Zimmerman v. Loose

• Decision Date: 06 March 1967
• Docket Number: No. 20900,20900
• Citation: 162 Colo. 80,425 P.2d 803
• Parties: Gwen ZIMMERMAN, George Aiello, Italian Village, Inc. and Lederman-Zimmerman Company, Plaintiffs in Error, v. Pauline LOOSE, Individually and as Conservatrix of the Estate of Edward Loose, Incompetent, Defendant in Error.
• Court: Colorado Supreme Court

Page 803

425 P.2d 803

162 Colo. 80

Gwen ZIMMERMAN, George Aiello, Italian Village, Inc. and Lederman-Zimmerman Company, Plaintiffs in Error, v. Pauline LOOSE, Individually and as Conservatrix of the

Estate of Edward Loose, Incompetent, Defendant in Error.

No. 20900.

Supreme Court of Colorado, En Banc.

March 6, 1967.

Adams & Loughlin, Denver, for plaintiffs in error George Aiello and Gwen Zimmerman.

Ben Klein, Denver, for plaintiff in error Lederman-Zimmerman Co.

Alloway & Loye, Denver, for defendant in error.

SUTTON, Justice.

This is an action in fraud allegedly committed in inducing Edward Loose, an incompetent, represented here by Pauline Loose, Conservatrix of his estate, to purchase a tavern operated under the name of the Italian Village, Inc. Defendants in the trial court were George Aiello, Gwen Zimmerman, Milton Berger, Vernon Nygaard, Harold Fitzsimmons, Donald Aymami, Italian Village, Inc., and Lederman-Zimmerman Co. The claims were dismissed against Aymami, Berger and Nygaard and Harold Fitzsimmons died just prior to trial. Italian Village, Inc., although represented at the trial, does not appear here. Plaintiffs in error Aiello, Gwen Zimmerman and Lederman-Zimmerman Co. will be referred to by name or as defendants with reference to 'Aiello' meaning the father George Aiello and to 'Zimmerman' being Gwen Zimmerman. Defendants in error will be referred to by name or as plaintiffs.

On June 21, 1960, the Looses filed an action which among other relief sought $17,764 actual damages against all defendants, $1,000 further actual damages against Zimmerman and Fitzsimmons, and $5,000 exemplary damages. Following the trial to the court, Loose was awarded $17,764 damages against Aiello, Zimmerman, Lederman-Zimmerman Co. and Italian Village, Inc. The court specifically found that Edward Loose was an incompetent at the time of the transactions in question; that the defendants knew of his condition; that they took advantage of him and so were guilty of fraud.

The defendant Lederman-Zimmerman Co. urges ten assignments of error which may be summarized into four grounds as follows:

(1) It was error to admit evidence relating to a company known as the 7655 Corporation and to Marvin Lederman as they were not parties to the action and their activities were outside the scope of the pleadings;

(2) Amendment of the complaint was allowed over the objection of a defendant;

(3) No continuance was granted; and,

(4) The judgment is contrary to the pleadings and to the evidence.

Defendants Aiello and Zimmerman further assign as error:

(1) That there was a failure to prove fraud by clear and convincing evidence; and,

(2) That there was an application of the wrong measure of damages. They assert that the proper formula should have been the difference between the actual value of the business at the time of sale and what its value would have been had the representations complained of been true.

The fact situation presented is a complicated one. In the summer of 1959 the Italian Village, Inc. owned a restaurant and bar located at 7655 W. Alameda, Lakewood, Colorado. The stock of this company was held by Kanellia Aiello, Winifred Fallico and George R. Aiello, the latter being a son of defendant Aiello. It appears that defendant Aiello held a $10,000 note and mortgage on the assets of the corporation as well as the lease on the property. On August 3, 1959, the corporation was sold to Vernon Nygaard for a total purchase price of $16,000, of which he paid $6,000 in cash, and the balance of $10,000 was paid by his promissory note secured by a mortgage on the stock, fixtures and furnishings. Both the note and the cash payment were delivered to the defendant Aiello rather than to his son.

Late in August 1959, Nygaard, after being in possession about three weeks, asked Fizsimmons and Zimmerman, who were both real estate brokers, to locate a purchaser for him, and also asked Aiello to protect his interest in the business while he was absent. His price for the business was what he had in it by then, viz., $16,000 or $16,500. It was then that Fitzsimmons and Zimmerman contacted Edward Loose, took him to see the business, convinced him that it was a profitable one and arranged for him to purchase it. Aiello and Nygaard were also contacted and discussed the property with Loose. Though Aiello did not actually state that the business was profitable, Fitzsimmons indicated that the business took in $100 per day, and Nygaard said it was $250. Other portions of the record, however, show that the Italian Village sustained a loss of $7,326 during 1958 and approximately $5,800 during the first six months of 1959.

The initial purchase price to Loose was to be $19,500. Of this $500 was to be paid upon signing the initial agreement; $7,500 was to be in cash at the closing; and a note for $11,500 was to be given Aiello. The note was to be secured by a chattel mortgage on the furniture and fixtures and a pledge of the stock of the corporation. Thereafter Loose paid the initial $500 and at the closing turned over $5,500 cash which he had withdrawn from a joint savings account owned with Mrs. Loose. He also paid $1,524.80 for which he had cashed savings bonds and a further $25.20 in cash. At this time Edward Loose also executed three promissory notes, one for $2,100 to Vernon Nygaard, one for $4,750 to Aiello secured by a second mortgage on the furniture and fixtures, and a third for $11,500 to Aiello secured by a first mortgage, a pledge of stock and an assignment of a note from Donald Aymami to Loose in the amount of $8,500 secured by a second mortgage on the assets of the Club Bar--the latter being another Denver area tavern. At the closing Loose was given $800 in cash by Fitzsimmons. Loose also authorized Fitzsimmons and Berger, the latter being Aiello's attorney, to collect $1,000 due him from one A. D. Jones. Berger later received a note for $1,100 from Jones which cancelled the latter's indebtedness to Loose. Thus, at the closing Loose paid in cash, notes and assignments $26,100 instead of the agreed $19,500.

The Loose money was divided as follows: Nygaard received $3,900 in cash and the $2,100 note (and apparently a cancellation of his previous commitments), and Aiello received the two notes totaling $16,250 plus the assignment of the $8,500 Aymami note as security, with the balance of the cash unaccounted for. Defendant Aiello signed the purchase agreement for Nygaard as the latter was not present at the closing. Loose did not receive an assignment of the lease which remained in the name of Aiello, even though $2,400 of the price paid was purportedly a lease deposit.

Following the complex closing, Loose, a confirmed alcoholic, took over the management of the bar-restaurant on September 8, 1959. Apparently, he was unable to operate it competently, for on November 5, 1959, he contacted Zimmerman and requested that she find a new purchaser for the business. At that time Zimmerman was acting on behalf of a new company called the Lederman-Zimmerman Co., a real estate brokerage firm incorporated in October, 1959. The record discloses that the agent then obtained a two-month exclusive listing from Loose and said that she would locate a purchaser for the amount of his investment. Later in November, Zimmerman took over operation of the business in order, as she said, to try and keep it open so a sale could be made. Her actions in this respect were not as an agent of Lederman-Zimmerman Co.

The next chapter in this tale is that in December, 1959, Aiello, not having received payment on one of the Loose notes, sold the $8,500 note assigned to him as security to Aymami for $5,000, cancelling the $4,750 note from Loose and marking $3,750 paid on Loose's $11,500 note. The remainder of the $11,500 note, then having a purported value of approximately $7,750, he sold to a Mr. Reano. Aiello next contacted George Newton, owner of the premises upon which Italian Village, Inc. was located and arranged to cancel the lease. Since Loose had not paid the rent for the four preceding months, a total of $1,600 was then due. Thereafter the lease was terminated in consideration of the cancellation of the rent then owing. Loose, however, was not notified of any of these post-possession transactions.

We next find that on December 24, 1959, Zimmerman and Marvin and Victor Lederman, the three owners of Lederman-Zimmerman Co., formed a new corporation called the 7655 Corporation. They also began negotiations with Newton for a lease of the same premises in which the Italian Village was located. Thereafter, a lease running to the 7655 Corporation was signed on December 31, 1959, and a liquor license was also obtained by the new corporation. During this period the exclusive listing agreement given Zimmerman by Loose was still in effect. Finally, the premises were occupied in January, 1960, by the 7655 Corporation in the same condition as when Loose purchased Italian Village, Inc. All the furniture and fixtures were still present, the evidence showing that most of these had belonged to Newton rather than to Italian Village. Apparently these were the same furniture and fixtures, however, on which Aiello had held chattel mortgages securing Loose's indebtedness to him.

Edward...