IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE FILED
December 30, 1999
FRED MARSHALL, ) Cecil Crowson, Jr.
) Appellate Court Clerk
Plaintiff/Appellant, ) Rutherford Circuit
) No. 32618
VS. )
) Appeal No.
JACKSON & JONES OILS, INC., ) M1997-00104-COA-R3-CV
)
Defendant/Appellee. )
APPEAL FROM THE CIRCUIT COURT FOR RUTHERFORD COUNTY
AT MURFREESBORO, TENNESSEE
THE HONORABLE J. S. DANIEL, JUDGE
For the Plaintiff/Appellant: For the Defendant/Appellee:
Frank M. Fly Allen Shoffner
Murfreesboro, Tennessee Shelbyville, Tennessee
AFFIRMED IN PART; VACATED IN PART;
AND REMANDED
WILLIAM C. KOCH, JR., JUDGE
OPINION
This appeal involves a contract disp ute betwe en a service station ow ner and h is
gasoline supplier. The owner filed suit against the supplier in the Circuit Court for
Rutherford Co unty alleging that the supplier’s breach of the retail price prov isions of their
contract forced him out of busin ess. The su pplier coun terclaimed for the unpaid cost of
gasoline. The trial court, sitting without a jury, found that the supplier had not breached the
agreement and that the supplier had not proved that it was entitled to paym ent for unp aid
gasoline. Both the owner and the supplier have appealed. The owner asserts that the trial
court miscons trued the term s of the supp ly contract; while the supplier argues that the trial
court erred by dismissing its cou nterclaim. We h ave determined th at the trial court
misconstrued the contract and, therefore, vacate the judgment for the su pplier on the owne r’s
breach of contract claim. We have also determined that the trial court correctly dismissed
the supplier’s counterclaim. A ccordingly, we vacate the judgment in part and remand the
case for the assessme nt of damages a gainst the supplier.
I.
Fred Marshall operates a Handy Market on the corner of Bradyville Road and
Minerva Drive in Mu rfreesboro. In 1989, fearing competition from other convenience store
chains, he purchased a service statio n at the sam e intersection in order to p revent the site
from being acquired by a competitor. In August 1989, he signed a ten-year “consignment
supply agreem ent” with Jackson & Jones Oils, Inc. In return for M r. Marshall’s agreement
that Jackson & Jones would be his exclusive source for gasoline, diesel fuel, and other
petroleum products, Jackson & Jones agre ed to furnish him with the necessary above-ground
equipment and gasoline needed to operate his business.
The agreem ent, as its name indicated, w as a true con signmen t. Mr. Ma rshall did not
purchase petroleum products from Jackson & Jones and then resell them to the public.
Rather, Jackson & Jones retained ownership of the fuel delivered to Mr. Marshall’s service
station until it was sold through either the self-service or full-service pumps. The agreement
provided that the parties would be compensated by splitting the proceeds from the sale of the
petroleum products. For self-service gasoline, the parties split the profits equa lly. For full-
service gasoline, Mr. Marshall received a larger share of the proceeds “as compensation for
labor cost in pumping the product and providing full service.” The agreement requ ired Mr.
Marsha ll to file a weekly report of the number of gallons of fuel sold from each pump for the
preceding week and to pay Jackson & Jones a “remittance price” for each gallon sold.
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The consignment supply agreement defined the “remittance price” as the retail pump
price minus M r. Marsha ll’s share o f the “gr oss m argin.” 1 The “gross margin” was the
amount that the retail pump price of the fuel had been marked up by mutual agreement over
the “transfer cost” of the fuel. 2 The “tran sfer cost” of th e fuel was the cost of the fuel to
Jackson & Jones plus the transportation costs plus the applicable state and federal taxes.3
The agreement did n ot set a specific retail pump price for the fuel sold at Mr.
Marshall’s service station. Instead, it provided that the pum p price for any given sa les report
period would be the amount set “by mutual agreem ent” betw een Mr . Marsha ll and Jackson
& Jones. During the negotiations leading up to the agreement, John Keith Jackson of
Jackson & Jones prepared a proposal suggesting that the pump price for self-service fuel at
Mr. Marshall’s store should be one cent per gallon higher than the pump price of the
unbranded gasoline be ing sold at the Kw ik Sak con venience store neares t to Mr. Marsha ll’s
station. This concept was incorporated into paragraph eight of the parties’ agreement which
provided, in part, that “[t]he above computation [the computation of Mr. Marshall’s share of
the gross margin] a pplies to pro duct sold thr ough O perator’s self-s ervice ope ration and is
based on bein g brand ed and giving a one c ent spo t to any u nbrand ed ma rketers in the area .” 4
The pricing mechanism in the consignment supply agreement worked profitably for
both Mr. M arshall a nd Jack son & Jones u ntil the G ulf W ar. In September 1990, Jackson &
Jones began dictating to Mr. Marshall what the retail pump price of the fuel would be rather
than arriving at a price by mutual agreement. In Mr. Marshall’s words:
It turned around an d there was no longer a m utual agree ment.
[Jackson & Jones] would call me each Frida y morn ing to tell me
what the pump prices will be and the self-service will be on the
street, and that was it irregardless of what the competition was
doing. I would re late to [Jackso n & Jon es] that Kwik S ak is
1
[Remittance price] = [Retail pump price] [Marshall’s share of gross margin].
2
[Gross margin] = [Retail pump price] [Transfer cost].
3
[Transfer cost] = [Wholesale cost of fuel] + [Transportation costs] + [state & federal taxes].
4
Mr. Marshall explained how the consignment agreement worked in practice as follows:
If I priced the pump, self-service 119.9 or a one cent spot, that means Kwik
Sak would be at 118. Now, to clarify what the price would be, Jackson & Jones
would call me and tell me what their cost would be, what the actual cost would be
for the gasoline, I’d take that actual cost from Jackson & Jones to me, minus 119.9
pump price, and let’s say the actual cost was $1.10 per gallon, so that would leave
9.9 cents gross profit for gasoline in that particular price product. And you would
divide that by two, which would be 50 percent, that would be my gross margin profit
and that would also be Jackson & Jones gross margin profit above whatever they
already charged me for cost.
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over there selling g asoline for 1 01.9, do yo u want m e to go to
$109.9? Do you realize what it’s going to do to business?
Despite Mr. M arshall’s repe ated objectio ns, Jackson & Jone s continued to instruct him to
increase the price of his self-service fuel until it was eight cents per gallon higher than the
price of the self-service fuel at the nearest Kwik Sak. Jackson & Jones blamed these price
increases on the increased cost its supp lier was cha rging for fue l. When Mr. M arshall
inquired why the pump price of the fuel being sold at his station was no longer being set at
one cent per gallon higher than the comparable fuel being sold at the Kwik Sak, Mr. Jackson
informed him that as far as Jackson & Jones was concerned, the pump price no longer had
any relation to the pump price at Kwik Sak.
Mr. Marshall notified Jackson & Jones in October 1992 that its refusal to price the
fuel competitively was forcing him out of busine ss. Mr. Marshall closed his station two
months later. By that time, the price of self-service gasoline at Mr. Marshall’s service station
was nine cents per gallon higher than the self-service gasoline at the nearby Kwik Sak . Mr.
Marshall’s sales of fuel had dwindled to less than one-half of their 1990 levels, and he had
lost a significant amount of his repair business. As he put it, “The price [of gasoline] got so
high that I wouldn’t do no business and basically Jackson & Jones priced me out of business
and I had to close up the books.”
Mr. Marshall sued Jackson & Jones in the Circuit Court for Rutherford County,
alleging that the unilate ral dictation of th e retail price of self-service gasoline breached the
consignment supply ag reemen t and had fo rced him out of business. Jackson & Jones denied
that it had breached the agreement and counterclaimed for $5,637.60 plus late charges and
interest for the fuel they claimed M r. Marsha ll had neve r paid for. Fo llowing a b ench trial,
the trial court (1) determined that the consignment supply agreement permitted Jackson &
Jones to set the price of the fuel sold at Mr. Marsha ll’s station based solely on the wholesa le
cost of fuel, the transportation costs, and state and federal taxes and (2) dismissed the
provision linking the p ump pr ice of the fue l to a one-ce nt spot ove r unbrand ed mark eters in
the area as “poorly drafted.” Accordingly, the trial court determined that Jackson & Jones
had not breached the agreement. The trial court also dismissed Jackson & Jones’s
counte rclaim for failur e of pro of. Both parties h ave ap pealed .
II.
M R. M ARSHALL’S B REACH OF C ONTRACT C LAIM
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Mr. Marshall asserts that the trial court misconstrued paragraph eight of the
consignment supply agreement. Specifically, he argues that the trial court erred by
dismissing as “unreasonable” the provision in the agreement linking the retail pump price of
fuel sold at Mr. Marshall’s service station with the retail price of fuel at other nearby
unbranded marketers. We agree that the trial court erred by failing to give effect to this
provision.
A.
The purpose of interpreting a written contract is to ascertain and to give effect to the
contracting parties’ intentio ns. See Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth,
Inc., 521 S.W.2d 578, 580 (Tenn . 1975); Gredig v. Tennessee Farmers Mut. Ins. Co., 891
S.W.2d 909, 912 (Tenn. Ct. App. 1994). In the case of written contracts, these intentions are
reflected in the contra ct itself. Thus, the search for th e contracting parties’ intent sh ould
focus on (1) the fou r corne rs of the c ontract, see Whitehaven Comm unity Baptist Church v.
Holloway, 973 S.W.2d 592, 596 (Ten n. 1998); Hall v. Jeffers, 767 S.W.2d 654, 657-58
(Tenn. Ct. Ap p. 1988 ), (2) the c ircum stances in whic h the co ntract w as ma de. See Penske
Truck Leasing Co. v. Huddleston, 795 S.W.2d 669, 671 (Tenn. 1990); Pinson & Assocs. Ins.
Agency, Inc. v. Krea l, 800 S.W .2d 486, 48 7 (Tenn. C t. App. 199 0), and (3) th e parties’
actions in carrying out the con tract. See Hamblen County v. City of Morristown, 656
S.W.2d 331, 335 (Tenn. 1983 ); Ballard v. North Am. Life & Cas. Co., 667 S.W.2d 79, 84
(Tenn. Ct. App . 1983).
In the absence of fraud or mistake, courts should construe contracts as written. See
Frank Rudy Heirs Assocs. v. Sholodge, Inc., 967 S.W.2d 8 10, 814 (Tenn. C t. App. 1997);
Whaley v. Underwood, 922 S.W.2d 1 10, 112 (Tenn. C t. App. 1995). The c ourts should
accord contrac tual term s their na tural and ordina ry me aning, see Evco Corp. v. Ross, 528
S.W.2d 20, 23 (Tenn. 1975), and should construe them in the conte xt of the entire contract.
See Wilson v. Moore, 929 S.W.2d 367, 373 (Tenn. C t. App. 199 6); Rainey v . Stansell, 836
S.W.2d 117, 119 (Tenn. Ct. App. 1992). The courts should also avoid strained constructions
that create a mbig uities w here no ne exis t. See Hillsboro Plaza Enters. v. Moon, 860 S.W.2d
45, 47-48 (Tenn . Ct. App. 1993).
The courts may not make a new contract for parties who have spoken for themselves,
see Petty v. Sloan, 197 Tenn. 630 , 640, 277 S.W .2d 355, 359 (195 5), and may no t relieve
parties of the contractual obligations simply because these obligations later prove to be
burdensome or unw ise. See Atkins v. Kirkpatrick, 823 S.W.2d 547, 553 (Tenn. Ct. App.
1991). Thus, when called upon to interpret a contract, the courts may not favor either party.
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See Heyer-Jordan & Assocs., Inc v. Jordan, 801 S.W.2d 814, 821 (Tenn. Ct. App. 1990).
Howeve r, when a contract contains ambiguous provisions, those provisions will be construed
against the party re sponsi ble for d rafting th em. See Hanover Ins. Co. v. Haney, 221 Tenn.
148, 153-54, 4 25 S.W .2d 590, 59 2-93 (196 8); Burks v. Belz-Wilson Properties, 958 S.W.2d
773, 77 7 (Ten n. Ct. A pp. 199 7).
B.
Paragraph eight of the agreement contains the financial terms of the parties’
contractual relationship. It contains three formulae5 for determining how the proceeds from
the sale of the gasoline should be distributed to Mr. Marshall and Jackson & Jones. All the
variables in these formulae, except for the “retail pump price” of the gasoline, were
established either in the ag reemen t itself or by other objective, verifiable standards.6 The
retail pump price is the only variable in these formulae that the agreement requires to be set
by the parties “by mutual agreement and to be “based on . . . giving a one cent spot to any
unbranded marketers in the area.”
As the trial court construed the agreement, the re tail pump price was essentially
dictated by the price Jackson & Jones’s sup plier was ch arging for th e fuel. The c ontract,
however, does not say that. As evidenced by the language about the one cent spot over area
unbranded marketers, the contract makes pump pricing of fuel for any given reporting week
compe titively driven, not sim ply driven ju st by wha t we norm ally think of a s wholesa le cost.
Mr. Jackson te stified that M r. Marsha ll had to pay Jackson & Jones "based on his cost
as computed by the cost to the station plus whatever [Mr. Marshall’s mark-up] might have
been . . .." While that may be how Mr. Jackson desired the arrangement to work, the contract
does not say that. 7 Paragraph seven of the agreement merely required Mr. Marshall to pay
5
See nn. 1 - 3.
6
The calculation for determining Mr. Marshall’s share of the “gross margin” was included
in paragraph eight of the agreement. The “transfer cost” was to be determined by Jackson & Jones,
but was based on the wholesale cost of the fuel which was established by Jackson & Jones’s
supplier, the transportation cost which was established by Jackson & Jones, and the state and federal
taxes which were established by law.
7
This case calls to mind an observation by an English court, anthologized by Professor
Williston in his treatise: “It is a poplar belief, especially prevalent amongst lawyers, that the efficient
business man requires that obligations incurred in business should be expressed in writing in simple,
intelligible and unambiguous language. It is a belief encouraged by the sayings of business men
themselves. But in practice nothing appears to be further from the truth. Business men habitually
adventure large sums of money on contracts which, for the purpose of defining legal obligations, are
a mere jumble of words. They trust to luck or the good faith of the opposite party, with the
(continued...)
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Jackson & Jones a "remittance price" on each gallon of gasoline sold. As defined in the
contract, the remittance price was nothing more than Jackson & Jones’s half of the gross
margin, which could have been any figure. Contrary to Mr. Jackson’s assertion, nowhere
does the agreement req uire Mr. Marsha ll to pay Jackson & Jones some w holesale cost figure
for the gasoline . Under the agreem ent, Mr. M arshall did no t buy the fue l wholesa le and then
resell it retail, and the trial court erred in basing its construction of the contract on that
notion.
Mr. Marsha ll was kno wledgeable about selling gasoline at retail. When he entered
into the agreement with Jackson & Jones, he wanted to be able to price his gasoline
compe titively to attract customers who would also pay him to service and repair their
vehicles.8 Mr. Jackson responded to Mr. Marshall’s desire for competitive pricing by
proposing a way to price self-service gasoline that would make it competitive within one cent
per gallon with gasoline for sale at a nearb y self-se rvice co nvenie nce sto re. Mr. Jackson’s
competitive pricing proposal was ultimately incorporated into paragraph eight of the
consignment agreement drafted by Jackson & Jones and accepted by Mr. Marshall. When
we review the entire record in context, including the parties’ original course of dealings and
Mr. Marsha ll’s later protests, w e agree w ith Mr. M arshall that the mutual agreement on
pricing was intended to be pegged on maintaining a closely competitive price, ideally a one
cent sp ot, over his nea rby un brande d com petition .
In our view, the trial court gav e too little weight to the competitive pricing provision
in paragraph eight. In view of the plain meaning of the language of that provision, as well
as the history of how it was included in the agreement and the parties’ course of dealing after
the agreement was signed, we agree with Mr. Marshall that Jackson & Jones breached the
consignment agreement when it began unilaterally imposing an uncompetitive and ultimately
destructive pricing structure on Mr. Marshall after August 1990.
III.
J ACKSON & J ONES’S C OUNTERCLAIM FOR U NPAID F UEL
7
(...continued)
comfortable assurance that any adverse result of litigation may be attributed to the hairsplitting of
lawyers and the uncertainty of the law.” 4 Samuel Williston, Treatise on the Law of Contracts §
600A (Walter H. Jaeger ed., 3d ed. 1961).
8
Mr. Marshall testified that he anticipated that the service and repair business was where the
real money would be made.
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Jackson & Jones contends that the trial court erred in dismissing as unproven its
countercla im for fuel delive red to Mr. Marshall’s service station that had not been paid for.
Jackson & Jones’s evidence to support this counterclaim consisted of a delivery invoice
devoid of any dollar figure and the testimony of its president that Mr. Marshall owed “to my
knowledge . . . around $1 0,456.” W hen prom pted by his lawyer to b e more sp ecific
concerning the elements of the $10,456 figure, the president stated that some unspecified
amoun ts were for a “service charge” and a “carrying charge.” Jackson & Jones presented no
evidence showing specific amounts of fuel delivered to Mr. Marshall’s service station on any
particular date and n ever prov ided a m eans for eithe r the trial court o r this court to
understand the difference between the $5 ,637.60 alleged its counterclaim and the “around
$10,456 testified to by its p resident.
It is elemental that a pa rty asserting a lawsuit claim must estab lish the claim by
satisfactory proof convincing to th e fact-finder. See Hamilton v. Zimmerman, 37 Tenn. (5
Sneed) 39, 44 (1857). To carry the burden of proof, a party may employ either direct
evidence from witnesses with personal knowledge or circumstantial evidence from persons
who know a nd can testify to related facts th at reasonab ly tend to establish the desired facts.
See Marq uet v. Ae tna Life Ins. Co., 128 Tenn. 213, 225, 159 S.W. 733, 736 (1913). As
Jackson & Jones Oil points out, while courts ordinarily will accept a witness' unimpeached,
uncontradicted testimony as true, see Frank v. Wright, 140 Tenn. 535, 541, 205 S.W. 434,
435 (1918 ), that testim ony m ust still ind uce som e certain ty in the f act-find er’s mi nd. See
Standard Oil Co. v. Roach, 19 Tenn. App . 661, 666, 94 S.W .2d 63, 66 (1935).
The vague and co nclusory testimony of Jackson & Jone s’s presiden t, procured o nly
by leading direct examination and wh olly uncorroborated with any business records, failed
to induce conviction in the trial court’s mind as to what am ount, if any, Mr. Marshall might
have owed Jackso n & Jones for fue l. Having reviewed the record, we agree with the trial
court that Jackson & Jone s failed to prov e their coun terclaim by a convincing preponderance
of the evidence.
IV.
We reverse the dismissal of M r. Marshall's complaint and affirm the dismissal of
Jackson & Jones cou nterclaim. We rem and this case to the trial court to determ ine Mr.
Marsha ll's damages for Jackson & Jones’s breach of the consignment supply agreement and
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for whatever other proceedings may be required. We tax the costs of this appeal to Jackson
& Jones Oils, Inc. for which execution, if necessary, may issue.
____________________________
WILLIAM C. KOCH, JR., JUDGE
CONCUR:
_________________________________
HENRY F. TODD,
PRESIDING JUDGE, M.S.
_________________________________
BEN H. CANTRELL, JUDGE
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