Murray v. Conrad

• Decision Date: 14 March 1984
• Docket Number: No. 83-123,83-123
• Citation: 346 N.W.2d 814
• Parties: 38 UCC Rep.Serv. 1633 William E. MURRAY and S.C.S. Enterprises, Inc., Appellants, v. Jerry CONRAD, a/k/a Gerald Conrad, d/b/a Conrad Distributing, Defendants. S.C.S. ENTERPRISES, INC., Appellant, v. PEOPLES BANK AND TRUST COMPANY, Appellee. PEOPLES BANK AND TRUST COMPANY, WATERLOO, Iowa, Appellee, v. The NATIONAL BANK OF WATERLOO, Intervenor-Appellee, v. Gerald L. CONRAD and Barbara K. Conrad, Conrad Distributing, Inc., S.C.S. Enterprises, Inc., d/b/a Sterling Distributing Co., and William E. Murray, Defendants. G. HEILEMAN BREWING COMPANY, INC., A Corporation, Appellee, v. S.C.S. ENTERPRISES, INC., A Corporation, d/b/a Sterling Dist. Co., and Peoples Bank and Trust Company, Waterloo, Iowa, A Corporation, Defendants.
• Court: Iowa Supreme Court

Page 814

346 N.W.2d 814

38 UCC Rep.Serv. 1633

William E. MURRAY and S.C.S. Enterprises, Inc., Appellants, v. Jerry CONRAD, a/k/a Gerald Conrad, d/b/a Conrad Distributing, Defendants.

S.C.S. ENTERPRISES, INC., Appellant, v. PEOPLES BANK AND TRUST COMPANY, Appellee.

PEOPLES BANK AND TRUST COMPANY, WATERLOO, Iowa, Appellee, v. The NATIONAL BANK OF WATERLOO, Intervenor-Appellee, v. Gerald L. CONRAD and Barbara K. Conrad, Conrad Distributing, Inc., S.C.S. Enterprises, Inc., d/b/a Sterling Distributing Co., and William E. Murray, Defendants.

G. HEILEMAN BREWING COMPANY, INC., A Corporation, Appellee, v. S.C.S. ENTERPRISES, INC., A Corporation, d/b/a Sterling Dist. Co., and Peoples Bank and Trust Company, Waterloo, Iowa, A Corporation, Defendants.

No. 83-123.

Supreme Court of Iowa.

March 14, 1984.

Rehearing Denied April 6, 1984.

C.A. Frerichs, Waterloo, for appellants.

Charles F. Hinton, Waterloo, for appellee Peoples Bank and Trust Co.

Considered by REYNOLDSON, C.J., and UHLENHOPP, McCORMICK, McGIVERIN and SCHULTZ, JJ.

McCORMICK, Justice.

This appeal stems from a judgment entered in one of several lawsuits that resulted from the collapse of the financial empire of Gerald L. Conrad. Plaintiff Peoples Bank and Trust Company was awarded judgment on a theory of conversion against defendants William E. Murray and S.C.S. Enterprises, Inc., d/b/a Sterling Distributing Co., in a dispute over the right to a beer inventory. The questions are whether the inventory was covered by the bank's security agreement with Conrad and, if so whether the amount of the judgment is correct. Because we give an affirmative answer to these questions, we affirm the judgment.

The conversion action was tried at law to the court. The court's findings of fact thus have the force of a jury verdict, and we view the evidence in its light most favorable to those findings. If they are supported by substantial evidence, we are bound by them. The findings are broadly and liberally interpreted and in the case of ambiguity are construed to uphold rather than defeat the judgment. See Farmers Insurance Group v. Merryweather, 214 N.W.2d 184, 186 (Iowa 1974). We will evaluate the trial court's findings with these principles in mind.

Conrad was an entrepreneur with various business ventures in central Iowa. Among his enterprises were beer distributorships in Ames and Marshalltown operated through a solely owned corporation called Conrad Distributing, Inc., (C.D.I.). The corporation used the name Conrad Distributing. In 1976 Conrad contacted William E. Murray, president and managing officer of a beer distributorship in Waterloo called S.C.S. Enterprises, Inc. (S.C.S.), operating as Sterling Distributing Company. S.C.S. had the local Miller Brewing Company (Miller) franchise, and Conrad wanted to acquire it. Murray was interested in selling his business to Conrad, so Conrad began negotiating with People's Bank and Trust Company (Peoples) for financing and with Miller to obtain transfer of the franchise. S.C.S. and C.D.I. were the only entities of the parties licensed in Iowa to buy and sell beer.

On March 22, 1977, Miller indicated it would approve the transfer, and Peoples agreed to finance Conrad's purchase. Conrad purchased the S.C.S. beer inventory on that date with a check for $36,851.31 drawn on C.D.I.'s account with Peoples. On March 23, 1977, Murray furnished a letter to Peoples, as a condition of the bank's financing of the purchase of S.C.S. assets by Conrad, stating:

In consideration of your extending financing to Gerry Conrad for the purchase of the Miller Brewing franchise, all Beer distributing rights, all assets, and accounts receivable in the Waterloo and surrounding area, I hereby consent that any security interest perfected by you in the granting of such financing shall be of a higher priority and take precedence over any security interest perfected by me in the same collateral.

I hereby represent that I am the controlling stockholder and sole managing officer of S.C.S., Inc. The consent as to priorities above given extends to the interests of this corporation as well.

On the next day, Peoples deposited $100,000 in the C.D.I. account, part of which covered the check for the beer inventory. A security agreement was executed clearly describing the collateral including the inventory. The agreement and accompanying promissory note to Peoples carried the signatures of Gerald L. Conrad, Barbara K. Conrad and "Gerald L. Conrad d/b/a Conrad Distributing" by Gerald L. Conrad.

Conrad then commenced operating his beer distributorship in the Waterloo area out of a Waterloo warehouse owned by Murray individually. Pending transfer of the Miller franchise, S.C.S. purchased the beer for Conrad from Miller. S.C.S. also purchased at least some beer for Conrad from other breweries. Checks to reimburse S.C.S. for the beer were written on the C.D.I. account. Conrad and his employees controlled and distributed the beer. Checks were written on the C.D.I. account for other purposes, including transfers of funds to other Conrad enterprises. Some of the checks were characterized as "loans" to those enterprises and some were not. Deposits were made in the C.D.I. account from some other Conrad accounts, individual and corporate. Conrad had at least ten accounts in various banks in several Iowa cities in his own name or in the name of one of his corporations. Funds were deposited in and transferred from these accounts as if the accounts all belonged to Conrad individually.

On May 17, 1977, Conrad and Murray entered an agreement for Conrad's purchase of Murray's S.C.S. stock. At that time Murray was the sole stockholder of S.C.S. Although Conrad did not make the necessary downpayment, Murray permitted him on that date to take over the S.C.S. bank account and ordering of beer. From May 17 until June 8, 1977, Conrad had exclusive control of the beer operation. On June 6 Miller informed Murray it would not issue a franchise to Conrad. Murray then initiated a lawsuit and obtained an injunction on June 8 against Conrad's exercise of control of S.C.S. assets, allegedly including the beer inventory in the Waterloo warehouse.

Peoples also claimed the beer inventory pursuant to its security agreement. None of the $100,000 loan by Peoples had been paid. Murray and Peoples agreed that S.C.S. should sell the beer and that the proceeds should be held in escrow. This arrangement lasted until June 22 when Murray and S.C.S. terminated the agreement, sold the remainder of the beer, and retained the proceeds.

The beer inventory on June 8, 1977, was worth $70,427.44. After trial, the trial court found that Conrad owned or had rights in the inventory individually and that it was thus subject to Peoples' security agreement. The court also said Murray and S.C.S. were not in any position "to go behind" the security agreement in view of their involvement in the relevant events. The court ultimately awarded Peoples judgment against S.C.S. and Murray for $55,326.16 with interest from June 22, 1977, subject to credit for $26,527.47 held in escrow. The judgment was for the inventory value on June 8 less $15,101.28 owed by S.C.S. as of the time of trial to The National Bank of Waterloo on a security agreement acknowledged by Peoples to be senior to its own. National Bank was an intervenor in Peoples' conversion action.

I. S.C.S. ownership of the beer inventory. Murray and S.C.S. contend that S.C.S. owned all or at least part of the beer inventory in the Waterloo warehouse on June 8, 1977. This contention is based on the fact that S.C.S. held the franchises under which the beer was purchased, the beer was initially purchased from the breweries by S.C.S., and the breweries had not been paid for a substantial part of the beer in the warehouse on that date. We find that the evidence did not compel the trial court to find S.C.S. owned any of the beer. The most cogent evidence against S.C.S. ownership is in an affidavit executed by Murray with his attorney's assistance in July 1977.

Murray first described his oral agreement to sell S.C.S. to Conrad by selling him its stock. He said: "Sometime during 1977, Conrad and I agreed on the terms of such sale. Such terms of sale are reflected in a stock sale agreement attached hereto. Additional terms called for the purchase of the inventory at its laid in inventory price." Murray also said:

On March 22, 1977, without a written agreement, Conrad under the trade name of Conrad Distributing Company began to sell beer out of my warehouse at 549 Center St., Waterloo, Iowa. This was occasioned by his oral commitment to enter a sales agreement of the stock. At this time Conrad Distributing Company purchased the then existing inventory of S.C.S. Enterprises, Inc. This was [consummated] by a check from Jerry Conrad to S.C.S. Enterprises, Inc. From and after that date of March 22, 1977, Conrad Distributing Company began the wholesale distribution of beer from the Center Street Warehouse.

... It did so by selling the beer inventory that it originally purchased from S.C.S. Enterprises and replacing and adding to that inventory by beer purchased from the various breweries that S.C.S. Enterprises had a franchise with. Said additional purchases were made by Conrad ordering in the name of S.C.S. Enterprises on certain orders of beer and paying for them with a Conrad Distributing Co. check. This method was followed in all cases except with the Miller Brewing Company. With the Miller Brewing Company, Conrad would order the amount of beer, place money in S.C.S. Enterprises checking account and out of this checking account, a check would be paid for the beer.

At trial Murray testified he had not been careful in this affidavit to distinguish Conrad individually from C.D.I., but he did not impeach his description in the affidavit of the nature of the operation between March 22 and June 8, 1977.

Under Iowa Code section 554.2401(2) (1975), title to the beer...