Au Rustproofing Center, Inc. v. Gulf Oil Corp., s. 83-3635

• Decision Date: 28 February 1985
• Docket Number: Nos. 83-3635,83-3669,s. 83-3635
• Parties: 40 UCC Rep.Serv. 802 AU RUSTPROOFING CENTER, INC., Plaintiff-Appellant, Cross-Appellee, v. GULF OIL CORPORATION, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1231

755 F.2d 1231

40 UCC Rep.Serv. 802

AU RUSTPROOFING CENTER, INC., Plaintiff-Appellant, Cross-Appellee, v. GULF OIL CORPORATION, Defendant-Appellee, Cross-Appellant.

Nos. 83-3635, 83-3669.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 22, 1984.

Decided Feb. 28, 1985.

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. ^**

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.

FACTS

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 (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.

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:

(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 by giving ten (10) days prior written notice of Gulf's election to do so, in which event it shall pay to Gulf ...:

A. The sum of ---- ... reduced by the number of gallons purchased since October 4, 1972 times ... per gallon....

Joint Appendix at 59, 64, 69. In April 1972, Au signed the Provisional Payback Agreement. Au alleged that it then authorized Gulf to use its blank stationery to prepare three new committal letters in accordance with those drafted for the first dealerships. Mr. Au testified at trial that, at Gulf's behest, he presigned some of the blank stationery requested by Gulf.

The committal letters for the new sites differed from the first letters in that they required Au to give second mortgages on its equipment as security and a first right of purchase refusal. Au nonetheless proceeded with construction plans for the new sites. In July 1972, however, Gulf demanded the additional security before it would disburse the loan money to Au. After extended renegotiation, Au acceded to Gulf's demand for additional security. In November 1972, Mr. Au secured the loans with second mortgages on Au property. Au opened the Mansfield dealership in December 1972, the Newark center in January 1973, and the Heath center in February 1973.

Au and Gulf abided by the terms of the contracts until the May 1973 oil crisis ruptured the market and gave rise to federal regulation of the industry and soaring gasoline prices. At that time, Gulf ceased paying the special allowance and all competitive subsidies for four months, resulting in a $15,000 loss to Au. Au's gasoline prices became increasingly uncompetitive and its gross margin began to decline.

In September 1973, the Federal Energy Department ordered Gulf to resume special allowance payments. Gulf complied but did not make up for payments missed during the four month hiatus. Gulf also never reinstated any of the competitive subsidies. Throughout 1973, gasoline prices rose. Au's gross margin, however, continued to decline. During this time, unleaded gasoline was introduced to the market. Although gasoline retailers were required to sell it, Gulf refused to provide Au with tanks, marketing equipment or a special allowance for the unleaded gasoline. As a result, Au was compelled to sell Gulf's unleaded gasoline in place of the premium Gulf gasoline. From 1973 through 1978, Au repeatedly requested that Gulf pay the special allowances missed during the four month hiatus and those for the unleaded gasoline Au began selling in 1974. Gulf issued several conflicting assurances and denials that the allowance would be paid. Gulf finally responded to Au's request in a letter which denied that Gulf was obligated to continue special allowance payments. The letter, addressed to Au's attorney and dated June 28, 1973, suggested Au had agreed in an affidavit that Gulf could unilaterally suspend the allowances:

Your attention is directed to the affidavits of April 27 and 28, 1972, in which your client states in Paragraph 4 thereof Joint Appendix at 141. Throughout 1974-1978 Au's gross margin declined as did the volume of gasoline Au was able to purchase from Gulf. In November 1980, Gulf terminated Au without notice for failure to pay $7,000 for a shipment of gasoline.

that it is "expressly understood that Gulf shall have the right to withdraw or discontinue such payments (in whole or in part) at any time or from time to time during the term of such contract without notice."

In March 1979, Au filed a complaint in the United States District Court for the Northern District of Ohio alleging that Gulf breached the contract by refusing to pay the special allowance on regular and premium gasolines during the four month hiatus or on any unleaded gasoline; by refusing to provide cooperative advertising allowances, competitive price supports, marketing equipment and gasoline volume reports; and by refusing to accept collect telephone calls. Au also alleged fraud. In this respect, Au contended that Gulf acquired presigned blank stationery from Au in order to fraudulently draft several affidavits which absolved Gulf of its obligation to pay Au the special allowance.

The trial court denied Gulf's motions for summary judgment, but directed verdicts for Gulf on five of Au's eight claims. The following issues were submitted to the jury: Gulf's counterclaim for the balance of the unamortized loans, and Au's claims that Gulf failed...