Turbines Ltd. (Turbines), a Nebraska corporation, purchased a replacement part for a helicopter engine from Transupport, Incorporated, a New Hampshire corporation, intending to use the part to fill an order Turbines had received from a customer in Singapore to be shipped to Malaysia. When Turbines learned that filling the order could subject it to criminal liability under federal law, Turbines attempted to return the part to Transupport and obtain a refund of the $30,000 purchase price. Transupport refused to refund the payment, and Turbines brought this action in the district court for Cuming County, seeking rescission of the purchase order. Although served with summons and notice of the proceedings, Transupport failed to appear at both a pretrial conference and the trial. After receiving evidence, the district court entered judgment in favor of Turbines. Eight days later, Transupport appeared through counsel and filed motions for new trial and to vacate the judgment. The district court overruled those motions, and Transupport appealed. The Nebraska Court of Appeals determined that the district court did not err in overruling the posttrial motions. But the Court of Appeals reversed the default judgment against Transupport and ordered that Turbines' complaint be dismissed, reasoning the evidence adduced at trial did not support rescission as a matter of law.
Turbines, owned by Marvin Kottman, is in the business of helicopter sales and support. Sometime in late 2006 or early 2007, Monarch Aviation (Monarch) contacted Turbines' office in Singapore seeking to purchase a turbine nozzle. Turbines did not have the nozzle in its inventory, so it approached Transupport, a turbine engine parts supplier with which it had done business since the mid-1980's. Turbines told Transupport that it wanted the nozzle for a customer in Singapore, whom it did not otherwise identify, and e-mail correspondence between Transupport and Turbines reflects a discussion about the customer's requests and requirements. Kottman testified that the customer referred to in the e-mails was Monarch and that Transupport was aware of Turbines' plans to ship the nozzle to Malaysia.
Turbines purchased the nozzle from Transupport for $30,000 and tendered payment with the purchase order. Under the "Remarks" section, the purchase order states, "Subject to Inspection and acceptance by customer." Kottman testified he inserted this language to document that he had explained to Transupport that he had no use for the nozzle and that if it was unacceptable to his customer, he would return the nozzle to Transupport. But additional text on the purchase order stated: "Turbines ... is Transupport's customer, acceptance/ rejection is always at customer." Kottman testified that this notation was not on the purchase order when it was sent to Transupport.
Transupport shipped the nozzle to Turbines with an accompanying invoice showing that the purchase price had been prepaid. The invoice stated that Transupport was not the "USPPI" for the item. Kottman explained that USPPI is a customs term for U.S. principal party of interest; a USPPI is required for all exports of goods. Boilerplate language at the bottom of the invoice states that the sale may include
Turbines attempted to ship the nozzle to Malaysia as directed by Monarch. The nozzle was seized in February 2007 by U.S. Customs and Border Protection (U.S. Customs), which claimed that a license from the U.S. Department of State was required to ship the nozzle overseas. After several appeals, it was determined that no license was required, and the nozzle was returned to Turbines sometime after January 2009. Turbines kept Transupport informed of the status of the nozzle during the contested seizure by U.S. Customs.
During the time that U.S. Customs retained the nozzle, Turbines learned that Monarch was redirecting goods to Iran, a prohibited destination, and that a person associated with Monarch had become the subject of a federal indictment. The indictment was unsealed in August 2007, 6 months after the parties' transaction was completed. Under federal law, if Turbines shipped the nozzle to Monarch after learning this information, it was subject to criminal penalties. Thus, after receiving the nozzle from U.S. Customs, Turbines returned it to Transupport and requested that the purchase price be refunded. Transupport refused to do so and eventually shipped the nozzle back to Turbines' counsel.
In March 2010, Turbines filed its complaint seeking to compel Transupport to refund the $30,000 purchase price, based upon the purchase order language, "Subject to Inspection and acceptance by customer." William Foote, Transupport's registered agent and vice president, was personally served with the complaint on March 16, but Transupport did not answer or otherwise respond to the complaint within 30 days. On May 4, Turbines filed a motion for default judgment, and a hearing was set for June 3.
On June 2, 2010, the clerk of the district court received a letter from Transupport signed by Foote. The letter responded to the allegations of the complaint and requested dismissal of the action. On June 3, the court, on its own motion, entered a pretrial progression order. It ordered that all discovery be completed before an August 5 pretrial conference. It further ordered that the pretrial conference "shall be attended by the attorney that will act as lead counsel at the time of trial." On June 28, Turbines filed a motion to compel Transupport's compliance with certain discovery requests, and a hearing on that motion was set for the same date as the pretrial conference.
Transupport failed to appear at the August 5, 2010, pretrial conference. In an order entered the same day, the court extended the deadline for discovery to November 1 and set trial for November 29. On November 22, Turbines moved to strike Foote's letter purporting to answer the complaint, arguing it was signed by a person not licensed to practice law in Nebraska. Turbines also moved for default judgment. A hearing on these motions was set for the same day as trial.
Transupport did not appear for trial on November 29, 2010. Turbines presented evidence in support of its claim. After receiving this evidence, the court orally sustained Turbines' motion to strike Foote's letter, reasoning that Foote was not a lawyer licensed to practice in the State of Nebraska and therefore could not represent Transupport, a corporate entity.
The court then reviewed the evidence presented by Turbines and found it clearly showed that the "customer" referenced in the purchase order was the party to whom Turbines would provide the nozzle. The court found that because the transaction was never completed to satisfy this customer, the terms of the contract were not met and it could exercise its equitable jurisdiction to grant rescission of the contract. The court ordered Transupport to return the purchase price to Turbines upon the return of the nozzle. Transupport was also ordered to pay the costs of the proceeding. The district court's judgment memorializing these rulings was entered on December 7, 2010.
On December 15, 2010, a licensed Nebraska attorney entered an appearance for Transupport and filed several motions, including motions for new trial and to vacate judgment. The motion for new trial alleged seven different grounds, each of which is a ground listed in Neb.Rev.Stat. § 25-2001 (Reissue 2008), the statute authorizing district courts to vacate or modify judgments. The motion to vacate judgment set forth the same seven grounds and added that Transupport had a meritorious defense and that vacating the judgment was necessary for the proper and just determination of the action. In conjunction with these motions, Transupport's attorney filed an affidavit which averred that he was first contacted by Foote on December 13.
A hearing was held on December 21, 2010. Transupport introduced three affidavits, including one from Foote stating that he received the motions to strike answer and for default judgment on November 24, but that he was out of the office for Thanksgiving and his wife's heart surgery from 5 p.m. on November 24 to 4 p.m. on December 1. The affidavits were received in support of Transupport's motion to vacate judgment. In addition, Transupport's counsel argued that it should be given an opportunity to present its meritorious defense. Counsel argued that rescission required proof of fraud, undue influence, misrepresentation, or business coercion and that the affidavits showed that none of those had occurred.
In an order denying both of Transupport's motions, the district court found that Transupport failed to satisfy any of the statutory grounds in § 25-2001 for vacating a judgment. The court also determined that the motion for new trial was nonmeritorious because it did not set forth any ground listed in Neb.Rev.Stat. § 25-1142 (Reissue 2008), the new trial statute.
Transupport appealed, and assigned and argued to the Court of Appeals that the district court erred in (1) striking its answer, (2) overruling its motion to vacate judgment and motion for new trial, and (3) determining Turbines was entitled to rescission. The Court of Appeals determined that the district court did not err in striking Transupport's purported answer, reasoning Foote was not a member of the Nebraska Bar and therefore his letter was a nullity.
But ultimately, the Court of Appeals found Transupport was entitled to relief because the evidence did not support rescission of the contract. It found that Neb. U.C.C. § 2-615 (Reissue 2001) did not support rescission, because that section excuses a seller from timely delivering goods and Transupport had delivered the nozzle. The court also found the doctrine of supervening frustration did not support rescission, because it was "impossible to say that a `basic assumption' of the contract was Turbines' ability to export the nozzle to Monarch."
Turbines assigns, restated and summarized, that the Court of Appeals erred in reversing the district court's order rescinding the contract and in holding the evidence was insufficient to support rescission.
In a response to the petition for further review, Transupport assigns that the Court of Appeals erred in finding the district court properly struck "the Answer" and properly disposed of its posttrial motions. But these issues were not raised in a timely manner. The Court of Appeals' opinion was filed on January 24, 2012. Our rules provide that "a petition for further review and memorandum brief in support must be filed within 30 days after the release of the opinion of the Court of Appeals."
In an appeal from the entry of a default judgment, or the denial of a motion to stay entry of a default judgment, an appellate court will affirm the action of the trial court in the absence of an abuse of discretion.
We begin by addressing Turbines' argument that once the Court of Appeals determined that the district court did not err in refusing to vacate the judgment, it should have affirmed without reaching the merits of the rescission claim. This requires us
The general rule is that "where a defendant is in default, the allegations of the [complaint] are to be taken as true against him, except allegations of value and amount of damage."
Here, Turbines did not rely solely on its pleading, but also offered evidence in support of its motion for default judgment. Both the district court and the Court of Appeals considered that evidence when determining whether the judgment in favor of Turbines was proper. We conclude that they did not err in doing so, because a party seeking default judgment may present evidence in support of its claim.
The foregoing demonstrates that in determining whether a district court's entry of a default judgment is so "clearly untenable" as to constitute an abuse of discretion, an appellate court should assume the truth of all material facts alleged in the complaint and of any evidence offered by the plaintiff. It must then decide whether the plaintiff has established a valid cause of action. Here, the Court of Appeals essentially concluded that Turbines was not entitled to rescission as a matter of law because the allegations of its complaint and the evidence it presented failed to state a cause of action. We now review that determination.
Generally, grounds for cancellation or rescission of a contract include fraud, duress, unilateral or mutual mistake, and inadequacy of consideration.
Section 2-615 provides:
Comment 1 to § 2-615 states that it "excuses a seller from timely delivery of goods contracted for, where his or her performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting." The Court of Appeals reasoned that § 2-615 was inapplicable because there was no failure on the part of the seller, Transupport, to deliver the nozzle to Turbines.
Relying upon comment 9 to § 2-615, which states that under certain circumstances, it "may well apply" to the performance of a buyer under a "requirements" or "supply" contract, Turbines argues that it applies here. But this case does not involve such a contract. More important, it is not an action for breach of contract. Section 2-615 specifies circumstances under which nonperformance or delayed performance of a sales contract will not constitute a breach. Here, there is no issue of breach, because the contract was fully performed by each party in that Transupport shipped the nozzle to Turbines and Turbines remitted the purchase price to Transupport. We agree with the Court of Appeals that § 2-615 does not provide a legal basis for rescission on the facts presented here.
In Cleasby v. Leo A. Daly Co.,
The Court of Appeals concluded that § 265 could not provide a legal basis for rescission because it was "impossible to say that a `basic assumption' of the contract was Turbines' ability to export the nozzle to Monarch."
In Mobile Home Estates v. Levitt Mobile Home,"
We find this analysis applicable to § 265 of the Restatement, which clearly
Turbines asserts that the district court properly granted rescission on the ground that the parties failed to agree on a material term of the contract and that the Court of Appeals improperly ignored this basis for the district court's judgment. Turbines relies upon the following statement by the district court to show that the court made that finding: "But it appears from the evidence that there was probably some disagreement, and the Court finds such as to the complete elements of the transaction which was never completed to satisfy the terms of the contract...." Immediately before making this statement, the court noted that while there may have been some confusion among the parties as to what was meant by "customer," the evidence showed the parties understood that the customer was someone other than the two of them. Thus, Turbines is arguing that because the district court acknowledged the parties may have attached different meanings to the term "customer," the parties failed to agree on a material term of the contract, and that rescission was properly granted.
Turbines relies upon Sayer v. Bowley
Even assuming this rule applies to the present transaction, it would not entitle Turbines to relief, because the record reflects that Turbines and Transupport agreed on all material and necessary details of the bargain. Transupport agreed to supply the nozzle, and Turbines agreed to pay $30,000 in exchange for it. According to Kottman, it was agreed that Turbines could return the nozzle, if the customer
Turbines argues that it is entitled to rescission because the remark in the purchase order, "Subject to Inspection and acceptance by customer," conditioned its duty to perform. This court has recognized that performance of a duty subject to a condition cannot become due unless the condition occurs or its nonoccurrence is excused.
A case relied upon by Turbines provides a good example of the application of these principles. Gallner v. Sweep Left, Inc.
Here, the purchase agreement is not explicit. The clause that Turbines relies upon appears in the "Remarks" section of the purchase order. There is no other language indicating that Turbines' duty to pay was subject to its customer's acceptance of the nozzle. Kottman testified that the language was added to reflect the parties' understanding that Turbines was allowed to return the nozzle if it was unacceptable to the customer. But Kottman also testified that he sent the purchase order along with the $30,000 purchase price. Because the $30,000 was prepaid, Turbines' duty to pay could not have been conditioned on acceptance and inspection by Monarch at some subsequent date. Thus, the doctrine of failure of a condition precedent does not support the district court's grant of rescission.
Turbines argues that it was entitled to rescission because of the legal difficulties it would have faced if it shipped the nozzle to Monarch. It relies on two cases holding that a party's failure to perform a contract does not constitute a breach where performance is made unlawful by a governmental entity.
Finally, the Court of Appeals reasoned that Turbines' arguably unilateral mistake regarding its ability to ship the nozzle to Monarch could not provide a basis for rescission, because enforcement of the contract as made would not be unconscionable, given Kottman's admission that there were other potential customers for the nozzle.
Turbines fulfilled its contractual obligation to pay in advance for the nozzle which it ordered from Transupport. In turn, Transupport fulfilled its contractual obligation to ship the nozzle to Turbines. The contract did not contemplate the circumstances which subsequently prevented Turbines from shipping the nozzle to Monarch. But the occurrence of those circumstances did not constitute a basis for rescinding the fully performed contract. Thus, although Transupport clearly ignored the district court's orders and failed to appear for trial, the district court abused its discretion in entering default judgment in favor of Turbines, because the uncontroverted facts provide no legal basis for rescission, and to allow such a judgment to stand would be untenable. Accordingly, although our reasoning differs in some respects, we affirm the judgment of the Court of Appeals.
AFFIRMED.
