Smith v. Royal Automotive Group, Inc.

Decision Date03 May 1996
Docket NumberNo. 94-2771,94-2771
Citation675 So.2d 144
Parties21 Fla. L. Weekly D1053 Benjamin S. SMITH, Appellant, v. ROYAL AUTOMOTIVE GROUP, INC., etc., et al., Appellees.
CourtFlorida District Court of Appeals

Appeal from the Circuit Court for Orange County, James C. Hauser, Judge.

Thomas F. Neal and D. John Morgeson, Jr., of Drage, deBeaubien, Knight, Simmons, Romano & Neal, Orlando, for Appellant.

Stephen J. Calvacca, of Steven J. Calvacca, P.A., Orlando, for Appellee.


Appellant, Benjamin Smith ["Smith"], appeals a series of adverse summary judgment and dismissal orders in favor of appellee, Royal Automotive Group, Inc., d/b/a Royal Mitsubishi, Inc., on his claims for reformation, breach of contract, misrepresentation and declaratory relief, fraud and rescission. We reverse.

At an unspecified time prior to this litigation, Smith received a letter of intent from Mitsubishi Motor Sales of America declaring that he was to be awarded a new Mitsubishi automobile franchise. Smith, about that time, was approached by Paul Norman, President of Royal Oldsmobile, Inc. ["Royal Olds"], who was scouting for dealerships that Royal Olds might add to its property. Smith informed him of the new franchise award and the two began to negotiate.

It appears clear that this transaction could not be consummated as an ordinary sale. Mitsubishi's letter of intent was personal to Smith and further approvals were necessary for Smith to acquire the dealership. Smith offered to take $125,000 immediately and $10,000 a month for ten years in exchange for the dealership. The deal was structured such that Smith and Royal Olds would together create a new company, Royal Imports, 1 which would operate the new franchise. Smith was to begin as a seventy-five percent owner and president of the new company while Royal Olds would be a twenty-five percent owner. Later, Royal Olds would have the option to buy out Smith for a nominal fee. In accordance with an Exclusive Agency Agreement ["Agency Agreement"], Smith was to be paid $125,000 by Royal Olds to acquire the franchise on behalf of Royal Imports, and under a Consultation Agreement and a Covenant Not to Compete ["Covenant"], Smith was to be paid by Royal Imports a total of $10,000 per month for ten years in return for his "services." Smith made it clear to Royal Olds that the payments that Smith was to receive would have to be guarantied by Royal Olds' parent company, Key-Royal Automotive Company ["Royal Group"]. 2 Smith specifically told Norman that he was concerned about not getting all of his money if the dealership were sold.

In 1987, Royal Group owned approximately twenty-five percent of Royal Olds; fifteen percent of Royal Olds was owned by Norman (through a loan guarantied by Royal Group) and the remaining sixty percent was owned by other dealers who were affiliated with Royal Group. Royal Group had a consulting agreement with Royal Olds which was paid based on a fixed fee and a percentage of Royal Olds' profits, and Royal Group was a partner in the partnership that owned the land Royal Olds occupied.

Although Norman had authority from Royal Group to negotiate with Smith, he could not enter into a deal without direction from Royal Group's president, John Richardson. After Smith presented Norman with his offer to sell, Norman contacted Richardson at the company's headquarters in Birmingham. Richardson started the company's Birmingham attorneys working on analyzing the deal. Smith negotiated with Norman and never spoke directly with any other representative of Royal Group.

The basic terms of a deal were worked out and Royal Group's Birmingham attorneys began drafting the necessary contracts. The Birmingham firm represented both Royal Group and Royal Olds in the transaction but did not represent Smith. 3 Susan Leeds was the associate attorney assigned to the transaction. Leeds answered directly to a senior partner who had handled the firm's Royal Group account for many years. Leeds got all of her information concerning the drafts--including approvals for all material provisions--from the senior partner. Leeds never spoke directly with Richardson.

The first drafts of the three agreements were sent directly to Smith by Leeds on December 18, 1987. The first drafts of the Covenant and Consultation Agreement did not contain provisions referring to any guaranty by Royal. The Agency Agreement did specify Royal Group's obligation to guaranty payments under the Agreement, although there was no signature block for Royal Group.

On December 22, 1987, Smith retained Orlando attorney, Charlie Egerton, to review these drafts. Smith limited Egerton's involvement to ensuring that the documents conformed to the terms Smith and Norman had agreed upon. Egerton recommended that the guaranties be explicitly mentioned in all three agreements and that Royal Group be a party to the execution of each. Egerton suggested these revisions directly to Leeds.

A second draft of the Agency Agreement was sent by Leeds to Egerton on approximately January 18, 1988. The following day Leeds faxed revised copies of the Covenant and the Consultation Agreement. The revised Consultation Agreement between Royal Imports and Royal Olds [collectively referred to as "the Corporation"] and Smith [the "Consultant"] contained a new "Item 6" which referenced a guaranty by Royal Group as follows:

6. Guaranty. The obligation of the Corporation to pay the Consultant the monthly compensation provided for hereunder shall be guaranteed by Key-Royal Automotive Company, a Delaware corporation which has an interest and financial stake in furthering the successful operation of the Dealership by the Corporation.

The Consultation Agreement also concluded with the following acknowledgment and signature block for Royal Group:

For the purpose of affirming and evidencing its agreement to be bound by the guaranty obligations set forth in Paragraph 6 of this Consultation Agreement, the undersigned corporation has caused its duly authorized officers to execute and attest this Agreement as of the date first above written.

                                                     KEY"ROYAL AUTOMOTIVE COMPANY
                                                     a Delaware corporation
                ATTEST:                              By:  ____________________________
                                                               John B. Richardson
                                                               Its President

The revised Covenant included similar text.

Leeds testified that she would never have revised the drafts to include guaranty provisions without approval. Egerton testified that in negotiating with Leeds, he communicated Smith's insistence on the guaranty provisions and that Leeds later told him that her clients had agreed to the guaranties. Egerton stated that he informed Smith of Royal Group's agreement.

On February 2, 1988, Leeds sent a letter to Norman, enclosing the original and red-lined copies of all three agreements, and relating that she expected negotiations concerning Smith's ability to terminate the Agency Agreement to continue. The letter also contains the following paragraph:

In the unlikely event Mr. Smith and his attorney are willing to forego any further negotiations, I have enclosed originals of each of the agreements for immediate execution. I would suggest that duplicates of each of the documents are made prior to their signing so that each party will have an executed original.

The letter is unsigned, although Leeds stated in her deposition that she drafted it.

A second letter dated February 2, 1988 was sent by Leeds to Egerton. The salutation and body of the letter, a major topic of both parties' briefs, read as follows:

Dear Charlie:

I have enclosed for your review red-lined copies of the Exclusive Agency Agreement, the Consultation Agreement and the Covenant Not to Compete to be executed in connection with the above-referenced transaction. As I mentioned to you during our telephone conversation, two issues over which you had expressed concern have not been modified in this most recent draft of the Exclusive Agency Agreement. Specifically, you had requested that Key-Royal Automotive Company agree to guarantee all obligations of Royal Oldsmobile and the Franchisee under the aforesaid Agreement. Mr. Richardson, President of Key-Royal, stated that his company would guarantee the payment obligations, but not the performance obligations, thereunder. In addition, I recall that you had suggested modifications regarding Mr. Smith's rights under Article Seven to terminate the Agreement. Unfortunately, my notes are not clear as to the specifics of your concern; therefore, we may need to discuss this issue once you have had an opportunity to review the documents.

Please let me know if you should have any questions or suggestions.

(Emphasis in original).

Leeds sent a third set of drafts to Norman along with a cover letter dated February 3, 1988. That letter is stamped "RECEIVED FEB 5 1988" and read as follows:

Dear Paul:

Enclosed are the revised pages to be inserted in the Exclusive Agency Agreement. I have also included an original and one red-lined copy of the Consultation Agreement which contains one minor change which Mr. Smith's attorney requested. As you noted, neither the Consultation Agreement nor the Covenant Not to Compete will be executed contemporaneously with the Exclusive Agency Agreement; however, I thought you should have a copy of the most recent version.

Please let me know if I may be of further assistance.

The to-be-inserted pages following Leeds' letter are present in the Agency Agreement actually executed by Norman and Smith. Norman testified that the documents they executed had arrived by overnight mail from Birmingham.

All three contracts were executed by Smith and Norman, without attorneys present, "as of" February 4, 1988, the former...

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