Ralph's Distributing Company, a Corporation, Appellant, v. Amf, Inc., a Corporation, and Harley-davidson Motor Co.,inc., a Corporation, Appellees, 667 F.2d 670 (8th Cir. 1981)

Ralph's Distributing Company appeals from the decision of the district court granting AMF's motion for summary judgment against Ralph's claim of breach of contract. We reverse because sufficient issues of material fact have been raised to preclude summary judgment.

Ralph's entered into a franchise agreement with AMF in May, 1968, to become a wholesale distributor of Ski-Daddlers.¹  The parties executed an identical franchise agreement in June, 1969. The franchise agreements were accompanied by letters designating Ralph's sales territory for the upcoming snowmobile season. In May, 1970, the franchise agreements were incorporated by reference in a letter from AMF extending the contract. The letter again included a designation of Ralph's sales territory. No further writings were executed, but the parties continued to operate in accordance with the provisions of the 1968 and 1969 franchise agreements through the 1971-1972 snowmobile season.² 

As a wholesale distributor, Ralph's bought Ski-Daddlers directly from AMF and then resold them to dealers in its designated territory for resale to the public. The Ski-Daddler program was unsuccessful and, during the 1971-1972 season, AMF decided to discontinue production of that line and to consolidate all future snowmobile manufacturing and marketing activities in Harley-Davidson. As a result of this decision, AMF began to sell its remaining inventory of Ski-Daddlers directly to Harley-Davidson dealers, bypassing Ralph's and other Ski-Daddler wholesale distributors.

Ralph's brought suit against AMF, alleging that AMF's direct sales to Harley-Davidson dealers in Ralph's territory violated its contractual right to be the exclusive distributor of Ski-Daddler snowmobiles in its designated territory. Ralph's advanced three alternative theories in support of its claim: (1) that by including the designated sales territory in the franchise agreements, the parties intended to make Ralph's the sole distributor in that territory; (2) that even if the parties did not agree to include an exclusivity term in the initial agreement, they did so in subsequent oral modifications of the 1968-1969 franchise agreements; and (3) that in any event, an exclusivity provision should be implied in law by the court.³  AMF moved for summary judgment on Ralph's claims. The district court rejected each of the theories advanced by Ralph's and granted AMF's motion for a summary judgment.

Summary judgment should be granted only if the pleadings, stipulations, affidavits and admissions show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Vette Co. v. Aetna Casualty & Surety Co., 612 F.2d 1076, 1077 (8th Cir. 1980); Fed. R. Civ. P. 56(c). The drastic nature of the summary judgment remedy imposes on the defendant who seeks it the burden of establishing, with such clarity as to leave no room for controversy, that the plaintiff is not entitled to recover under any circumstances. Champale, Inc. v. Joseph S. Pickett & Sons, Inc., 599 F.2d 857, 859 (8th Cir. 1979). All evidence must be viewed in the light most favorable to the party opposing the motion. Id. Applying these standards to Ralph's breach of contract claim, we cannot agree that AMF has demonstrated that there is no genuine issue as to any material fact concerning Ralph's first two theories of recovery.

Regarding Ralph's first theory, the district court held that the designation of territory in the franchise agreements⁴  was the final and complete term with respect to territorial requirements, and that parol evidence was not admissible to establish that the parties also intended to make Ralph's the sole distributor in its territory under the agreements.

Ralph's contends that its evidence of course of performance and usage of trade⁵  demonstrates that the parties intended to include an exclusivity term in the franchise agreements. Under the Uniform Commercial Code (U.C.C.), as adopted in Iowa,⁶  parol evidence is inadmissible to contradict the terms of a writing that is intended to be a "final expression" of the provisions in question.⁷  Iowa Code § 554.2202. The test for admissibility of course of performance and usage of trade evidence is not whether the contractual terms on their face appear to be complete in every detail. Brunswick Box Co., Inc. v. Coutinho, Caro & Co., 617 F.2d 355, 359-360 (4th Cir. 1980); White & Summers, Uniform Commercial Code, § 2-10 at 86 (2d ed. 1980). Even a complete writing may be "explain(ed) or supplement(ed)" by evidence of course of performance and usage of trade. Iowa Code § 554.2202; White & Summers, Uniform Commercial Code, supra, § 2-10 at 86.

Here, the contracts designating Ralph's sales area are silent as to whether or not it was to be the exclusive Ski-Daddler distributor in that territory. Therefore, Ralph's course of performance and usage of trade evidence does not contradict any explicit contractual term and was admissible to explain and supplement the meaning of the territorial designations in the franchise agreements. Iowa Code §§ 554.1205, .2202 & .2208.

The trial court further found that even if Ralph's proffered parol evidence is considered, no question of fact is raised as to the parties' intention to include an exclusivity term. This finding is clearly erroneous. Fed. R. Civ. P. 52(a).

The following course of performance and usage of trade evidence supports Ralph's claim that, pursuant to the franchise agreement, it was to be the sole distributor of Ski-Daddlers in its designated territory.⁸  Ralph's alleged in its affidavit that it expended substantial funds on racing and other promotional activities in the expectation that neither AMF nor other distributors would sell Ski-Daddler snowmobiles in its exclusive territory. Three AMF employees or former employees testified in depositions that it was their understanding that once AMF designated a distributor for a territory, the company would not assign other distributors to the same area, and that the designated distributor was entitled to believe that AMF would not assign other distributors to his sales market.⁹  Ralph's also stated that many aspects of its distributorship were not covered in the franchise agreements including, for example, racing and other promotional activities, as well as the exclusivity requirement. Harold Whitten, a former division vice president at AMF, conceded in his deposition that AMF "encouraged" and "expected" distributors to engage in promotional activities such as racing despite the absence of such a requirement in the franchise agreements.

Furthermore, after AMF entered into the arrangement with Harley-Davidson to market Ski-Daddler snowmobiles, AMF began to give rebates to Ski-Daddler distributors for each Ski-Daddler sold by Harley-Davidson dealers in the designated territories of those distributors. Ralph's argues this rebate plan was to compensate distributors for invasion of their exclusive territories.

Finally, immediately after AMF entered into the agreement with Harley-Davidson, Ralph's protested the alleged breach of contract. It stated in its affidavit that other distributors raised similar complaints.

Taking these statements in the light most favorable to Ralph's and giving it to the benefit of all reasonable inferences, we conclude that there is a genuine issue as to whether the parties intended to include an exclusivity term.

Ralph's second theory for recovery is that if the contracts, when executed, did not make it the sole distributor, the franchise agreements were subsequently modified to include an exclusivity term. The parol evidence rule, of course, does not apply to evidence of subsequent modifications of a contract. E.g., Estate of Thompson v. O'Tool, 175 N.W.2d 598, 600 (Iowa 1970). Ralph's relies on the same evidence to establish subsequent modification as it does to show an agreement by course of performance and usage of trade. Taking this evidence in the light most favorable to Ralph's, we conclude that the evidence also creates a genuine issue as to whether the franchise agreements were modified subsequent to execution to include an exclusivity term.

For these reasons, the district court erred in granting summary judgment against Ralph's. Accordingly, we reverse and remand for proceedings consistent with this opinion.