Jen-Rath Co., Inc. v. Kit Mfg. Co.

• Decision Date: 03 June 2002
• Docket Number: No. 26941.,26941.
• Citation: 137 Idaho 330,48 P.3d 659
• Parties: JEN-RATH CO., INC., an Idaho corporation, dba Jensen Homes, Plaintiff-Respondent, v. KIT MANUFACTURING COMPANY, an Idaho corporation, Defendant Appellant.
• Court: Idaho Supreme Court

48 P.3d 659

137 Idaho 330

JEN-RATH CO., INC., an Idaho corporation, dba Jensen Homes, Plaintiff-Respondent, v. KIT MANUFACTURING COMPANY, an Idaho corporation, Defendant Appellant.

No. 26941.

Supreme Court of Idaho, Boise, February 2002 Term.

June 3, 2002.

Moffatt, Thomas, Barrett, Rock & Fields, Chtd., Boise, for appellant. Charles C. Gill argued.

White, Peterson, Morrow, Gigray, Rossman, Nye & Rossman, P.A., Nampa, for respondent. Eric S. Rossman argued.

KIDWELL, Justice.

Jen-Rath Co., Inc., dba Jensen Homes, (Jen-Rath) brought this action against KIT Manufacturing Company (KIT) alleging, among other things, breach of contract and breach of the implied covenant of good faith and fair dealing related to KIT's cancellation of an agreement by which Jen-Rath was an exclusive dealer of KIT's manufactured homes. The case was submitted to a jury solely on those two issues, based upon Jen-Rath's claims that KIT failed to provide reasonable notification of its intention to terminate the parties' business relationship. The jury found that KIT had breached the contract, including the implied covenant of good faith and fair dealing, and awarded Jen-Rath $255,000 in damages. KIT has appealed, and we affirm.

I. FACTS AND PROCEDURAL BACKGROUND

The following was adapted, in part, from the statement of facts contained in the district court's "Order On Defendant's Motion For Summary Judgment...." KIT is a corporation with its principal offices in Caldwell, Idaho. KIT manufactures recreational vehicles and manufactured homes. Jen-Rath has continuously operated a manufactured home dealership in Nampa at one location or another since approximately 1973. Jen-Rath was in business in Fruitland for a short time in the early 1990's and then continuously after 1994.

Over the years, Jen-Rath has been a dealer of many different manufacturers' homes, and Jensen Homes was a non-exclusive dealer of KIT homes in the 1970's, prior to Jen-Rath's incorporation. Sometime in the late 1970's, Jen-Rath terminated its relationship with KIT, but in 1982 Jen-Rath applied to be a KIT dealer once again. Although there was no written dealership or distributorship agreement between the parties at any time, Jen-Rath was a dealer of KIT homes for approximately sixteen years. By oral agreement, Jen-Rath was KIT's exclusive dealer in Canyon County after 1986 and its exclusive dealer in Payette County after 1994. During the time that Jen-Rath was an exclusive dealer, it typically carried a large KIT inventory, at times worth nearly one million dollars.

In 1997, KIT determined that Jen-Rath's market share in Nampa and Fruitland was low and that its customer service satisfaction rating was dropping to unacceptable levels. In January of 1998, KIT approached Jen-Rath with a proposal to increase sales. KIT made the proposal in a series of letters and meetings between December of 1997 and April of 1998. KIT proposed, among other things, moving the existing Nampa and Fruitland sales lots to new locations within the respective cities, opening a third sales location in Boise, and creating new "environmental" displays at all sales locations in order to display the homes as they would appear at a home site. On April 17, 1998, KIT sent Jen-Rath a letter that outlined many of the details of KIT's proposal and that concluded with the sentence "If I do not hear from you, we will need to go forward in another manner."

During this period of time, in January or February of 1998, Jen-Rath was in negotiations with Moduline Industries, Inc. (Moduline) regarding the possibility of being a dealer of Moduline manufactured homes. In March of 1998, Jen-Rath ordered Moduline products, and by April of 1998, Jen-Rath had received three Moduline homes at its Nampa sales location. On April 22, 1998, in a meeting with KIT, Jen-Rath indicated that it was unwilling to implement KIT's new proposals. KIT sent a letter to Jen-Rath, dated May 6, 1998, which recounted the various discussions between the two and informed Jen-Rath that KIT was terminating their business relationship. The letter stated that KIT would continue to honor retail orders executed and delivered to KIT by July 31, 1998, and that KIT would continue to supply parts and service as needed on those homes already sold. At least once after June 16, 1998, Jen-Rath made a demand that KIT repurchase its unsold inventory, but KIT refused.

At some point, Jen-Rath arranged to be a dealer of manufactured homes made by Guerdon Homes (Guerdon). Although there is some dispute as to when this occurred—KIT claims that it was as early as April of 1998—it is undisputed that it occurred no later than August of 1998. After September of 1998, Jen-Rath discontinued ordering Moduline homes.

When KIT terminated the relationship, Jen-Rath still had an inventory of KIT homes worth a wholesale value of approximately $750,000. Jen-Rath had been unable to liquidate that inventory by September of 1998, when KIT opened a dealership in Nampa, in which it was a seventy percent owner.

On November 27, 1998, Jen-Rath filed a complaint and demand for jury trial against KIT, alleging causes of action for breach of contract; breach of the implied duty of good faith and fair dealing; breach of a fiduciary duty; and fraud, constructive fraud and/or intentional misrepresention. On August 10, 1999, Jen-Rath filed an amended complaint, adding allegations of a "Violation of the Idaho Consumer Protection Act."

By the time the case went to trial, Jen-Rath's arguments were reduced to the theory that KIT had failed to give Jen-Rath reasonable notice of the termination of the contract, and the jury was instructed only as to Jen-Rath's claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The jury found, by special verdict, that KIT had breached the exclusive dealership contract with Jen-Rath, and that KIT had "breached the implied covenant of good faith or fair dealing with respect to its performance under the terms of the exclusive dealership contract." The jury also found that Jen-Rath had not breached or anticipatorily repudiated the contract prior to KIT's breach and that Jen-Rath had not breached the implied covenant of good faith and fair dealing. The jury fixed Jen-Rath's damages at $255,000. The district court's judgment on the jury's verdict was filed on May 11, 2000.

On appeal, KIT has asked this Court to reverse the district court's entry of judgment, arguing that the district court erred by denying its motion for directed verdict, motion for judgment notwithstanding the verdict, and motion for a new trial. Specifically, KIT argues that, under the Idaho statutes embodying the Uniform Commercial Code, it provided Jen-Rath with reasonable notice of the termination of the dealership agreement as a matter of law. KIT also argues that the district court erred by failing to compel Jen-Rath to produce a written dealership agreement entered into between Jen-Rath and Guerdon Homes, and by admitting KIT's Policy Manual and Procedure Manual into evidence.

II. STANDARD OF REVIEW

The district court has wide discretion to grant or refuse to grant a new trial and, on appeal, this Court will not disturb a district court ruling absent a showing of manifest abuse of that discretion. Sheridan v. St. Luke's Reg'l Med. Ctr., 135 Idaho 775, 780, 25 P.3d 88, 93 (2001).

In reviewing a decision to grant or deny a motion for a directed verdict or a judgment notwithstanding the verdict, this Court applies the same standard as that applied by the trial court when originally ruling on the motion. Olson v. EG & G Idaho, Inc., 134 Idaho 778, 781, 9 P.3d 1244, 1247 (2000). Ordinarily, when ruling on a motion for a directed verdict or a judgment notwithstanding the verdict, the court must determine whether there is substantial evidence to support the jury's verdict. Id. However, in this case, the appellants have only challenged the district court's denial of its motions based upon issues of law. When the issue is one of law, this Court has free review. Bouten Constr. Co. v. H.F. Magnuson Co., 133 Idaho 756, 760, 992 P.2d 751, 755 (1999).

III. ANALYSIS

A. It Cannot Be Said That KIT Provided Reasonable Notification Of The Impending Termination As A Matter Of Law.

The parties do not dispute that Article 2 of the Uniform Commercial Code (UCC), codified as Title 28, chapter 2 of the Idaho Code, applies to this case, because the agreement between Jen-Rath and KIT was a contract for the sale of goods. I.C. §§ 28-2-105(1), 106. Additionally, it is undisputed on appeal that the UCC statute of frauds is inapplicable to bar enforcement of the contract. I.C. § 28-2-201(2), (3)(b)-(c).

KIT argues that the district court erred in denying its motion for a directed verdict and its motion for a judgment notwithstanding the verdict because KIT gave reasonable notification as a matter of law. Additionally, KIT argues that the district court improperly stated the law when it declined to instruct the jury that KIT needed to provide only such notification as necessary to allow Jen-Rath to find a substitute supply of products. Specifically, KIT argues that under the pertinent gap-filling provisions of the UCC, I.C. § 28-2-309(3), and the "Official Comments" thereto, notification is reasonable as a matter of law if the non-terminating party is able to make arrangements for alternative performance prior to the effective date of the termination. KIT contends that Jen-Rath was able to purchase homes from both Moduline and Guerdon as early as April of 1998. Consequently, KIT argues, Jen-Rath was able to make alternative arrangements and received reasonable notification as a matter of law.

Because the contract between the parties did not address the amount of time the notification should have given, the gap-filling provisions of the UCC supply the missing terms. See I.C. § 28-1-102(3)-(4); Anderson & Nafziger v. G.T. Newcomb, Inc., 100 Idaho 175,...