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Delta Products, Inc. v. Van Houten

Court of Appeals of Colorado, First Division
Nov 2, 1971
490 P.2d 306 (Colo. App. 1971)

Opinion

         Nov. 2, 1971.

         Editorial Note:

         This case has been marked 'not for publication' by the court.

Page 307

         Williams, Turner, Holmes & Hambright, Anthony W. Williams, Grand Junction, for Delta Products, Inc. John C. Schweitzer and Ada A. Johnson.


         Norman B. Hotchkiss, Grand Junction, for Robert G. Van Houten and Delta International Ltd.

         PIERCE, Judge.

         The parties herein will be referred to as follows: plaintiff-appellant Delta Products, Inc., as 'Delta Products'; defendant-appellee Delta International Ltd., as 'International'; and defendant-appellant Robert G. Van Houten as 'Van Houten'. This appeal involves two consolidated actions, involving the same parties and subject matter, which will hereinafter be referred to as civil action no. 18196 and civil action no. 18298.

         The issue in the trial of civil action no. 18196 was the effect of a number of agreements entered into by the controlling shareholders of two closely held 'brother-sister' corporations at the time the shareholders terminated their relationship and severed the corporation.

         Ada A. Johnson, John C. Schweitzer, Ronald B. Duff, and Van Houten were the officers and controlling shareholders in both Delta Products and International. After much dissension and disagreement, they decided to sever their business relationship and, on December 31, 1968, agreed that Van Houten would assume sole ownership of International, and Johnson, Schweitzer, and Duff would assume sole ownership of Delta Products. Various exchanges of consideration were involved, but basically Van Houten received all stock of International Cash, merchandise, and a job as consultant with Delta Products, whereby he was to receive $1,000 per month for 37 months. In return, Johnson, Schweitzer and Duff received all stock of Delta Products, cash, and a non-competition agreement from Van Houten.

         Van Houten delivered his Delta Products stock certificates to Delta Products, but failed to secure his wife's signature despite the fact that the stock was jointly owned. Due to merital differences, he was subsequently unable to secure her ratification of the transfer. Delta Products entered into negotiations with Mrs. Van Houten and ultimately secured her ratification for a total consideration of $2,000.

         Shortly after the corporate split, Van Houten went into competition with Delta Products by developing, advertising, Manufacturing, and selling through International an ignition system which was competitive with an ignition system manufactured by Delta Products. Upon learning of his activities, Delta Products terminated Van Houten's services as a consultant and brought suit against him and International. The complaint prayed that Van Houten and International's violation of the noncompetition agreement be enjoined. Van Houten and International counterclaimed, asking that the agreements of December 31, 1968, be rescinded or, in the alternative, that the agreements be specifically performed. Delta Products replied, denying that rescission was a proper remedy and admitting that the agreements should be specifically performed with the exception of the consulting agreement.

         The trial court preliminarily enjoined Van Houten from breaching the non-competition agreement and, at a later hearing, made the injunction permanent. The court ruled, Inter alia, that rescission was not justified, and entered judgment for Van Houten for the remaining installments on the consulting agreement.

         I.

         Delta Products contends that the trial court erred in requiring it to complete performance of the consultation agreement with Van Houten. In view of the trial court's finding that Van Houten breached the non-competition agreement, it is their contention that the consultation agreement gave rise to a master-servant relationship which Van Houten violated, and therefore Delta Products was justified in terminating the consultation relationship and ceasing further payments. Dawson v. Clark, 145 Colo. 278, 358 P.2d 591; Bilz v. Powell, 50 Colo. 482, 117 P. 344.

          We find, however, that the record adequately supports the trial court's determination that the 'consultation agreement' gave rise to a debtor-creditor relationship; was part of the consideration for the sale of Van Houten's Delta Products stock; and that the purpose of the document was to obtain favorable tax treatment rather than to require Van Houten to perform services. Where, as here, the trial court's judgment is supported by competent evidence it will not be disturbed on appeal. Broncucia v. McGee, Colo., 475 P.2d 336.

         II.

         At the close of its case, Delta Products moved to amend its complaint to allege that Van Houten breached his agreement to deliver all his stock to Delta Products and to ask judgment for $2,000, the amount paid Mrs. Van Houten for her ratification. Delta Products asserts that the trial court's denial of this motion was in error. We agree.

          Evidence regarding the cost of securing Mrs. Van Houten's ratification was presented without objection and the trial court's failure to allow an amendment of the pleading to conform to the evidence does not comply with C.R.C.P. 15(b) which states as follows:

'When issues not raised by the pleadings are tried by express or implied consent of the parties, they Shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to confrom to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues.' (Emphasis supplied.)

         Under the circumstances of this case we find that permission to amend the complaint should have been granted under the spirit and intent of C.R.C.P. 15(b), and that the trial court's failure to permit Delta Products to amend its complaint in conformance with the evidence was an abuse of discretion. Martin v. Kennell, 169 Colo. 122, 453 P.2d 797. See Simms v. Andrews, 10 Cir., 118 F.2d 803. The issue is remanded to the trial court with directions to allow the amendment and to permit and conduct such further proceedings as may be necessary to determine the issue.

         III.

         In civil action no. 18298, errors alleged by the appellants have been fully conceded by appellees in their answer brief.

         Therefore, as to action no. 18298, judgment is reversed and the case remanded with instructions that the trial court enter judgment in favor of third-party defendant-appellants Ada A. Johnson and John C. Schweitzer and against International for any sums they may be required to pay Van Houten pursuant to his judgment against them in action no. 18196.

         As to civil action no. 18196, judgment is affirmed in part, reversed in part and remanded with directions for further proceedings as delineated by this opinion.

         SILVERSTEIN, C.J., and COYTE, J., concur.


Summaries of

Delta Products, Inc. v. Van Houten

Court of Appeals of Colorado, First Division
Nov 2, 1971
490 P.2d 306 (Colo. App. 1971)
Case details for

Delta Products, Inc. v. Van Houten

Case Details

Full title:Delta Products, Inc. v. Van Houten

Court:Court of Appeals of Colorado, First Division

Date published: Nov 2, 1971

Citations

490 P.2d 306 (Colo. App. 1971)