Ringwood v. Foreign Auto Works, Inc.
| Decision Date | 02 January 1990 |
| Docket Number | Nos. 870540-C,870541-CA and 870544-CA,s. 870540-C |
| Citation | 786 P.2d 1350 |
| Parties | Richard W. RINGWOOD, Plaintiff and Appellant, v. FOREIGN AUTO WORKS, INC. and Howard R. Francis, Massimo C. Poggio, Rebecca Jane Poggio, Anthony Hernandez and Hugh Gardner, Defendants and Respondents, Massimo "Max" POGGIO and Foreign Auto Works, Inc., Plaintiffs, v. Hugh GARDNER and Anthony R. Hernandez, Defendants. Richard W. RINGWOOD, Plaintiff and Respondent, v. FOREIGN AUTO WORKS, INC. et al., Defendants and Appellants. Massimo "Max" POGGIO and Foreign Auto Works, Inc., Plaintiffs and Appellants, v. Hugh GARDNER and Anthony R. Hernandez, Defendants and Respondents. Richard W. RINGWOOD, Plaintiff and Respondent, v. FOREIGN AUTO WORKS, INC. et al., Defendants and Respondents. Massimo "Max" POGGIO and Foreign Auto Works, Inc., Plaintiffs and Respondents, v. Hugh GARDNER and Anthony R. Hernandez, Defendants and Appellants. |
| Court | Utah Court of Appeals |
Dallas H. Young, Jr., Jerry Reynolds, Provo, for appellant and respondent Ringwood.
Val R. Antczak, Julia C. Attwood, Salt Lake City, for appellants and respondents Gardner & Hernandez.
Robert C. Fillerup, Orem, for appellant and respondent Francis.
Lynn C. Harris, Jeril B. Wilson, Provo, for appellants and respondents Poggio and Foreign Auto Works.
Before BILLINGS, GREENWOOD and ORME, JJ.
This appeal arises from the sale of Foreign Auto Works, Inc. (FAW) an auto sales and service business. Richard W. Ringwood (Ringwood), Howard R. Francis (Francis), and Rebecca Jane and Massimo "Max" Poggio (Poggio) were the owners of all the issued FAW stock. Ringwood agreed to sell his stock to Poggio and Francis. Poggio subsequently bought Francis's stock and sold FAW to Hugh Gardner (Gardner) and Anthony R. Hernandez (Hernandez). Ringwood brought an action against Francis and Poggio for breach of contract and against Hernandez and Gardner, claiming to be a third party beneficiary of their contract with Poggio. Poggio filed a separate action for breach of contract against Gardner and Hernandez. The two actions are consolidated and tried together. The court found Francis and Poggio liable for breach of their agreement with Ringwood but dismissed Ringwood's claim against Hernandez and Gardner. The court also rendered judgment for Poggio against Gardner and Hernandez. Hernandez and Gardner's counterclaim against Poggio and FAW was dismissed with prejudice. All parties appealed.
Ringwood, Francis, and Poggio were owners of all the FAW issued stock, 50,000 shares. FAW was engaged in operating Mazda and Fiat franchises and selling parts for and repairing Mazdas and Fiats.
In October 1978, the owners negotiated a sale of Ringwood's 15,000 shares to Francis and Poggio. This agreement was formalized in a promissory note obligating FAW, Poggio, and Francis to pay Ringwood $100,000 at a rate of at least $20,000 per year with interest to accrue at 10.5% annually. On November 8, 1978, FAW, Ringwood, Francis, and Poggio executed a new agreement that included most of the same terms as in the promissory note, but also contained a merger provision. This agreement prohibited Francis and Poggio from selling the stock or assets of FAW without Ringwood's prior written approval. By October 1979, Francis and Poggio were delinquent in their payments to Ringwood. Poggio then purchased all of Francis's shares and became the sole owner.
On November 27, 1979, Poggio contracted to sell the FAW stock to Gardner and Hernandez. The same parties executed a new agreement on December 29, 1979, which excluded the sale of FAW's real property. Both agreements included provisions for full payment to Ringwood and specified 10.5% per annum interest on amounts to be paid to Poggio.
On February 8, 1980, a new agreement was again executed changing the transaction from a sale of FAW stock to a sale of FAW's assets. No interest rate on the purchase price was specified. Dinero Services, Inc. (Dinero), a corporation formed and owned by Hernandez and Gardner, was designated as the sole buyer. This agreement did not contain any provision for the buyer to assume Poggio's obligation to Ringwood.
In April 1980, Poggio and Dinero Services, Inc. executed their final agreement. This agreement was executed because a condition precedent in the February contract had not occurred and a dispute had arisen over the assets' value. It contained an indemnity agreement that required Poggio to indemnify the "seller" [sic] for any amounts Dinero might be required to pay Ringwood, including attorney fees. Again, no interest rate was set forth.
Ringwood had filed a prior lawsuit on January 29, 1980, claiming Poggio and Francis had breached the October 1978 promissory note. Because Ringwood did not base his claim on the November 8 agreement, which the court found controlling, the court dismissed Ringwood's claim with prejudice. This decision was affirmed in Ringwood v. Foreign Auto Works, Inc., 671 P.2d 182 (Utah 1983).
Ringwood filed the complaint leading to this appeal on February 4, 1985, basing his claim against Poggio and Francis on the November 8 agreement. Ringwood included Gardner and Hernandez as defendants, claiming he was a third party beneficiary of their agreement with Poggio and that he was damaged by their breach of that agreement. Ringwood claimed Poggio and Francis failed to make payments required by the November agreement; that they breached the agreement by selling FAW's assets; and that they acted with malicious intent to deprive Ringwood of his interests.
Poggio then filed a complaint against Gardner and Hernandez for breach of their November 27, 1979 agreement. After the court found the April 1980 agreement was controlling, Poggio amended his complaint, basing his claims on the April agreement.
The court found that res judicata did not bar Ringwood and that Poggio and Francis were liable to Ringwood for breach, but that there was no malicious intent. The court also awarded Poggio judgment against Hernandez and Gardner personally, rather than against Dinero, with interest to accrue at the legal rate, finding that the controlling contract did not specify an interest rate. The court allocated expense and income damages from April 14, 1980, the date of the closing, instead of February, when Hernandez and Gardner took possession of FAW.
With respect to Ringwood's claims against Gardner and Hernandez, the court found Ringwood was not a third party beneficiary but only an incidental beneficiary under the controlling agreement, and dismissed the claim with prejudice. The trial court also found there was insufficient evidence to find that Poggio or FAW was insolvent when the contract with Hernandez and Gardner was entered into.
Ringwood appeals the court's finding that he is not a third party beneficiary. He argues further that the April 14 agreement could not release Gardner and Hernandez from their obligation to him.
Poggio appeals the court's ruling that Ringwood's claim was not barred by res judicata and that interest would accrue on his judgment against Gardner and Hernandez at the legal rate. Also, with respect to the court's finding on allocation of income and expense damages, Poggio argues he should be liable for those damages only to February 8, 1980, when Gardner and Hernadez took control of FAW, not April 14, 1980, the closing date specified in the last agreement.
Gardner and Hernandez claim the court erred in finding that Poggio's amended complaint relates back to his original complaint, thus allowing Poggio to bring a claim six years after the initial breach on August 8, 1980, after expiration of the applicable statute of limitations.
The court denied Gardner and Hernandez attorney fees because there was no showing of the necessity or reasonableness of the fees requested. Gardner and Hernandez claim on appeal that a showing of reasonableness is unnecessary under an indemnity agreement.
Ringwood raises two arguments on appeal. First, he claims the court erred in finding he was not a third party beneficiary, but only an incidental beneficiary of the contract between Poggio and Gardner and Hernandez. Second, in related arguments, Ringwood urges that Poggio's release of Gardner and Hernandez from their obligation to pay him was ineffective because (1) he had vested rights by virtue of Gardner and Hernandez's exercise of control over FAW, (2) Poggio was insolvent at the time of the release, and (3) there was not fair consideration for the April agreement.
The court found that Ringwood was an intended third party beneficiary under the first two contracts between Poggio and Gardner and Hernandez, but that Ringwood did not rely upon, assent to, nor file an action based on either of those contracts prior to the time they were superceded by the February and April 1980 agreements. The court further found that Ringwood was intended to be an incidental beneficiary only of the February 8, 1980 and April 14, 1980 agreements.
"Generally, the rights of a third-party beneficiary are determined by the intentions of the parties to the subject contract." Tracy Collins Bank & Trust v. Dickamore, 652 P.2d 1314, 1315 (Utah 1982). Moreover, "[f]or a third-party beneficiary to have a right to enforce a right, the intention of the contracting parties to confer a separate and distinct benefit upon the third party must be clear." Hansen v. Green River Group, 748 P.2d 1102, 1105 (Utah Ct.App.1988) (quoting Rio Algom Corp. v. Jimco Ltd., 618 P.2d 497, 506 (Utah 1980)). An incidental beneficiary is defined as a "person who will be benefited by the performance of a contract in which he is not a promisee, but whose relation to the contracting parties is such that the courts will not recognize any legal right in him." Schwinghammer v. Alexander, 21 Utah 2d 418, 446 P.2d 414, 415 (1968).
In this case, the contracts of November and...
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