Knisely v. Burke Concrete Accessories, Inc.

• Decision Date: 27 April 1970
• Docket Number: No. 274--40741--I,274--40741--I
• Citation: 2 Wn.App. 533,468 P.2d 717
• Parties: James Dan KNISELY, Respondent, v. BURKE CONCRETE ACCESSORIES, INC., Appellant.
• Court: Washington Court of Appeals

Page 533

2 Wn.App. 533

468 P.2d 717

James Dan KNISELY, Respondent, v. BURKE CONCRETE ACCESSORIES, INC., Appellant.

No. 274--40741--I.

Court of Appeals of Washington, Division 1, Panel One.

April 27, 1970.

Rehearing Denied July 2, 1970.

Review Denied Aug. 21, 1970.

MacDonald, Hoague & Bayless, Wm. H. Neukom, Seattle, for appellant.

Olwell, Boyle & Hattrup, Lee Olwell, Seattle, for respondent.

SWANSON, Judge.

James Dan Knisely, a professional engineer specializing in wire-handling machinery, contracted to design and construct a machine capable of automatically transferring snap ties between work stations. Burke Concrete Accessories, Inc., hereinafter referred to as 'Burke,' agreed to pay $12,500 to Knisely for manufacturing the machine, plus a royalty on each snap tie unit produced by the Knisely machine. Knisely claimed that Burke breached the royalty agreement, and sought damages. Burke counterclaimed for breach of contract and breach of warranty. Knisely was awarded $15,811.85 for past due contract payments, and $41,803.28 for future damages. Burke appeals.

Appellant Burke is a California corporation which manufactures, among other items, snap ties used in concrete construction. The ties are made in several steps by operations performed at various work stations. Burke consulted Knisely to devise a method to speed the manufacture of these devices. Knisely was to manufacture a machine capable of transferring the ties between points on the production line, incorporating adapted versions of the four separate machines previously used. The 'transfer theory' was the thing of value. A prototype machine was installed in appellant's Seattle plant on April 3, 1964. Thereafter, on August 26, 1964, a contract for the purchase of this machine was signed. Respondent Knisely covenanted 'to construct a machine for the production of snap ties with an annual single eight (8) hour shift capacity of not less than two (2) million snap ties and which requires not more than two (2) operators in a forty (40) hour week.' The contract further provided that Burke would purchase the machine on a cost of manufacture basis. After the purchase price was paid, Burke was obligated to pay royalties computed on a snap tie unit basis.

On January 6, 1965, Burke's manufacturing division manager, Edward S. Brugge, wrote Knisely a letter, exhibit 29, ¹ accepting the machine and agreeing to start royalty payments as of November 11, 1964. Burke made the first payment in March, 1965. In December, 1965, the prototype machine was moved to Hayward, California, and a second machine was manufactured from Knisely's design by a third party. The use of this second machine commenced in Seattle in July of 1966. Just prior to this, on June 20, 1966, Burke stopped making royalty payments. On April 28, 1967, a member of Burke's board of directors wrote to Knisely's attorneys repudiating the contract in its entirety. Exhibit 50. ²

Thereafter, Burke installed a machine of Knisely's design in Montebello, California. On May 15, 1967, Knisely commenced this lawsuit seeking recovery of the amount due under the contract, and for damages based on the repudiation of the contract. Judgment was entered for Knisely as indicated. Burke appeals and assigns error to 21 findings of fact.

First, appellant claims the contract between the parties was for the sale of machines expressly warranted as to annual production. This contention directly attacks the court's finding 29:

That the contract for the design and construction of the machine was in the nature of a joint venture and not a contract of sale which carried a warranty.

Burke alleges an express warranty is contained in paragraph 1 of the agreement Manufacture of Machine Knisely shall forthwith upon the execution hereof proceed to construct a machine for the production of snap ties with an annual single eight (8) hour shift capacity of not less than two (2) million snap ties and which requires not more than two (2) operators in a forty (40) hour week.

Claiming that an annual production of 2,000,000 snap ties was never reached, Burke says the warranty was breached, thus affording a power to repudiate the contract.

We agree with appellant's contention that this contract did not create a joint venture. The Washington rule on the requirements for a joint venture was definitively stated by Justice Steinert in Carboneau v. Peterson,1 Wash.2d 347, 374, 95 P.2d 1043, 1054 (1939):

Briefly stated, a joint adventure arises out of, and must have its origin in, a contract, express or implied, in which the parites thereto agree to enter into an undertaking in the performance of which they have a common purpose and in the objects or purposes of which they have a community of interest, and, further, a contract in which each of the parties has an equal right to a voice in the manner of its performance and an equal right of control over the agencies used in the performance. Thus, we note (1) a contract, (2) a common purpose, (3) a community of interest, (4) equal right to a voice, accompanied by an equal right of control.

Accord, Korslund v. Troup, 67 Wash.2d 773, 409 P.2d 856 (1966). Furthermore, in a joint business venture the parties share profits and losses. Skrivanich v. Davis, 29 Wash.2d 150, 186 P.2d 364 (1947). While the agreement here may in certain aspects resemble a joint venture arrangement, the essential element of shared profits and losses is missing. The primary purpose of the agreement is clearly stated in paragraph 3:

Purchase of Machine Upon satisfactory completion of the machine meeting the foregoing specifications, Burke shall purchase and Knisely shall sell the machine and the exclusive right to the use of the ideas, development and improvements involved therein, whether patentable, patented or otherwise.

Given this clause, the agreement here is a contract for the sale of goods as defined in RCW 63.04.020(1). ³ Such a contract may contain an express warranty as defined in RCW 63.04.130. ⁴ Acceptance of the goods does not, in the absence of agreement, discharge the seller's liability for breach of warranty. RCW 63.04.500. ⁵

The question is, did paragraph 1 of the agreement constitute an express warranty? We assume arguendo that it did. Paragraph 1 of the agreement is an affirmation of fact--the machine will have an 8-hour shift capacity as specified. This affirmation was such as would induce Burke to purchase the machine. Was the machine accepted? RCW 63.04.490 ⁶ defines acceptance, and finding 13 states that the machine was accepted by Burke. This finding is based on substantial evidence, exhibit 29, Supra, and will not be disturbed. Thorndike v. Hesperian Orchards, Inc., 54 Wash.2d 570, 343 P.2d 183 (1959).

The acceptance was made after a mutually agreed trial period. Finding 12. During the trial period Burke had ample opportunity to ascertain the warranted capacity of the machine. Substantial evidence shows that the specified capacity had been rendered. John Daub, manager of Burke's Seattle plant in 1964, testified that the prototype machine had a capacity to produce 2,000,000 snap ties per year with two operators working 8 hours a day, 5 days per week. Edward S. Brugge, Burke's manufacturing division manager, testified he felt that Knisely's fulfillment of the contract had been established.

We need only consider whether there was any agreement, express or implied, releasing Knisely from liability for breach of warranty. The evidence does not permit the finding of an express agreement releasing Knisely from liability; but must such an agreement be implied? In a letter to Knisely dated December 22, 1964, Edward Brugge stated:

In our discussion we also established that you had approximately two days left to bring the Auto Tie machine into satisfactory operating shape. This was not to consider any extra 'goodies' that might arise--that is until the header is completed, No additional modifying or improving of Auto Tie is to be considered. When a double header is completed and hung on the Auto Tie, then we should consider all modifications to make the machine better in all respects.

At this point I am wondering how many ties have been produced to date, what should be considered a proving period. When this has been established, we should start paying this amount. Let me hear from you in this regard so it can be set up as soon as possible.

Knisely responded to this letter, and Brugge in turn accepted the machine in the letter of January 6, 1965, Supra. The juxtaposition of these letters demonstrates that on January 6, 1965, the Auto Tie was in 'satisfactory operating shape,' and that no additional 'modifying or improving' was necessary to bring the machine into shape. From the acceptance, one can only conclude that the Auto Tie machine was performing as warranted and that Burke would not look to Knisely for breach of warranty liability. There was an implied-in-fact agreement as defined in Ross v. Raymer, 32 Wash.2d 128, 137, 201 P.2d 129 (1948):

A true implied contract, or contract implied in fact, is an agreement which depends for its existence on some act or conduct of the party sought to be charged, and arises by inference or implication from circumstances which, according to the ordinary course of dealing and the common understanding of men, show a mutual intention on the part of the parties to contract with each other. (Citations.)

Moreover, this result is compelled by the terms of the contract. Paragraph 3, Supra, shows that Burke was not obligated to purchase the machine until it met the specifications. Acceptance with knowledge of such a condition further shows that Burke had no intention of holding Knisely liable for breach of warranty.

Second, appellant Burke argues that the warranted capacity of the machine was never substantially achieved. As indicated, the implied agreement in the acceptance freed Knisely of any liability for breach of warranty. Moreover, the machine which Knisely...