Empire Gas Corp. v. UPG, Inc.

Decision Date27 October 1989
Docket NumberNos. 16096,16098,s. 16096
Parties11 UCC Rep.Serv.2d 453 EMPIRE GAS CORPORATION, a Delaware Corporation, Plaintiff/Respondent/Cross-Appellant, v. UPG, INC., a Delaware Corporation, Defendant/Appellant/Cross-Respondent.
CourtMissouri Court of Appeals

William H. McDonald, Virginia L. Fry, Celeste K. Johns, Woolsey, Fisher, Whiteaker & McDonald, Springfield, for defendant/appellant/cross-respondent.

Steven G. Emerson, Thomas H. Davis, Morris & Larson, P.C., Kansas City, Darrell Deputy, Jr., Lebanon, for plaintiff/respondent/cross-appellant.

FLANIGAN, Presiding Judge.

On March 16, 1984, plaintiff Empire Gas Corporation, a Delaware corporation ("Empire"), brought an action for breach of contract against defendant UPG, Inc., a Delaware corporation ("UPG"). The action involved six contracts, signed in September 1981, dealing with the sale of propane gas by UPG, a major wholesaler of propane, to Empire, a major retailer of propane. Three days later UPG brought an action against Empire, based on alleged unpaid invoices for propane sold by UPG to Empire under the six contracts.

The six contracts were, as Empire's brief states, substantially identical. The reason for six contracts instead of a single contract was that the propane was to be delivered at six supply points, each having its own "yearly volume" of propane. The total yearly volume for the six delivery points was 105,080,000 gallons, which is the same as 2,627,000 barrels. At times this opinion will refer to the six contracts as the "propane sales agreement," because all six contain the controlling language.

In November, 1984, the two actions were consolidated "for all purposes," with all subsequent pleadings to be filed in the first action. This opinion will treat the actions as a single one, with Empire as plaintiff and UPG as defendant. The instructions so labeled the parties. The claim of UPG will be referred to as the counterclaim.

In September 1988 the case was tried to a jury. At the conclusion of Empire's evidence, the court directed the jury to return a verdict in the amount of $4,104,082.52 in favor of UPG and against Empire on the counterclaim. In addition to the jury's award on the counterclaim, the court later awarded UPG $2,360,641.79 as prejudgment interest, for a total award on the counterclaim of $6,464,724.31. After deliberation, the jury returned a verdict on the petition in favor of Empire and against UPG in the amount of $4,250,000. Both sides appeal. This court consolidated the appeals and will dispose of both in this opinion.

One paramount issue, hotly contested in the trial court and in this court, is determinative of the two appeals. The resolution of that issue makes it unnecessary to consider many of the subsidiary issues raised by the parties. The issue is this: Was Empire entitled to a constant 2-cent per gallon discount during the five-year term of the propane sales agreement, as Empire claims, or was the 2-cent discount subject to being revised by UPG during the five-year period, as UPG claims? For the reasons which follow, this court sustains UPG's position on the issue.

The propane sales agreement is dated September 14, 1981. Actually it was signed for Empire by Earl Noe on September 11, 1981, and signed by UPG's president on September 14, 1981. The propane sales agreement identified its "primary term" as commencing July 1, 1981, and continuing to June 30, 1986, and year to year thereafter unless cancelled or unless sooner terminated "as hereinafter provided." Paragraph 15 of the propane sales agreement dealt with termination for breach of either party.

Sales commenced in June or July 1981, several months prior to the signing of the propane sales agreement. From the commencement of the sales through May 1982, UPG gave Empire a 2-cent per gallon discount from its "posted price," that is, the price which Empire's brief describes as UPG's "normal wholesale price" or "established price."

On June 1, 1982, UPG reduced the discount from 2 cents per gallon to 1/2 cent per gallon. UPG gave Empire notice of the reduction before making it. Empire, having previously paid all invoices when due, continued to claim the 2-cent discount and made payments on that basis until August 1982. UPG then notified Empire it would make no further deliveries unless Empire paid the previously withheld amount, that is, the amount reflected by the difference between the two discounts. Empire paid the previously withheld amount.

Beginning in September 1982, Empire paid in full invoices calculated on the basis of the 1/2-cent discount, but placed a restrictive endorsement on the back of the payment checks protesting the amount paid.

In June 1983 Empire underwent a "leveraged buyout" which, so UPG claimed, adversely affected Empire's credit standing. In November 1983 UPG demanded certain credit arrangements from Empire, but Empire did not accede. In November 1983 UPG ceased delivering propane by pipeline to Empire, although the parties continued to deal with each other with respect to two of the contracts which involved Empire's "Texas truck operations." In November 1983, 13 invoices representing propane delivered to Empire under the propane sales agreement were unpaid. The lawsuits ensued.

APPEAL OF UPG--No. 16098

UPG's fundamental contention is that the propane sales agreement, and principally paragraph 5 thereof dealing with "PRICE," gave UPG the right to revise the 2-cent discount, and that Empire's evidence, primarily a letter dated July 21, 1981, from UPG's Richard Thomason to Empire's Earl Noe, was improperly received because its admission violated the parol evidence rule as set forth in § 2-202 of the Uniform Commercial Code. UPG also argues that the trial court erred in giving Instruction 6, Empire's verdict-directing instruction, because no jury issue was created and thus Instruction 6 was not supported by the evidence. This court agrees with UPG. This court holds that the trial court's rulings, to the extent they differ from the contents of this opinion, constituted misapplications of the law.

Empire's representatives during the material events included Bill Byrne and Earl Noe.

UPG's representatives during the material events included Rex Donaldson, Roger Helgoe and Dick Thomason.

In May 1981, representatives of Empire and UPG held a conference at UPG's headquarters in Omaha, Nebraska. Those discussions culminated in the signing of the propane sales agreement in September 1981, although the parties had commenced their dealings earlier.

During the discussions preceding the signing of the six contracts, according to Empire's evidence, the parties discussed potential sales volumes. Empire was told by UPG that a discount of 2 cents per gallon would be given if Empire purchased at least 1,750,000 barrels per year. A barrel is 40 gallons. For purposes of discount, UPG had established five customer categories. Customers buying 1,750,000 barrels or more per year were entitled to a 2-cent discount. Customers buying less than 500,000 barrels per year received no discount. Customers in the three intermediate categories received discounts of 1/2 cent, 1 cent, or 1 1/2 cents, depending upon volume.

A few days following May 1981, UPG sent Empire a blank form contract to be used as a basis for discussion. Conversations took place between their respective representatives regarding proposed changes. Mr. Noe, of Empire, objected to the fact that the form sent by Mr. Thomason, of UPG, made no specific reference to the 2-cent discount, although it did refer to Empire being charged the price applicable to its particular class of customer based on volume. According to the testimony of Noe, Thomason said that the legal department of UPG required the discount arrangement to be "in a separate document."

On July 21, 1981, Thomason of UPG sent Noe of Empire a letter ("the Thomason letter") referring to the six contracts later signed. The letter reads:

"Under terms of the captioned Agreements, UPG agrees to sell and Empire agrees to purchase one hundred five million eighty thousand (105,080,000) gallons of propane at various F.O.B. points. The price of propane under the Agreements is based upon UPG's established price for the customer category of which Buyer is a member.

The customer category of which Empire is a member, based upon the volume designated in the contracts, gives them a two cent (2.0c) per gallon discount from UPG's established price at the specified F.O.B. point.

The established customer category is based upon the volume of propane purchased under the contracts; therefore if the volume should increase or decrease the customer category is subject to change.

If you have any questions concerning the foregoing, please call us."

Copies of the foregoing letter were sent to UPG's representatives Donaldson and Helgoe, and to Empire's Byrne.

On July 24, 1981, UPG sent Empire two copies of each of the six contracts and asked that they be executed by an officer of Empire and returned to UPG for execution by UPG's management.

In August 1981 Bill Byrne of Empire asked Rex Donaldson of UPG to have an officer of UPG sign a letter similar to Thomason's letter of July 21, 1981. Thomason was not an officer. 1

For each delivery point, Empire agreed to purchase during each calendar year a minimum of 75 percent of the yearly volume for that year, to be delivered in accordance with a specified schedule. With restrictions and on named conditions Empire had an option to increase its monthly or yearly volume.

One of the delivery points was Mont Belvieu, Texas. All six contracts, except for the designation of the delivery point and its yearly volume, contained provisions identical to the following portions of the contract pertaining to Mont Belvieu.

"5. PRICE

The price per gallon, F.O.B., Mont...

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