Moridge Mfg. Co. v. Butler

• Decision Date: 20 July 1983
• Docket Number: No. 3-182A16,3-182A16
• Citation: 451 N.E.2d 677
• Parties: 36 UCC Rep.Serv. 1548 MORIDGE MANUFACTURING COMPANY, Defendant-Appellant, v. Henry BUTLER, d/b/a Henry Butler Equipment Sales, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 677

451 N.E.2d 677

36 UCC Rep.Serv. 1548

MORIDGE MANUFACTURING COMPANY, Defendant-Appellant, v. Henry BUTLER, d/b/a Henry Butler Equipment Sales, Plaintiff-Appellee.

No. 3-182A16.

Court of Appeals of Indiana,

Third District.

July 20, 1983.

Arthur A. May, May, Oberfell, Helling, Lorber, Campiti & Konopa, South Bend, for defendant-appellant.

James R. Fisher, Ice, Miller, Donadio & Ryan, Indianapolis, for plaintiff-appellee.

GARRARD, Judge.

Moridge Manufacturing Company (Moridge) is a Kansas corporation engaged in the manufacture and sale of grain dryers and related parts. For several years Butler acted as a distributor for Moridge in Indiana. In 1977 Moridge notified Butler that it would terminate his distributorship on December 31, 1977. When Moridge then refused to honor an order placed by Butler on December 23rd, Butler sued for the loss of his potential profits. The case was tried to the court and findings and conclusions were entered. The court found for Butler on his claim and allowed Moridge a set-off for money found due it from Butler.

Moridge appeals contending the court erred in determining that it breached a duty to ship the grain dryers ordered in December, in not entering a separate judgment for Moridge on its counterclaim, and in awarding a special 2% discount on pricing structure. Butler cross appeals asserting he was entitled to pre-judgment interest.

I.

The evidence at trial disclosed that in 1971 Butler approached Elbert Guyer, then principal owner and operating officer of Moridge, about the possibility of Butler becoming Moridge's distributor in Indiana. As a trial venture Butler purchased nine dryers and was given the distributor's discounted price.

In early 1972 Butler met with Stanley Guyer, manager of Moridge's plant at Moundridge, Kansas. The parties orally agreed that Butler would be the exclusive dealer for Moridge products in northern Indiana and Michigan. At some time after this meeting Butler requested a written distributorship agreement and one was submitted by Moridge. Butler did not execute the agreement, apparently because it contained a provision that he initially purchase ten dryers when he had only purchased nine.

The written proposal named Butler the exclusive distributor for his area, called upon him to use his best efforts to sell, service and promote the sale of Moridge products, and precluded him from handling competing products during its term. The proposal provided that it was for an initial term of one year and would continue thereafter until either party gave the other thirty days written notice of cancellation.

Interest in reducing the agreement to writing apparently lapsed after this initial effort. However, Butler proceeded to act as Moridge's distributor in the assigned area for the ensuing six years . Butler would order dryers and Moridge would ship them and accord Butler its distributor discounts. During this time Butler did not receive acknowledgments of his orders. If there was a problem, however, so that the order would not be shipped promptly Moridge would advise him by telephone. Invoices were not always sent with the merchandise, and sometimes they arrived before the shipment. Moridge also paid a portion of Butler's advertising expenses when the Moridge logo was used in the advertisement and accepted returns of defective parts under warranty. The parties acted generally as though the written agreement were in effect.

Then on December 8, 1977, Butler received a letter from Moridge dated November 29 and postmarked December 5 advising him that Moridge would terminate his distributorship thirty (30) days from December 1. On December 23 Butler ordered thirty-five (35) dryers. On January 19, 1978 Moridge sent Butler a statement of account showing a past due balance of $12,712.01 and advising him that the account would have to be made current for the company to consider his order. Butler promptly responded proposing that he retain his parts inventory on hand and be permitted to return them for full credit in two years. He did not pay his account with Moridge but indicated he would do so when the parts "problem" was worked out. On February 22 Moridge instructed Butler to make his purchases through Moridge's new distributor, and on March 20 by letter from counsel advised Butler it was declining his offer to purchase dated December 23, 1977. This litigation followed.

The trial court entered special findings determining, inter alia, that a contract between the parties existed between 1971 and December 31, 1977; that Moridge was obligated to sell its dryers to Butler at the established distributorship discount rates, and that Moridge breached and repudiated its contract. The court also found that Moridge's letter to Butler of January 19, 1978 was the first demand for payment of those invoices for parts and that under the parties' agreement and course of dealing, the parts invoices were not due until demand was made. The court determined that failure to pay the account as demanded in view of the parties' prior history of determining and making adjustments was not a justification for Moridge's refusal to fill the order. The court then determined Butler's lost profit from Moridge's refusal to fill the order, found Moridge entitled to a set off for the account due it, and awarded Butler judgment for $19,166.93.

Moridge contends that the determination of its basic liability was error because there was at most an at-will arrangement, there was no mutuality of obligation, and Butler's order was merely an offer to purchase. It contends that in any event it was justified in refusing the order because of Butler's delinquent account. In essence it contends that as a matter of law the court could view the dealings between Moridge and Butler as no more than a series of isolated transactions since no written agreement was executed by the parties and Butler was not required to purchase a specific number of driers during any given year. We find that Moridge's arguments ignore both the spirit and the express concepts of the Uniform Commercial Code.

Although most distributorship agreements are more than a sales contract, courts have not hesitated to apply the UCC to cases involving them. Corenswet, Inc. v. Amana Refrigeration, Inc. (5th Cir.1979), 594 F.2d 129; Rockwell Engineering Co. v. Automatic Timing & Controls Co. (7th Cir.1977), 559 F.2d 460; Apache Trailer Sales, Inc. v. Redman Industries, Inc. (1977), 117 Ariz. 504, 573 P.2d 904. Under the Indiana act the sales article applies to transactions in "goods." IC 26-1-2-102. It is not subject to dispute that the subject of their dealings were "goods," IC 26-1-2-105, or that both were "merchants" within the contemplation of the act. IC 26-1-2-104.

Accordingly, pursuant to IC 26-1-2-204:

"(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

* * *

* * *

(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy."

In determining whether a contract was made and, if so, its terms, the court was entitled to look both to any course of dealing between the parties, IC 26-1-1-205, and to their course of performance, IC 26-1-2-208.

From these provisions it seems clear that the court could properly have found upon the evidence before it the existence of a valid contract.

We need not address Moridge's assertion that such a finding would violate the statute of frauds, IC 26-1-2-201, since this was an affirmative defense that Moridge failed to plead in the trial court and has therefore been waived. ¹ Indiana Rules of Procedure, Trial Rule 8(C); Lawshe v. Glen Park Lumber Co. (1978), 176 Ind.App. 344, 375 N.E.2d 275.

Moridge contends the alleged contract was unenforceable as lacking in mutuality. It cites International Shoe Co. v. Lacy (1944), 114 Ind.App. 641, 53 N.E.2d 636. We distinguish that case because unlike the facts there Butler agreed both to use his best efforts to sell Moridge's products and to refrain from selling any competing product line. Those detriments constitute a sufficient consideration to avoid the claim of lack of mutuality. Corenswet, Inc. v. Amana Refrigeration, Inc. (5th Cir.1979), 594 F.2d 129; California Wine Ass'n v. Wisconsin Liquor Co. (1963), 20 Wis.2d 110, 121 N.W.2d 308; Accord, Advanced Copy Products Inc. v. Cool (1977), 173 Ind.App. 363, 363 N.E.2d 1070. ²

The unsigned contract provided for termination upon 30 days written notice. Moridge's actual notice of termination sent to Butler stated that termination would not occur until December 31, 1977. IC 26-1-2-309(3) provides that termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. Moreover, it must be recalled that IC 26-1-1-203 provides that "[e]very contract or duty within this act imposes an obligation of good faith in its performance or enforcement." The court did not err in determining that the distributorship agreement was still in force on December 23, 1977. ³

Finally, we agree that under the evidence the trial court could properly determine, as it did, that Moridge's refusal to ship because of the account due from Butler was pretextual. The evidence supports the finding of "a course of dealing" (more accurately, a course of performance); that "the parts invoices were not due until demand was made, although interest was owed on bills ... not paid within thirty days...." We cannot say the finding was clearly erroneous. ⁴ Moridge failed to carry its burden of proving justification for its breach.

The court's determination that Moridge breached a...