                  IN THE COURT OF APPEALS OF TENNESSEE

                               EASTERN SECTION                  FILED
                                                           December 9, 1997
SUPER GRIP CORPORATION,                  ) C/A NO. 03A01-9707-CV-00257
                                         )                 Cecil Crowson, Jr.
      Plaintiff-Appellee,                ) SULLIVAN LAW Appellate C ourt Clerk
                                         )
v.                                       ) HON. R. JERRY BECK,
                                         ) JUDGE
B & D SUPER GRIP, INC.,                  )
                                         ) AFFIRMED AND
      Defendant-Appellant.               ) REMANDED




ARTHUR M . FOWLER, McKinnon, Fowler, Fox & Taylor, Johnson City, for
Plaintiff-Appellee.

PAUL RAYM OND WOHLFORD, Bristol, for Defendant-Appellant.




                                    OPINION


                                                        Franks, J.


             In this contract action, the Trial Judge entered judgment for plaintiff

against defendant in the amount of $50,431.29, and dismissed defendant’s counter-

claim which had sought damages for plaintiff’s alleged breach of the distributorship

agreement.

             Defendant has appealed to this Court and presents these issues:

             1.     Whether the Court erred in finding that the parties had agreed
                    upon a new contract for a price increase in December, 1994.

             2.     Whether the Court erred in holding that the freight charges of
                    Two Hundred Dollars ($200.00) per shipment became part of the
                    original Distribution Contract.

             3.     Whether the Court erred in finding that the deduction of the
                    freight charges from invoices constituted a material breach of the
                    Distribution Contract between the parties.
               4.     Whether the Court erred in determining the equities between the
                      parties to be in favor of the Appellee and against the Appellant.

               Plaintiff and defendant entered into a distributorship agreement for the

sale of mining and industrial tires in 1987. The agreement was drafted by defendant,

and was for the sale of tires by plaintiff to defendant with prices set out as detailed in

the agreement. The Trial Judge heard the evidence without a jury and filed a

comprehensive and detailed memorandum opinion, setting forth his findings and

conclusions of law. The Trial Court determined that plaintiff was entitled to recover

$22,800.00 for unpaid freight charges, $3,431.00 for unpaid warranty claims, and

$24,200.00 for unpaid sales discount, all as required under the terms of the contract.

He also determined that withholding the payment of shipping charges by the defendant

constituted a breach of the contract, which formed the basis for dismissing the

counter-complaint.

               We review de novo upon the record and presume the Trial Judge found

the facts correctly, unless the evidence preponderates against his findings. T.R.A.P.

Rule 13(d).

               The first two issues will be considered together. The evidence shows

that during the fall and summer of 1994, the parties were in negotiations for a price

increase for the mining tires. The Trial Judge, relying heavily upon a letter from

defendant’s attorney, concluded that the parties had contracted for a price increase.

The letter, in pertinent part, stated:

               to put an end to our discussions about price increases for the contract
               year 1994-95, B & D accepts your sliding scale prices for the last half of
               the contract year. The price increase for the first half of the contract
               year 1994-95 will be effective October 1, 1994, or commencing with
               your P.O. #T221. B & D expects to be billed for these increases shortly
               after the new year.

               Defendant argues that its acceptance of the price increase for the first

half of the year was conditional upon plaintiff developing new tires and resolving the


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freight charges in dispute. The Trial Judge, in addressing this issue, said:

              It seems clear that the letter of December 20, 1994 went beyond
              preliminary negotiations, and constituted a manifestation of willingness
              to enter into a bargain that only required Super Grip to bill or invoice B
              & D for the retroactive price increase.

              ...

              When Super Grip billed B & D for the retroactive price increase, as
              requested by B & D, the contract was effective, and B & D’s later
              attempt to withhold west coast shipping charges constituted a breach by
              B & D.

              We agree with the Trial Judge that the foregoing constituted a contract

between the parties. The record shows that in February of 1988, defendant agreed to

pay an additional $200.00 in freight charges to have containers of tires delivered from

a west coast port overland, in order to speed up delivery of the containers. This

additional freight charge was added to each container of mining tires ordered from

1988 through August of 1994, for a total of 114 containers, but it was agreed by the

parties in August of 1994, such charge would no longer be added to the invoices. In

January of 1995, plaintiff billed defendant for monies owing. Defendant sent payment

of only $13,221.45 of the invoiced amount, thereby deducting the sum of $22,800.00

from the amount billed. The Trial Judge found that defendants’ refusal to pay the full

bill constituted a breach of the contract by defendant. Defendant insists that the

deduction of $22,800.00 was not a breach of any contract or agreement of the parties,

i.e., the original distribution agreement of 1987 does not provide for the additional

freight charges.

              The Trial Judge’s conclusion was based upon the fact that for over a

period of eight years, the $200.00 in freight charges had been added to the bill for

each container of tires, and defendant’s acquiescence constituted an enforceable

agreement. Additionally, the Trial Judge concluded that “an attempted retraction after

five years to obtain monies already paid for west coast shipping would be unjust,” and


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defendant by reason of T.C.A. §47-2-209(5) “would be estopped by its waiver of

paragraph 161 from resorting to self-help to regain the 1988-1994 west coast shipping

charges”. The parties, by their actions and inactions over the period of years and the

payments made, established the basis for the contract as found by the Trial Judge.

                 Next, defendant asserts that assuming arguendo the withholding of the

$22,800.00 was a breach of the distributorship contract, “such breach was not material

to the essence of the contract” and should not be held to be a material breach.

                 In this regard, the Trial Judge held that the non-payment defeated the

object and purpose of what he considered to be a sales contract, and the breach was

intentional and defendant gave as the reason for non-payment the fact that the

provision for shipping charges was not set forth in the original contract. On this

record, the shipping charges were an integral part of the cost of the merchandise and

the contract between the parties essentially required supplying tires to one party and

the payment for these tires by the other. The failure to pay for the merchandise

delivered affords the seller a basis to cancel the contract for non-payment. See T.C.A.

§47-2-703(f). In this case, defendant was advised that the non-payment would be

treated as a breach unless payment was forthcoming, which defendant again refused to

pay. We agree with the Trial Judge that this action constituted a material breach of the

contract.

                 Finally, defendant argues that as a matter of equity it had “performed

substantially all of its contract with the exception of a minimal amount,” that is the

$22,800.00 payment, and this breach should not form a basis to cancel the contract.

The rule of substantial performance is not applicable to the facts of this case. This



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       The original agreement provided:

             16) This Agreement constitutes the entire agreement between Company and Distributor,
             and it may be altered or amended only by written agreement of both parties.


                                                 4
was an ongoing distribution agreement with the contractual relationship being

dependent upon the timely delivery and payment for the merchandise. Each

transaction under the agreement was completed upon delivery and payment for the

merchandise. The refusal of the defendant to pay the full bill for merchandise, as

found by the Trial Judge to be legally owing to plaintiff, constituted a basis in the law

to terminate the contract, and we find no equitable basis to treat this contract other

than one for the sale of merchandise, for which the defendant failed to pay.

              For the foregoing reasons, we affirm the judgment of the Trial Court and

remand with cost of the appeal assessed to appellant.




                                           __________________________
                                           Herschel P. Franks, J.


CONCUR:




___________________________
Houston M. Goddard, P.J.




___________________________
Don T. McMurray, J.




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