Cabnetware, Inc. v. Birmingham Saw Works, Inc.

• Decision Date: 12 March 1993
• Parties: CABNETWARE, INC. v. BIRMINGHAM SAW WORKS, INC. 1911420.
• Court: Alabama Supreme Court

Page 1034

614 So.2d 1034

CABNETWARE, INC. v. BIRMINGHAM SAW WORKS, INC.

1911420.

Supreme Court of Alabama.

March 12, 1993.

Macbeth Wagnon, Jr. and Stewart M. Cox of Bradley, Arant, Rose & White, Birmingham, for appellant.

Dennis G. Pantazis of Gordon, Silberman, Wiggins & Childs, P.C., Birmingham, for appellee.

HOUSTON, Justice.

Cabnetware, Inc., appeals from a judgment entered on a jury verdict in favor of Birmingham Saw Works, Inc. We reverse and remand.

Cabnetware is a California-based manufacturer and distributor of computer software that enables a user to produce detailed designs for custom cabinet installations. The software allows the user to visualize on a computer monitor the arrangement, dimensions, and style of cabinets to be installed in a kitchen or other area, thereby largely eliminating the need for sketches, blueprints, etc. The computer image produced by the software is three-dimensional. The software is provided to companies in the cabinet or woodworking industry that wish to act as dealers for the product in various parts of the country. Birmingham Saw Works is an Alabama-based company that sells woodworking machinery and supplies to cabinet makers and others in the woodworking and furniture industry. In May 1987, a representative of Birmingham Saw Works contacted a Cabnetware representative and asked to become a distributor of Cabnetware's software. Cabnetware orally agreed that Birmingham Saw Works could sell its software in a five-state territory. Cabnetware later assisted Birmingham Saw Works in implementing a sales program for the software. Cabnetware and Birmingham Saw Works operated under an oral distributorship agreement from early June 1987 until late September 1987. Sometime before September 29, 1987, Birmingham Saw Works requested that the agreement be reduced to writing. In response to that request, Roy Bingham, Cabnetware's secretary and treasurer, prepared, signed, and submitted to Birmingham Saw Works a one-page statement of their agreement:

"For consideration, CABNETWARE, INC., grants to BIRMINGHAM SAW WORKS distribution rights to all their software products in the states of Alabama, Georgia, Mississippi, Tennessee and Kentucky.

"CABNETWARE, INC., will furnish one security key and a manual with each program sold. CABNETWARE, INC., will support all sales by BIRMINGHAM SAW WORKS via the telephone and mail service. On a mutually agreed upon basis, CABNETWARE, INC., will support on a direct and personal basis individual selling efforts of BIRMINGHAM SAW WORKS. CABNETWARE, INC., further agrees to provide advertising support on a national basis and on an individual mailing basis when requested by BIRMINGHAM SAW WORKS. CABNETWARE, INC., agrees to pay to BIRMINGHAM SAW WORKS, 50% of the selling price of all their software programs that are sold and installed by BIRMINGHAM SAW WORKS in their assigned territory. The selling price to the end user will always be determined by mutual agreement.

"BIRMINGHAM SAW WORKS is authorized to receive payment in full from the end user for CABNETWARE, INC., products. CABNETWARE, INC., must be paid for all software within 30 days of being sent from CABNETWARE, INC.

"This agreement shall remain in effect so long as BIRMINGHAM SAW WORKS does not engage in an active effort to sell any competing software and as long as [it] sell[s] a minimum of any six CABNETWARE, INC., programs in a six month period."

This written statement was approved by Birmingham Saw Works. ¹

Although Birmingham Saw Works was successful in marketing Cabnetware's software in its five-state territory, Cabnetware and Birmingham Saw Works eventually encountered problems in their business relationship. The evidence shows that Birmingham Saw Works was late in paying a number of Cabnetware's invoices in 1988 and that Cabnetware requested in December 1988 that future payments be timely. Birmingham Saw Works, which acknowledged that it was having financial difficulty in 1988, paid in a timely fashion thereafter. The evidence also shows that Cabnetware began receiving complaints in September 1988 from certain customers who apparently were not satisfied with the service they were receiving from Birmingham Saw Works.

In December 1988, Cabnetware decided to hire a second distributor to operate within the same five-state territory that had been assigned to Birmingham Saw Works, and it notified Birmingham Saw Works of its decision by letter dated December 27, 1988. The new distributor also sold software for Cabnetware in other parts of the country and accounted for approximately 50% of Cabnetware's sales. Aware that the distributorship agreement did not grant it the exclusive right to sell and service Cabnetware's software in its designated territory, Birmingham Saw Works accepted the increase in competition and continued to operate as a Cabnetware distributor. Even though Birmingham Saw Works had never failed to meet its minimum sales quota, Cabnetware notified Birmingham Saw Works by letter dated March 22, 1989, that it intended to terminate the distributorship agreement effective April 22, 1989. Roy Bingham testified that Cabnetware's agreement with Birmingham Saw Works was terminated primarily because Birmingham Saw Works had been late in making payments in 1988. Birmingham Saw Works, which had remained current in its payments after Cabnetware complained in December 1988, continued to sell and service Cabnetware's software until the agreement was terminated in April 1989.

Birmingham Saw Works sued Cabnetware, alleging breach of contract and fraud, and seeking both compensatory and punitive damages. A jury returned a general verdict for Birmingham Saw Works, awarding it $473,000 in compensatory damages and $100,000 in punitive damages, and the court entered a judgment on that verdict.

Although Cabnetware raises several issues, the dispositive issue is whether the trial court erred in submitting Cabnetware's fraud claim to the jury. If the evidence was insufficient to submit the fraud claim to the jury, as Cabnetware contends, then the judgment must be reversed and the case remanded, for it is evident by the award of punitive damages that the jury found Cabnetware liable for fraud.

Birmingham Saw Works based its fraud claim on allegations that Cabnetware intentionally or recklessly misrepresented in the distributorship agreement that the "agreement [would] remain in effect ... as long as [Birmingham Saw Works sold] a minimum of any six Cabnetware, Inc., programs in a six month period." Although Birmingham Saw Works argues otherwise, we agree with Cabnetware that the fraud claim is based on allegations that Cabnetware promised to perform, or to abstain from, some act in the future. The language in the distributorship agreement relied on by Birmingham Saw Works constituted a promise on the part of Cabnetware that it would perform under the contract (i.e., that it would not terminate it) as long as Birmingham Saw Works met the minimum sales quota.

Recently, in Centon Electronics, Inc. v. Bonar, 614 So.2d 999 (Ala.1993), this Court reaffirmed the well-established standard by which claims based on allegations of promissory fraud are to be reviewed:

" ' "The only basis upon which one may recover for fraud, where the alleged fraud is predicated on a promise to perform or abstain from some act in the future ... is when the evidence shows that, at the time ... the promises of future action or abstention were made, the promisor had no intention of carrying out the promises, but rather had a present intent to deceive. Robinson v. Allstate Insurance Co., 399 So.2d 288 (Ala.1981). If such intent is not substantiated by the evidence, the fraud claim should not be submitted to the jury. The failure to perform, alone, is not evidence of intent not to perform at the time the...