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Downeast Energy Corp. v. Frizzell

Supreme Court of New Hampshire

July 6, 2011

Downeast Energy Corporation
v.
Carleton K. Frizzell a/k/a Keith Frizzell, Individually and as Trustee of Mount Chase Realty Trust

UNPUBLISHED OPINION

The defendant, Carleton K. Frizzell a/k/a Keith Frizzell, individually and as trustee of Mount Chase Realty Trust (buyer), appeals the trial court's order granting summary judgment to the plaintiff, Downeast Energy Corporation (seller), on its breach of contract claim. He argues that the agreement the parties entered into was not supported by consideration and, therefore, was not binding. The seller cross-appeals the trial court's order denying summary judgment on its request for attorney's fees, arguing that it acquired a contract between the buyer and a third party in which the buyer agreed to pay attorney's fees.

In reviewing the trial court's grant of summary judgment, "we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party." Carter v. Concord Gen. Mut. Ins. Co., 155 N.H. 515, 517 (2007). We will uphold the trial court's decision if "the evidence does not reveal any genuine issue of material fact, and if the moving party is entitled to judgment as a matter of law." Id. "We review the trial court's application of the law to the facts de novo." Id.

We first address the buyer's argument that the trial court erred in granting the seller summary judgment on its breach of contract claim. The buyer and the seller entered into an agreement whereby the seller promised to sell oil to the buyer at a "fixed price, " and the buyer promised to buy oil at that "fixed price." However, a clause in the agreement further stated that "any significant decline in anticipated consumption or increase in [the seller's] operational costs may require adjustment of over-all pricing structure." The buyer argues that because the seller had the option to modify the price under some circumstances, the seller was not bound by its promise to sell oil at a fixed price and, thus, the agreement was not supported by consideration.

A binding contract must include an offer, acceptance, consideration, and a sufficient definiteness of terms to which the parties agree. Tsiatsios v. Tsiatsios, 140 N.H. 173, 178 (1995). In bilateral contracts, bargained-for reciprocal promises fulfill the consideration element. Crellin Techs., Inc. v. Equipmentlease Corp., 18 F.3d 1, 7-8 (1st Cir. 1994). However, "[w]ords of promise which by their terms make performance entirely optional with the 'promisor' do not constitute a promise." Restatement (Second) of Contracts § 77 comment a at 195 (1981); see Davis v. Joseph J. Magnolia, Inc., 640 F.Supp.2d 38, 45 (D.D.C. 2009) ("A contract lacks consideration when one party's promise is illusory, and a promise is illusory when performance of that promise is optional."). However, in all business contracts, "an obligation of good faith is implied." Griswold v. Heat, Inc., 108 N.H. 119, 124 (1967).

The buyer argues that the seller was not obligated to sell oil at any particular price, which made the promise illusory and non-binding. See Davis, 640 F.Supp. at 45. We disagree.

Contracts that are governed by Article 2 of the Uniform Commercial Code, such as the contract here, see RSA 382-A:2-102, 2-105(1), 2-107(1) (2011); Etheridge Oil Co. v. Panciera, 818 F.Supp. 480, 483 (D.R.I. 1993), are generally enforceable even if no price is set, and the seller is given the power to set a price at a later date, see RSA 382-A:2-305(1) & (2) (2011). In these contracts, "[a] price to be fixed by the seller . . . means a price for him to fix in good faith." RSA 382-A:2-305(2).

A contract "that allows the drafting party only a limited right to modify the agreement, i.e., a right to modify the agreement under certain restrictions, may not be illusory." Lumuenemo v. Citigroup Inc., Civ. Act. No. 08-cv-00830-WYD-BNB, 2009 WL 371901, at *5 (D. Colo. Feb. 12, 2009); see Hardin v. First Cash Fin. Servs., 465 F.3d 470, 478 (10th Cir. 2006); Davis, 640 F.Supp.2d at 46.

In this case, the seller was obligated to sell oil to the buyer at a price of $4.499 per gallon unless a "significant decline in anticipated consumption or increase in [the seller's] operational costs" occurred. In other words, the seller did not have the unrestricted ability to alter the price term; the seller could alter the term only to the extent that there was a "significant decline in anticipated consumption or increase in [its] operational costs." Moreover, the seller was obligated to exercise good faith when altering the price. See Griswold, 108 N.H. at 124; RSA 382-A:2-305(2). For these reasons, the trial court did not err by granting the seller's request for summary judgment on its claim for breach of contract.

We next address the seller's argument on cross-appeal that the court erred in denying summary judgment on its request for attorney's fees. "[T]he general rule in this State [is] that each party bears the burden of paying his or her own attorney's fees." Clipper Affiliates v. Checovich, 138 N.H. 271, 278 (1994). An exception to this rule is when an agreement between parties states otherwise. Id.

The buyer's prior oil supplier was E.R. Warren Company (Warren). The seller bought "each and every asset, tangible and intangible, owned by [Warren] except land." The buyer had entered into a credit agreement with Warren that included a clause in which it "agree[d] to pay court costs and reasonable attorney's fees" to Warren in the event it defaulted by failing to make timely payments. The seller sought an award of attorney's fees pursuant to this provision. The trial court concluded that the seller was not entitled to attorney's fees under the credit agreement because the seller's acquisition of Warren's assets "would not include a commercial charge and credit agreement between [Warren] and the [buyer]."

The seller argues that the trial court erred because the credit agreement was an intangible asset it had acquired from Warren. The buyer contends that the credit agreement was not an asset because it "imposed no rights or obligations on [the buyer] or [Warren] unless both parties chose to purchase and sell heating oil on credit."

A contract is an intangible asset. See, e.g., Fed. Home Loan Mortg. Corp. v. C.I.R., 121 T.C. 254, 261 (U.S. Tax Ct. 2003) (referring to contracts as intangible assets subject to amortization); KFOX, Inc. v. U.S., 510 F.2d 1365, 1376 (Ct. Cl. 1975) (stating that employment contracts were intangible assets); In re Telecom Am., Inc., 1996 WL 33347851, at *1 (Bkrtcy. S.D. Fla. November 21, 1996) (referring to contracts as part of "all of the assets" that were transferred between two companies); Burlington N. R.R. Co. v. Bair, 815 F.Supp. 1223, 1243 (S.D. Iowa 1993) (holding that long-term coal contracts were intangible assets). A credit agreement is a contract. See, e.g., Boudrow v. Sears, Roebuck & Co., 1995 U.S. Dist. LEXIS 2893, at *3 (D. Mass. Feb. 8, 1995) (referring to a credit agreement as a contract); Harding v. Broadway Nat'l Bank, 200 N.E. 386, 389 (Mass. 1936) (same). The buyer does not contend that the credit agreement was a non-assignable contract. See Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 94-95 (1966) (contract rights are generally assignable unless they are personal). Therefore, we ...


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