Western Distributing Co. v. Diodosio, 91SC728
| Citation | 841 P.2d 1053 |
| Decision Date | 23 November 1992 |
| Docket Number | No. 91SC728,91SC728 |
| Parties | 127 Lab.Cas. P 57,625 WESTERN DISTRIBUTING COMPANY, d/b/a Western Davis, Ltd., a Colorado corporation, and Mike Diodosio Wholesale Liquor Co., a Colorado corporation, Petitioners, v. Warren M. DIODOSIO, John Diodosio, and Charles Diodosio, Respondents. |
| Court | Supreme Court of Colorado |
Senn, Lewis, Visciano, Hoth & Strahle, P.C., Mark A. Senn, Frank W. Visciano, Horowitz & Berrett, P.C., Jay S. Horowitz, Denver, for petitioners.
Cohen, Brame & Smith, P.C., Jeffrey L. Smith, Marisa L. Williams, Denver, for respondents.
In Diodosio v. Western Distrib. Co., 826 P.2d 383 (Colo.App.1991), the court of appeals affirmed a judgment entered on jury verdicts in favor of the plaintiffs, Warren M. Diodosio, John Diodosio, and Charles Diodosio, against the defendants, the Mike Diodosio Wholesale Liquor Company and the Western Distributing Company, for breach of contract as a result of an Employment Agreement with Warren Diodosio, a Consulting Services Option Agreement with John Diodosio, and a stock purchase provision of a Purchase and Sale Agreement with the three Diodosios. The court of appeals held that the trial court did not err in refusing to instruct the jury that the Diodosios, in order to recover on their respective claims, had the burden of proving that they performed their obligations under their respective contracts and were discharged without cause. We granted the Diodosio Wholesale Liquor Company's and the Western Distributing Company's petition for certiorari to determine whether the court of appeals correctly resolved the issue pertaining to the burden of proof on the Diodosios' claims for breach of contract. We hold that the court of appeals erred in not requiring the Diodosios to prove, as an essential element of their claims for breach of contract, that they performed their contractual obligations or that there was a justifiable reason for nonperformance. We accordingly reverse the judgment of the court of appeals and remand the case for a new trial.
The Mike Diodosio Wholesale Liquor Company, (Wholesale Liquor) and the Western Distributing Company (Western) are Colorado corporations in the business of purchasing and distributing wines and liquors to retailers in Colorado. Prior to February 1986 Wholesale Liquor was owned by Warren and Charles Diodosio, who are brothers, and their uncle, John Diodosio. In February 1986 Western entered into a Purchase and Sale Agreement with the Diodosios to purchase all the outstanding stock of Wholesale Liquor from them.
The Purchase and Sale Agreement required Wholesale Liquor to enter into an Employment Agreement with Warren. Under the terms of the Employment Agreement, Warren was to be employed for five years at $50,000 per year plus benefits as vice president and general manager of Wholesale Liquor. The Employment Agreement expressly provided that Warren would be responsible for the management of the business and would perform substantially the same duties that he performed immediately prior to the sale, and that he could be terminated for cause or for failing to meet certain sales objectives outlined in the agreement. 1 Western unconditionally guaranteed the prompt and complete payment of all funds that may become due to Warren pursuant to his Employment Agreement with Wholesale Liquor.
The Purchase and Sale Agreement between Western and the Diodosios also required Wholesale Liquor to enter into a Consulting Services Option Agreement with John. This latter agreement provided that John would continue to serve as president of Wholesale Liquor for a period not to exceed five years, that John could retire earlier, that Wholesale Liquor reserved the right to remove him as president, and that upon his retirement or removal Wholesale Liquor would employ him as a consultant at an annual salary of $50,000 plus benefits. Wholesale Liquor's agreement with John also authorized Wholesale Liquor to terminate John in the event of "any default in the performance of any of the Sellers' duties under the Western [Purchase and Sale] Agreement." Western unconditionally guaranteed the prompt and complete payment of all sums that may become due to John under the terms of the Consulting Services Option Agreement.
The Purchase and Sale Agreement provided for a two-phase closing. At the first closing, which took place on February 11, 1986, Western paid the Diodosios partial payment for their shares, executed the Employment Agreement with Warren Diodosio and the Consulting Services Option Agreement with John, and executed and delivered Western's guarantees for Wholesale Liquor's performance under both agreements. The purpose of the second closing, which did not take place, was "to review the accuracy of Sellers' [Diodosios'] representations and Sellers' performance of the terms of this Agreement since the date of the First Closing, and to disburse the Final Payment" in accordance with the computation of accounts receivable, credits, and additional financial data outlined in the Purchase and Sale Agreement.
On November 7, 1986, approximately nine months after the execution of the Purchase and Sale Agreement, Wholesale Liquor terminated Warren and declared the Employment Agreement with Warren and the Consulting Services Option Agreement with John null and void. Six days later, John, in accordance with the terms of the Option Agreement, exercised his option to serve as consultant upon Wholesale Liquor's removal of him as president. Both Wholesale Liquor and Western, however, refused to honor John's option.
On November 18, 1986, the Diodosios filed a complaint against Wholesale Liquor and Western. Warren's claim was that Wholesale Liquor and Western had breached the Employment Agreement, and John's claim was that Wholesale Liquor and Western had breached the Consulting Services Option Agreement. In addition, Warren, John, and Charles alleged that Western had breached the stock purchase provisions of the Purchase and Sale Agreement. Wholesale Liquor and Western answered the complaint by denying any breach of contract and by affirmatively pleading that Warren was terminated for cause because of his insubordination and unsatisfactory performance of the Employment Agreement, that John's option agreement was contingent upon Warren's continued employment as general manager of Wholesale Liquor, and that the Diodosios' factual misrepresentations during pre-closing negotiations discharged Western of any contractual obligation pertaining to the stock purchase provision of the Purchase and Sale Agreement.
The case was tried to a jury. Warren Diodosio testified that Wholesale Liquor, in violation of the Employment Agreement, substantially reduced his authority and responsibility as general manager, with the result that his ability to effectively manage Wholesale Liquor and to obtain adequate profit margins was impaired. Warren further testified that on November 5, 1986, he was informed by Vieri Gaines, the president of Western, that his manner of operating Wholesale Liquor was unacceptable and that Western was offering him reemployment in Denver. According to Warren, he was shortly thereafter informed that the Employment Agreement was null and void and that his only alternative was to report to work in Denver or to sever his working relationship with Wholesale Liquor. John Diodosio testified that on November 12, 1986, he was informed by Vieri Gaines that his Consulting Services Option Agreement with Wholesale Liquor was canceled. As a result of the cancellation of Warren's and John's contracts with Wholesale Liquor, the second closing pursuant to the Purchase and Sale Agreement never took place.
Vieri Gaines offered a different version of the events. He testified that Warren was terminated for cause due to his alleged insubordination. Gaines did not dispute that Warren's responsibility as general manager of Wholesale Liquor was significantly changed following the consolidation of Wholesale Liquor and Western. Gaines, however, stated that Warren's responsibility was limited to operating Wholesale Liquor as a branch of the total consolidated operation, that Warren had been advised of that fact in advance of the execution of the Purchase and Sale Agreement, and that Warren failed to effectively implement Western's guidelines relating to pricing, promotion of sales, and other organizational requirements. Regarding John's claim, Gaines testified that Wholesale Liquor's only basis for terminating John was its belief that his contractual rights were entirely dependent upon Warren's continued employment with Wholesale Liquor. Because Wholesale Liquor refused to honor the Consulting Services Option Agreement with John, John's performance as a consultant was never an issue at trial. Gaines also testified that the Diodosios during the pre-closing negotiations made several misrepresentations concerning the financial condition of their company, which were later discovered by Western, and that the second closing never took place.
At the conclusion of the evidence, Wholesale Liquor tendered a jury instruction requiring that Warren and John each prove the following elements on their respective claims for breach of contract: that each of them had an employment contract; that each of them performed their obligations under the contract; that Wholesale Liquor discharged each of them without cause; and that both Warren and John suffered damages as a result of the discharge. Warren and John objected to the instruction because, in their view, their only burden was to prove the existence of a contract and Wholesale Liquor's discharge of Warren and its refusal to hire John as a consultant. The trial court agreed with the Diodosios and gave the following instruction on Warren's claim for breach of contract:
Plaintiff Warren Diodosio First Claim for Relief charges...
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