NO. 90-019
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
TRAD INDUSTRIES, LTD.,
A Canadian Corporation,
Plaintiff, Respondent and
Cross-Appellant,
WELCH E. BROGAN,
Defendant and Appellant.
APPEAL FROM: District Court of the Sixth Judicial District,
In and for the County of Park,
The Honorable Byron L. Robb, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Richard L. Kalar, Attorney at Law, Emigrant, Montana
For Respondent:
Kent R. Douglass; Swandal & Douglass, Livingston,
Montana
Submitted on Briefs: August 23, 1990
JAN 2 2 1991 ~ecided: January 22, 1991
~iled: f
CLERK OF BUPRLM; C D U ~
STATE OF kli.)ihi !4ndl
clerk
Justice Diane G. Barz delivered the Opinion of the Court.
Defendant and appellant Welch E. Brogan appeals the judgment
awarded plaintiff and respondent Trad Industries, Ltd. following
a non-jury trial in the District Court of the Sixth Judicial
District, Gallatin County. Trad Industries cross-appeals. We
affirm.
Brogan raises the following issues on appeal as framed by this
Court :
1. Did the District Court allow testimony in violation of the
par01 evidence rule?
2. Did the District Court err in enforcing the oral agreement
extending the cut-off dates of the written contracts?
3. Is there substantial credible evidence to support the
District Court's findings of fact?
4. Did the District Court err by awarding Trad Industries
damages for all 82 contracted for?
Trad Industries raises one additional issue on cross-appeal:
Did the District Court err in denying Trad Industries
exemplary damages?
Defendant Welch E. Brogan operates the Cinnabar Game Farm
located at Corwin Springs, Montana and has been engaged in the game
farming business for over forty years. On December 14, 1986,
Brogan and Trad Industries (Trad), a Canadian corporation located
in Handel, Saskatchewan, entered into the first of the two
contracts which form the basis of this action. This first Brogan-
Trad contract was for the sale of fifty cow elk at a price of
$1,750 each and ten heifer calves at $1,000 each, United States
funds. The agreement included terms stating that, Ifonly animals
that pass the required tests for export to Canada will be
purchasedlg and that "Welch E. Brogan shall pay for all quaranteen
[sic] and testing of the animals contracted for, before April lst.,
1987, the cut-off date of this agreement." Trad paid Brogan a
deposit of $19,500 to be applied toward the total purchase price
of $97,500.
On December 19, 1986, Brogan sold to Trad twenty-seven cow elk
for $1,750 each. These animals were not part of the fifty cow elk
which were the subject of the first Brogan-Trad contract. Trad
paid the entire purchase price of these elk at the time of sale.
On December 21, 1986, Brogan executed a receipt to Carden
Farms, another Canadian buyer, for payment of 150 elk with 149
delivered and 51 remaining of 200 elk contemplated under two
Brogan-Carden Farms contracts. That same day Brogan and Carden
Farms entered into a third contract. Brogan agreed that in
exchange for an additional $25,000 paid by Carden Farms, Carden
Farms would have a right of first refusal on all future elk for a
period of one year with the exception of 50 cow elk committed to
Trad and elk that Brogan would keep for his home herd.
Eight days after entering into the third agreement with Carden
Farms, Brogan, on December 29, 1986, entered into another contract
with Trad for an additional thirty-two cow elk at $1,750 each.
This agreement was substantially the same as their first contract
but included a May 1, 1987 cut-off date. Trad paid a deposit of
$11,200 toward the purchase price of $56,000.
According to the testimony of Ron Loerzel, the president of
Trad Industries, Trad entered into a number of contracts with third
parties for the resale of the elk it was to receive under the
contracts with Brogan. Ron Loerzel also testified that Brogan was
made aware of the negotiations with third-parties to resell the
elk.
During January through March, 1987, Trad telephoned Brogan on
approximately fourteen separate occasions regarding Brogan's
progress toward having the elk ready for delivery to Trad.
Testimony elicited at trial shows that Brogan stated that the next
51 elk would be for Carden Farms but he expressed a clear intention
to perform the contracts and assured Trad that he would have elk
available to fulfill their contracts. In later telephone
conversations Brogan stated some of the elk would be available for
delivery to Canada after the cut-off dates set forth in the
contracts.
On March 24, 1987, Ron Loerzel and his brother Terry Loerzel
met with Brogan in Montana. Conflicting testimony was presented
as to what occurred during this meeting. Brogan testified that he
offered to refund Tradtsdeposits. The Loerzels testified, and the
District Court found, that Brogan again stated that he would
deliver the elk pursuant to the contracts, however, delivery dates
would be pushed back to late April and mid to late May, 1987.
Throughout this time period, Brogan continued with the
difficult testing procedure necessary to secure the USDA health
certificate required by Canadian officials to allow the import of
elk into that country. In order to bring elk into Canada, the elk
must be free of four diseases: tuberculosis, brucellosis,
anaplasmosis and blue tongue. Tests for these diseases are
conducted by drawing blood samples from each animal and submitting
the samples to a laboratory for analysis.
Upon undergoing the first series of tests, each elk is fitted
with a permanent ear tag with a number which serves to identify
that animal throughout the testing process. When a group of elk
is tested, the group must be held apart from other elk pending
receipt of the test results. If those elk all pass the series of
tests, they then remain isolated for a period of sixty days, after
which they are administered the same series of tests for a second
time. If they pass the second series of tests, the USDA issues its
health certificate and Canadian authorities will allow their
import. The animals must cross the Canadian border within thirty
days after issuance of the health certificate. If an individual
elk fails one or more of the tests, it is held back from the group.
Thereafter, the group may start the testing cycle over again after
a waiting period of thirty days.
On March 27, 1987, Trad's attorney sent a letter to Brogan
inquiring as to his intentions of performing the contracts and
indicating Trad would file a lawsuit for lost profits if Brogan did
not perform. On April 1, 1987, Brogan sent a letter to Trad
returning the $30,700 deposited with him and stating that he
considered all sales to Trad closed.
On April 6, 1987, Trad filed its complaint in the District
Court seeking specific performance of the two Brogan-Trad
contracts, or in the alternative, an award of damages for breach
of contract. Trad also sought exemplary damages for breach of the
implied covenant of good faith and fair dealing.
After a non-jury trial the District Court found that Brogan
breached the contracts and awarded Trad lost profits on the resale
of the 82 cow elk contracted for, such profits amounting to
$102,103.10, together with costs of $279.90. The District Court
denied Trad exemplary damages.
From this judgment Brogan appeals and Trad cross-appeals.
The first issue raised on appeal is whether the District Court
allowed testimony in violation of the par01 evidence rule. Brogan
argues the District Court erred in allowing testimony regarding the
representations he made to Trad at the time of contracting that he
had 150 cow elk to sell, most of which would be ready for final
testing for export to Canada in February, 1987 and that a proposed
contract for the sale of the elk had been found unacceptable by
Brogan. Brogan also argues the court erred when it allowed
testimony regarding telephone conversations between Trad and Brogan
from January through March of 1987 in which Brogan expressed his
intention to perform the contracts, even if past the cut-off dates
of the contracts.
The subject of the Brogan-Trad contracts was the sale of elk
which come within the Uniform Commercial Code definition of
llgoods." See, 5 30-2-105(1), MCA. Thus, the sale of the elk is
governed by the Code and the Code provisions must be given primary
consideration, with the law of contracts being used only to
supplement the Code provisions. Norwest Bank Billings v. Murnion
(1984), 210 Mont. 417, 422-23, 684 P.2d 1067, 1070. The relevant
statute addressing parol evidence is 5 30-2-202, MCA:
Final written expression--par01 or extrinsic
evidence. Terms with respect to which the
confirmatory memoranda of the parties agree or
which are otherwise set forth in a writing
intended by the parties as a final expression
of their agreement with respect to such terms
as are included therein may not be
contradicted by evidence of any prior
agreement or of a contemporaneous oral
agreement but may be explained or
supplemented:
(a) by course of dealing or usage of
trade (30-1-205) or by course of performance
(30-2-208); and
(b) by evidence of consistent additional
terms unless the court finds the writing to
have been intended also as a complete and
exclusive statement of the terms of the
agreement.
Section 30-2-202, MCA, provides that terms of the written
contract cannot be contradicted by representations or negotiations
which occurred prior to or contemporaneous with the written
agreement. The telephone conversations are not barred by the parol
evidence rule. These occurred after the writings and pertain to
Trad's assertion that the contracts were subsequently modified.
As for the proposed contract, no evidence of the terms of that
proposed contract was entered into the record but was referred to
merely to provide a foundation for the introduction of the two
Brogan-Trad contracts. The District Court did not err in allowing
this testimony.
The language of the two written contracts is clear and
unambiguous. There are no terms within these contracts which state
that Brogan had 150 cow elk to sell and that most of those elk
would be ready for final testing for export to Canada in February,
1987. Therefore, the fact there may have been further oral
understandings between the parties is barred by the parol evidence
rule and the District Court's admission of this evidence was error.
However, because we conclude that, disregarding these oral
representations, there is substantial credible evidence in the
record to support the findings of the District Court, the admission
of this testimony does not constitute reversible error.
The second issue raised on appeal is whether the District
Court erred in enforcing the oral agreement extending the cut-off
dates of the written contracts. The District Court found in
findings of fact 32 and 33 that during the telephone conversations
from January through March of 1987 and again in a face-to-face
meeting on March 24, 1987, that Brogan assured Trad he intended to
fulfill the contracts even if deliveries fell beyond the cut-off
dates in the written contracts, thereby extending the cut-off dates
of the contracts.
Brogan, citing 5 28-2-1602, MCA, argues that a written
contract may only be altered by another written contract or by an
executed oral agreement, which did not occur in this case. Brogan
correctly states the law of contracts regarding modification of
written contracts, however, as stated earlier, the Brogan-Trad
contracts are governed by the Uniform Commercial Code.
The relevant Code provision regarding modification of an
existing contract is § 30-2-209, MCA. Section 30-2-209 ( 2 ) , MCA,
allows for the oral modification of a contract unless otherwise
indicated by the parties:
A signed agreement which excludes
8
modification or rescission except by a signed
writing cannot be otherwise modified or
rescinded. . . .
Neither of the contracts between the parties contained a no oral
modification clause.
Section 30-2-209(3), MCA, further requires that the statute
of frauds, § 30-2-201, MCA, must be satisfied if the contract, as
modified, is within its provisions. That is the situation in the
present case. However, 5 30-2-209(4), MCA, provides that an
attempt at modification that does not satisfy the requirements of
subsection (3) can operate as a waiver of the right to assert a
defense under the statute of frauds. See also, Farmers Elevator
Co. v. Anderson (1976), 170 Mont. 175, 552 P.2d 63. The evidence
in the record reveals a course of conduct by Brogan sufficient to
estop him from insisting upon the enforcement of the original cut-
off dates in the written contracts. Brogan repeatedly, in numerous
telephone conversations and in a face-to-face meeting with Trad's
representatives, assured Trad that the elk contracted for would be
available even if past the cut-off dates contained in the written
agreements. Trad justifiably believed it did not need to find
replacement elk to fulfill its contracts with third-parties and
subsequently lost profits it would have obtained on the resale of
the elk. When a promisee reasonably and foreseeably relies on a
promise to his detriment the promise is binding if injustice can
be avoided only by enforcement of the promise. Keil v. Glacier
Park, Inc. (1980), 188 Mont 455, 462, 614 P.2d 502, 506, (citing
§ 90 of the Restatement (Second) of Contracts).
We hold the District Court did not err in enforcing the oral
agreement extending the cut-off dates of the written contracts
between the parties.
The third issue raised on appeal is whether there is
substantial credible evidence to support the District Court's
findings of fact. At trial, Brogan contended that he never
guaranteed he would have elk that would pass the required tests for
export and asserted that it was impossible to fulfill the contracts
before the cut-off dates because he did not have the animals and
because a herd of 300 elk from Missouri delivered to his game farm
on March 19, 1987 arrived in a very malnourished and diseased
condition which delayed testing of all the elk on the game farm
past the cut-off dates of the contracts. The District Court found
that Brogan presented insufficient evidence to show it was
impossible to perform the contracts before the cut-off dates of
the contracts. It found that Brogan had elk available which could
have been used to fulfill the contracts but he failed to do so by
unjustifiably selling elk to third-parties and keeping others for
his home herd. The court further found Brogan had repeatedly
assured Trad that he intended to perform the contracts even if
delivery ran past the cut-off dates, but had failed to do so.
Finally, the court found Trad had entered into a number of
contracts to resell the elk contracted for with Brogan and
following Brogan's letter of April 1, 1987, Trad made numerous
attempts to obtain substitute elk to satisfy these contracts but
was unsuccessful, thereby suffering damages of lost profits.
This Court's standard of review of findings of fact in a civil
action tried by a district court without a jury is whether or not
10
the district court's findings are clearly erroneous; this Court
will not substitute its judgment for that of the district court
absent that showing, even where there is evidence in the record to
support contrary findings. Dennis v. Tomahawk Services, Inc.
(1989), 235 Mont. 378, 379, 767 P.2d 346, 347. In addition,
erroneous findings of fact that are not necessary to support the
judgment of the district court are not grounds for reversal. Eaton
v. Morse (1984), 212 Mont. 233, 244, 687 P.2d 1004, 1010. Brogan
points out that part of the evidence in the record is documentary
evidence and asserts that this Court is in as good a position as
the District Court in judging the weight to be given to that
evidence. Although Brogan is correct in his assertion, this Court
will nevertheless uphold the lower court if there is substantial
credible evidence to support the lower court's determination.
Sciuchetti v. Hurt Const. (1989), 238 Mont. 170, 174, 777 P.2d 308,
311.
On appeal, Brogan attacks twenty-six of the District Court's
fifty-two individual findings of fact. In most instances Brogan
points to a conflict in the testimony between the parties and other
witnesses. The District Court's findings regarding these matters
are sufficiently supported by the evidence and we will not
substitute our judgment for that of the District Court because
conflicting evidence supports contrary findings.
Brogan also directs us to the laboratory reports regarding the
elk tested for export to Canada and asserts the District Court
erred in its calculations of the number of cow elk which passed
their final tests for export before the cut-off dates of the
11
contracts. Brogan's argument with respect to the exact number of
cow elk which passed all the required tests for export to Canada
before the cut-off dates of the contracts is credible but not
grounds for reversal. Because we have determined there was a valid
extension of the cut-off dates of the contracts we need only
determine whether substantial evidence supports the District
Court's findings that Brogan could have performed the contracts
within a reasonable time after the cut-off dates and that his
failure to do so caused Trad consequent loss and damages.
The record shows that on April 28, 1987, Brogan concluded
testing on a group of elk, including at least sixteen cow elk,
which were sold to Carden Farms of Canada in early May. In
addition, on June 5, 1987, Brogan concluded testing on another
group, including 74 cow elk, which were sold to Doug Bauman of
Alberta, Canada. These elk could have been used to fulfill the
Brogan-Trad contracts.
The record also shows Trad entered a number of contracts with
1
third-parties to resell the elk contracted for with Brogan. Brogan
argues that he is not responsible for Trad's lost profits because
Trad entered into these contracts before entering into the Brogan-
Trad contracts. We disagree. Brogan was aware of Trad's
negotiations with third-parties. Although Trad may have been
negotiating the third-party contracts prior to the Brogan-Trad
contracts, the record shows that they were finalized after Brogan
and Trad entered into their contracts.
We hold that substantial credible evidence supports the
District Court's findings of fact.
The fourth issue on appeal is whether the District Court erred
by awarding Trad damages for all 82 elk contracted for. Brogan
contends that even if this Court were to uphold the judgement of
the District Court, he should be required to pay damages based upon
55 head of elk cows instead of 82. Brogan argues that it would be
inequitable to require him to pay the full amount of damages for
82 undelivered elk when he had in fact sold to Trad 27 head of elk
on December 19, 1986, five days after entering into the first
contract and at the price per elk stated in that contract.
The District Court found that the 27 elk were not the subject
of either of the other two contracts between the parties. The
District Court's finding is supported by the testimony of both
parties. Brogan acknowledged this in his December 21, 1986
contract with Carden Farms in which Carden Farms was given a right
of first refusal on all future elk for one year with the exception
the 50 elk committed to Trad under their first contract and elk
Brogan would keep for his home herd. We hold the District court
did not err in awarding damages based upon all 82 elk contracted
for.
On cross-appeal Trad contends the District Court erred when
it concluded that Trad was not entitled to an award of exemplary
damages. This conclusion was based on the court's finding of fact
number 50 which states:
While the court finds defendant breached his
contracts with plaintiff, Brogan did sell Trad 27 other
animals he was not obliged to, and offered to deliver the
ten calves contracted for, and that the evidence does not
establish defendant's conduct was so gross or aggravated
as to award additional damages for the tort of breach of
the covenant of good faith between the parties, nor any
punitive damages, the latter of which are not proper
anyway on contract cases (section 27-1-220, MCA).
Trad points out that its complaint, filed April 6, 1987,
created a cause of action which arose prior to the effective date
of 5 27-1-220 (2) (a), (1989) MCA, which largely eliminates punitive
damages in contract or breach of contract actions. Trad argues
that the court's findings indicate Brogan's conduct amounts to
oppression, fraud or presumed malice and at least can be
characterized as arbitrary, capricious or unreasonable as to
entitle it to an award of damages for the tort of breach of the
implied covenant of good faith and fair dealing.
This Court has recently reassessed the covenant of good faith
and fair dealing in an effort to provide more workable guidelines.
In Story v. City of Bozeman (1990), 242 Mont. 436, 451, 791 P.2d
767, 776, we held that in common contract actions tort-type damages
are not available for breach of the implied covenant of good faith
and fair dealing. The tort of bad faith has applicability only in
exceptional circumstances in contracts involving "special
relationships which are not otherwise controlled by specific
statutory provision^.^^ Story, 242 Mont. at 451, 791 P.2d at 776.
The contract in the present case is a common commercial contract
for the sale of goods and is governed by the Uniform Commercial
Code's commercial reasonableness standard. Consequently, even if
it was found that Brogan breached the implied covenant, Trad would
be entitled to recover only contract damages and not tort damages.
Tort-type damages may be available for traditional contract-
related torts. Story, 242 Mont. at 451, 791 P.2d at 776. However,
after reviewing the record, we agree with the ~istrictCourt that
Brogan's conduct does not rise to a level of oppression, fraud or
presumed malice. As the District Court found, Brogan did sell to
Trad twenty-seven elk he was not obligated to and offered to
deliver the ten calves contracted for.
We hold that the District Court did not err when it denied
Trad exemplary damages.
Affirmed .
We concur: