B-Dry Owners Ass'n v. B-Dry System, Inc.
| Decision Date | 23 June 1994 |
| Docket Number | B-DRY,No. 49A02-9309-CV-506,49A02-9309-CV-506 |
| Citation | 636 N.E.2d 161 |
| Parties | OWNERS ASSOCIATION, Appellant-Plaintiff, v.SYSTEM, INC., Appellee-Defendant. |
| Court | Indiana Appellate Court |
Philip A. Whistler, Curtis W. McCauley, Ice Miller Donadio & Ryan, Indianapolis, for appellant.
Terrence L. Brookie, Nelson D. Alexander, Locke Reynolds Boyd & Weisell, Indianapolis, for appellee.
B-Dry Owners Association (the BDOA) appeals from a judgment of the Marion Superior Court awarding damages to the BDOA in its breach of contract action against B-Dry System, Inc. (the Company). The BDOA contends that the damages awarded by the trial court were inadequate. Upon appeal, the BDOA presents the following restated issues for our review.
I. Did the Company agree to contribute funds to the public relations program in exchange for the achievement of the previous year's sales performance by its franchisees, thus resulting, upon the achievement of the previous year's sales by the franchisees, in an enforceable obligation of the Company to fund the public relations program for the subsequent year?
II. Did the trial court err in calculating damages?
The relevant facts are not in dispute. The Company is a corporation which sells basement waterproofing franchises. The BDOA is a not-for-profit corporation comprised of several dozen of the Company's franchisees, also called licensees. In 1988, fifty-two of the Company's sixty-two licensees were BDOA members.
In 1986, the BDOA initiated discussions with the Company regarding the need for a public relations (PR) program. In 1988, the BDOA and the Company began negotiations for the funding of a PR program. On December 6, 1988, the negotiations culminated in an agreement.
The parties agreed upon a PR program with a target cost of approximately $90,000 per year. The Company indicated it would not be able to pay the entire amount based upon sales and revenue from the previous year (1988). The Company indicated that it could pay $18,000 in 1989 based upon the 1988 total sales. In addition, the parties agreed upon a formula for computing the Company's share of the funding for an ongoing PR program. The parties agreed that the Company would pay $18,000 for sales totaling $16 million, and would pay an additional $18,000 for every one million dollars in sales above $16 million. Thus, for sales totalling $20 million, the Company would provide the entire funding for the $90,000 PR program. The Company's contribution for any given year would be based upon sales from the prior year. The formula also provided that these contributions would continue for each $1 million in sales above the $20 million.
The agreement was summarized in a December 15, 1988 memo which was sent to all franchisees. The franchisees were informed that the BDOA and the Company had selected LMS/Barrett Public Relations to provide the public relation services. It was agreed by the parties that any excess funds contributed to the "ongoing promotional campaign" would be spent as mutually agreed by the BDOA board members and the Company. No termination date for the program was identified in the December 15 memo or a January 9, 1989 market plan which described the arrangement and was distributed by the Company. There is no reference to a termination date in any memorandum comprising the agreement and it was not stated or fixed anywhere until the Company did in fact terminate the agreement, as set out below.
In 1989, the first year of the agreement, the Company contributed $18,000 and the BDOA raised approximately $36,000 from its members, which resulted in a total expenditure of $54,000 for the PR program. Near the end of 1989, the program experienced a shortage of funds and the BDOA advanced $7,000 of its money to cover the shortfall, all of which the Company subsequently reimbursed the BDOA from the Company's 1990 contribution.
Overall sales in 1989 increased to over $18 million. It was mutually determined that $60,000 would be spent for the PR program in 1990. Pursuant to the agreed-upon formula, the Company funded the entire PR program, without the need for contribution from the BDOA. On February 26, 1990, the Company signed an agreement awarding the PR contract to Anthony M. Franco, Inc. (Franco). Franco was awarded the contract after assuring the Company that it could conduct a quality PR program for $50,000. The Company paid the entire $50,000 to Franco and reimbursed the BDOA for the $7,000 it had spent in 1989. As a result, the Company in 1990 spent the approximate amount required by application of the formula.
In 1990, sales totalled in excess of $24 million. The Company contributed $131,214.14 to the PR program fund. In addition to the regular PR campaign, a certain sum was used to fund special promotional projects agreed upon by the parties.
At a meeting between the Company and the BDOA in January of 1991, the parties discussed funding of the PR program for the coming year, which funding would be based upon the known 1990 sales which were in excess of $20 million. Joe Bevilacqua (Bevilacqua), the Company's president, asserted that the Company's contribution should be capped at $90,000, based upon the assertion that the agreement to pay $18,000 for each $1 million in sales above $20 million had been modified and agreed to by Don Henry, a former president of the BDOA. The BDOA disagreed that a modification had been made and produced a letter from Henry in which Henry denied the existence of any such modified agreement. After viewing the letter, Bevilacqua stated that he would "live up to the agreement", Record at 559, and would apply the formula as originally agreed upon.
1991 sales exceeded $22 million and, pursuant to the formula, the Company's contribution was to be $133,377.76. On February 11, 1992, the Company through Bevilacqua unilaterally declared the agreement terminated, and refused to make any payment toward a 1992 PR program.
The BDOA brought suit against the Company for breach of contract, seeking damages in the amount of an alleged underpayment by the Company for the PR program in 1991 and 1992. The parties stipulated as to the applicable formula, the gross sales in 1990 and 1991, the Company's contribution amount arrived at through application of the formula, and the sums paid by the Company in the relevant years. Those stipulated figures are:
Year Sales Amt. Due Amt. Paid
1990 $24,500,859 $171,015 $131,124
1991 $22,409,876 $133,378 0
Following a bench trial, the court ruled in favor of the BDOA on the issue of liability. The court assessed the BDOA's damages at $6,750 plus costs. The BDOA appealed on the ground that the damage award of the court was inadequate.
Implicit in the trial court's judgment is its conclusion that the contract in question is an at-will contract. The BDOA expressly does not challenge this aspect of the judgment. Therefore, there is no question as to whether the Company breached the contract by unilaterally terminating the contract. It did not. See House of Crane v. H. Fendrich, Inc. (1970), 146 Ind.App. 478, 256 N.E.2d 578. The issue, rather, is whether the Company breached the contract in refusing to pay the 1992 contribution to the PR program based upon 1991 sales, and did it underpay the 1991 contribution based upon 1990 sales.
The BDOA argues that even pursuant to an at-will contractual agreement, a party may not be divested of rights which accrued prior to termination of the contract. Specifically, "[a] party to an at-will contract cannot avoid its liability to the other party, once that party has performed, simply by terminating the contract." Appellant's Brief at 16 (citing Wright Mfg. Corp. v. Scott (1977), 172 Ind.App. 154, 360 N.E.2d 2). The Company counters that the Company's contributions to the PR fund were mere "unenforceable voluntary payments." Appellee's Brief at 15. The Company notes that, in the absence of consideration, a promise is merely an unenforceable gratuitous act, citing Spickelmier Industries, Inc. v. Passander (1977), 172 Ind.App. 49, 359 N.E.2d 563. There was no consideration to support the contract, contends the Company, because the Company's promise was not the product of a bargained-for exchange.
The BDOA's position is premised upon the argument that the BDOA had accrued a right to the Company's contribution prior to termination of the contract. Specifically, the BDOA contends that it had already "earned the right to this payment." Appellant's Brief at 15. This argument implicates the contractual doctrine of consideration, although in a way which differs from the argument advanced by the Company upon this issue. The two parties offer opposing viewpoints on the question of whether there was consideration to support the original contract. We agree with the BDOA that there was valid consideration to support the original agreement.
Consideration consists of a bargained-for exchange. Wavetek Indiana, Inc. v. K.H. Gatewood Steel Co., Inc. (1984), Ind.App., 458 N.E.2d 265. To constitute consideration, there must be a benefit accruing to the promisor or a detriment to the promisee. Urbanational Developers, Inc. v. Shamrock Engineering, Inc. (1978), 175 Ind.App. 416, 372 N.E.2d 742. In the instant case, the BDOA agreed to provide funding for the PR program's first year in an amount representing the difference between the Company's contribution and total PR program costs, which...
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