Valspar Refinish, Inc. v. Gaylord's, Inc., No. A06-2227.

• Decision Date: 23 April 2009
• Docket Number: No. A06-2227.
• Citation: 764 N.W.2d 359
• Parties: VALSPAR REFINISH, INC., Respondent, v. GAYLORD'S, INC., a California corporation, Appellant.
• Court: Minnesota Supreme Court

764 N.W.2d 359

VALSPAR REFINISH, INC., Respondent, v. GAYLORD'S, INC., a California corporation, Appellant.

No. A06-2227.

Supreme Court of Minnesota.

April 23, 2009.

Jack D. Elmquist, Jack D. Elmquist Law Offices, St. Paul, Minnesota; and Michael Leight, Law Offices of Michael Leight, Long Beach, California, for appellant.

Richard T. Ostlund, Janel M. Dressen, Anthony Ostlund Baer Louwagie & Ross, P.A., Minneapolis, Minnesota, for respondent.

OPINION

DIETZEN, Justice.

Respondent Valspar Refinish, Inc. (Valspar) commenced this action to recover damages arising out of an alleged breach by Gaylord's, Inc. (Gaylord's) of the parties' refinish-coat supply agreement. Gaylord's denied the claim and asserted numerous counterclaims. Following a hearing, the Hennepin County District Court granted summary judgment in favor of Valspar, dismissed Gaylord's counterclaims, and awarded Valspar damages, concluding that Gaylord's breached the parties' refinish-coat supply agreement. The court of appeals affirmed and concluded, among other things, that Gaylord's contract claims were barred because Gaylord's failed to provide written notice of default as the contract required and that Gaylord's fraud claims should be dismissed because Gaylord's failed to establish reasonable reliance. Valspar Refinish, Inc. v. Gaylord's Inc., No. A06-2227, 2007 WL 4237504 (Minn.App. Dec.4, 2007). We affirm.

Valspar is a wholly-owned subsidiary of Valspar Corporation, a paint-coating supplier headquartered in Minneapolis, Minnesota. Gaylord's is a California corporation that manufactures and sells fiberglass truck-bed lid covers for light trucks, located in Santa Fe Springs, California.

In the spring of 2003, a Valspar representative approached Gaylord's to discuss a possible supply agreement in which Valspar would provide the automobile paint coverings for Gaylord's truck-bed lid accounts. Gaylord's indicated that it would be interested if Valspar could provide a quality product and meet its pricing requirements. Gaylord's also indicated that it was interested in working with a company that would provide an up-front capital investment to pay for a new paint booth in its proposed expanded facility.

In the fall of 2003, Valspar's paint products were tested at Gaylord's facilities. The testing evaluated Valspar's base-coat and clear-coat products to determine if they met Gaylord's standards. Over a three-day period, the parties sprayed approximately 50 truck-bed lid covers. According to Valspar affidavits, Gaylord's indicated that the Valspar products met Gaylord's requirements and that it was pleased with the results.

Gaylord's claimed, however, that the testing demonstrated significant problems with color matches and paint application. Specifically, 26 of the 30 Valspar colors tested had to be reformulated to match Gaylord's samples. Further, Valspar was not able to match the new automobile colors coming into the market. Additional application problems included insufficient coverage, the occurrence of fish-eyes in the paint, and mottling. Valspar assured Gaylord's that it would resolve these problems and encouraged Gaylord's to enter into a contract.

In October 2003, Valspar and Gaylord's entered into a five-year contract. The agreement provided, among other things, that Valspar would be the exclusive supplier for Gaylord's truck-bed lid business and that Valspar would pay $400,000 in the form of a rebate to Gaylord's upon execution of the agreement.

Gaylord's states that the problems identified during the testing persisted despite Valspar's attempts to resolve the problems. Specifically, the base coat applied unevenly, the texture was coarse and blotchy, the colors did not match, fish-eyes continued to appear, and the clear coat was extremely slow to dry or "cure." On November 12, 2004, Gaylord's sent an e-mail to Valspar documenting the problems it experienced with the Valspar products. Gaylord's then stopped buying Valspar products and switched to another supplier, claiming it was losing business and costs were increasing because of corrections needed to resolve problems with the products. In December 2004, Valspar sent a representative to Gaylord's facility in an attempt to resolve the problems. That effort was unsuccessful.

In April 2005, Valspar sued Gaylord's, alleging that Gaylord's breached the contract and seeking return of the rebate, payment of unpaid invoices, and other damages. Gaylord's denied the allegations in the complaint and asserted various counterclaims against Valspar.

Valspar moved for summary judgment, alleging that Gaylord's failed to give written notice of default as required by the contract, and therefore it breached the contract when it stopped purchasing Valspar paint products in November 2004. Valspar also argued that Gaylord's counterclaims for breach of contract, breach of warranty, and revocation of acceptance were barred. The district court agreed and granted Valspar's motion for summary judgment, and dismissed Gaylord's related breach of contract counterclaims. The court also dismissed Gaylord's breach of implied warranty claim and its negligent misrepresentation and fraudulent inducement claims on the ground that they failed as a matter of law. The court of appeals affirmed the district court. Valspar Refinish, Inc. v. Gaylord's, Inc., No. A06-2227, 2007 WL 4237504 (Minn.App. Dec.4, 2007).

I.

Gaylord's argues that the district court and court of appeals erred in concluding that Gaylord's materially breached the contract by failing to give written notice. Gaylord's also argues that there are genuine issues of material fact that preclude summary judgment.

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." Minn. R. Civ. P. 56.03. The party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. O'Malley v. Ulland Bros., 549 N.W.2d 889, 897 (Minn. 1996). But to raise a genuine issue of material fact the nonmoving party must present more than evidence "which merely creates a metaphysical doubt as to a factual issue and which is not sufficiently probative with respect to an essential element of the nonmoving party's case to permit reasonable persons to draw different conclusions." DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn.1997). We review this evidence de novo and in a light most favorable to the nonmoving party. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993).

A. Written Notice

Gaylord's argues that the contract did not require it to give written notice to Valspar of defective paint products before it could pursue its breach of contract, breach of warranty, and revocation of acceptance claims. Valspar argues that the contract required written notice and that Gaylord's failed to provide that notice.

"Contract interpretation is a question of law that we review de novo." Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267, 271 (Minn.2004) (citing Employers Mut. Cas. Co. v. A.C.C.T., Inc., 580 N.W.2d 490, 493 (Minn.1998)). The primary goal of contract interpretation is to ascertain and enforce the intent of the parties. Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn.2003). We have consistently stated that when a contractual provision is clear and unambiguous, courts should not rewrite modify, or limit its effect by a strained construction. Telex Corp. v. Data Products Corp., 271 Minn. 288, 294-95, 135 N.W.2d 681, 686-87 (1965); Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 178, 84 N.W.2d 593, 601 (1957); Grimes v. Toensing, 201 Minn. 541, 545, 277 N.W. 236, 238 (1938).

A contract may provide the manner or time frame in which a party is required to give the other party notice of breach of the contract. See DeWitt v. Itasca-Mantrap Co-op. Elec. Ass'n, 215 Minn. 551, 559, 10 N.W.2d 715, 719 (1943). More importantly, parties to a contract may expressly agree that written notice of breach is a condition precedent to bringing a breach of contract claim and that the failure to give written notice bars a subsequent claim. See Cameo Homes v. Kraus-Anderson Constr. Co., 394 F.3d 1084, 1088 (8th Cir.2005).

The contract is a contract for the sale of goods that is governed by Article II of the Uniform Commercial Code (UCC), Minn. Stat. §§ 336.2-101-.2-725 (2008).¹ Under the UCC, a buyer has the right to reject goods "within a reasonable time after their delivery or tender," but must "seasonably" notify the seller. Minn.Stat. § 336.2-602(1). In addition, a buyer can revoke its acceptance of goods "whose non-conformity substantially impairs [their] value to the buyer if [they were] accepted ... on the reasonable assumption that [the] nonconformity would be cured and it has not been seasonably cured." Id. § 336.2-608(1)(a). "Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it...." Id. § 336.2-608(2).

Paragraph 6 of the contract states that the nondefaulting party "shall have the right to terminate this Agreement" provided that the defaulting party does not cure the default within 60 days after "notice" that describes the nature of the default. Paragraph 10(c) states that all "notices" required by the contract must be in writing. Gaylord's argues that written notice of default was not required because its repeated complaints about paint performance put Valspar on notice that Gaylord's intended to terminate the contract. Thus, the question here is whether Gaylord's oral statements to Valspar employees satisfied the formal preconditions to termination required by the agreement.

We conclude that oral notice is not sufficient under the contract. The...