Box v. Crowther, 113
| Decision Date | 21 July 1970 |
| Docket Number | No. 113,113 |
| Citation | 473 P.2d 417,3 Wn.App. 67 |
| Court | Washington Court of Appeals |
| Parties | Harold L. BOX and Jane L. Box, his wife, and Air Cargo Expediters, Inc., a Washington corporation, Respondents, v. Robert L. CROWTHER and Jane Doe Crowther, his wife, and Bremerton Air Taxl, a Washington corporation, Appellants. (40947) II. |
Arthur & Hanley, Terence Hanley, Bremerton, for appellants.
Glenn W. Toomey, Seattle, for respondents.
Action was instituted by plaintiffs against defendants for the purpose of recovering damages and for an accounting. The parties had formed two business associations in the fall of 1967. Their relationship commenced disintegrating by late January, 1968, and this action was commenced in April, 1968.
The damage action was denominated 'breach of contract' but in substance claimed a breach of fiduciary duty of one 'partner' (Crowther) toward the other (Box) and a breach of fiduciary duty of a corporate president and director (Crowther) toward the corporation, Air Cargo Expediters, Inc., of which Box and Crowther were the sole stockholders.
The cause was tried to the court, sitting with a jury, and resulted in a verdict favorable to the plaintiffs in the total sum of $10,500, with interest at 6 per cent per annum. Plaintiffs were awarded $4,500 for loss of net profits to the partnership and $6,000 for loss of net profits to the corporation. The court quite properly declined to permit the jury to decide the accounting aspects of the case and submitted to the jury only the questions of damages to the plaintiffs, Box, as individuals and Air Cargo Expediters, Inc. for the alleged breach of fiduciary duty.
The final judgment provided for the appointment of a referee to effect an accounting with regard to the sums still on deposit in the joint names of the parties in the Bremerton branch of the National Bank of Commerce.
Defendants are appealing from the damage judgment rendered against them. Because of the unusual business relationship which developed between the parties, we will detail the facts before stating the issues raised on appeal.
Prior to September 15, 1967, both Box and Crowther were engaged separately in the air freight business. Box's operation, Kitsap Delivery, Inc. (KDI) was structly a trucking operation, carrying air freight between Sac-Tav Airport and the Kitsap Peninsula. Crowther, on the other hand, was engaged in an air operation, Bremerton Air Taxi, Inc. (BAT) 1 involving carriage of passengers and some freight between the same points. Both were seeking to expand their freight business and in particular were separately interested in securing a large air freight contract with an organization entitled Air Cargo, Inc. (ACI). This was a corporation created by several major airlines to arrange local pickup and delivery services of freight from various airports to points of destination.
Realizing the need for both trucking and air delivery services in order to obtain the potentially lucrative ACI contract, the parties decided to join forces. On September 15, 1967, an oral partnership under the name and style of Air Cargo Expediters (ACE) was established and commenced operating with the ACI contract 2 as its principal asset. This contract required the carriage of air freight at fixed rates between the Kitsap Peninsula and ACI's Sea-Tac Airport facilities.
All seemed to be going well with performances of the ACI contract and Box and Crowther decided to incorporate. Both parties agreed that they would put all their non-ACI contract freight business into the 'pot' (the corporate income), along with the income from such contract. 3
When the corporation, Air Cargo Expediters, Inc., was formed on November 4, 1967, it is clear that both parties intended the corporation to succeed the partnership. There were three directors of the corporation, namely the defendant, Robert L. Crowther, and the plaintiffs, Harold L. and Jane L. Box, husband and wife. Crowther was elected president.
The testimony is somewhat confusing as to the extent of the corporate participation in the venture. The ACI contract was not formally transferred to the corporation, and there was a provision in that contract which would have prohibited such assignment without the consent of ACI. It seems clear, however, that the corporation did function for a short period of time, and the parties did contribute income from their operations into the corporate 'pot' along with revenues from the ACI contract.
Difficulties soon began to overwhelm the corporation, and for all intents and purposes, the men ceased to do business together after February, 1968. Crowther considered the corporation had terminated after he was voted out of the presidency by the Boxes on January 29, 1968.
The parties themselves were confused over their technical business relationship. Box at one point in testimony refers to Crowther as 'one of the partners of the corporation.' ACI never regarded the corporation as existing insofar as its contract was concerned. ACI considered that it was doing business with a partnership and received no request from the 'partners' to transfer the contract to the corporation.
There was undisputed evidence that in April, 1968 Crowther negotiated a separate contract for air freight handling with ACI at reduced rates and in direct competition with the partnership or the corporation. He did this on behalf of his own corporation, the defendant, Bremerton Air Taxi, Inc. In April, 1968 and thereafter the latter corporation also commenced serving some independent air freight forwarders who had given a substantial volume of business to plaintiff's corporation, Kitsap Delivery, Inc., prior to September 15, 1967.
At the conclusion of the evidence, the jury was given the following instructions, among others:
(UNNUMBERED)
The evidence in this case is confusing. I am not sure I can explain the issues but I shall try. There are three separate claims.
(1) Box and Crowther first became partners on September 15, 1967, when they contracted with Air Cargo, Inc., for the carriage of freight between Sea-Tac and the Olympic Peninsula. Later they incorporated as Air Cargo Expediters or ACE. Box claims that he contributed $4,000.00 for operating expenses of the partnership and later the corporation. This is an accounting problem and not a question for the jury to decide. You may be relieved when I tell you that you need not concern yourself with this claim.
(2) Box and Crowther incorporated in November of 1967. Each party was to contribute $500.00 to the capital of the corporation. Box has contributed his share; Crowther admits he has not. There is no issue of fact for you to decide and you need concern yourselves no further with this claim.
(3) Plaintiffs Box and ACE claim that Crowther unfairly and in bad faith competed with Box and ACE in violation of his duties as a partner and corporate officer and that he should account to them for his net profit from such activity. Crowther denies any improper conduct. The issue for you to decide is whether Crowther did compete unfairly and; if so, what his net profits were.
You are instructed that the plaintiffs Box and the defendants Crowther were in fact engaged in a partnership, and stood in a fiduciary relationship to each other from September 15, 1967 to September 15, 1968.
A fiduciary relationship is defined as a relation subsisting between two persons in regard to a business of such a character that each must repose trust and confidence in the other and must exercise a corresponding degree of fairness and good faith. It exists where there is special confidence reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing the confidence.
Where one member of a partnership secures a valuable contract for himself which he should have secured, and had a duty to secure, for the partnership, he will be treated as trustee for it with reference to the transaction and will be compelled to account to his co-partner for the profits acquired by reason thereof. 4
If you find a preponderance of the evidence that defendants in bad faith entered into contracts in competition with plaintiff corporation and thereby caused the loss of profits to plaintiffs, your verdict will be in favor of the plaintiffs. 5
If, on the other land, you find that the defendants were not in bad faith in entering into any such contract in competition with plaintiff corporation or that plaintiffs lost no profits thereby, then you verdict will be for the defendants.
You ask if there is a time when any loss of profits would stop. The answer is yes. Plaintiffs have not established that they are entitled to any profits earned by Crowther after September 16, 1968.
The jury was also given special interrogatories which read as follows:
I
Were plaintiffs Box caused any loss of Net profit by a wrongful act or acts of defendants? Answer Yes
II
If so, in what amount? Answer $4,500
III
Was plaintiff corporation caused any loss of Net profit by a wrongful act or acts of defendants? Answer Yes
IV
If so, in what amount? Answer $6,000
(Italics ours.)
Summarizing these instructions, the jury was, in effect, told that both a partnership and a corporation existed, and that either or both were entitled to recover for net profits lost as a direct result of any wrongful acts of the defendants. At the close of the plaintiff's evidence, the trial court decided that as a matter of law a partnership existed between September 15, 1967 and September 15, 1968. This ruling was based on the testimony of both Box and Crowther that they believed the partnership continued to exist after the formation of the corporation. The ruling was also based on testimony that the contract with ACI was never transferred to the corporation. At the time the court made this ruling, defenda...
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