Columbia Broadcasting System, Inc. v. Stokely-Van Camp, Inc.

• Decision Date: 19 June 1975
• Docket Number: STOKELY-VAN,No. 625,D,625
• Citation: 522 F.2d 369
• Parties: COLUMBIA BROADCASTING SYSTEM, INC., Appellant, v.CAMP, INC., Appellee. ocket 74-2336.
• Court: U.S. Court of Appeals — Second Circuit

Page 369

522 F.2d 369

COLUMBIA BROADCASTING SYSTEM, INC., Appellant, v. STOKELY-VAN CAMP, INC., Appellee.

No. 625, Docket 74-2336.

United States Court of Appeals, Second Circuit.

Argued March 31, 1975.

Decided June 19, 1975.

Harold R. Medina, Jr., New York City (Richard M. Hirsch, Cravath, Swaine & Moore, New York City, of counsel), for appellant.

John J. Loflin, New York City (Muriel, Bell, Lord, Day & Lord, New York City, of counsel), for appellee.

Before ANDERSON, MANSFIELD and OAKES, Circuit Judges.

OAKES, Circuit Judge:

This appeal is brought by a television station and network owner, Columbia Broadcasting System, Inc. (CBS or the medium), from a judgment denying it recovery in its diversity suit against a sponsor, Stokely-Van Camp, Inc. (Stokely), for payment for advertising placed by an advertising agency, Lennen & Newell, Inc. (Lennen or the agency), which went bankrupt. Since the sponsor had paid the agency for the advertising but the agency had not paid the medium, the question is on which party the loss must fall, the medium or the sponsor. The case is especially intriguing since there have been surprisingly few decided cases on the issue of ultimate financial responsibility for radio and television advertising. The United States District Court for the Southern District of New York, Inzer B. Wyatt, Judge, granted the sponsor's cross-motion for a summary judgment dismissing the complaint under Fed.R.Civ.P. 56, on two grounds, first, that there was no actual or apparent authority on the part of the agency to bind the sponsor and, second, that the medium was in any event estopped from holding the sponsor responsible.

Stokely, the sponsor, is an Indiana corporation engaged in the production, sale and distribution of food products throughout the United States. Stokely uses advertising, including television commercials, in connection with the promotion and sale of its products. CBS owns a television network which transmits programs to approximately 200 independently owned and operated stations as well as to five stations here involved which CBS also owns outright.

Lennen was a so-called "full service" advertising agency, ¹ which had handled Stokely's account for over 17 years on the basis of an unwritten arrangement. On behalf of Stokely, Lennen would produce television commercials, with Stokely's approval, pursuant to an advertising CBS sold time for Stokely commercials both on its network under so-called network agreements dated April 9, 1971, and April 12, 1971, and on the five specific CBS stations under a series of 13 specific contracts running from December 10, 1970, to September 20, 1971. Lennen would prepare and send to Stokely schedules containing the station, date, program and time for each Stokely commercial to be shown during the forthcoming three months on network television and would also advise Stokely of the station, date and time for each Stokely commercial to be shown locally by the CBS television stations. At all times in question under both the network and the station contracts CBS would bill Lennen for the cost of the advertising time less 15 per cent, which is the standard commission in the trade for an advertising agency. In no case did CBS bill Stokely directly or forward to Stokely the CBS agency invoices or any indication of accounting between the agency and the medium. Rather, Lennen would bill Stokely either prior to or following its receipt of CBS invoices. The bills to Stokely from Lennen would be for 100 per cent of the cost of the advertising, so that upon payment Lennen would receive its 15 per cent "commission." It also appears that Lennen would bill Stokely for certain production costs incurred in connection with the commercials or for other disbursements. ³ The Lennen invoices to Stokely did not refer to the CBS invoices and were on a Lennen invoice form showing a gross, sales tax, cash discount and net. The invoices did not reflect the credit terms in the CBS contracts.

                budget approved by Stokely.  2 Lennen gave Stokely advertising advice and made the arrangements for the advertising.  Stokely did not know what contracts, if any, were made by Lennen with the media but did know that Lennen was being paid by means of a 15 per cent commission based on the gross amount of the invoices.  Stokely never asked for or received copies of the agency-media contracts and simply paid Lennen on its invoices
                

The network and the station billings were separately made by CBS to Lennen, separately accounted for in the CBS books and separately paid by Lennen. With respect solely to network advertising, from August 31, 1970, through September 2, 1971, there were 13 invoices rendered by CBS to Lennen. Only the first four of these were paid by Lennen, the dates of payment being set out in the footnote. ⁴ The other nine invoices for network commercials total after due allowances for credit $261,684. It is to be noted that Stokely at all times was very prompt, however, in paying Lennen, each payment being within a week or a maximum of two weeks after the date of the CBS invoice to Lennen.

In respect to the station invoices it appears that 31 were rendered by CBS to Lennen (one of which was a revised June, 1971, invoice) between October 30, 1970, and December 31, 1971, of which only seven were paid as set forth in the footnote. ⁵ No invoice after February 5 It should also be pointed out preliminarily that in respect to the network contracts here relied upon by CBS, the first was initiated by Lennen by verbal order confirmed by letter of Lennen to CBS dated May 4, 1971, stating that Lennen was purchasing "in behalf of" Stokely.

                1971, was paid, and the amount due for the assorted station advertising totaled.$166,813.  The Stokely payments to Lennen on the station advertising followed no consistent pattern, running sometimes as much as 30 days after the date of the CBS invoice to payment a week in advance, with one payment, that of $340 for an August 25, 1971, CBS invoice as early as June 30, 1971.  6 The total of the invoices under the two network contracts and the 13 station contracts is $428,497.33, for which the action is brought
                

CBS then sent to Lennen a "Network Television Agreement" with a covering letter dated May 25, 1971. The covering letter stated that if the agreement were in order, Lennen should return it to CBS for countersignature, after which "a fully signed copy" would be returned to Lennen. The covering letter, Exhibit C, said, however, "Until any modifications have been mutually agreed upon, the enclosed Agreement shall constitute the understanding between us with respect to this purchase." We agree with appellant, CBS, that the contract was plainly accepted by Lennen by its action in forwarding the commercials to be broadcast, even though no signature and countersignature were obtained. The agreement specifically refers to Lennen as "acting as agent for Stokely-Van Camp, Inc." The agreement incorporates certain obligations running to and from the advertiser, Stokely. Among other things it provides that "Agency and Advertiser will indemnify and hold harmless CBS and any stations" from and against various claims arising out of the broadcast of the "Agency Package," and conversely provides that CBS will indemnify and hold harmless "Agency and Advertiser" from and against claims arising out of the particular programs which it supplies. (P 2.) The agreement also provides that "if this Agreement is with a recognized advertising agency each payment hereunder shall be subject to the deduction therefrom of an advertising agency commission in an amount equal to 15% Thereof." (P 8(c).) The agency and advertiser under the network agreement (P 19) are required to conform to requirements of § 508 of the Federal Communications Act, 47 U.S.C. § 508, and also to make certain warranties and representations. The agreement further provides in Paragraph 5: "(it being understood that Agency acting as agent for disclosed principal)."

The second network contract is the same as the first and was handled in the same way with a covering letter containing the same language and no signatures to the agreement. It seems clear enough in regard to the network contracts that they were in full force and effect despite the fact that they were never signed, the forwarding of the commercials constituting acceptance of the terms by Lennen. See 1 Restatement of Contracts § 63 (1932).

The station contracts were all in writing and signed by CBS and Lennen with the exception of one contract, a signed original of which cannot be located; as did the district court, we will assume that the missing contract was signed. These station contracts are on a standard CBS shall bill Advertiser via Agency monthly or weekly whenever CBS shall so elect, for the charges due hereunder for such period. Advertiser shall pay CBS, in accordance with such billing, within ten calendar days after receipt thereof. Any failure whatsoever by Advertiser to make timely payment charges under this Agreement or any other breach whatsoever by Advertiser or Agency of this Agreement shall give CBS the right in addition to its other rights, to cease performance of this Agreement.

form styled "CBS Television Stations National Sales Schedule Agreement." Each refers to Lennen as "('Agency') acting as agent for: Stokely-Van Camp, Inc. ('Advertiser')," and each was signed by Lennen "As Agent for Stokely-Van Camp, Inc." In the basic terms and conditions incorporated in the agreements by reference, each contract is said to have been "entered into by Agency as agent for Advertiser for the broadcast of Announcements over Station . . . ." Unlike the network contracts in respect to payment of the invoices there is a specific provision reading as follows:

In the event that the station omits to broadcast the commercials in question under Paragraph 3D of the station contract the advertiser not the agency has the right to terminate the...