GILBERTSON, Chief Justice (on reassignment).
[¶ 1.] Stern Oil argues that James Brown contracted to purchase a minimum amount of fuel for his two convenience stores from Stern Oil for a ten-year period. When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging fraudulent inducement. The circuit court granted Stern Oil's motion for summary judgment on both the breach of contract claim and on Brown's counterclaim, but the issue of damages proceeded to trial.
[¶ 2.] Brown farms near Gettysburg, South Dakota, and has owned interests in several businesses. In late 2004, he acquired and redesigned two convenience stores on opposite sides of Exit 2 on Interstate 29 in North Sioux City, South Dakota. Stern Oil, a fuel distributor for Exxon Mobil Corporation (ExxonMobil), contacted Brown while he was remodeling the properties. Although Brown was negotiating with another fuel distributor, he ultimately elected to do business with Stern Oil. One convenience store was branded Exxon Goode To Go, and the other was branded Freeway Mobil.
[¶ 3.] In October 2005, Brown and Stern Oil executed a Motor Fuel Supply Agreement (MFSA) for each of Brown's two convenience stores. Each MFSA listed the maximum volume of fuel that Stern Oil was obligated to offer to sell to Brown each year. The maximum annual volume for the first contract year at Freeway Mobil was 1.38 million gallons of gasoline, and the maximum annual volume for the first contract year at Exxon Goode To Go was 1.5 million gallons of gasoline and 720,000 gallons of diesel. After the first contract year, the maximum annual volume of fuel was adjusted each year based on sales volume.
[¶ 4.] The MFSAs also briefly addressed the price of the fuel that Brown was required to purchase from Stern Oil:
Stern Oil faxed and emailed Brown a fuel price sheet each business day. The price sheet listed the rack price of the various types of fuel that Brown could purchase;
[¶ 5.] Under a brand incentive program, Brown and Stern Oil also executed a Repayment Agreement (BIP) for each of Brown's two convenience stores. The BIPs provided that Stern Oil would reimburse Brown for the costs of certain improvements to his convenience stores. Stern Oil thus assisted Brown in designing the layouts of his stores and equipping the stations with ExxonMobil-approved fuel dispensers and payment systems. The BIPs gave Stern Oil the option of reimbursement in the event of Brown's breach or default:
[¶ 6.] When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. Brown claimed that Stern Oil's prices were so high that he was unable to make a profit on the sale of fuel at his convenience stores. Stern Oil moved for summary judgment on its breach of contract claim and on Brown's fraudulent inducement counterclaim. The circuit court granted Stern Oil's motion for summary judgment on both claims. It concluded that a breach of contract occurred as a matter of law but left the issue of damages for trial. Brown then filed a motion for reconsideration, which, following a hearing, the circuit court denied.
[¶ 7.] The issue of damages proceeded to trial in October 2009 and January 2010. The circuit court awarded Stern Oil eight years of lost profits in the amount of $925,317. A judgment in that amount plus prejudgment interest was entered against Brown in August 2010. The circuit court later added attorneys' fees and taxable and non-taxable disbursements to the original judgment. Brown moved for a new trial, but his motion was deemed waived. Brown appeals.
[¶ 8.] A grant of summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." SDCL 15-6-56(c). Thus, "[t]his Court reviews a grant of summary judgment to determine whether the moving party has demonstrated the absence of any genuine issue of material fact and entitlement to judgment on the merits as a matter of law." Tolle v. Lev, 2011 S.D. 65, ¶ 11, 804 N.W.2d 440, 444. "All reasonable inferences drawn from the facts must be viewed in favor of the non-moving party." Id. Yet, "the party challenging summary judgment must substantiate his allegations with sufficient probative evidence that would permit a finding in his favor on more than mere speculation, conjecture, or fantasy." Id.
[¶ 10.] Because the MFSAs were primarily agreements for the sale of goods, South Dakota's version of the Uniform Commercial Code (UCC), which is codified in Title 57A of the South Dakota Code, governs the dispute in this case. See SDCL 57A-2-102.
SDCL 57A-2-202 (2008).
[¶ 11.] We have recognized an exception to the parol evidence rule when evidence is introduced to establish fraud as a ground for rescinding a contract. As we explained in Sabbagh v. Professional & Business Men's Life Insurance Co.,
79 S.D. 615, 629, 116 N.W.2d 513, 520 (1962) (quoting 32 C.J.S. Evidence § 979). This "fraud exception" to the parol evidence rule applies to contracts governed by the UCC. See 1 James J. White & Robert S. Summers, Uniform Commercial Code § 2-11 (5th ed.2006) (recognizing an exception to the parol evidence rule when a party seeks to rescind a contract governed by the UCC on the basis of fraud); SDCL 57A-1-103(b) ("Unless displaced by the particular provisions of this title, the principles of law and equity, including ... the law relative to ... fraud[ ][and] misrepresentation,... supplement its provisions.").
[¶ 12.] In this case, Brown sought to rescind the MFSAs and the
[¶ 13.] In addition, whether Stern Oil fraudulently induced Brown to enter into the agreements involves disputed material facts. Brown claims that Stern Oil orally guaranteed a five-cent profit on every gallon of fuel he sold. Stern Oil contends that it did not make this guarantee. For summary judgment purposes, "[a] disputed fact is ... material [if] it would affect the outcome of the suit under the governing substantive law in that a reasonable jury could return a verdict for the nonmoving party." Robinson v. Ewalt, 2012 S.D. 1, ¶ 10, 808 N.W.2d 123, 126. Here, the disputed fact, whether Stern Oil did or did not make the oral guarantee, would certainly affect the outcome of Brown's fraudulent inducement counterclaim and thus, it is material to the claim. The circuit court's ruling improperly disposed of this factual question by granting summary judgment.
[¶ 14.] Furthermore, Brown's counterclaim employs actual fraud under SDCL 53-4-5. "Actual fraud is always a question of fact." SDCL 53-4-5.
[¶ 15.] The dissent argues that Brown failed to submit evidence sufficient to support
[¶ 16.] Furthermore, Brown was not required to prove all elements of fraudulent inducement in order to survive summary judgment. "A motion under SDCL 15-6-56 (Rule 56) is designed `to isolate and dispose of factually unsupported claims or defenses.'" Chem-Age Indus., Inc. v. Glover, 2002 S.D. 122, ¶ 18, 652 N.W.2d 756, 765 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)). "[T]he focus in summary judgment hearings centers on the existence of admissible and probative evidence to support the challenged claim or defense." Id. (citing Prudential Ins. Co. v. Hinkel, 121 F.3d 364, 366 (8th Cir.1997)).
[¶ 17.] Brown argues that the circuit court erred by granting Stern Oil summary judgment on its breach of contract claim because the MFSAs were not enforceable contracts. In support of his argument, Brown cites LaMore Restaurant Group, LLC v. Akers, in which we stated, "[i]f an agreement leaves open essential terms and calls for the parties to agree to agree and negotiate in the future on essential terms, then a contract is not established." 2008 S.D. 32, ¶ 16, 748 N.W.2d 756, 761 (quoting Weitzel v. Sioux Valley Heart Partners, 2006 S.D. 45, ¶ 23, 714 N.W.2d 884, 892). In LaMore, we recognized that price is ordinarily an essential term of an agreement that must be "fixed and determinable or reasonably certain." See id. ¶ 18 (citations omitted). Here, the MFSAs did not define the price of the fuel Brown was required to purchase from Stern Oil. Brown thus argues that the MFSAs were not enforceable contracts. In LaMore, however, the contract at issue was for the sale of real estate, so South Dakota's version of the UCC did not apply. See id. ¶ 2. Here, the MFSAs were primarily agreements for the sale of goods and we must therefore apply the provisions of Title 57A, South Dakota's version of the UCC, to decide this case. SDCL 57A-2-102.
SDCL 57A-2-305 (emphasis added). Thus, open price term contracts are permissible under SDCL 57A-2-305(1), but only if the parties intended to enter into an open price term contract. Comment 2 to UCC § 2-305, which is almost identical to SDCL 57A-2-305, explains that whether the parties intended to enter into a contract containing an open price term "is, in most cases, a question to be determined by the trier of fact."
[¶ 19.] Here, whether the agreements in this case are open price term contracts under SDCL 57A-2-305 is material to Stern Oil's breach of contract claim because it resolves whether the agreements are enforceable in the first instance. Whether the agreements are open price term contracts involves disputed material facts.
[¶ 20.] Furthermore, whether Stern Oil set the prices in good faith is a question of fact. Under SDCL 57A-2-305(2), "[a] price to be fixed by the seller or by the buyer means a price for him to fix in good faith." The contracts in this case state that "all prices shall include applicable taxes, and are subject to change by [Stern Oil] at any time and without notice." The agreements between Stern Oil and Brown placed absolutely no boundaries on Stern Oil's power to fix the fuel prices. The agreements allowed Stern Oil to raise prices on an arbitrary basis for any reason or no reason at all. Therefore, even if a fact finder had determined that SDCL 57A-2-305 applies, a fact finder must then determine whether Stern Oil actually set the prices in good faith by examining the factual evidence presented by the parties.
[¶ 21.] The dissent argues that the plain language of SDCL 57A-2-305(2) does not require an express contract provision obligating the seller to fix the price term in good faith in order to qualify as an open price term contract. We agree. Contrary to the dissent's claim otherwise, we do not conclude in this case that SDCL 57A-2-305(2) may not apply to the agreements between Brown and Stern Oil merely because the agreements do not expressly provide that "Stern Oil will fix the prices in good faith." Instead, we conclude that whether the parties intended to enter into open price term contracts and whether Stern Oil fixed fuel prices in good faith were disputed questions of fact because of the alleged profit guarantee in a competitive retail market and Brown's argument that there was no "ascertainable market standard" by which to determine a reasonable fuel price. For all of these reasons, the circuit court erred in granting partial summary judgment on the liability portion of Stern Oil's breach of contract claim.
[¶ 22.] We also cannot overlook the procedural connection between Stern Oil's breach of contract claim and Brown's fraudulent inducement counterclaim. While they are indeed two separate claims, a finding in Brown's favor on the fraudulent inducement claim may affect the outcome of Stern Oil's breach of contract claim, considering that one remedy for fraudulent inducement is contract rescission. SDCL 57A-2-721; 48 Am.Jur. Proof of Facts 3d 329, Proof of Fraudulent Inducement of a Contract and Entitlement to Remedies § 17 (2011). Therefore, we reverse and remand both claims for a new trial.
[¶ 23.] Both Brown's fraudulent inducement counterclaim and Stern Oil's breach of contract claim involve disputed material facts. The circuit court erred in granting
[¶ 24.] ZINTER and WILBUR, Justices, concur.
[¶ 25.] KONENKAMP and SEVERSON, Justices, dissent.
SEVERSON, Justice (dissenting).
[¶ 26.] I respectfully dissent. Brown alleges that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. In addressing this issue, the circuit court concluded that the parties' negotiations regarding the MFSAs and the BIPs, including the alleged verbal guarantee of a five-cent per gallon profit, was inadmissible parol evidence. Without the evidence of the alleged verbal guarantee, the circuit court held that Brown's fraudulent inducement claim failed as a matter of law.
[¶ 27.] The parol evidence rule, codified at SDCL 57A-2-202, governs disputes involving agreements for the sale of goods. At the time of the hearing on Stern Oil's motion for summary judgment, the statute provided as follows:
SDCL 57A-2-202 (2008).
[¶ 28.] It is well settled that, when evidence is introduced to establish fraud as a ground for rescinding a contract, the parol evidence rule does not apply. Sabbagh v. Prof'l & Bus. Men's Life Ins., Co., 79 S.D. 615, 116 N.W.2d 513, 520 (1962) (quoting 32 C.J.S. Evidence § 979); see Majority Opinion ¶ 11. Here, Brown sought to introduce evidence that Stern Oil fraudulently induced him to enter into the contracts by guaranteeing a five-cent profit on every gallon of fuel he sold. Such evidence is not barred by the parol evidence rule. Accordingly, I agree with the majority that the circuit court erroneously applied the parol evidence rule. But I do not believe our analysis ends with that determination.
[¶ 29.] In Muhlbauer v. Estate of Olson, we stated, "In considering a [circuit] court's grant or denial of summary judgment, this Court will affirm only if all legal questions have been decided correctly." 2011 S.D. 42, ¶ 7, 801 N.W.2d 446, 448 (quoting Bertelsen v. Allstate Ins. Co., 2011 S.D. 13, ¶ 15, 796 N.W.2d 685, 692-93). The majority cites Muhlbauer in support of its conclusion that the circuit court's erroneous application of the parol evidence rule, by itself, is grounds for reversing the circuit court's grant of summary judgment. Majority Opinion ¶ 12. I disagree. "It is a matter of settled law that this [C]ourt may affirm even where the circuit court reaches the correct result for the wrong reason." Oldham-Ramona Sch. Dist. No. 39-5 v. Jensen, 503 N.W.2d 260,
[¶ 30.] This Court has held that "entry of summary judgment is mandated against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Danielson v. Hess, 2011 S.D. 82, ¶ 8, 807 N.W.2d 113, 115 (quoting Dakota Indus., Inc. v. Cabela's.com, Inc., 2009 S.D. 39, ¶ 11, 766 N.W.2d 510, 513). "Sufficient evidence requires establishment of a prima facie case." Fin-Ag, Inc. v. Pipestone Livestock Auction Mkt., Inc., 2008 S.D. 48, ¶ 33, 754 N.W.2d 29, 43 (citing Mushitz v. First Bank of S.D., N.A., 457 N.W.2d 849, 859 (S.D.1990)). "A prima facie case has been established when there are facts in evidence which if unanswered would justify persons of ordinary reason and fairness in affirming the question which the plaintiff is bound to maintain." Id. (quoting Sandner v. Minnehaha Cnty., 2002 S.D. 123, ¶ 13, 652 N.W.2d 778, 783). The majority notes that, under SDCL 53-4-5, "[a]ctual fraud is always a question of fact." See Ehresmann v. Muth, 2008 S.D. 103, ¶ 20, 757 N.W.2d 402, 406 (noting that "[q]uestions of fraud and deceit are generally questions of fact and as such are to be determined by the jury"). But this statutory provision does not relieve plaintiffs of their duty to "show that they will be able to place sufficient evidence in the record at trial to support findings on all the elements on which they have the burden of proof." Clark Cnty. v. Sioux Equip. Corp., 2008 S.D. 60, ¶ 8, 753 N.W.2d 406, 409 (quoting Bordeaux v. Shannon Cnty. Sch., 2005 S.D. 117, ¶ 14, 707 N.W.2d 123, 127).
[¶ 31.] In order for Brown's claim of fraudulent inducement to survive summary judgment, Brown must have submitted evidence sufficient to support a finding that his reliance upon Stern Oil's alleged misrepresentation was justified.
[¶ 33.] Moreover, Stern Oil's alleged verbal guarantee of a five-cent per gallon profit constitutes a promise as to future events. The failure to perform a promise does not, standing alone, amount to fraud. Under SDCL 53-4-5(4), the promise must have been made "without any intention of performing it." The record in this case is devoid of evidence that Stern Oil did not intend to perform its promise at the time it allegedly guaranteed Brown would realize a five-cent profit on every gallon of fuel he sold. See Weitzel v. Sioux Valley Heart Partners, 2006 S.D. 45, 714 N.W.2d 884 (affirming the circuit court's dismissal of an employee's claim of fraud against his employer because the employee failed to allege facts to show that the employer made a promise of employment without an intention of performing).
[¶ 34.] In opposing a motion for summary judgment, the nonmoving party "must present specific facts showing that a genuine, material issue for trial exists." Robinson v. Ewalt, 2012 S.D. 1, ¶ 7, 808 N.W.2d 123, 125 (quoting Murray v. Mansheim, 2010 S.D. 18, ¶ 4, 779 N.W.2d 379, 381-82). "Disputes of fact are not material unless they change the outcome of a case under the law." Hall v. State ex rel. S.D. Dep't of Transp., 2011 S.D. 70, ¶ 9 n. 3, 806 N.W.2d 217, 221 n. 3 (citing Jerauld Cnty. v. Huron Reg'l Med. Ctr., Inc., 2004 S.D. 89, ¶ 41 n. 4, 685 N.W.2d 140, 149 n. 4). Here, even if we accept as true Brown's allegation that Stern Oil verbally guaranteed him a five-cent per gallon profit, this evidence does not change the outcome of the case. See Kjerstad Realty, Inc. v. Bootjack Ranch, Inc., 2009 S.D. 93, ¶ 15, 774 N.W.2d 797, 802 ("In reviewing a grant of summary judgment, we must accept the non-moving party's version of the facts as true."). Brown has failed to submit evidence sufficient to support a reasonable trier of fact's finding that the elements of fraudulent inducement were present. Accordingly, I would hold that the circuit court did not err by granting Stern Oil summary judgment on Brown's fraudulent inducement claim.
[¶ 35.] Brown argues that the circuit court erred by granting Stern Oil summary judgment on its breach of contract claim. He argues that the MFSAs were not enforceable contracts because they lacked a price term. SDCL 57A-2-305 addresses the enforceability of an agreement that leaves the price term open. The statute provides:
SDCL 57A-2-305.
[¶ 36.] The open price fuel terms of the MFSAs allowed the seller, Stern Oil, to change the price term "at any time and without notice." This effectively granted Stern Oil the right to fix the price term. Under SDCL 57A-2-305(2), parties to a contract may agree that price will be fixed by the seller in good faith. The majority takes issue with the fact that the MFSAs did not expressly require Stern Oil to fix the price term in good faith. But the plain language of SDCL 57A-2-305(2) does not require an open price term contract to include a contractual provision obligating the seller to fix the price in good faith. The statute merely imposes an obligation on the seller to exercise good faith in fixing the price term. See SDCL 57A-2-305(2) cmt. 3 (explaining that SDCL 57A-2-305(2) "rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith...."). The majority concludes that there are disputed questions of fact regarding whether Stern Oil set the price of its fuel in good faith. Yet Brown did not assert lack of good faith as a defense to Stern Oil's breach of contract claim in the circuit court, and he has not raised this issue on appeal. Indeed, Brown did not argue below, and has not now asserted, that there are disputed questions of fact regarding whether Stern Oil set the price of its fuel in good faith. This issue is simply not before this Court. Therefore, it does not constitute a proper ground for reversal.
[¶ 37.] Brown also argues that the parties' course of dealing, including Stern Oil's alleged verbal guarantee of a five-cent per gallon profit, is evidence that the parties did not intend to create open price term contracts. Brown raises this argument for the first time on appeal. In responding to Stern Oil's motion for summary judgment, Brown argued that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing he would earn a five-cent profit on every gallon of fuel he sold. But Brown did not argue that Stern Oil's alleged verbal guarantee of a five-cent per gallon profit was evidence that the parties did not intend to create open price term contracts. At the
[¶ 38.] Brown next argues that under the terms of the MFSAs, Stern Oil was required to "offer to sell" a specified amount of fuel to Brown at prices that were to be determined by Stern Oil, but Brown was not required to purchase any amount of fuel from Stern Oil. Accordingly, Brown contends that the MFSAs were nothing more than unenforceable "agreements to agree."
[¶ 39.] After reviewing the terms of the MFSAs, I find Brown's argument to be without merit. The MFSAs set forth a maximum volume of fuel that Stern Oil was obligated to "offer to sell" Brown. However, in both MFSAs, Paragraph 4(c) explicitly stated that "[i]n each contract year, [Brown] must purchase from [Stern Oil] a minimum of seventy-five percent (75%) of the Maximum Annual Volume for Exxon-branded gasoline." (Emphasis added.) The MFSAs provided that the maximum annual volume for the first contract year at Freeway Mobil was 1.38 million gallons of gasoline, and the maximum annual volume for the first contract year at Exxon Goode To Go was 1.5 million gallons of gasoline and 720,000 gallons of diesel. After the first contract year, the maximum annual volume of fuel was adjusted each year based on sales volume. The MFSAs clearly required Brown to purchase at least 75% of the maximum annual volume of fuel. Brown's argument that he was not required to purchase any amount of fuel from Stern Oil is contrary to the express terms of the MFSAs.
[¶ 40.] The MFSAs contained an open price fuel term which provided that fuel prices were "subject to change by [Stern Oil] at any time and without notice." Under SDCL 57A-2-305(2), parties to a contract may agree that price will be fixed by the seller in good faith. The record shows that Stern Oil consistently set the price of the fuel it sold to Brown and other customers at 1.5 cents above the rack price, plus tax and freight charges. Brown has not argued that Stern Oil failed to set the price of its fuel in good faith. I would
[¶ 41.] For these reasons, I respectfully dissent.
[¶ 42.] KONENKAMP, Justice, joins this dissent.
