755 F.2d 1231 (6th Cir. 1985), 83-3635, Au Rustproofing Center, Inc. v. Gulf Oil Corp.

Docket Nº:83-3635, 83-3669.
Citation:755 F.2d 1231
Party Name:AU RUSTPROOFING CENTER, INC., Plaintiff-Appellant, Cross-Appellee, v. GULF OIL CORPORATION, Defendant-Appellee, Cross-Appellant.
Case Date:February 28, 1985
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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755 F.2d 1231 (6th Cir. 1985)

AU RUSTPROOFING CENTER, INC., Plaintiff-Appellant, Cross-Appellee,


GULF OIL CORPORATION, Defendant-Appellee, Cross-Appellant.

Nos. 83-3635, 83-3669.

United States Court of Appeals, Sixth Circuit

February 28, 1985

Argued Oct. 22, 1984.

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Larry L. Inscore, argued, James DeWeese, Inscore, Rinehardt & Whitney, Mansfield, Ohio, for plaintiff-appellant, cross-appellee.

Philip Weaver, Jr., argued, Cleveland, Ohio, Keith E. Parks, The Gulf Companies, Houston, Tex., for defendant-appellee, cross-appellee.

Before EDWARDS [*] and KEITH, Circuit Judges, and JOHNSTONE, District Judge. [**]

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KEITH, Circuit Judge.

This appeal arises from a breach of contract and fraud action tried before a jury in August 1983. Au Rustproofing Center, Inc. (Au), an Ohio based automatic carwash chain and gasoline retailer, brought suit against Gulf Oil Corporation alleging breach of contract and fraud. Gulf counterclaimed for a refund of unamortized loans it made to Au in connection with the contract. The jury returned a verdict awarding $53,000 to Au on its claims that Gulf failed to pay a special allowance rebate and price supports on the sale of gasoline to Au, and $132,000 to Gulf on its counterclaim. Au appeals the judgment rendered for Gulf and assigns reversible error to several of the trial court's rulings. Gulf conditionally cross-appeals and seeks review of two issues if Au prevails on its contract claims. We affirm in part, reverse in part and remand to the district court.


In 1971, Richard D. Au, president of Au Rustproofing Center, Inc., contracted to become a Gulf dealer for a period of ten years. The contract, in essence, obligated Au to exclusively sell Gulf petroleum products at Au carwash centers in Marion, Reynoldsburg and Mt. Vernon, Ohio, and at a proposed carwash in Delaware, Ohio. Gulf agreed to loan Au money for structural improvements and construction at the carwash centers and to subsidize some of Au's retailing and advertising costs.

The dealership contract consisted of several documents which were drafted by Gulf. For each site, Mr. Au signed a committal letter, affidavit and various reimbursement and sales agreements. At trial, Gulf described the committal letter as "a letter of understanding." In it, Au agreed to sign a ten year sales contract and an amortization agreement for the site improvement loans. The committal letter also stated Au's understanding that Gulf would provide marketing equipment and pay Au a special allowance of two cents per gallon on all gasoline Au purchased from Gulf.

The affidavit assured Gulf that a competitor had also offered to pay Au the special allowance and loan improvement monies for each carwash center. Au further agreed in a sales contract to pay Gulf the tankwagon price for its gasoline, upon delivery each week. The sales contract provided no restriction on Gulf's discretion to set the tankwagon price.

The last major document of the contract, the Reimbursement Agreement, provided terms for reimbursement of the site improvement loans. Under it, Au's obligation to repay the balance of the site improvement loans automatically arose upon Au's breach of the ten year sales contract:

[I]n the event the said Sales Agreement is terminated prior to the normal expiration of the terms therein by reason of [Au's] failure or refusal to abide by all the terms and conditions, ... then [Au] shall reimburse [Gulf] for its cost for the following work and improvements done ... on [Au's] premises less ten percent of [Gulf's] total cost for each [year] during which [Au] has performed the Sales Agreement.

Joint Appendix at 143-46.

Upon execution of these documents, Gulf paid Au improvement costs for each of the carwash centers. Two of the four centers began selling Gulf gasoline by mid-1971. One opened in late 1971, and the Delaware center, which had to be constructed and equipped, opened in January 1972. The first few months of business comported with the terms in the agreement. Au bought and paid weekly for the requisite amount of Gulf gasoline; Gulf provided Au with the special allowance, competitive subsidies and a portion of the opening advertising costs.

The initial success of these first four centers prompted Gulf and Au in early 1972 to open three additional carwash dealerships in Newark, Heath and Mansfield, Ohio. Gulf again agreed to provide construction and site improvement loans for each location. However, the loan reimbursement

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provisions which Gulf drafted for these sites differed from those signed in connection with the first four sites. Instead of amortizing the site improvement loans at the straight ten percent a year rate agreed upon for the first four locations, Gulf amortized the new loans at .89cents per gallon of Gulf gasoline bought by Au. Gulf also added a provision for written notice of termination before Au's obligation to repay the loans arose. The new reimbursement contract, entitled Provisional Payback Agreement, obligated Au to:

(1) [P]urchase 6,600,000 gallons ... in substantially equal monthly quantities from ----- to ----- ... In the event [Au] fails to purchase the above minimum in the period specified, it will continue to purchase until the minimum is attained.

(2) That in the event [Au] fails to purchase the minimum requirements as specified ... or fails to purchase any ... for a period of ninety (90) consecutive days or more, or in the event [Au] breaches any other agreements with Gulf, Gulf may at its option terminate all agreements between Gulf and it...

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