Finkle Distributors v. Herzog, T.

• Court: Superior Court of Pennsylvania
• Decided: March 9, 2016
• Docket: 141 WDA 2015
• Status: Unpublished

Opinion

J-A32037-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

FINKLE DISTRIBUTORS, INC., N/K/A FDI IN THE SUPERIOR COURT OF HOLDINGS, INC. PENNSYLVANIA

Appellant

v.

TROY M. HERZOG, INDIVIDUALLY, AND D/B/A THE HUB

Appellees No. 141 WDA 2015

Appeal from the Order Entered December 22, 2014 In the Court of Common Pleas of McKean County Civil Division at No: 2009 AD 10148

BEFORE: SHOGAN, OTT, and STABILE, JJ.

MEMORANDUM BY STABILE, J.: FILED MARCH 09, 2016

Appellant, Finkle Distributors, Inc., n/k/a FDI Holdings, Inc., appeals

from the December 22, 2014 order granting the summary judgment motion

of Appellee, Troy M. Herzog (“Herzog”), individually and d/b/a The Hub

(“The Hub,” and, collectively with Herzog, “Appellees”). We vacate and

remand.

The record reveals that Herzog owns and operates a convenience store

known as the Hub, located in Smethport, McKean County. Appellant is one

of The Hub’s long-time suppliers. The instant dispute arises out of

Appellees’ alleged failure to pay for $83,989.12 in merchandise Appellant

delivered during May and June of 2008. Appellant commenced this action on J-A32037-15

February 5, 2009, seeking to collect the amount allegedly due and owing

from Appellees.

On July 23, 2010, Appellant entered into an asset purchase agreement

(“APA”) with Core-Mark Midcontinent, Inc. (“Core-Mark”) whereby Core-Mark

purchased Appellant’s business, with the exception of certain excluded

assets. The parties dispute whether Appellees account was among the

excluded assets. The trial court granted summary judgment in favor of

Appellees, concluding Appellant was not the proper party in interest because

it sold Appellees’ unpaid account to Core-Mark.

Appellant raises two issues in this timely appeal:

1. Whether a Defendant, buyer of goods, is precluded from challenging the interpretation of a contract between the Plaintiff, seller of goods, and the purchaser of many of the Plaintiff/Seller’s assets where both agreed that Plaintiff/Seller retained the claim against Defendant/Buyer?

2. Whether evidence offered by Plaintiff that the purchaser of some of it’s [sic] assets did not purchase the claim against the Defendant violated the parol evidence rule?

Appellant’s Brief at 4.

We conduct our review according to the following well-settled

standard:

As has been oft declared by this Court, summary judgment is appropriate only in those cases where the record clearly demonstrates that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. When considering a motion for summary judgment, the trial court must take all facts of record and reasonable inferences therefrom in a light most favorable to the non-moving party. In so doing, the trial court must resolve all doubts as to the

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existence of a genuine issue of material fact against the moving party, and, thus, may only grant summary judgment where the right to such judgment is clear and free from all doubt. On appellate review, then, an appellate court may reverse a grant of summary judgment if there has been an error of law or an abuse of discretion. But the issue as to whether there are no genuine issues as to any material fact presents a question of law, and therefore, on that question our standard of review is de novo. This means we need not defer to the determinations made by the lower tribunals.

To the extent that this Court must resolve a question of law, we shall review the grant of summary judgment in the context of the entire record.

Summers v. Certainteed Corp., 997 A.2d 1152, 1159 (Pa. 2010) (internal

citations and quotation marks omitted).

First, Appellant argues Appellees lack standing to challenge Appellant’s

and Core-Mark’s interpretation of the APA. Appellant and Core-Mark agree

the APA excluded Appellees’ account from the sale. Appellant argues

Appellee cannot dispute the interpretation of the APA attached to it by its

parties.

Appellant relies primarily on Drummond v. University of

Pennsylvania, 651 A.2d 572 (Pa. Comwlth. 1994), in which the plaintiffs—

Philadelphia public school students, their parents, and other civic groups—

contended that the University of Pennsylvania was not awarding a sufficient

number of scholarships pursuant to an agreement between the University

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and the City of Philadelphia.1 The Commonwealth Court concluded the

plaintiffs lacked standing to challenge the proper interpretation of the

agreement between the City and the University because plaintiffs were not

third party beneficiaries of the agreement. Id. at 579.

Drummond’s third party beneficiary analysis is inapposite here, as

Appellees do not claim to be third party beneficiaries of the APA. Appellees

do not argue any provision of the APA was intended for their benefit.

Rather, Appellees assert Appellant is not the proper party in interest because

Appellant sold its business, including the account receivable from Appellees,

to Core-Mark. As Appellees correctly note, Rule 2002 of the Pennsylvania

Rules of Civil Procedure requires civil actions to be “prosecuted by and in the

name of the real party in interest[.]” Pa.R.C.P. No 2002(a). Interpretation

of the APA is necessary to assess whether Appellant is the real party in

interest. Appellees need not be third party beneficiaries in order to

challenge Appellant’s status as the real party in interest. Appellant’s

standing argument lacks merit.

Next, Appellant argues the trial court erred in finding that Appellant

sold Appellee’s account to Core-Mark. Appellant argues it was entitled to

____________________________________________

1 The City passed ordinances conveying land to the University and permitting the University to mortgage that land on condition that the University issue a prescribed number of scholarships to students in the Philadelphia public school system. Drummond, 651 A.2d at 574-75.

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introduce affidavits from Appellant and Core-Mark to establish that

Appellee’s account receivable was among the assets excluded from the APA.

The trial court excluded the affidavits as impermissible parol evidence.

Appellant’s brief does not address the law of parol evidence other than to

say that it is inapplicable because the affidavits do not allege agreements

that preceded or altered the integrated, written APA. Appellant’s Brief at 18-

19. Instead, affidavits from Appellant and Core-Mark indicate that both

parties to the APA understood the agreement to exclude Appellee’s account

from the sale. Appellant also notes that, after its creditors initiated an

involuntary bankruptcy proceeding, Appellant hired a collection agency to

collect Appellant’s remaining receivables, including Appellees’ account. In

light of these facts, Appellant asserts that its alleged ownership of Appellees’

account presents a genuine issue of material fact, such that the trial court

erred in entering summary judgment in favor of Appellees.

The parties agree the APA is an integrated contract reflecting the

entire agreement of Appellant and Core-Mark. Section 2.2 of the APA

governs excluded assets. APA at § 2.2. Among the excluded assets is

“Retained Receivables.” Section 1.1 of the APA defines Retained Receivables

as follows: “Retained Receivables” means (a) the related party

receivables set forth on Schedule 2.2 hereto, (b) all Excluded Employee

Receivables, (c) all receivables related to Vikisha and (d) all other

receivables designated by Purchaser and Seller on Schedule 2.2.” APA at

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§ 1.1, “Retained Receivables.” Schedule 2.2 in turn, contains a table of

retained receivables. The partially redacted tables include various lump sum

amounts, including one labeled “Vendor Receivables.” APA at Schedule 2.2.

The APA does not expressly include Appellees’ account in the retained

receivables. It also does not preclude the possibility that Appellee’s account

is among the retained receivables. The trial court found that Appellant no

longer owns Appellees’ account because section 2.2 and schedule 2.2

contain no express mention of it. The trial court declined to permit Appellant

to introduce affidavits demonstrating the intent of the APA or its signatories’

course of conduct since its execution.

We conclude the trial court erred. The Restatement (Second) of

Contracts provides: “Where the parties have attached the same meaning to

a promise or agreement or a term thereof, it is interpreted in accordance

with that meaning.” Restatement (Second) of Contracts § 201(1) (1981).

In Demharter v. First Fed. Sav. & Loan Ass’n of Pittsburgh, 194 A.2d

214 (Pa. 1963), plaintiff contractors sought to recover money from the bank

that loaned money to the landowner for development of residential real

estate. The plaintiffs argued that the landowner was an “owner” and not a

“contractor” under the loan agreement between the landowner and the

bank, and therefore the bank had no contractual right to make payments

directly to the landowner rather than to the contractors. Id. at 219-20. Our

Supreme Court noted that the language of the loan agreement and the

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course of dealing between the bank and landowner did not support the

plaintiffs’ argument. Id. The agreement contained “no actionable promise

to the suppliers of labor and materials.” Id. at 219. The Supreme Court

wrote: “The construction placed upon a contract by the parties themselves

is worthy of great consideration and generally will be adopted, particularly

when such construction is made prior to the occurrence of any controversy

or litigation[.]” Id. at 220.

Likewise, the Drummond Court cited § 201(1) of the Restatement

(Second) of Contracts and noted that if the plaintiffs had standing they

would seek to violate § 201(1) by imposing “a different contractual liability

on the University than that asserted by the parties to the contract.”

Drummond, 651 A.2d at 579 n.9. As explained above, we do not believe

Appellees lack standing to seek an interpretation of the APA, given that their

purpose is to determine which of the parties to the APA is the proper party in

interest. We do believe, however, that the principle expressed in § 201(1)

and applied in Demharter and Drummond must guide the trial court’s

analysis on remand. Specifically, evidence of Appellant’s and Core-Mark’s

intent “is worthy of great consideration.” Demharter, 194 A.2d at 220.

We further conclude the trial court erred in relying on the parol

evidence rule to exclude evidence of the APA parties’ intent. The parol

evidence rule provides as follows:

Once a writing is determined to be the parties’ entire contract, the parol evidence rule applies and evidence of any

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previous oral or written negotiations or agreements involving the same subject matter as the contract is almost always inadmissible to explain or vary the terms of the contract.

Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436-37 (Pa.

2004). The parol evidence rule has several exceptions, one of which is an

ambiguous term in the contract. “[W]here a term in the parties’ contract is

ambiguous, ‘parol evidence is admissible to explain or clarify or resolve the

ambiguity, irrespective of whether the ambiguity is created by the language

of the instrument or by extrinsic or collateral circumstances.’” Id. at 437

(quoting Estate of Herr, 161 A.2d 32, 24 (Pa. 1960)).

Several cases have held the parol evidence rule does not apply where

the party challenging the contract is a stranger to the contract. In Badler v.

L. Gillarde Sons Co., 127 A.2d 680, 683 (Pa. 1956), for example, the

Supreme Court held the parol evidence rule inapplicable where a party to the

litigation is not a party to the written agreement and asserts rights that do

not arise from the agreement. Likewise, in Roberts v. Cauffiel, 128 A.

670, 671 (Pa. 1925) the Supreme Court held that the parol evidence rule

“can have no relevancy where the suit is not between the two parties to the

contract, or their privies; especially where, as here, there is no attempt to

affect the writing in any way.” The Supreme Court distinguished Badler and

Roberts in Evans v. Otis Elevator Co., 168 A.2d 573 (Pa. 1961) where the

plaintiff employee sued the company his employer hired to maintain and

inspect the employer’s elevators. Badler and Roberts were “inapposite”

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because “the law imposes upon [the elevator company] a duty as to

[plaintiff] by reason of [the elevator company’s] undertaking under the

agreement and [plaintiff] cannot be said to be a stranger to this agreement

nor do his rights arise dehors this agreement.” Id. at 579.

Instantly, Appellant’s rights do not arise from the APA. Appellant’s

arise from an alleged agreement whereby Appellant provided goods to

Appellees in exchange for money. Likewise, Appellees do not assert any

right under the APA, nor do they assert that either party to the APA

undertook a duty to be exercised for Appellees’ benefit. The APA has no

bearing on the legitimacy of Appellant’s allegation that Appellees owe

Appellant $83,989.12. The APA is relevant only insofar as it determines

whether Appellant or Core-Mark is the appropriate party to seek collection of

that amount. Since the rights at issue in this litigation do not arise from the

APA, and since Appellees are strangers to the APA, we conclude in accord

with Badler and Roberts that the parol evidence rule does not apply.

In light of the foregoing, the trial court erred in excluding evidence of

the intent of the APA parties. Proper interpretation of the APA presents a

triable issue of fact. We therefore vacate the order entering summary

judgment in favor of Appellees and remand for further proceedings in

accordance with this memorandum.

Order vacated. Case remanded. Jurisdiction relinquished.

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Judgment Entered.

Joseph D. Seletyn, Esq. Prothonotary

Date: 3/9/2016

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