Court Opinion

ID: 9674685
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:33:44.937205+00
Date Added: 2024-06-11T18:16:29.030430
License: Public Domain

Tom Glaze, Judge, dissenting. This case is somewhat remarkable. In view of my research and the extensive research performed by the parties, I cannot find another case within or without our jurisdiction in which one person represented so many in a business transaction. The transaction involved multiple parties but factually is easy to follow. In 1975, James Gallman, an attorney, approached Hayden McIlroy, President of McIlroy Bank (Bank), to see if the Bank would purchase and lease construction equipment to Seven Day Builders (Builders). The equipment was to be purchased from Jeanway Industries (Jeanway). Mr. McIlroy agreed and Gallman prepared all the necessary documents. At the time of this transaction, Gallman was the attorney for Mr. McIlroy, the Bank, the Builders and Jeanway. He was also the President, majority stockholder and agent for Builders.1 The Bank agreed to disburse $75,000 to finance the transaction, about $62,000 was paid Jeanway for the equipment, $10,000 was invested in a Certificate of Deposit in Builders’ name with Gallman was trustee and approximately $2,500 went to Builders directly. Gallman drafted the lease so Builders would pay off the $75,000 in five years and he offered the Certificate of Deposit as collateral to secure the lease payments. Gallman personally guaranteed the payments, and he gave the Bank the Certificate of Deposit to help protect himself against personal liability if Builders defaulted on its payments. It is also significant to note that International Properties, Builders’ forty-four percent minority shareholder, was involved in this original transaction to the extent that it was to loan Builders @25,000 working capital, and Gallman was to arrange all the necessary financing for Builders through the Bank. Don Couch, the President of International Properties, had discussed with Gallman the formation of Builders even before it was organized. Gallman had known and represented Couch in previous years when Couch had been in the banking business in Little Rock, Arkansas. As mentioned above, Gallman was attorney for four of the participating parties to the business transaction, viz., Hayden McIlroy, the Bank, Builders, and Jeanway. He also was an agent for Builders when the financing and business transaction was closed. As an attorney, Gallman could conceivably represent multiple clients having differing interests.2 In the instant case, however, given the nature of the creditor/debtor transaction in question and Gallman’s relationship with each of the four participating parties, this transaction was fraught with the likelihood of litigation from its inception. Gall-man admitted as much when he attempted to protect himself from personal liability on the Bank loan if Builders defaulted. More importantly, the record reflects that the Certificate of Deposit he pledged so as to limit his personal liability was purchased from the @75,000 loan proceeds, all of which became Builders’ obligation to the Bank. Although Gallman testified that all parties were aware that he represented the Bank, Builders and Jeanway, there is nothing in the record which shows that he discussed the potential conflicts and pitfalls which could result from his sole handling of the transaction. Even if Gallman had scrupulously followed every ethical consideration in this matter, the greater issue and concern arises because he not only was the attorney for all the parties, but also he was the agent for Builders. The law is settled that the knowledge of an agent acquired in discharge of his principal duties for a corporation is ordinarily imputed to the principal. Ritchie Grocer Company v. Aetna Casualty & Surety Company, 426 F. 2d 499 (8th Cir. 1970). Thus, it cannot be argued seriously that Builders was ignorant of nor insulated from the details of the negotiations and transaction fashioned by Gallman and entered into with the Bank. In fact, Builders’ other major shareholder, International Properties, through its President, Don Couch, was actively involved in this venture from its inception. In most jurisdictions where the problem has arisen, the courts have taken the view that a borrower who initiates a usurious transaction is estopped from setting up the defense of usury. See Annot. 16 A.L.R. 3d 510, 513 (1967), which cites the following cases: Blanks v. American Southern Trust Company, 177 Ark. 832, 9 S.W. 2d 310 (1928) and Perry v. Shelby, 196 Ark. 541, 118 S.W. 2d 849 (1938). See also, Swaim v. Martin, 158 Ark. 469, 251 S.W. 26 (1923) zndRogus v. Continental Illinois National Bank and Trust Company of Chicago, 4 Ill. App. 3d 557, 281 N.E. 2d 346 (1972). From the record, there is no doubt that Builders initiated the loan/ lease transaction and Gallman, its agent and attorney, prepared the documents, negotiated the percentage of interest to be charged, determined the amortization period and calculated the payments to be paid the Bank. I can conceive of no set of facts more appropriate to apply the rule of estoppel. See Moorehead v. Universal C.I.T. Credit Corporation, 230 Ark. 896, 327 S.W. 2d 385 (1959). Appellee mentions in its brief, almost in passing, that estoppel was not raised nor argued below. However, substantial evidence supporting such a defense was received without objection and is binding on appellee on the merits of this controversy. Moorehead v. Universal C.I.T. Credit Corporation, supra. For the foregoing reasons, I would reverse. I am authorized to state that Judge Corbin joins in this dissenting opinion.  Gallman organized Builders and was its originating, sole stockholder. Before or at the time of the business transaction, a Mike Hedrick and International Properties had acquired five percent and forty-four percent respectively of the stock of Builders.   Our Supreme Court has adopted the Code of Professional Responsibility of the American Bar Association. (Adopted Per Curiam June 21, 1976; effective July 1, 1976.) The Code actually was in effect in Arkansas after Gallman undertook to represent the parties in this cause. Ethical considerations 5-14 through 5-16 of the Code are instructive concerning instances in which a lawyer is justified in representing two or more clients having differing interests.