Thermal Systems of Alabama, Inc. v. Sigafoose

• Decision Date: 16 September 1988
• Citation: 533 So.2d 567
• Parties: 7 UCC Rep.Serv.2d 698 THERMAL SYSTEMS OF ALABAMA, INC., et al. v. J. Boyd SIGAFOOSE, et al. 86-852.
• Court: Alabama Supreme Court

Page 567

533 So.2d 567

7 UCC Rep.Serv.2d 698

THERMAL SYSTEMS OF ALABAMA, INC., et al. v. J. Boyd SIGAFOOSE, et al.

86-852.

Supreme Court of Alabama.

Sept. 16, 1988.

George L. Simons, Mobile, for appellants.

Joseph J. Boswell, Mobile, for appellee Thermal Conducting Systems, et al.

Norton Brooker, Jr., of Lyons, Pipes & Cook, Mobile, for appellees.

MADDOX, Justice.

This appeal involves the validity of agreements made by the owner of a patent for a heat exchanger with individuals who agreed to distribute and sell the product.

The plaintiffs (Thermal Systems of Alabama, Team Energy Management Consults, and W. Frank Todd) based their action upon theories of breach of contract, interference with business or contractual relations, and unfair competition. The trial judge held that the contracts upon which plaintiffs sued were unenforceable because of uncertainty or lack of mutuality of obligation. Based solely upon this holding, the trial judge granted summary judgment in favor of the defendants (J. Boyd Sigafoose, Thermo Conducting Systems, Don A. Druse, and Donn Kaufman) on all of the plaintiffs' claims.

Plaintiffs raise two issues on appeal: whether the trial judge erred (1) in holding the contracts invalid, and (2) in concluding that the invalidity of the contracts precluded plaintiffs' claims for interference with business or contractual relations.

FACTS

Boyd Sigafoose owned Thermo Conducting Systems, Inc. ("Thermo Conducting"), which manufactured and sold a heat exchanger called a "Go-Between." Sigafoose designed this heat exchanger for the purpose of reducing the costs of heating water. A Go-Between, when installed between a refrigeration or air conditioning unit and a water heater, utilizes the hot freon from the refrigeration or air conditioning unit to heat the water in the heater. Sigafoose designed the Go-Between so that the hot freon and the water never come into direct contact. Sigafoose received letters patent on the Go-Between, issued June 7, 1983, for the term of 17 years. The Go-Between was the sole product manufactured by Thermo Conducting.

Beginning in 1982, Sigafoose began to grant distributorships for the purpose of marketing and selling the Go-Between, and the plaintiffs operated the distributors of the Go-Between.

Although the facts are disputed, we set out a summary of the facts and the claims of the parties, as we understand them.

I

On June 30, 1983, Thermo Conducting entered into a written contract with plaintiff Thermal Systems of Alabama, Inc. ("Thermal"). Under the contract, Thermal became the exclusive distributor for the Go-Between product within a certain defined territory in Alabama. The contract set up an arrangement, expressly referred to as a "franchise," whereby Thermal had the right to purchase Go-Betweens from Thermo Conducting for the purpose of resale to "commercial accounts." The contract specifically stated that Thermal was not an agent of Thermo Conducting and was not authorized to transact any business in Thermo Conducting's name. The contract stated that Thermo Conducting was "relying upon [Thermal] for satisfactory representation of Manufacturer's Products in sufficient volume, properly servicing such products, and maintaining the good will of the public." The contract refers to Thermo Conducting as "Thermo Conducting" and as "Manufacturer." The contract refers to Thermal as "Dealer."

According to the contract, title to the Go-Betweens would pass to Thermal upon purchase. Thermal would provide a "Manufacturer's Warranty" to each of its subsequent retail purchasers, and Thermal would obligate itself to perform the requirements of the warranty.

In the contract, Thermo Conducting expressly disclaimed liability for failures or delays in filling any orders of Thermal when those failures or delays were due to certain prescribed events, "or any causes beyond the control" of Thermo Conducting.

The contract was silent concerning its duration. However, the contract did state that Thermal (dealer) could terminate the contract at any time by giving 30 days' written notice. The contract also provided that Thermo Conducting could terminate the contract in the event of certain prescribed contingencies.

On December 7, 1983, Thermo Conducting entered into another contract with Thermal, identical to the June 30, 1983, contract, in which it granted Thermal an exclusive distributorship for a certain defined territory in Florida.

On November 28, 1984, Thermo Conducting and Thermal amended the two contracts then existing to extend Thermal's exclusive distributorship territory to cover the entire states of Alabama and Florida. The president of Thermal stated that two of the major reasons he contracted with Sigafoose were (1) his knowledge that the Go-Between was patented, and (2) Thermal's "exclusive" distributorship under those contracts, i.e., no one else, including Sigafoose, could sell the Go-Between in Thermal's territory. The president of Thermal also stated that Sigafoose orally promised to protect Thermal against any patent infringers.

Sometime in late 1984, the officers of Thermal, president Larry Cantrell and vice-president Pete Sintz, learned that Sigafoose was interested in selling his patent and the assets of his company. Cantrell claims that Sigafoose promised him that any sale would have no effect on Thermal's exclusive territorial contracts. Sintz made several attempts to buy Sigafoose's assets. Sintz contacted a business brokerage firm to obtain help in arranging the financing necessary for his purchase. The firm was unable to help Sintz, but promised him a portion of its commission should the firm be able to find a purchaser for Sigafoose. The brokerage firm subsequently located a purchaser, Donn Kauffman. Kauffman purchased the assets of Thermo Conducting.

On March 27, 1985, Sigafoose executed a bill of sale to Kauffman conveying the assets of the company--goodwill, inventory, equipment--as well as Sigafoose's interest in the patent, trademark, and trade name "Go-Between."

On April 11, 1985, Kauffman incorporated S & K Thermal Conducting Systems, Inc. ("S & K"), for the purpose of manufacturing and selling the Go-Between, its sole product. Sigafoose became a shareholder of S & K. On May 7, 1985, Sigafoose executed another document, purporting to again assign to Kauffman his entire right, title and interest in the patent and trademark "Go-Between." On the same day, Kauffman assigned his interest in the patent and trademark to S & K. Sigafoose's certificate of registration for the trademark, however, was not issued until June 11, 1985. His application for the trademark had been filed in August 1983. On September 24, 1985, S & K reassigned its interest in the patent to Kauffman.

Cantrell, in his affidavit in opposition to the defendants' motion for summary judgment, stated that "[d]uring the entire time the business and patent were up for sale, Mr. Sigafoose told me on several occasions that a sale of the business and patent would have no effect on [Thermal's] contracts." One of Thermal's sales personnel also averred by affidavit that Sigafoose had told him that "the sale would not affect the dealership franchise" with Thermal.

Cantrell stated that on April 10, 1985, following the sale, he received a letter from Kauffman, president of S & K, enclosing an unsigned document entitled "Amendment to Agreement." The letter stated in pertinent part as follows "Per our conversation in my office on Friday, April 5, 1985, and the attached cancellation of your contract, which Mr. Sigafoose assures me you have received, I wish to offer you a 90 (ninety)-day contract.... At the end of the ninety (90) days, on the agreement of both parties, we can extend an additional short term contract to cover any active quotations or a long term contract either on a representative or stocking distributor base.

"If we have not heard from you in the next ten (10) days, we will assume that you have no interest."

The "attached cancellation" was the document entitled "Amendment to Agreement." Though unsigned, it purported to be an agreement between Sigafoose and Thermal to modify their prior agreements so as to confer upon Sigafoose the authority to terminate those agreements at any time with 30 days' written notice. Thermal already had this authority under its contracts with Sigafoose. The "Amendment to Agreement" further stated:

"C. Thermo Conducting Systems is presently negotiating with another party for the sale of its trademark and license of its patent rights with respect to its products (referred to in said Agreement and herein as Manufacturer's Products), and it is contemplated that in such a transaction, with said party or any other party, requirement would be made that franchise rights under said Agreement, and similar agreements with other dealers in other territories, would be terminated. It is further contemplated that in such such [sic] event such assignee and licensee would endeavor to make mutually satisfactory agreements with all such dealers, but no commitment or representation with respect thereto is made by Thermo Conducting Systems.

"D. The parties hereto contemplate that it would be in the mutual interest of both parties to continue to operate under the general terms of said Agreement as herein amended unless or until the time when definite notice should be given of an effective date of termination."

On April 19, 1985, counsel for Thermal wrote to both Sigafoose and Kauffman, stating that the "Amendment" was unexecuted and that Kauffman "has no legal basis to terminate the original agreements" with Sigafoose. Thermal's counsel further informed Kauffman and Sigafoose that Thermal intended to abide by and enforce its contracts with Sigafoose.

On April 26, 1985, counsel for S & K replied by letter that "[n]either Mr. Kauffman nor S & K Thermal Conducting Systems, Inc., has any agreement with Mr. Sintz [Thermal's vice-president] to be amended. I believe...