Molander v. Raugust-Mathwig, Inc.

722 P.2d 103, 44 Wash. App. 53

• Court: Court of Appeals of Washington
• Decided: June 10, 1986
• Docket: 6556-1-III; 6862-5-III
• Status: Published

Opinions

Thompson, J.

Calvin Raugust appeals a personal judgment against him for $447,011.97 found to be owing to John Molander for architectural fees incurred in the design of two development projects located in Spokane: Riviera Towers, and the Raugust-Mathwig Professional Office Tower. Mr. Raugust contests personal liability for that judgment and further argues $89,621 of the judgment was barred by the statute of frauds and asserts the trial court had no jurisdiction to conduct supplemental proceedings under RCW 6.32.190. Mr. Molander cross-appeals, raising issues concerning prejudgment interest and the applicable rate of interest. We reverse.

On May 9, 1973, John Molander, an architect, entered into a standard American Institute of Architects (AIA) agreement with W. J. Mathwig, Inc.¹ to design a condominium apartment complex known as Riviera Towers. On March 7, 1974, the same two parties signed a second AIA contract for the design of an office building and parking structure, which was later named the Raugust-Mathwig Professional Office Tower. On March 2, 1977, these two contracts were amended reducing the architect's fee and substituting Raugust-Mathwig, Inc., and Associates² as designated owner of the properties. The amended contracts on AIA forms were prepared by Mr. Molander and signed by W. J. Mathwig, as vice-president and manager of Rau-gust-Mathwig, Inc., and Associates. Although the typewritten name of Calvin Raugust, designated president of Raugust-Mathwig, Inc., and Associates, was included on the contracts, he did not sign them. The limited partnership agreement was never executed, but the parties opened a bank account, hired personnel and used its name on the amended architectural agreements.

Because an architect is paid the bulk of his fees when financing is secured, Mr. Molander decided not to proceed beyond the design development stage without reassurances regarding financing. On April 12, 1978, he received a letter, written on W. J. Mathwig, Inc., stationery, which assured continued financing:

The Molander Associates, Architects P.O. Box 7928, Rosewood Station Spokane, Washington 99208

Re: Riviera Towers A Residential Condominium West 700 Mallon

Gentlemen:

You are hereby authorized to prepare final contract documents for construction of the above project in accordance with approved preliminary plans and outline specifications and the executed A.I.A. Standard Form of Agreement between Owner and Architect, A.I.A. Document B131, April 1970 Edition.

Final contract documents with the selected project general contractor, Lydig Construction, Inc.; and mechanical contractor, McClintock and Turk, Inc.; and electrical contractor, Power City Electric, Inc.; shall be prepared on the basis of A.I.A. Document Alll, Owner-Contractor Agreement, cost of the work plus a fee.

Financing of the project has been assured and a commitment in hand.

You are requested to prepare the above documents, make application for the necessary permits as soon as practicable. Please submit a statement of accounts such that arrangements may be made by this office to satisfy outstanding balance of planning fees for you and your consultants by May 1, 1978.

Sincerely yours,

/s/ Franklin L. Smalley Franklin L. Smalley Vice President

The court made a finding that Mr. Raugust was aware of the contents of the letter, "although his memory at this time may be clouded as to the event".

On approximately May 1, 1978, work was stopped on the office tower because Mr. Mathwig was unable to secure the necessary city permits. Approximately 35 percent of the architect's fee had been earned at that time. Work continued on Riviera Towers until Mr. Molander realized financing would not be forthcoming, sometime in 1979. Eighty percent of the architect's fee had been earned at the time of that work stoppage.

Mr. Raugust contends substantial evidence was not presented to support the decision to impose personal liability on him, either as a promoter, or on theories of reliance or unjust enrichment, arguing every monetary transaction, except the first $15,000, was made by either a valid corporation or trust. Further, he argues the corporate minutes of Raugust-Mathwig, Inc., directed Mr. Mathwig to form the limited partnership of Raugust-Mathwig, Inc., and Associates, and the amended AIA contracts, which listed Rau-gust-Mathwig, Inc., and Associates as the owner, were signed only by Warren J. Mathwig. The role of promoter, if present, was played, he urges, by either Borderline Enterprises,³ which advanced the $500,000 needed to keep the project afloat, or Cal-Lee City Estates,⁴ which held the stock of Raugust-Mathwig, Inc. Other than serving as president and chairman of the board of Raugust-Mathwig, Inc., the proposed general partner, and Raugust-Mathwig, Inc., and Associates, the unperfected limited partnership, Mr. Raugust argues he had no individual involvement upon which personal liability could be based. We agree.

Citing Dwinell's Cent. Neon v. Cosmopolitan Chinook Hotel, 21 Wn. App. 929, 587 P.2d 191 (1978) and Goodman v. Darden, Doman & Stafford Assocs., 100 Wn.2d 476, 670 P.2d 648 (1983), the trial court defined Mr. Raugust as a promoter and found him personally liable for contracts made for the benefit of the contemplated partnership. The court concluded it was reasonable for a lay person to assume the partners of the entity were Mr. Raugust and Mr. Mathwig, as evidenced by the signature on the contract which included both men's names, albeit one typed and one signed.

In Washington, parties may form a limited partnership with a corporation as the sole general partner, so long as statutory requirements are met. Frigidaire Sales Corp. v. Union Properties, Inc., 88 Wn.2d 400, 402, 562 P.2d 244 (1977). Here, the limited partnership was to be comprised of general partner Raugust-Mathwig, Inc., and limited partners Cal-Lee Trust, W. J. Mathwig, Inc., and Associates, and W. J. Mathwig, Inc.

Since it is undisputed the parties failed to perfect the limited partnership, we must look to the would-be partners' liability as promoters of a business enterprise and as general partners, Dwinell's Cent. Neon, at 935-36. A promoter is defined as "one who alone or with others forms a corporation and procures for it the rights, instrumentalities and capital to enable it to conduct its business". Goodman, at 478 n.2, citing 1 W. Fletcher, Private Corporations § 189 (1974).

[W]here a corporation is contemplated but has not yet been organized at the time when a promoter makes a contract for the benefit of the contemplated corporation, the promoter is personally liable on it, even though the contract will also benefit the future corporation.

Harding v. Will, 81 Wn.2d 132, 139, 500 P.2d 91 (1972). Goodman, at 478-79.

The liability of the promoter for a contract will depend upon the terms of the contract and the intent of the parties. 1A W. Fletcher, Private Corporations § 215 (1983). There is a strong inference that a person intends to make a contract with an existing entity, rather than the to-be-formed corporation. Goodman, at 479; White & Bollard, Inc. v. Goodenow, 58 Wn.2d 180, 184, 361 P.2d 571 (1961). Finally, corporations may be promoters if such acts are within their powers. 1A W. Fletcher § 189, at 337.

Here, the record supports the inference Mr. Molander intended to contract with existing entities. Although the exact form of the entities may not have been clear at the time, Mr. Molander testified he believed he was contracting with a corporation. Responding to a question by the court, he stated the diverse interests involved rendered it unnecessary to obtain "personal" liability of the individuals, thus indicating he was not looking to the personal liability of Mr. Raugust, but rather to the liability of the entities combining to form the limited partnership. Promoter liability, therefore, if at all, should have been assigned to Raugust-Mathwig, Inc., Cal-Lee Trust, W. J. Mathwig, Inc., and Associates, and W. J. Mathwig, Inc.

There are no corporate minutes, letterhead, contract language or testimony of any kind in the record that would support a finding Mr. Raugust was to be either a limited or general partner in Raugust-Mathwig, Inc., and Associates. Since corporations may enter into limited partnerships and the validity of the corporate partners was unchallenged, the failure of the limited partnership resulted in general partnership liability of the corporate entities, not Mr. Raugust personally.

No testimony was presented that the failure to form the partnership was for fraudulent or deceptive purposes. Moreover, Mr. Molander was never led to believe the parties were acting in anything other than their corporate capacities.

When the shareholders of a corporation, who are also the corporation's officers and directors, conscientiously keep the affairs of the corporation separate from their personal affairs, and no fraud or manifest injustice is perpetrated upon third persons who deal with the corporation, the corporation's separate entity should be respected.

Frigidaire Sales, at 405.

Doing business as an association or a corporation is not illegal and complexity in business relationships alone is not a basis for imposing liability. The doctrine of corporate disregard will not be applied in the absence of proof that (1) the corporate form was intentionally used to violate or evade a duty, and (2) disregard is required to prevent an unjust loss to an injured party. Lindsay Credit Corp. v. Skarperud, 33 Wn. App. 766, 770-71, 657 P.2d 804 (1983). New people are aware of the organizational intricacies of businesses with which they are dealing and unless there is an agreement to be personally liable, absent fraud or a similar basis, personal liability cannot be imposed just because a person seeks to insulate himself by doing business through a corporate entity. A professional architect doing business in a complex financial world cannot escape the legal consequences of failure to protect himself by professing ignorance as to corporate and partnership liability. Subjective expectations or postdisaster wishful thinking is not a substitute for legal advice and appropriate contract language.

It is difficult to find support in the record for the court's finding that Mr. Raugust had personal knowledge of the letter misrepresenting financing and that Molander Associates was justified in relying on payment for the work. Mr. Smalley testified Mr. Mathwig gave him the letter, instructed him to sign it, and Mr. Smalley said he did not discuss the contents of the letter with Mr. Raugust. Mr. Raugust stated he had no knowledge of the contents of the letter. Mr. Mathwig's testimony in response to a question as to whether Mr. Raugust knew about the letter was in rather vague words to the effect Mr. Raugust participated in authorizing the preparation of the letter. However, the court made no finding as to when Mr. Raugust knew of the contents of the letter and no testimony indicates Mr. Raugust participated in the preparation or issuance of the letter. Nevertheless, where the trial court has weighed the evidence, our review is limited to determining whether substantial evidence supports the finding and, if so, whether the finding in turn supports the court's conclusions of law and judgment. Ridgeview Properties v. Starbuck, 96 Wn.2d 716, 719, 638 P.2d 1231 (1982). Since we cannot substitute our judgment for that of the trial court, we defer to the trial court's finding that Mr. Raugust had personal knowledge of the misrepresentation regarding financing.

However, the finding of personal knowledge does not support the trial court's conclusion and to use this fact alone as a basis for imposing personal liability on Mr. Rau-gust was error. Neither the court's opinion nor the findings of fact and conclusions of law elaborate upon what legal theory the imposition of liability is based. Mr. Molander testified here, as is usually the case, he looked first to financing for payment and then to the corporation. There were no oral or written promises on the part of Mr. Rau-gust to personally pay the architect's fee. Mr. Molander did not testify to any reliance on any promises or deceptive acts by Mr. Raugust. Mere failure to warn Mr. Molander at some indeterminate time that an erroneous letter had been issued is not sufficient to warrant disregard of the corporations and impose personal liability on Mr. Raugust.

The additional claim of unjust enrichment alluded to by counsel but not specified in the conclusions likewise is not supported by the record. Unjust enrichment arises when money or property has been placed in one person's possession such that in equity and good conscience he should not retain it. Family Med. Bldg., Inc. v. Department of Social & Health Servs., 104 Wn.2d 105, 112, 702 P.2d 459 (1985). Moreover, a party must make restitution when he has been unjustly enriched at the expense of another. Chemical Bank v. WPPSS, 102 Wn.2d 874, 909, 691 P.2d 524 (1984), cert. denied, 471 U.S. 1065, 1075 (1985), citing Restatement of Restitution § 1 (1937). Justice does not require restitution where no benefit passes, Chemical Bank, at 911-12, or where the contracting party receives nothing more than what he paid for. Farwest Steel Corp. v. DeSantis, 102 Wn.2d 487, 493, 687 P.2d 207 (1984), cert. denied, 471 U.S. 1018 (1985).

Mr. Raugust was not the beneficiary of a windfall at the expense of the Molanders. Although the record establishes plaintiffs earned the fee they now claim, their personal architectural services conferred no benefit personally to Mr. Raugust. His corporations did realize tax advantages, but those benefits were corporate and do not appear to have offset the substantial investments made by Mr. Raugust's corporations in the failed projects.

The Molanders did not perform services, work, or make a contribution that increased or enhanced the value of any of the property that eventually ended up in a Raugust entity. Some of the property was owned by Raugust interests prior to the parties entering into the March 2, 1977 AIA contracts. For the doctrine of unjust enrichment to apply, some benefit must be conferred on one party to the detriment of the other and denying recovery would result in an unfair result. If the projects had been undertaken and buildings had been raised using plaintiffs' architectural drawings and Mr. Raugust was allowed to take his improved property without compensating the Molanders, the doctrine of unjust enrichment could be applicable. In that instance, presumably the enhanced value of the Raugust property due to services rendered by Mr. Molander would make the doctrine applicable.

Here, the architects' services conferred no benefit on either the property or Mr. Raugust or any of Mr. Raugust's entities. Therefore, the doctrine is inapplicable. Judgment may not be granted and valid corporate forms be set aside based solely on the fact one party suffers a greater loss than another, or one party is financially better able to sustain the loss than another. The record establishes no basis to support a finding of unjust enrichment.

Because we find the evidence did not support the imposition of personal liability on Mr. Raugust, the remaining issues become moot.

Reversed.

Green, C.J., concurs.

1 W. J. Mathwig, Inc., owned by W. J. Mathwig, was established in 1962 and filed for bankruptcy in 1981.

2 Raugust-Mathwig, Inc., and Associates was to be a limited partnership set forth by corporate resolution February 7, 1977. Raugust-Mathwig, Inc., was designated the general partner. Limited partners were Cal-Lee Trust, W. J. Mathwig, Inc., and Associates, and W. J. Mathwig, Inc. The validity of the entities comprising this planned limited partnership was not challenged.

3 Borderline Enterprises: Mr. Raugust's farm corporation (formed November 1, 1975), registered in Washington, in which he and his wife have a majority interest. Over $1.1 million was passed to Mathwig entities through this corporation.

4 Cal-Lee City Estates was a common law trust in existence for only 3 to 4 months to hold shares of Raugust-Mathwig, Inc.