Ryan v. Kanne

Citation170 N.W.2d 395
Decision Date05 September 1969
Docket NumberNo. 53533,53533
PartiesCharles L. RYAN and Marvin G. Snyder, Appellees, v. James A. KANNE, Mid-States Enterprises, Inc., and Kanne Lumber and Supply, Inc., Appellants. KANNE LUMBER AND SUPPLY, INC., Cross-Petitioner-Appellee, v. Charles L. RYAN and Marvin G. Snyder, Defendants to Cross-Petition-Appellants.
CourtUnited States State Supreme Court of Iowa

Wunschel & Schechtman, Carroll, for appellants and appellee on counterclaim.

Minnich & Neu, Carroll, and Jones, Hoffmann & Davison, Des Moines, for appellees and appellants on counterclaim.

LARSON, Justice.

This action for accounting fees filed by plaintiff-accountants, with a counterclaim filed by one of the defendants, Kanne Lumber and Supply, Inc., was tried to the court without a jury and resulted in a judgment against all defendants for accounting services in the sum of $3,434.67 and a judgment in favor of Kanne Lumber and Supply, Inc. for damages in the sum of $38,685.81. All parties appeal. We modify and affirm.

Plaintiffs' petition, filed June 21, 1966, contained four counts, three of which are relevant to this appeal. In Division I it was alleged that the defendant James A. Kanne was liable to plaintiffs under an oral contract of employment. In Division II plaintiffs alleged the defendant Mid-States Enterprises, Inc., was liable to them as guarantor of the account; and in Division III plaintiffs based their claim against the Kanne Lumber and Supply, Inc. on quantum meruit. Defendants' answers denied all material allegations of plaintiffs' Assigned as error upon which defendants rely for reversal is the court's award of fees to plaintiffs 'since no services of value were rendered.'

petition and Kanne Lumber and Supply, Inc. filed a counterclaim in two divisions. Division I alleged negligence on the part of plaintiffs, and Division II which alleged fraud was withdrawn during trial. Damages in the sum of $49,868.16 were asked. Trial commenced January 5, 1967. On September 29, 1967, the court's decree was filed granting plaintiffs judgment against all three defendants and granting Kanne Lumber and Supply, Inc. judgment on its counterclaim against plaintiffs in the sum of $46,248.16. Pursuant to plaintiffs' motions on October 13, 1967, for judgment notwithstanding the verdict, for new trial, and to correct judgment before recording, the trial court on May 16, 1968, overruled the motions for judgment notwithstanding verdict and for a new trial, but sustained in part the motion to correct judgment and reduced the judgment on the counterclaim to $38,685.81. Plaintiffs appealed on June 13, 1968, and the next day defendants also took an appeal.

Assigned as error upon which plaintiffs rely for reversal are: (1) the court erred in awarding damages to Kanne Lumber and Supply, Inc. in that damages, if any, were to the stockholders of the corporation; (2) the court erred in awarding damages to Kanne Lumber and Supply, Inc. and in the computation thereof; (3) the court erred in finding the plaintiffs negligent where the issued statement as to certain business operations of James Kanne was not certified and with respect to which plaintiffs affirmatively stated they expressed no opinion; (4) the court erred in holding plaintiffs liable to Kanne Lumber and Supply, Inc. on breach of contract theory where there was no privity between them; (5) the court erred in failing to hold that Kanne Lumber and Supply, Inc. and its stockholders and officers were guilty of contributory negligence in that they failed to heed plaintiffs' warning as to newlydiscovered accounts payable and await an updating of the financial statement; (6) the court erred in relying upon improper authority for its conclusions and in going outside the record for a basis of its ultimate findings and conclusions.

We will not necessarily consider these assignments in that order and, for convenience, will refer to the plaintiff-appellees and cross-petition-defendant-appellants as the plaintiffs, and the plaintiff-appellee in the cross-petition as the defendant herein.

It appears without serious controversy that James A. Kanne owned and operated certain businesses including lumber companies in Carroll and Breda, Iowa, that he had incurred considerable indebtedness in connection therewith, that his accounting procedure left much to be desired, and that he was in need of further financing. It further appears that at the instance of officers of a creditor, the Mid-States Enterprises, Inc., he sought the services of the plaintiffs, who were certified public accountants and directed them to consult Mr. Feldmann of Mid-States, who was also a C.P.A., as to what was necessary in the financial statement requested. Particular attention to the item of Accounts Payable--Trade was directed and became the critical part of plaintiffs' undertaking. Feldmann discussed with Ryan the procedure recommended to determine that item in the accounting, stating, '* * * we agreed that this would be the critical area, that we should do everything possible to find out what payables may exist.' The witness Collison also testified, '* * * if I can correctly quote Bob Feldmann, he said, 'Use every conceivable means to determine the accounts payable. " It appears Ryan agreed to follow the suggested investigative procedure to determine accounts payable, made some efforts to follow it, and guaranteed the accuracy of their statement as to that item within $5,000. He testified he felt very confident his balance sheet was correct within $5,000 at the time it was submitted.

Pursuant to these directions, plaintiffs spent considerable time and effort, as indicated in the itemized statement, Exhibit 'A', attached to their petition, in preparing and submitting the contemplated financial statement. The rates charged for such services were admittedly fair and reasonable.

Plaintiffs were advised as to the purpose of the accounting statement and were told it was possible a corporation would be formed to take over Kanne's businesses. Kanne testified, 'I told Mr. Ryan I was trying to find some new money for my organization. * * * I visited with him about the possibility of incorporation and he suggested we try S.B.A. first.'

It is defendant's contention that the evidence was sufficient to sustain a finding that plaintiffs were negligent in the investigation, preparation and submission of the accounts payable item in the financial statement rendered, that defendant relied thereon, to its detriment, and that it was entitled to recover the loss occasioned thereby. It contends, in view of the evidence as to the understood importance of the item of Accounts Payable--Trade, the assurance as to the work done in that regard, and the reliance placed on that item by the incorporators and the incorporation officials, it is unjust to minimize or overlook the plaintiffs' negligence or excuse it by any subsequent disclaimer.

Plaintiffs' financial statement, when submitted, was marked 'Unaudited Statement.' However, in the comments in the letter of submission attached thereto it is stated: 'Accounts Payable--Trade. Confirmations were used to arrive at the balance due at the date of the balance sheet. The payee of each check issued during 1965 and the latter part of the calendar year 1964 was contracted to confirm if a balance was due at September 30, 1965. Also, a review of unpaid statements was made.'

Although plaintiffs contended they were to investigate only checks banked after January 1, 1965, there is considerable testimony to the contrary and defendant contends the evidence shows they even failed to perform that task cafefully. It appears plaintiffs did not attempt to process a large box of unfiled bills available to them. Ryan stated Kanne had a habit of taking the invoices or the statements and dropping them in a box behind his desk. He admitted he saw this box full of envelopes and stated, 'we didn't attempt to open those envelopes and arrive at the accounts payable.'

The first factual dispute as to the period to be covered in the examination of Accounts Payable--Trade was resolved by the court in favor of defendant. It contends the examination was to cover a twelve month period from September 30, 1964, to September 30, 1965. Kanne, Feldmann and Collison so testified. Ryan contended the examination was to be from January 1, 1965, to September 30, 1965, and admitted his investigation covered only that period. He testified: 'We mailed a confirmation to the payee of each check from the period of January 1st of 1965 to September 30th, 1965' and 'We did not look at the box of statements. I don't know what these invoices would say as to the trade accounts payable. The only explanation I can give is that this amount stated I did not find the names on the checks payable during this nine month period. I don't think I could answer that if I had looked at these statements I may well have learned the additional information so I wouldn't have made 73 different errors.'

Mr. Feldmann had testified: 'We found 73 accounts payable that were not included on his list. We made an amendment to the amounts he showed in 18 cases for a total of 91 changes. * * * Of the 73 accounts that Mr. Ryan omitted we had responses from 57 of them. We got an indication from approximately 30 suppliers That no previous reguests had been sent.' (Emphasis added.)

The second factual issue as to plaintiffs' negligence in conducting their investigation Pursuant to the submission of this financial statement, the defendant Kanne Lumber and Supply, Inc. was incorporated and took over the assets and liabilities of Kanne's lumber businesses. Defendant contends plaintiffs were aware of that purpose and plan when submitting the financial statement and failed to timely advise defendant of errors or discrepancies then known to them. When it became evident to the defendant corporation that the statement as to Accounts Payable--Trade...

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