Barnsdall Refining Corp. v. Cushman-Wilson Oil Co.

• Decision Date: 01 July 1938
• Docket Number: No. 11113.,11113.
• Citation: 97 F.2d 481
• Parties: BARNSDALL REFINING CORPORATION v. CUSHMAN-WILSON OIL CO.
• Court: U.S. Court of Appeals — Eighth Circuit

97 F.2d 481 (1938)

BARNSDALL REFINING CORPORATION v. CUSHMAN-WILSON OIL CO.

No. 11113.

Circuit Court of Appeals, Eighth Circuit.

July 1, 1938.

Donald Evans, of Des Moines, Iowa, and Gentry Lee, of Tulsa, Okl. (M. D. Kirk, of Tulsa, Okl., and William F. Riley and Carr, Cox, Evans & Riley, all of Des Moines, Iowa, on the brief), for appellant.

Eugene D. Perry and John E. Perry, both of Des Moines, Iowa (Robert J. Bannister and Stipp, Perry, Bannister & Starzinger, all of Des Moines, Iowa, on the brief), for appellee.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from a judgment entered in an action at law in which appellee recovered damages for the breach of a contract of sale. Appellant as plaintiff brought action to recover $17,622.69 on account for petroleum products purchased by appellee from appellant. The parties will be referred to as they appeared in the lower court. Defendant, in its answer, admitted plaintiff's claim and pleaded a counterclaim for damages in excess of the amount due on plaintiff's account. Plaintiff's motion for a directed verdict having been denied, the case was sent to the jury on instructions to which plaintiff has saved certain exceptions. The jury returned a verdict for defendant on its counterclaim for $2,000 in excess of plaintiff's claim, which in effect fixed defendant's damages at $19,622.69.

Plaintiff is a petroleum producing, refining and marketing company, while defendant is a retail distributor of gasoline and petroleum products in Des Moines and central Iowa. On October 27, 1931, plain-and defendant entered into a written contract comprising two parts. In the first part, defendant agreed to handle, advertise and sell plaintiff's products for a period of five years. That part of the contract is not here directly involved. The second part provided that,

"* * * after said sales contract has been in effect and operation for a period of three (3) years, the buyer may, if he so elects, offer for sale to the seller its fixed assets and good will, and the seller agrees to purchase said fixed assets and good will when so offered by the buyer at a price to be arrived at in the following manner:

"A. All of the physical properties of the buyer shall be appraised by a recognized appraisal company mutually agreed upon and the value so arrived at by this appraisal company shall be accepted as the value of the physical properties."

There was also a provision in the contract for determining the value of the good will, and also a provision that plaintiff, in the event of such purchase, should assume leases, but these provisions are not here important.

On August 26, 1936, defendant notified plaintiff that it desired to sell pursuant to the contract, and nominated Lloyd-Thomas Company of Chicago as appraisers. Before suggesting this company as an appraiser, defendant had actually had it make an appraisal of its assets, but this was not disclosed to plaintiff. On September 10, 1936, plaintiff wrote defendant, declining to make purchase on the ground that the "agreement in question falls far short of being an enforceable option to sell." Plaintiff then commenced this action to recover balance due on account, and defendant interposed a counterclaim for damages, as has already been noted.

At the trial, defendant offered proof, which was received over the objection of plaintiff, to the effect that an employee of Lloyd-Thomas Company had made an appraisal of the properties of defendant as of August 15, 1936, some time prior to the date on which defendant proposed its name as the appraiser. The testimony was objected to upon the grounds, among others, that the appraisal had not been made by an appraisal company "mutually agreed upon;" that it did not represent a determination of value, but merely the cost of production less depreciation. This witness testified that he had not made the appraisal for determining market value; that the appraisal was made upon the basis of determining original costs from dealer's labor costs and applying rates of depreciation thereto; that what he did was to determine cost of reproduction of the property in its then condition. He testified that,

"If I had been going to make an appraisal of value for the purpose of sale, I would have used an altogether different system of obtaining my information. I would have taken into consideration factors which were omitted from consideration in the compilation of this exhibit. Lloyd & Thomas have made appraisals for the purpose of determining price to be paid under contract of purchase and sale. But appraisals for the purpose of determining price to be paid under contract of purchase and sale are considered to be out of our line. Our appraisal is supposed to be an accurate account of all the physical assets owned by the particular concern, and we don't care what anyone uses it for. Our ordinary line of work is making these appraisals which simply reflect reproduction cost and we make them in the form I have outlined. We take contracts to make appraisals for the purpose of determining the value for the purpose of purchase and sale, but it is not in our regular line of work."

Following the method outlined, he determined the reproduction cost new of these properties, less depreciation, to be $101,701.29. This he said was their "sound value." He stated that in making his appraisal he gave no weight to whether a building was on leased ground or to how long the lease was to run; that he was making an appraisal to ascertain cost less depreciation, and not market value; that whether a building was on a leasehold, where the lease was about to expire, should be taken into consideration in making an appraisal, and that it might make some difference; that he did not undertake to determine what was a fair price for the property to bring at a sale.

Defendant also produced testimony of several witnesses as to the market value of the physical properties, their values ranging from $54,603 to $63,733.

Plaintiff called a Mr. Hyder, vice president of the American Appraisal Company, who testified that a recognized appraisal company in searching for values had no prescribed formula; that in determining value, reproduction cost, market value, and capitalization of income should all be considered. He denied that the sole standard method of ascertaining value was the cost of reproduction new less depreciation.

Other witnesses called by plaintiff placed the market value of the physical properties at $65,000.

Plaintiff moved for a directed verdict on the grounds: (1) that the purchase price of the property was never determined in the manner which the contract provided; (2) the measure of damage, if any, for a breach of the contract was the difference between the contract price and its reasonable value, and that as the contract failed to fix a price, the court or jury could not supply it; (3) that the contract provided that the appraisal company to be mutually agreed upon, was to determine the value, and it was improper to assume that an appraisal company, in determining value, would appraise it at a figure in excess thereof; and (4) in no event could plaintiff recover any more than nominal damages. The court overruled this motion, and in submitting the case to the jury on defendant's counterclaim, gave, among others, the following instructions:

"You are instructed that before the defendant can recover on its counterclaim it must establish, first, the value that would in all reasonable probability, and which must be found from the evidence without speculation or guess work, have been arrived at had the parties carried out their agreement and there had been appointed a recognized appraisal...