Rocky Mountain Helicopters, Inc. v. Air Freight, Inc.

• Decision Date: 24 April 1989
• Docket Number: Nos. 88-213,88-214,s. 88-213
• Citation: 773 P.2d 911
• Parties: ROCKY MOUNTAIN HELICOPTERS, INC., a Utah corporation; and Air Today, Inc., Appellants (Defendants), v. AIR FREIGHT, INC., a Wyoming corporation; and Kenneth B. McIntosh, Appellees (Plaintiffs). AIR FREIGHT, INC., a Wyoming corporation; and Kenneth B. McIntosh, Appellants (Plaintiffs), v. ROCKY MOUNTAIN HELICOPTERS, INC., a Utah corporation; and Air Today, Inc., Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 911

773 P.2d 911

ROCKY MOUNTAIN HELICOPTERS, INC., a Utah corporation; and Air Today, Inc., Appellants (Defendants), v. AIR FREIGHT, INC., a Wyoming corporation; and Kenneth B. McIntosh, Appellees (Plaintiffs).

AIR FREIGHT, INC., a Wyoming corporation; and Kenneth B. McIntosh, Appellants (Plaintiffs), v. ROCKY MOUNTAIN HELICOPTERS, INC., a Utah corporation; and Air Today, Inc., Appellees (Defendants).

Nos. 88-213, 88-214.

Supreme Court of Wyoming.

April 24, 1989.

Richard R. Wilking of Schwartz, Bon, McCrary & Walker, Casper, for Rocky Mountain Helicopters, Inc. and Air Today, Inc.

Robert S. Young, Provo, Utah, for Rocky Mountain Helicopters, Inc.

Donald E. Chapin and Charles S. Chapin of Crowell & Chapin, P.C., Casper, for Air Freight, Inc. and Kenneth B. McIntosh.

Before THOMAS, MACY and GOLDEN, JJ., ROONEY, Retired J., and LANGDON, District Judge.

ROONEY, Retired Justice.

Both the parties plaintiff ¹ and two of the parties defendant ² appeal from a judgment and decree in an action in which claims and counterclaims resulted from a sale of corporate stock and lease of an aircraft.

We affirm the judgment and decree of the trial court except for a mathematical correction in the amount of interest awarded on two promissory notes involved in the corporate stock sale transaction and except for a correction of the figure allowed Rocky Mountain Helicopters, Inc. and Air Freight, Inc. as an offset on accounts receivable. The case is remanded for the purpose of making such corrections.

A more than usual review of the history of this case is helpful in understanding the issues on appeal.

Kenneth B. McIntosh (McIntosh) owned the stock in Air Freight, Inc. (Freight), and he owned the majority of the stock of Air Today, Inc. (Air).

Freight operated a ground cartage service in Wyoming, Montana and Colorado for distribution to addressees of packages and documents which had been transported by air into the area from other areas, and for collection of packages and documents from senders in the area for delivery to air freight carriers for transportation by air to other areas.

Air operated a service for transportation of packages and documents by air to and from various points in the Rocky Mountain area, connecting in Denver, Colorado with principal air freight carriers such as Federal Express.

On May 31, 1985, a purchase agreement resulted in the purchase of the corporate stock of Air by RMH Aeroservices, Inc. RMH Aeroservices, Inc. took over the operation of Air at that time, but it was unable to complete its financial obligations under the agreement. On October 4, 1985, Rocky Mountain Helicopters, Inc. (RMH) replaced RMH Aeroservices, Inc. in the transaction and executed an agreement with McIntosh and Air for the purchase of the corporate stock and assets from Air. On the same date and in consideration of the purchase, RMH gave a $39,126.72 promissory installment note to McIntosh and a $14,471.72 promissory installment note to Freight.

On February 15, 1985, Freight leased an aircraft to Air. One of the provisions of the lease required payment of an "engine reserve" by lessee Air at the rate of $35 per hour of flight. "Engine reserve" is an amount of money set aside or reserved for the purpose of paying for the engine, the engine component and the propeller overhaul required after they are subject to a set amount of flight service.

The complaint of McIntosh and Freight contained four claims for relief: one on the $39,126.72 note to McIntosh on which it was alleged there had been no payments; one on the $14,471.72 note to Freight on which it was alleged there had been no payments; one for $9,100 ³ alleged for "engine reserve"; and one for $50,375.20 for an open account resulting from ground service transportation by Freight of packages and documents for Air. There was also a request for attorney's fees ⁴ and costs.

The answer of RMH, Air and RMH Aeroservices, Inc., contained denials and admissions to the allegations of the complaint, and it set up affirmative defenses of (1) an offset by amounts specified in the counterclaims, (2) estoppel through plaintiffs' "misconduct and negligence," (3) failure to state a claim with reference to the claim for relief re: "engine reserve," and (4) accord and satisfaction, release, settlement and waiver with reference to the claim for relief for payment of open accounts.

The counterclaim of RMH, Air and RMH Aeroservices, Inc., contained eight claims for relief: one for breach of warranties and representations by McIntosh; one for furnishing false and misleading materials and representations by McIntosh and Freight; one for fraud based on the furnishing of such materials and representations; one for imputation of actions between McIntosh and Freight (abandoned at the close of evidence); two for an accounting; one for a declaratory judgment of the rights, liabilities and obligations of the parties; and one for costs and attorney's fees. Damages were alleged in the amount of $685,000 with a request for an additional $100,000 in punitive damages based on the counterclaim for fraud.

The district court gave judgment (1) for McIntosh and against RMH on the two promissory installment notes for their face amount together with interest at the rate of 13%, (2) for Freight and against Air for "engine reserve" in the amount of $6,124.87, (3) for Freight and against Air on the open account claim in net amount of $23,468.23, after offsetting against the amount "substantiated" by Freight ($52,041) the amount "substantiated" by Air ($28,572.27), (4) for RMH and against McIntosh and Freight in the amount of $9,067.33 on a warranty in the stock purchase agreement that tax payments were current as of May 31, 1985, and (5) for Air and against McIntosh for a personal debt incurred by use of Air's credit card in the amount of $480. The judgment and decree stated that the burden of proof was not carried with reference to the claims for relief contained in the counterclaims premised on (1) fraud and misrepresentation, (2) on an obligation to make an account, (3) on need for declaratory judgment founded on conversion of funds and assets, or (4) on a breach of warranty by McIntosh and Freight regarding the collectibility of Air's accounts receivable. Attorney's fees were not allowed for either party.

RMH and Air, appellants in Case No. 88-213, word the issues on appeal:

"A. Did the court err in failing to award damages on the counterclaims for misrepresentation and breach of warranty regarding the collectibility of accounts receivable, the existence of prepaid assets and the general profitability of the company?

"B. Does the evidence support the court's award of $6,124.87 in unpaid engine reserves due under the aircraft lease (Exhibit 12)?

"C. Did the trial court err in finding that Air Today owed Air Freight $6,124.87 on the engine reserve claim? Further, did the court err in finding Air Today had failed to substantiate the deductions Air Today claimed for 'owner charge-backs?'

"D. Did the trial court err in rejecting evidence that was offered through Paul Alden of additional taxes that had not been paid by McIntosh?

"E. Did the trial court err in refusing evidence of Appellant's attorney's fees?

"F. Did the court err in calculating the interest to be awarded on the judgment?"

McIntosh and Freight, appellants in Case No. 88-214, word them:

"A. Did the Trial Court error in not awarding Appellants their attorneys fees pursuant to Exhibit 7, the October 4, 1985 Agreement between the Appellants and Appellee, Rocky Mountain Helicopters, Inc.[?]

"B. Did the Court error when it awarded the Appellee, Air Today on offset against the judgment of Air Freight for an open account balance in the amount of $19,573.00 [sic][?]"

Excepting the last three issues stated by RMH and Air, i.e., those pertaining to attorney's fees, to rejecting evidence offered through witness Alden concerning taxes, and to calculation of interest, and excepting the first issue stated by Freight and McIntosh, i.e., that pertaining to attorney's fees, all of the stated issues concern the sufficiency of the evidence. Accordingly, the following standards are applicable to them "We have often said that, on appeal, we assume the truth of the evidence in favor of the successful party, ignore that of the unsuccessful party in conflict therewith, and give that of the successful party every favorable inference which may be reasonably drawn therefrom. E.g. Goggins v. Harwood, 704 P.2d 1282, 1284 (Wyo.1985); Stockton v. Sowerwine, 690 P.2d 1202, 1205 (Wyo.1984); In Re Merrill's Estate, 341 P.2d at 508 (1959); and cases cited therein."

May v. Estate of McCormick by Swallow, 769 P.2d 395, 397 (Wyo.1989).

"The phrase 'burden of proof' is often used as meaning the necessity of establishing a fact to a legally required extent, or the necessity of finally establishing a fact. 31 C.J.S. Evidence § 103, p. 709."

Tench v. Weaver, 374 P.2d 27, 29 (Wyo.1962).

"[T]he term [burden of proof] denotes the duty of establishing the truth of a given proposition or issue by such a quantum of evidence as the law demands in the case in which the issue arises[.]"

29 Am.Jur.2d Evidence § 123 at 154 (1967).

MISREPRESENTATION AND BREACH OF WARRANTY

(Issue A of RMH and Air)

In their answer, RMH and Air acknowledged the execution and delivery of the two promissory notes and the fact that no payment had been made thereon. They now argue that they should have been awarded setoff damages on their counterclaims (1) for breach of contract and fraud "with respect to the financial status of Air Today and specifically to the existence of prepaid assets " (emphasis added), and (2) for breach of "warranty that the Air Today accounts receivable were collectible." The argument is with reference to the representations and warranties contained in Article Two of the October 4, 1985, Stock Purchase Agreement. The following are the portions thereof pertinent to...