Phillips v. JCM Development Corp.

• Decision Date: 09 June 1983
• Docket Number: No. 18211,18211
• Parties: Rodney L. PHILLIPS, Plaintiff and Respondent, v. JCM DEVELOPMENT CORPORATION, a Utah corporation; James C. McGarry, Jr.; Linda McGarry; James R. Glavas, dba J.G. Realty; James Gleason; Robert G. Anderson; United Farm Agency, Inc., a Utah corporation; Clan Stilson and Does I through XV, Defendants and Appellants.
• Court: Utah Supreme Court

Page 876

666 P.2d 876

Rodney L. PHILLIPS, Plaintiff and Respondent, v. JCM DEVELOPMENT CORPORATION, a Utah corporation; James C McGarry, Jr.; Linda McGarry; James R. Glavas, dba J.G Realty; James Gleason; Robert G. Anderson; United Farm Agency, Inc., a Utah corporation; Clan Stilson and Does I through XV, Defendants and Appellants.

No. 18211.

Supreme Court of Utah.

June 9, 1983.

Jackson Howard, Richard B. Johnson, Provo, Brad Holm, Salt Lake City, Harry E Snow, Moab, Harold R. Stephens, Salt Lake City, for defendants and appellants.

Paul W. Mortensen, Moab, for plaintiff and respondent.

HALL, Chief Justice:

Plaintiff Rodney L. Phillips initiated this action against defendants to recover damages arising out of a real estate transaction. The district court entered judgment in the amount of $185,178.30 against all named defendants, jointly and severally, except Linda McGarry. Only defendant United Farm Agency, Inc. (hereinafter UFA) appeals, seeking reversal or, in the alternative, that the case be remanded for further hearing. The appeal rests upon four points of contention: (1) there was insufficient evidence introduced at trial on which to base a verdict against defendant UFA; (2) an individual cannot maintain an action in his or her name for wrongs done by third parties to a corporation with which the individual is associated; (3) the portion of the judgment which refers to the defendant's obligation to assume corporate liabilities of Phillips Construction Company is void as a matter of law in violation of the statute of frauds; and (4) there is insufficient evidence in the record to sustain a judgment against defendant Robert Anderson (hereinafter Anderson) for breach of duties owed to the plaintiff. We affirm.

Plaintiff owned several parcels of real property in Moab, Utah, including a motel, an office building, a house and a construction business. In June, 1977, plaintiff listed the motel and office building with UFA, a corporation engaged as a real estate broker, ¹ through UFA's local agent, Anderson. Anderson sold these two properties in May, 1978, at the listed price of $200,000, and UFA received a $20,000 commission, $10,000 of which went to Anderson.

In the meantime, back in January, 1978, plaintiff had also listed his house and construction company with UFA through Anderson, for a combined sale price of $275,000. A buyer for the house was procured through UFA's national listing catalogue and the closing occurred in June, 1978. The house sold for $75,000, and again UFA received a commission, which it split evenly with its agent, Anderson.

Plaintiff's construction business was relisted with UFA in June, 1978, at a sale price of $185,000. At the time it was relisted, plaintiff advised Anderson that he was having cash flow problems and that a prospective buyer should have $50,000 cash available to meet the monthly cash turnover.

On July 17, 1978, defendant JCM Development Corporation was presented by Anderson as a prospective purchaser of plaintiff's construction company. Defendant James C. McGarry, president of JCM, and his realtor, defendant James Gleason, an agent for defendant J.G. Realty, were introduced to plaintiff as representatives of the purchasing corporation. Anderson, McGarry and Gleason spent the afternoon of July 17 looking at some of the company's projects and equipment, meeting employees and reviewing the company's business records. Also on that date, plaintiff inquired as to whether JCM had the $50,000 liquidity necessary to maintain the company's operations and was assured by Anderson that "money was no problem with these people," and further, that they were worth millions of dollars.

The next day, July 18, the parties met again at plaintiff's office, where they reviewed additional business documents, examined equipment and negotiated a possible sale. In these sale negotiations, which continued on and off throughout most of the day, Anderson, in his capacity as plaintiff's realtor, represented plaintiff's interests and negotiated on his behalf. In the early evening, Anderson informed plaintiff that McGarry and Gleason were satisfied with the information they had seen and were ready to make a deal. To this end, a meeting was held at Anderson's office with Anderson, McGarry, Gleason and plaintiff present.

An agreement was reached whereby plaintiff would receive $200,000 for the sale of the construction company and an adjoining 1.7-acre lot. An earnest money agreement was signed by McGarry and plaintiff which provided for the payment of the purchase price as follows: $40,000 cash down; a five-year 10 percent note for $38,750; the balance to be paid by JCM's assuming existing loans on the company, building and equipment in the amount of $121,250. The terms of this agreement did not include plaintiff's (the construction company's) accounts receivable or payable.

Although the terms of the earnest money agreement as set forth above are not in dispute, the involvement of UFA and its agent, Anderson, in the preparation of the agreement is in dispute. Anderson claims that he did not participate in the drafting of the earnest money agreement. He testified that at the meeting in his office on the evening of July 18, Gleason suggested that the sale be transacted by means of a simple stock transfer and a bill of sale, and that he (Anderson) objected to that method of sale, advising all present, including plaintiff, that such method would not be in compliance with the Bulk Sales Act. He further testified that after he had protested the proposed method of transacting the sale, Gleason told him to "step aside" and let him (Gleason) handle the deal. He asserted that he did step aside at that point and that plaintiff's subsequent acceptance of Gleason's stock transfer terms and his signing of an earnest money agreement on J.G. Realty forms evidenced plaintiff's understanding that Anderson was no longer representing him in the transaction.

Plaintiff's evidence regarding Anderson's involvement in the earnest money agreement differs significantly. Plaintiff's evidence showed that Anderson's objection and advice with respect to the method of transacting the sale were given to Gleason in private, rather than openly in the hearing of plaintiff, and that Anderson's stepping aside to allow Gleason to conduct the earnest money portion of the sale was not meant as a token of his withdrawal from the transaction or from representing plaintiff, but rather was done to protect his and his employer's (UFA's) own private interests. ²

Plaintiff's evidence also showed that the decision to use a J.G. Realty earnest money agreement form was made by Anderson and Gleason privately and that no explanation therefor was offered to plaintiff. Plaintiff testified that when he did ask for an explanation Anderson answered that there was to be a commission split between the brokers (presumably J.G. Realty and UFA), and that he would receive $5,000 of the $20,000 commission.

During the negotiations for the sale, McGarry and Gleason had asked Anderson for a financial statement on plaintiff. Plaintiff in turn asked Anderson to check into the buyer's (JCM's) financial standing and obtain a financial statement from McGarry. Plaintiff's statement was prepared and presented to McGarry and Gleason as requested. However, Anderson failed to procure the statement on JCM that plaintiff had requested. Plaintiff testified that when he asked Anderson if he had obtained JCM's financial statement, Anderson reported that he had not, but JCM was worth $3 1/2 million net.

Anderson testified that he did not remember telling plaintiff that the purchasing corporation was worth $3 1/2 million net. He did, however, admit that the buyers had said they were worth millions. Anderson also admitted that he never made any inquiry into the buyer's financial standing. A local banker also testified that Anderson had told him that the buyers were sound.

On August 14, 1978, at Anderson's request, plaintiff met at the UFA office with Anderson, McGarry, Gleason and others, to finish preparing the paperwork necessary for closing the sale. The parties figured adjustments and prepared a rough draft of a closing statement. The closing statement included the $200,000 sale price, the $20,000 commission and the down payment of $40,000, among the other items. Adjustments were made to reflect changes which had occurred in the company's inventory since it was listed. Plaintiff's receivables and payables were at this point included in the sale and offset against each other. After the receivables, payables and other adjustments had been taken into account, plaintiff was entitled to his $40,000 cash down and to an additional $44,000 note (rather than the $38,750 listed in the earnest money agreement), making an agreed equity in the company of $84,000.

After these adjustments were made, Anderson prepared two promissory notes, one for $44,000, and one for $35,000. Anderson also prepared several warranty deeds for the transaction, as well as a bill of sale for plaintiff's equipment. He had previously ordered preliminary title reports on plaintiff's land, which had been kept in the UFA file.

When documents were finally exchanged (August 14, 1978), plaintiff received the note for $44,000, payable over five years, as agreed. Rather than receiving the $40,000 cash down, however, plaintiff was given another note for $35,000 and told that he would receive the balance of $5,000 from the earnest money. When plaintiff expressed concern over this, Anderson assured him that the notes were "as good as gold" and that he would have no problem getting paid. Relying on Anderson, plaintiff accepted the unsecured notes totalling $79,000, and the transfer was made.

The next day, plaintiff asked about a closing statement. Having dealt with UFA previously, plaintiff knew that standard operating procedure called for a formal closing by UFA's attorney. There never was such...