Albert Hanna v. George Glover and Greg Glover

ca03-939

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION I

CA03-939

April 21, 2004

ALBERT HANNA AN APPEAL FROM UNION COUNTY

APPELLANT CIRCUIT COURT

[NO. E99-1116-1]

v.

HONORABLE HAMILTON SINGLETON,

GEORGE GLOVER and CIRCUIT JUDGE

GREG GLOVER

APPELLEES REVERSED AND REMANDED

Wendell L. Griffen, Judge

In this case involving the law of contracts, the trial court found that no contract existed between appellant and appellees and further ruled, incongruously, that appellant had failed to perform the contract.1 Appellant argues that the court's ruling was in error, and we agree. We hold that there was a contract between the parties and that it was not breached by appellant but rather by appellees. We therefore reverse and remand to allow the trial court to fashion the appropriate remedy for appellant.

In 1997, Del-Tin Fiber, a fiberboard manufacturing company, planned to open a plant in Union County. Del-Tin relied on Robert Workman to locate production supplies and materials, including items called dunnage blocks, which are placed under fiberboard stacks to facilitate their shipment or movement with a forklift. Appellant became interested in supplying the blocks to Del-Tin and contemplated manufacturing them himself. However, upon meeting with an accomplished cabinet maker, Jerry Glover, and Glover's two sons,appellees George and Greg Glover, appellant decided that rather than manufacture the blocks himself, he would put together an agreement whereby appellees would provide the blocks to Del-Tin and he would receive a percentage of sales for himself. Appellant introduced Workman to appellees, and Workman told them that Del-Tin could probably use 40,000 to 50,000 blocks per month.

At a November 1997 meeting, appellees and appellant decided that appellant's compensation would be two cents per dunnage block manufactured. To confirm that agreement, appellant sent the following letter to appellees on December 2, 1997:

This letter is to confirm our agreement yesterday, November 30, 1997, that we, Glover and Hanna, will arrange for a contract with Del-Tin for the production of dunnage blocks to be purchased by Del-Tin on a continuing basis. The contract will be in the name of Glover or name chosen by Glover and Del-Tin. The agreement between Glover and Hanna shall be binding on the parties signing this letter. Further, the agreement will be binding on any intity [sic] formed by Glover to perform the contracts with Del-Tin or any successor to Glover.

Glover will be responsible to perform the Del-Tin contracts including all costs, production, and performance obligations. Hanna will assist in obtaining the contracts between Glover and Del-Tin. Hanna will receive two cents (.02) from the sale of each dunnage block to Del-Tin for as long as dunnage blocks are supplied to Del-Tin or their successors by Glover or their successors. This agreement between Glover and Hanna shall continue over successive contracts between Glover and Del-Tin.

Payment to Hanna, or his heirs, will be made within ten days of receipt of payment from Del-Tin by Glover.

If this is acceptable, please so indicate by signing below.

s/ Albert Hanna

The letter was signed by Jerry, Greg, and George Glover.

After the above letter was signed, appellant drafted a proposed agreement between Del-Tin and appellees, which provided, among other things, that the term of the agreement would be five years and that Del-Tin would purchase "all of its needed dunnage blocks" from appellees. This draft was presented to John Sauer of Del-Tin shortly after December 2, 1997. Sauer told appellant, with appellees present, that he would not give appellees an exclusive-supplier contract; appellant then suggested that Del-Tin purchase the blocks with an open purchase order. According to appellant, he asked appellees if they wanted to continue and told them "you are not going to have anything other than this purchase order." Appellees said that they wanted to continue.

Appellees prepared their facility and equipment to begin manufacturing the blocks, and production began in April 1998. Appellees were supplying Del-Tin with ninety-five to ninety-nine percent of its dunnage-block needs, and Del-Tin paid them forty cents per block. Upon receiving payment from Del-Tin, appellees paid appellant two cents per block as contemplated in the December 2, 1997 letter.

In July 1998, Del-Tin asked appellees if they would be interested in manufacturing another item called a top cap, which is a cover used during shipping. Although the parties disagree as to whether appellees expressed any initial interest, it is undisputed that appellant had some involvement in negotiating the price Del-Tin would pay for the top caps. Upon appellees' deciding to manufacture the top caps, appellant orally renegotiated his agreement with appellees so that he would be paid five percent of gross sales rather than two cents per unit. Beginning in July 1998, appellees paid appellant five percent of their gross sales.

These payments continued without incident until March 16, 1999, when appellant received a phone call from CPA Mary Kay Glover, George and Greg Glover's sister. She told appellant that appellees would cease paying him unless he procured a written contract between appellees and Del-Tin. Following this conversation, appellant immediately went to appellees' facility and presented George and Greg Glover with the following letter:

I received a call today from Mary Kay Glover. I am grateful she called and pointed out that we had not reduced to writing the agreement that we made subsequent to our December 2, 1997 agreement.

Our original agreement provided for .02 per block payment to me. That amounted to 5%. Subsequently we modified that agreement. We agreed I would participate in trying to obtain additional products and increase revenues. At that time we agreed that my payment would be 5% of the gross amount received on all products. Greg said that he would have a copy of the check from Del-Tin included with my 5% check and I would be paid when you received check from Del-Tin. To the best of my knowledge, 5% of the payment to Glover by Del-Tin has been forwarded to me since July, 1998 pursuant to our agreement.

I think we have made great progress in our association and since our subsequent agreement to 5%. We have added a new product, the covers, and have been able to increase our revenue per unit, block and cover, by 50%.

If this letter confirms your memory of our agreement, please so indicate by signing below. I certainly hope we have many years of successful business together with Del-Tin.

s/ Albert Hanna

The letter was signed by appellees. Greg Glover testified that he did not want to sign the letter because it had been his understanding that appellant's obligation under the original letter was to obtain a written contract with Del-Tin. In fact, he said that he and appellant had a heated exchange when appellant presented him with the above letter. However, he said that he signed the letter to accommodate his older brother George, who wanted to avoid further confrontation. Greg also explained that despite appellant's failure to deliver a written contract with Del-Tin, appellees had continued to pay appellant the agreed-upon amounts since April 1998 based on appellant's assurances that he would procure the contract and out of fear that they would lose Del-Tin's business if they alienated appellant, who had a close relationship with Del-Tin.

In July 1999 appellees simply stopped making payments to appellant, despite the fact that they continued to provide dunnage blocks and top caps to Del-Tin through January 2001.2 Greg Glover testified that payments were stopped because appellant had not provided appellees with a written contract with Del-Tin. However, he also candidly admitted that appellees realized that they could continue to work with Del-Tin without going through appellant. Greg and Mary Kay Glover testified that they felt that appellant was entitled to some payment in the form of a "finder's fee" for putting the deal together but that anything more would be unreasonable.

On December 9, 1999, appellant sued appellees in Union County Chancery Court, seeking specific performance, an accounting for all sums appellees had received from Del-Tin, and damages for breach of contract. Following a bench trial on March 8 and 9, 2001, the trial judge found that "the parties did not have a contract" and that they had "entered into two separate letter agreements that set forth the contemplated formal contractual relationship of the parties." The judge also found that appellant's responsibility was to "secure a contract with Del-Tin Fiber, LLC," and that appellant "failed to deliver a contract." Appellant appeals from that ruling.

This is an equity case, which we review de novo on appeal. MDH Builders, Inc. v. Nabholz Constr. Corp., 70 Ark. App. 284, 17 S.W.3d 97 (2000). However, we will not reverse the trial court's findings of fact unless they are clearly erroneous. Id. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Id.

We first review the trial court's finding that no contract existed between appellant and appellees. The elements of a contract are: 1) competent parties; 2) subject matter; 3) legal consideration; 4) mutual agreement; 5) mutual obligation. Cash In A Flash Check Advance v. Spencer, 348 Ark. 459, 74 S.W.3d 600 (2002). The key in determining whether a contract exists is whether the parties intend to be bound and whether there is a definiteness of terms. 1 Joseph Perillo, Corbin on Contracts § 2.8 (Rev. ed. 1993). Arkansas law recognizesthat, to have a valid contract, all terms should be definitely agreed upon, Ciba-Geigy Corp. v. Alter, 309 Ark. 426, 834 S.W.2d 136 (1992), and the terms must be "reasonably certain." ERC Mtg. Group, Inc. v. Luper, 32 Ark. App. 19, 795 S.W.2d 362 (1990). See also AMI Civ. 4th 3002. Terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. Id.

The trial court ruled that the parties had "entered into two separate letter agreements that set forth the contemplated formal contractual relationship of the parties." In other words, the court found that the parties' letters were mere precursors to an actual contract, or agreements to agree, which are generally regarded as too vague and uncertain to be enforced as contracts. See Hatch v. Scott, 210 Ark. 665, 197 S.W.2d 559 (1946); Troutman Oil Co. v. Lone, 75 Ark. App. 346, 57 S.W.3d 240 (2001); Phipps & Brown v. Storey, 269 Ark. 886, 601 S.W.2d 249 (Ark. App. 1980). The trial court's finding was clearly erroneous in this regard. Under the terms of the December 2, 1997 letter, appellant was obligated to arrange for a contract with Del-Tin for the purchase of dunnage blocks, and appellees were obligated to produce the blocks and pay appellant two cents from the sale of each block. The duration of the contract is stated, and the letter is signed by appellees. Thus the letter recites the identity of parties, the subject matter of the agreement, the consideration to be paid, the obligations of the parties, and the agreement thereto by all parties. The same may be said of the March 16, 1999 letter. The terms of the agreements are therefore reasonably certain and definite enough to comprise a contract.

As for their intention to be bound, appellees consistently and regularly rendered performance consistent with the terms of both letter agreements. Between April 1998 and July 1999, they took orders from Del-Tin for dunnage blocks and top caps, manufactured the items, received payment for them, and paid appellant the exact amount stated in the letters. The question of whether parties have made a contract must be determined not only by their words but by their acts. See Johnston v. Curtis, 70 Ark. App. 195, 16 S.W.3d 283 (2000). The acts of the appellees in signing the December 2 and March 16 letters and then performing thereunder exactly as contemplated evidence an intention to be bound.

We also note that Arkansas law has recognized that a party's subsequent acts may validate and make certain an indefinite agreement and that the objection of indefiniteness may be obviated by performance and acceptance of performance. Foundation Telecomm., Inc. v. Moe Studio, Inc., 341 Ark. 231, 16 S.W.3d 531 (2000); Swafford Ice Cream v. Sealtest, 252 Ark. 1182, 483 S.W.2d 202 (1972). Therefore, appellees' performance evidences not only an intention to be bound but provides proof of the definite nature of the contract as well.

For these reasons, we hold that the trial court erred in finding that no contract existed between the parties.

We turn now to the trial court's ruling that appellant breached his contract with appellee. The ruling is obviously inconsistent with the court's finding that no contract existed between the parties. Nevertheless, we can only interpret the language in the order that appellant "failed to deliver" a contract as a finding of a breach by appellant. Upon our de novo review, we conclude that appellant did not breach the contract; rather, appellees breached the contract when they ceased paying appellant.

At trial, appellees contended that they were justified in stopping payments to appellant because appellant failed to procure a written contract with Del-Tin. Although the letters do not specify whether a written contract was to be procured, Greg Glover testified that it was his understanding that appellant was obligated to provide them with a written contract. However, it is undisputed that John Sauer of Del-Tin rejected outright the notion of a written requirements contract with appellees and that his rejection was made known to appellees months before production began. Despite that knowledge, appellees produced the blocks and top caps, delivered them to Del-Tin, and were paid by Del-Tin, pursuant to a purchase order. In addition, appellees consistently paid appellant the agreed-upon amount for his participation in the arrangement. All objective indicators point to the fact that appellant fulfilled his contractual obligations to appellees and that appellees considered themselves obligated to pay him as stated in the letter agreements. Even if the term "contract" in the letter agreement may be considered ambiguous, an ambiguity may be rendered certain by subsequent actions of the parties. See Mears v. Nationwide Mut. Ins. Co., 91 F.3d 1118 (8th Cir. 1996).

In light of the foregoing, we reverse and remand with directions to the trial court to reinstate appellant's petition against appellees and award appellant the appropriate relief for appellees' breach consistent with this opinion.

Reversed and remanded.

Stroud, C.J., and Pittman, J., agree.

1 A prior appeal in this case was dismissed for lack of a final order. Hanna v. Glover, No. CA02-84 (Oct. 30, 2002).

2 In January 2001, Del-Tin temporarily shut down its operation with plans to restart in June 2001. Appellees were left with an inventory of blocks and caps. However, Del-Tin asked appellees to hold the inventory until June and, according to shipping manager Jose Covas, Del-Tin had no intention of using suppliers other than appellees once the plant restarted.