Appeal by plaintiff from order filed 7 February 2002 by Judge
Evelyn W. Hill in Vance County Superior Court. Heard in the Court
of Appeals 18 February 2003.
Warren, Perry & Anthony, P.L.L.C., by Sue E. Anthony, for
plaintiff appellant.
The Law Firm of Hutchens & Senter, by Rudolph G. Singleton,
Jr., for defendant-appellees Forest Hills Rest Home and
Magnolia Lane Healthcare, Inc.
BRYANT, Judge.
IWTMM, Inc. (plaintiff), doing business as Mast Long Term
Care, appeals an order entered 7 February 2002 dismissing its
complaint under Rule 12(b)(6) for failure to state a claim upon
which relief can be granted.
On 17 September 2001, plaintiff filed a complaint against
Forest Hills Rest Home (Forest Hills), Judy B. Tew, Magnolia Lane
Healthcare, Inc., and Magnolia Lane, LLC (collectively defendants)
(See footnote 1)
alleging breach of contract. The complaint stated in pertinent
part: 7. The [p]laintiff entered into a contract
with Forest Hills on or about March 1,
1999. . . .
8. The duration of the parties' contract is
for three (3) years from April 1, 1999.
9. By letter dated April 27, 2001, and
written by Judy B. Tew, the [d]efendants,
Magnolia Lane Healthcare, Inc. and Forest
Hills, indicated that they would “no longer
need” [plaintiff's] services . . . .
10. . . . Forest Hills . . . has, in fact,
failed and refused to do business with . . .
[p]laintiff since May 1, 2001.
11. The cancellation and termination of the
contract by . . . [d]efendants is a breach of
the parties' contract.
12. . . . Defendants have also breached the
parties' contract as follows:
a. . . . Defendants have failed and
refused to continue to do business with . . .
[p]laintiff, as provided in the contract and,
specifically, to obtain their pharmaceuticals,
drugs, supplies and equipment from . . .
[p]laintiff.
b. . . . Defendants have failed and
refused to reimburse . . . [p]laintiff for the
value of certain equipment (a drug cart and a
fax machine) provided to them by . . .
[p]laintiff.
Attached to the complaint were a copy of the parties' contract
and the 27 April 2001 letter from Judy B. Tew, president of
Magnolia Lane Healthcare, Inc., addressed to plaintiff. The
contract consists of two separate agreements: a vendor-pharmacist
agreement and a consultant-pharmacist agreement. Plaintiff's
allegations pertain solely to the vendor-pharmacist agreement,
which reads in pertinent part: I. The pharmacy [(plaintiff)] . . . agrees
to provide, furnish and supply
pharmaceuticals, drugs, supplies and equipment
to the home [(Forest Hills)] or to the
patients therein upon the following terms and
conditions.
. . . .
IV. The facility [(defendants)] hereby agrees
to order all those pharmaceuticals[,]
including prescriptions and supplies, for
individual patients not commonly stocked in
the facility from the pharmacy. In the event
that any patient exercises his or her rights
under the law to request purchase of such
items from alternate supplier, the facility
and pharmacy hereby agree to honor such
requests only if such items are supplied in
accordance with the drug distribution system
currently provided by the pharmacy and
currently utilized by the facility, and only
if the alternate supplier can guarantee
maintenance of the same quality and continuity
of supplies and service as that provided by
the pharmacy under this agreement.
. . . .
VI. The pharmacy agrees to bill each patient
in conformity with the usual and proper method
of billing required or accepted under the
respective reimbursement or payment
plans. . . .
. . . .
X. The parties agree that this contract will
extend for three (3) years from . . . April 1,
1999. . . . [T]his agreement shall remain in
effect for its full term.
XI. Pharmacy and [f]acility agree that in the
event the [f]acility cancels for any reason
this agreement[,] the [f]acility hereby agrees
to reimburse the [p]harmacy for the drug
dispensing equipment and any other equipment
or supplies furnished by the [p]harmacy at
their depreciated value at the time of
cancellation. . . .
XII The facility and the pharmacy agree that
this contract automatically renews every three
(3) years upon its expiration date unless
notification is furnished in writing by either
party ninety (90) days prior to expiration.
In the event this contract terminates by its
own terms, or another pharmaceutical supply
company presents a competing offer to the
facility during the existence of this
contract, the pharmacy hereby reserves the
right and the facility correspondingly agrees
to allow the pharmacy the right to match any
and all competing offers to provide
pharmaceutical supplies. If the pharmacy
presents a comparable situation to other
offers, the facility hereby agrees to extend
or preserve the term of this contract with the
pharmacy at the amount and terms bid by the
pharmacy.
Under the terms of the second agreement, the
consultant-pharmacist agreement, plaintiff was also responsible for
the general supervision of the facility's pharmaceutical services.
With respect to termination, this agreement stated it could be
“terminated by either party provided that ninety (90) days written
notice prior to expiration [was] given to the other party.”
The letter attached to the complaint stated:
This letter is to give you notice that I will
no longer need your services effective 90 days
from today. I will be glad to purchase the
Med Cart and Fax Machine at a depreciated rate
as we discussed this morning. I will continue
to order my stock items from you until my
90[-]day notice expires.
On 16 November 2001, defendants moved to dismiss the complaint
pursuant to Rule 12(b)(6). Following a hearing on the motion
during which defendants argued there was no contract because the
agreement lacked consideration and was too vague as to the
purchasing terms and, in the event a contract had been formed,defendants had complied with the ninety-day notice provision
required for termination, the trial court dismissed plaintiff's
breach of contract claim.
_____________________________
The issues are whether: (I) the vendor-pharmacist agreement is
insufficient to form a contract because it lacks consideration and
specificity and (II), if it does constitute a contract, plaintiff
stated a sufficient claim for breach thereof.
I
In ruling on a motion to dismiss pursuant to Rule 12(b)(6) of
the North Carolina Rules of Civil Procedure, the trial court
determines “whether, as a matter of law, the allegations of the
complaint, treated as true, are sufficient to state a claim upon
which relief may be granted under some legal theory.”
Harris v.
NCNB, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). “The
complaint must be liberally construed, and the court should not
dismiss the complaint unless it appears beyond a doubt that the
plaintiff could not prove any set of facts to support his claim
which would entitle him to relief.”
Block v. County of Person, 141
N.C. App. 273, 277-78, 540 S.E.2d 415, 419 (2000). The elements of
a breach of contract claim are: “(1) existence of a valid contract
and (2) breach of that contract.”
Poor v. Hill, 138 N.C. App. 19,
29, 530 S.E.2d 838, 845 (2000).
Specificity of Contract Terms
At the 12(b)(6) hearing, defendants argued the vendor-
pharmacist agreement did not form a valid contract because itcontained only vague purchasing terms. The provision that lies at
the heart of defendants' argument is the sentence obligating
defendants to order from plaintiff those pharmaceuticals for
defendants' patients “not commonly stocked in the facility.” In
its brief to this Court, defendants claim it is “the silence as to
the identity and amount of pharmaceuticals to be ordered” that
leaves the contract invalid. In support of their position,
defendants rely on the general principle that “[t]o be enforceable,
the terms of a contract must be sufficiently definite and certain,
and a contract that '“leav[es] material portions open for future
agreement is nugatory and void for indefiniteness,”'”
Miller v.
Rose, 138 N.C. App. 582, 587-88, 532 S.E.2d 228, 232 (2000)
(citations omitted). Defendants, however, have overlooked two
crucial factors. First of all, our law permits the use of
requirements contracts, which are agreements to supply the other
party to the contract with as much of the ordered good as needed by
the purchaser.
Roanoke Properties v. Spruill Oil Co., 110 N.C.
App. 443, 448, 429 S.E.2d 752, 755 (1993) (“valid requirements
contracts . . . are recognized by our Courts and our Legislature”);
Carolina Builders Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App.
224, 228, 324 S.E.2d 626, 629 (1985) (“[defendant's] testimony that
he would buy everything plaintiff supplied so long as plaintiff
would sell to him and his company is evidence of an output and
requirements contract”);
see also Coal Co. v. Ice Co., 134 N.C.
574, 47 S.E. 116 (1904) (enforcing contract pursuant to which the
plaintiff agreed to sell the defendant all the coal that may berequired by the defendant during a specified time period). In this
case, that means defendants obligated themselves to buy and
plaintiff to sell as much of the pharmaceuticals as necessary to
fill the requests of defendants' patients for pharmaceuticals not
commonly stocked in the pharmacy.
The second and more important factor is that the parties'
agreement for the sale of drugs in this case is governed by the
North Carolina Uniform Commercial Code (N.C. UCC).
See N.C.G.S. §
25-2-102 (2001) (“applies to transactions in goods”); N.C.G.S. §
25-2-105(1) (2001) (“'[g]oods' means all things . . . which are
movable at the time of identification to the contract for sale”);
see also Parks v. Alteon, Inc., 161 F. Supp. 2d 645, 648-49
(M.D.N.C. 2001) (distinguishing
Batiste v. Home Prods. Corp., 32
N.C. App. 1, 231 S.E.2d 269 (1977), in which this Court held a
physician's prescription for medicine did not constitute a sale of
goods, and holding that a drug manufacturer's sale of drugs to a
plaintiff would fall within the purview of the N.C. UCC);
Foyle by
McMillan v. Lederle Labs., 674 F. Supp. 530 (E.D.N.C. 1987)
(standing for the proposition that the sale of drugs is governed by
the N.C. UCC where the court determined that a claim for breach of
implied warranty of merchantability would lie against a
pharmaceutical drug manufacturer whose product was used by a
plaintiff-purchaser). Under the N.C. UCC, the failure to omit
certain material terms will not invalidate the contract as courts
are permitted to read into the contract good faith requirements.
See N.C.G.S. § 25-2-204(3) (2001) (“[e]ven though one or more termsare left open[,] a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and
there is a reasonably certain basis for giving an appropriate
remedy”);
Varnell v. Henry M. Milgrom, Inc., 78 N.C. App. 451, 453,
337 S.E.2d 616, 618 (1985) (applying “the 'good faith' obligation
for output contracts in G.S. 25-2-306(1)” of the N.C. UCC). With
respect to requirements contracts, the N.C. UCC states: “A term
which measures the quantity by . . . the requirements of the buyer
means such actual . . . requirements as may occur in good faith
. . . .” N.C.G.S. § 25-2-306(1) (2001). As such, no definite
amount needed to be stated in the vendor-pharmacist agreement.
Finally, although the pharmaceuticals to be supplied are only
identified as those “not commonly stocked” by defendants, this
description makes them capable of being identified by an offer of
proof at trial.
See Koltis v. N.C. Dep't of Human Resources, 125
N.C. App. 268, 271, 480 S.E.2d 702, 704 (1997) (to be binding it is
sufficient that the terms are capable of being made definite and
certain by proof); N.C.G.S. § 25-1-103 (2001) (“[u]nless displaced
by [the N.C. UCC], the principles of law and equity . . . shall
supplement its provisions”). We further note that the parties
operated under the agreement for approximately two years without
experiencing any difficulty in identifying the goods to be sold.
Consequently, we deem the description of the pharmaceuticals to be
supplied by plaintiff sufficient.
Consideration
At the hearing, defendants also argued the vendor-pharmacistagreement between the parties lacked consideration. The agreement
did not state any price terms with respect to the pharmaceuticals
to be supplied; however, consideration need not consist of a
promise to pay money for goods or services. Instead, it can take
the shape of mutual promises to perform some act or to forbear from
taking some action. John N. Hutson, Jr. & Scott A. Miskimson,
North Carolina Contract Law § 3-6, at 170 (2001). In this case,
the consideration for the parties' agreement consisted of
plaintiff's promise to supply defendants with certain
pharmaceuticals and defendants' counter-promise to stock
plaintiff's products at its pharmacy and to sell them to its
patients. Accordingly, the agreement does not fail for either lack
of consideration or specificity.
II
Defendants next contend that, in the event the contract is
deemed to be valid, they did not breach the vendor-pharmacist
agreement because the letter attached to plaintiff's complaint
indicates compliance with the ninety-day notice provision required
for termination of the agreement. The terms of the vendor-
pharmacist agreement, however, do not provide for termination at
any time so long as a ninety-day notice is given. Instead, the
agreement states the contract will automatically renew “every three
(3) years upon its expiration date unless notification is furnished
in writing by either party ninety (90) days prior to expiration.”
The only provision that is compatible with defendants'
interpretation of the contract is found in theconsultant-pharmacist agreement, which, in the last paragraph,
(See footnote 2)
allows for termination of the contract “by either party provided
that ninety (90) days written notice prior to expiration is given
to the other party.” The question thus remains whether to treat
the two agreements as one contract with the provisions of each to
be read in conjunction with one another or as two separate and
independent contracts. The first interpretation, which, from a
review of the transcript, appears to be the one adopted by the
trial court, would allow for a reading into the vendor-pharmacist
agreement the right granted at the end of the consultant-pharmacist
agreement to terminate the contract at any time with a ninety-day
notice. On the other hand, the second interpretation is consistent
with plaintiff's reading of the two agreements and, if accepted,
would lead to a finding that defendants did in fact breach the
contract. How to properly interpret the contract, however, is a
factual issue not appropriate for consideration under a 12(b)(6)
challenge. As the complaint and its attachments do not allow for
a conclusion “beyond a doubt” that plaintiff failed to state a
claim upon which relief could be granted, this matter must be
remanded for further proceedings.
Block, 141 N.C. App. at 277-78,
540 S.E.2d at 419.
Reversed and remanded.
Judges HUNTER and ELMORE concur.
Footnote: 1