877 F.2d 1524 (11th Cir. 1989), 88-7069, Intercorp, Inc. v. Pennzoil Co.

Docket Nº:88-7069, 88-7120.
Citation:877 F.2d 1524
Party Name:INTERCORP, INC., Plaintiff-Appellee, v. PENNZOIL COMPANY, Defendant-Appellant, Pennzoil Products Company, A Division of Pennzoil Company, Defendants. INTERCORP, INC., Plaintiff-Appellee, v. PENNZOIL COMPANY, Defendant-Appellant.
Case Date:July 25, 1989
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

Page 1524

877 F.2d 1524 (11th Cir. 1989)

INTERCORP, INC., Plaintiff-Appellee,


PENNZOIL COMPANY, Defendant-Appellant,

Pennzoil Products Company, A Division of Pennzoil Company,


INTERCORP, INC., Plaintiff-Appellee,


PENNZOIL COMPANY, Defendant-Appellant.

Nos. 88-7069, 88-7120.

United States Court of Appeals, Eleventh Circuit

July 25, 1989

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Lewis W. Page, Jr., Lange, Simpson, Robinson & Somerville, Birmingham, Ala., for defendant-appellant.

Victor L. Hayslip, Bradley, Arant, Rose & White, Jere F. White, Jr., Hobart A. McWhorter, Jr., Birmingham, Ala., for Intercorp, Inc. in both cases.

William W. Smith, Birmingham, Ala., for Intercorp, Inc. in case no. 88-7120.

Appeals from the United States District Court for the Northern District of Alabama.

Before RONEY, Chief Judge, HATCHETT, Circuit Judge, and HENDERSON, Senior Circuit Judge.


Pennzoil Company and Pennzoil Products Company, a division of Pennzoil Company (collectively "Pennzoil") appeal from a jury verdict awarding Intercorp, Inc. ("Intercorp") damages for breach of contract and fraud. Although Pennzoil challenges the district court's denial of several motions and the court's jury instructions, we find no error and accordingly affirm the jury's award.


In early 1983, following extensive negotiations and the corresponding production of several draft contracts, Intercorp and Pennzoil entered into an Export Distributor Sales Agreement (the "contract" or "agreement") under which Pennzoil agreed to sell its products to Intercorp for distribution in certain areas of the Caribbean basin. Included in Intercorp's "Area of Primary Responsibility" ("area" or "territory") were the U.S. Virgin Islands, the Dominican Republic, and the island of Tobago, but not, according to the final agreement, the Republic of Tobago and Trinidad.

Prior to executing the final agreement, Intercorp, concerned about the contract's grant of a "nonexclusive right" to market Pennzoil's products in the distributor's territory, had attempted to have that provision changed to reflect an "exclusive" distributorship. Pennzoil had responded that its legal department eschewed the use of the term "exclusive" in Pennzoil's distributorship agreements, fearing that the resulting relationships might run afoul of federal antitrust laws. To mollify Intercorp's lingering reservations, Pennzoil had explained that its policy was to treat its distributorship agreements as being exclusive in nature and to protect its distributors' areas of primary responsibility.

Pursuant to the agreement, Intercorp began marketing Pennzoil products throughout the Caribbean basin, including the island of Trinidad. Because the island had been listed in earlier drafts of the distributorship contract, Intercorp regarded Trinidad as being a part of its area. The evidence suggested that Pennzoil understood Trinidad to be in Intercorp's area as well. One of its agents testified at the trial that the failure to include Trinidad in the final agreement may have been a typographical error. In any event, the undisputed testimony disclosed that Intercorp acted in good faith when moving into Trinidad, checking with Pennzoil before proceeding to market its products.

In December, 1983, Intercorp discovered that a dealer called Faisal's Gems & Gift Centre, Ltd. was marketing Pennzoil products in Trinidad under an agreement with another Pennzoil distributor, Industria Americana. Intercorp contacted Pennzoil about this problem and was told that Pennzoil would take care of the situation. Pennzoil assured Intercorp that Trinidad was included in its territory. Also late in 1983, Intercorp learned about another Pennzoil distributor operating in its geographical area. That distributor, Don Luis Auto Sales, was selling Pennzoil products under a distributorship agreement which assigned it an area including the Dominican Republic and the Virgin Islands. When Intercorp became aware of this territorial

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overlap, it notified Pennzoil. Pennzoil confirmed that the Dominican Republic and the Virgin Islands were in Intercorp's assigned territory.

But Pennzoil had blundered, and soothing reassurances could not continue to calm its disgruntled distributors. After Faisal's Gems sued Pennzoil, Pennzoil, by a letter dated June 27, 1984, advised Intercorp that it would "postpone assignment of distribution rights to Trinidad until [our attorneys] can sort out the facts." Intercorp interpreted this to mean that Trinidad was not within its area of responsibility under the distributorship agreement. The relationship deteriorated, and in March, 1986, Pennzoil unilaterally deleted a number of markets--including the Bahamas, Jamaica, Bermuda and Tobago--from Intercorp's area.


On May 9, 1986, Intercorp sued Pennzoil for breach of contract and fraud. 1 Pennzoil answered and filed a counterclaim seeking compensatory damages for past-due invoices. The case proceeded to trial in the United States District Court for the Northern District of Alabama in June, 1987. During the trial, Pennzoil moved to have the distributorship agreement rescinded, alleging that Intercorp's agents together with a Pennzoil employee had conspired to defraud Pennzoil through a kick-back scheme. The district court severed Pennzoil's equitable claim. On June 12, 1987, the jury returned a general verdict for Intercorp, awarding both compensatory and punitive damages. The district court directed a verdict in favor of Pennzoil on its counterclaim, awarding compensatory damages on the past-due invoices. After the trial, the district court found in favor of Intercorp on Pennzoil's claim for equitable rescission. Pennzoil appeals from these adverse judgments.


At the trial, Intercorp contended that Pennzoil had breached the distributor agreement by, among other things, (1) failing to recognize that Intercorp's territorial rights included the island of Trinidad and (2) assigning to other distributors the right to market Pennzoil products in Trinidad, the Virgin Islands and the Dominican Republic, thus violating an oral agreement between the parties that Intercorp would be the only distributor of Pennzoil's products within its assigned area. Pennzoil argued that the agreement, which had been reduced to writing and executed by the parties on March 21, 1983, 2 unambiguously granted Intercorp a "nonexclusive right to sell and distribute Pennzoil products," and that conspicuously absent from the written contract was any mention of Trinidad.

Because Intercorp's claims concerning Trinidad and the nature of the distributorship ("exclusivity") rested wholly or in part upon prior written draft agreements, oral representations and other extrinsic evidence, Pennzoil relied upon the parol evidence rule in an effort to prevent Intercorp from offering such evidence to contradict the terms of the written agreement. Pennzoil complains that the trial court allowed the jury to consider all the evidence--including the parol evidence proffered by Intercorp--as bearing on the parties' "true agreement." Intercorp counters that the extrinsic evidence was properly admitted before the jury, because the writing was not intended by the parties to contain a complete statement of their agreement. Intercorp additionally claims that the so-called fraud exception to the parol evidence rule rendered the rule inoperative in this case. Thus, according to Intercorp, the barrier of the parol evidence rule was never erected.

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Unfortunately, special interrogatories were not propounded to the jury, nor were the verdicts designated by separate counts. Consequently, the verdict does not specify the issues on which Intercorp prevailed, and which, if any, were decided in Pennzoil's favor. The award of punitive damages indicates that the jury found Pennzoil was guilty of some type of fraud. However, the jury also may have awarded compensatory damages on the breach of contract claims. "Constructed as it was, the general verdict was a favorable finding on either one or both of these theories." E.L. Cheeney Co. v. Gates, 346 F.2d 197, 200 (5th Cir.1965). As a result, "[i]f a significant error in the charge was made ... on either of the two theories, the mystery, being impenetrable compels a reversal." Id. Hence, a crucial question is whether the district court properly applied the parol evidence rule.

In reaching a resolution of this issue, we must first determine whether this action is subject to the provisions of the Uniform Commercial Code ("UCC" or the "Code") or the common law of contracts. Pennzoil says the UCC applies, a statement Intercorp denies. Both agree that, in either event, Alabama law governs.

Alabama has enacted the UCC, codifying it at Title 7, Code of Alabama. The relevant portion, Article 2 of the UCC--Sales, is found at sections 7-2-101 through 7-2-725. Article 2 "applies to transactions in goods." Sec. 7-2-102. The Code defines the term "goods" broadly to mean "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale...." Sec. 7-2-105(1). Clearly, Pennzoil products are goods within the UCC's definition. The Code does not define "transaction," but section 7-2-106 specifies that for Article 2 purposes the terms "agreement" and "contract" "are limited to those relating to the present or future sale of goods." Thus, the UCC governs this case if the distributorship agreement is a contract for the sale of goods.

Whether a distributorship agreement constitutes a transaction in goods is a question that the Alabama Supreme Court recently considered. In Thermal Systems of Alabama, Inc. v. Sigafoose, 533 So.2d 567 (Ala.1988), the...

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