Taylor v. Trans Aero Corp.

• Decision Date: 14 December 1995
• Citation: 924 S.W.2d 109
• Parties: G.W. TAYLOR, Plaintiff-Appellee, v. TRANS AERO CORPORATION and Flight Management, Inc. Defendants-Appellants.
• Court: Tennessee Court of Appeals

Page 109

924 S.W.2d 109

G.W. TAYLOR, Plaintiff-Appellee, v. TRANS AERO CORPORATION and Flight Management, Inc. Defendants-Appellants.

Court of Appeals of Tennessee Western Section, at Jackson.

Dec. 14, 1995.

Application for Permission to Appeal

Denied by Supreme Court

April 29, 1996.

Henry C. Shelton, III, Memphis for Plaintiff-Appellee.

William A. Cohn, Memphis and Charles E. Kovsky, Southfield, Michigan, for Defendants-Appellants.

CRAWFORD, Presiding Judge.

Defendants, Trans Aero Corporation (TAC), and Flight Management, Inc., (FMI), appeal from the judgment of the chancery court awarding breach of contract damages to plaintiff, G.W. Taylor (Taylor). Prior to May, 1986, Taylor was the sole stockholder and chief executive officer of TAC, primarily a business providing air charter services to the public. On January 1, 1986, TAC, through Taylor as president, entered into a written lease agreement in which it leased from General Electric Credit Corporation (GECC) a jet airplane. On April 17, 1986, TAC, pursuant to the lease agreement, gave notice of the termination of the lease. On April 25, 1986, Taylor purchased the plane from GECC for the sum of $110,000; the plane was purchased for Taylor's personal use. On May 12, 1986, pursuant to the terms of a stock purchase agreement, Taylor sold all the outstanding stock which he owned in TAC to FMI. FMI thus became the sole stockholder of TAC.

In early 1987, TAC, with Taylor's permission, began using the aircraft in its business. The parties entered into some type of agreement regarding TAC's use of the aircraft, but the terms of that agreement are in sharp dispute. On July 16, 1987, while TAC was operating the plane, the plane crashed and was damaged to the extent that it was not economically feasible to repair. The plane was insured by TAC for $130,000.00 with a $25,000.00 deductible, and Taylor was a named insured in the policy. Taylor was paid $105,000.00 in insurance proceeds and $5,000.00 in salvage value for a total recovery of $110,000.00.

On December 31, 1991, Taylor filed this suit alleging that the terms of the original lease agreement between GECC and TAC were adopted, with certain modifications, as a lease agreement between Taylor and TAC. The complaint avers that defendants breached a lease provision requiring the defendants to return the aircraft in its original condition, breached a lease provision requiring the defendants to pay maintenance costs of the plane, and breached an oral modification of a lease provision requiring the defendants to maintain $150,000 of insurance coverage on the plane. The plaintiff seeks recovery for property damage to the plane, damages for breach of contract to insure the aircraft for $150,000, and damages due to loss of business opportunity. The plaintiff also seeks $35,000.00 for breach of a separate stock purchase agreement, unrelated to the aircraft lease. The complaint alleges that TAC failed to make certain tax payments on behalf of Taylor, thereby breaching TAC's contractual obligations under the stock purchase agreement.

At the conclusion of all the proof, the trial court, sitting without a jury, found that Taylor had failed to sustain his burden of proving that he and TAC had adopted the original aircraft lease between GECC and TAC. However, the court did find that there was an oral lease between TAC and Taylor which required TAC to maintain $150,000.00 of insurance on the aircraft. TAC had only maintained $130,000 of insurance on the plane, and the court found this to be a breach of the oral lease agreement and awarded plaintiff $20,000 in damages. The trial court also found that defendant TAC was obligated to reimburse plaintiff $4,227.00 for scheduled aircraft inspection and maintenance provided for in the original lease between GECC and TAC. In addition, the court awarded the plaintiff $1400 in attorney fees incurred as a result of plaintiff's failure to pay the inspection fee. ¹ The court further held that Taylor's claim for damage to the aircraft was barred by the three year statute of limitations for property damage, T.C.A. § 28-3-105 (Supp.1995).

In connection with the stock purchase agreement, the court found that the agreement contractually obligated TAC to pay a wage bonus to Taylor in 1986. The court further found that TAC's payment of the bonus in 1989, rather than 1986, caused Taylor to incur an additional $21,000 in federal income tax, and $7000 in Missouri state income tax in fiscal year 1989. The total judgment entered for plaintiff was $52,227.45.

TAC and FMI have appealed and present four issues for review. Taylor presents one issue for review. Defendants' first two issues will be considered together and, as stated in their brief, are:

1. Whether the trial court erred in finding an oral lease agreement between Taylor and Trans Aero?

2. Whether the trial court erred in granting judgment to plaintiff for the differential between the $150,000 of hull loss coverage plaintiff contends should have been in force and the trial court found as a requirement of the oral lease at the time of the destruction of the aircraft, and the $130,000 actually in force at the time?

Taylor testified that he and Mike Kovsky, an agent of TAC, agreed that TAC would lease the aircraft from Taylor under the same terms and conditions, with certain modifications set out in the previously cancelled GECC/TAC lease. Taylor further testified that prior to cancellation of the GECC/TAC lease, a $200,000.00 hull insurance requirement had been orally modified by the parties (GECC and TAC) and reduced to $150,000.00 with a $25,000.00 deductible. Taylor states that it was understood between he and Kovsky that $150,000.00 of insurance was to be provided by TAC as a condition to TAC's use of the aircraft pursuant to the agreement between TAC and Taylor. Kovsky, on the other hand, testified that TAC only agreed to pay $225.00 per hour for the use of the aircraft, and that there was no lease agreement whatsoever between the parties. Kovsky states that he never agreed that TAC would keep the aircraft insured for $150,000 or any other amount. He maintains that TAC did not insure the aircraft for $130,000 because of any agreement between the parties, but rather because TAC wished to be protected in the event the aircraft was damaged while in TAC's possession. Both Taylor and Kovsky testified that their "arrangement" had few definite terms, and that either party was free to discontinue TAC's use of the aircraft at any time.

The chancellor found that the parties did not agree on an oral lease incorporating the terms of the previously cancelled GECC/TAC lease, but because TAC paid the costs of maintaining, storing, and insuring the aircraft, there appeared to be a more extensive agreement between the parties than a simple hourly rental agreement. The chancellor found that the parties had entered into a form of an oral lease in which TAC agreed to pay $225.00 an hour to fly the plane, to pay the costs of maintaining and storing the plane, and to maintain insurance in the amount of $150,000.00 with a $25,000.00 deductible.

Since this case was tried by the court sitting without a jury, we review the case de novo upon the record with a presumption of correctness of the findings of fact by the trial court. Unless the evidence preponderates against the findings, we must affirm absent error of law. T.R.A.P. 13(d).

The chancellor was faced with conflicting testimony from Taylor on the one hand and Kovsky on the other. As the trier of fact, the chancellor had the opportunity to observe the manner and demeanor of...