L.R. Foy Const. Co., Inc. v. South Dakota State Cement Plant Com'n

• Citation: 399 N.W.2d 340,3 UCCRep.Serv.2d 630
• Decision Date: 14 January 1987
• Docket Number: No. 15000,15000
• Parties: 3 UCC Rep.Serv.2d 630 L.R. FOY CONSTRUCTION CO., INC., a Kansas Corporation with its principal place of business in Hutchinson, Kansas, and Spearfish Ready-Mix, Inc., a South Dakota Corporation with its principal place of business in Spearfish, South Dakota, individually and as representative of that class of persons similarly situate, Plaintiffs and Appellants v. SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, the principal place of business of which is in Pennington County, South Dakota, and William P. Scanlon, of Rapid City, Pennington County, South Dakota, Defendants and Appellees.
• Court: Supreme Court of South Dakota

Page 340

399 N.W.2d 340

3 UCC Rep.Serv.2d 630

L.R. FOY CONSTRUCTION CO., INC., a Kansas Corporation with its principal place of business in Hutchinson, Kansas, and Spearfish Ready-Mix, Inc., a South Dakota Corporation with its principal place of business in Spearfish, South Dakota individually and as representative of that class of persons similarly situate, Plaintiffs and Appellants v. SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, the principal place of business of which is in Pennington County, South Dakota, and William P. Scanlon, of Rapid City, Pennington County, South Dakota, Defendants and Appellees.

No. 15000.

Supreme Court of South Dakota.

Argued Jan. 14, 1986.

Decided Jan. 14, 1987.

Ronald G. Schmidt, Schmidt, Schroyer, Colwill, Zinter & Barnett, Pierre, Wayne F. Gilbert, Banks & Johnson, Rapid City, for plaintiffs and appellants.

Brent Wilbur, May, Adam, Gerdes & Thompson, Pierre, for defendants and appellees.

HERTZ, Acting Justice.

Plaintiffs Foy Construction Company and Spearfish Ready-Mix (Foy/Ready-Mix), appeal the trial court's order granting a motion to dismiss in favor of appellee South Dakota Cement Plant Commission (Cement Plant). We reverse and remand for trial.

This action was commenced in July of 1984. The trial court dismissed Foy/Ready-Mix's claims based solely upon the U.C.C. four year statute of limitations for breach of contract. (SDCL 57A-2-725(1) and (2)). The trial court also held that the Cement Plant is immune from suit for Foy/Ready-Mix's tort claims, namely, fraud and deceit, negligent misrepresentation, and tortious interference with contract, under the doctrine of sovereign immunity.

Ready-Mix and Cement Plant had an annual requirements contract for several years prior to 1978. Cement Plant had previously met all of Ready-Mix's cement requirements for each of the several years preceding 1978. The parties had an established record of commercial dealing consonant with the practices of the trade and industry. Ready-Mix, a dealer for Cement Plant, relies solely upon Cement Plant for cement to batch concrete for its customers. In 1978, Foy, a customer of Ready-Mix, was awarded the contract to construct a new high school in Spearfish, South Dakota.

As was customary, Cement Plant met with Ready-Mix in January of 1978 to determine their cement requirements for the year. Cement Plant agreed to deliver, and Ready-Mix agreed to pay for cement to meet Ready-Mix's substantially increased cement requirements for 1978. Cement Plant knew in January of 1978 that Ready-Mix was committed to furnishing concrete to Foy for the new high school project in Spearfish. Moreover, Cement Plant assured Ready-Mix there would be cement available for its general and special requirements in 1978. Ready-Mix, in reliance on Cement Plant's promises, acquired new equipment at a cost of some $80,000. Cement Plant knew in January, 1978, that general demand for cement would be substantially higher in 1978 than the previous year.

In 1974, the Cement Plant had commenced a substantial construction project for the enlargement of its manufacturing facilities. The new kiln essential to meeting 1978 cement delivery requirements was not on line, even though there had been numerous deadlines established in November and December, 1977, and again in January, February, March, April and May of 1978. Cement Plant knew the new kiln would be substantially unavailable for 1978 production. Even so, Cement Plant continued to make representations and assurances to their dealers, including Ready-Mix, that the cement for their requirements would be available during 1978. Furthermore, in spite of the failure to get the new kiln in operation, Cement Plant sought and contracted with new customers.

In January 1978, Cement Plant reaffirmed its policy of supplying all of its South Dakota customers first and to honor all of its contractual commitments. At the same time, Cement Plant admitted to having a serious cement shortage and gave as reasons therefor the dramatic increase in cement usage in the regular marketing area; a shortage of supply from other suppliers; and the inability of placing the new kiln on line as originally planned.

On March 28, 1978, Ready-Mix and Cement Plant again discussed the general and special cement requirements, including the Spearfish High School project. Cement Plant at this time again represented the cement would be available at a guaranteed price.

On April 11, 1978, Ready-Mix entered into a formal contract for sale of cement for the Spearfish School project with Foy. Thereafter, Cement Plant commenced delivery of some cement to Ready-Mix.

Cement Plant breached their contract of timely delivery of cement to Ready-Mix in July of 1978. Neither Ready-Mix nor Foy were ever given notice from Cement Plant that cement would not be delivered or that there would be a delay in delivery.

In February 1978, Cement Plant purchased a new cement terminal and sales facility in Denver, Colorado, and immediately began soliciting new customers. In March 1978, Cement Plant agreed to furnish cement for the Stapleton Airport project in Denver. On June 6, 1978, Cement Plant entered into a contract with Eisenhower Construction Company, Inc., for 85,000 tons of cement for the airport project (new customer). Cement Plant actually delivered 86,912 tons of cement in Colorado in 1978. On June 26, 1978, Cement Plant made Eisenhower their number one priority with preference over all existing customers. Cement Plant, experiencing a shortage of their own cement, made various purchases from the Medusa Cement Company of Ohio, totaling some 65,000 tons. On June 29, 1978, Cement Plant agreed to ship Eisenhower a pound of cement for every pound of cement which Cement Plant could have delivered from Medusa. Cement Plant knew in June of 1978 that Medusa was not shipping cement as contemplated.

In July and August of 1978, Cement Plant, pursuant to SDCL 57A-2-615, adopted certain cement allocations. Foy/Ready-Mix, unaware of the new customers taken on by Cement Plant, assumed these allocations were fair and reasonable and made in good faith. At about this same time, Cement Plant, again without any knowledge on the part of Foy/Ready-Mix, was effecting settlements with certain of its customers.

It wasn't until May of 1984 that Foy/Ready-Mix learned that Cement Plant willfully and knowingly oversold its 1978 production capacity; that despite its promises to the contrary, Cement Plant gave preferential treatment to new, out-of-state customers while breaching its delivery contracts to existing South Dakota customers; that Cement Plant misrepresented the amount of cement purchased at a loss to fulfill its pending obligations; and that Cement Plant fraudulently concealed the settlements it made with selected customers. Upon discovery of these facts, Foy/Ready-Mix commenced this action in July of 1984.

Cement Plant argued and the trial court agreed, that SDCL 57A-2-725(2) is the applicable statute of limitations which governs Foy/Ready-Mix's four causes of action. SDCL 57A-2-725(2) states, "A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach." The trial court found that the breach of the contract cause of action occurred in July of 1978. The lawsuit was filed on July 12, 1984, and the four year statute of limitations had run its course, irrespective of Foy/Ready-Mix's knowledge of the breach and therefore, the trial court concluded the breach of sales contract must be dismissed.

Further, the trial court determined that the three remaining tort claims are not independent causes of action, since they arise out of the contract cause of action, and cannot, therefore, exist without the contract cause of action. The trial court concluded the four year statute of limitations thus applied to the tort claims and granted dismissal of these actions as well. The court further held that in any case, the tort claims must be dismissed based on the doctrine of sovereign immunity.

In this appeal, Foy/Ready-Mix argues that Cement Plant's bad faith dealing should operate to estop it from interposing the statute of limitations as a time-bar to the present action. They further assert that the Complaint sets out independent tort claims ancillary to the contract for sale, for which the U.C.C. provides a remedy. Finally, they contend that the Cement Plant, as a governmental agency, does not enjoy sovereign immunity from commercial tort claims liability.

The issues will be separately stated and so treated.

I WHETHER THE U.C.C. FOUR YEAR STATUTE OF LIMITATION WAS TOLLED BY CEMENT PLANT'S BAD FAITH AND CONCEALMENT OF FACTS UPON WHICH FOY/READY-MIX RELIED TO THEIR DETRIMENT?

For the purposes of deciding a motion to dismiss, this court must treat as true all facts properly pleaded in the complaint. Selchert v. Lien, 371 N.W.2d 791, 792 (S.D.1985); SDCL 15-6-12(b). In Arcon Constr. Co. v. S.D. Cement Plant, 349 N.W.2d 407, 410 (S.D.1984), we held that "when the legislature enacted the U.C.C. it expressly waived sovereign immunity for the Cement Plant whenever Cement Plant enters into contracts for the sale of goods."

Here, Cement Plant breached its contract with Ready-Mix by failing to timely deliver cement in July of 1978, at which time Foy/Ready-Mix's cause of action accrued. In accordance with SDCL 57A-2-725(1), Foy/Ready-Mix had four years from the time the cause accrued to bring an action for breach of the sales contract. Given that Foy/Ready-Mix commenced this suit in July 1984, it is undisputed that SDCL 57A-2-725(1) bars this action, unless the statute was tolled and Cement Plant estopped from raising it. SDCL 57A-2-725(4). ¹

The U.C.C., as codified by this jurisdiction in SDCL ch. 57A et seq., states that the principles of law and equity, which include estoppel, fraud, and misrepresentation, supplement the U.C.C. provisions. SDCL 57A-1-103. In accordance with SDCL 57A-1-203, Cement...