Warner v. Johnson

• Citation: 213 N.W.2d 895
• Decision Date: 05 December 1973
• Docket Number: No. 8860,8860
• Parties: Murry W. WARNER and Alice Warner, Plaintiffs/Appellants, v. Kenneth J. JOHNSON and Grace E. Johnson, Defendants/Appellees. Civ.
• Court: United States State Supreme Court of North Dakota

Page 895

213 N.W.2d 895

Murry W. WARNER and Alice Warner, Plaintiffs/Appellants, v. Kenneth J. JOHNSON and Grace E. Johnson,

Defendants/Appellees.

Civ. No. 8860.

Supreme Court of North Dakota.

Dec. 5, 1973.

Syllabus by the Court

1. In actions tried by the court without a jury, the court shall find the facts specially and state separately its conclusions of law thereon and direct entry of the appropriate judgment. Rule 52(a), N.D.R.Civ.P.

2. Findings of fact supported by substantial evidence will not be found clearly erroneous merely because the findings of fact were prepared by counsel for the prevailing party and submitted to the trial judge, who adopted them verbatim, particularly, when the findings of fact are sufficiently similar to the findings and directions of the trial court in its oral opinion to indicate that the trial court adequately and carefully considered the findings of fact as its own.

3. For the reasons stated in the opinion, the judgment of the trial court is affirmed.

Pringle & Herigstad, Minot, for plaintiffs/appellants.

Funke & Eaton, Minot, for defendants/appellees.

KNUDSON, Judge.

This is an appeal from a judgment dismissing the complaint in an action brought by the majority stockholder of a close corporation to foreclose a security interest in the minority stock interest.

In 1953, plaintiffs Murry W. Warner and his wife, Alice Warner, organized Warner Construction Company, a corporation. They were the only stockholders of its 300 authorized and issued shares. The defendant, Kenneth Johnson, was hired by the Company as its general manager in 1959. For convenience, the plaintiff and defendant will hereinafter be referred to in the singular.

In March of 1969, plaintiff and defendant entered into an agreement whereby plaintiff agreed to sell, and defendant agreed to purchase, a minority interest in the company, consisting of 147 shares of stock, for $44,100. The price of $300 per share was in excess of the book value of the shares of $241 per share. The sale was made pursuant to a letter of agreement, set forth in its entirety, as follows:

Law Offices

McGEE, VAN SICKLE, HANKLA, BACKES & WHEELER

Gate City Building

P.O. Box 998

Minot, North Dakota 58701

March 21, 1969

Mr. Kenneth J. Johnson

1000 Warner Plaza

Minot, North Dakota 58701

Dear Ken:

This letter will evidence that I have today offered to sell you 147 shares of stock of Warner Construction Company for $44,100.00. When the sale is completed, we will proceed to change the name of Warner Construction Company to Warner-Johnson Company.

Further, I agree to guarantee your note at a bank of my approval for the purchase price of the stock, provided that you shall pledge your stock to that bank and that upon my being required to honor my guarantee, the stock so placed is returned to me.

Yours truly,

S/MURRY W. WARNER

Murry W. Warner

I accept this offer.

Dated this 24 day of March, 1969

S/ KENNETH J. JOHNSON

Kenneth J. Johnson

The principal issue in this lawsuit is the legal effect of the letter, more particularly the second paragraph.

Pursuant to the agreement, on June 11, 1969, the defendant and his wife executed a promissory note payable to the order of the Union National Bank of Minot (hereinafter Bank) for the amount of the purchase price of $44,100.00, and as security for the note the defendant delivered to the Bank (1) a term loan agreement dated June 11, 1969, consisting of a security agreement granting the Bank a security interest in 147 shares of stock in Warner-Johnson Co.; (2) a stock certificate for 147 shares of Warner Construction Company registered in defendant's name; and (3) a stock power 'assignment separate from certificate' executed in blank by defendant.

The defendant was elected to the board of directors after he purchased the stock and was named vice president and general manager. The company's name was changed to Warner-Johnson Company.

On February 28, 1970, the plaintiff executed a Guaranty to the Bank guaranteeing payment of the promissory note give by the defendant.

Between December 12, 1969, and July 8, 1970, the defendant paid $3,540.91 in interest and $4,000.00 on the principal due on the note. He made no further payments. The defendant ceased his employment with the Company in July or August of 1971.

On September 17, 1971, the Bank notified the plaintiff of the default and demanded payment pursuant to plaintiff's guarantee. On October 29 the plaintiff paid the $40,000 remaining on the principal and $3,868.45 accrued interest on the note. On November 1 the Bank assigned the promissory note, security agreement, and stock certificate to the plaintiff.

Plaintiff argues that the findings signed by the trial court were the product of defendant's attorney and that they 'covered items which were not presented in the trial court's comments' and are 'sketchy.' He argues, in effect, that the findings of fact in the record are not those of the court, but rather those of the prevailing party, and as such, are not entitled to the weight which this Court must ordinarily grant to a trial court's findings under Rule 52(a), North Dakota Rules of Civil Procedure.

In pertinent part, our Rule 52(a) provides:

In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon and direct the entry of the appropriate judgment . . .. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses. . . . If an opinion or memorandum of decision is filed, it will be sufficient if the findings of fact and conclusions of law appear therein.

Rule 52(a), N.D.R.Civ.P., is based upon Federal Rule of Civil Procedure 52(a), and the language pertinent to this appeal does not very significantly from the language of the federal rule.

In 9 Wright & Miller, Federal Practice and Procedure: Civil, § 2571, pages 679, 680, the following explanation of the purpose behind the federal rule is found:

One purpose of requiring findings of fact is to aid the appellate court by affording it a clear understanding of the ground or basis of the decision of the trial court. Another purpose is to make definite just what is decided by the case in order to apply the doctrines of estoppel and res judicata in future cases. Finally, and possibly most important, the requirements that findings of fact be made is intended to evoke care on the part of the trial judge in ascertaining the facts.

Plaintiff cites several federal cases expressing criticism of the practice whereby a trial court announces a decision and orders counsel for the prevailing party to prepare findings, the trial court then adopting them verbatim. Roberts v. Ross, 344 F.2d 747 (3d Cir. 1965); Louis Dreyfus & Cie. v. Panama Canal Company, 298 F.2d 733, 738 (5th Cir. 1962); Mesle v. Kea Steamship Corporation, 260 F.2d 747 (3d Cir. 1958).

In Louis Dreyfus & Cie. v. Panama Canal Company, Supra, an admiralty case, the libelant urged 'that the district court decision is not entitled to the full credit usually extended to the findings made by the trier of facts since the trial judge uncritically adopted, virtually verbatim, the proposed findings submitted by counsel for the Panama Canal Company. The respondent submitted seventeen findings of fact. The trial judge incorporated sixteen into his findings verbatim, omitting one incidental finding not related to any disputed question.' The Fifth Circuit Court of Appeals said, at 298 F.2d 737:

We disapprove of the practice of a trial judge's uncritically accepting proposed findings, but this unfortunate practice does not erase the 'clearly erroneous' rule.

The court noted that the language of the admiralty rule under consideration, Admiralty Rule 46 1/2, 28 U.S.C.A., contains 'the exact language used in Rule 52(a) of the Federal Rules of Civil Procedure . . .. The standard governing appellate review is also the same: it may set aside findings of fact only if 'clearly erroneous'.'

The court in that case stated, at page 738, that, 'In analyzing the significance that should be attached to the adoption by the trial judge of findings drafted by one of the litigants, common sense may be a better guide than ideal decision making.' It continued:

Although the standard of review is the same, however, there is and should be a certain leeway in applying the standard to varying cases. When the findings have been drafted by the trial judge himself, they carry a certain badge of personal analysis and determination that may dissuade an appellate court from reversing in a doubtful case. When that badge is missing, the appellate court can feel slightly more confident in concluding that important evidence has been overlooked or inadequately considered--if the evidence supporting the decision is of a doubtful nature. The significance of these considerations with regard to any particular finding depends on the nature of the issue and the relevant evidence. If the decision depends directly upon two or three issues that are clearly drawn, it will be clear that the judge must have focused on those questions before reaching his decision, and therefore it can readily be assumed that the findings accurately reflect his convictions. By contrast, if the questions of fact are complicated and numerous, not all of them being crucial to a determination of the case as a whole, there is greater cause for suspicion that the judge may have allowed certain of the proposed findings to slide under the fence, despite his doubts as to the questions, because they were not necessary to the decision.

The Court of Appeals reviewed the evidence and affirmed the decision of the trial court.

In Roberts v. Ross, Supra, the trial judge had followed the practice of announcing his decision 'substantially in the form of a general verdict,' and then directing counsel for the...