Opinion
No. 26880-2-III.
January 8, 2009.
Appeal from a judgment of the Superior Court for Grant County, No. 06-2-00590-9, Evan E. Sperline, J., entered January 22, 2008.
Affirmed by unpublished opinion per Brown, J., concurred in by Schultheis, C.J., and Korsmo, J.
UNPUBLISHED OPINION
Russell Dan Reynolds, Marvin Chamberlain, D.V.M., and Dean Koesel, D.V.M., formed two separate partnerships, which purchased, bred, and sold registered dairy cattle. The cattle from both partnerships lived at a dairy owned by Mr. Reynolds. Mr. Reynolds was responsible for providing feed for the cattle, and for approximately three years, he purchased hay for the cattle from Jerry E. Hodges. Mr. Reynolds failed to pay for a majority of the hay delivered. Mr. Hodges assigned any claim related to the hay bill to Washington Trust Bank. Washington Trust Bank sued both partnerships, and the trial court granted partial summary judgment in its favor, finding the partnerships liable for the hay bill. The partnerships appeal. We find the partnerships liable for the hay bill under the doctrine of unjust enrichment, and affirm.
FACTS
Mr. Reynolds, as a sole proprietor, operated a dairy located in Quincy, Washington. In 1998, Mr. Reynolds and Dr. Chamberlain formed a partnership, known as River Gorge Holsteins ("River Gorge"). The purpose of the partnership was to purchase, breed, and eventually sell registered dairy cattle. The River Gorge cows spent the first portion of their lives at Mr. Reynolds' dairy, and then were transferred to Dr. Chamberlain's property for a period of time. After Dr. Chamberlain artificially inseminated the cows, they were transferred back to Mr. Reynolds' dairy, where they calved and were then milked.
Also in 1998, Mr. Reynolds, Dr. Chamberlain, and Dr. Koesel formed a partnership known as TBM Syndicate. The purpose of the partnership was also to purchase, breed, and eventually sell registered dairy cattle. Like the River Gorge cows, the TBM Syndicate cows spent the first portion of their lives at Mr. Reynolds' dairy, then were transferred to Dr. Chamberlain's property, and returned to Mr. Reynolds' dairy after they were artificially inseminated. The TBM Syndicate cows remained at Mr. Reynolds' dairy to calve and give milk.
While their cattle remained at Mr. Reynolds' dairy, River Gorge and TBM Syndicate (collectively "the partnerships") charged Mr. Reynolds rent in the amount of one dollar per day, per cow. This rent was only charged for the days each cow produced milk. Any profits from the sale of milk from the partnership cows belonged to Mr. Reynolds; the partnerships were not entitled to these profits.
Further, while the partnership cattle were at Mr. Reynolds' dairy, Mr. Reynolds was responsible for purchasing feed for the cattle. Mr. Reynolds was also responsible for other expenses associated with maintaining the partnership cattle, including veterinary costs.
From spring 2002 through April 2005, Mr. Reynolds purchased hay to feed the partnership cattle from Mr. Hodges. Initially, Mr. Reynolds paid Mr. Hodges when the hay was delivered. During the summer of 2002, the regular payments ceased, and from that point through April 2005, Mr. Reynolds made limited payments to Mr. Hodges. Mr. Reynolds incurred a substantial obligation for the hay he accepted without making payments. All payments received from Mr. Reynolds by Mr. Hodges came in the form of a check written in Mr. Reynolds' name only or via automatic withholdings from the milk proceeds received by Mr. Reynolds.
The partnership cattle were bred while at Mr. Reynolds' dairy, increasing the size of the herds. All of the partnership cattle consumed the hay purchased by Mr. Reynolds from Mr. Hodges.
On June 3-4, 2005, the partnerships sold their cattle at an auction. The proceeds from the River Gorge cows were split equally between Dr. Chamberlain and Mr. Reynolds. The proceeds from the TBM Syndicate cows were split equally between Dr. Chamberlain, Mr. Reynolds, and Dr. Koesel.
Mr. Hodges' hay bill remained outstanding. He assigned any claim regarding this bill to Washington Trust Bank ("Washington Trust").
Washington Trust sued the partnerships and Dr. Chamberlain, alleging Mr. Reynolds purchased the hay from Mr. Hodges on behalf of the partnerships, and therefore, the partnerships are liable for the hay. Washington Trust moved for partial summary judgment on the issue of liability, arguing it was entitled to relief based on partnership liability, or the alternative, based on the doctrine of unjust enrichment. The partnerships filed a cross-motion for partial summary judgment, also on the issue of liability.
In addition to the partnership cows, Dr. Chamberlain also leased his own cows to Mr. Reynolds. Therefore, Washington Trust also alleged Dr. Chamberlain is liable for the hay his cows consumed because Mr. Reynolds purchased this hay as Dr. Chamberlain's agent. However, it appears Washington Trust only proceeded against Dr. Chamberlain on a theory of partnership liability. The trial court only ruled on Dr. Chamberlain's liability as a partner for hay consumed by the partnership cows. Further, in its brief, Washington Trust acknowledges it "is not seeking to recover from the Partnerships for the hay consumed by cattle owned solely by . . . Dr. Chamberlain." Resp't Br. at 14.
In support of their motions, both parties submitted excerpts from Mr. Hodges' deposition. Mr. Hodges deposed he knew Dr. Chamberlain and Mr. Reynolds were partners in River Gorge. He further deposed he knew River Gorge owned a portion of the cattle on Mr. Reynolds' property, and that Mr. Reynolds "was supposed to pay some sort of . . . rent on the cattle." Clerk's Papers (CP) at 87. Mr. Hodges deposed he sold the hay to Mr. Reynolds' business, "Dan Reynolds Dairy." CP at 85. He further deposed he did not contact Dr. Chamberlain about the hay bill, "[b]ecause he wasn't the person I dealt with on the hay." CP at 170. Mr. Hodges deposed he had an account receivable for Mr. Reynolds, but not for Dr. Chamberlain or River Gorge. Additionally, Mr. Hodges deposed he and Mr. Reynolds did not discuss who had the obligation to feed the River Gorge cattle.
Additionally, both parties submitted excerpts from Mr. Reynolds' deposition. Mr. Reynolds deposed the milk proceeds he received from the River Gorge cattle went toward their expenses, including the hay they consumed. In addition, Mr. Reynolds deposed he did not ask Dr. Chamberlain or Dr. Koesel to contribute to the hay bill because "I didn't think they would." CP at 148.
In support of its motion, Washington Trust submitted excerpts from Dr. Koesel's deposition. When asked if Mr. Reynolds ever discussed the hay bill with him, Dr. Koesel stated, "[n]ot specifically. Before the sale, he just mentioned he owed for hay." CP at 64-65.
In his declaration submitted in support of the partnerships' motion, Dr. Chamberlain declared, "I did not know [Reynolds Dairy] was having difficulties paying for feed." CP at 180. He further declared, "I did not become aware of the problem with the unpaid hay account or the extent of that account until April, 2005, when [Mr.] Reynolds told me that he could no longer continue to afford to operate the dairy or provide feed to the cattle." CP at 181.
After a hearing on the motions, the trial court granted Washington Trust's motion for partial summary judgment, and denied the partnerships' motion. The trial court ruled the partnerships, and Dr. Chamberlain, are liable for the hay from Mr. Hodges, consumed by the partnership cattle. The partnerships unsuccessfully moved for reconsideration.
We accepted discretionary review.
ANALYSIS
The issue is whether the trial court erred in granting partial summary judgment in favor of Washington Trust, ruling the partnerships are liable for the hay from Mr. Hodges, consumed by the partnership cattle. The partnerships contend the hay bill is a debt incurred by Mr. Reynolds on his own behalf, not on behalf of the partnerships. Alternatively, the partnerships contend Washington Trust is not entitled to relief under the doctrine of unjust enrichment.
We review a trial court's grant of summary judgment de novo, engaging in the same inquiry as the trial court. Lybbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c). "A material fact is one that affects the outcome of the litigation." Owen v. Burlington N. Santa Fe R.R., 153 Wn.2d 780, 789, 108 P.3d 1220 (2005). When considering a summary judgment motion, the court must construe all facts and reasonable inferences in the light most favorable to the nonmoving party. Lybbert, 141 Wn.2d at 34. Further, summary judgment "may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages." CR 56(c).
In its motion for discretionary review, the partnerships acknowledged there are no genuine issues of material fact. Accordingly, the issue before us is whether Washington Trust was entitled to judgment as a matter of law.
For the first time in their reply brief, the partnerships assert "there are genuine issues of fact warranting trial for which the trial court's ruling must be overturned." Reply Br. of Appellant at 17. However, Washington appellate courts will not consider arguments raised for the first time in a reply brief. Lewis v. City of Mercer Island, 63 Wn. App. 29, 31, 817 P.2d 408 (1991).
Partnership Liability
The partnerships first contend the hay bill is a debt incurred by Mr. Reynolds on his own behalf, not on behalf of the partnerships.
"Each partner is an agent of the partnership for the purpose of its business." RCW 25.05.100(1). Furthermore:
An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.
In addition, "when a contract is made in the name of an individual but for the benefit of the partnership, there is implied liability on the part of other partners even though they are not named." Barnes v. McLendon, 128 Wn.2d 563, 572, 910 P.2d 469 (1996) (citing Warren v. Rickles, 129 Wash. 443, 445, 225 P. 422 (1924), aff'd, 134 Wash. 701, 234 P. 673 (1925)). However, "[i]n order to bind unnamed partners, the obligation must be within the scope of the partnership business or the proceeds must be used in the business or for the benefit of the firm." Id. at 573 (citing Collyer v. Egbert, 200 Wash. 342, 348-49, 93 P.2d 399 (1939)).
Here, the business of the partnerships was to purchase, breed, and eventually sell registered dairy cattle. Thus, feeding the partnership cattle was for "carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership." RCW 25.05.100(1).
However, the more difficult question is whether Mr. Reynolds was acting in his capacity as a partner when he purchased feed for the partnership cattle. Although Mr. Reynolds was a partner in River Gorge and TBM Syndicate, Mr. Reynolds was also a sole proprietor operating a dairy. As a sole proprietor, Mr. Reynolds paid rent in exchange for receiving the milk from the partnership cows. All parties agree he was also responsible for purchasing feed for the partnership cattle. Further, according to Mr. Reynolds, the milk proceeds from the River Gorge cattle were used to cover their expenses, including the hay they consumed.
In light of these established facts, it cannot be said that Mr. Reynolds' purchase of hay from Mr. Hodges was in his capacity as a partner of River Gorge and TBM Syndicate. Rather, Mr. Reynolds' purchase of hay was in his capacity of a sole proprietor operating a dairy. When the partnerships leased their cattle to Mr. Reynolds individually, and agreed to allow Mr. Reynolds to keep the milk proceeds, he assumed the obligation to provide feed to the cattle.
Likewise, contrary to the assertion of Washington Trust, Mr. Reynolds did not have actual or apparent authority to purchase hay on behalf of the partnerships. See King v. Riveland, 125 Wn.2d 500, 507, 886 P.2d 160 (1994) (stating "[a]n agent's authority to bind his principal may be of two types: actual or apparent").
"When an agent has actual authority to act on behalf of the principal, the agent's exercise of the authority binds the principal." Blake Sand Gravel, Inc. v. Saxon, 98 Wn. App. 218, 223, 989 P.2d 1178 (1999). "Actual authority may be express or implied." King, 125 Wn.2d at 507. "Implied authority is actual authority, circumstantially proved, which the principal is deemed to have actually intended the agent to possess." Id. Implied actual authority depends upon objective manifestation from the principal to the agent. Id. The most common example of implied actual authority is when "the agent has consistently exercised some power not expressly given to the agent and the principal, knowing of the same and making no objection, has tacitly sanctioned continuation of the practice." Id.
Here, the partnerships did not expressly or impliedly authorize Mr. Reynolds to purchase hay on behalf of the partnerships. Rather, Mr. Reynolds assumed the responsibility of purchasing hay for the partnership cattle in his capacity of a sole proprietor operating a dairy.
Regarding apparent authority, "[a]n agent has apparent authority to act for a principal only when the principal makes objective manifestations of the agent's authority `to a third person.'" Ranger Ins. Co. v. Pierce County, 164 Wn.2d 545, 555, 192 P.3d 886 (2008) (quoting King, 125 Wn.2d at 507). Further, "a principal's objective manifestations `must cause the one claiming apparent authority to actually, or subjectively, believe that the agent has authority to act for a principal [and] be such that the claimant's actual, subjective belief is objectively reasonable.'" Id. (quoting King, 125 Wn.2d at 507). "The burden of establishing apparent authority rests on the one asserting its existence." State v. French, 88 Wn. App. 586, 595, 945 P.2d 752 (1997).
Here, although Mr. Hodges knew of the existence of River Gorge, and that this partnership owned a portion of the cattle on Mr. Reynolds' property, neither River Gorge nor TBM Syndicate made any manifestations to Mr. Hodges that would lead him to believe Mr. Reynolds was acting with the apparent authority of the partnerships. See Ranger Ins. Co., 164 Wn.2d at 555. Mr. Hodges acknowledged he solely dealt with Mr. Reynolds. Accordingly, Washington Trust cannot establish Mr. Reynolds had apparent authority to act on behalf of the partnerships. See French, 88 Wn. App. at 595.
Unjust Enrichment
Next, the partnerships contend Washington Trust is not entitled to relief under the doctrine of unjust enrichment.
"Unjust enrichment is the method of recovery for the value of the benefit retained absent any contractual relationship because notions of fairness and justice require it." Young v. Young, 164 Wn.2d 477, 484, 191 P.3d 1258 (2008). A claim of unjust enrichment requires proof of three elements: "(1) the defendant receives a benefit, (2) the received benefit is at the plaintiff's expense, and (3) the circumstances make it unjust for the defendant to retain the benefit without payment." Id. at 484-85.
Here, the partnerships received a benefit at the expense of Mr. Hodges, in that their cattle were sustained by the hay provided by him. Thus, the remaining question is whether it would be unjust for the partnerships to retain this benefit without paying for it. See Young, 164 Wn.2d at 484-85. Washington Trust argues the doctrine of unjust enrichment applies here, relying on Costanzo v. Lawrence, 64 Wn.2d 901, 395 P.2d 93 (1964).
In Costanzo, Sam Lawrence and Norman Harris formed a partnership, with the purpose of purchasing, breeding, feeding, and selling cattle. Subsequently, Mr. Lawrence and Mr. Harris moved their cattle onto a ranch owned by the plaintiff. Id. at 902. They entered into a lease with an option to purchase the ranch, with Mr. Harris named as the lessee. Id. Mr. Lawrence did not sign the lease, but he did participate in the lease negotiations, helped pay rent, and retained the right to exercise the option to purchase if Mr. Harris chose not to. Id. The plaintiff stored a large amount of hay on the ranch. Id. The lease provided if Mr. Harris exercised the option to purchase, the hay would be sold to him at a set price; if not, Mr. Harris could either pay for or replace any hay consumed. Id.
Mr. Lawrence and Mr. Harris later terminated their partnership. Id. Mr. Harris then exercised the option to purchase the plaintiff's ranch, without paying for the hay. Id. The plaintiff sued Mr. Lawrence and Mr. Harris for the value of the hay stored at the ranch. Id. The trial court found in favor of the plaintiff, concluding the partnership was unjustly enriched by the hay consumed by the partnership cattle. Id. at 902-03. On appeal, our Supreme Court affirmed. Id. at 903-04. The court concluded "the record contains substantial evidence to support the trial court's finding that the partnership was unjustly enriched to the extent of the hay consumed by the partnership cattle." Id. at 903. Further, the court found that even though the plaintiff knew of both partners, and only one partner, Mr. Harris, signed the lease, the non-contracting partner, Mr. Lawrence, received a benefit. Id. at 903-04.
Here, the benefit received by the partnerships from Mr. Hodges was substantial. The sole asset of the partnerships were their cattle, which increased in number while residing at Mr. Reynolds' dairy, consuming hay provided by Mr. Hodges. Therefore, akin to Costanzo, it would be unjust for the partnerships to retain the substantial benefit of the feed provided to their cattle without making any payment.
The partnerships argue although they received an incidental and indirect benefit from the hay, they were not unjustly enriched, because purchasing hay was solely Mr. Reynolds' obligation under his lease of the partnerships' cattle. In support of this argument, the partnerships cite to Farwest Steel Corp. v. Mainline Metal Works, Inc., 48 Wn. App. 719 741 P.2d 58, (1987). There, a third party who had contracted to provide materials to a subcontractor sued the general contractor for materials it provided to the subcontractor, under a theory of unjust enrichment. Id. at 720-21. The court found that although the general contractor was enriched by the actions of the third party, the enrichment was not unjust. Id. at 732-33. Instead, the general contractor was "a mere incidental beneficiary" of the contract between the subcontractor and the third party. Id. at 732. The court reasoned the general contractor did not contribute to the third party's loss, in that it did not "acquiesce in or encourage the contract" with the third party. Id. at 732-33.
However, unlike here, Farwest Steel Corp. did not involve a partnership. Id. at 721-22. Here, the benefit accruing to the partnerships from the contract between Mr. Hodges and Mr. Reynolds was not merely incidental. To the contrary, the primary asset of the partnerships, their cattle, was sustained by this third party contract. Thus, it would be unjust to allow the partnerships to retain this benefit without payment.
Accordingly, Washington Trust is entitled to relief against the partnerships, under the doctrine of unjust enrichment, for the hay consumed by the partnership cattle. In addition, Dr. Chamberlain is liable, jointly and severally, for this obligation. See RCW 25.05.125(1) (in general, "all partners are liable jointly and severally for all obligations of the partnership").
The trial court did not err in granting partial summary judgment in favor of Washington Trust.
Affirmed.
A majority of the panel has determined 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.
Schultheis, C.J., Korsmo, J., Concur.