Etheridge Oil Co. v. Panciera, Civ. A. No. 91-0147B.
| Decision Date | 12 March 1993 |
| Docket Number | Civ. A. No. 91-0147B. |
| Parties | ETHERIDGE OIL CO. v. Harold T. PANCIERA, et al. |
| Court | U.S. District Court — District of Rhode Island |
Michael B. Fines, Harris K. Weiner, Adler, Pollock & Sheehan, Providence, RI, for plaintiff.
Harold T. Panciera, pro se.
William T. Shea, pro se.
Richard W. MacAdams, MacAdams & Wieck, Providence, RI, for third party defendant Heritage Bank.
Kevin M. Brill, Corrente & Brill, Corrente & Brill, Providence, RI, for third party defendant Hampton Etheridge.
Plaintiff has sued three individual defendants who executed personal guaranties of payment of a fuel oil supply contract between plaintiff and Marbella & Co., a corporation owned by the three individual defendants. Because two of the individual defendants are now involved in bankruptcy proceedings, the action was heard with respect to the claim against defendant William T. Shea only.
Marbella & Co. operated and later purchased a truck stop located near Interstate 95 in Kenly, North Carolina. On March 14, 1989, Marbella & Co. entered into a supply contract with plaintiff Etheridge Oil Co. for the delivery of its needs of fuel oil. The contract was for a term of one year from March 6, 1989 to March 5, 1990. The contract provides that, after the initial term, the contract was to be automatically renewed from month to month but could be cancelled at any time by thirty (30) days prior written notice. It does not specifically state who could cancel.
Paragraph 1(d) of the contract provided that (emphasis added). Mr. W. Hamp Etheridge (hereinafter Etheridge), President of Ethco, was also Chairman of the Board of Directors of Heritage Bank. Paragraph 5 of the contract stated that "the contract shall be governed by the laws of the State of North Carolina." Paragraph 7 of the contract provided that the "agreement could be modified only by a written modification agreement executed by the parties hereto."
Etheridge's business dealings with Marbella were conducted with Harold T. Panciera (hereinafter Panciera), a Marbella principal. Depending upon the volume of business, the truck stop required an average of 3 to 5 loads of fuel per week at a cost of $6,000.00 to $8,000.00 per load. Defendant claims that Panciera and Etheridge agreed to three separate subsequent modifications of the supply contract.
First, in the summer of 1989, environmental testing of the truck stop's fuel lines and tanks was required. To accomplish the testing, it was necessary to completely fill each of the truck stop's four 20,000 gallon tanks. The tanks were filled between August 20, 1989 and August 25, 1989, at a total cost of $48,561.65. To accommodate this spike in the normal delivery schedule, Etheridge and Panciera strayed from the contract terms requiring payment within 10 days of delivery. In a letter to Panciera, dated July 10, 1989, Etheridge, stated:
This letter was signed by Etheridge and apparently Mr. Creech contacted Etheridge as provided in the letter and had the tanks filled. It is undisputed that defendant Shea knew nothing of this agreement.
Second, although the evidence of specific dates and the sequence of events is not crystal clear, at some point later in 1989 Panciera and Etheridge adopted an arrangement extending the period between a delivery date and the date Etheridge would draft Marbella's account from 10 days to 12 or 13 days.
Third, because Marbella encountered trouble paying for deliveries, in early April of 1990 Etheridge placed Marbella on a "cash basis." In his own words, Etheridge "cut off" Marbella and Marbella had to pay for fuel at the time of deliveries. Sometime thereafter, Etheridge determined to again extend credit to Marbella.
Trouble with the account became most serious in the period from March 19, 1990 to April 3, 1990, when no payment was made for nine invoices and one payment was $90.00 deficient. The result was, after applying credits, a debt in the amount of $65,229.13. The parties agree that this is the correct amount, plus interest, outstanding on Marbella's account. An account summary prepared by plaintiff indicates that Etheridge placed the Marbella account on a cash basis at that time on April 5, 1990. (Plaintiff's Exhibit 25.)
Paragraph 8 of the supply contract provides that "the principals of Marbella join in this Agreement to guaranty performance and payment by Marbella." Plaintiff now seeks payment from the defendant, William T. Shea, a principal of Marbella, under the provisions of his guaranty. Defendant Shea contends that the parties to the underlying agreement have so modified the original agreement as to acquit him of responsibility as guarantor.
The parties agree that the general rule in North Carolina is that "a material alteration of a contract between a principal debtor and creditor without the guarantor's consent will discharge the guarantor from his obligation." Kirkhart v. Saieed, 98 N.C.App. 49, 389 S.E.2d 837, 840 (1990). Defendant contends that the general rule applies to this case and that the three modifications made to the supply contract by Etheridge and Panciera discharged him from his guaranty. Plaintiff claims that the personal guaranty given by defendant Shea remains in full force and offers four arguments against the application of the general rule.
Plaintiff first argues that the purported modifications to the supply contract are invalid and therefore cannot serve as a basis to discharge a guarantor. Plaintiff first claims that because the modifications were not made in writing as required by paragraph 7 of the original contract, they fail.
A contract to supply fuel constitutes a contract for the sale of goods governed by the North Carolina version of the Uniform Commercial Code. N.C.Gen.Stat. § 25-2-107 (1992).1 Furthermore, the North Carolina U.C.C. recognizes and governs requirements contracts such as the fuel supply contract between Etheridge Oil and Marbella. N.C.Gen.Stat. § 25-2-306 (1992). Section 25-2-209(2) of the North Carolina U.C.C. provides that "a signed agreement which excludes modification ... except by a signed writing cannot be otherwise modified." N.C.Gen.Stat. § 25-2-209(2) (1992). In other words, subsection (2) permits the parties to prescribe their own "statute of frauds." Section 25-2-209(4), however, states that "although an attempt at modification ... does not satisfy the requirements of subsection (2) ... it can operate as a waiver." N.C.Gen.Stat. § 25-2-209(4) (1992). The North Carolina comment to subsection (4) explains that "this subsection would seem to accord with prior law in North Carolina" which held that a written contract may be modified by parol agreement even though the instrument provides that any modification must be in writing. Subsection (4) then, "is directed primarily toward conduct after formation of the contract which will constitute a waiver notwithstanding a provision in the contract that excludes modification ... except by a signed writing." N.C.Gen.Stat. § 25-2-209(4), N.C. cmt., (1992). Furthermore, North Carolina courts have recognized that the intent of subsection (4) is to give legal effect to the parties' actual later conduct. See Varnell v. Henry M. Milgrom, Inc., 78 N.C.App. 451, 337 S.E.2d 616, 619 (1985). Because the subsequent conduct of Etheridge Oil and Marbella conformed to each of the modifications, Etheridge Oil cannot now question the validity of those modifications.
At least as to one of the alleged modifications, the special agreement to accommodate environmental testing of the tanks and lines, there was a writing, signed by Etheridge, and accepted by Marbella according to the terms of the writing. Accordingly, this modification actually complied with paragraph 7 of the supply contract. Plaintiff's argument against the validity of the modifications fails.
Plaintiff also argues that the modifications fail for lack of consideration. Section 2-209(1) of the North Carolina U.C.C., however, provides that "an agreement modifying a contract within this article needs no consideration to be binding." N.C.Gen.Stat. § 25-2-209(1) (1992). Accordingly, plaintiff's second argument also is without merit.
Plaintiff next argues that "the minor and temporary modification of the supply contract's payment terms did not adversely affect Defendant Shea's position." (Plaintiff's Brief at 4.) Plaintiff argues the modifications were not sufficiently material to discharge defendant's guaranty. In order to discharge a guarantor, the alteration to the underlying contract must be material. Branch Banking and Trust Co. v. Creasy, 301 N.C. 44, 269 S.E.2d 117, 125 (1980). Under North Carolina common law, "if the creditor enters into a binding agreement with...
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