Boatright v. Steinite Radio Corp., 266.

• Decision Date: 12 February 1931
• Docket Number: No. 266.,266.
• Citation: 46 F.2d 385
• Parties: BOATRIGHT v. STEINITE RADIO CORPOTION et al.
• Court: U.S. Court of Appeals — Tenth Circuit

46 F.2d 385 (1931)

BOATRIGHT v. STEINITE RADIO CORPOTION et al.

No. 266.

Circuit Court of Appeals, Tenth Circuit.

January 12, 1931.

Rehearing Denied February 12, 1931.

W. G. Boatright, of Kansas City, Mo. (A. L. Berger, of Kansas City, Kan., and Ringolsky, Boatright & Jacobs, of Kansas City, Mo., on the brief), for appellant.

James A. Reed, James E. Taylor, and Frank A. Fratcher, all of Kansas City, Mo., and Harry N. Wyatt, of Chicago, Ill., for appellees.

Before LEWIS, COTTERAL, and PHILLIPS, Circuit Judges.

PHILLIPS, Circuit Judge.

Boatright brought this action against the Steinite Radio Corporation and the Steinite Radio Company, corporations organized under the laws of Kansas (hereinafter called the Kansas Corporation and the Kansas Company, respectively), to recover damages for breaches of an alleged contract of joint adventure.

The amended petition alleged that the defendants were engaged in manufacturing and selling radio receiving sets and equipment for profit; that prior to March, 1926, plaintiff owned a one-third interest in the United States Distributing Company, a co-partnership; that such co-partnership had an established business with dealers in radio receiving sets and equipment, and had a good-will, plant, sales organization and valuable trade lists; that the Kansas Corporation desired to obtain the services of plaintiff to handle its entire line of merchandise and for that purpose entered into a verbal contract of joint adventure with the plaintiff, whereby they agreed: That, as a means and method of doing business and for the convenience of both parties, the Kansas Corporation and plaintiff should organize a corporation under the laws of Kansas with a capital stock of $10,000 (hereinafter referred to as the United Corporation), to be used as an instrumentality and agency through which plaintiff and the Kansas Corporation would carry on the business of such joint adventure; that the Kansas Corporation would advance $2,500 to liquidate such partnership business, purchase the interest of plaintiff's partner and finance the United Corporation; that the United Corporation should be organized for the purpose of selling and dealing in radio receiving sets and equipment; that the Kansas Corporation would own fifty-one shares and plaintiff forty-nine shares of the capital stock of the United Corporation; "that plaintiff would be the president and sales manager of said (United) corporation and have a weekly drawing account of salary of one hundred dollars"; that 25% of the net profits should be set aside for the purpose of repaying the amount to be advanced by the Kansas Corporation; that, through such United Corporation, plaintiff would immediately engage in the business of selling radio receiving sets and equipment; that the Kansas Corporation would manufacture and sell to the United Corporation radio receiving sets and equipment manufactured by the Kansas Corporation, including one set known as the Little Giant at $2.40 per set, one known as the Best Five at $20.50 per set, and one known as the U. R. C. Console at $32.50 per set; that the Kansas Corporation would also furnish the United Corporation all radio receiving sets, equipment and parts thereafter manufactured by the Kansas Corporation at prices to be agreed upon from time to time; that the United Corporation would enter into contracts with radio dealers to supply the latter with radio receiving sets and equipment thereafter manufactured by the Kansas Corporation; "that said joint adventure would continue as long as plaintiff remained a stockholder of said (United) Corporation and desired to engage in such business"; and that, in consideration of the making of such contract, plaintiff would transfer to the United Corporation the assets and good-will of the United Distributing Company.

Such petition further alleged that, after the making of such contract, the Kansas Corporation and the plaintiff incorporated the United Radio Corporation, under the laws of Kansas; that the Kansas Corporation advanced the sum of $1,856.85 to liquidate the business of such partnership, to purchase the share of plaintiff's partner therein and to finance the organization of the United Corporation; that plaintiff transferred to the United Corporation all of such partnership business and assets; that plaintiff became the president and sales manager of the United Corporation and entered upon his duties and commenced the doing of business; that the Kansas Corporation began to manufacture for and supply radio receiving sets and equipment to the United Corporation, and the latter began to enter into contracts for supplying dealers with radio receiving sets and equipment; that as such contracts were signed and orders given by dealers, such orders were sent to the Kansas Corporation at Atchison, Kansas; that the latter shipped the merchandise ordered to the purchaser C. O. D. and charged the United Corporation on open account for the same; that, as such C. O. D. shipments were paid for, the Kansas Corporation paid itself for the equipment at the prices agreed upon; that the business of such joint adventure grew and prospered, and approximately 300 dealers' contracts were entered into; that such contract provided the United Corporation would supply the complete demands of such dealers for one year from the date thereof; that the United Corporation, up to January 31, 1927, made a gross profit of $15,040.40 and a net profit of $7,995.33; that the plaintiff and the Kansas Corporation treated the United Corporation as "a mere paper organization" and "as an instrumentality or agency through which plaintiff and defendants (the Kansas Corporation and the Kansas Company) carried on and transacted their business."

Such petition further alleged: That in the fall of 1926, the Kansas Corporation perfected and began to manufacture electric radio receiving sets designed to operate directly from an alternating current without the aid of batteries; that the Kansas Corporation wholly failed and refused to manufacture for and furnish to the United Corporation such electric receiving sets; that in March, 1927, the Kansas Corporation transferred all its assets and contracts to the Kansas Company; that from March, 1927, to August, 1927, the Kansas Company held up and delayed the filling of orders for radio receiving sets from customers and dealers of the United Corporation, and failed to furnish such customers and dealers with radio receiving sets within a reasonable time after receiving orders therefor; that about August, 1927, the Kansas Company refused to manufacture for or supply or furnish to the United Corporation any radio receiving sets; that such electric radio receiving sets became very popular and were in great demand by the buying public; that the United Corporation would have sold a great number of electric radio receiving sets had the Kansas Company furnished such sets to it, and would have thereby greatly increased its net profits; that the failure of the Kansas Company to furnish radio receiving sets to the United Corporation and to fill the orders of its customers and dealers within a reasonable time caused such dealers and customers to become dissatisfied and to cancel orders and withhold future orders, and eventually destroyed the business of the United Corporation; that, as a result of the breaches of such contract by the Kansas Corporation and the Kansas Company, plaintiff has lost the salary of $100.00 per week which he would have received as president and sales manager of the United Corporation, and the 49% of the net profits which would have been earned by the United Corporation and declared as dividends, amounting in the aggregate to $102,000.

Such petition further alleged that, after the filing of the original petition, the "assets, contracts, obligations and liabilities to" the Kansas Corporation and the Kansas Company were transferred to the defendants, the Steinite Manufacturing Company and the Steinite Radio Company, corporations organized under the laws of Delaware.

The trial court sustained a demurrer to the amended petition on the grounds (1) that the contract was contrary to public policy, illegal and unenforceable, and (2) that the cause of action, if any, was in the United Corporation and not in the plaintiff. From a judgment dismissing the amended petition, plaintiff has appealed.

Counsel for plaintiff contend that, although the breaches of the contract alleged may have resulted in damages to the United Corporation, they also resulted in damages to him, and that he may recover the damages suffered by him, in an action in his own name. They cite in support of their contention Meyerson v. Franklin Knitting Mills, 185 App. Div. 458, 172 N. Y. S. 773; Camp v. Gress (C. C. A. 4) 244 F. 121; Id., 250 U. S. 308, 39 S. Ct. 478, 63 L. Ed. 997; Biering v. Ringling, 74 Mont. 176, 240 P. 829; Bank of Commerce v. Bright (C. C. A. 3) 77 F. 949; Eden v. Miller (C. C. A. 2) 37 F. (2d) 8.

Counsel for plaintiff further contend that an agreement to organize a corporation as a mere agency or instrumentality through which the incorporators shall carry on the business of a copartnership or joint adventure is not contrary to public policy. They cite and rely upon Wabash Ry. Co. v. American Ref. Transit Co. (C. C. A.) 7 F.(2d) 335; Chicago, M. & St. P. Ry. Co. v. Minneapolis C. & C. Ass'n, 247 U. S. 490, 38 S. Ct. 553, 62 L. Ed. 1229; La Varre v. Hall (C. C. A. 5) 42 F.(2d) 65.

Counsel for defendants contend that the cause of action, if any, for the alleged breaches of the contract, is vested solely in the United Corporation, and that an action thereon must be maintained in the name of that corporation.

Counsel for defendants further contend that the agreement to treat the United Corporation as a mere agency or instrumentality of the joint adventure and the owners of the shares in the corporation not as stockholders therein but as members of a joint adventure,...