Smith v. Village Enterprises, Inc.

• Decision Date: 23 May 1973
• Docket Number: No. 55393,55393
• Citation: 208 N.W.2d 35
• Parties: Cletis S. SMITH and Alma M. Smith, Appellees, v. VILLAGE ENTERPRISES, INC., and Malt Village Franchising, Inc., Appellants.
• Court: Iowa Supreme Court

Page 35

208 N.W.2d 35

Cletis S. SMITH and Alma M. Smith, Appellees, v. VILLAGE ENTERPRISES, INC., and Malt Village Franchising, Inc., Appellants.

No. 55393.

Supreme Court of Iowa.

May 23, 1973.

C. A . Frerichs, Waterloo, for appellants.

Samuel T. Beatty. Waterloo, for appellees.

Heard before MOORE, C.J., and MASON, LeGRAND, UHLENHOPP and HARRIS, JJ.

LeGRAND, Justice.

The question presented is whether a judgment obtained by plaintiffs against Malt Village Franchising, Inc. may be enforced against property once owned by that corporation but subsequently transferred to Village Enterprises, Inc. The trial court found an equitable lien in favor of plaintiffs and held the property attached by them to be subject to payment of the judgment. We affirm.

This appeal involves only Village Enterprises, Inc., (hereafter called Village Enterprises). Plaintiffs were denied relief against Malt Village Franchising, Inc., (hereafter called Malt Village) and no appeal was taken from that portion of the decree.

In 1966, plaintiffs entered into a food service franchise and purchase agreement with Malt Village. The corporation later became insolvent and defaulted on this agreement. Plaintiffs thereafter obtained judgment against it in the amount of $6,894.36 plus interest for breach of contract. It is this judgment which plaintiffs seek to satisfy from the assets transferred by Malt Village to Village Enterprises.

One of these assets was an unliquidated claim upon which Village Enterprises subsequently obtained a $15,000.00 judgment. Plaintiffs have attached that judgment to insure payment of their own judgment against Malt Village. This appeal challenges their right to do so.

At the risk of being repetitious, we summarize the problem facing plaintiffs. Their judgment is against Malt Village. The property they have attached is owned by Village Enterprises under a transfer by which it took over all of Malt Village's assets. In order to prevail, plaintiffs must somehow escape the general rule that assets conveyed by one corporation to another pass free from the debts of the transferor. 15 Fletcher Cyclopedia Corporations, section 7122, (Perm.Ed., 1961 Rev.Vol.); 19 Am.Jur.2d Corporations, section 1546 (1965); Hess v. Iowa Light, Heat & Power Co., 207 Iowa 820, 825, 221 N.W. 194, 196 (1928); Annot., 149 ALR 788 (1944).

They seek to do so by asserting an equitable lien on the transferred property. The trial court found for plaintiffs on this theory, ordering the attached property applied to payment of plaintiffs' judgment. We discuss the equitable lien doctrine in Division II.

Village Enterprises assails the trial court's conclusion on two grounds, one procedural and one substantive. It contends there was error as follows:

1. In allowing plaintiffs to amend their petition to conform to the proof 16 days after the evidence had been completed.

2. In holding plaintiffs were entitled to an equitable lien on property transferred from Malt Village to Village Enterprises.

I. We consider first the propriety of the trial court's ruling allowing plaintiffs to amend their petition 16 days after submission of the case by adding Count IV in which they claimed an equitable lien. Plaintiffs had originally pled in two counts. Later they amended to add a third one. Count I (alleging the property was still owned by Malt Village) was dismissed on motion. Count II (claiming the assignment had been made to 'hinder, delay and defraud creditors') and Count III (based on fraud and undue influence) were dismissed after trial for failure of proof.

Under these circumstances the importance of allowing the tardy amendment is apparent. It afforded the only basis for the trial court's decree. Obviously plaintiffs could not have succeeded if the amendment had been rejected, since the other theories asserted by plaintiffs were rejected by the trial court.

In considering this matter we start with the principle that trial courts have broad discretion in allowing late amendments under Rule 88, Rules of Civil Procedure, which provides in part as follows:

'* * * The court, in furtherance of justice, may allow later amendments, including those to confrom to the proof and which do not substantially change the claim or defense. The court may impose terms, or grant a continuance with or without terms, as a condition of such allowance.'

This rule has always received liberal interpretation. Rule 88 contemplates amendments to conform to the proof at any time before final disposition. This includes the right to amend after conclusion of the evidence. Twin Bridges Truck City, Inc. v. Halling, 205 N.W.2d 736, (Iowa 1973) (allowing an amendment to conform to the proof eight days after trial); Hackney v. Tower, 260 Iowa 1101, 1107, 152 N.W.2d 257, 261 (1967) (permitting an amendment seven days after trial). See also W & W Livestock Enterprises, Inc. v. Dennler, 179 N.W.2d 484, 488 (Iowa 1970); Stauter v. Walnut Grove Products, 188 N.W.2d 305, 307, 308 (Iowa 1971).

These cases demonstrate the Time of the amendment is not the determining factor. More important is whether it substantially changes the issues. If so, the amendment should not be allowed. Rule 88, R.C.P.; W & W Livestock Enterprises, Inc. v. Dennler, supra, 179 N.W.2d at 488.

The trial court specifically found that Count IV (the post-trial amendment) was substantially the same as Count II of the original petition except that Count II asked personal judgment while Count IV sought only to have a lien established. Otherwise, the theory of recovery in Count II (that the transfer of assets was made without adequate consideration and was 'for the purpose of hindering, delaying and defrauding the plaintiffs who are creditors of said Malt Village Franchising, Inc.') does not vary materially from the facts relied on to prove plaintiffs' right to an equitable lien in Count IV. It too alleges the transfer was made without adequate consideration and that it left Malt Village without assets to pay its creditors--not unlike the assertion the assignment was made to hinder, delay, and defraud creditors. We cannot say the trial court abused its discretion in ruling the amendment did not substantially alter the issues already pled.

Village Enterprises also argues it was prejudiced by the late amendment because it was prevented from introducing available evidence which would have defeated plaintiff's claim. The defendant states such evidence was not produced because it was irrelevant until the amendment was allowed. Then there was no opportunity to use it.

The trouble with this arguments is that Village Enterprises did not ask permission to reopen in order to introduce what is now claimed to be vital evidence, although it had ample opportunity to do so. The evidence was concluded May 25, 1971. The amendment to conform to the proof was filed June 11, 1971. Resistance to this amendment was filed June 15, 1971, and the court's findings, conclusions and judgment were entered on June 23, 1971.

Rule 88 allows the court to impose conditions upon the filing of an amendment after issue has been joined. Certainly the trial court, if requested, could have given Village Enterprises the right to reopen as a condition to allowing the amendment. Conceivably failure to do so would have been an abuse of discretion if prejudice resulted. In the absence of such a request, we hold the claim of prejudice is without merit.

Allowing plaintiffs to amend by adding Count IV to their petition was not an abuse of discretion under the circumstances here.

II. We turn now to a consideration of the second complaint, which assets plaintiffs are not entitled to an equitable lien on the property in question.

Although equitable liens are generally recognized, the doctrine is one of obscure definition. It has been said it is 'difficult to give an accurate and comprehensive definition of the term equitable lien and, * * * it frequently has been stated such a lien is a right not recognized at law, to have a fund or specific property, or its proceeds, applied in whole or in part to the payment of a particular debt or class of debts.' 51 Am.Jur.2d, Liens, Section 22, page 160 (1970). See also Black's Law Dictionary 633 (Rev. 4th Ed.1968) and 53 C.J.S. Liens § 4, page 836 (1948).

This definition is adopted in simplified form in Theater Realty Co. v. Aronberg-Fried Co., Inc., 8 Cir. 1936, 85 F.2d 383, 388, where the court succinctly stated an equitable lien is 'the right to have property subjected in a court of equity to the payment...