Title: Warner v. Johnson
Citation: 213 N.W.2d 895
Docket Number: 8860
State: north-dakota
Issuer: north-dakota Supreme Court
Date: December 5, 1973

213 N.W.2d 895 (1973) 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. December 5, 1973. Pringle &amp; Herigstad, Minot, for plaintiffs/appellants. *896 Funke &amp; 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: 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 given by the defendant. *897 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: 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 &amp; Miller, Federal Practice and Procedure: Civil, § 2571, pages 679, 680, the following explanation of the purpose behind the federal rule is found: 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 &amp; 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 &amp; 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: The court noted that the language of the admiralty rule under consideration, Admiralty Rule 46½, 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: 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 prevailing party to prepare findings of fact, conclusions of law, and a form of judgment. The trial judge's order was not "accompanied by an opinion setting out, even summarily, the facts and legal conclusions which had brought him to his decision." The Court of Appeals continued: The Court of Appeals further found that "the trial judge's conclusion is . . . so inadequate as to afford this court no indication of the legal standard under which the evidence was considered." The Court of Appeals continued: And concluded: In Mesle v. Kea Steamship Company, supra, the Third Circuit Court of Appeals again disapproved of the practice whereby the findings of fact and conclusions of law proposed by the prevailing party are adopted verbatim by the court. But the Circuit Court there reviewed the evidence and affirmed the trial court's judgment. In the instant case, an oral opinion accompanied the decision from the bench. This opinion covers some six pages in the record and considers the evidence presented during the course of the trial. Plaintiff argues that the opinion was issued only ten minutes after the close of evidence and arguments by both counsel. This, he argues, indicates a lack of careful consideration. However, the trial took two days, during which time the trial court had occasion to see and observe the witnesses and hear the entire case. The plaintiff and the defendant testified on July 11, 1972, and the attorney who prepared the letter agreement testified on July 13, to which date the trial was adjourned. It was at the conclusion of this testimony that the arguments were heard and the oral memorandum decision was announced. The trial court had two days in which to consider the evidence and arrive at its decision. The findings of fact signed by the trial court are substantially the same as those found in the trial court's oral opinion, and are entitled to the weight to be given by this court by Rule 52(a), N.D.R.Civ.P., and will not be overturned unless clearly erroneous. We have compared the findings of fact prepared and submitted by the attorney for the defendant and find that the findings of fact are sufficiently similar to the findings contained in the oral opinion to indicate that the trial court adequately and carefully considered the findings of fact in adopting the findings of fact as its own. The trial court found the meaning of the terms contained in the letter concerning the plaintiff's guarantee not entirely clearthe defendant understanding that if he defaulted on the payment of the note the plaintiff would accept the return of the stock without any further claim against the defendant; and the plaintiff claiming that he would have the same rights as the Bank. The trial court, upon considering the evidence adduced, found that the parties intended "by their agreement, that in the event of default by the defendant, plaintiff would accept return of the stock in full satisfaction of his claim against defendant." The trial court found from the evidence and circumstances that the defendant was a minority stockholder in a close corporation; *900 that the value of the stock upon execution sale would be negligible to anyone but plaintiff or his wife, the majority stockholders; that the purchase price was substantially in excess of the stock's book value; that the plaintiff seller, as the employer, as the majority stockholder, and as the lender of credit, enjoyed a superior bargaining position; that the attorney who prepared the letter agreement was the long-time counsel for the plaintiff and the corporation; and that after the plaintiff had honored his guarantee he no longer recognized the defendant as a stockholder or director. The findings of fact prepared and submitted by the attorney for the defendant and signed by the court are as follows: This court will not reverse and remand a case where the trial court first announces orally its findings and then signs findings prepared by counsel, where the findings are not clearly erroneous. The evidence is undisputed that the price per share paid by defendant was $300 and that the book value for the same share was $241; that plaintiff requested the attorney to draw the letter; that the date of acceptance was March 24, 1969; and that the attorney drawing the letter of agreement had represented the plaintiff and his corporation for a number of years, although the defendant did admit he had agreed that the attorney was to represent both parties in this transaction. No other documents were made touching on the sale of the stock, the loan from the bank for the purchase price, and the terms of the guarantee, except the issuance of the stock to Johnson, the note to the bank, the security agreement and the pledge of the stock by the assignment thereof to the bank. No discussions were had about the legal consequences in the event the defendant failed to pay the note to the bank. The defendant claims that his understanding was that if he should default and the plaintiff was required to make good on his guarantee to the bank, the return of the stock to the plaintiff would be accepted in full satisfaction of the loan. Plaintiff disputes whether or not he recognized defendant as a stockholder or member of the board of directors after the bank note was paid, and the stock certificate and assignment of voting rights executed in blank were returned to him. The exhibits show there were four board of directors' meetings between the time defendant's employment ceased and May 26, 1972. Defendant received no notice of those meetings and did not attend. Neither was he notified nor did he attend several informal meetings of the stockholders held during that time. The same exhibits also stated, "Those present were Murry W. Warner [and] Alice Warnerbeing the majority of the directors and a quorum." [Emphasis *902 supplied.] This, plaintiff argues, shows that defendant was still considered a stockholder and director of the corporation. We find, however, there is substantial evidence to support the finding adopted by the court. Applying Rule 52(a) of our Rules of Civil Procedure, notwithstanding that the trial court adopted the proposed findings of counsel verbatim, and concluding that the trial court's written findings of fact are not clearly erroneous, we sustain the trial court's findings of fact and the judgment based thereon. The judgment is affirmed. ERICKSTAD, C. J., and TEIGEN, PAULSON and VOGEL, JJ., concur. VOGEL, J., was not a member of this Court at the time of submission of this appeal; he participated on the briefs filed in this case.