Sergeant v. Leonard
| Decision Date | 25 November 1981 |
| Docket Number | No. 65500,65500 |
| Citation | 312 N.W.2d 541 |
| Parties | David SERGEANT, as Trustee for the Estate of Merlyn J. Pollock, d/b/a Polite Real Estate, Bankrupt, Appellee, v. Eugene LEONARD and Irene M. Leonard, Appellants. |
| Court | Iowa Supreme Court |
H. A. Stoebe, Humboldt, for appellants.
James L. Kramer of Johnson, Erb, Latham & Gibb, P. C., Fort Dodge, for appellee.
Considered by REYNOLDSON, C. J., and LeGRAND, UHLENHOPP, McCORMICK, and SCHULTZ, JJ.
The principal problem in this appeal is whether an oral agreement, following a written listing of property with a broker, constituted an accord or a substituted contract. The action was tried by ordinary proceedings and the trial court's findings therefore have the effect of a special verdict; they are binding on us if supported by substantial evidence. Iowa R.App.P. 14(f )(1). We view the evidence in the light most favorable to the judgment, which was for the broker. Nora Springs Co-op Co. v. Brandau, 247 N.W.2d 744, 747 (Iowa 1976). Although the action is by the broker's bankruptcy trustee, we will speak of the broker as the plaintiff.
Eugene and Irene M. Leonard owned a substantial hardware business, including the building and land, in Humboldt, Iowa. The business was in corporate form, but the Leonards owned all the corporate stock and were the corporate officers and directors.
The Leonards desired to sell the business, and listed it for sale with a broker-Merlyn J. Pollock operating as Polite Real Estate-for $650,000. The business had various debts which the Leonards would have to pay out of the proceeds; their net would thus be considerably less than $650,000. Moreover, they had personally guaranteed at least some of those debts. The written listing was by the Leonards themselves, was for 180 days, was exclusive, and was of the property itself, not of the corporate stock. Presumably if the Leonards made a sale, the bill of sale and deed would actually be by their corporation which was the title-holder. The commission was a flat $50,000, and was payable, under clause (a), "If said Broker finds a buyer who shall be ready, willing and able to purchase during said period upon the price and terms above stated or at any other price and terms that may be agreed upon...." (Emphasis added.)
The broker incurred expense in finding prospects. He was aware of about eight individuals who might be interested and narrowed the field to two couples. The first couple was K. E. and Joan E. Kollmorgen; they made a written offer of $650,000 accompanied by their check for $50,000 as a down payment. The offer varied in some respects from the listing. It was signed by Mrs. Kollmorgen, as Mr. Kollmorgen was in school at the time, but no question appears to exist that the offer was by both of them; Mr. Kollmorgen signed the check. The offer was for the property, not for the corporate stock, and ran to the Leonards individually. The Leonards had tax counsel at the time, and after consultation they rejected the offer for tax reasons. They do not appear to have incurred liability for the broker's commission by virtue of this offer, since it did not fully comply with the terms of the listing and they did not accept it.
Shortly thereafter the broker obtained and submitted another written offer for $650,000, this one by Gary and Linda Currie. This too varied in some respects from the listing, and the Leonards also rejected this offer for tax reasons. Again the offer was for the property, not the corporate stock, and ran to the Leonards themselves.
Soon afterward a salesman for the broker found a third prospect, Vincent H. Kopacek. After the salesman and the broker brought the Leonards and Kopacek together, the latter parties appear to have done most of their own negotiating of terms. Toward the end of negotiations Kopacek did not want the broker or his salesman to participate further and, at Eugene Leonard's oral request, the broker and salesman did not do so. We will subsequently return to that oral request.
The Leonards and Kopacek arrived at a contract; in the formation of the contract itself Kopacek had an attorney but the Leonards did not. The contract took care of Kopacek's interests very adequately; it protected the Leonards' interests less well. The sale of the business was not for $650,000 as in the previous offers. Moreover, it was to be accomplished by the Leonards' transferring their corporate stock to Kopacek, rather than by a transfer of the property. The value of the stock was to be ascertained by finding the "audited book value" and by subtracting the liabilities of the business. The inventory was to be valued at the lower of (a) 68% or retail value or (b) market value, but the contract also contained this clause:
In no event shall the inventory exceed $350,000. If said inventory does exceed $350,000 Seller shall give to Buyer without charge all said inventory above $350,000. If said inventory is below $350,000, then purchase price shall be reduced dollar for dollar respectively.
Two of the more significant factors in the transaction related to an additional corporate income tax liability and to the clause we have just quoted. Through the years the Leonards had not kept the inventory valued realistically. As a result, the actual value of the inventory, ascertained by audit under the contract, turned out to be $610,000. The effect of this valuation, of course, was to increase the income tax liability of the corporation, and, under the contract, this tax reduced the sum going to the Leonards for their stock. This cost them $99,297. (The question of the Leonards' personal income tax liability, if any, arising out of the transfer of their stock is not involved here.)
The second factor was even more damaging to the Leonards. Although the inventory was ascertained to be worth $610,000, Kopacek was entitled to it for $350,000 in valuing the corporate stock under the contract clause. This cost the Leonards an additional $260,000. The combined result of the deduction of the corporation's liabilities and of the inventory audit was that the Leonards became entitled to a net of $189,604 for their corporate stock.
Reverting to Eugene Leonard's oral request for the broker and his salesman to lay back, the Leonards and Kopacek had apparently arrived at a final draft, or a near final draft, of their contract. Eugene Leonard came to the office of Merlyn J. Pollock, the broker, and gave him the understanding that Kopacek did not desire his further presence. Pollock acknowledged that times might arise for brokers to step aside during negotiations by principals. From that point in the Leonard-Pollock conversation, however, those two individuals were diametrically opposed in their testimony. Since the trial court adopted Pollock's version we will give only Leonard's conclusion, as to his version. He testified the conversation was in substance that if the Leonards signed the Kopacek contract Pollock's commission was to be $10,000. Leonard presently acknowledges that he owes that amount, and the Leonards offered to confess judgment for it.
Pollock's version is quite different. He testified in substance that he still had two willing and able buyers for hardware businesses, that Leonard was on the board of directors of a hardware association and said he had two hardware store owners "in his pocket" whom he could get to list their stores with Pollock at 10% commission, and that he, Pollock, said he would reduce his present commission to $15,000 if Leonard got the two listings for him. According to Pollock, Leonard then left Pollock's place of business, and Pollock subsequently learned that the Leonards had signed a contract with Kopacek.
Leonard never obtained two listings for Pollock and the Leonards never paid him $15,000. Instead, they refused to perform their contract with Kopacek. Kopacek sued them, obtained a decree of specific performance, and secured an affirmance by the Iowa Court of Appeals on appeal. Kopacek v. Leonard, 281 N.W.2d 37 (Iowa App.1979) (table). We denied further review.
Pollock later went bankrupt, and still later his trustee commenced the present action against the Leonards to recover the commission of $50,000 under the listing. The trial court found for the trustee in that amount, and the Leonards appealed.
The Leonards contend on appeal that (1) the trial court abused its discretion in permitting the trustee to amend his petition at trial, (2) the original listing was "merged" into the subsequent oral contract and cannot be enforced, and (3) Pollock was not a registered securities broker and cannot recover a commission for the sale of the corporate stock.
I. Amendment of petition. At the commencement of trial the broker amended his petition over the Leonards' objection, to rely on the first two offers which the broker obtained as entitling the broker to a commission. On allowance of amendments to pleadings, see Ackerman v. Lauver, 242 N.W.2d 342 (Iowa 1976).
This amendment in no way harmed the Leonards. Neither the trial court nor we allow recovery in this action based on the two prior offers, but rather on the basis of the sale to Kopacek. The two sets of prior prospective buyers and their offers could be shown in any event as tending to corroborate Pollock's version of the Leonard-Pollock conversation that Leonard was to get two more listings for Pollock. We find no reversible error here.
II. "Merger." The Leonards' second contention involves the familiar problem in which a creditor and debtor subsequently agree upon a different performance by the debtor, the debtor defaults on the new agreement, and the creditor seeks to recover on the original obligation. See generally Graven, The Out-Moded Terminology of Accord and Satisfaction, 24 Iowa L.Rev. 697 (1939).
We stated in Gatton v. Stephen, 239 N.W.2d 159, 161 (Iowa 1976):
A realtor's commission may be earned in any of the three ways stated in Ducommun v. Johnson, 252 Iowa 1192,...
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