Stern Oil Co. v. Border States Paving, Inc.

• Decision Date: 14 May 2014
• Docket Number: No. 26729.,26729.
• Parties: STERN OIL COMPANY, Plaintiff and Appellant, and State of South Dakota ex rel. Stern Oil Company, Plaintiff, v. BORDER STATES PAVING, INC. and Liberty Mutual Insurance Company, as its Surety, Defendants and Appellees.
• Court: South Dakota Supreme Court

848 N.W.2d 273

2014 S.D. 28

STERN OIL COMPANY, Plaintiff and Appellant,andState of South Dakota ex rel. Stern Oil Company, Plaintiff,

v.BORDER STATES PAVING, INC. and Liberty Mutual Insurance Company, as its Surety, Defendants and Appellees.

No. 26729.

Supreme Court of South Dakota.

Argued on March 26, 2014.

Decided May 14, 2014.

Daniel K. Brendtro of Zimmer, Duncan & Cole, LLP, Sioux Falls, South Dakota, Attorneys for plaintiff and appellant.

Thomas R. Olson of Olson Construction Law, PC, West Saint Paul, Minnesota, Attorneys for defendants and appellees.

[¶ 1.] Border States Paving Company, Inc. (Border States) was the prime contractor on a road construction project. Stern Oil Company (Stern Oil) sued Border States and its surety, Liberty Mutual Insurance Company (Liberty Mutual), for fuel and petroleum products Stern Oil sold to a Border States subcontractor, Weatherton Contracting Company, Inc. (Weatherton). Stern Oil asserted three causes of action: one on Liberty Mutual's bond, one against Border States for breach of an asserted third-party contract to pay the bill, and one against Border States for unjust enrichment. The circuit court granted summary judgment against Stern Oil on all claims. We affirm.

Background

[¶ 2.] Border States was the prime contractor on a South Dakota Department of Transportation (DOT) construction project involving U.S. Highway 281. As required by SDCL 31–23–1, Border States acquired a performance bond from Liberty Mutual for the project.

[¶ 3.] Weatherton entered into a subcontract with Border States to supply crushed aggregate that would be incorporated into the highway. In 2008, Stern Oil sold Weatherton the fuel and petroleum products it needed to perform its subcontract. However, Weatherton failed to pay Stern Oil. In June 2009, Stern Oil obtained a judgment against Weatherton for the unpaid bills.

[¶ 4.] During the same year that Weatherton was supplying crushed aggregate on the Highway 281 project, Weatherton was also supplying material to Upper Plains Contracting, Inc. (Upper Plains), a contractor on an Aberdeen airport project. Mistakenly believing that its fuel had been used on the Aberdeen airport project, Stern Oil initiated a bond claim in November 2010 against Upper Plains and its bond company. On April 5, 2011, Carl Weatherton, owner of Weatherton, was deposed in the Upper Plains litigation. During his deposition, he testified that Stern Oil's fuel had been used on the Highway 281 project rather than the Aberdeen airport project.

[¶ 5.] Additional discovery in the Upper Plains litigation revealed that Weathertonand Border States had communicated about Stern Oil's unpaid bills. In November 2008 correspondence, Weatherton sent Border States a ledger of Weatherton's unpaid suppliers. In that ledger, Weatherton stated that there were “checks to be issued” to Stern Oil totaling $111,012.37. Border States did not issue checks to Stern Oil for that amount. And, at the time of his deposition, Carl Weatherton believed that “Stern Oil should have been paid all they were owed or Border States is still holding the money there, one or the other.”

[¶ 6.] Stern Oil did not bring this suit against Border States and Liberty Mutual until June 2011. At that time, the statute of limitations had run on Stern Oil's claim on Liberty Mutual's performance bond. SeeSDCL 31–23–4. ¹ However, Stern Oil contended that the statute of limitations should be equitably tolled. Stern Oil also pleaded timely, direct causes of action against Border States for unjust enrichment and breach of an alleged third-party beneficiary payment agreement between Weatherton and Border States under which Border States was to pay Weatherton's obligation to Stern Oil.

[¶ 7.] Border States moved for summary judgment. On the bond claim, Border States and Liberty Mutual relied, among other things, on Stern Oil's failure to timely file suit within the one-year statute of limitations. On the direct claims, Border States relied on the terms of its subcontract with Weatherton and the payments Border States made to Weatherton under the subcontract. Border States argued that it was not unjustly enriched because it paid more for the materials Weatherton was to provide than Weatherton was entitled to receive under the subcontract.² On the third-party beneficiary breach of contract claim, Border States presented an affidavit of Carl Weatherton, dated October 24, 2012, refuting that there was a third-party beneficiary contract to pay Stern Oil. He stated, “I requested that Border States pay several of Weatherton's suppliers for the Project, by way of joint check or direct check. Although I requested payment to Stern Oil, Border States did not agree to pay Stern Oil. Border States refused on the basis that it paid more than the final amount due under the Subcontract.”

[¶ 8.] In opposing summary judgment, Stern Oil relied on Border States' payments to various Weatherton suppliers; the November 2008 ledger Weatherton provided Border States, stating that there were “checks to be issued” to Stern Oil; and Carl Weatherton's deposition testimony that “Stern Oil should have been paid all they were owed or Border States is still holding the money there, one or the other.” With respect to its bond claim, Stern Oil argued the November 2008 ledger provided sufficient notice. With respect to the direct claims, Stern Oil argued that the ledger and the parties' course of conduct created a third-party contract that required Border States to pay Stern Oil. With respect to unjust enrichment, Stern Oil argued that Border States was unjustly enriched because it retained a benefit (the value of the fuel and petroleum products) that Weatherton did not pay for.

[¶ 9.] In July 2012, the circuit court granted Border States and Liberty Mutual summary judgment on the bond claim. The circuit court denied summary judgment on the unjust enrichment and third-party beneficiary breach of contract claims. In April 2013, the circuit court granted Border States summary judgment on the two remaining claims.

[¶ 10.] Stern Oil now appeals to this Court raising three issues ³:

1. Whether the circuit court erred in granting summary judgment to Border States on Stern Oil's third-party beneficiary breach of contract claim.

2. Whether the circuit court erred in granting summary judgment to Border States on Stern Oil's unjust enrichment claim.

3. Whether the circuit court erred in granting summary judgment to Border States and Liberty Mutual on Stern Oil's bond claim.

Decision

Third–Party Beneficiary Breach of Contract Claim

[¶ 11.] “A contract made expressly for the benefit of a third person may be enforced by him at any time before the parties thereto rescind it.” SDCL 53–2–6. In order for a third party to enforce a contract, the contract itself must be enforceable. Cf. Jennings v. Rapid City Reg'l Hosp., Inc., 2011 S.D. 50, ¶ 35, 802 N.W.2d 918, 929 (Konenkamp, J., dissenting) (citation omitted) (recognizing that a third-party beneficiary's rights are subject to any defenses and claims of the promisor against the promisee arising out of the contract). One essential element of an enforceable contract is that the parties must have consented to the agreement. SDCL 53–1–2(2); see also Vander Heide v. Boke Ranch, Inc., 2007 S.D. 69, ¶ 21, 736 N.W.2d 824, 832 (providing that mutual assent is required to form a contract).

[¶ 12.] The circuit court granted summary judgment, ruling that Stern Oil failed to rebut Border States' summary judgment showing that it had not consented to any agreement to pay Weatherton's suppliers. The court noted that the October 24, 2012 affidavit of Carl Weatherton “makes clear that there was not a contract or agreement between Border States and Weatherton as to who would be paid.” See supra ¶ 7.

[¶ 13.] Stern Oil argues that the circuit court incorrectly relied on Carl Weatherton's 2012 affidavit because it was contradicted by his 2011 deposition testimony in the Upper Plains litigation in three respects. First, in his 2011 deposition, Carl Weatherton stated that he “directed” Border States to issue joint checks to Stern Oil, but in his affidavit he stated that he “requested” Border States to issue checks to several of Weatherton's suppliers. Stern Oil claims this difference is material because the term “directed” suggests that there was an agreement and that Carl Weatherton “believed Border States had no discretion” regarding the payment of Stern Oil's bills; but the term “requested” suggests discretion. Second, in his deposition Carl Weatherton testified that “Stern Oil should have been paid all they were owed or Border States is still holding the money there, one or the other”; but in his affidavit he stated: “Although I requested payment to Stern Oil, Border States did not agree to pay Stern Oil.” Third, in his deposition Carl Weatherton testified that he had not talked to anyone at Border States about why the check to Stern Oil was not issued, but in his affidavit he stated: “Border States refused [to pay Stern Oil] on the basis that it paid more than the final amount due under the Subcontract.”

[¶ 14.] Stern Oil contends that Carl Weatherton's affidavit should not have been considered in support of summary judgment because it contradicted his earlier deposition testimony. See Guilford v. Nw. Pub. Serv., 1998 S.D. 71, ¶ 12, 581 N.W.2d 178, 181 (providing that a witness cannot claim a better version of facts in an affidavit prepared for summary judgment than the witness testified to in a prior deposition). However, a witness's contradictory affidavit is admissible if it clarifies an ambiguity in the witness's earlier testimony. DFA Dairy Fin. Servs., L.P. v. Lawson Special Trust, 2010 S.D. 34, ¶¶ 21–23, 781 N.W.2d 664, 670–71.

[¶ 15.] In this case, Carl Weatherton's deposition testimony did not unequivocally assert that Border States consented to a contract to pay Stern Oil. Rather, the deposition only articulated Carl...