Montgomery Ward & Co., Inc. v. Tackett

• Decision Date: 18 February 1975
• Docket Number: No. 1--1173A195,1--1173A195
• Parties: MONTGOMERY WARD & CO., INC., Appellant (Plaintiff Below), v. Thomas E. TACKETT and Cassandra Tackett, Appellees (Defendants Below).
• Court: Indiana Appellate Court

Page 242

323 N.E.2d 242

163 Ind.App. 211

MONTGOMERY WARD & CO., INC., Appellant (Plaintiff Below), v. Thomas E. TACKETT and Cassandra Tackett, Appellees (Defendants Below).

No. 1--1173A195.

Court of Appeals of Indiana, First District.

Feb. 18, 1975.

Thomas A. Berry, Ferguson, Berry, Ferguson & Lloyd, Bloomington, for appellant.

Mark Peden, Foley, Foley & Peden, Martinsville, for appellees.

LYBROOK, Judge.

Plaintiff-appellant Montgomery Ward & Co., Inc., initiated this action with the filing of its complaint on account. Defendants-appellees Thomas and Cassandra Tackett counterclaimed alleging fraudulent misrepresentation and wrongful termination of a franchise agreement between the parties. Trial by jury resulted in verdicts in favor of Montgomery Ward on its complaint and in favor of Tacketts on their counterclaim. From the verdict on the counterclaim, Montgomery Ward appeals.

In general terms, the issues presented for review are:

1. Whether verdict on the counterclaim is contrary to the evidence and contrary to law.

2. Whether the award of damages to counterclaimants is excessive.

During January, 1969, defendant-appellee Thomas Tackett answered a newspaper advertisement soliciting the sale of a Montgomery Ward catalog sales agency located at Martinsville. Tackett's initial inquiry was with Herb Chambers, then owner of the agency. After completing an application, Tackett was contacted by Ward representatives Leon Welch and Bill Rose. As a result of negotiations with Chambers, Welch and Rose, the Tacketts purchased the agency from Chambers and entered into a franchise agreement with Montgomery Ward on February 20, 1969.

Reduced to essential terms, the franchise agreement provided that Tacketts would purchase merchandise from Montgomery Ward, resell it to customers, and receive commissions from Ward. The responsibility for the operation and maintenance of the agency rested solely with the franchise agent. Further, the agreement required that Tacketts at all times operate the agency in accordance with 'Current Policies and Procedures' of Montgomery Ward.

The franchise agreement was unilaterally terminated by Montgomery Ward in June of 1971, and this action on account due and owing was initiated in February of the following year. A catalog operating manager for Montgomery Ward testified that termination was due to the discovery through audit procedures of the submission of allegedly improper inventory clearance adjustments (ICA's) by the Tacketts. An ICA is a document submitted by the franchise agent to Montgomery Ward upon which the agent may claim credit for merchandise which has been previously ordered and paid for but has not been received. Should the agent subsequently receive merchandise for which credit has been claimed, his proper course of action is to file a second ICA charging back to himself the credit claimed on the first ICA. The charge back to the agent on the second ICA is denominated an RNC. Montgomery Ward alleged the filing by Tackett of ICA's improperly claiming credits totaling $2332.63. The total amount claimed due and owing, including delinquent remittances for merchandise ordered was $10,036.72.

Tacketts' counterclaim asserted that the termination of the franchise agreement by Ward without notice and without any attempt to consult, advise, or negotiate with the agents was accomplished in bad faith. For the alleged wrongful termination of the agreement, Tacketts sought actual and exemplary damages totaling $60,000. In a second paragraph, Tacketts alleged that their entry into the franchise agreement had been induced by various fraudulent misrepresentations by agents of Montgomery Ward. Damages due to reliance on the alleged misrepresentations were claimed in the amount of $25,000.

Trial upon the issues resulted in verdicts for Montgomery Ward on its complaint in the amount of $8,000 and for Tacketts on their counterclaim in the amount of $11,000. This appeal is from the entry of judgment on the verdict on the counterclaim.

I.

Montgomery Ward initially argues that there was no evidence adduced at trial from which the jury could have found that the termination of the franchise agreement was wrongful. It flatly asserts that Tacketts failed to follow 'Current Policies and Procedures' by failing to pay for merchandise received and by creating fictitious business records designed to mislead Ward to believe that the merchandise either had not been received or had been returned to Ward. The franchise agreement provided for termination by Ward in the event of the failure of the agent to follow 'Current Policies and Procedures.'

The question presented is that of the sufficiency of the evidence to sustain the verdict in favor of Tacketts on their counterclaim. The standard of review to be employed permits us neither to weigh evidence nor resolve questions concerning credibility of witnesses. Thus, we are limited to an examination of that evidence and the reasonable inferences therefrom which support the verdict in determining whether it is sustained by substantial evidence of probative value. In re Estate of Barnett (1974), Ind.App., 307 N.E.2d 490; Wilson v. Jerry Miller, Inc. (1973), Ind.App., 299 N.E.2d 177.

The evidence reveals that the relationship between the parties was fraught with difficulty and misunderstanding from its inception. However, the core of the conflict revolved around the system of payments and credits for merchandise ordered by Tackett for sale to customers. Testimony revealed that the policy in effect during 1971 was that agents were to prepare a weekly report and remit payment for shipments of merchandise received during that week. An error in shipment such as damage to goods or a failure to receive certain items did not relieve the agent of liability for payment. The agent's recourse in the event of such an error was to file an ICA claiming credit. Tackett testified that many of the shipment errors were substantial, and that while the policy of Ward as explained to him was to act upon and return ICA's within ten days, his claims were in many instances delayed for months. He further testified that Ward refused to honor many of his valid claims for credit.

In the event that an agent eventually received an item for which he had previously claimed credit on an ICA, the proper procedure was to file an RNC through which the credit would be charged back to the agent. Tackett testified that he at times withheld RNC's due to problems he was experiencing with Ward in their handling of his ICA's claiming credit. A second reason given by Tackett was the failure of Ward to render certain aid and assistance which had been promised when he entered into the franchise agreement. Ward representatives had provided Tackett with a list of telephone numbers and assured him that he might make collect calls to solicit assistance with problems encountered inoperating the store. However, Tackett experienced difficulty contacting proper persons and Ward required that he pay for the calls.

Tackett requested auditor assistance from Ward on several occasions, including one request as early as 1970. One reason for the requests was that the store, which had been opened several years prior to its acquisition by the Tacketts, had never undergone an audit, and Tackett desired to rid himself of extensive records which had accumulated. Secondly, Tackett desired the audit as a means through which to settle his financial difficulties with Ward.

An auditor, Earl Bruzan, was sent to Tacketts' agency during the early part of June, 1971. No reasons were given for the audit and Tackett assumed that it was in response to his earlier requests. At that time, Tackett explained to Bruzan that he was withholding RNC's or charge backs due to the problems he was experiencing with Ward.

Following completion of the audit, Tackett's next contact with a Ward representative was on June 21, 1971, when District Manager Larry Brown visited the agency and presented Tackett with a sales award. Brown remained in the store for one to two hours and appeared to be making an inventory check. Later that day, Brown, Bruzan and a member of Ward's Security Division, Paul Miller, entered the store and indicated that they wished to speak with Tackett concerning certain discrepancies revealed in the audit. Miller requested a private conversation with Tackett in the back room. A discussion ensued concerning the withheld charges, the reasons for which Tackett had discussed earlier with the auditor Bruzan. 'To clear it up,' Tackett was induced to sign a statement agreeing to remit to Ward $1,586.49. After signing the statement, Tackett was informed that his franchise would probably be terminated. Shortly thereafter, Tackett received formal notice of the termination.

The relationship of principal and agent is confidential and fiduciary, binding the agent to the exercise of utmost good faith. Fast v. Judy (1925), 83 Ind.App. 85, 147 N.E. 728; Carmichael v. Lavengood (1942), 112 Ind.App. 144, 44 N.E.2d 177. See also, 3 C.J.S. Agency § 271. Likewise, the principal owes to the agent the obligation of exercising good faith in the incidents of their relationship and must use case to prevent the agent from suffering harm during the prosecution of the agency enterprise. Lawrence Warehouse Co. v. Twohig (8th Cir. 1955), 224 F.2d 493. See also, 3 Am.Jur.2d, Agency § 238; 3 C.J.S. Agency § 318; Restatement (Second) of Agency § 435 (1957). Further, a contract of agency carries an implied obligation of the principal to do nothing to thwart the effectiveness of the agency. Sidella Export-Import Corp. v. Rosen (1948), 273 App.Div. 490, 78 N.Y.S.2d 155.

In our opinion, sufficient evidence was adduced from which the jury could have found that Montgomery Ward failed to exercise good faith in its course of dealing with the Tacketts. Throughout the course of the agency, Tackett sought auditor assistance from Ward as a means through which to...