Norwood v. Service Distributing, Inc.

• Citation: 2000 MT 4,297 Mont. 473,994 P.2d 25
• Decision Date: 06 January 2000
• Docket Number: No. 99-024.,99-024.
• Parties: E. Earl NORWOOD, Plaintiff and Appellant, v. SERVICE DISTRIBUTING, INC., a Montana corporation, Ultrafoods, Inc., a dissolved Montana corporation, Steven E. Buckner, Ann E. Buckner, Edward Buckner and Jeanne T. Buckner, Defendants and Respondents.
• Court: Montana Supreme Court

994 P.2d 25

2000 MT 4

297 Mont. 473

E. Earl NORWOOD, Plaintiff and Appellant, v. SERVICE DISTRIBUTING, INC., a Montana corporation, Ultrafoods, Inc., a dissolved Montana corporation, Steven E. Buckner, Ann E. Buckner, Edward Buckner and Jeanne T. Buckner, Defendants and Respondents.

No. 99-024.

Supreme Court of Montana.

Submitted on Briefs May 27, 1999.

Decided January 6, 2000.

James M. Ragain, Ragain Law Firm, Billings, Montana, For Appellant.

James M. Kommers, Kommers, Steele & Bentson, Bozeman, Montana, For Respondent.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 E. Earl Norwood (Norwood) appeals the judgment of the Thirteenth Judicial District Court, Yellowstone County. On November 6, 1998, the District Court issued its Findings of Fact, Conclusions of Law and Order in favor of the defendants, Service Distributing, Inc., (SDI), Ultrafoods, Inc., (Ultrafoods) and Steven E. Buckner, Ann E. Buckner, Edward Buckner, and Jeanne T. Buckner (Buckner).

¶ 2 We affirm in part, reverse in part, and remand.

¶ 3 On appeal, Norwood raises the following issues:

1. Did the District Court err in adopting findings of fact, which were essential to SDI's burden of proof, even though no evidence was offered to support those findings?

2. Did the District Court err by finding a failure of consideration where the uncontroverted evidence established that SDI waived its right to claim failure of consideration?

3. Should this matter be remanded with instructions to enter judgment for Norwood when the trial court record established that SDI did not meet the burden of proof on its alleged defense?

Factual and Procedural Background

¶ 4 This dispute can be traced back to May of 1993, when Steven Buckner, on behalf of SDI, began negotiating with E. Earl Norwood¹ for acquisition of Norwood's businesses, Kay's Novelties, Inc., and Norwood & Associates, Inc., (previously Ultrafoods). Kay's Novelties, Inc., held distributorships for Dreyer's and Dove ice cream products, and Norwood & Associates, Inc., held the distributorship for Haagen-Dazs ice cream products. The undisputed facts show that both businesses—which covered distribution in much of Montana and Wyoming—had been profitable for Norwood, who in 1993 wished to retire.

¶ 5 At the time, the Buckners desired to increase the product line of SDI, a wholesale food distributor in Bozeman, Montana, by acquisition of the rights to distribute these premium brands of ice cream. Steven Buckner, along with family members Ann, Edward and Jeanne, were shareholders in SDI. Both parties were represented by counsel during negotiations.

¶ 6 Because Norwood had set up the ice cream distributorships with two separate businesses, the Buckners created Ultrafoods, Inc., (which is the same name of a company once owned by Norwood). Accordingly, SDI purchased the Dreyer's and Dove distributorships from Kay's Novelties, Inc., and Ultrafoods purchased the Haagen-Dazs distributorship from Norwood & Associates, Inc. Following acquisition, the three distributorships were consolidated under SDI, and Ultrafoods was dissolved. The Dove and Haagen-Dazs distributorships are not in dispute here.

¶ 7 The parties agreed to a total purchase price of $575,000. The transaction would include not only the "distributorship rights," but other business assets as well, including delivery vehicles, office equipment, accounts receivable, and inventory. A purchase and sale agreement, dated September 13, 1993, was executed to transfer the Dreyer's and Dove distributorships along with the other assets of Kay's Novelties, Inc., to SDI. The purchase price, $125,000, was paid at closing on October 15, 1993. Another purchase and sale agreement, also dated September 13, 1993, was executed to transfer the Haagen-Dazs distributorship along with the other assets of Norwood & Associates, Inc., to Ultrafoods. The purchase price for this second agreement, $250,000, was likewise paid at closing.

¶ 8 On October 1, 1993, SDI and Norwood entered into another agreement for "consulting services" because the Buckners were unable to borrow enough money to pay the entire purchase price. The consulting agreement allowed Norwood to finance the remaining $200,000 of the $575,000 purchase price. In exchange for SDI's payment of 48 equal monthly payments of $4,166.67 to Norwood, commencing October 31, 1993, and concluding on September 30, 1997, Norwood agreed to act "as an independent business consultant and advisor to SDI." The consulting agreement was personally guaranteed by all of the Buckners.

¶ 9 Of critical relevance are the following provisions found in the Kay's Novelties, Inc. purchase and sale agreement with SDI:

1. Seller agrees to sell, transfer, assign and deliver to Purchaser.... All of Seller's right, title and interest in and to the Dreyers and Dove distributorships.

6.1 Seller is the owner of the Assets and the business being purchased pursuant to this Agreement and has the authority to enter into this Agreement and all agreements and documents contemplated hereby, to consummate the transactions contemplated hereby, and to perform the obligations to be performed by them hereunder and under all agreements and documents contemplated hereby.

It is undisputed, however, that assignment of the written distributor agreement between Dreyer's and Kay's Novelties, Inc., which SDI claims it should have received upon closing, could not be assigned "without the prior written consent of Dreyer's." SDI alleges that Norwood did not obtain this written consent, and thereby did not assign the agreement as contemplated by the buy-sell agreement. Section three of the purchase and sale agreement states that "Purchaser shall be entitled to possession of the Assets immediately upon closing." Section eight states that "The transfer of all of the Assets shall be effectuated and confirmed at closing by such bills of sale, assignments or other instruments of transfer as shall be appropriate to carry out the intent of this Agreement and shall be sufficient to vest in Purchaser all right, title and interest of Seller is [sic] such Assets, free and clear of any and all liens, security interest, charges or encumbrances whatsoever." A pre-closing condition required SDI to "have been approved by the relevant authorized representatives or officers of Dreyers ... for the transfer of the Distributorship of Purchaser." The agreement also includes an integration clause that states that the agreement was the entire agreement of the parties and "supersedes any and all prior agreements or understandings, written or oral."

¶ 10 Nevertheless, Norwood contends that at closing, when the assets were "effectuated and confirmed," SDI understood it would not receive the Dreyer's distributor agreement by assignment on closing; rather, SDI would have to negotiate its own agreement with Dreyer's. There is no evidence that SDI objected at closing to the omission of Norwood's assignment of the Dreyer's distributor agreement. Furthermore, according to Norwood's testimony at trial, he personally arranged for meetings between the Buckners and Dreyer's representatives prior to the sale's closing date. According to District Court findings, Dreyer's did not express any objections to the proposed transfer between Norwood and SDI.

¶ 11 Additionally, Norwood claims that the Dreyer's distributor agreement provided absolutely no guarantee of distribution rights to its holder and therefore was of little or no value. The $125,000 purchase price for the Dryer's and Dove distributorships, in fact, was expressly allocated between "Equipment" at $43,000 and "Inventory" at $82,000. Further, the agreement, which SDI had the opportunity to review three months prior to closing, included the following conditions in addition to the assignment provision: 1) it was not an exclusive agreement, i.e., Dreyer's reserved the right to sell to anyone including other distributors within the described territory; 2) either party could terminate by giving 30 days written notice; 3) if Dreyer's found the distributor was not complying with the terms of the agreement it could cancel without notice; 4) Dreyer's was under no obligation to extend the agreement; 5) Dreyer's had the discretion to unilaterally raise the distributor's purchase price at any time; 6) Dreyer's could reject a distributor's order in whole or in part at any time.

¶ 12 It is undisputed that from the closing date, October 15, 1993, up to the time that Norwood filed suit in May of 1997, SDI did not once notify Norwood that he had breached the agreement by not assigning or otherwise transferring the Dreyer's distributor agreement, or that it wished to rescind the agreement due to this failure. Norwood would testify at trial that he learned for the first time during a meeting with Steven Buckner in May of 1994 that SDI had not successfully negotiated a written distributor agreement with Dreyer's. Norwood claims that during the meeting—where the parties discussed refinancing SDI's obligation—he offered to assist in obtaining the agreement, and Steve Buckner declined this offer.

¶ 13 Although the monthly payments were cut nearly in half as a result of refinancing, Norwood alleges that by the end of the 1994, SDI still owed him $14,236.11 in past-due payments. By the end of November 1995, SDI allegedly owed $36,607.14. It is uncontested that SDI stopped making payments altogether in December of 1996. Norwood filed suit on May 27, 1997, to recover the remaining $104,715 balance owing.

¶ 14 SDI timely answered and raised several affirmative defenses including failure of consideration. SDI also counterclaimed for breach of contract. Although SDI claimed that Norwood's failure to assign or otherwise transfer the Dreyer's distribution agreement gave rise to SDI's right to stop making payments and rescind the contract, SDI nevertheless admitted that it had in fact distributed Dreyer's ice cream for more than two years. According to...