Lee v. Barnes

• Decision Date: 18 May 1961
• Docket Number: No. 35428,35428
• Court: Washington Supreme Court
• Parties: John H. LEE and Mary M. Lee, his wife, Respondents, v. Peter BARNES; Coulee Amusements, Ltd., a corporation; Lake Amusements, Ltd., a corporation; Ephrata Amusements, Ltd., a corporation; Okanogan Enterprises, Ltd., a corporation; Jet Amusements, Ltd., a corporation; Cherokee Amusements, Ltd., a corporation; Appellants.

Page 265

58 Wn.2d 265

362 P.2d 237

John H. LEE and Mary M. Lee, his wife, Respondents, v. Peter BARNES; Coulee Amusements, Ltd., a corporation; Lake Amusements, Ltd., a corporation; Ephrata Amusements, Ltd., a corporation; Okanogan Enterprises, Ltd., a corporation; Jet Amusements, Ltd., a corporation; Cherokee Amusements, Ltd. a corporation; Appellants.

No. 35428.

Supreme Court of Washington, Department 2.

May 18, 1961.

Rehearing Denied Aug. 21, 1961.

Colvin & Williams, John J. Keough, Seattle, for appellants.

Washington & Wickwire, Ephrata, for respondents.

FINLEY, Chief Justice.

John Lee owned several motion picture theatres in central Washington and the equipment necessary to operate them. Peter Barnes desired to buy Lee's holdings. The following transaction was entered into. Barnes organized six corporations, each of which was to operate one or more theatres in a given geographical area. The interest of each corporation was so tightly interwoven with the performance of the others under the twenty-one documents the parties executed (e. g., a default by one was a default by all) that for our present purposes we can consider them as a unit.

The theatres themselves were leased by Lee to the corporations for ten years, with an option in the corporations to renew for an additional ten years. The rental was based on stated percentages of the income with a guaranteed minimum. Lee sold to the corporations the theatre equipment (including fixtures which the parties treated as personal property) and the business. Each corporation received a bill of sale listing the equipment that had been sold. The prices stated for the equipment were inflated so that the total sale price of $370,000 equaled the value of the equipment plus the value of the business. The corporations made a downpayment of $90,000. To secure payment of the balance of the purchase price and to insure faithful performance under the leases, promissory notes and documents described as chattel mortgages were executed by the corporations. Barnes is a party to this action because he guaranteed all aspects of the corporations' performance. Barnes' liability, however, was expressly limited to a maximum of $280,000 (the original indebtedness evidenced by the notes) or such lesser sum to which the principal should be reduced.

The theatre operation proved to be unprofitable. The corporations, after a time, failed to make the required installment payments on the notes and also failed to pay the rental reserved under the lease. Lee sent notice of default to Barnes and the corporations and brought this action to foreclose the chattel mortgages and to have a receiver appointed to operate the theatres during the pendency of the action. The trial court granted the relief requested. Barnes and the corporations appeal.

In a preliminary skirmish, Barnes, who is not a resident of this state, contested the jurisdiction of the court as to him. In a master contract covering the entire transaction, Barnes appointed H. A. Davis as his agent to receive personal service of process. Barnes does not suggest that Davis was improperly served, but argues that at the time the contract was executed, in 1956, one could not appoint another person for such a purpose.

Barnes' argument is that RCW 4.28.080, the statute governing service of summons, does not expressly authorize service upon a resident agent of a non-resident defendant. To this point we are in agreement with him. He argues further that such service was authorized by Laws of 1959, chapter 131 and that prior to 1959, therefore, it would necessarily have been unauthorized and invalid. Here we part company. Laws of 1959, chapter 131 (RCW 4.28.180-4.28.185), deals with personal service outside the state upon the defendant himself. Its enactment does not affect the matter of a non-resident's contracting as to a special mode of service.

In addition, Barnes argues that enforcement of the substituted service agreement would open the door to unlimited opportunities for the practice of fraud.

Gilbert v. Burnstine, 1931, 255 N.Y. 348, 174 N.E. 706, 707, 73 A.L.R. 1453, involved the following facts. The defendant had contracted that certain disputes would be settled by arbitration in London. When a dispute arose, the defendant refused to submit the matter to the designated form of arbitration. The English court issued process (which was served on the defendant in New York) and appointed an arbitrator who decided the dispute against the defendant. The New York lawsuit arose when the plaintiff attempted to collect on the arbitration award. The defendant contested the jurisdiction of the English court to order arbitration. The New York court concluded to the contrary as follows:

'* * * Contracts made by mature men who are not wards of the court should, in the absence of potent objection, be enforced. Pretexts to evade them should not be sought. Few arguments can exist based on reason or justice or common morality which can be invoked for the interference with the compulsory performance of agreements which have been freely made. Courts should endeavor to keep the law at a grade at least as high as the standards of ordinary ethics. Unless individuals run foul of constitutions, statutes, decisions or the rules of public morality, why should they not be allowed to contract as they please? Our government is not so paternalistic as to prevent them. Unless their stipulations have a tendency to entangle national or state affairs, their contracts in advance to submit to the process of foreign tribunals partake of their strictly private business. Our courts are not interested except to the extent of preserving the right to prevent repudiation. In many instances problems not dissimilar from the one presented by this case have been solved. Vigor has been infused into process otherwise impotent. Consent is the factor which imparts power. Text writers have discussed the subject and have concluded from the authorities that non-resident parties may in advance agree to submit to foreign jurisdiction. Beale, The Jurisdiction of Courts over Foreigners, 26 Harvard Law Review, 193; Freeman on Judgments [5th ed.], vol. 3, p. 3053; Goodrich Conflict of Law, p. 141; Scott, Fundamentals of Procedure, pp. 39-41. * * *

'Public policy, therefore, would not forbid defendants to appoint an agent to accept service or to confess judgment in their behalf, nor does it after service forbid them in person to acknowledge receipt of it. If the fact be clear that in advance of any form of litigation or arbitration they actually intended to contract that in the event of such a proceeding they would render themselves subject to foreign process, the same policy ought to prevail.'

We agree with the reasoning and the resolution of the matter by the New York court. Service on H. A. Davis, in conformity with the contract of the parties, was effective to give the court personal jurisdiction over Barnes. See also Union City v. Capitol-Theatre Amusement Co., 1948, 57 A.2d 226, 26 N.J.Misc. 102; Purcell v. State, 1902, 68 N.J.L. 519, 53 A. 235.

Finally, on the issue of service, Barnes suggests that inasmuch as Federal Rules of Civil Procedure, Rule 4(d)(1), 28 U.S.C.A., authorizes service upon an individual 'by delivering a copy of the summons and of the complaint to an agent authorized by appointment,' the contract should be interpreted to mean that actions could be brought only in federal courts. We think it is clear that this contention is invalid because the contract simply does not say what Barnes now would have it say.

Barnes' next assignment of error relates to the following statement made by the trial judge in ruling on the motion to quash service of process:

'The defendant Peter Barnes in argument in the memorandum provided to the Court in support of the motion to quash the service of the summons, has argued that service of the summons and complaint as made in this action should not be permitted because it would open the way to fraud and clandestine practice. However, the facts in the present instance do not support this argument. It appears to the Court that the defendant Peter Barnes is the one trying to perpetrate a fraud by making a contract and thereafter escape the consequences of it by bringing up the question of the technicalities of service of summons and complaint in the State of Washington. However, the question as to whether or not this is an attempted fraud on the part of Mr. Barnes is not before the Court and is not the basis for the decision of the Court on this motion.'

Barnes moved for a mistrial on the ground that the statement manifested preconceived factual conclusions which indicated prejudice and that the trial judge should therefore disqualify himself. Error is assigned to the denial of a mistrial. The...