Opinion
No. 22139-3-III
Filed: August 31, 2004 UNPUBLISHED OPINION
Appeal from Superior Court of Kittitas County. Docket No: 99-2-00291-4. Judgment or order under review. Date filed: 05/12/2003. Judge signing: Hon. Michael E Cooper.
Counsel for Appellant(s), John Strother Jr Moore, Velikanje Moore Shore PS, PO Box 22550, Yakima, WA 98907-2550.
Counsel for Respondent/Cross-Appellant, Douglas Warr Nicholson, Cone Gilreath Ellis Cole Anderson, PO Box 499, Ellensburg, WA 98926-0499.
This is a dispute over both a written contract for the sale of half of an apartment complex and an oral contract for the management of the entire complex. The primary question is whether the loose, oral agreement between the parties gave rise to a fiduciary obligation by the manager, Jeffrey I. Greear, to the owner, Jerry C. Merrick. The trial court concluded, based on the unique facts of the case, that there was no fiduciary relationship.
We agree first that the question was factually driven. And we further agree with the trial judge that, based on the facts here, Greear owed no fiduciary obligation to Merrick. We reverse the trial court's denial of a money judgment in favor of Greear based upon the miscalculation of an additional purchase price called for in the real estate contract. We disagree with the trial judge and conclude that Greear's claim for declaratory relief accommodates a money judgment. Finally, we find substantial evidence for the remaining challenged findings of fact and affirm the balance of the court's judgment.
FACTS
Jerry C. Merrick owned a 190-unit apartment complex in Ellensburg, Washington. The complex consisted of two groupings of four buildings. The apartments and grounds were in extremely poor condition. Merrick had not painted or replaced carpets in 25 years. College students occupied the complex. And it had a high turnover rate.
Merrick hired Jeffrey I. Greear in 1994 as manager. In October 1994, Greear bought four of the buildings from Merrick by a written real estate contract. The price was $1.9 million, plus an additional purchase price in an amount to be determined according to a formula, payable in the event Greear sold or refinanced before the contract was paid.
Additional purchase price formula: 'the gross annual income on the Property from all sources and without reduction for any costs or expenses as actually received or accrued by Purchaser for the twelve (12) month period ending with the month immediately prior to the month in which the last encumbrance was paid shall be multiplied times seven and that product reduced by $1.9 million and then divided by two (2) to reach the Additional Purchase Price.' Clerk's Papers at 174.
Greear continued to manage the entire complex. He set the rental rate, and collected rents and other income. Merrick and Greear each received the income from his own complex. Routine operating and maintenance expenses, including vacancy costs and insurance were split 50-50. Greear assumed the entire cost of maintaining the shared pool and laundry facility, which were on his grounds. But Merrick's tenants had the use of both on the same terms as Greear's tenants.
The agreement required that Greear make capital improvements to the entire complex besides doing routine maintenance work on Merrick's apartments. Merrick was to finance improvements to his units, but expenditures over $1,000 required his prior approval. Greear received $500 per month for these services plus $2 a month for every $10 per month increase in the rent of Merrick's units.
The oral agreement was loose. Each man 'had a different perception of what the management agreement entailed. No one ever bothered to define any of the terms, including what constituted a capital improvement, what constituted an expense item, how the apartments were to be upgraded and what constituted upgrading as opposed to maintenance [or] repair.' Clerk's Papers (CP) at 40-41 (Mem. Op.).
Merrick had been in the apartment business for over 20 years and 'knew all of the ins and outs of apartment managing and taught Greear how to account for the income and expense.' CP at 41 (Mem. Op.). The two men 'talked almost daily, and Merrick generally participated in all management decisions and was otherwise kept informed about apartment operations.' CP at 38 (Mem. Op.). Merrick inspected his units and discussed the operation with employees about six times a year. Greear sent Merrick a monthly accounting of income and expenses, along with a check for Merrick's split. Merrick's bookkeeper set up the format for these 'split reports' according to Merrick's preferences.
In 1998, Merrick and Greear ended their relationship and became competitors.
PROCEDURE
In June 1999, Merrick sued Greear for an accounting, reimbursement for personal expenses charged to the business, and damages for negligent management. Two years later, in July 2001, Merrick amended the complaint to claim that Greear's accounting deficiencies amounted to a breach of fiduciary duty. Merrick complained that Greear had not upgraded the Merrick units, contrary to their agreement. And this left the apartments in poor condition and caused him losses.
Greear answered and counterclaimed against Merrick and Merrick's former wife, now Patricia Connolly. Both Merrick and Connolly had signed the real estate contract. Greear sought a declaration of rights under the contract, specifically the amount owed under the additional purchase price clause. His prayer for relief also included 'such other and further relief as the Court may deem just and equitable.' CP at 10.
The case was tried to the bench. The court found that the apartments were in appalling condition from the outset. It found that Greear gave Merrick's units the same attention as his own. The court found no fiduciary relationship and rejected most of Merrick's damage claims. It found that Merrick had proved no additional expenses beyond those he would have incurred if the disputed maintenance and improvements had been timely performed. The court did enter judgment for Merrick for $30,402 improperly charged by Greear.
On Greear's counterclaim, the court found that Greear had overpaid by $12,197.71 on the real estate contract. The court entered a memorandum decision and findings and conclusions that Greear was entitled to a judgment against Merrick in that amount.
Merrick moved for reconsideration of both judgments. The court let stand Merrick's judgment against Greear, but withdrew Greear's judgment against Merrick. The court concluded that Greear's pleadings did not accommodate a money judgment — he had asked for declaratory relief only. The court denied Greear's motion to amend his pleadings to conform to the proof.
DISCUSSION
Merrick makes numerous assignments of error. But almost all stem from his contention that Greear owed him a fiduciary duty. He contends the court erred by not imposing upon Greear the burden to disprove each item of Merrick's alleged damages. In other words, Merrick contends the court erroneously required him to prove his damages. Merrick argues that as a fiduciary, Greear had the burden to account and thus the burden of proof. Greear assigns error to certain items of damages in the judgment. He also contends the court was required to enter the money judgment on his counterclaim.
Court's Findings
Both parties ask us to substitute our judgment for that of the trial court on a number of factual issues.
Where judicial interpretation of a contract is sought based on the credibility of extrinsic evidence or reasonable inferences to be drawn from that evidence, interpretation of the contract is a question of fact. Berg v. Hudesman, 115 Wn.2d 657, 668, 801 P.2d 222 (1990); Restatement (Second) of Contracts sec.sec. 212, 214(c) (1981). Factual disputes are resolved exclusively by the trial court. Berg, 115 Wn.2d at 668; DeCoria v. Red's Trailer Mart, Inc., 5 Wn. App. 892, 894, 491 P.2d 241 (1971). We will not substitute our judgment for that of the trial court on questions of fact. Knapp v. Hoerner, 22 Wn. App. 925, 929, 591 P.2d 1276 (1979). 'Substantial evidence is evidence in sufficient quantum to persuade a fair-minded person of the truth of the declared premise.' Ridgeview Props. v. Starbuck, 96 Wn.2d 716, 719, 638 P.2d 1231 (1982).
The bulk of Merrick's challenges to the findings are based on his insistence that Greear owed him a fiduciary duty. And the court should then have placed the burden on Greear to prove every item of his accounting instead of requiring Merrick to prove his allegations of accounting errors. Merrick argues that this fundamental error resulted in findings not made that should have been made and vice versa. We will not revisit the facts. We agree with the trial judge's conclusion that Greear did not owe Merrick a fiduciary duty. Merrick's factual challenges then fail.
Fiduciary Duty
The bulk of Merrick's argument flows from his contention that Greear breached a fiduciary duty to the extent he failed to render complete and accurate accounts.
The trial judge here listened to six days of testimony and was unable or unwilling to categorize the legal relationship created by the agreement here. Neither can we. And so the question we address is whether the relationship created by this loose oral agreement, whatever it was, imposed upon either of these parties some fiduciary obligations. We agree with the trial court that it did not.
After reviewing the trial court's findings of fact for substantial evidence, we determine whether the facts give rise to a fiduciary duty as a question of law. Our review is de novo. Hansen v. Friend, 118 Wn.2d 476, 479, 824 P.2d 483 (1992); S.H.C. v. Lu, 113 Wn. App. 511, 524, 54 P.3d 174 (2002), review denied, 149 Wn.2d 1011 (2003).
A fiduciary relationship arises as a matter of law in certain relationships — between, for example, attorney and client, doctor and patient, trustee and beneficiary. A fiduciary relationship may also arise from particular facts. Liebergesell v. Evans, 93 Wn.2d 881, 890, 613 P.2d 1170 (1980); Micro Enhancement Int'l, Inc. v. Coopers Lybrand, L.L.P., 110 Wn. App. 412, 435, 40 P.3d 1206 (2002). Merrick relies heavily on Liebergesell for his argument that his contractual arrangement with Greear gave rise to a principal-agent relationship, which is necessarily a fiduciary relationship. But Liebergesell simply holds that contracting parties have a mutual duty to act in good faith and not to deceive one another. Liebergesell, 93 Wn.2d at 891-92. A mutual obligation of good faith and fair dealing is not a fiduciary duty. Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d 356 (1991). Neither does one party's testimony that he trusted the other suffice to elevate a good faith relationship to a fiduciary one. Micro, 110 Wn. App. at 435.
And the facts of Liebergesell easily distinguish it from this dispute. In that case, a widowed school teacher with no expertise in business, investments, or lending practices relied on the superior knowledge of a person knowledgeable and skilled in accounting. Liebergesell, 93 Wn.2d at 884-85. Here, the court found (and the record easily supports) that it was Merrick who had years of experience and schooled Greear in the apartment rental business. Greear had no special knowledge and the court found that his conduct was open and above board. The record also supports that Merrick was experienced in apartment managing, was in possession of all the information necessary to protect his own interests, and was sophisticated and intelligent enough to make use of it. There was, moreover, no showing that Merrick relied on Greear in any way. Merrick had every opportunity to inspect the apartments over the four years of Greear's stewardship and did so regularly.
Substantial evidence supports the court's findings that, despite occasional errors, Greear substantially performed, faithfully supplying split reports of expenses and income every month that adequately informed Merrick as to income and expenses; and that Merrick himself established the accounting procedures and could have changed them at any time, but did not do so.
The court correctly refused to impose a fiduciary duty on Greear. The court's findings support its conclusion that Greear owed Merrick a contractual duty to account, but not a fiduciary duty.
Merrick complains that the court erroneously failed to enter findings supporting his theory of fiduciary liability. But the record contains substantial evidence — which the trial judge obviously accepted — leading to the conclusion that the relationship was not fiduciary. See Gannon v. Emtman, 66 Wn.2d 755, 760, 405 P.2d 254 (1965).
We affirm the trial court's findings and conclusion on the question of fiduciary duty.
CROSS APPEAL Laundry Income
The parties agreed that Greear did not pay Merrick laundry income for the years 1995 through 1997. Greear contended that, because he paid for the washers and dryers up front, Merrick was not entitled to receive laundry income until he had reimbursed Greear for his share of these costs. The court rejected this argument and ruled that Greear owed Merrick half the estimated laundry income for these years. But there were no records of laundry income available. So the court calculated the amount owed based on Merrick's laundry income records for 1999, after Greear and Merrick parted company.
Greear argues that there was no contract on this issue because there was no meeting of the minds. Webster v. State Farm Mut. Auto. Ins. Co., 54 Wn. App. 492, 497, 774 P.2d 50 (1989). He bases this on the court's finding that the parties each had a different perception as to the precise terms of their oral agreement.
What the parties intend is a question of fact. Kenney v. Read, 100 Wn. App. 467, 475, 997 P.2d 455, 4 P.3d 862 (2000). We review findings of fact to determine whether they are supported by substantial evidence. Willener v. Sweeting, 107 Wn.2d 388, 393, 730 P.2d 45 (1986). And here the court entered a finding of fact that the parties intended Merrick would receive laundry income.
Washington follows the 'context rule' to determine the intent of the parties to a contract. Berg, 115 Wn.2d at 667. We look at the entire contract, considering the subject matter and purpose of the agreement, the circumstances surrounding its making, the subsequent acts and conduct of the parties, and the overall reasonableness of their respective interpretations. Scott Galvanizing, Inc. v. N.W. EnviroServices, Inc., 120 Wn.2d 573, 580-81, 844 P.2d 428 (1993).
Here, the written real estate contract seems to transfer both the swimming pool and the laundry facilities to Greear. The pool and laundry rooms are located on Greear's property (as distinct from Merrick's retained property). Greear was to pay for the upkeep of the pool and laundry.
Merrick's tenants could use these facilities and were to pay no more than Greear's tenants. Both Greear and Merrick testified that the laundry was a joint project. And they conducted themselves accordingly.
Taking into account the circumstances here, the conduct of these parties is highly persuasive evidence of their intent. The court's finding of fact on this issue is logical and supported by substantial evidence. They agreed to split laundry income.
Statute of Limitations Defense
Greear contends that a new cause of action accrued each month that Merrick did not receive his fair share of the split from the laundry proceeds, each with its own statute of limitations. Therefore, he contends, no claim survives that arose more than three years before Merrick filed his lawsuit. We review statute of limitations rulings de novo. Washburn v. Beatt Equip. Co., 120 Wn.2d 246, 263, 840 P.2d 860 (1992). An action on an oral contract must be commenced within three years. RCW 4.16.080(3). Where, as here, a contract is for continuous service, the statute of limitations on amounts due does not begin to run until the contract is terminated. Richards v. Pac. Nat'l Bank of Wash., 10 Wn. App. 542, 549, 519 P.2d 272 (1974).
Greear relies on Perry v. Hillman. In that case, the plaintiff sought payment for his services in five deals performed for the defendant under an oral agreement. Perry v. Hillman, 153 Wash. 689, 690-91, 280 P. 346 (1929). The court held that the contract called for separate and distinct payments each due on a fixed date. In such a case, a separate cause of action accrued with each missed payment. Id. at 699-700.
Perry v. Hillman, 153 Wash. 689, 280 P. 346 (1929).
But Perry is not helpful. The trial court determined that the oral agreement here was for ongoing, continuous services. That being so, the court applied the well-settled rule of Ah How v. Furth: employment for an indefinite period at a specified sum per month with periodic payments over a number of years results in a continuous contract. Ah How v. Furth, 13 Wash. 550, 552, 43 P. 639 (1896). The statute of limitations does not then begin to run until the service ends. Id.
Greear's services ended in 1998 when the parties severed their relationship. The statute of limitations did not start to run until those services ended. Merrick's 1999 lawsuit was not, therefore, time barred.
Laches, Waiver, and Equitable Estoppel
Greear next contends that a number of equitable doctrines preclude any claim by Merrick for laundry income. The court has broad discretion to fashion equitable remedies. Niemann v. Vaughn Cmty. Church, 118 Wn. App. 824, 835, 77 P.3d 1208 (2003). We review the court's equitable rulings for abuse of discretion. Id.
This litigation involved both legal and equitable claims. Each party asserted contract claims, and both sought equitable remedies. Merrick asked for an accounting; Greear asked for a declaration of rights. The common purpose underlying all these claims was to obtain money.
The trial judge's decisions reflect a painstaking effort to interpret a very loose oral agreement fairly and equitably. To that end, the court rejected Greear's equitable defenses to the laundry income claims. The court characterized the contract as more than usually indefinite, even for an oral contract. We agree. In its equitable discretion, the court determined that neither party should be allowed to shift blame for his situation onto the other. The court refused to penalize Merrick for his failure to make razor-sharp distinctions in Greear's fuzzy accountings and properly declined to find that Merrick was on notice that he was not getting his share of the laundry money.
The court's rulings on these equitable defenses are well within its broad discretion and proper given the circumstances. In re Foreclosure of Liens, 123 Wn.2d 197, 204, 867 P.2d 605 (1994).
Additional Purchase Price
The real estate contract provided for an increase in the purchase price if Greear refinanced during the life of the contract. Greear did refinance. Under the terms of the contract, the additional purchase price is based on gross income from all sources. The court ruled that this means just what it says.
Security Deposits
Greear presented expert testimony that tenant security deposits were not income for the purpose of calculating the additional purchase price. Because deposit retentions were strictly matched by documented expenses, the expense and the deposit cancelled each other out with no net gain. The court agreed with Merrick that gross income does not mean net gain. The court correctly read the plain language of the real estate contract. It provides that the additional purchase price is based, not on net gain, but on gross income from all sources. Gross income from rents, for example, was used in the calculations. None of the income figures were balanced by expenses.
Greear is correct that the security deposit revenue did not represent a net gain. But this is simply not relevant. The court reasoned that Greear charged Merrick with half the expenses offsetting the deposits, so Merrick was entitled to receive half the retained funds. The court noted that Greear himself had treated the security deposits as miscellaneous income in his split reports. CP at 49 n. 4 (Counterclaim Mem. Op.).
Storage Sheds Constructed After the Sale
This item turns on the meaning of the term 'Property.' The additional purchase price is based on income on the 'Property' from all sources. The contract defines the 'Property' as the land and buildings. Greear contends that this means those buildings in existence at the time of the contract. And he argues the court therefore erred by including income from a storage building that he built after the sale.
We simply cannot determine from the contract language whether the additional purchase price was to be based on the property as it existed on the date of signing or as it would exist on the date the additional price was paid. The court here did the logical thing and looked to the conduct of the parties to determine what they thought the property was — what was joint, what was separate, and what constituted income. Nothing in this record suggests that Greear constructed storage units on his half with the intent to benefit only himself and his own tenants. Until the breakdown in their relations and the subsequent litigation, the operation seems to have been run entirely reciprocally and for their mutual benefit. The record then supports the court's determination that income from the storage buildings was properly included in the calculation.
Motion to Amend the Pleadings
The trial court awarded Greear a judgment against Merrick for $12,197.71 overpaid by Greear on the real estate contract. The court at first rejected Merrick's contention that Greear could not recover this judgment because Merrick had assigned his right to receive payment on the contract to his ex-wife in their divorce settlement.
Then, on Merrick's motion, the court reconsidered its decision and noted that Greear's prayer for relief was simply for a declaration of rights, not for a money judgment. The court therefore agreed with Merrick that judgment for the overpayment was not accommodated by the counterclaim. Accordingly, the court affirmed its ruling that Greear had overpaid by $12,197.71, but withdrew the proposed judgment. Merrick does not dispute that the overpayment occurred. Greear argues that reinstatement of his judgment against Merrick is required by the court rules.
Interpretation of court rules is a question of law which we review de novo. Wesco Distribution, Inc. v. M.A. Mortenson Co., 88 Wn. App. 712, 714, 946 P.2d 413 (1997).
Civil Rule 15(b) provides in part:
Amendments to Conform to the Evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues.
We determine whether an issue was tried by consent by reviewing the entire record. Dewey v. Tacoma Sch. Dist. No. 10, 95 Wn. App. 18, 26, 974 P.2d 847 (1999).
The overpayment issue was tried by the express or implied consent of these parties. It is also clear that the issue was tried with the understanding that the remedy sought was recovery of the overpayment. Merrick's response was that his ex-wife was liable for any judgment. And this was the court's view also when the original judgment was announced.
Washington has adopted the Uniform Declaratory Judgments Act. RCW 7.24.010. The court may grant monetary damages in a declaratory action to save time and money and to resolve the entire dispute. United Nursing Homes, Inc. v. McNutt, 35 Wn. App. 632, 640, 669 P.2d 476 (1983).
Greear named the former Mrs. Merrick as a defendant in his counterclaim, but was unable to locate her to serve her with process. The trial court rejected Merrick's assertion that Greear's sole recourse was against Merrick's former wife. The rules of civil procedure allow Greear to proceed against Merrick alone. In an action against defendants jointly indebted upon a contract, the plaintiff 'may proceed against the defendants served unless the court otherwise directs; and if he recovers judgment it may be entered against all the defendants thus jointly indebted so far only as it may be enforced against the joint property of all and the separate property of the defendants served.' CR 20(d)(1). Both Merricks were jointly liable under this real estate contract.
Next, Merrick asserts that he 'assigned' his right to receive payment under the contract to his ex-wife, and that this assignment is binding on Greear. Therefore, he argues, Greear must look solely to the former Mrs. Merrick for relief. But the record shows that Mrs. Merrick did not acquire her contract rights by assignment. She was a party to the contract and a signatory to it. Moreover, Greear paid the additional purchase price into a joint escrow account for the benefit of both Merricks. This joint asset was awarded to Mrs. Merrick in the couple's dissolution proceedings. The Merricks' lawyer, therefore, instructed the escrow agent to distribute the funds to Mrs. Merrick. But Greear's right to recover the overpayment from Merrick is unaffected by this property distribution agreement between the Merricks.
Accordingly, Greear is entitled to judgment against Merrick for the overpayment on the additional purchase price under the real estate contract. His pleadings accommodate a money judgment and Merrick's dealings with his ex-wife do not affect Greear's right to recover.
HOLDING
We affirm Merrick's judgment against Greear; we reverse the denial of a money judgment in favor of Greear and remand for reinstatement of Greear's judgment against Merrick on the counterclaim.
A majority of the panel has determined that this opinion will not be printed in the Washington Appellate Reports but it will be filed for public record pursuant to RCW 2.06.040.
KURTZ, J. and BROWN, J., concur.