Bourdon's, Inc. v. Ecin Industries, Inc.

• Citation: 704 A.2d 747
• Decision Date: 16 December 1997
• Docket Number: No. 95-486-A,95-486-A
• Parties: BOURDON'S, INC. v. ECIN INDUSTRIES, INC., et al. ppeal.
• Court: United States State Supreme Court of Rhode Island

Page 747

704 A.2d 747

BOURDON'S, INC. v. ECIN INDUSTRIES, INC., et al.

No. 95-486-Appeal.

Supreme Court of Rhode Island.

Dec. 16, 1997.

Wayne Kezirian, Cranston, for Plaintiff.

Edward J. Mulligan, Lincoln, for Defendant.

Before WEISBERGER, C.J., and LEDERBERG, BOURCIER, FLANDERS and GOLDBERG, JJ.

OPINION

LEDERBERG, Justice.

This case came before the Supreme Court on the appeal of the plaintiff, Bourdon's, Inc., from a judgment in favor of the defendants, Ecin Industries, Inc., Harvey J. Bigelow, and Patricia M. MacMillen, on the plaintiff's claim of breach of contract, and in favor of the defendants on their counterclaim for misrepresentation, fraud, and/or deceit. For the reasons set forth below, we affirm the judgment of the Superior Court. In doing so, we hold that the applicable period of limitations for actions for fraud and deceit is the ten-year period found in G.L.1956 § 9-1-13(a), and we further hold that the Statute of Frauds, § 9-1-4, is inapplicable to a claim of misrepresentation, fraud, and/or deceit. The facts insofar as pertinent to this appeal follow.

Facts and Procedural History

The plaintiff is a New Hampshire corporation whose president and majority stockholder is John D. Bourdon (Bourdon). In 1986, plaintiff, which was engaged in the "manufacture and sale of mattresses, institutional bedding, and sleep equipment," owned three subsidiary corporations (collectively Subsidiary) that sold mattresses primarily to retail furniture stores. The plaintiff, Subsidiary's corporate parent, supplied bedding to such institutions as hospitals, nursing homes, and hotels.

In August of 1986, defendants Patricia M. MacMillen (MacMillen) and Harvey J. Bigelow (Bigelow) began negotiating with Bourdon for the purchase of Subsidiary, having previously incorporated Ecin Industries, Inc. (Ecin), for the purpose of selling bedding and other products. MacMillen was sole shareholder and president of Ecin, while Bigelow served as vice president and secretary. The parties executed an agreement of sale (Agreement), and a closing was held on December 16, 1986.

Pursuant to the Agreement, Ecin agreed to pay a total purchase price of $200,000, with a $1,000 down payment and $199,000 financed without interest by plaintiff, to be paid in monthly installments of $3,500. Ecin executed a promissory note (Note) to plaintiff; the purchase price was secured by Ecin's newly acquired inventory, machinery, and equipment, MacMillen's car and residence, Ecin's casualty insurance, and the personal guarantees of MacMillen and Bigelow. Part of the purchase price was allocated by the parties to Subsidiary's customer lists (customer lists), which were supposed to be appended to the Agreement as Exhibit C. The customer lists, however, were not attached to the Agreement at the closing, and the parties introduced conflicting versions of the list into evidence at the trial. The most important customers in dispute were the State of Rhode Island (State) and Johnson & Wales University (J & W). The Agreement also contained the following noncompetition clause:

"For a period of fifty-seven (57) months from the date hereof, or until Buyer shall no longer be in business, whichever shall come first, Seller shall not sell to customers on the Customer Lists or to retail furniture dealers in Rhode Island or Massachusetts south of Boston, except that Seller may sell to [enumerated furniture stores] and any hospital and nursing home accounts."

A handwritten insertion point and the term "(Exhibit C)" appeared after the word "Lists."

Following the closing, Ecin moved the Subsidiary operation to its Fall River, Massachusetts facility. Bourdon visited the facility at least monthly to collect payment in accordance with the Note. MacMillen and Bigelow testified that during negotiations prior to the execution of the Agreement, Bourdon orally agreed that he would use Ecin as a subcontractor to manufacture mattresses and futons to be sold by plaintiff. Bigelow claimed that Bourdon had agreed to furnish such business for "[f]ive years at least." Relying on this alleged representation, Ecin purchased futon-production equipment from plaintiff, for which Ecin otherwise had no use. MacMillen and Bigelow also testified that Bourdon had represented to them that the business derived from plaintiff's subcontracting would yield Ecin at least $800,000 per year. During Bourdon's visits to collect payment on the Note, MacMillen and Bigelow claimed that, in response to their inquiries about the promised subcontracting orders, Bourdon would answer that plaintiff's business was slow, that the work was forthcoming, or that Ecin's production capacity was not large enough to handle plaintiff's orders. In order to accommodate the alleged promised larger orders, and with Bourdon's knowledge that they were doing so, defendants expanded the Ecin factory by 18,000 square feet in September of 1987. Ecin, however, never received more than $40,000 annually in business from plaintiff, and in 1989 the amount was only $72. Bourdon, on the other hand, denied making any oral representations.

On January 1, 1989, less than twenty-five months after the execution of the Agreement, plaintiff sold its institutional-mattress business to a corporation formed by two long-term plaintiff employees. This new corporation, Bourdon's Institutional Sales, Inc. (BIS), bought and leased equipment and premises from two other corporations of plaintiff's, Diversified Products, Inc., and J.D. Bourdon Realty. Pursuant to the contract of sale, BIS agreed to hire "Bourdon" as a consultant for the sum of $30,000 per year until 1994. Bourdon was listed on the BIS articles of incorporation as a director, and "John D. Bourdon, d/b/a J.D. Bourdon Realty" was listed as a party to the contract of sale. Bourdon testified that it was plaintiff corporation, and not himself personally, that was hired as the BIS consultant, and he claimed that he never performed any consulting work for BIS, never did any sales work for BIS, and never received notice of or attended any board meetings of the new corporation.

Beginning in 1990, the owners of BIS began making bids on State contracts. MacMillen testified that Bourdon, when reminded of the noncompetition clause in the Agreement, informed her that he had sold the mattress portion of plaintiff corporation to BIS, and that plaintiff itself was therefore not competing against Ecin for the State contracts. In August 1989, BIS also began doing business with J & W after purchasing plaintiff's institutional mattress supply business. In November 1990, Ecin stopped making monthly payments pursuant to the Note because, in MacMillen's words, "[Bourdon] sold the business that he promised to us to someone else." The parties stipulated at trial that a principal balance of $36,882 remained on the Note at the time payments ceased.

On March 25, 1992, plaintiff filed suit against defendants in Superior Court, alleging that defendants had failed to pay on the Note, and had breached the Agreement by having failed to pay for machinery and goods delivered to them. On April 27, 1992, defendants filed an answer to the complaint, setting forth the affirmative defenses of failure to state a claim upon which relief could be granted, lack of personal jurisdiction, improper service of process, and breach of contract. On June 1, 1995, defendants moved to file an amended answer and counterclaims, seeking to add both the affirmative defense of fraud and/or deceit, and two counterclaims, the first for misrepresentation, fraud, and/or deceit (hereafter referred to as the counterclaim for fraud), and the second for deceptive trade practices. Over plaintiff's objection, the trial justice granted defendants' motion on June 9, 1995.

After the close of evidence, the trial justice granted judgment as a matter of law for plaintiff on defendants' counterclaim of deceptive trade practices. Following deliberations, the jury returned with a special verdict form prepared by the trial justice, finding for defendants on plaintiff's claim of breach of contract, and for defendants on their counterclaim for fraud. With damages set at $59,600, plus interest at 12 percent per annum, in the amount of $23,039.89, plaintiff was adjudged to owe defendants the sum of $82,639.89. Judgment on the verdict was filed on June 14, 1995.

The plaintiff filed a motion for a new trial on June 20, 1995, claiming that the verdict was against the preponderance of the evidence, that the verdict form was defective and misleading, that the trial justice had committed an error of law in refusing to give certain jury instructions, and that the trial justice had committed an error of law in permitting defendants to amend their answer and to add their counterclaims. The motion for a new trial was heard on July 5, 1995, although the record before us contains no transcript of that hearing. The motion was denied, and plaintiff filed a timely notice of appeal.

Defendants' Motion to Amend Their Answer and to File a Counterclaim

The plaintiff has argued that it was reversible error for the trial justice to allow defendants to amend their answer and to add a counterclaim for fraud after the trial had begun. Rule 15(a) of the Superior Court Rules of Civil Procedure provides that a party may amend its pleading once, within enumerated time periods, as a matter of right. After either that opportunity has been taken or the applicable time period has lapsed, a pleading may be amended "only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Id. As Professor Kent has pointed out:

"Rule 13(f) provides that by leave of court a party may set up by amendment a counterclaim which he has omitted through 'oversight, inadvertence, or excusable neglect, or when justice requires.' Justice has been held to require the allowance of an amendment to plead a compulsory counterclaim, even though the...