Shore v. Peterson

• Decision Date: 05 March 2009
• Docket Number: No. 34488.,34488.
• Citation: 204 P.3d 1114
• Parties: William R. SHORE and Roberta S. Shore, husband and wife, Plaintiffs-Appellants-Cross Respondents, v. Rod PETERSON, Defendant-Respondent-Cross Appellant.
• Court: Idaho Supreme Court

204 P.3d 1114

William R. SHORE and Roberta S. Shore, husband and wife, Plaintiffs-Appellants-Cross Respondents, v. Rod PETERSON, Defendant-Respondent-Cross Appellant.

No. 34488.

Supreme Court of Idaho, Boise, January 2009 Term.

March 5, 2009.

Merrill & Merrill, Chartered, Pocatello, for appellants. Kent A. Higgins argued.

Atkin Law Offices, Bountiful, Utah, for respondent. Blake S. Atkin argued.

J. JONES, Justice.

In the bench trial of this action to collect on a promissory note, the district court found that an accord and satisfaction had discharged the defendant's liability on the note. However, the court declined to award the defendant his costs and attorney fees. Both parties appealed to this Court. We affirm the judgment on the merits but vacate the ruling regarding costs and fees.

I.

Rod Peterson ran his farm equipment repair business, Countryside Farm Repair (CFR), as a sole proprietorship until it was incorporated on August 6, 1997. Once CFR became incorporated, Peterson served as the president. In operating the business, Peterson used an aggregation of tools and equipment that he had purchased over the past forty-some years. Although he testified at trial that most of those items were his personal property, other evidence showed that many of the tools may have belonged to CFR because they were purchased with checks drawn on its corporate account.

In May 2000, William and Roberta Shore loaned Peterson $10,000, and received a promissory note from Peterson in that amount. The note required quarterly interest payments of $250, with the balance due and payable on May 1, 2001. The next month, Peterson added an additional $10,000 in principal to the note on the same terms. Peterson signed the note in his personal capacity for each advance.

Later in 2000, Peterson moved CFR's business to property owned by the Shores. Around the same time, Allan Swainston, Heber Swainston, and Kay Swainston became shareholders of CFR, acquiring forty-five percent of the shares. Peterson retained forty-five percent and his son, Jeremy, held ten percent.

Four years after becoming shareholders, the Swainstons acquired Jeremy's shares in exchange for releasing him from personal liability on CFR's mounting debts. As the majority shareholders with fifty-five percent of the shares, the Swainstons voted Peterson out as the president. In July 2004, after removing Peterson as president, the Swainstons formed Countryside Equipment and Repair, LLC (CE). CE operated in the same line of business and on the same premises as CFR. After CE was formed, CFR ceased to operate. CE did not formally buy out CFR, nor did CFR transfer its assets or operations to CE.

After his removal, Peterson continued to enter the business premises to pick up tools and equipment that he claimed were his personal property. In August 2004, the Swainstons and the Shores obtained a sheriff's restraint to prevent Peterson from taking tools and equipment off the business premises. The Swainstons also changed the locks on the building to try to prevent Peterson from gaining entry. In order to settle their differences, Peterson and the Swainstons made an agreement whereby Peterson's shares in CFR were transferred to the Swainstons in exchange for Peterson's release from a list of enumerated liabilities, which specifically included Peterson's personal note to the Shores.¹ However, Peterson continued to claim an interest in the tools and equipment on the business premises.

CE apparently began having difficulties, as the Swainstons approached Mr. Shore to ask him to take over the business. Mr. Shore, Peterson, and the Swainstons met to discuss the winding up of CFR and CE, and the transition to Mr. Shore's business. All those present at the meeting, including Mr. Shore, knew that both CE and CFR were indebted to other parties, and that any item of value with a title was pledged as security to creditors. During this meeting, Mr. Shore stated that if Peterson would leave his tools and equipment on the business premises, Mr. Shore would not pursue the note owed by Peterson. After the meeting, Peterson stopped claiming the tools and equipment.

On March 1, 2005, Mr. Shore took over the business and the Swainstons folded CE. Mr. Shore's business, Bear River Equipment, Inc., was incorporated on March 4, 2005. Mr. Shore indicated that the tools and equipment he wanted Peterson to leave behind were at the premises when Bear River began its operations. Mr. Shore then began disposing of many of the assets left behind in order to remove outdated and encumbered property from his business premises. He even gave some items back to Peterson because they were of no value to Bear River.

After acquiring the business, the Shores sued Peterson to collect on the promissory note and recover damages for the alleged conversion of two tractors. Peterson asserted the affirmative defense of accord and satisfaction and counterclaimed for conversion of his tools and equipment. During a bench trial, Peterson moved to dismiss the Shores' claim for conversion. The district court dismissed the claim and that ruling has not been appealed.

In its decision following trial, the district court determined that Peterson had proven a valid accord and satisfaction, based on the relinquishment of his claim to the tools and equipment left at the business premises. Accordingly, the court found that Peterson's liability on the note was discharged. Responding to the Shores' contention that Peterson could not claim an accord and satisfaction based on leaving behind tools and equipment which were not proven to be his personal property, the court held that Peterson's relinquishment of his claimed interest was sufficient consideration to support the new agreement, regardless of who actually owned the property. The court did, however, order Peterson to return a swather trailer that he had borrowed from Mr. Shore after the lawsuit was filed. Because Peterson's counterclaim for conversion was in the alternative to his affirmative defense of accord and satisfaction, the court dismissed the counterclaim.

Peterson requested an award of attorney fees and costs. The district court determined that Peterson was not entitled to costs and fees because he did not fully prevail on his claims. The court reasoned that although Peterson successfully asserted his affirmative defense of accord and satisfaction, the Shores successfully defended against Peterson's counterclaim. Therefore, the court found "that the fair and equitable manner of apportioning costs is to require [Peterson] to pay his own costs." Thus, the court disposed of Peterson's claims for costs as a matter of right, discretionary costs, and attorney fees based on a finding that he was not the prevailing party.

The Shores appealed to this Court, asserting two primary arguments: (1) that the district court applied the wrong test for finding an accord and satisfaction; and (2) that the court erred in disregarding the question of whether Peterson or the business entity owned the property allegedly transferred pursuant to the accord and satisfaction agreement. Peterson cross-appealed arguing that the district court erred in refusing to award him attorney fees and costs.

II. Standard of Review

The review of a trial court's decision after a court trial is limited to ascertaining "whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law." Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 737, 152 P.3d 604, 608 (2007) (quoting Idaho Forest Indus., Inc. v. Hayden Lake Watershed Improvement Dist., 135 Idaho 316, 319, 17 P.3d 260, 263 (2000)). The trial court's findings of fact will not be set aside unless clearly erroneous. Id. Thus, even if the evidence is conflicting, if the findings of fact are supported by substantial and competent evidence this Court will not disturb those findings on appeal. Id. In reviewing a trial court's conclusions of law, however, a different standard applies: this Court is not bound by the legal conclusions of the trial court, but may draw its own conclusions from the facts presented.² Id.

III. The District Court Correctly Found an Accord and Satisfaction

The Shores raise three arguments to contest the district court's finding that an accord and satisfaction between the parties discharged Peterson's liability on the note. First, they argue that the district court erred by holding that a bona fide dispute need not exist in order to find an accord and satisfaction. Second, they argue the alleged agreement lacked consideration because Peterson did not own the property he allegedly transferred. Third, they assert that the facts do not support finding an accord and satisfaction. Each argument will be considered in turn.

A. The District Court Did Not Err by Holding that a Bona Fide Dispute Is Not a Necessary Element in Every Alleged Accord and Satisfaction

The Shores argue that an accord and satisfaction has three elements: (1) a bona fide dispute as to the amount owed; (2) that the debtor tendered an amount to the creditor with the intent that such payment would be in total satisfaction of the debt owed to the creditor; and (3) that the creditor agreed to accept the payment in full satisfaction of the debt.³ The Shores argue that the district court erred in not addressing the first element, based on its conclusion that Idaho law did not require it. Regarding the elements of an accord and satisfaction, the district court observed:

The Court is aware there is some controversy over whether the obligation must be in dispute before an accord and satisfaction can be found. Reviewing the cases cited by counsel, it is clear to this Court that the obligation must only be in dispute when one attempts to offer a negotiable instrument, such as a check, in satisfaction of another obligation to pay money. "It is not essential that the claim discharged by accord and satisfaction be in dispute or...