595 F.2d 976 (5th Cir. 1979), 76-2820, Foxco Industries, Ltd. v. Fabric World, Inc.

Docket Nº:76-2820.
Citation:595 F.2d 976
Party Name:FOXCO INDUSTRIES, LTD., Plaintiff-Appellee, v. FABRIC WORLD, INC., Defendant-Appellant.
Case Date:May 22, 1979
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 976

595 F.2d 976 (5th Cir. 1979)

FOXCO INDUSTRIES, LTD., Plaintiff-Appellee,

v.

FABRIC WORLD, INC., Defendant-Appellant.

No. 76-2820.

United States Court of Appeals, Fifth Circuit

May 22, 1979

Page 977

[Copyrighted Material Omitted]

Page 978

John R. Wynn, Harold F. Herring, Huntsville, Ala., for defendant-appellant.

John Z. Higgs, Jr., Huntsville, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before RONEY, TJOFLAT and HILL, Circuit Judges.

TJOFLAT, Circuit Judge:

In this diversity action Foxco Industries, Ltd. (Foxco), a Delaware corporation, following a jury trial recovered a $26,000 judgment against Fabric World, Inc. (Fabric World), an Alabama corporation, for breaching a contract to purchase certain knitted fabric goods and refusing to pay for merchandise previously purchased. 1 Fabric World raises three points on appeal: (1) Foxco was "doing business" in the state of Alabama without having qualified to do so and thus was precluded from enforcing its claim in court; (2) the district court erred in its instructions to the jury on damages; and (3) the district court erred in admitting into evidence published standards of the Knitted Textile Association to establish the meaning of a disputed contract term. For the reasons set forth below, we reject the arguments of Fabric World and affirm.

I

Foxco is in the business of manufacturing knitted fabrics for sale to retail fabric stores and the garment industry. Foxco's principal place of business is in New York City; it has never formally qualified to do business in Alabama. Fabric World is engaged in the retail fabric business and operates a chain of stores in a number of states; its headquarters is in Huntsville, Alabama.

There are two seasons in the fabric industry, a spring season and a fall season. Before the beginning of each season Foxco displays for customers samples of the line of fabrics it will manufacture that season. Customer orders are accepted only from the fabric shown on display. Foxco's manufacturing operation is limited to filling these orders; no fabrics are manufactured merely to be held as inventory. There was some conflict in the testimony as to whether fabric specially knit for one customer, such as Fabric World, could be resold to another customer.

Foxco sells some of its goods to retail fabric stores through manufacturers' representatives, operating on a commission basis, who sell the lines of numerous manufacturers. Foxco furnishes each representative with samples and a price list. Larger retail store customers, such as Fabric World, are handled personally by Foxco's sales manager, Allen Feller, a salaried employee, who supervises all retail fabric store sales. He has responsibility over the approximately twenty-six manufacturers' representatives carrying the Foxco line.

Foxco has never maintained an office in Alabama. At the time of the transactions giving rise to this action, its manufacturers' representative in Alabama was a resident of the state. Foxco's sales manager, Feller, made periodic trips to Alabama to meet with this representative and to obtain orders from Fabric World and Kennemer Company, another large fabric retailer. At the beginning of each season Feller would meet with the manufacturers' representative for two or three days so that the new line of fabrics could be previewed and discussed. In 1974, Foxco's gross sales approximated $14,000,000; Alabama accounted for in excess of $100,000 of that amount. A substantial portion of the Alabama business was with Fabric World, from which three separate orders were obtained.

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On April 22, 1974, Feller traveled to Huntsville to show Fabric World the new fall line. His meeting with Glenn Jameson, Fabric World's president, culminated in a written order for "first quality" goods. A dispute subsequently arose regarding the quality of the goods sent to fill the order, and Fabric World refused to pay for the portion of the goods it considered defective.

On October 21, 1974, Feller returned to Huntsville to show Jameson the line for the following spring season. Jameson voiced no complaint about the quality of the goods received pursuant to the previous April 22 order. In fact, he gave Feller a new order, in writing, for 12,000 yards of first quality fabric, at a price of $36,705, to be delivered by January 15, 1975.

A few weeks after the October 21 order was placed, the textile industry began to experience a precipitous decline in the price of yarn. Because of a drop in the price of finished goods, Fabric World wrote Foxco on November 15, 1974, and cancelled its October 21 order. Foxco immediately replied, stating that the manufacture of the order was substantially completed and that it could not accept the cancellation. On November 27, 1974, Foxco's attorney wrote Fabric World that if the goods were not accepted they would be finished and sold and Fabric World sued for the difference between the contract price and the sales price received by Foxco. On December 3, 1974, Fabric World agreed to accept the order, but threatened to return the entire shipment if it contained one flaw. Foxco, believing that it was impossible to produce an order of this magnitude without a single flaw, decided it would not ship the order (which was completed a short time later).

Fabric World established that in December 1974 the fair market value of the October order was approximately 20% Less than the contract price. However, Foxco make no attempt to sell the goods from the time Fabric World cancelled the order until September 1975, when the goods had dropped 50% In value. In that month Foxco sold at a private sale without notice to Fabric World approximately 7,000 yards from the order for an average price of between $1.50 and $1.75 per yard, a total consideration of $10,119.50. By the time of trial in April 1976, Foxco had on hand about 5,000 yards of the order worth between $1.25 and $1 per yard, or about $6,250.

During the course of the trial there was much testimony regarding the meaning of the term first quality goods used in the contracts between Foxco and Fabric World. The testimony on behalf of Fabric World was that it meant fabric containing no flaws. Foxco introduced evidence, over the objection of Fabric World, in the form of an exhibit containing standards for finished knitted goods promulgated by the Knitted Textile Association, a large textile industry group to which Foxco belongs. These standards indicated that certain types and amounts of flaws were permissible in first quality fabric. Fabric World is not a member of that association and claimed it had no knowledge of the standards adopted by the association's members. One ground for Fabric World's present appeal is its contention that the standards of a trade association of which it had no knowledge are not admissible to show the meaning of the undefined and disputed contract term "first quality" goods.

In its final charge to the jury, the district court instructed that Foxco was not doing business in Alabama and that the doing business issue had been eliminated from the case. Fabric World claims the instruction was error.

The court also instructed the jury that, if it found that Fabric World was liable to Foxco, it was free to calculate Foxco's damages under either section 2-708 or 2-709 of the Alabama Uniform Commercial Code. Fabric World objected, asserting that section 2-709 is inapplicable in this case, and now argues that the verdict resulted from an application of that section.

II

Under Alabama law, if a foreign corporation does business in Alabama without being duly qualified to do so, it is precluded from enforcing in state court "all

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contracts or agreements" made or entered into by it in Alabama. Ala.Const. art. XII, § 232; Ala.Code tit. 10, § 10-2-254 (1977). A foreign corporation barred from suit in Alabama state court because of its failure to qualify to do business is...

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