Downtowner Corp. v. Commonwealth Securities Corp., 5--4257

• Decision Date: 02 October 1967
• Docket Number: No. 5--4257,5--4257
• Parties: The DOWNTOWNER CORPORATION, Appellant, v. COMMONWEALTH SECURITIES CORPORATION, Appellee.
• Court: Arkansas Supreme Court

Page 126

419 S.W.2d 126

243 Ark. 122

The DOWNTOWNER CORPORATION, Appellant, v. COMMONWEALTH SECURITIES CORPORATION, Appellee.

No. 5--4257.

Supreme Court of Arkansas.

Oct. 2, 1967.

Reinberger, Eilbott, Smith & Staten, Pine Bluff, for appellant.

Coleman, Gantt, Ramsay & Cox, Pine Bluff, for appellee.

BROWN, Justice.

Appellant, The Downtowner Corporation, based at Memphis, Tennessee, brought this suit to recover on an alleged implied contract existing between Downtowner and appellee, Commonwealth Securities Corporation, of Pine Bluff. Whether or not an implied contract in fact was created between the parties is the determining issue before us.

In 1962 Downtowner entered into a licensing agreement with Franklin D. Keith and Robert C. Lowther. That agreement gave the licensees the right to use the trade name, mark, and design of Downtowner in the operation of a new motel to be constructed by licensees in Pine Bluff. For that privilege, licensees agreed to pay ten cents per day per motel room as a royalty and five cents per day for advertising expenses. There was also a provision for the payment of sign rentals. Licensees also committed themselves to purchase from licensor, or its subsidiaries, practically every item needed in the day-to-day operation of a modern motel. These need not be here itemized but the items of royalty fees, payment for advertising, and for sign rentals are important because recovery is sought for them.

Keith and Lowther proceeded to construct a motor inn of 91 rental units and, as authorized in the licensing agreement, operated under the name of Downtowner Motor Inn. The inn was constructed on land owned by Commonwealth, a long-term lease having been executed between Keith, Lowther, and Commonwealth. The lease payments were subrogated to the construction financing furnished by a savings and loan association. Keith and Lowther became heavily indebted by 1965 to numerous creditors in Pine Bluff and to the parent Downtowner in Memphis. In June of that year, Keith and Lowther quitclaimed all their interest (except the licensing agreement, which was nonassignable) to Commonwealth and ostensibly went to Louisiana.

It was Commonwealth's decision that the interests of all creditors would best be served if the 'doors could be kept open' until the property could be leased or sold to some experienced and reliable operator. Commonwealth retained Keith's and Lowther's manager. The president and secretary of Commonwealth, inexperienced in the hotel or motel business, took the responsibility of looking after financial affairs as best they could.

It was thought wise to first contact Downtowner in Memphis. It was desired that Downtowner purchase the property, or in the alternative, enter into a managerial arrangement. A meeting was set up with R. L. Kirkpatrick, executive vice-president of Downtowner, for July 1, 1965. This was only seven days after Commonwealth had taken over the operation. P. R. Clark, Commonwealth's secretary, and the inn-keeper, represented Commonwealth at the meeting in Memphis.

The Memphis meeting started a series of contacts and negotiations which continued until February 1966. By that time it appeared that a satisfactory arrangement could not be consummated between the parties. During the interim, Commonwealth had purchased and paid for various Downtowner operating supplies and in most respects operated as if it were a part of the Downtowner chain. Late in February 1966, Downtowner notified Commonwealth to remove all evidence of the Downtowner trademark which appeared on innumerable items used in the daily operations. Commonwealth set about to comply. The name was changed to Down Town Motel. Complaint was registered because of the similarity of that name to 'Downtowner.' The name was subsequently changed to 'Ambassador Motel.'

Suit was filed on or near March 30, 1966, by Downtowner, seeking royalty and advertising fees for the period beginning with June 23, 1965. Additionally, judgment was sought for sign rental accruals. Since there had been no affirmative commitment by Commonwealth to pay any of these charges, this question arises: was there a contract implied in fact between the parties? That is the thrust of appellant's argument.

No definition by this court of an implied contract has been called to our attention. However, we have cases on the subject and the holdings there are consistent with the law to be shortly cited. For example, see James v. P. B. Price Const. Co., 240 Ark. 628, 401 S.W.2d 206 (1966); Caldwell v. Missouri State Life Insurance Co., 148 Ark. 474, 230 S.W. 566 (1921); and Blake v. Scott, 92 Ark. 46, 121 S.W. 1054 (1909).

Confusion has resulted from the interchangeable use of the terms 'implied contract' and 'quasi-contract.' Quasi-contracts are not based on promises to pay or perform. They are obligations which are creatures of the law designed to afford justice. Generally, an indispensable element of a contract, express or implied in fact, is a promise.

'This latter class (implied contracts) consists of obligations arising from mutual agreement and intent to promise but where the agreement and promise have not been expressed in words. Such transactions are true contracts and have sometimes been called contracts implied in fact. The elements requisite for an informal contract, however, are identical whether they are expressly stated or implied in fact.' Williston on Contracts, Third Edition, Section 3 (1957).

Restatement recognizes an exception to the rule that a promise must be oral or written, 'or must be inferred wholly or partly from such conduct as justified the promisee in understanding that the promisor intended to make a promise.' Restatement Contracts, § 5 (1932). That exception is stated in § 72(2):

'Where the offeree exercises dominion over things which are offered to him, such exercise of dominion in the absence of other circumstances showing a contrary intention is an acceptance. If circumstances indicate that the exercise of dominion is tortious the offeror may at his option treat it as an acceptance, though the offeree...