Ward's Equipment, Inc. v. New Holland North America, Inc.

Present: Carrico, C.J., Compton, Lacy, Hassell, Keenan, and
Kinser, JJ., and Whiting, Senior Justice

WARD'S EQUIPMENT,
INC., ET AL.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 962544 October 31, 1997

NEW HOLLAND NORTH AMERICA, INC.

FROM THE CIRCUIT COURT OF HALIFAX COUNTY
Charles L. McCormick, III, Judge

In this controversy arising from a written contract between

a manufacturer and a dealer in farm equipment, the case turns

upon whether a party suing for damages may allege facts that

essentially reform the contract and thereby withstand demurrer.
In June 1995, appellants Ward's Equipment, Inc., Carl Ward,

and Anne Ward (collectively, the dealer) sued appellee New

Holland North America, Inc., successor to Ford New Holland, Inc.

(the manufacturer or the company). The dealer is a Virginia

corporation with its principal place of business in South Boston.

The manufacturer is a Delaware corporation with its principal

place of business in New Holland, Pennsylvania.

In a "bill of complaint" filed on the chancery side of the

court below, the dealer sought compensatory and punitive damages

for alleged breaches of contract and alleged tortious activity,

and asked for a trial by jury. Attached as the only exhibit to

the dealer's pleading is a letter dated October 3, 1994 from the

manufacturer to the dealer discussing the parties' obligations

under a Dealer Agreement. The dealer did not incorporate the

terms of the Dealer Agreement in its "bill of complaint."

Responding, the manufacturer filed a demurrer and a motion
craving oyer. Among the grounds of the demurrer, the

manufacturer asserted the trial court "lacks equity jurisdiction

in that Plaintiffs have a complete and adequate remedy at law."

The trial court never was asked to rule on this ground.

In the motion craving oyer, the manufacturer asserted that

the dealer's complaint "identifies and characterizes, but fails

to include, the written Dealer Agreement" between the parties

dated August 14, 1987. The motion further stated: "It is

necessary and proper for the Dealer Agreement and Schedule C

thereto to be produced, oyer taken of it and that it becomes per

se a matter of record for the consideration of this Court on New

Holland's demurrer, and for all other purposes as if copied at

large in Plaintiffs' Bill of Complaint." Concluding, the

manufacturer asked the court to order a complete copy of the

Dealer Agreement filed, to be "deemed an exhibit to Plaintiffs'

Bill of Complaint." The motion was unopposed and was granted

during a July 1996 hearing on the demurrer.

Following oral argument, the trial court sustained the

demurrer and denied the dealer's motion for leave to file an

amended complaint. We awarded the dealer an appeal from the

trial court's September 1996 final order dismissing the action

with prejudice.

Settled criteria governing a trial court's consideration of

a demurrer should be reviewed. A demurrer admits the truth of

all properly pleaded material facts. "All reasonable factual

- 2 -
inferences fairly and justly drawn from the facts alleged must be

considered in aid of the pleading. However, a demurrer does not

admit the correctness of the pleader's conclusions of law." Fox

v. Custis, 236 Va. 69, 71, 372 S.E.2d 373, 374 (1988).

When a demurrant's motion craving oyer has been granted, the

court in ruling on the demurrer may properly consider the facts

alleged as amplified by any written agreement added to the record

on the motion. Hechler Chevrolet, Inc. v. General Motors Corp.,

230 Va. 396, 398, 337 S.E.2d 744, 746 (1985). Furthermore, and

significant in this appeal, a court considering a demurrer may

ignore a party's factual allegations contradicted by the terms of

authentic, unambiguous documents that properly are a part of the

pleadings. See Fun v. Virginia Military Inst., 245 Va. 249, 253,

427 S.E.2d 181, 183 (1993).

No useful purpose will be served by summarizing in detail

the dealer's 105-paragraph, 29-page complaint. It is sufficient

to observe that the dealer mounts a broadside attack on the

manufacturer as the result of a business decision made by the

manufacturer and expressed in the October 3 letter, a so-called

"attrition letter."

In that letter, the dealer was notified that the

manufacturer's "current market representation plan contemplates

no dealer at your Dealer Location. While we will continue to do

business as normal with you under the terms of the Dealer

Agreement, we will not consent to the sale or assignment of your

- 3 -
Dealer Agreement. . . ."

The dealer alleged that, at the time of this notice, it was

negotiating a purchase agreement with a Ward family member, and

that the notice severely restricted or eliminated the dealer's

ability to consummate the contemplated transaction. The dealer

also alleged that shortly after sending the attrition letter, the

manufacturer entered into an agreement with one of the dealer's

competitors, located 15 miles from the dealer, to begin selling

equipment previously available in its trade area only at the

dealer's location.
Thus, arising from this climate of keen business

competition, the dealer sought damages in a 12-count complaint.

Many of the counts have been abandoned; those still viable are

labelled "Breach of Contract," "De Facto Termination," "Fraud and

Misrepresentation," "Estoppel," "Violation of Michigan Statutes,"

and "Violation of Virginia Statutes."

On appeal, the dealer contends the trial court erred in

sustaining the demurrer "by considering questions of fact not in

the record." There is no merit to this contention.

The dealer points to a comment made by the trial judge from

the bench during the course of sustaining the demurrer. The

court said the complaint failed to allege the manufacturer had

engaged in any conduct that was not "authorized" or "anticipated"

under the terms of the unambiguous August 1987 contract. This

observation did not amount to a consideration of facts not of

- 4 -
record. Rather, the ruling demonstrates that the trial court

followed the foregoing criteria, which apply when a contract is

part of the pleadings. The court merely was describing a

situation in which the dealer has ignored the contract's language

in asserting claims that the contract refutes.

Next, the dealer argues the trial court erred by ignoring

facts it alleged in support of its assertion that the

manufacturer breached the contract. The dealer asserted the

contract breach occurred when the manufacturer "terminated" the

dealership without cause, unreasonably withheld consent to the

dealer's sale or assignment of the dealership, failed to deliver

equipment to it in a timely manner, encroached upon its

"exclusive market area," and sought to replace it with a

competitor. The trial court was justified in refusing to accept

these factual allegations as true because they are refuted by the

terms of the authentic, unambiguous documents that are a part of

the pleadings.
The contract in issue consists of a two-page "Dealer

Agreement" and a nine-page document labelled "Dealer Agreement

Standard Provisions" to which is attached three pages of

"schedules." The contract provides, "This agreement shall be

governed by and interpreted in accordance with the laws of the

State of Michigan."

The law of Michigan is the same as Virginia's on the subject

of contract interpretation. A contract must be construed as

- 5 -
written and as a whole with all parts being harmonized whenever

possible. Associated Truck Lines, Inc. v. Baer, 77 N.W.2d 384,

386 (Mich. 1956); Paramount Termite Control Co. v. Rector, 238

Va. 171, 174, 380 S.E.2d 922, 925 (1989).

Relevant to the dealer's breach-of-contract argument, the

Agreement makes clear that the dealer's appointment is as a

"nonexclusive authorized dealer" and that likewise the dealer's

trade area, designated in the contract as "Primary Area of

Responsibility," (PAR) is not exclusive to the dealer. Indeed,

paragraph 18(a) of the Standard Provisions gives the manufacturer

the absolute right to alter the dealer's PAR and to appoint

additional dealers within that area.
Additionally, the dealer's claim that it has been

"terminated" is contradicted by the plain language of the

contract as amplified by the attrition letter. Consistent with

the manufacturer's absolute rights set forth in paragraph 18(a),

the letter clearly explained that it was "not a termination

notice," indicating the manufacturer would continue to do

business as normal with the dealer.

Also, the dealer did not have the absolute right to sell or

assign the dealership. Even though paragraph 18(d) acknowledges

that the dealer "may sell" the dealership, this right is

constrained by paragraph 18(c), which provides: "The Company

. . . may refuse to appoint as an authorized dealer any purchaser

or prospective purchaser of any of the shares or assets of the

- 6 -
Dealer."

Also, the plain language of the Dealer Agreement refutes any

factual allegation that the company breached the contract for

failure to deliver equipment in a timely manner. Paragraph 7(b)

of the Standard Provisions provides that the company's supplier

"shall not be responsible for . . . delays in shipments" of

equipment.

Next, the dealer argues the trial court erred by "failing to

consider" counts in the complaint alleging "fraudulent

misrepresentation, promissory estoppel, and violation of the

Michigan and Virginia franchise laws." Under this argument, the

dealer contends the trial court erred "in failing to imply the

covenant of good faith and fair dealing into the parties'

agreement." There is no merit to this contention.
In Michigan, as in Virginia, when parties to a contract

create valid and binding rights, an implied covenant of good

faith and fair dealing is inapplicable to those rights. This is

so under either the common law or the Uniform Commercial Code

(even assuming a dealership agreement is a contract for the sale

of goods). Generally, such a covenant cannot be the vehicle for

rewriting an unambiguous contract in order to create duties that

do not otherwise exist. Hubbard Chevrolet Co. v. General Motors

Corp., 873 F.2d 873, 876-77 (5th Cir.), cert. denied, 493 U.S.

978 (1989) (applying Michigan law); Charles E. Brauer Co. v.
NationsBank, 251 Va. 28, 35, 466 S.E.2d 382, 386 (1996). See

- 7 -
also Mich. Comp. Laws § 440.1203 (1994); Va. Code § 8.1-203.

We reject summarily the dealer's contention the trial court

erred in dismissing the fraud claim. We apply Virginia law

because fraud is a tort. Generalized, nonspecific allegations,

such as those contained in this complaint, are insufficient to

state a valid claim of fraud. Tuscarora, Inc. v. B.V.A. Credit

Corp., 218 Va. 849, 858, 241 S.E.2d 778, 783 (1978).

There is no merit to the dealer's contention that a "claim

of promissory estoppel can be made under Virginia law." This

Court has not recognized the doctrine, and today we decide that

it should not be adopted in the Commonwealth. W.J. Schafer

Assoc., Inc. v. Cordant, Inc., 254 Va. ___, ___ S.E.2d ___

(1997).

Further, the dealer erroneously contends the trial court

failed "to address or consider the question of the application of

Michigan law." The relevance of Michigan law was debated during

argument of counsel and the court plainly stated in the judgment

order that the "clear and unambiguous terms of the Dealer

Agreement gave full authority to [the manufacturer], under either

Virginia or Michigan law, to do the acts which Plaintiffs

complain of in their Bill of Complaint."

And, the trial court did not err by rejecting the dealer's

argument and by ruling that the Michigan Franchise Investment

Law, Mich. Comp. Laws, §§ 445.1501, et seq. (1989), does not

govern this case. When a contract contains a choice of law

- 8 -
provision, the chosen jurisdiction's statutory law, as opposed to

its common law, will not control when the statutes by their own

terms do not apply. Peugeot Motors of America, Inc. v. Eastern

Auto Distributors, Inc., 892 F.2d 355, 358 (4th Cir. 1989), cert.

denied, 497 U.S. 1005 (1990).

In the present case, the Michigan franchise law is

inapplicable because it contains a geographic limitation; it

applies only to franchises "made" in Michigan. See Mich. Comp.

Laws § 445.1504; Hacienda Mexican Restaurants v. Hacienda
Franchise Group, 489 N.W.2d 108, 111 (Mich. App. 1992). Under

paragraph (2) of the statute, a franchise agreement is "made" in

Michigan "when an offer to sell is made" there, or if "an offer

to buy is accepted" there, or "if the franchisee is domiciled"

there, or if "the franchised business is or will be operated"

there.

Here, the dealer does not allege that the Agreement was made

in Michigan, that the dealer was offered the agreement in

Michigan, that it accepted the Agreement in Michigan, that the

dealer is domiciled in Michigan, or that the dealer's business

will be operated in Michigan. Rather, the dealer alleges that it

is a Virginia corporation with its principal place of business in

South Boston, and that the manufacturer is a Delaware corporation

with its principal place of business in Pennsylvania. The

dealer's own allegations demonstrate that the Michigan franchise

law cannot apply to this case.

- 9 -
 Moreover, the trial court did not err in rejecting the

dealer's argument that Virginia's Retail Franchising Act, Code

§§ 13.1-557, et seq., is applicable here. For the purpose of

this argument, we will assume the Act is relevant, rather than

the statutes regarding farm machinery dealerships found in Code

§§ 59.1-344, et seq. The franchising act is applicable if the

"franchisee is required to pay, directly or indirectly, a

franchise fee," Code § 13.1-559(A)(b)(3), that is, "a fee or

charge for the right to enter into or maintain a business under a

franchise, including a payment or deposit for goods, services,

rights, or training." § 13.1-559(A)(g).
In effect, the dealer alleges it paid a franchise fee. It

asserts it "is required to purchase training videos and programs;

make payments for the use of cooperative advertising; and

purchase tools, parts, and other goods and/or services" from the

manufacturer.

These factual assertions are directly contradicted by the

contract. Paragraph 18(c) plainly states: "The Dealer has not

paid any fee for this agreement." Thus, the trial court did not

have to accept as true the dealer's allegations regarding payment

of fees for videos and other services.

Finally, the dealer argues that the trial court erred in

refusing to grant the motion for leave to amend the complaint.

We hold the court did not abuse its discretion in so ruling. A

trial court may properly deny a motion for leave to amend when it

- 10 -
is apparent that such an amendment would accomplish nothing more

than provide opportunity for reargument of questions already

decided. Hechler Chevrolet, 230 Va. at 403, 337 S.E.2d at 749.

This is such a case.

Consequently, we conclude there is no error in the judgment

appealed from, and it will be

Affirmed.

- 11 -