McElrath v. Consolidated Pipe & Supply Co.

• Decision Date: 30 September 1977
• Citation: 351 So.2d 560
• Court: Alabama Supreme Court
• Parties: John McELRATH, etc. Individually and d/b/a McElrath Construction Co., et al. v. CONSOLIDATED PIPE & SUPPLY CO. et al. SC 2009-2009-A.

Page 560

351 So.2d 560

John McELRATH, etc. Individually and d/b/a McElrath Construction Co., et al. v. CONSOLIDATED PIPE & SUPPLY CO. et al.

SC 2009-2009-A.

Supreme Court of Alabama.

Sept. 30, 1977.

Rehearing Denied Nov. 10, 1977.

James E. Clark, of London, Yancey, Clark & Allen, Birmingham, for John and Juanita McElrath.

Thomas E. Maxwell, Birmingham, for Hartford Accident and Indemnity Co., appellant-appellee.

James A. Harris and Thomas H. Brown, of Sirote, Permutt, Friend, Friedman, Held & Apolinsky, Birmingham, for appellees.

BEATTY, Justice.

Appeal by John McElrath, d/b/a McElrath Construction Company (McElrath) and his surety, Hartford Accident and Indemnity Company from a judgment rendered against them based upon a jury verdict. We reverse and remand.

The plaintiff, Consolidated Pipe and Supply Company (Consolidated) is a distributor of polyvinyl chloride ("PVC") pipe, a product manufactured from a petroleum derivative. Consolidated obtained its major supply of pipe from Ethyl Corporation. The defendant McElrath is a general contractor specializing in the installation of water systems utilizing this type of pipe.

In December, 1973 Ethyl Corporation notified Consolidated of a new pricing schedule effective December 17. At about this time the East Cullman Water District was asking for bids for installation of a water system. A Consolidated salesman, Mike Currier, discussed this job with McElrath with a view toward obtaining his order for the pipe requirements. There is a dispute concerning whether or not the price changes were discussed by them. Evidence was introduced establishing that Consolidated had mailed price quotations to various contractors, including McElrath, based upon Ethyl's increases, and that immediately before the submission of bids on the Cullman job "cut prices" (discounts on some of the materials) were transmitted to McElrath's office. It was Consolidated's position, moreover, though disputed by McElrath, that McElrath's prices were not firm but were based upon a possible escalation clause at the bottom of the price quotation mailed to him, and that this lack of firmness in price had been pointed out to McElrath several times.

In any event, McElrath's bid was accepted and a contract was entered into between East Cullman and McElrath. This contract did not contain a materials escalation clause. Based upon that contract McElrath ordered pipe from Consolidated. It was then discovered that the event now known as the Arab Oil Embargo had created supply problems, hence East Cullman, following a public meeting to consider the problem, granted McElrath an extension of time for commencing the work. A few days later Consolidated obtained McElrath's agreement to absorb the escalation of prices. Shortly thereafter McElrath began to pick up the pipe required for the job.

When McElrath failed to pay the balance due upon his account for pipe supplied to him, Consolidated filed this suit against him and his surety, Hartford on February 10, 1975. In his answer McElrath denied that he had purchased the materials on an escalated price basis; he maintained that he had consented to pay an escalated price for the materials under economic duress. He also counterclaimed for conversion, breach of contract, and breach of warranty. Hartford cross-claimed against McElrath to the extent of any recovery by Consolidated against McElrath, plus costs and attorney's fees, and later Hartford joined Mrs. McElrath as a third party because she was a co-signer of their indemnity agreement.

Following the general denial by Consolidated of McElrath's counterclaims on June 26, 1975, the case was set for trial on December 15, 1975 but was continued and reset for an April 19, 1976 trial. From the record it appears that this continuance was made to allow counsel to file amended answers.

When the case was called for trial on April 21, 1976, McElrath filed an "Amendment to Defendants' Answer and Counterclaim." This pleading was introduced with language which included the phrase "with leave of Court obtained," however the subsequent action of the trial court deprecates any such permission. Paragraph I denied an agreement based upon escalated prices, maintaining that the purchase was based upon discounted (and hence firm) prices. This paragraph also asserted that the purchase agreement McElrath executed, which committed him to pay prices prevailing on the date of delivery, was based upon duress.

In Paragraph II McElrath alleged that he was not indebted to Consolidated because the balance he allegedly owed did not give him credit for sums owed to him under his counterclaim.

Paragraphs III and IV were general denials.

Paragraph V contained three sub-parts. Part (a) alleged fraud on the basis of three separate misrepresentations: (1) that Consolidated represented to McElrath prior to his bid that the pipe was on hand; (2) that Consolidated represented to McElrath that it could deliver the materials to the job site upon one day's notice; and (3) at the time Consolidated made firm (price) quotations to McElrath it did not intend to fulfill his order at those prices but upon "whatever increased price it could force upon the defendant."

Part (b) alleged as a conclusion that the contract violated the good faith provisions of Title 7A, § 1-203 of the Alabama Code (UCC), and that Consolidated was guilty of bad faith in its attempted enforcement of the contract.

Part (c) alleged as a conclusion that the agreement was harsh, oppressive, unfair and unconscionable under Title 7A, § 2-302(1), Alabama Code (UCC).

Paragraph VI adopted all of paragraph V, referring to paragraph VI as an amendment to its counterclaim, and claimed damages "on account of the fraud, unconscionable conduct and bad faith of the plaintiff. . . ."

In response to this Amended Answer and Counterclaim, Consolidated filed a Motion to Strike. The trial court later disallowed those portions of McElrath's amendment which dealt with fraud, bad faith and unconscionability, basing its decision upon the tardiness of McElrath in raising those particular issues and the resulting prejudicial effect upon Consolidated. The trial court allowed the amendments pertaining to breach of contract and duress because these were subjects which had been pleaded earlier by the parties and upon which discovery had proceeded for almost a year.

At the close of the evidence following a week-long trial, McElrath filed a "Further Amendment to Defendants' Answer and Counterclaim." This pleading adopted and supplemented paragraph V of the amended answer, in particular part (a), and alleged that, while Consolidated was aware that its supplier would escalate prices from January to May, 1974, it failed to communicate this information to McElrath, but lulled the defendant into believing that the prices quoted to him prior to his bid had remained constant. It also alleged that an agent of Consolidated without informing him, coerced McElrath into consenting to the price increases which might be visited upon him not to exceed 5%, knowing that increases had already become effective and that others were imminent. It further alleged that McElrath was induced to consent to escalated prices by an offer of materials immediately, and that he was damaged because Consolidated supplied him with only small quantities until after the June 3 price increase, constituting bad faith and the equivalent of fraud.

Paragraph VI-A of McElrath's "Further Amendment" amended the counterclaim by "adopting and supplementing" paragraph VI of the first amendment and also adopted in entirety paragraph V of the Further Amendment. This amendment, like its counterpart in the first amendment, was not denominated a counterclaim as required by Rule 7(a), ARCP.

These amendments were considered by the trial court which granted motions for "Summary judgment" against the defendants' counterclaims dealing with breach of warranty, conversion, and fraud as realleged in the amended counterclaim. "In other words," said the Court, "the Court will define the issues to the jury that they are to decide and those counterclaims will not be among the issues which the Court will submit to the jury."

The jury rendered a verdict in favor of consolidated for the full amount claimed by it, and in favor of Hartford on its cross-claim against McElrath, but with respect to its award to Hartford, initially the jury awarded only $5,646.67, the attorney's fees. After giving instructions on this subject, the trial court resubmitted the issues of the correct award to the jury which then rendered a verdict in favor of Hartford which included the primary claim plus Hartford's attorneys' fees.

Defendants' motion for a new trial having been denied, this appeal followed.

In identifying the issues raised we have been required to consider a number of briefs and motions: From the appellant a main brief, a reply brief, a "last minute supplement to the reply brief," a "brief post argument brief," and a motion to strike the appellees' briefs. The appellees have filed a main brief, a reply to the appellant's supplemental brief, and a motion to strike appellant's fourth brief. The appellant-appellee Hartford filed one brief. This prolific production has served to obfuscate the issues rather than illuminate them. However, the first issue concerns the propriety of the trial court's ruling disallowing the defendants' amendment made on the day of trial.

Rule 15(a), ARCP expresses a liberal policy when it states:

(A) party may amend his pleading without leave of court but subject to disallowance on the court's own motion or motion to strike of an adverse party; but such amendments shall be freely allowed when justice so requires. . . . (emphasis added).

The Official Committee Comments are also helpful in our interpretation of Rule 15, ARCP:

Under the rule (15(a)) it will be entirely irrelevant that a proposed amendment changes the cause of action on the theory of ...