Ness v. Greater Arizona Realty, Inc.

• Decision Date: 07 October 1977
• Docket Number: CA-CIV,No. 2,2
• Citation: 572 P.2d 1195,117 Ariz. 357
• Parties: Berth C. NESS, Louise P. Ness, Ness Investment Company, Ness Finance Company, Wild Rice Motor Company and Grafton Implement Company, Appellants, v. GREATER ARIZONA REALTY, INC., an Arizona Corporation, Appellee. Charles C. GRUTZMACHER and Desert Realty, Inc., Appellants, v. GREATER ARIZONA REALTY, INC., an Arizona Corporation, Appellee. 2419.
• Court: Arizona Court of Appeals

Page 1195

572 P.2d 1195

117 Ariz. 357

Berth C. NESS, Louise P. Ness, Ness Investment Company, Ness Finance Company, Wild Rice Motor Company and Grafton Implement Company, Appellants, v. GREATER ARIZONA REALTY, INC., an Arizona Corporation, Appellee.

Charles C. GRUTZMACHER and Desert Realty, Inc., Appellants, v. GREATER ARIZONA REALTY, INC., an Arizona Corporation, Appellee.

No. 2 CA-CIV 2419.

Court of Appeals of Arizona, Division 2.

Oct. 7, 1977.

Rehearing Denied Nov. 10, 1977.

Review Denied Dec. 13, 1977.

Johansson & Jordan, Ltd. by Filipe K. Johansson and Gregory R. Jordan, Phoenix, for appellants

Stompoly & Even, P.C. by William C. Scott, Tucson, for appellee.

OPINION

HOWARD, Chief Judge.

This appeal involves several related disputes among the two brokers and one of the principals in a real estate transaction.

Appellee Greater Arizona Realty brought suit on a promissory note from appellant Berth C. Ness which represented part of its brokerage commission on a real estate exchange between Ness and David Hvidsten. Ness counterclaimed for damages of $55,000 which he alleged resulted from the negligence of appellee's designated broker, Glenn Mangels, in computing the "boot" in the exchange. Later, these facts were set forth in amended pleadings as an affirmative defense and the counterclaim dismissed. In response to the Ness counterclaim, appellee filed a third party complaint against appellants Desert Realty, Inc. and its designated broker, Charles Grutzmacher, claiming that they were equally liable for any set-off which might be obtained against the promissory note. Grutzmacher, in his answer, denied the allegations and then counterclaimed against appellee and Glenn Mangels alleging that, under a joint venture agreement signed by Mangels, appellee was indebted to him for one half of a broker's commission it received for reselling certain property involved in the original exchange. The counterclaim asked for an accounting of profits or in the alternative for damages for breach of the agreement to split the commission.

After a trial to the court, judgment was entered in favor of appellee on the promissory note, thereby rendering moot its third party claim against Grutzmacher and Desert Realty. The court also entered judgment in favor of appellee and Glenn Mangels on the Grutzmacher/Desert Realty counterclaim for an accounting on damages pursuant to the joint venture. Both judgments have been appealed.

THE NESS APPEAL ¹

The following facts are relevant to the Ness appeal. David Hvidsten (who was not a party to this suit) owned certain properties in North Dakota which he wanted to exchange for property in Arizona. His agent, Glenn Mangels, contacted Charles Grutzmacher and they discussed setting up an exchange with Berth C. Ness with whom Grutzmacher had an oral listing on some property in Apache Junction. Later, Mangels and Grutzmacher agreed to pool and divide any commissions they might receive from the exchange.

In January 1969, after considerable negotiation, Ness and Hvidsten signed a contract agreeing to exchange the Ness properties for the Hvidsten properties plus "boot" in the amount of $481,900. The boot was based upon the estimated value of the properties as of January 15, 1969 (hereafter referred to as "Projected Valuations"), and was to be adjusted when the actual valuation and inventory were completed.

After Ness made a preliminary inspection of the North Dakota property, he called a meeting with Mangels, Grutzmacher, David Hvidsten and Hvidsten's father to determine why a certain 10-acre panel was not listed among the properties to be exchanged. A disagreement ensued which appeared to jeopardize the entire exchange but which was resolved when Hvidsten agreed to sell the 10-acre parcel for $55,000. Further disagreement then arose as to the best way to reflect these changes on the exchange agreement. Eventually they agreed that the 10 acres should be added to the list of properties on the exchange agreement and the boot figure reduced by $55,000. They decided it was not necessary to add the parcel to the properties listed on the "Projected Valuations".

Ness and Hvidsten then went to North Dakota to make a final inventory and appraisal. These figures were compiled on a sheet labeled "Actual Figures as of February 18, 1969" (hereafter "Actual Valuations") which included the 10-acre parcel valued at $55,000. In order to obtain the adjustment in boot, the actual valuation of $735,865.11 was subtracted from the projected valuation of $768,100 and the difference of $32,234.89 was added to the boot Ness was to receive. However, because the 10-acre parcel was included in the actual valuation but not the projected valuation, the difference should have been $87,234.89. Ness was in effect paying twice for the 10 acres once when the boot was reduced on the exchange agreement and again when the parcel was added to the actual valuation figures.

As payment of his share of the commission, Ness gave a note to Glenn Mangels for $25,000. Ness made one payment of $5,000 but refused to pay any more on the note when he discovered the error in the boot and when Hvidsten refused to correct it. In May 1971, after Hvidsten defaulted on a $150,000 note to Ness which was part of the exchange, Ness sued Hvidsten on the note and for reformation of the exchange agreement. Hvidsten also sued appellee and Glenn Mangels for negligence in computing the boot. In August 1971, Ness and Hvidsten entered into a mutual release and settlement. The remaining count against appellee and Mangels was dismissed without prejudice in August 1972 for lack of prosecution. In January 1973, appellee brought the present suit on the note which represented its broker's commission.

Appellants Ness assert that they are entitled to set off their alleged damages of $55,000 against appellee's judgment on the note. Appellee contends that any set-off is barred by the statute of limitations. A party is not entitled to a set-off or counterclaim unless he is entitled to relief in a direct action. Thus, a claim which would be barred originally by the statute of limitations, is also barred as a set-off or counterclaim unless if falls within the principles of recoupment. W. J. Kroeger Co. v. Travelers Indemnity Co., 112 Ariz. 285, 541 P.2d 385 (1975). As the court explained in Kroeger, recoupment is an equitable doctrine which can be used to reduce or eliminate a judgment, but not for affirmative relief. It is a species of defense which survives as long as the plaintiff's claim can be asserted. Wright and Miller, Federal Practice and Procedure, § 1419. Here, although a counterclaim would be time-barred, the appellants have pleaded facts as an affirmative defense which if proven could be used to eliminate appellee's judgment under a theory of recoupment.

The question thus remains whether appellants have proven negligence, i. e. a duty, breach of duty and injury resulting from the breach. Vivian Arnold Realty Co. v. McCormick, 19 Ariz.App. 289, 506 P.2d 1074 (1973). We note initially that it is not at all clear that Mangels who was the agent of Hvidsten owed any duty to Ness or that his duty extended to the preparation of the figures which caused the error. See, Vivian Arnold Realty Co. However, even assuming that a duty was owed to Ness, substantial evidence existed from which the court could have found that Mangels was not negligent or that if he were, Ness was contributorily negligent. As to contributory negligence, see, Harris v. Bingham, 246 N.C. 77, 97 S.E.2d 453 (1957).

Although the evidence is in conflict, we must view the facts in the light most favorable to sustaining the judgment. There was testimony that Ness, Hvidsten and Hvidsten's accountant were the people responsible for preparing the actual valuations which inadvertently included the 10-acre parcel. The evidence also shows that Ness was an experienced businessman, that he had participated in other real estate transactions and that he was the one who eventually discovered the error when he undertook to balance the transaction on his books. Mangels testified as to the circumstances under which the boot adjustment was made:

"A. Mr. Hvidsten brought me a copy, or gave me a copy (of the actual valuations) I believe on our way to Apache Junction. They called for a meeting. Time was of the essence. Mr. Ness had to have a payment in to the State Land Department on the 28th or he was closed out on the CP's. That was the third year of delinquency. There was no grace period, so we were working on a very tight schedule.

Mr. Grutzmacher, myself, Mr. Ness and Mr. Hvidsten were in the conference room. This sheet come up. We were ready to get on with the deal, and I said, 'You have a copy of this, Mr. Ness?' Or are you familiar? Oh, yes. He said he was there when the accountant prepared it, we have been over it. And I said, you know, gone over it to your satisfaction? He skipped over it fastly and said yeah, it's the same one. . . . And I said well, fine, you know, if you're satisfied with it, if you have been over with it, what happened. And he said, 'Well, it's correct, it's all right. We have been over it and that's it.' He said all we got to do is subtract this figure from the one over here and adjust the boot accordingly."

Thus, the trial court may well have found that any error was caused by Ness' own negligence.

Appellants contend, however, that certain statements made by Mangels during his testimony constitute admissions of liability which are conclusive on the issue of negligence. We do not agree. At the trial below, testimony was taken separately on each claim for relief. The statements to which appellants point were made when the court was hearing testimony on appellee's third party complaint against Grutzmacher and Desert Realty. Mangels testified:

". . . Charlie was involved as much in the transaction in figures and putting the transaction together as I was. And it's a joint...