Bay State Milling Co. v. Martin

• Decision Date: 22 October 1990
• Docket Number: No. 89-1336,89-1336
• Citation: 916 F.2d 1221
• Parties: BAY STATE MILLING COMPANY, a Minnesota Corporation, Plaintiff-Appellee, v. William W. MARTIN, Sr., a resident of the State of Illinois, Defendant-Appellant, and Philip R. Sylvester and National Flour Company of Wisconsin, Inc., a Wisconsin Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1221

916 F.2d 1221

BAY STATE MILLING COMPANY, a Minnesota Corporation, Plaintiff-Appellee, v. William W. MARTIN, Sr., a resident of the State of Illinois Defendant-Appellant and Philip R. Sylvester and National Flour Company of Wisconsin Inc., a Wisconsin Corporation, Defendants-Appellees.

No. 89-1336.

United States Court of Appeals, Seventh Circuit.

Argued May 7, 1990.

Decided Oct. 22, 1990.

Michael L. Chernin, Milwaukee, Wis., for plaintiff-appellee.

Saul R. Leibowitz, Chicago, Ill., Michael S. Polsky, Trebon & Polsky, Milwaukee, Wis., for defendants-appellees.

Before BAUER, Chief Judge, CUDAHY, Circuit Judge, and WILL, Senior District Judge. ^*

CUDAHY, Circuit Judge.

Bay State Milling Company ("Bay State"), a seller of baking goods and supplies for resale, sued William W. Martin, Sr., Philip R. Sylvester, and National Flour Company of Wisconsin, Inc. ("National Flour Wisconsin"), a wholesale distributor of baking products, for failing to pay for delivered product pursuant to a guaranty signed by Martin and Sylvester. Martin denied liability; Sylvester admitted liability, and cross claimed against Martin for intentional deceit, strict responsibility and negligent misrepresentations (see Wis.J.I.Civil Secs. 2401, 2402, and 2403, respectively) made in the sale of National Flour Wisconsin from Martin to Sylvester, as well as for Martin's conversion of National Flour Wisconsin funds to pay creditors of Martin's company, National Flour Company, Inc. ("National Flour"). There was complete diversity among the parties and Wisconsin law controlled. A jury awarded Bay State $447,528.36 for Martin's breach of guaranty, and awarded Sylvester $50,000 for Martin's intentional deceit misrepresentations, $25,998.27 for Martin's conversion, and $70,025.79 in punitive damages. Martin appeals; we affirm the jury verdict.

I.

In 1980, Sylvester went to work for Martin as a salesman for National Flour which at the time had a Wilmette, Illinois and a Milwaukee, Wisconsin division; Martin was its sole shareholder. In 1982, after working at the Milwaukee division, Sylvester approached Martin about acquiring an interest in National Flour. Martin provided Sylvester with financial statements dated August 31, 1982 and September 30, 1982, and with the September 30, 1982 financial statement of Country Maid Bakery Company, Inc. ("Country Maid"), a business Martin also owned. These documents together overstated the amount National Flour's Milwaukee division was owed and understated the amount the division owed others. Sylvester, untrained at reading financial documents, showed the papers to his family, who were providing the capital for his purchase. After consultation and in reliance on the information Martin provided, Sylvester decided to invest.

In January 1983, National Flour Wisconsin was formed: Sylvester paid Martin $60,000 to become a 50% shareholder in the new company, while National Flour purchased the other 50% with the assets of its Milwaukee division. Sylvester believed that the $60,000 would be loaned back to the new company. Martin retained responsibility for maintaining the books of both National Flour and National Flour Wisconsin, while Sylvester primarily managed the sales of National Flour Wisconsin.

In August 1983, apparently due to problems in obtaining payment from National Flour Wisconsin for shipped product, Bay State, a credit customer of National Flour Wisconsin, required a personal written guaranty for full and prompt payment of indebtedness from Sylvester and Martin. The guaranty read in part:

This guaranty shall continue in full force and effect until such time as you shall receive from the undersigned written notice of revocation, and such revocation shall not in any way relieve the undersigned from liability for any indebtedness incurred prior to the actual receipt by you at your office at 1776 Heritage Drive, North Quincy, Massachusetts, of such notice; and the registry return receipt card shall be the best evidence thereof.

Immediately below this, written in hand at Martin's bequest and added by Thomas Kraut, Bay State's then Treasurer and Credit Manager, the guaranty read:

The day either partner/owner is no longer financially involved with this corporation, and with due notice to Bay State Milling Co as above, said party is no longer a guarantor.

Martin and Sylvester both signed the guaranty.

In February 1985, Sylvester wanted either to sell his share of National Flour Wisconsin back to Martin or to buy out Martin's share; Martin offered to sell. An agreement was reached whereby Sylvester, via National Flour Wisconsin, was to buy Martin's 50% share for $40,000. That share was ultimately purchased from Country Maid, which had at some time previously acquired Martin's 50% share, even though the original agreement between Martin and Sylvester prohibited such transfers without both partners' consent. At the time of Sylvester's purchase from Country Maid, Martin did not provide Sylvester with much financial information, saying that he, Martin, would turn over the books of National Flour Wisconsin when Sylvester bought him out. Martin had, however, just months before, asserted that National Flour Wisconsin had received a $10,000 credit from the Internal Revenue Service (IRS). He also had asserted that the money National Flour Wisconsin paid to buy out his remaining interest would go toward paying down the mounting debt owed Bay State. Although the sale and an initial payment of $20,000 was made, the stock was never actually transferred, and the total purchase price never tendered.

On March 1, 1985, after the sale of his share in National Flour Wisconsin, Martin allegedly sent a letter to Bay State notifying it that he was no longer associated with National Flour Wisconsin and was no longer a guarantor. There was testimony that Bay State did not receive this letter until December 1985 or January 1986, and that the company had no knowledge of the letter before October 24, 1985. The last shipment from Bay State to National Flour Wisconsin apparently occurred on October 9, 1985.

But when Sylvester took control of the business, he found that its financial picture was not as rosy as Martin had led him to believe. Checks drawn on National Flour Wisconsin's account had been used to pay the tax obligations of National Flour, and other monies had gone either to pay in full or in part National Flour's obligations to various companies, some of which had had no dealings with National Flour Wisconsin whatsoever. Still other checks, issued by National Flour Wisconsin, were returned for insufficient funds, and tax liens were placed on the company's accounts. An outstanding tax liability of $25,998.27 from previously unpaid balances, apparently through March 17, 1986, was assessed against National Flour Wisconsin and Sylvester personally. An unpaid balance of $411,943.68 was also due Bay State, which in August of 1985, brought this action to enforce the guaranty signed by Martin and Sylvester.

Bay State's complaint sought payment from Martin, Sylvester and National Flour Wisconsin for the account's unpaid balance plus interest. Martin answered that his letter announcing the end of his financial involvement with National Flour Wisconsin terminated his role as guarantor, not only for all obligations accruing after the alleged March mailing date, but for all previously incurred obligations as well. Sylvester admitted his liability to Bay State under the terms of the guaranty, and cross-claimed against Martin for his misrepresentations which had induced Sylvester to form and later buy out National Flour Wisconsin. Sylvester also sought damages for monies wrongfully converted to Martin's own use and for punitive damages.

Judge Warren granted summary judgment in favor of Bay State based on the clear meaning of the guaranty, holding that Martin was liable to Bay State for National Flour Wisconsin's obligations. A trial was then held, limited to damages arising from Martin's guaranty to Bay State and to the merits of, and possible damages attributable to, Sylvester's cross-claims against Martin.

At the close of trial, the jury received instructions and was provided a 21 question special verdict form, asking whether Martin's letter to Bay State was ever received, whether Martin had made misrepresentations to Sylvester inducing him to suffer pecuniary damage under a theory of either intentional deceit, negligence or strict responsibility, whether Martin had converted funds belonging to National Flour Wisconsin to his own use and whether Martin was to be required to pay punitive damages. After deliberations, the jury determined that Martin's letter was never received, and awarded Bay State damages of $447,528.36 (the ending balance of $411,943.68 that National Flour Wisconsin owed Bay State for shipments through October 9, 1985, plus interest). The jury also found that Martin had intentionally misrepresented the financial condition of his company, National Flour, and the condition of National Flour Wisconsin at the time of the second sale, resulting in damages to Sylvester of $50,000. The jury further found that Martin had converted funds in the amount of $25,998.27, and the jury awarded punitive damages of $70,025.79.

On appeal, Martin claims that summary judgment in favor of Bay State should never have been granted, that at the close of evidence his motion for directed verdict should have been granted and that the jury's verdict was unsupported by the evidence. As discussed below, Martin's arguments are unavailing, and while the testimony and exhibits in this case were, at least potentially, confusing to the jury, the jury's award is ultimately in accordance with law and supported by the evidence.

II.

With respect to his liability to Bay State, Martin argues that the granting of summary judgment on the meaning of the guaranty was improper and that evidence should have been adduced to determine the intent...