Ervin v. Amoco Oil Co.

• Decision Date: 31 March 1994
• Docket Number: No. 92CA1255,92CA1255
• Citation: 885 P.2d 246
• Parties: Dale A. ERVIN, Mike Wallen, Don R. Plummer, Richard B. Rush, Rodger D. Kruger, Norman Smith, and the Estate of Norman Smith (Daniel T. Smith, Personal Representative), Gregory S. Hearing, Leslie R. Koehnen, Edward J. Cook, Stephen D. Cameron, Richard D. Oneslager, Rodney O. Marshall, John Galli, John L. Weibel, Herbert Hawley, William J. ("Bill") Mattedi, Gerald W. Human, Roger ("Rodger") Scott, Robert H. Schroeder, and the Estate of Robert H. Schroeder (Jeanne Schroeder, Personal Representative), and Samuel W. Geist, Plaintiffs-Appellees and Cross-Appellants, v. AMOCO OIL COMPANY, a Maryland corporation, Defendant-Appellant and Cross-Appellee. . V
• Court: Colorado Court of Appeals

Page 246

885 P.2d 246

Dale A. ERVIN, Mike Wallen, Don R. Plummer, Richard B. Rush,

Rodger D. Kruger, Norman Smith, and the Estate of Norman

Smith (Daniel T. Smith, Personal Representative), Gregory S.

Hearing, Leslie R. Koehnen, Edward J. Cook, Stephen D.

Cameron, Richard D. Oneslager, Rodney O. Marshall, John

Galli, John L. Weibel, Herbert Hawley, William J. ("Bill")

Mattedi, Gerald W. Human, Roger ("Rodger") Scott, Robert H.

Schroeder, and the Estate of Robert H. Schroeder (Jeanne

Schroeder, Personal Representative), and Samuel W. Geist, Plaintiffs-Appellees and Cross-Appellants, v. AMOCO OIL COMPANY, a Maryland corporation,

Defendant-Appellant and Cross-Appellee.

No. 92CA1255.

Colorado Court of Appeals,

Div. V.

March 31, 1994.

As Modified on Denial of Petition for

Rehearing of Plaintiffs-Appellees and

Cross-Appellants July 7, 1994.

Petition for Rehearing of

Defendant-Appellant and Cross-Appellee

Denied July 7, 1994.

Certiorari Granted (Amoco) Dec. 5, 1994.

Cross-Petition for Certiorari Denied

Dec. 5, 1994.

Hubert M. Safran, Denver, Farrell & La Mantia, Mark A. La Mantia, Rosemont, IL, for plaintiffs-appellees and cross-appellants.

Kirkland & Ellis, Frank Cicero, Jr., John A. Desisto, Denver, William J. Noble, Amoco Corp., Kirkland & Ellis, Richard C. Godfrey, Chicago, IL, for defendant-appellant and cross-appellee.

Opinion by Judge MARQUEZ.

Defendant, Amoco Oil Company (Amoco), appeals an amended judgment entered on a jury verdict awarding plaintiffs, sixteen current or former Amoco brand retail service station dealers doing business in Colorado (the dealers), over $2.5 million in damages pre-judgment interest, and costs for breach of an implied covenant of good faith and fair dealing under certain of the parties' agreements and tortious interference with customer relationships. Although four of the dealers' six claims were dismissed prior to trial, the dealers cross-appeal only a summary judgment entered in favor of Amoco on a claim that it violated § 6-2-101, C.R.S. (1992 Repl.Vol. 2), Colorado's Unfair Practices Act, and an order denying damages for certicare signs on Amoco's capital asset ledger calculations. They do not cross-appeal the jury verdict denying relief on their claim for alleged violation of open price provisions under the Uniform Commercial Code. We affirm.

Here, the dealers entered into written lease agreements and dealer supply agreements with Amoco. Pursuant to the parties' lease agreements, Amoco leases to the dealers the service station properties from which the dealers conduct their business. Under the parties' supply agreements, Amoco sells its motor fuels to the dealers, who resell the fuels to the motoring public.

Both the lease and supply agreements have terms of one to three years. The dealers do not dispute that each dealer periodically executed various documents with Amoco, including the lease and supply agreements. In addition, the dealers do not dispute that these documents each contain integration, cancellation, and merger clauses.

I.

Breach of Contract: Implied Covenant of Good Faith and Fair Dealing

In one count of their complaint, the dealers claimed that Amoco breached its contractual obligations under the implied covenant of good faith and fair dealing by abusing its power, acting outside the scope of its discretion, and usurping the benefits of the contract. Relative to this claim for relief, the complaint alleges that, under the agreements, there existed a special relationship and that Amoco had attempted to reserve for itself the discretion to make numerous decisions, including establishing the purchase price for motor fuel, station rentals, station hours, and credit arrangements. At trial, however, under the court's instructions to the jury, the dealers' damages under this claim were limited to overcharges based upon rental charges for service bays. The dealers presented evidence that they were being charged more than once for the service bays. They prevailed on this claim, and Amoco challenges such result.

A.

Amoco contends that its collection of an unambiguous, expressly agreed upon rent could not constitute a breach of an implied duty of good faith and fair dealing. We conclude that the record supports a finding that the covenant was breached.

The covenant of good faith and fair dealing is implied at law in every contract. However, breach of this covenant does not generally give rise to an independent tort claim. Friedman v. Colorado National Bank, 825 P.2d 1033 (Colo.App.1991), rev'd on other grounds, 846 P.2d 159 (Colo.1993); Ruff v. Yuma County Transportation Co., 690 P.2d 1296 (Colo.App.1984); Restatement (Second) of Contracts § 205 (1981). See also Larese v. Creamland Dairies, Inc., 767 F.2d 716 (10th Cir.1985) (the franchisor-franchisee relationship is one which requires the parties to deal with one another in good faith and in a commercially reasonable manner).

In general, this covenant must be tied to a specific contract term that allows for discretion on the part of either party. See Hubbard Chevrolet Co. v. General Motors Corp., 873 F.2d 873 (5th Cir.1989); General Aviation v. Cessna Aircraft Co., 915 F.2d 1038 (6th Cir.1990); Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359 (Colo.App.1994). Thus, it is most commonly at issue in the performance of requirements or outputs contracts or when a contract contains an open price term or open quantity term.

Here, the lease agreement provided:

Lessee shall pay to Lessor as rent for the Premises, the sum of $___ per month during the term of this Lease unless a variable monthly rental is indicated below....

A subsequent paragraph stated Modification of Rental. In the event that the original term of this Lease is for more than one year, each year of said term Lessor reserves the right to modify the monthly rental specified above to conform with Lessor's established policy rental in effect for this type facility as of each anniversary date of the commencement of the term by giving Lessee at least ninety (90) days' advance written notice of such changed rental

. . . . .

Although requiring payment of the actual fixed monthly rental amount is non-discretionary, here, the dealers presented evidence to support the jury verdict including testimony that in addition to being charged a percentage of the value of the land and assets, which purportedly included the value of the service bays, they were charged a separate amount for the service bays. There was also testimony that this calculation method was not explained prior to the start of the present litigation.

Under the evidence presented, a jury could find that such covenant was breached. Cf. Abbott v. Amoco Oil Co., 249 Ill.App.3d 774, 189 Ill.Dec. 88, 619 N.E.2d 789 (1993).

B.

Amoco next asserts that, even if Colorado law recognizes such a good faith covenant, the parties' agreements were fully integrated and contained merger and integration clauses which stated that there were no implied covenants. We disagree.

One provision of the lease agreement reads in pertinent part:

No obligations, agreements or understandings shall be implied from any of the terms and provisions of this Lease, all obligations, agreements and understandings with respect to the subject matter hereof being expressly set forth herein....

Because a covenant of good faith and fair dealing is implied at law in every contract, we conclude that this provision does not preclude recovery here. The jury here could determine only whether plaintiff had proven a rental overcharge based upon the service bay charges, a limitation not inconsistent with the terms of the agreement.

C.

Amoco next claims that jury instructions regarding the breach of an implied covenant of good faith contain prejudicial legal errors. We disagree.

Initially, we reject Amoco's argument based on grounds discussed in part I.A. above.

1.

Amoco contends that an instruction incorrectly told the jury that good faith "requires each party to a contract to act in such a manner that each party will attain their reasonable expectations under the contract." We reject this contention.

"Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party." Restatement (Second) Contracts § 205 comment a (1981) (emphasis added); see also Ruff v. Yuma County Transportation Co., supra; Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., supra.

2.

As to another instruction, Amoco contends that it was improper for two reasons. We conclude that neither reason warrants reversal.

The challenged instruction provided as follows:

If you find that Amoco occupies a vastly superior bargaining position, then the implied covenant of good faith and fair dealing is particularly applicable. If you find that is the situation here, then you may enforce the agreements according to what you determine to have been the reasonable expectations of both parties.

a.

First, as to the contention that this instruction also uses the word "reasonable expectations" and is, therefore, repetitive with another instruction, we conclude that this argument lacks merit.

The other instruction provides that the reasonable expectations of the parties are used "in determining whether there has been a breach of this implied covenant." Conversely, this instruction is concerned with the remedy for breach. The remedy in such a case is damages which essentially enforces "the agreements according to what [the jury] determine[s] to have been the reasonable expectations of both parties." Thus, these two instructions are not repetitive.

b.

The other contention involving this instruction is that the statement--"if you find that Amoco occupies a vastly superior bargaining position, then the implied covenant of good faith and fair dealing is particularly applicable"--is inherently misleading, unnecessary, and confusing. We do not find any...