STERN OIL COMPANY, INC., Plаintiff and Appellee, v. James R. BROWN d/b/a Exxon Goode To Go and Freeway Mobil, Defendants and Appellants.
No. 25766.
Supreme Court of South Dakota.
July 3, 2012.
2012 S.D. 56 | 817 N.W.2d 395
Argued Aug. 23, 2011. Reassigned April 24, 2012.
Matthew S. McCaulley, Rochelle R. Sweetman of Murphy, Goldammer & Prendergast, LLP, Sioux Falls, South Dakota and Ronald A. Parsons, Jr. of Johnson, Heidepriem & Abdallah, LLP, Sioux Falls, South Dakota, Attorneys for defendants and appellants.
GILBERTSON, Chief Justice (on reassignment).
[¶1.] Stern Oil argues that James Brown contracted to purchase a minimum amount of fuel for his two convenience stores from Stern Oil for a ten-year period. When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging fraudulent inducement. The circuit court granted Stern Oil‘s motion for summary judgment on both the breach of contract claim and on Brown‘s counterclaim, but the issue of damages proceeded to trial.1 After a court trial, the circuit court awarded Stern Oil eight years of lost profits. We reverse the circuit court‘s grant of summary judgment.
FACTS
[¶2.] Brown farms near Gettysburg, South Dakota, and has owned interests in several businesses. In late 2004, he acquired and redesigned two convenience stores on opposite sides of Exit 2 on Interstate 29 in North Sioux City, South Dakota. Stern Oil, a fuel distributor for Exxon Mobil Corporation (ExxonMobil), contacted Brown while he was remodeling the properties. Although Brown was negotiating with another fuel distributor, he ultimately elected to do business with Stern Oil. One convenience store was branded Exxon Goode To Go, and the other was branded Freeway Mobil.
[¶3.] In October 2005, Brown and Stern Oil executed a Motor Fuel Supply Agreement (MFSA) for each of Brown‘s two convenience stores. Each MFSA listed the maximum volume of fuel that Stern Oil was obligated to offer to sell to Brown each year. The maximum annual volume for the first contract year at Freeway Mobil was 1.38 million gallons of gasoline, and the maximum annual volume for the first contract year at Exxon Goode To Go was 1.5 million gallons of gasoline and 720,000 gallons of diesel. After the first contract year, the maximum annual volume of fuel was adjusted each year based on sales volume.2 Brown was obligated to purchase at least seventy-five percent of the maximum annual volume of fuel. If Brown failed to purchase the minimum amount of fuel that the MFSAs required, Stern Oil had the option to terminate the agreements or refuse to renew them.
[¶4.] The MFSAs also briefly addressed the price of the fuel that Brown was required to purchase from Stern Oil:
Unless otherwise specified, all prices shall include applicable taxes, and are subject to change by [Stern Oil] at any time and without notice. All prices are payable in cash in U.S. dollars at time of delivery, or other payment terms as [Stern Oil] may specify, except to the extent credit is extended on such terms and conditions as [Stern Oil] may determine in its sole discretion.
Stern Oil faxed and emailed Brown a fuel price sheet each business day. The price sheet listed the rack price of the various types of fuel that Brown could purchase;
[¶5.] Under a brand incentive program, Brown and Stern Oil also executed a Repayment Agreement (BIP) for each of Brown‘s two convenience stores. The BIPs provided that Stern Oil would reimburse Brown for the costs of certain improvements to his convenience stores. Stern Oil thus assisted Brown in designing the layouts of his stores and equipping the stations with ExxonMobil-approved fuel dispensers and payment systems. The BIPs gave Stern Oil the option of reimbursement in the event of Brown‘s breach or default:
[I]n such event, at [Stern Oil‘s] option, any and all Improvement Cоsts expended, reimbursed, or otherwise provided to [Brown] by [Stern Oil] or [ExxonMobil], either directly or indirectly, shall become immediately due and payable from [Brown] to [Stern Oil] (the “Repayment Amount“)....
[¶6.] When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. Brown claimed that Stern Oil‘s prices were so high that he was unable to make a profit on the sale of fuel at his convenience stores. Stern Oil moved for summary judgment on its breach of contract claim and on Brown‘s fraudulent inducement counterclaim. The circuit court granted Stern Oil‘s motion for summary judgment on both сlaims. It concluded that a breach of contract occurred as a matter of law but left the issue of damages for trial. Brown then filed a motion for reconsideration, which, following a hearing, the circuit court denied.
[¶7.] The issue of damages proceeded to trial in October 2009 and January 2010. The circuit court awarded Stern Oil eight years of lost profits in the amount of $925,317. A judgment in that amount plus prejudgment interest was entered against Brown in August 2010. The circuit court later added attorneys’ fees and taxable and non-taxable disbursements to the original judgment. Brown moved for a new trial, but his motion was deemed waived. Brown appeals.
ANALYSIS
[¶8.] A grant of summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that therе is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
[¶9.] “Summary judgment is not the proper method to dispose of factual questions.” Bozied v. City of Brookings, 2001 S.D. 150, ¶ 8, 638 N.W.2d 264, 268. “Summary judgment is an extreme remedy, [and] is not intended as a substitute for a trial.” Discover Bank v. Stanley, 2008 S.D. 111, ¶ 19, 757 N.W.2d 756, 762. “However, on appeal this Cоurt will affirm the circuit court‘s ruling granting a motion for summary judgment if any basis exists to support the ruling.” Id.
Fraudulent Inducement Claim
[¶10.] Because the MFSAs were primarily agreements for the sale of goods, South Dakota‘s version of the Uniform Commercial Code (UCC), which is codified in Title 57A of the South Dakota Code, governs the dispute in this case. See
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) By course of dealing or usage of trade (
§ 57A-1-205 ) or by course of performance (§ 57A-2-208 ); and(b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
[¶11.] We have recognized an exception to the parol evidence rule when evidence is introduced to establish fraud as a ground for rescinding a contract. As we explained in Sabbagh v. Professional & Business Men‘s Life Insurance Co.,
[i]t is well established that, as fraud vitiates everything which it touches, parol evidence is always admissible to show, for the purpose of invalidating a written instrument, that its execution was procured by fraud, or that, by reason of fraud, it does not express the true intentions of the parties. The rule in this respect is not rendered inapplicable by the fact that the writing contains a recital to the effect thаt all agreements between the parties are contained therein....
79 S.D. 615, 629, 116 N.W.2d 513, 520 (1962) (quoting 32 C.J.S. Evidence § 979). This “fraud exception” to the parol evidence rule applies to contracts governed by the UCC. See 1 James J. White & Robert S. Summers, Uniform Commercial Code § 2-11 (5th ed. 2006) (recognizing an exception to the parol evidence rule when a party seeks to rescind a contract governed by the UCC on the basis of fraud);
[¶12.] In this case, Brown sought to rescind the MFSAs and the
[¶13.] In addition, whether Stern Oil fraudulently induced Brown to enter into the agreements involves disputed material facts. Brown claims that Stern Oil orally guaranteed a five-cent profit on every gallon of fuel he sold. Stern Oil contends that it did not make this guarantee. For summary judgment purposes, “[a] disputed fact is ... material [if] it would affect the outcome of the suit under the governing substantive law in that a reasonable jury could return a verdict for the nonmoving party.” Robinson v. Ewalt, 2012 S.D. 1, ¶ 10, 808 N.W.2d 123, 126. Here, the disputed fact, whether Stern Oil did or did not make the oral guarantee, would certainly affect the outcome of Brown‘s fraudulent inducement counterclaim and thus, it is material to the claim. The circuit court‘s ruling improperly disposed of this factual question by granting summary judgment.
[¶14.] Furthermore, Brown‘s counterсlaim employs actual fraud under
[¶15.] The dissent argues that Brown failed to submit evidence sufficient to sup-
[¶16.] Furthermore, Brown was not required to prove all elements of fraudulent inducement in order to survive summary judgment. “A motion under
Breach of Contract Claim
[¶17.] Brown argues that the circuit court erred by granting Stern Oil summary judgment on its breach of contract claim, because the MFSAs were not enforceable contracts. In support of his argument, Brown cites LaMore Restaurant Group, LLC v. Akers, in which we stated, “[i]f an agreement leaves open essential terms and calls for the parties to agree to agree and negotiate in the future on essential terms, then a contract is not established.” 2008 S.D. 32, ¶ 15, 748 N.W.2d 756, 761 (quoting Weitzel v. Sioux Valley Heart Partners, 2006 S.D. 45, ¶ 23, 714 N.W.2d 884, 892). In LaMore, we recognized that price is ordinarily an essential term of an agreement that must be “fixed and determinable or reasonably certain.” See id. ¶ 18 (citations omitted). Here, the MFSAs did not define the price of the fuel Brown was required to purchase from Stern Oil. Brown thus argues that the MFSAs were not enforceable contracts. In LaMore, however, the contract at issue was for the sale of real estate, so South Dakota‘s version of the UCC did not apply. See id. ¶ 2. Here, the MFSAs were primarily agreements for the sale of goods and we must therefore apply the provisions of Title 57A, South Dakota‘s version of the UCC, to decide this case.
[¶18.]
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:
(a) Nothing is said as to price; or
(b) The price is left to be agreed by the parties and they fail to agree; or
(c) The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as canceled or himself fix a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
[¶19.] Here, whether the agreements in this case are open price term contracts under
[¶20.] Furthermore, whether Stern Oil set the prices in good faith is a question of fact. Under
[¶21.] The dissent argues that the plain language of
[¶22.] We also cannot overlook the procedural connection between Stern Oil‘s breach of contract claim and Brown‘s fraudulent inducement counterclaim. While they are indeed two separate claims, a finding in Brown‘s favor on the fraudulent inducement claim may affect the outcome of Stern Oil‘s breаch of contract claim, considering that one remedy for fraudulent inducement is contract rescission.
CONCLUSION
[¶23.] Both Brown‘s fraudulent inducement counterclaim and Stern Oil‘s breach of contract claim involve disputed material facts. The circuit court erred in granting
[¶24.] ZINTER and WILBUR, Justices, concur.
[¶25.] KONENKAMP and SEVERSON, Justices, dissent.
SEVERSON, Justice (dissenting).
[¶26.] I respectfully dissent. Brown alleges that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. In addressing this issue, the circuit court concluded that the parties’ negotiations regarding the MFSAs and the BIPs, including the allegеd verbal guarantee of a five-cent per gallon profit, was inadmissible parol evidence. Without the evidence of the alleged verbal guarantee, the circuit court held that Brown‘s fraudulent inducement claim failed as a matter of law.
[¶27.] The parol evidence rule, codified at
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) By course of dealing or usage of trade (
§ 57A-1-303 ) or by course of performance (§ 57A-2-208 ); and(b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
[¶28.] It is well settled that, when evidence is introduced to establish fraud as a ground for rescinding a contract, the parol evidence rule does not apply. Sabbagh v. Prof‘l & Bus. Men‘s Life Ins., Co., 79 S.D. 615, 629, 116 N.W.2d 513, 520 (1962) (quoting 32 C.J.S. Evidence § 979); see Majority Opinion ¶ 11. Here, Brown sought to introduce evidence that Stern Oil fraudulently induced him to enter into the contracts by guaranteeing a five-cent profit on every gallon of fuel he sold. Such evidence is not barred by the parol evidence rule. Accordingly, I agree with the majority that the circuit court erroneously applied the parol evidence rule. But I do not bеlieve our analysis ends with that determination.
[¶29.] In Muhlbauer v. Estate of Olson, we stated, “In considering a [circuit] court‘s grant or denial of summary judgment, this Court will affirm only if all legal questions have been decided correctly.” 2011 S.D. 42, ¶ 7, 801 N.W.2d 446, 448 (quoting Bertelsen v. Allstate Ins. Co., 2011 S.D. 13, ¶ 15, 796 N.W.2d 685, 692-93). The majority cites Muhlbauer in support of its conclusion that the circuit court‘s erroneous application of the parol evidence rule, by itself, is grounds for reversing the circuit court‘s grant of summary judgment. Majority Opinion ¶ 12. I disagree. “It is a matter of settled law that this [C]ourt may affirm even where the circuit court reaches the correct result for the wrong reason.” Oldham-Ramona Sch. Dist. No. 39-5 v. Jensen, 503 N.W.2d 260, 264 (S.D.1993) (citing Anderson v. Somers, 455 N.W.2d 219 (S.D.1990)); see Schmiedt v. Loewen, 2010 S.D. 76, ¶ 20 n. 3, 789 N.W.2d 312, 318 n. 3 (“[A] trial court may still be upheld if it reached the right result for the wrong reason.” (quotation omitted)). “In fact, affirmance is suitable if any legal basis exists to support the court‘s decision.” Horne v. Crozier, 1997 S.D. 65, ¶ 5, 565 N.W.2d 50, 52 (citing St. Paul Fire & Marine Ins. v. Schilling, 520 N.W.2d 884, 886 (S.D.1994); Waddell v. Dewey Cnty. Bank, 471 N.W.2d 591, 593 (S.D.1991)). In this case, I believe a legal basis exists to affirm the circuit court‘s decision.
[¶30.] This Court has held that “entry of summary judgment is mandated against a party who fails to make a showing sufficient to establish the existence of an element essential to that party‘s case, and on which that party will bear the burden of proof at trial.” Danielson v. Hess, 2011 S.D. 82, ¶ 8, 807 N.W.2d 113, 115 (quoting Dakota Indus., Inc. v. Cabela‘s.com, Inc., 2009 S.D. 39, ¶ 11, 766 N.W.2d 510, 513). “Sufficient evidence requires establishment of a prima facie case.” Fin-Ag, Inc. v. Pipestone Livestock Auction Mkt., Inc., 2008 S.D. 48, ¶ 33, 754 N.W.2d 29, 43 (citing Mushitz v. First Bank of S.D., N.A., 457 N.W.2d 849, 859 (S.D.1990)). “A prima facie case has been established when there are facts in evidence which if unanswered would justify persons of ordinary reason and fairness in affirming the question which the plaintiff is bound to maintain.” Id. (quoting Sandner v. Minnehaha Cnty., 2002 S.D. 123, ¶ 13, 652 N.W.2d 778, 783). The majority notes that, under
[¶31.] In order for Brown‘s claim of fraudulent inducement to survive summary judgment, Brown must have submitted evidence sufficient to support a finding that his reliance upon Stern Oil‘s alleged misrepresentation was justified.13 See Martschinske v. Olympic Styles, Inc., 628 F.Supp. 231, 239 (D.S.D.1984), aff‘d sub nom. 774 F.2d 1172 (8th Cir.1985) (recognizing justifiable reliance as a necessary element of a claim for fraudulent inducement under
[¶32.] It is undisputed that Stern Oil
[¶33.] Moreover, Stern Oil‘s alleged verbal guarantee of a five-cent per gallon profit constitutes a promise as to future events. The failure to perform a promise does not, standing alone, amount to fraud. Under
[¶34.] In opposing a motion for summary judgment, the nonmoving party “must present specific facts showing that a genuine, material issue for trial exists.” Robinson v. Ewalt, 2012 S.D. 1, ¶ 7, 808 N.W.2d 123, 125 (quoting Murray v. Mansheim, 2010 S.D. 18, ¶ 4, 779 N.W.2d 379, 381-82). “Disputes of fact are not material unless they change the outcome of a case under the law.” Hall v. State ex rel. S.D. Dep‘t of Transp., 2011 S.D. 70, ¶ 9 n. 3, 806 N.W.2d 217, 221 n. 3 (citing Jerauld Cnty. v. Huron Reg‘l Med. Ctr., Inc., 2004 S.D. 89, ¶ 41 n. 4, 685 N.W.2d 140, 149 n. 4). Here, even if we accept as true Brown‘s allegation that Stern Oil verbally guaranteed him a five-cent per gallon profit, this evidence does not change the outcome of the case. See Kjerstad Realty, Inc. v. Bootjack Ranch, Inc., 2009 S.D. 93, ¶ 15, 774 N.W.2d 797, 802 (“In reviewing a grant of summary judgment, we must accept the non-moving party‘s version of the facts as true.“). Brown has failed to submit evidence sufficient to support a reasonable trier of fact‘s finding that the elements of fraudulent inducement were present. Accordingly, I would hold that the circuit court did not err by granting Stern Oil summary judgment on Brown‘s fraudulent inducement claim.
Breach of Contract Claim
[¶35.] Brown argues that the circuit court erred by granting Stern Oil summary judgment on its breach of contract claim. He argues that the MFSAs were not enforceable contracts because they lacked a price term.
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:
(a) Nothing is said as to price; or
(b) The price is left to be agreed by the parties and they fail to agree; or
(c) The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat
the contract as canceled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
[¶36.] The open priсe fuel terms of the MFSAs allowed the seller, Stern Oil, to change the price term “at any time and without notice.” This effectively granted Stern Oil the right to fix the price term. Under
[¶37.] Brown also argues that the parties’ course of dealing, including Stern Oil‘s alleged verbal guarantee of a five-cent per gallon profit, is evidence that the parties did not intend to create open price term contracts. Brown raises this argument for the first time on appeal. In responding to Stern Oil‘s motion for summary judgment, Brown argued that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing he would earn a five-cent profit on every gallon of fuel he sold. But Brown did not argue that Stern Oil‘s alleged verbal guarantee of a five-cent per gallon profit was evidence that the parties did not intend to create open price term contracts. At the
[¶38.] Brown next argues that under the terms of the MFSAs, Stern Oil was required to “offer to sell” a specified amount of fuel to Brown at prices that were to be determined by Stern Oil, but Brown was not required tо purchase any amount of fuel from Stern Oil. Accordingly, Brown contends that the MFSAs were nothing more than unenforceable “agreements to agree.”
[¶39.] After reviewing the terms of the MFSAs, I find Brown‘s argument to be without merit. The MFSAs set forth a maximum volume of fuel that Stern Oil was obligated to “offer to sell” Brown. However, in both MFSAs, Paragraph 4(c) explicitly stated that “[i]n each contract year, [Brown] must purchase from [Stern Oil] a minimum of seventy-five percent (75%) of the Maximum Annual Volume for Exxon-branded gasoline.” (Emphasis added.) The MFSAs provided that the maximum annual volume for the first contract year at Freeway Mobil was 1.38 million gallons of gasoline, and the maximum annual volume for the first contract year at Exxon Goode To Go was 1.5 million gallons of gasoline and 720,000 gallons of diesel. After the first contract yeаr, the maximum annual volume of fuel was adjusted each year based on sales volume. The MFSAs clearly required Brown to purchase at least 75% of the maximum annual volume of fuel. Brown‘s argument that he was not required to purchase any amount of fuel from Stern Oil is contrary to the express terms of the MFSAs.
[¶40.] The MFSAs contained an open price fuel term which provided that fuel prices were “subject to change by [Stern Oil] at any time and without notice.” Under
[¶41.] For these reasons, I respectfully dissent.
[¶42.] KONENKAMP, Justice, joins this dissent.
Notes
For each month of the remaining contract years, the Maximum Monthly Volume for the current month shall be the greater of actual volume in the prior month or actual volume in the current month of the prior year purchased by [Brown] from [Stern Oil]. The Maximum Annual Volume for the current contract year will be the sum of the Maximum Monthly Volumes in the current contract year.
Unless the context otherwise requires, this chapter applies to transactions in goods; they do not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this chapter impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
Actual fraud in relation to contracts consists of any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:
(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;
(2) The positive assertion, in a manner not warranted by the informаtion of the person making it, of that which is not true, though he believe it to be true;
(3) The suppression of that which is true by one having knowledge or belief of the fact;
(4) A promise made without any intention of performing it; or
(5) Any other act fitted to deceive.
Actual fraud in relation to contracts consists of any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:
(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;
(2) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believe it to be true;
(3) The suppression of that which is true by one having knowledge or belief of the fact;
(4) A promise made without any intention of performing it; or
(5) Any other act fitted to deceive.