I.M.A., Inc. v. Rocky Mountain Airways, Inc., No. 83SC260

Docket NºNo. 83SC260
Citation713 P.2d 882
Case DateJanuary 13, 1986
CourtSupreme Court of Colorado

Page 882

713 P.2d 882
I.M.A., INC., a Colorado corporation, Petitioner,
v.
ROCKY MOUNTAIN AIRWAYS, INC., a California corporation, Respondent.
No. 83SC260.
Supreme Court of Colorado,
En Banc.
Jan. 13, 1986.
Rehearing Denied Jan. 31, 1986.

Page 884

Kelly, Haglund, Garnsey & Kahn, Edwin S. Kahn, Norman D. Haglund, Denver, for petitioner.

Shoemaker, Wham & Krisor, Robert S. Wham, Denver, for respondent.

LOHR, Justice.

I.M.A., Inc. (I.M.A.) brought suit in Denver District Court against Rocky Mountain Airways, Inc. (Rocky Mountain) alleging that Rocky Mountain had breached a contract between the two parties. I.M.A. asserted that the alleged contract obligated Rocky Mountain to purchase all of the outstanding stock of I.M.A. and, as part of the purchase price, to assume I.M.A.'s liabilities. A jury returned a general verdict for I.M.A. and awarded $300,000 damages. The Colorado Court of Appeals reversed, holding that no contract existed. I.M.A., Inc. v. Rocky Mountain Airways, Inc., 80CA0964 (May 26, 1983) (not selected for official publication). We granted certiorari in order to determine whether the court of appeals erred in concluding as a matter of law that the parties did not enter into a contract. We reverse the judgment of the court of appeals and remand with directions.

I.

In 1977, I.M.A., formerly known as Intermountain Airways, Inc., began service as a commercial airline and air taxi between Denver and Durango, Colorado. It operated pursuant to a certificate of public convenience and necessity issued by the Colorado Public Utilities Commission (PUC). By 1978, however, I.M.A. was already encountering grave financial difficulties. After losing support from its major financial backer, I.M.A. ceased operations in July 1978 without seeking PUC approval. I.M.A. then engaged in discussions with Aspen Airways to explore the possibility of a takeover. While negotiations between these two companies were in progress,

Page 885

Rocky Mountain expressed interest in acquiring I.M.A. and thus obtaining the right to utilize I.M.A.'s certificate of public convenience and necessity to provide service between Denver and Durango. I.M.A. discontinued its negotiations with Aspen Airways and concentrated on reaching an agreement with Rocky Mountain.

On August 1, 1978, the presidents of Rocky Mountain and I.M.A. signed a "Letter of Intent and Agreement," drafted by Rocky Mountain, the stated purpose of which was "to confirm [the parties'] recent understandings as to the acquisition of the assets of I.M.A. by Rocky Mountain Airways, Inc." According to the letter, Rocky Mountain intended "to acquire all of the assets of I.M.A. through acquisition of [all of I.M.A.'s outstanding stock]," and as consideration, Rocky Mountain agreed to assume I.M.A.'s liabilities and to pay a three dollar fee per passenger emplaning at Durango on the Denver to Durango route "to be credited ... to the shareholders [of I.M.A.]." The fee was to be increased to four dollars per Durango passenger upon satisfaction of specified contingencies. Payment of the passenger fees was to continue for no longer than five years and was not to exceed $300,000. As part of Rocky Mountain's agreement to assume I.M.A.'s liabilities, the letter specified that Rocky Mountain would establish an escrow or trust fund in the amount of $20,000 within seven days for the purpose of providing assurance to taxing authorities that I.M.A.'s payroll tax obligations would be paid. 1

In the letter, I.M.A. represented that its liabilities totaled approximately $100,000 and its immediately redeemable assets were valued at approximately $45,000. I.M.A. promised to provide Rocky Mountain with a detailed list of its creditors and to update its accounting records for Rocky Mountain's inspection. The parties made no provision for the possibility that the accounting update might show I.M.A.'s assets or liabilities to be different from the approximate amounts represented. The letter also stated that "this Letter of Intent and Agreement is preliminary in nature, and ... each party will work toward more definitive statements and the execution of agreements and resolutions and contracts, that may be required to consummate the overall purposes of this intent and agreement letter."

The letter listed five requirements upon which the "understanding and agreement and intent to acquire the assets" was contingent: 1) approval of the transfer of control of I.M.A. by the PUC and the Civil Aeronautics Board, 2) approval of Rocky Mountain's board of directors "and of the shareholders, if required," 3) approval of I.M.A.'s board of directors and shareholders, 4) suitable renegotiation of I.M.A.'s lease for the use of the Animas Air Park, which was the Durango airport that I.M.A. serviced, including a list of specified changes to be made in the lease, and 5) ability of Rocky Mountain to carry forward I.M.A.'s net operating loss. Rocky Mountain deleted this last requirement in another letter, entitled "Letter of Intent and Agreement Modification and Amendment," which was dated August 3, 1978, and signed by the presidents of both corporations. The second letter also established a modified schedule of emplaning passenger fees, but retained the $300,000 limit on the total fees to be paid by Rocky Mountain. In addition, it specified that an existing promissory note made by I.M.A. in the approximate amount of $160,000 and any I.M.A. notes held by I.M.A. shareholders were to be paid from the passenger fees.

Subsequent to the signing of these letters, several events occurred. On August 11, 1978, I.M.A. entered into a written lease agreement with Rocky Mountain whereby I.M.A. leased its PUC certificate of public convenience and necessity to Rocky Mountain

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for $500 per month. One purpose of this lease agreement was to enable Rocky Mountain to restore service promptly on the Denver to Durango route. This was important to reduce the possibility of cancellation of the certificate of public convenience and necessity because of the failure of I.M.A. to continue the authorized service or to obtain PUC approval for the interruption. The lease agreement included a promise by I.M.A. to assist Rocky Mountain in obtaining PUC approval of the lease agreement and in establishing service on the Denver to Durango route. By another provision of the lease agreement, I.M.A. and Rocky Mountain acknowledged that the parties had "reached an agreement as to the acquisition of the stock of I.M.A." and that the lease would be subject to renewal until such time as the PUC approved the stock acquisition. On August 15, 1978, the PUC granted emergency temporary approval of the lease, thus allowing Rocky Mountain to begin servicing the Denver to Durango route. Rocky Mountain soon commenced operations on the route.

During the month of August, I.M.A.'s president, Wiebe Gortmaker, traveled to Durango to build public support for Rocky Mountain's acquisition of I.M.A.'s Denver to Durango route and to attempt to persuade Animas Air Park to renegotiate I.M.A.'s landing lease. 2 I.M.A. also obtained, by mail, its shareholders' ratification "in concept" of the proposed stock sale "on substantially the terms and conditions expressed in the attached letters of August 1, 1978 and August 3, 1978." In the meantime, the parties moved I.M.A.'s furniture and office equipment to Rocky Mountain's hangar at Stapleton airport in Denver.

In late September of 1978, I.M.A.'s bookkeeper completed the updating of I.M.A.'s financial records. This led to the discovery that I.M.A.'s liabilities totaled approximately $37,000 more than the company had originally estimated. I.M.A.'s president offered to adjust the allocation of the purchase price so that I.M.A.'s shareholders, and not Rocky Mountain, would bear the cost of satisfying these additional debts. On October 4, 1978, Rocky Mountain's president, Gordon Autry, informed I.M.A. that Rocky Mountain no longer wanted to acquire I.M.A. According to Autry, he advised I.M.A. that the decision not to pursue the acquisition was based primarily on Rocky Mountain's discovery that I.M.A.'s liability and asset position was "a great deal different than that represented." He also stated that market conditions, the existence of two other carriers providing service between Denver and Durango, and the prospect of deregulation of the airline industry pursuant to pending federal legislation 3 were additional reasons that Rocky Mountain had no further interest in the acquisition of I.M.A.

Following Rocky Mountain's refusal to proceed with the acquisition, I.M.A. commenced the present lawsuit. I.M.A. claimed damages for breach of contract, deceit, and unjust enrichment. 4 It contended that the August letters constituted a binding contract and that I.M.A. had performed its obligations under the contract. It further averred that Rocky Mountain had never intended to consummate the transaction, but had allowed I.M.A. to rely on Rocky Mountain's representations that it would complete the acquisition. Finally, I.M.A. asserted that by using the PUC certificate and obtaining the attendant competitive advantages in serving the Denver-Durango market, Rocky Mountain had been unjustly enriched.

In response, Rocky Mountain contended that the August letters were merely preliminary

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and did not constitute a contract. Rocky Mountain further asserted that I.M.A. had materially misrepresented its financial position, that the parties were unable to resolve the new issues posed by the erroneous representations, and that, therefore, I.M.A. and Rocky Mountain were unable to "formalize" an agreement. Rocky Mountain also denied the averments of deceit and unjust enrichment.

At the close of the defendant's case, the trial court directed a verdict for Rocky Mountain on I.M.A.'s deceit claim, but it submitted the breach of contract and the unjust enrichment claims to the jury. The jury returned a general verdict of $300,000...

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121 practice notes
  • In re S & D Foods, Inc., Bankruptcy No. 89 B 06041 J
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
    • August 7, 1992
    ...157 writing. Winston v. Mediafare Entertainment Corporation, 777 F.2d 78, 80 (2d Cir.1986). I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo.1986) (en banc), reh'g denied Jan. 31, 1986, is a factually similar case to the matter sub judice. I.M.A., Inc. (IMA) brought suit aga......
  • Community Hosp. v. Fail, No. 97SC558
    • United States
    • Colorado Supreme Court of Colorado
    • November 30, 1998
    ...is erroneous. It is not error for a trial court to reject an erroneous instruction. See I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 892-93 5 Fail's jury instruction 13 stated in relevant part: The Americans with Disabilities Act does not prohibit an employer from taking an i......
  • Powder Horn Constructors, Inc. v. City of Florence, No. 85SC502
    • United States
    • Colorado Supreme Court of Colorado
    • April 25, 1988
    ...by a contract, one may also consider the circumstances surrounding the making of the contract. I.M.A., Inc. v. Rocky Mtn. Airways, Inc., 713 P.2d 882 (Colo.1986); Lorenzen v. Mustard's Last Stand, Inc., 196 Colo. 265, 586 P.2d 12 (1978). At trial, the City presented no evidence respecting t......
  • Vernon v. Qwest Commc'ns Int'l, Inc., Civil Action No. 09–cv–01840–RBJ–CBS.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • March 8, 2012
    ...the making of an agreement are admissible to clarify the intent and purpose of the parties.” I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo.1986). “The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a ......
  • Request a trial to view additional results
121 cases
  • In re S & D Foods, Inc., Bankruptcy No. 89 B 06041 J
    • United States
    • United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
    • August 7, 1992
    ...157 writing. Winston v. Mediafare Entertainment Corporation, 777 F.2d 78, 80 (2d Cir.1986). I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo.1986) (en banc), reh'g denied Jan. 31, 1986, is a factually similar case to the matter sub judice. I.M.A., Inc. (IMA) brought suit aga......
  • Community Hosp. v. Fail, No. 97SC558
    • United States
    • Colorado Supreme Court of Colorado
    • November 30, 1998
    ...is erroneous. It is not error for a trial court to reject an erroneous instruction. See I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 892-93 5 Fail's jury instruction 13 stated in relevant part: The Americans with Disabilities Act does not prohibit an employer from taking an i......
  • Powder Horn Constructors, Inc. v. City of Florence, No. 85SC502
    • United States
    • Colorado Supreme Court of Colorado
    • April 25, 1988
    ...by a contract, one may also consider the circumstances surrounding the making of the contract. I.M.A., Inc. v. Rocky Mtn. Airways, Inc., 713 P.2d 882 (Colo.1986); Lorenzen v. Mustard's Last Stand, Inc., 196 Colo. 265, 586 P.2d 12 (1978). At trial, the City presented no evidence respecting t......
  • Vernon v. Qwest Commc'ns Int'l, Inc., Civil Action No. 09–cv–01840–RBJ–CBS.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • March 8, 2012
    ...the making of an agreement are admissible to clarify the intent and purpose of the parties.” I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo.1986). “The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a ......
  • Request a trial to view additional results

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