Appeal by defendant from judgment entered 12 December 2001 by
Judge William Z. Wood, Jr., in Guilford County Superior Court.
Heard in the Court of Appeals 14 November 2002.
Adams Kleemeier Hagan Hannah & Fouts, by Eric H. Biesecker,
for plaintiff appellee.
Forman Rossabi Black Marth Iddings & Slaughter, P.A., by Amiel
J. Rossabi, for defendant appellant.
McCULLOUGH, Judge.
Plaintiff E. L. Faulconer, Jr., served as an employee of
defendant Wysong & Miles Company for approximately 30 years. On or
about 26 October 1981, plaintiff and defendant entered into an
Amended and Restated Agreement (Agreement). This Agreement
provided for plaintiff to receive supplemental retirement and death
benefits from defendant in recognition of his years of faithful
service, loyalty to defendant (including a non-compete provision)
and required physical check-ups.
Plaintiff retired from defendant's employ in 1987. According
to plaintiff, defendant was obligated to him in the sum of
$2,620.80 per month under the Agreement. It appears that allpayments were made up until the fall of 2000. At that point,
defendant suspended its payments to plaintiff.
Plaintiff filed a complaint on 2 July 2001. According to
plaintiff, as of the date of the complaint, defendant had missed 8
payments, and owed him the principal sum of $20,966.40 plus
interest.
Defendant filed its answer on 10 September 2001. In its
answer, defendant admitted that the two parties had entered into
the aforementioned agreement. Defendant further admitted that it
had failed to make the 8 payments, stating that “due to existing
impracticability, Wysong has failed to make some payments to Mr.
Faulconer.” The focus of this appeal are the affirmative defenses
included in defendant's answer. They are as follows:
Due to the precipitous decline in the
metal-working machine manufacturing industry,
for which Wysong is not in any way
responsible, and the non-occurrence of which
event was a basic assumption on which the
Agreement was made, it is impracticable for
Wysong to continue making payments to Mr.
Faulconer and therefore, Wysong is discharged
from any such responsibility.
Wysong repeats and realleges all of the
allegations contained in the Complaint and the
First Affirmative Defense as if restated
herein. In addition, payments to Mr.
Faulconer by Wysong, due to the precipitous
decline in the metal-working machine
manufacturing industry, could be made only at
an excessive and unreasonable cost to Wysong.
Wysong repeats and realleges all of the
allegations contained in the Complaint and the
First and Second Affirmative Defenses as if
restated herein. When the parties entered
into the Agreement, both parties contemplated
the continued economic prosperity of the
metal-working machine manufacturing industry,
and did not contemplate in any way such a
precipitous decline as has occurred.
Plaintiff filed a motion to strike defendant's affirmative
defenses on 15 October 2001 based on the failure of defendant to
set forth facts sufficient to constitute a defense. The motion
stated that “[t]he claim that any decline in the metal-working
machine manufacturing industry, or any commercial impracticability,
discharges Defendant from its obligations under the [agreement] or
in any way provide[s] a defense to Plaintiff's Complaint is not
supported by applicable law.”
Defendant submitted the affidavit of Thomas R. Adkisson, who
was the Chief Operating Officer for defendant at the time.
According to him, defendant hit hard times in the spring of 2000.
Further, while other companies in the same business went bankrupt,
defendant continued to pay its bills, even though it had to lay off
some workers. As to the payments to plaintiff, defendant chose to
suspend payments because a review of the Board minutes surrounding
the execution of the agreements like plaintiff's lead him to
believe that these agreements depended on defendant's business
continuing to prosper, and that it was not the intent behind those
agreements to have to lay off employees in order to pay plaintiff
and others like him. A hearing was held on plaintiff's motion to strike on 10
December 2001. On 12 December 2001, the Honorable William Z. Wood,
Jr., ruled for plaintiff and held that “[d]efendant's affirmative
defenses are insufficient in that they fail to set forth facts
sufficient to constitute a defense to the claim sued upon in this
cause.” Defendant appeals.
Defendant presents the following question on appeal: Did the
trial court err in granting plaintiff's motion to strike
defendant's affirmative defenses?
Initially, we note that defendant's appeal is properly before
us.
Ordinarily, Rule 4(b) of the Rules of
[Appellate Procedure] precludes an appeal
“from an order striking or denying a motion to
strike allegations contained in pleadings.”
However, when a motion to strike an entire
further answer or defense is granted, an
immediate appeal is available since such
motion is in substance a demurrer.
Bank v. Easton, 3 N.C. App. 414, 416, 165 S.E.2d 252, 254 (1969)
(citation omitted). Thus, we address the merits of defendant's
appeal.
I.
Defendant contends that it was error for the trial court to
grant plaintiff's motion to strike his affirmative defenses, which
attempt to assert the doctrine of commercial frustration, pursuant
to Rule 12(f) of the N.C. Rules of Civil Procedure.
Under Rule 12(f), the trial court “may
order stricken from any pleading any
insufficient defense or any redundant,
irrelevant, immaterial, impertinent, orscandalous matter.” G.S. § 1A-1, Rule 12(f).
A motion under Rule 12(f) is a device to test
the legal sufficiency of an affirmative
defense.
See Trust Co. v. Akelaitis, 25 N.C.
App. 522, 525, 214 S.E.2d 281, 284 (1975).
“If there is any question as to whether an
issue may arise, the motion [under Rule 12(f)]
should be denied.”
Shellhorn v. Brad Ragan,
Inc., 38 N.C. App. 310, 316, 248 S.E.2d 103,
108 [
disc. review denied, 295 N.C. 735, 249
S.E.2d 804 (1978)].
Department of Transp. v. Blue, 147 N.C. App. 596, 600, 556 S.E.2d
609, 615 (2001).
In
Brenner v. School House, Ltd., 302 N.C. 207, 274 S.E.2d 206
(1981), our Supreme Court discussed the defense of frustration of
purpose.
The doctrine of frustration of purpose is
discussed in 17 Am. Jur. 2d
Contracts § 401
(1964) as follows:
“Changed conditions supervening
during the term of a contract
sometimes operate as a defense
excusing further performance on the
ground that there was an implied
condition in the contract that such
a subsequent development should
excuse performance or be a defense,
and this kind of defense has
prevailed in some instances even
though the subsequent condition that
developed was not one rendering
performance impossible. . . . In
such instances, . . . the defense
doctrine applied has been variously
designated as that of 'frustration'
of the purpose or object of the
contract or 'commercial
frustration.'
[“]Although the doctrines of
frustration and impossibility are
akin, frustration is not a form of
impossibility of performance. It
more properly relates to theconsideration for performance.
Under it performance remains
possible, but is excused whenever a
fortuitous event supervenes to cause
a failure of the consideration or a
practically total destruction of the
expected value of the performance.
The doctrine of commercial
frustration is based upon the
fundamental premise of giving relief
in a situation where the parties
could not reasonably have protected
themselves by the terms of the
contract against contingencies which
later arose.”
If the frustrating event was reasonably
foreseeable, the doctrine of frustration is
not a defense. In addition, if the parties
have contracted in reference to the allocation
of the risk involved in the frustrating event,
they may not invoke the doctrine of
frustration to escape their obligations. 17A
C.J.S.
Contracts § 463(2) (1963).
See also
Perry v. Champlain Oil Co., 101 N.H. 97, 134
A.2d 65 (1957);
Blount-Midyette & Co. v.
Aeroglide Corp., 254 N.C. 484, 119 S.E.2d 225
(1961); Annot., 84 A.L.R.2d 12 (1962).
Brenner, 302 N.C. at 211, 274 S.E.2d at 209.
Essentially, there must be an implied condition to the
contract that a changed condition would excuse performance; this
changed condition causes a failure of consideration or the expected
value of performance; and that the changed condition was not
reasonably foreseeable.
Defendant alleged in his affirmative defenses that there was
a precipitous decline in its business, that it was an implied
condition to the agreement that this decline not occur and the
parties did not contemplate such a decline, and now it isimpractical, excessive and unreasonable to continue to make
payments to plaintiff.
We hold that the doctrine of frustration of purpose is
inapplicable to the present case and that the trial court was
correct in granting plaintiff's motion to strike. First of all,
there is a problem with implication by defendant that there were
some sort of implied conditions to this contract. The
admissibility of such evidence is questionable at best under the
parol evidence rule, considering the Agreement states that “[t]his
Amended and Restated Agreement amends and restates in its entirety
the Agreement dated January 30, 1978 between the Employee and the
Company, together with all amendments thereof. This Amended and
Restated Agreement may not be amended or modified except by a
writing signed by the Employee and the Company.” The Agreement
mentions nothing about what would happen during a period of
decline.
However, we do not address this issue (as the parties have
not) as this defense is not viable, because it is reasonably
foreseeable that a business may suffer a distinct period of
decline. This is not a situation in which the parties could not
reasonably have protected themselves. The affidavit of the Chief
Operating Officer states that the company was nearly bankrupt in
the early 1990s. The company had obviously experienced periods of
decline before. It cannot now expect this Court to entertain the
notion that it never expected to have them again. Further, there
is no connection between the fortunes of the company and itsobligation to plaintiff. The possibility that defendant may again
experience hard times was foreseeable, and appears to have been
expressly provided for in the agreement. The agreement states:
Unsecured Obligation. . . . To the extent
that [plaintiff] and his surviving spouse may
be entitled to receive payment from
[defendant] under this Amended and Restated
Agreement, [plaintiff] and his surviving
spouse shall have no rights against
[defendant] other than those accorded to
general, unsecured creditors of [defendant]
under law.
It appears to this Court that this section contemplates bad times
currently suffered by defendant, namely bankruptcy. It is implied
that defendant would still owe on the contract even if it went
bankrupt, and plaintiff would then be an unsecured creditor with a
right to collect from defendant commensurate with other unsecured
creditors like him. This provision allocates to plaintiff the risk
that defendant may go bankrupt, and prevents the application of the
doctrine of frustration.
Affirmed.
Judges WALKER and TYSON concur.
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