General Aviation, Inc. v. Cessna Aircraft Co.

• Decision Date: 15 November 1990
• Docket Number: No. 89-1544,89-1544
• Citation: 915 F.2d 1038
• Parties: 14 UCC Rep.Serv.2d 73 GENERAL AVIATION, INC., Plaintiff-Appellant, v. The CESSNA AIRCRAFT CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1038

915 F.2d 1038

14 UCC Rep.Serv.2d 73

GENERAL AVIATION, INC., Plaintiff-Appellant, v. The CESSNA AIRCRAFT CO., Defendant-Appellee.

No. 89-1544.

United States Court of Appeals Sixth Circuit.

Argued Feb. 1, 1990.

Decided Oct. 3, 1990.

Rehearing Denied Nov. 15, 1990.

Michael E. Cavanaugh (argued), Norman W. Hawker, Fraser, Trebilcock, Davis & Foster, Lansing, Mich., for plaintiff-appellant.

Roger M. Clark (argued), Douglas A. Dozeman, Warner, Norcross & Judd, Grand Rapids, Mich., Raymond M. Tierney, Jr., Shanley & Fisher, Morristown, N.J., Walter J. Fleischer, Jr., Shanley & Fisher, Somerville, N.J., for defendant-appellee.

Before MERRITT, Chief Judge; JONES and RYAN, Circuit Judges.

MERRITT, Chief Judge.

This diversity case arises from the nonrenewal of a distributorship agreement between plaintiff General Aviation and defendant Cessna. Plaintiff appeals from District Judge Robert Bell's order granting defendant's motion for summary judgment. General Aviation, Inc. v. Cessna Aircraft Co., 703 F.Supp. 637 (W.D.Mich.1988). For reasons set forth in this opinion we affirm in the main but reverse as to one part.

Defendant Cessna and Plaintiff General Aviation entered into a contract whereby General Aviation, a fixed-base operator, agreed to sell and service Cessna Conquest aircraft. The parties entered into a series of one-year dealer agreements starting in 1977 and continuing through 1984. These agreements were renewable at the parties' option but if neither party took affirmative action to renew the contract, it would terminate automatically.

At the end of the 1984 agreement Cessna intentionally allowed the time for renewal of the contract to pass, thereby terminating its relationship with General Aviation. The reason Cessna gave for nonrenewal was General Aviation's failure to sell its quota of aircraft during the contract term. General Aviation claims this reason is pretextual and that the real reason behind Cessna's decision was that General Aviation had questioned the quality of Cessna's planes.

The District Court granted summary judgment in favor of Cessna on all claims except for General Aviation's claim that Cessna had been unjustly enriched by failing to repurchase inventory. General Aviation voluntarily dismissed that claim thereby making the District Court's order final under Fed.R.Civ.P. 54(b).

We will first address plaintiff's contract and various miscellaneous claims, on which we affirm the District Court, and then turn to the allegations of violations of the Michigan franchise law, on which we reverse the District Court and remand for further consideration.

I. Breach of Contract

A. Promise of Continuing Relationship

General Aviation claims that the District Court failed to recognize a distinction between the written contract and the parties' actual relationship. According to General Aviation, even though the contract itself was confined to a one year term, the relationship between the two parties was understood to be a continuing one. Plaintiff points to p B.2(b) of the 1984 agreement in an effort to override the more specific terms of the contract. That provision states: "It is contemplated that the relationship between Dealer & Cessna shall be a continuing one." Joint App. at 52 (emphasis added).

While it is true that for several years the relationship between General Aviation and Cessna was a continuing one, the agreements themselves were always for one year only. The fact that the contract states that the parties contemplated that the relationship would continue does not displace the specific provisions of the agreement concerning its duration.

In the last section of the agreement, p E.7, dealing with its duration, the agreement provides that it "shall continue in force until" a certain date (September 30, 1984) "unless sooner terminated as herein provided." Both sides are allowed to terminate the contract by simply not signing a new contract at the end of the annual term. The provision says that General Aviation itself, as a dealer, may simply refuse to renew in which case "it shall be deemed that Cessna's offer has been rejected and Dealer's relationship with Cessna as a Dealer shall automatically end." Joint App. at 63 (emphasis added). The agreement also has several provisions allowing Cessna to terminate for cause and two provisions that apparently allow either side to terminate without cause during the term of the agreement:

p D.2. "Dealer may terminate this Agreement at any time by giving Cessna at least thirty (30) days prior written notice."

p D.6. "Dealer recognizes certain other conditions may arise under which Cessna may desire to terminate this Agreement. Accordingly, it is agreed that Cessna may terminate this Agreement at any time upon not less than thirty (30) days written notice to Dealer with appropriate notice being given as to such conditions."

As the District Court observed, "while the parties may genuinely have 'contemplated' renewal of the Agreement at the conclusion of its term, they agreed that absent execution of a new Agreement, their relationship would 'automatially end.' " General Aviation, 703 F.Supp. at 640.

General Aviation argues that the phrase "shall be a continuing one" connotes mandatory action. However, this argument fails when the word "shall" is put in context. As the District Court stated, "a statement of the parties' 'contemplation' that the relationship will be ongoing, cannot reasonably be construed as a 'promise' by either party that the relationship will not be terminated ..." in accordance with the specific terms concerning the duration of the contract. Id.

B. Parol Evidence Rule

General Aviation's next contention is that the District Court erred by refusing to consider certain statements made by Cessna to dealers that their relationships would continue and that it would be treated similarly on the grounds that such consideration would violate the parol evidence rule. General Aviation's basic argument is that the agreement is ambiguous on the issue of whether cause was necessary to terminate the agreement.

We agree with the District Court that the parol evidence rule bars admission of the proferred statements under both the common law and the Uniform Commercial Code (UCC). The agreement itself contains a merger clause in p 8 ¹ which serves to integrate the agreement and makes the agreement a final written expression of the parties.

The District Court found that "[o]nly if the language of p B.2. (b) [the phrase concerning the parties' continuing relationship] is given the unnatural and contrived construction urged by General Aviation does any ambiguity appear." General Aviation, 703 F.Supp. at 641. Thus, because parol evidence may not be admitted to vary or contradict the terms of a writing, it may not be admitted here to show that the parties intended that their words should not be interpreted to mean what they plainly state.

The UCC dictates the same result for similar reasons. Michigan Compiled Laws Annotated Sec. 440.2202 provides:

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence or any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) by course of dealing or usage of trade (section 1205) or by course of performance (section 2208); and

(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

The UCC precludes admission of the extrinsic statements because, as the District Court says, "the Agreement clearly appears to have been intended as an exclusive and complete statement; and ... the proferred evidence would not merely explain and supplement, but would tend to contradict the written agreement." 703 F.Supp. at 642.

II. Breach of Duty of Good Faith

General Aviation argues next that Cessna breached its implied duty of good faith by terminating the agreement. The District Court found that the "obligation of good faith cannot be employed, in interpreting a contract, to override express contract terms. Grand Light & Supply Co., Inc. v. Honeywell, Inc., 771 F.2d 672, 679 (2d Cir.1985); Cardinal Stone Co., Inc. v. Rival Mfg. Co., 669 F.2d 395, 396 (6th Cir.1982); Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 138 (5th Cir.1979), cert. denied, 444 U.S. 938, 100 S.Ct. 288, 62 L.Ed.2d 198 (1979)." Id. at 643-44.

Cloverdale Equipment Co. v. Simon Aerials, Inc., 869 F.2d 934 (6th Cir.1989), supports the District Court's holding that Cessna did not breach the implied duty of good faith. In Cloverdale a panel of this Court found that the implied duty of good faith was limited "to situations where one of the parties lacked good faith at the time he or she bargained for the termination right. If properly bargained for, the right is given full effect and may be exercised for any reason." Cloverdale, 869 F.2d at 938 (citations omitted).

General Aviation and Cessna both entered into this agreement freely. If General Aviation had wanted specific provisions in the contract concerning what cause would be necessary for termination of the agreement, it could have insisted on the inclusion of those terms. There is no indication that either of the parties acted in bad faith "at the time [they] bargained for the termination right." Id. In fact, as discussed above, General Aviation itself had a way out of the contract if it so desired. Paragraph E.7 states that General Aviation could have terminated the contract simply by not returning it to Cessna within thirty days. The terms of that section of the contract could not be any clearer, and, because neither party acted in bad faith at the outset of contracting, the implied duty of good...