30 shares of capital stock in appellant corporation, which shares have been retained by the Association and used for collateral for loans.

Concurrent with the execution of the land sale agreement respondents entered into a building contract with Wise-Varner Builders, Inc., whereby the latter agreed to construct the same building it had proposed to construct for appellant at approximately the same price-$60,628. Respondents borrowed from a third party $45,000 to pay on the construction of the building. This was evidenced by a note secured by a mortgage on the property, and was to be repaid in 144 monthly installments.

During the construction of the building respondents took no active part in supervising or inspecting the work, but Quintieri maintained an active interest in the construction. It became necessary to acquire an additional strip of land to insure adequate access to the building, because the building was not properly located on the real property. This was the fault of appellant and Wise-Varner Builders, Inc. Quintieri handled the negotiations with the Meridian Athletic Association and secured from the association a deed to respondents for the additional strip of land.

Construction of the building was completed and possession delivered to appellant in July, 1959. From then until the time of trial appellant operated a bowling alley on the premises, and continued to make all monthly payments provided for under the agreement. However, early in 1962 appellant notified respondents it was suffering financial difficulty in connection with the operation of the bowling alley and requested a modification in the contract payments. No modification being agreed to by respondents, this action was instituted by appellant on August 7, 1962.

Having heard all of the testimony, including the foregoing facts, having weighed the conflicting evidence, having personally observed the witnesses and determined the credibility to be given their testimony, and from the inferences and implications derived from such evidence the trial court further found and concluded that at the time appellant delivered thirty shares of its stock to the Meridian Athletic Association it acquired an equitable interest in the land involved; that the agreement between appellant and the association was conditional and not conclusive and binding since it was contingent upon the construction of a bowling alley upon the property; and that appellant was under no legal obligation to construct such a building and, likewise, the association was under no obligation to deed the real property to appellant, absent the construction of such an improvement upon the property.

The lower court further found and concluded that if appellant were unable to finance the construction of a bowling alley, it was not faced with the possibility of suffering any appreciable loss other than the anticipated profits from a speculative venture; that appellant was not a necessitous debtor, nor did appellant shift its position and become an executory purchaser subject to an absolute promise to pay an increased amount over what it had previously owed as a condition to return of the title to appellant; that in the transaction appellant was to receive back considerations over and above those with which it parted inasmuch as the bare land in which it had an equitable interest prior to the transaction with respondents was repurchased from respondents with a building constructed thereon at a cost of $60,628; that appellant therefore was acquiring new property in which it had no prior interest; and that the equitable or conditional prior interest of appellant in the bare land was incidental only to its main speculative purpose of constructing and owning a bowling alley. The lower court further found no pre-existing debt owed by appellant to the respondents prior to this transaction,...