Alaska Creamery Products, Inc. v. Wells, 137

• Citation: 373 P.2d 505
• Decision Date: 24 July 1962
• Docket Number: No. 137,137
• Parties: ALASKA CREAMERY PRODUCTS, INC., d/b/a North Star Dairy Products, Appellant, v. Joseph WELLS, Philip Scherrer, d/b/a North Star Dairy Distributors, Lavern E. Wells and Ann Scherrer, Appellees.
• Court: Alaska Supreme Court

Page 505

373 P.2d 505

ALASKA CREAMERY PRODUCTS, INC., d/b/a North Star Dairy

Products, Appellant, v. Joseph WELLS, Philip Scherrer, d/b/a North Star Dairy

Distributors, Lavern E. Wells and Ann Scherrer, Appellees.

No. 137.

Supreme Court of Alaska.

July 24, 1962.

Peter B. Walton, of Connolly & Walton, Anchorage, for appellant.

S. J. Buckalew, Jr., Anchorage, for appellees.

Before NESBETT, C. J., and DIMOND and AREND, JJ.

AREND, Justice.

This appeal involves a dispute as to the effect of an alleged later agreement between the parties upon their existing sale and distribution contract. More specifically the question raised is this: Was there a later agreement in relation to the existing contract and, if so, was it a novation (substituted contract) or an executory accord which may or may not have been later satisfied?

The undisputed facts are that on April 9, 1959, the appellant, Alaska Creamery Products, Inc., hereinafter referred to as the Creamery, entered into a written sale and distribution contract with the appellees, Joseph Wells and Philip Scherrer, giving them the right to buy the Creamery's dairy products and to sell and distribute them 'to any person, firm or organization' in the 'Greater Anchorage Area.' The appellees covenanted to pay a portion of the Creamery's advertising costs and to diligently solicit and promote its product in the area. ¹

Operations under this contract commenced early in August, 1959, and the first disturbing incident occurred on the following December 16th, when Wells and Scherrer were caught cheating on deliveries by one of their principal customers, Carr's Food Center. Confronted by the owner of Carr's and accused of billing the store for more dairy products than they had delivered there, the appellees admitted the charge and made restitution in the sum of $3,758.76. At the same time Carr's refused to do any more business with them.

Realizing that by the loss of Carr's Food Center as an outler they could no longer act effectively as distributors of the Creamery's products, Wells and Scherrer sought out Norman Nelson, president and general manager of the Creamery, at his home on the evening of the 16th, and offered to sell their delivery trucks to the Creamery in consideration that they be released from the sales and distribution contract. There is evidence in the record that Nelson agreed that the Creamery would accept the offer and pay $7,400 for all of the trucks. ² These negotiations were entirely oral and there was no understanding that they would be reduced to writing.

Wells and Scherrer were anxious to obtain at least $2,000 in cash from the Creamery immediately to apply on their obligation at Carr's; but Nelson informed them that the Creamery had no such ready cash. So it was agreed that Nelson would go to the First National Bank on Monday morning, December 21, to see how much money he could borrow towards the purchase price of the trucks and then to meet the appellees there to complete the Creamery's oral agreement with them. ³ In the meantime, the Creamery was 'to go ahead and use the trucks' to make deliveries of its products to stores and homes previously serviced by the appellees.

On Monday morning, December 21, the parties met at the bank as agreed and there the appellees presented to Nelson for the first time an indemnity agreement which they demanded that he sign for the Creamery as a condition to the consummation of their oral agreement to sell the delivery trucks to the Creamery. This indemnity agreement provided, among other things, that the Creamery should hold Wells and Scherrer harmless 'for any act or acts which they have committed during their tenure from the date of the issuance of said franchises [their distributor rights under the sale and distribution agreement] to the date hereof.' Fearful that other stores might have claims similar to those of Carr's against the appellees, Nelson refused to sign the agreement. ⁴

As to what transpired next there is considerable conflict in the record. The appellees testified that in the afternoon of December 21 their attorney, Mr. Buckalew, phoned Nelson and informed him that all his clients wanted was the down payment on the trucks and a note for the balance. They added that no mention of the indemnity agreement was made in this telephone conversation. Nelson insisted that the only other contract he had with the appellees on Monday was when they came to the Creamery in the afternoon. At that time he told them that he would sign the indemnity agreement if Mr. Barrett of the Piggly Wiggly stores, ⁵ when he returned to Anchorage after Christmas, would assure the Creamery that his stores had no claims against the appellees. The appellees, according to Nelson, agreed 'to go along' and consented to the further use of the trucks by the Creamery. Nelson further stated that the first phone call he received from Attorney Buckalew was on the following Wednesday. Buckalew wanted to know why Nelson did not sign the indemnity agreement and go through with the truck deal. Nelson answered that he did not want to be confronted with a 'bunch of lawsuits.'

At some time during the night of December 22-23 the appellees surreptitiously removed the delivery trucks from the premises of the Creamery and proceeded to sell them elsewhere, having first transferred title to the trucks to their wives lest the Creamery start suit and attach them. The appellees were fully aware that, without the use of the trucks, the Creamery would be hard-pressed to deliver its products.

The Creamery took the position in its complaint that the negotiations between the parties, commenced on December 16, resulted in an oral agreement of accord and satisfaction whereby the Creamery agreed to release the appellees from the sale and distribution agreement in consideration of their agreement to sell to the Creamery the trucks in question for an agreed price and on agreed terms and to pay to it certain sums owed for dairy products and for advertising costs. The Creamery claimed that the accord and satisfaction was breached by the appellees when they refused to sell the trucks at the agreed price and terms and also refused to pay the sums of money owed to it, and that this breach of the accord by the appellees automatically restored the parties to their original sale and distribution agreement.

Accordingly, the Creamery brought this action for the money it claimed to be owing for dairy products and for advertising and other costs and also to recover damages in the sum of $61,500 for failure of the appellees to perform under both the accord and the original agreement. ⁶ In their answer the appellees acknowledged the oral accord but denied that they owed any sums of money to the Creamery and denied all allegations as to damages. In addition the appellees prayed for judgment of $11,705.05 against the Creamery on ten separate counterclaims. ⁷ Any indebtedness to the appellees on their counterclaims was denied by the Creamery in its reply.

The trial court, sitting without a jury, found many of the facts of the case to be substantially as we have set them out above and then specifically found as follows:

'7. * * * At that meeting [of December 16, 1959] the parties entered into an agreement, the terms of which are as follows: (a) The defendants [appellees] agreed to sell to plaintiff [the Creamery] their trucks at their original cost (being in the neighborhood of $7,400.00), (b) the plaintiff agreed to release the defendants from the fulfillment or future performance of any obligations under the defendants' distributor's agreements. * * * When the parties parted that evening they agreed to meet at the First National Bank of Anchorage the following Monday morning in order to consummate the purchase and sale of the trucks, for the plaintiff would then and there learn what funds might be secured by way of a bank loan. The parties never did agree at their evening meeting as to the manner in which the purchase price should be paid; i. e., whether the full purchase price should be paid in cash, or if only a portion thereof in cash, what sum, or the terms according to which the balance should be paid.' [Emphasis supplied.]

This finding of fact appears to be the basis for the second conclusion of law entered by the court as follows:

'2. On the evening of December 16, 1959, a novation or compromise agreement was entered into between the plaintiff [the Creamery] and the defendants [appellees], according to the terms of which (a) the plaintiff agreed to purchase from the defendants their trucks for a total purchase price in the neighborhood of $7,400.00, the terms of payment thereof were not fixed; (b) in consideration thereof the plaintiff at that time relinquished and released the defendants from all obligations theretofore incurred by them to the plaintiff under their distributor's agreements and further released the defendants from the duty to perform in the future any further obligations imposed upon them by their distributor's agreements.' ⁸

The judgment entered by the court on April 29, 1961, was in favor of the Creamery against the appellees, jointly and severally, for $162.40, plus costs and attorney fees. ⁹ No mention is made therein of the counterclaim of the appellees. Two days later the court executed and filed a 'Satisfaction of Judgment' in the case. The record does not indicate the the Creamery was ever served with notice of the 'Satisfaction of Judgment' or consented to the entry thereof.

The holding of the trial court that the parties had entered into a novation or compromise agreement was clearly an error of law. For an agreement to be a novation, or substituted contract as it is sometimes designated, there must be present all of the essential elements of an original contract and also an intention that the agreement operate as an immediate discharge of the first contract. ¹⁰ Any contract to be enforcible must be reasonably definite and...