No. 90-287
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
BEAVERHEAD BAR SUPPLY, INC.,
a Montana corporation,
Plaintiff and Appellant,
-v-
.
DONALD P HARRINGTON , d/b/a .,
HARRINGTON BOTTLING COMPANY,
Defendant and Respondent. +F 1
4.9.
APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Beaverhead,
The Honorable Frank Davis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Frank B. Morrison, Jr.,. & John M. Morrison; Morrison
Law Offices, Helena, Montana
For Respondent:
Donald C. Robinson; Poore, Roth & ~obinson;Butte,
Montana
Submitted on Briefs: November 8, 1990
~ecided: February 1, 1991
Filed: w
Justice R. McDonough delivered the Opinion of the Court.
The plaintiff Beaverhead Bar Supply (Beaverhead) appeals the
order of the Montana Fifth Judicial District Court, Beaverhead
County, granting the defendant Donald P. Harrington, d/b/a/
Harrington Bottling Company (Harrington), summary judgment on
Beaverheadts claims of breach of contract and breach of the
implied covenant of good faith and fair dealing. We reverse.
The plaintiff raises several issues on appeal, which we
restate as follows:
1) Did the District Court err in concluding as a matter of
law that no contract existed between the parties?
2) Does the statute of frauds bar the plaintiff from seeking
enforcement of an alleged oral agreement on the grounds that the
agreement could not be performed within one year?
3) Does the implied covenant of good faith and fair dealing
apply to the relationship alleged in this case?
In 1978, Dan Carpita, Jr. (Carpita) began negotiating an
agreement with his father (Carpita, Sr.) to purchase his father's
interest in Beaverhead Bar Supply for $294,705.00. Carpita was
also contemplating a $300,000.00 expansion over five years. The
terms of the agreement called for a down payment of $85,000.00 and
monthly payments of $1,754.08 over 20 years. At the time, Pepsi-
Cola products allegedly represented approximately 30% of
Beaverheadts inventory and approximately $7000.00 to $8000.00 per
month gross profit. Beaverhead obtained all of its Pepsi products
from Harrington on an order basis.
As part of negotiations, carpita sought assurances from
Beaverhead's major suppliers for their continued business. Both
Carpita and carpita, Sr. allegedly met with Don Harrington in
Harrington's office and explained the proposed financial
transaction and expansion. They allegedly advised Harrington of
the terms of their agreement and told him that Carpita was also
planning on incurring additional debt of approximately $300,000.00
for expansion of Beaverhead. carpita alleges that they explained
to Harrington that in order to effectively carry out this plan for
sale and expansion that it was necessary for Beaverhead to maintain
the Pepsi-Cola distributorship in order to service the proposed
debt.
Harrington alleges that while the Carpitas did inform him of
the transfer of ownership of Beaverhead, no such in-depth
discussion took place.
In 1979, Harrington began directly distributing Pepsi-Cola
products in adjacent Madison County, thus removing that market from
what had been part of Beaverhead's distribution area. In 1982, an
agent of Harrington allegedly came to Carpita and asked if
Beaverhead was for sale. Carpita informed him that it was not.
Due to these two incidents, Carpita claims that he began to be
concerned about the intentions of Harrington sometime in 1983.
About this time Harrington suggested that Carpita invest more
heavily in an aggressive promotion of Pepsi-Cola products and
Carpita stated that as a prerequisite to additional investment, he
would need the alleged oral assurance of Harrington for a continued
relationship, put into a written contract. Don Harrington
allegedly agreed to "work upvt written contract.
a
In June of 1984, Carpita, Sr. died leaving Harrington and
Carpita as the only witnesses to the alleged 1978 agreement. In
August, Harringtonts agent presented Carpita a proposed written
contract providing for a termination of the bottler-distributor
relationship Itat will.It Carpita counterproposed certain terms
reflecting the continuation of the alleged 1978 agreement.
On December 18, 1984 Don Harrington notified Carpita that
effective January 7, 1985, Harrington Bottling would begin
distributing Pepsi-Cola products directly and would no longer make
those products available to Beaverhead. Beaverhead filed suit in
June of 1985, alleging that as a result of the termination it lost
over $90,000.00 a year, approximately one-third of its income, and
entirely lost 65 accounts as a result of the termination, of which
approximately 39 were allegedly developed since 1978 through the
efforts of Carpita. Beaverhead alleges that the loss of this
income has brought it to the brink of insolvency.
Harrington moved for summary judgment, which the District
Court granted on April 26, 1990, and subsequently amended its order
on May 4, 1990. Beaverhead now appeals.
In its order granting summary judgment, the District Court
concluded that there existed a I1vague,indefinite, and uncertain,"
type of relationship between the parties, but that no contract
existed between them. Consequently, the court found no implied
covenant of good faith and fair dealing attendant to a contract.
Moreover, the court concluded that the statute of frauds, 5 28-2-
903, MCA, bars enforcement of whatever oral relationship or
agreement may have existed between the parties.
We disagree. Summary judgment under Rule 56 (c), M.R. Civ.P.
is proper only if the record discloses no genuine issue of material
fact and the moving party is entitled to judgment as a matter of
law. Reaves v. Reinbold (1980), 189 Mont. 284, 287, 615 P.2d 896,
898. While it is true that the purpose of summary judgment is to
encourage judicial economy, it is also true that the procedure is
never to be a substitute for trial if a material factual
controversy exists. Reaves, 615 P.2d at 898. In Reaves we held
that there was a genuine issue of material fact as to the existence
of an oral contract for $900.00 a month salary that precluded
summary judgment. Reeves, 615 P.2d 898-99. Similarly, in this
case there are genuine issues of material fact regarding whether
Beaverhead and Harrington had a contract based on the 1978 meeting.
This factual dispute is more evident in the deposition testimony
of the parties. In his deposition, Harrington testified as
follows:
Q. At the time that Dan purchased the business from his
father, do you recall a meeting in Butte with Carpita,
Sr. and Dan and yourself present?
A. Yes.
Q. Where was that meeting held?
A. It was in our old offices at the plant here, and
Dan, Sr. put his head in the door and he said, llI'm
turning this business over to young Dan," and he says,
"But I'm going to be around to look after it for awhile."
Q. Was that the extent of the meeting?
A. It was very brief.
Q. Did anybody come in and sit down in your office?
A. No, never did. Dan was standing there and his dad
was standing there, right in the door of the office.
Q. And what was said by you?
A. As I recall, I said something to the effect that,
"If he does as good a job as you did, well, things will
be okay,It or words to that effect.
Q. If other people testify that something like that
was said, you wouldn't disagree with it? In fact, you
do remember saying something like that?
A. Correct. Dan's dad was a good businessman.
Carpita's account of the meeting given in his deposition differs
substantially:
Q. Mr. Harrington was asked this morning about a
conversation that took place between he and your father
back at about the time you were taking over the business
from your father here in Butte. Did you witness that
conversation?
A. Idid.
Q. What is your recollection of where that conversation
took place?
A. It took place in Don's office on Holmes Avenue.
Q. And Mr. Harrington testified that while he was in
his office, your father stuck his head in the door and
indicated, said something to the effect that you had
taken over the business, and he was being advised of
that, so to speak, and Mr. Harrington indicated that that
was fine and wished you all well, and said something to
the effect that if you did as good a job as your, as Dan,
Sr. did, everything will be okay, or words to that
effect.
Is that your recollection of the conversation?
A. No.
Q. What is your recollection of the conversation?
A. We called and made an appointment to see Don and
made a specific trip for that reason. We spent some
three hours in Dongs office and explained the financial
transaction between my father and I and also the
transaction with the expansion ofthe business, building,
et cetera.
Q. Who participated in that conversation?
A. My dad, Don and myself.
A. [I] [elxplained the financial situation and pointed
out to him the importance of having it, because nothing
could take--I couldn't service the debt to him. I
couldn't service the debt for the expansion without it.
Q. Without what?
A. Without Pepsi-Cola.
...
A. ... [A]t the time the first discussion took place,
I asked Don if we needed something in writing. And he
says, "A handshake should always be good enough. It
always has been."
Q. When did he say that?
A. In 1978.
Q. He said, "You have a handshake." Did you shake
hands?
A. Yes.
Q. What did you shake hands over?
A. Over the discussion, over the relationship, over the
friendship that we assumed after 30 years that we have.
Q. Did he say anything to the effect about, or
compliment your father and say If [sic] things went like
your father ran the business, that he thought everything
would be okay, or words to those [sic] effect?
A. What the words were to the effect was that we had
always enjoyed a good relationship. We didn't see any
reason to change anything if it kept going.
Q. That isn't my question, Mr. Carpita. My question
is, did he ever say anything to the effect that your
father had done an excellent job and that if you
continued along the same lines, that everything would be
okay?
A. No.
Q. He didn't say that?
A. That was not the specific words that he said.
Q. Did he say words to that effect?
A. The words to the effect that I just said, that we
had always enjoyed a good relationship.
Q. ,
By llwegt he meant he and your father, right?
A. Beaverhead Bar Supply.
In light of the deposition testimony and the continued relationship
of the parties for some 30 years there is a genuine issue of
material fact regarding whether an agreement was made at the 1978
meeting, and what was that agreement. Furthermore, if an agreement
was made, the deposition testimony indicates that factual issues
exist regarding the length of the contract's term. According to
Harrington's testimony, such a contract could be construed as being
Iffor so long as Beaverhead continued to perform satisfactorily1',
measured comparatively to the performance of Beaverhead under
Carpita, Sr. See, e.g., Burgermeister Brewing Corp. v. Bowman
(1964), 227 Cal.App.2d 274, 38 Cal.Rptr. 597. Or, as Beaverhead
argues in its brief, the term of the contract could be construed
as an exclusive distributorship of Pepsi-Cola products for an
implied term of twenty years, i.e. the time necessary for
Beaverhead to service its debt. Finally, according to Carpita's
testimony that Itwe had always enjoyed a good relationship [and]
[w]e didn't see any reason to change anything if it kept going"
the contract could be construed as providing for termination at
will. See e.g., Bronken's Good Time Co. v. J. W. Brown &
Associates (1983), 203 Mont. 427, 661 P.2d 861.
The District Court also ruled that the statute of frauds
barred enforcement of any agreement that may have existed between
the parties. Again, we disagree. The statute provides that an
agreement that by its terms is not to be performed within a year
from the making thereof must be in writing. Section 28-2-
903 (1)(a), MCA. Evidence of such an agreement is not admissible
without the writing or secondary evidence of its contents. Section
28-2-903 (2), MCA.
However, courts have uniformly construed this provision
narrowly. If there is any possibility that a contract may be
performed within one year, it is not within the statute. 2 Corbin
on Contracts, 1 444 at 535; Farnsworth, Contracts, 5 6.4 at 392.
Thus, the issues of fact regarding the terms of the alleged oral
agreement discussed hereinabove are also material toward
determining whether the statute bars enforcement of the alleged
agreement. Assuming arguendo that there is an oral contract, if
its term is for "so long as Beaverhead continued to perform
satisfactorilyu Harrington could not terminate the contract at
will. Rather, the contract would be one of indefinite duration
that, depending upon Beaverhead's performance, might possibly be
performed within one year, and therefore enforcement would not be
barred by the statute. Bursermeister, 38 Cal.Rptr. at 601-602.
On the other hand, if the jury finds that the oral contract was for
a twenty-year term--thus enabling Beaverhead to service the debt
incurred in expansion--enforcement is clearly barred by the statute
because by its terms such a contract cannot possibly be performed
within a year. Section 28-2-903 (1)(a), MCA. Finally, if the
alleged oral contract was terminable at will, the rule of Bronken's
Good Time Co. v. J. W. Brown & Associates, supra, as to reasonable
notice of termination applies. If so, Beaverhead is entitled to
reasonable notice of termination. As to what is a reasonable
amount of time is a question of fact. Bronken's, 661 P.2d at 864.
If the jury finds that a reasonable amount of time to be given by
a notice to terminate exceeds one year, then such contract, being
wholly oral, is unenforceable. Section 28-2-903 (1)(a), MCA; San
Francisco Brewing Corp. v. Bowman (Ca1.1959), 343 P.2d 1, 7, also
discussed in appeal after remand, Burgermeister Brewing Cor~.,
s u w a , 38 Cal.Rptr. at 602.
Beaverheadtsfinal issue on appeal asks us to rule on whether
the implied covenant of good faith and fair dealing applies to the
relationship alleged in this case. In order for Beaverhead to
recover from Harrington on a theory of breach of the implied
covenant, there must be an enforceable contract to which the
covenant attends. See Story v. City of Bozeman (1990), 242 Mont.
436, 450, 791 P.2d 767, 775. In Story we held that "every
contract, regardless of type, contains an implied covenant of good
faith and fair dealing." In essence, the covenant is a mutual
promise implied in every contract that the parties will deal with
each other in good faith, and not attempt to deprive the other
party of the benefits of the contract through dishonesty or abuse
of discretion in performance. Story, 791 P.2d at 775.
First, we note that this case is before us on appeal from an
order granting summary judgment. We decline to rule on application
of the covenant in this case where only a sparse record has been
developed at this point and where there are still genuine factual
issues to be resolved regarding the existence and enforceability
of the alleged contract. However, we do note that Beaverhead
correctly concedes in its brief that even if it can prove a breach
of the implied covenant, it cannot prove that it entered into the
contract for a non-profit motivation and thus any damages it might
recover will be limited to contractual remedies. Story, 791 P.2d
We conclude that there are genuine issues of material fact
regarding the existence of a contract and its enforceability that
preclude summary judgment under Rule 56 (c), M.R. Civ.P. We
therefore reverse the order of the District Court granting summary
judgment .
REVERSED and REMANDED for further proceedings consistent with
this opinion.
We Concur: I
Justice
#
Chief Justice
/
1
District Judge, &ttihg in
place of Justice John C. Sheehy