Swan Lake Flying Service, Inc. v. Apollo-Lakewood Aerial Services, Inc.

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

TERRY CRABTREE, JUDGEDIVISION II

CA00-746

February 28, 2001

SWAN LAKE FLYING SERVICE, INC. AN APPEAL FROM JEFFERSON COUNTY

APPELLANT CIRCUIT COURT

NO. CIV 98-586

V.

HONORABLE BERLIN JONES,

APOLLO-LAKEWOOD AERIAL CIRCUIT JUDGE

SERVICES, INC.

APPELLEE REVERSED

This is a breach-of-contract action. Swan Lake Flying Service, Inc., appeals from a judgment in the amount of $63,500 entered by the Jefferson County Circuit Court for Apollo-Lakewood Aerial Services, Inc. We reverse.

In June 1993, appellee orally agreed to lease a crop-dusting airplane, an airstrip, an office building, and related equipment to appellant for $75,000, payable in three installments of $25,000, per year. Appellee also agreed to provide full insurance coverage on the airplane. The parties never signed a written agreement. In June 1994, they renewed their oral agreement on the same terms. When the next insurance premium was due on May 17, 1995, appellee dropped full coverage on the airplane. While awaiting renewal instructions from appellee, the insurance agent placed a temporary binder for ground-not-in-motion coverageon the airplane. After June 27, 1995, however, there was no insurance coverage on the airplane. Without full-coverage insurance, appellant could not use the airplane.

In July 1995, the parties agreed to continue the contract under the same terms as before, with the exception that appellant would pay $75,000 in one sum rather than in three installments. On July 12, 1995, appellant delivered to appellee a check for $75,000. However, on July 14, 1995, after learning that appellee had not reinstated insurance coverage on the airplane, appellant stopped payment on that check and delivered a $25,000 check to appellee. In late 1995, appellee sold his farm and canceled the lease, directing appellant to relinquish the leased property. Appellee sued appellant for breach of contract on August 26, 1998. Appellant raised the statute of frauds, the statute of limitations, estoppel, and waiver in defense. Appellant further asserted that appellee had materially breached the contract by failing to insure the airplane and that appellee's prior breach should preclude it from recovering any damages from appellant. Appellant also filed a counterclaim for damages it claimed were caused by appellee's breach.

Edward Mahaffy, appellee's owner, testified at trial that he had received no explanation from appellant as to why it had stopped payment on the $75,000 check and had given a $25,000 check in substitution. He stated that he had billed appellant for the balance due on the assumption that appellant would again send the money in three installments. He explained his decision to drop insurance coverage on the airplane by stating that he had noticed that his plane was not in use and that appellant had two other, more powerful, airplanes. He admitted that, without this insurance, the airplane could not be used. When asked if he understood thathe was obligated to furnish insurance on the airplane in 1995, as he had in 1993 and 1994, he stated: "That's a good question...."

Joe Southerland, an employee of Rebsamen Insurance Company, which was appellee's insurance agency, testified that the agency had been in contact with Mr. Mahaffy about the airplane's insurance from May through July 1995. He stated that the full-coverage policy expired on May 17, 1995, and that Mr. Mahaffy had informed Rebsamen that he did not know whether he would be renewing the agreement with appellant. On June 19, 1995, Rebsamen sent a letter to Mr. Mahaffy informing him that the aviation insurance had expired on May 17, 1995, and that the ground-not-in-motion coverage would expire on June 27, 1995. Rebsamen sent another letter to Mr. Mahaffy on July 11, 1995, advising him that the coverage had expired on June 27, 1995. Mr. Southerland testified that, on July 12, 1995, Lionel Crooks (a co-owner of appellant) had called Rebsamen to inquire about whether the airplane had full insurance coverage, because appellant was "ready to go to work." He said that Mr. Crooks had called again to inquire about coverage the next day. Mr. Southerland stated that an agent then called Mr. Mahaffy, who said to tell Mr. Crooks that there was no insurance on the airplane and that he would discuss coverage with an agent at Rebsamen the next week. He said that Rebsamen, however, received no further instructions from Mr. Mahaffy about reinstating insurance on the airplane. He added that, even if appellant had attempted to secure such insurance on its own, Rebsamen would not have provided it without receiving instructions from Mr. Mahaffy.

Mr. Crooks testified that, when the parties decided to continue the contract in June 1995, it was agreed that appellee would again provide insurance on the airplane. He said that he called Mr. Mahaffy several times to ask if the airplane was insured, because appellant could not obtain a plant board certificate without insurance; without the certificate, it could not operate the airplane. He said that, after Rebsamen informed him that there was no coverage on the airplane, he called Claud Bost, another owner of appellant, who then called Mr. Mahaffy. He stated that appellant had employed a third pilot in 1995 but had released him after learning that it could not use appellee's airplane. He said that, to be fair with appellee, appellant issued the $25,000 check to pay for the property that it could use. According to Mr. Crooks, it would have cost between $50,000 and $60,000 to rent a similar airplane on an annual basis; he estimated that the rental of an airstrip for crop-dusting would cost between $5,000 and $15,000. At the time of trial, he said, appellant was leasing another airstrip at a cost of approximately $4,300 per year. Mr. Crooks was emphatic that appellant would not have paid $75,000 for the lease unless it could use the airplane.

Mr. Bost also testified that appellant had employed a third pilot in 1995. He said that, after he learned of the insurance problem from Mr. Crooks, he called Mr. Mahaffy, who invited him over to his office. He stated that Mr. Mahaffy said "give me the [$]75,000 up front, and I'll get insurance on the airplane." He said that he wrote Mr. Mahaffy a check for $75,000; two days later, however, because there was still no insurance on the airplane, he stopped payment on the check. Mr. Bost said that, between July and December 1995, he talked to Mr. Mahaffy three or four times and informed him that they could not use theairplane, which was, basically, the whole lease. He testified that $25,000 was just compensation for the remaining property that appellant could use and that he had told Mr. Mahaffy appellant would pay no more than that. According to Mr. Bost, Mr. Mahaffy was fully aware of the reason why appellant had stopped payment on the $75,000 check.

The trial judge found that the parties had reached an oral agreement or extension of a previous agreement for the lease of appellee's airplane and airstrip with its amenities for $75,000 "up front" and that appellant had the right to provide flying services to appellee's tenants. He found that appellee had maintained full insurance coverage on the airplane until May 17, 1995. He further found that appellant had failed, during the term of the agreement, to advise appellee that appellee had not maintained full coverage on the airplane and had "failed to give appellee the opportunity to cure the defect." He stated: "[Appellee's] failure to continue maintaining full coverage insurance on the ... airplane was due to [appellant's] failure to pay the agreed $75,000 up front as agreed, and is minor in view of the totality of the circumstances." The trial judge found that appellant had breached the agreement and owed appellee an additional $50,000 under the contract. He rejected appellant's statute of limitations, statute of frauds, estoppel, and waiver defenses and awarded appellee judgment for $63,500, including prejudgment interest and attorney's fees.

Appellant has raised the following points on appeal: that several of the circuit judge's findings are clearly erroneous; that the finding of an enforceable oral agreement is clearly erroneous; that appellee's prior breach of contract precludes any recovery on its part; that the circuit judge erred in rejecting appellant's defenses of statute of limitations, statute of frauds,waiver, and estoppel; and that the circuit judge erred in awarding appellee prejudgment interest and attorney's fees. Because we agree that appellee's prior material breach of the contract relieved appellant from its obligation to perform, we need not address the other points on appeal.

In bench trials, the standard of review is whether the judge's findings are clearly erroneous or clearly against the preponderance of the evidence. Foundation Telecomms. v. Moe Studio, 341 Ark. 231, 16 S.W.3d 531 (2000). A finding is clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that a mistake has been made. Id. We are left with such a conviction in this case.

Clearly, appellee breached the contract by failing to provide full insurance coverage on the airplane in 1995. When performance of a duty under a contract is contemplated, any non-performance of that duty is a breach. Zufari v. Architecture Plus, 323 Ark. 411, 914 S.W.2d 756 (1996). As a general rule, the failure of one party to perform its contractual obligations releases the other party from its obligations. Stocker v. Hall, 269 Ark. 468, 602 S.W.2d 662 (1980). The party who first breaches a contract is in no position to take advantage of a later breach by the other party. Id. A relatively minor failure of performance on the part of one party does not, however, justify the other in seeking to escape any responsibility under the terms of the contract; for the defendant's obligation to perform to be discharged, the plaintiff's breach must be material. TXO Prod. Corp. v. Page Farms, Inc., 287 Ark. 304, 698 S.W.2d 791 (1985). The circuit judge found that appellee's failure to insure the airplane was caused by appellant's failure to pay $75,000 "up front" and that thiswas a minor breach. Our review of the evidence, however, convinces us that both findings are clearly erroneous. The evidence clearly shows that, after appellant paid the $75,000, appellee made no effort to obtain insurance on the airplane. He also made no effort to do so after receiving the $25,000 check. Indeed, the evidence overwhelmingly shows that this breach was material and more than justified appellant's refusal to pay the additional $50,000. As Mr. Crooks testified without contradiction by Mr. Mahaffy, the airplane could not be used without such insurance and it would have cost between $50,000 and $60,000 to rent a similar airplane; that cost is obviously material in relation to appellant's obligation to pay $75,000.

In response, appellee contends that, even if its breach of contract was material, appellant waived the breach. We disagree. Waiver is the voluntary abandonment or surrender by a capable person of a right known by him to exist, with the intent that he shall forever be deprived of its benefits. Bharodia v. Pledger, 340 Ark. 546, 11 S.W.3d 540 (2000); Bright v. Gass, 38 Ark. App. 71, 831 S.W.2d 149 (1992). Waiver may occur when one, with full knowledge of material facts, does something that is inconsistent with the right or his intention to rely upon that right; the relinquishment of the right must be intentional. Bharodia v. Pledger, supra. Here, the evidence is clear that appellant attempted to enforce its right to this insurance coverage at every opportunity. Moreover, the circuit judge's finding that appellant failed to inform appellee of this breach is clearly erroneous. It is readily apparent that Mr. Mahaffy knew that he was obligated to provide this insurance and that he willfully failed to do so.

Reversed.

Hart and Jennings, JJ., agree.