Tschirgi v. Merchants Nat. Bank of Cedar Rapids

• Decision Date: 06 February 1962
• Docket Number: No. 50497,50497
• Citation: 253 Iowa 682,113 N.W.2d 226
• Parties: Anthony TSCHIRGI and Ruth Tschirgi Berry, Appellants, v. The MERCHANTS NATIONAL BANK OF CEDAR RAPIDS, Iowa, as Executor of the Will of Grace F. Tschirgi, Deceased, Appellee.
• Court: Iowa Supreme Court

Page 226

113 N.W.2d 226

253 Iowa 682

Anthony TSCHIRGI and Ruth Tschirgi Berry, Appellants, v. The MERCHANTS NATIONAL BANK OF CEDAR RAPIDS, Iowa, as Executor of the Will of Grace F. Tschirgi, Deceased, Appellee.

No. 50497.

Supreme Court of Iowa.

Feb. 6, 1962.

Simmons, Perrine, Albright, Ellwood & Neff, Cedar Rapids, for appellants.

Elliott, Shuttleworth & Ingersoll, Cedar Rapids, for appellee.

LARSON, Justice.

This is a suit for specific performance of the optional provisions of a contract of settlement negotiated between the plaintiffs and defendant's decedent as a result of a dispute at the time of closing of the estate of plaintiffs' father. Defendant resisted on the grounds that (1) plaintiffs had breached the contract of settlement, (2) had failed to allege and prove essential elements of such a suit, and (3) were guilty of such illegal and unconscientious conduct that it would be inequitable to grant specific performance herein. The trial court upheld the third ground, holding agreements subsequently executed by plaintiffs relating to the control and operation of the corporation were illegal and against pubic policy to such a degree that it would not grant plaintiffs relief. We do not agree with that conclusion.

As in most cases involving questions of good faith and conscience, a rather detailed statement of the facts is required. Plaintiffs, Anthony Tschirgi and his sister, Ruth Tschirgi Berry, heirs of Anthony Tschirgi, deceased, filed objections to the final report in their father's estate. Their stepmother, Grace F. Tschirgi, was one of the executors, and in an effort to settle the dispute relating to a proper accounting for property left by their father, an agreement was reached between Grace and the plaintiffs wherein she paid these heirs additional sums of money, conveyed to them certain real estate, and gave them each an option to purchase, at her death, seven and 3/4 shares of stock in Russell's Guides, Inc. at a stipulated figure.

After her husband's death Grace owned 45 of the total 50 shares issued by the corporation, and prior to her death December 18, 1957, she sold one share to another son of Anthony, Sr., Paul, and 12 1/2 shares to Edward R. Pohl, now deceased, the son of Mrs. Emma Pohl, a party to the agreements to be considered herein. Thus at the time of her death Grace Tschirgi left 31 1/2 shares of stock, 15 1/2 of them committed under the option to plaintiffs. While 31 1/2 shares is a controlling interest, it is evident that if the option is enforced, her estate will no longer have that control. In fact, no one party will have it. This situation gave rise to the agreements between the plaintiffs and Mrs. Pohl which the defendant contends are illegal and void as against public policy.

Prior to her death Grace Tschirgi, an inactive vice president and director in the corporation, applied for a voluntary guardianship, and in the inventory appeared some $137,010 of assets kept in a lock box in a St. Louis, Missouri, bank. Plaintiffs, discovering this fact, brought an action for damages against Grace alleging fraud and deceit in failing to disclose that sum as assets of their father's estate and procuring a settlement without disclosing these facts. She defended alleging settlement by the agreement here involved, but neither party asked for rescission of that agreement. Grace died before that case was assigned for trial, and defendant herein, as her executor, took over the defense. It was dismissed without prejudice prior to trial, but defendant contends by bringing that action plaintiffs breached the settlement contract and cannot now enforce it in equity.

I. The trial court properly held plaintiffs could elect to retain what they received and sue for the difference, which in this case would have been their share of any of the newly-discovered funds that were found to belong to the estate of Anthony Tschirgi, Sr. Lamasters v. Springer, 251 Iowa 69, 99 N.W.2d 300. A purchaser of personal property may retain that which has been purchased and sue for additional damages for alleged fraudulent misrepresentation. Hanlon v. Macfadden Publications, 302 N.Y. 502, 99 N.E.2d 546, 24 A.L.R.2d 733.

It is clear to us, as it was to the trial court, that there was no failure of consideration in the settlement contract and, when that action was dismissed, Mrs. Tschirgi and the estate had received substantially all the benefits bargained for from the plaintiffs. The estate was settled pursuant to the withdrawal of the objections by plaintiffs as agreed in the settlement. It would not be equitable to retain all the benefits and deny plaintiffs a right to specific performance on that ground. Here, as in Bayley v. Lewis (1951), 39 Wash.2d 464, 236 P.2d 350, relied upon by the trial court, the alleged breach had been terminated before trial. There is language therein indicating that if the breach continued up to the time action was brought, specific performance would have been denied. Although a party cannot enforce specific performance of a contract while in default of its terms, it would seem just that any time before trial he may purge himself of his default and thus remove that bar to equitable relief. We find no cause on this ground to deny plaintiffs the relief prayed.

II. Defendant urges that, due to certain agreements between the plaintiffs and Mrs. Pohl and between those parties and Mr. Floyd Sortor, equity will refuse to grant specific performance of this otherwise legal option to buy. This plaintiffs contend is error, and under the circumstances revealed we must agree. We have carefully read most of the authorities cited by both able counsel and do not find a case on all fours with this one.

Cases where an agreement between the parties is challenged by a contracting party are not in point. Here we find two agreements which are in effect at the present time. They do not involve defendant as a minor stockholder except as they would tend to injure the corporation and its business affairs. They were executed in an effort to secure continuity of the present policies of the corporation, and as announced therein, to foster the 'best interests of Russell's Guides, Inc.' and to see that the management policies will not be changed. All parties and the trial court seem to agree that the purpose and intent of such agreements is controlling in such cases. We carefully consider it here.

Under the settlement agreement the plaintiffs' cost of the 15 1/2 shares was $108,243.78. Evidently the lender of this sum required certain safeguards for such a loan, including assurances that the successful business policies of the corporation remain the same. Apparently some such arrangement was reached with Mrs. Pohl and a Cedar Rapids bank, which was thereafter reduced to writing on January 20, 1958, and became Exhibit H. This agreement was later amended and revised in Exhibits I and J dated July 30, 1959. Exhibit K was the agreement with Floyd Sortor dated May 13, 1958. Apparently it was part of the arrangement for the loan attending the exercise of the option.

The trial court found, and we agree, that Exhibits H and I were revised into Exhibit J and only Exhibits J and K were effective at the time of trial. Examination of Exhibits H and I reveals no facts which aid or diminish defendant's contention that these agreements were a breach of fiduciary relationship, illegal as against public policy and void, or were unconscionable and disclosed bad faith toward the corporation or other stockholders.

Our attention is called to these provisions in Exhibit K signed by Floyd Sortor, Anthony Tschirgi, Emma Pohl, and Ruth Berry:

'Floyd Sortor's position will be the same in the future except he will be in complete charge of all negotiations with Greyhound and will be President and Chairman of the Board of Directors.

'Anthony Tschirgi will go to work in Russell's Guide as Floyd Sortor's Assistant and be Vice President; Mrs. Emma Pohl also will be Vice President.

'There will be no change in the management policies of the Russell's Guide without Sortor's approval. Any action taken will be for the best interests of the business.'

The reference to 'Greyhound' is to Greyhound Bus Lines, principal customer of Russell's Guides, Inc. Sortor was then president of the corporation.

Exhibit J, signed by the plaintiffs and Mrs. Emma Pohl, provides that plaintiffs will pledge the 15 1/2 shares as collateral for a purchase money loan, will sell 4 shares to Mrs. Pohl at their purchase price, that as long as plaintiffs are indebted on their loan they will direct that their dividends be paid to the lender on the indebtedness, with the exception of $2,500 per year to Anthony, and that they will give a proxy to Mrs. Pohl to vote all shares owned by them, the same to be released, at the rate of one vote for each $7,000 paid by plaintiffs on the loan principal. It further provides that upon approval of the lender, Mrs. Pohl may vote to redeem the shares of other outstanding shareholders, and in event of such redemption those stocks shall not be entitled to a vote or receive dividends until the debt of plaintiffs is paid, and that in event of plaintiffs' default on the debt payments Mrs. Pohl has an option to purchase one share of stock from them at $7,000 per share and apply that sum on the debt. No compensation for services by the parties other than director fees as long as plaintiffs are indebted shall be allowed except by written consent of all. The agreement then provides:

'6. After Second Parties (plaintiffs herein) have repaid their indebtedness * * * (the parties) * * * agree to assume control of and to vote their respective shares of stock in concert with each other, said voting power to be exercised for the best interests of Russell's Guides, Inc. and for the continued success of the business of that company. First Party and Second Parties may each designate and elect an equal number of directors to serve on the ...