Plaintiff, Carter Equipment Company (Carter), sued defendant, John Deere Industrial Equipment Company (Deere), originally alleging seven causes of action.1 Ultimately, only two causes of action were submitted to the jury. The first cause of action related to Carter's claim that a fiduciary relationship existed between the parties and that Deere had breached its fiduciary duty. The second cause of action related to Carter's claim that Deere was a de facto trustee, or trustee in fact, of the repossession reserve account and that it had breached that trust.

The jury returned a verdict in the amount of $1,000,000 and judgment was entered accordingly. Deere filed a motion for judgment notwithstanding the verdict or, in the alternative, a new trial. The district court overruled the motion after oral argument. This appeal followed. This Court reverses the judgment of the district court and remands the case for a new trial.

In 1965, Carter and Deere entered into agreements that resulted in Carter's becoming an authorized dealer of Deere equipment in Natchez and Jackson, Mississippi. Subsequently, the parties entered into agreements establishing Carter dealerships in Greenwood, Meridian, and Starkville, Mississippi.2 It is undisputed that the agreements constituted a franchising arrangement. During the early stages of the franchise relationship, Carter's business involved only a limited amount of Deere equipment. However, Deere equipment was Carter's major line by 1974.

In May of 1974, Deere held a worldwide meeting of Deere equipment dealers in Moline, Illinois. Dan Hyde, Carter's general manager, and Roy Carter attended the meeting. The purpose of the meeting was to introduce Deere's plans for significantly broadening its product line by introducing a number of new "ERA III" machines during the next five years. Remarks were made that Deere would double the number of offerings in seven product groups in hopes of more than doubling Deere's worldwide industrial sales within the five years. The record contains evidence that, in order to achieve its goals, Deere relied upon its dealers and "challenged" them to aggressively participate in the plan. In return for the dealers' increased efforts, Deere promised to provide the products and equipment necessary to challenge the marketplace.

Testimony at trial indicates Carter Equipment began planning new facilities to meet the challenge. However, fire almost totally destroyed Carter's physical facilities in Jackson, Mississippi in 1975. Consequently, Carter began the construction of a new facility. Carter alleges the new facility was built, at least in part, in anticipation of the new line of equipment from Deere. In any event, it is undisputed that the facility far exceeded Carter's needs or capacity at the time it was built. It is also undisputed that the project created financial difficulty for Carter.

About this time, Dan Hyde was fired by Carter, creating a problem in the company's management. A replacement for Hyde was hired approximately eight months later, but he too was fired after a few months.

Carter's financial difficulties continued; it fell behind and was in default on accounts with suppliers and manufacturers. Carter asked Deere to release Deere's security interest so the items utilized as collateral for the security interest could be used to secure other loans. Deere refused. On November 3, 1977, Deere notified Carter it was terminating the dealership agreement in 120 days. During this time, Carter approached various prospective purchasers. At one point, it appeared Norwel Equipment Company would purchase the Carter dealership. Deere would not approve of Norwel as a dealer of Deere equipment for the area serviced by Carter.3 Ultimately, the business was sold to the Hughes-Henry Equipment Company on February 1, 1978. According to Carter, the sale was made at a substantial loss.

As noted, the case went to the jury on only two of Carter's causes of action. Deere claims error relating to both. This Court will address the fiduciary duty issue first and the "de facto" trustee issue second.

The question of whether Carter and Deere enjoyed a fiduciary relationship is perhaps the central issue of the case sub judice, since the jury appears to have based most of its million dollar damage award on a perception that Deere breached some fiduciary duty owed to Carter.4 The cause of action, as it appeared in Carter's final complaint, stated: "The actions of Defendant toward Plaintiffs ... constitute a breach of the fiduciary duty which Defendant owed to Plaintiff Carter Equipment Company as a result of the Dealer-Supplier Relationship entered into by the parties." The district court recognized that, because this case was based on diversity jurisdiction, the Mississippi state law was the law of decision. The district court noted that it was contrary to his experience to impose a fiduciary relationship in a case, such as the one sub judice, involving written contracts that expressly set out the relationships between the parties. The district court, however, relied upon a Mississippi Supreme Court case, Parker v. Lewis Grocer Co., 246 Miss. 873, 153 So. 2d 261 (1963), that the court believed "alligned Mississippi with a view completely at variance with (the district court's) own views and experience on the subject."

Deere contends this determination, together with the submission of a jury instruction relating to a possible fiduciary relationship, was error. The basis of Deere's argument is that the contracts entered into by Deere and Carter controlled the entirity of the parties' relationship. On the other hand, Carter contends that, while Mississippi law does not recognize every franchise or contractual relationship as giving rise to a fiduciary duty, the facts of the present case clearly suggest Deere owed a fiduciary duty to Carter.

Mississippi applies a broad brush to the equitable doctrine of the fiduciary and does not preclude a jury's finding a fiduciary relationship exists between a franchisor and franchisee. To the contrary, the case referred to by the district court-Parker v. Lewis Grocer Co.-indicates Mississippi law would indeed recognize a fiduciary relationship in an appropriate situation. Parker, which relied upon a prior Mississippi Supreme Court decision, Risk v. Risher, 197 Miss. 155, 19 So. 2d 484 (1944), emphasized the Mississippi Supreme Court's position that fiduciary obligations may arise outside the conventional boundaries traditionally recognized as giving rise to fiduciary relationships. See DeTenorio v. McGowan, 510 F.2d 92 (5th Cir. 1975) (Godbold, J. dissenting); Ham v. Ham, 146 Miss. 161, 110 So. 583, 584 (1926).

The Mississippi Supreme Court held that the facts involved in Parker created a fiduciary relationship between a landlord and tenant, even though the parties' underlying relationship was contractual.5 The court pointed out that "the relation is not restricted to such confined relations as trustee and beneficiary, partners, principal and agent, guardian and ward, managing directors and corporation, etc. ... It applies to all persons who occupy a position out of which the duty of good faith ought in equity and good conscience to arise." Parker, 153 So. 2d at 275-76 quoting Risk (citations omitted) (emphasis in Parker ). The court went on to state:

Wherever one person is placed in such a relation to another by the act or consent of that other, or by the act of a third person, or of the law, that he becomes interested for him, or interested with him, in any subject of property or business, he is in such a fiduciary relation with him that he is prohibited from acquiring rights in that subject antagonistic to the person with whose interests he has become associated.

Id. at 276 (quoting Risk ) (emphasis in Parker ).

The language of the Mississippi Supreme Court indicates that, under Mississippi law, a fiduciary relationship may encompass, in certain instances, a relationship based upon a contractual agreement. Ordinarily, courts do not impose fiduciary duties upon parties to contractual agreements. Accordingly, Mississippi law does not dictate that out of every contractual-or franchising-arrangement a fiduciary relationship arises. The Mississippi Supreme Court teaches that the relationship of franchisor/franchisee does not negate the possibility the parties may also be fiduciaries. A fiduciary relationship may arise, if the appropriate facts are present.

The existence or nonexistence of a fiduciary relationship between parties is a question of fact for the jury.6 As such, the jury must be given guidance regarding when such a relationship exists. At the outset, "(i)t is the nature of the relation which is to be regarded, and not the designation of the one filling the relation." Parker, 153 So. 2d at 276 (quoting Risk ). The court in Parker provided guidance regarding the genesis of a fiduciary relationship by stating that one of the parties will not be permitted to "frustrate the mutual purposes of the parties or drive the (other party) from the business world." Id. at 275 (emphasis added). In other words, the parties must have mutual or shared intentions.7 A fiduciary relationship arises only if the activity of the parties goes beyond their operating on their own behalf and the activity is for the benefit of both.

Arnott v. American Oil Co., 609 F.2d 873 (8th Cir.), cert. denied, 446 U.S. 918, 100 S. Ct. 1852, 64 L. Ed. 2d 272 (1979) provides further guidance in the particular context of franchising arrangements.8 The Eighth Circuit recognized the need for mutual or shared purposes, and indicated that such intentions were demonstrated through proof that "both parties have a common interest and profit from the activities of the other."9 Arnott, 609 F.2d at 881. Of course, mutual or shared purpose gives rise to, and is demonstrated by, "trust or confidence placed by one person in the integrity and fidelity of another person." Id. at 881 n.6. Indeed, whether the parties repose trust or confidence in one another is critical to an ultimate determination regarding the existence of a fiduciary relationship.

In addition to the goals of the parties and the requisite need for trust or confidence in one another, the nature of the agreement between the parties may provide evidence that a fiduciary relationship exists. If the franchisor has power to control the franchisee, there is an increased likelihood that a fiduciary relationship exists, since trust or confidence necessarily must flow from the controlled or dominated party. As a result, the power, authority, and bargaining position of both the franchisor and franchisee becomes critical. If both parties stand on equal or nearly equal footing, there is less likelihood a fiduciary relationship exists, since equity will not be necessary to protect a party.10

Although Mississippi law recognizes the existence of a fiduciary relationship as a possible outgrowth of a franchising arrangement, it is apparent that the district court erred in instructing the jury regarding what might constitute a breach of such a relationship. The district court instructed the jury:

Therefore, if you find from a preponderance of the evidence in this case that such a fiduciary relationship did exist between Carter Equipment Company and John Deere Industrial Equipment Company, and that John Deere breached any of its duties under that relationship, and if you further find from a preponderance of the evidence that such violation or breach of the fiduciary relationship was a proximate cause of damages to Carter Equipment Company, then you must find in favor of Carter Equipment Company and award damages according to the evidence and the instructions given you by the Court.

Deere contends, and this Court agrees, the substantive instruction is erroneous since it fails to provide any guidance regarding what might constitute a breach of the fiduciary duty.11

Parker indicates a fiduciary has the generalized obligation of dealing fairly and in good faith.12 More specifically, the cases addressing fiduciary duty demonstrate that a breach of the duty arises when one party breaches the others trust or confidence by affirmatively acting in a way that produces the other party's loss.13 The rule is that a party breaches his fiduciary duty by actively utilizing some power, control, or opportunity to destroy, injure, or gain a preferential advantage over the party with whom it has a mutual interest. The parties have a mutual interest, by definition. As a result, there is an obligation not to affirmatively undermine one another. This does not mean a party must take unnecessary risks or forego seeking its individualized interests pursuant to their bargain.14 It merely prohibits affirmative misconduct.

The instruction approved by the Arnott court effectively conveys the nature of a breach of a fiduciary relationship:

Out of such a (fiduciary) relation, the law requires that neither party exert undue influence or pressure upon the other, take selfish advantage of his trust or deal with the subject matter of the trust in such a way as to benefit himself or prejudice the other except in the exercise of the utmost good faith and with the full knowledge and consent of the other person involved.

In summary, the district court did not err in submitting a cause of action pertaining to a fiduciary obligation. The court did err, however, in failing to instruct the jury properly regarding what constitutes a breach of such a duty.15

The only other cause of action submitted to the jury was labelled by Carter as "Breach of Trust and Deliberate and/or In (sic) Negligent Depletion of Reserve Account." The reserve account arose from a mechanism for financing sales of Deere equipment. Basically, Carter's customers could finance the purchase of equipment with Deere. The Carter reserve account was a repository in which Deere deposited a portion of the money Carter normally would have received from payments by the customers to Deere for the purchased equipment. If a customer defaulted, Deere would repossess the equipment and, in some instances, sell it to someone else. Deere then would charge any losses it suffered against the reserve account.

The record indicates that, from some time around November 1977 until the month prior to trial, $105,836.35 had been charged by Deere against Carter's reserve account. Carter sought this amount in damages for Deere's alleged mishandling of the reserve account. In this regard, the district court charged the jury:

You are further instructed that under the law the defendant John Deere Industrial Equipment Company may be under a duty of trustee-in-fact, with respect to the Carter Equipment Company Repossession Reserve Account, if it were such a trustee that it had the duty to handle all repossessions prudently and properly to prevent or minimize loss to the Reserve Account. You are further instructed that the defendant, John Deere Industrial Equipment Company had a duty not to breach this trust, if any, and to either deliberately or negligently mishandle repossessions of equipment sold by Carter Equipment Company so as to unnecessarily cause losses to and to deplete the Carter Equipment Company Repossession Reserve Account.

The jury apparently found Deere was a trustee in fact and had breached its trust, since it returned a general verdict "FOR THE PLAINTIFF." Deere argues the resulting judgment of the district court should be reversed. Initially, Deere argues the district court should have directed a verdict against Carter on the Reserve Account cause of action. This Court, in the case of Maxey v. Freightliner Corp., 665 F.2d 1367 (5th Cir. 1982) (en banc), recently re-emphasized the standard by which this Court and district courts in this Circuit determine whether there is sufficient evidence to submit a case to the jury in connection with motions for directed verdict. In Maxey, this Court relied upon the definitive case in this regard, Boeing Company v. Shipman, 411 F.2d 365 (5th Cir. 1969) (en banc).

Under the standard established in Boeing, a motion for directed verdict or for judgment n. o. v. should be granted only when the facts and inferences point so strongly and overwhelmingly in favor of the moving party that reasonable persons could not arrive at a contrary verdict. The court should consider all of the evidence-not just that evidence which supports the nonmovant's case-but in the light and with all reasonable inferences most favorable to the party opposed to the motion. If there is substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fairminded persons in the exercise of impartial judgment might reach different conclusions, the motion should be denied, and the case submitted to the jury.

Maxey at 1371, citing Boeing Company v. Shipman.

In the case sub judice, the district court properly refused to grant a directed verdict on the reserve account cause of action. This Court finds there was substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fair-minded persons in the exercise of impartial judgment might reach the conclusion Deere had acted imprudently with regard to the Reserve Account.16 Indeed, the jury did reach just such a conclusion.

Deere argues alternatively that the district court improperly instructed the jury by allowing it to decide whether Deere was a de facto trustee of a constructive trust. The foundation of this issue is the assertion that Mississippi law recognizes the creation of a constructive trust if there is an abuse of another's funds in a fiduciary relationship. Sojourner v. Sojourner, 247 Miss. 342, 153 So. 2d 803, 807-08 (1963); Russell v. Douglas, 243 Miss. 497, 138 So. 2d 730 (1962) affirmed in part, reversed in part on other grounds, 246 Miss. 771, 151 So. 2d 197 (1963). See also DeTenorio v. McGowan, 510 F.2d at 103 (Godbold, J. dissenting). If a constructive trust is created, the trustee must handle the res prudently and properly.

On the other hand, if Deere and Carter were not fiduciaries, a constructive trust would not have been created. In such a case, the terms of the contract and the provisions of Mississippi's Uniform Commercial Code would control the handling of the res; Deere would be required to handle the res in a "commercially reasonable" manner. Miss.Code 1972, § 75-9-502(2).

The district court erred in its handling of the fiduciary relationship issue. It necessarily follows that it erred in its handling of the de facto trustee issue, since the existence of a constructive trust, in Mississippi, is dependent, at least in part, upon the existence of a fiduciary relationship. Consequently, this Court also remands the issue of whether a constructive trust existed in the case sub judice in order to assure the appropriate standard is applied to Deere's handling of the reserve account. If the jury finds no fiduciary relationship existed between the parties, then Deere should have handled the reserve account in compliance with the U.C.C. and the terms of the contracts. On the other hand, if a fiduciary relationship did exist, together with the other factors necessary to give rise to a constructive trust in Mississippi, Deere was obligated to handle the funds in the manner described in the district court's charge.

Deere's remaining claims are essentially subsumed in the disposition heretofore made. It is noted, however, that the district court did not err by allowing Roy Carter to testify regarding the "worth" of the repossessed equipment. This is true even if the standard to be applied under the reserve account cause of action is "commercial reasonableness." Section 75-9-507(2) of the Mississippi Code of 1972, which is relied upon by Deere, states:

The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner.

(emphasis added).

This language clearly reveals that Mississippi recognizes price, at least in some cases, to be a factor in determining commercial reasonableness. Therefore, if it is determined on remand that Deere was not a de facto trustee of the reserve account and, as a result, was governed by the terms of the contracts and the U.C.C., price cannot be the determinative factor, but it may be one factor.

Finally, this Court acknowledges Deere's complaint that the district court continually recognized objections to the admission of evidence as well taken or valid, but would overrule those objections anyway. Without determining whether such conduct resulted in cumulative prejudice, this Court determines that such an approach to valid objections to the admission of evidence is unnecessary and should be avoided on retrial.

On cross-appeal, Carter alleges the district court erred in three ways. First, Carter claims the district court erred by directing a verdict against Carter on its claim that Deere was guilty of tortious interference with contractual rights. Second, Carter claims the Court erred in instructing the jury concerning Deere's alleged breach of implied warranties of merchantability. Finally, Carter complains the district court erred in refusing to submit the issue of punitive damages to the jury.

At the outset, this Court determines the district court did not err in directing a verdict against Carter on the claim that Deere tortiously interfered with Carter's contractual rights. The appropriate standard to be applied is set out in the 1960 Mississippi case of Irby v. Citizen's National Bank of Meridian, 239 Miss. 64, 121 So. 2d 118 (1960). In that case, the Mississippi Supreme Court commented, "A prima facie case of wrongful interference with a contract is made out if it is alleged (1) that the acts were intentional and wilful; (2) that they were calculated to cause damage to the plaintiffs in their lawful business; (3) that they were done with the unlawful purpose of causing damage and loss, without right or justifiable cause on the part of the defendant (which constitutes malice); and (4) that actual damage and loss resulted." Id. 121 So.2d at 119 (emphasis added). These requirements have been interpreted as establishing that "the interference complained of must be wrongful in order to be actionable and that any interference is not wrongful and actionable if undertaken by someone in the exercise of a legitimate interest or right." Martin v. Texaco, Inc., 304 F. Supp. 498, 502 (S.D.Miss.1969), citing id.

Reviewing all of the evidence in the light most favorable to Carter, there is not substantial evidence such that a jury would reach a conclusion that Deere engaged in "wrongful" interference. Deere directs the Court's attention to evidence demonstrating it had a legitimate interest in not accepting Norwel as a buyer of the Carter business. The evidence indicates that, if Norwel had assumed the area of service by Carter, Deere would have been reliant upon one dealer to cover an extremely large, contiguous area. Guy Eaves, the designated representative of Deere,17 explained Deere's position:

The decision to turn Norwel down was based on a management decision of several of us who had input to that decision. My input might be a little bit different in some respects than the Sales Department's input, since I deal primarily with finance. We all determined that there were too many reasons not to extend this franchise to Norwel Equipment Company. The Sales Department's primary reason was that it would constitute to Norwel much too large of a contiguous area and that effect on sales, as a dilution of the effectiveness of Norwel, as it was constituted at the time they were trying to extend themselves into Mississippi and virtually have two-thirds of the State of Mississippi. It was my contention from a finance point of view that the extension of additional territory to Norwel could easily increase their financial burden beyond what was safe, and that I felt they were just getting their feet on the ground, they were doing an acceptably good job over in Louisiana, we were proud of that and we didn't want to put them in jeopardy.

A lack of justification or cause for interfering with a contractual arrangement is a necessary element of a plaintiff's prima facie case. Carter provides no evidence that indicates Deere did not have a justifiable interest and reason for refusing to accept Norwel as a buyer of the Carter business. Accordingly, the district court's granting a directed verdict against Carter on the wrongful interference cause of action was not error. See Frank Coulson, Inc.-Buick v. General Motors Corp., 488 F.2d 202, 205 (5th Cir. 1974) (interpreting Florida law); Harrison v. Prather, 435 F.2d 1168, 1173 (5th Cir. 1970); Cranford v. Shelton, 378 So. 2d 652, 655 (Miss.1980); Bailey v. Richards, 236 Miss. 523, 111 So. 2d 402 (1959).

Carter also argues on cross-appeal that the district court's instruction concerning Deere's alleged breach of implied warranties of merchantability was error. In this regard, the district court instructed the jury:

You are further instructed that the plaintiff is not entitled to recover any damages because of any alleged breach of any implied warranty of merchantability, since the plaintiffs failed to plead or prove that they had given the defendant notice of any such alleged breach within a reasonable time after Carter Equipment Company discovered or should have discovered the alleged breach, and since Carter Equipment Company continued, after the alleged breach had occurred, to order the machines in question.

Carter's argument is that the district court erred by not allowing the jury to determine whether Carter had properly notified Deere of alleged defects in the machinery and, as a result, preserve its claim that Deere breached implied warranties of merchantability.

Mississippi Code Annotated § 75-2-607(3), together with its corresponding comments, provides the appropriate definition of notice. "(W)hether the notice requirement has been complied with is a question which is particularly within the province of the jury." Eastern Air Lines, Inc. v. McDonnell-Douglas Corp., 532 F.2d 957, 973 (5th Cir. 1976).18

Finally, Carter complains the district court erred in refusing to submit the issue of punitive damages to the jury. The district court instructed the jury "that as a matter of law the plaintiff (Carter) is not entitled to recover any punitive or exemplary damages against the defendant." In Mississippi, "Punitive damages are not recoverable for breach of contract unless such breach is attended by intentional wrong, insult, abuse, or such gross negligence that amounts to an independent tort." Gulf Guaranty Life Insurance Co. v. Kelley, 389 So. 2d 920, 922 (Miss.1980). The record does not reveal such action by Deere.

In addition, fiduciary duties are creatures of equity, DeTenorio v. McGowan, 510 F.2d at 103 (Godbold, J. dissenting); Parker, 153 So. 2d at 276, and, in Mississippi, punitive damages are not recoverable in a court of equity. Subscribers Casualty Reciprocal Exchange v. Totaro, 370 So. 2d 1342 (Miss.1979); Avant v. Whitten, 253 So. 2d 394, 396 (Miss.1971). Accordingly, the district court's instruction regarding punitive damages was not error.

The judgment of the district court is reversed insofar as it relates to the question of whether a fiduciary relationship existed between Carter and Deere. The district court's judgment is also reversed insofar as it relates to whether Deere breached a fiduciary relationship, if any. The case is remanded for a new trial in order to untangle these two issues. Additionally, the district court's judgment is reversed insofar as it relates to the de facto trustee cause of action, and is remanded for a new trial to determine whether a constructive trust existed, and whether Deere dealt with the res in the manner prescribed by this opinion.

The judgment of the district court is affirmed insofar as it grants a directed verdict against Carter on the claim that Deere tortiously interfered with Carter's contractual rights. The judgment of the district court is reversed insofar as it authorized the jury instruction which precluded an independent fact determination on whether Carter had properly notified Deere of alleged defects in the machinery and, thereby, preserved its claim that Deere breached implied warranties of merchantability. Finally, the judgment of the district court is affirmed insofar as it refused to submit the issue of punitive damages to the jury.

AFFIRMED IN PART; REVERSED IN PART AND REMANDED.