Detsch & Co. v. Calbar, Inc.

• Decision Date: 22 July 1964
• Citation: 39 Cal.Rptr. 626,228 Cal.App.2d 556
• Court: California Court of Appeals Court of Appeals
• Parties: DETSCH & COMPANY, a corporation, Plaintiff and Appellant, v. CALBAR, INCORPORATED, Defendant and Respondent. Civ. 21341.

Page 626

39 Cal.Rptr. 626

228 Cal.App.2d 556

DETSCH & COMPANY, a corporation, Plaintiff and Appellant, v. CALBAR, INCORPORATED, Defendant and Respondent.

Civ. 21341.

District Court of Appeal, First District, Division 1, California.

July 22, 1964.

Domenic J. Cannizzaro, San Francisco, for appellant.

Edward P. Freidberg, Sacramento, for respondent.

SULLIVAN, Justice.

Plaintiff appeals from an order quashing service of summons upon defendant, a Pennsylvania corporation. ¹

On May 31, 1962, plaintiff commenced the instant action against defendant for an accounting and damages for breach of contract. On June 20, 1962, the trial court made its order for substituted service of summons on defendant pursuant to section 6501 of the Corporations Code. ² Such service was made. Thereupon defendant appeared specially and moved for an order quashing the service of summons and complaint on the ground that the court lacked jurisdiction over defendant. The motion was heard upon affidavits and upon plaintiff's complaint. The trial court granted the motion.

The complaint contains three counts. The first count alleges in substance that on August 15, 1935, plaintiff entered into a written contract with the 'Albion Manufacturing Company, of Philadelphia, Pennsylvania, or assigns,' a copy of which is attached to the complaint and incorporated therein by reference; ³ that thereafter Albion Manufacturing Co. (hereafter called Albion) assigned all its assets to defendant and terminated its business; that defendant succeeded to said business and on or about July 18, 1936, expressly agreed that it would be bound by the abovementioned agreement, plaintiff also assenting to its continuance.

According to the terms of the agreement, plaintiff on its part assumed certain duties in connection with the promotion and sale of Albion's products ⁴ and Albion on its part agreed to give plaintiff the exclusive right to sell Albion's products in a specified territory consisting of almost all of the western states (including California) and to cooperate with plaintiff in working such territory.

Albion also agreed to pay plaintiff a 15 percent 'commission compensation' on the net amount of all orders accepted by Albion which were received from the territory whether through plaintiff or otherwise and to render to plaintiff at the end of each month during the life of the agreement an itemized statement of the current month's business with the trade in the territory. By its terms the agreement was to remain in effect until August 15, 1938, and thereafter for consecutive periods of three years each unless written notice was received by plaintiff from Albion to the contrary within 30 days prior to the expiration of any period.

Plaintiff alleges that defendant, as Albion's assignee, breached the above agreement by accepting orders within the exclusive territory without accounting to plaintiff or paying it a commission. The second and third counts substantially replead the allegations of the first and for our present purposes need not be set forth in detail. It is sufficient to note that the third count alleges that on February 15 1962, defendant repudiated and cancelled the agreement.

In support of its motion to quash, defendant filed the affidavit of Vincent E. Dewees, its vice-president and director of technical sales. The affidavit states in substance the following: Defendant, a Pennsylvania corporation, is in the business of manufacturing for sale certain caulking compounds and other paint and varnish products. Plaintiff is an independent distributor and sales representative having agreements with many other manufacturers throughout the United States for the distribution and sales representation of varied building and hardware products in California and other western states. Defendant does not have, nor has it ever had, any office in the State of California, nor does it presently have nor has it ever had any employees, agents, servants or officers in the State of California for the purpose of conducting business transactions and promoting sales or for any other purpose. 'The only contact that the defendant corporation has had with the State of California is through an oral agreement between defendant corporation and plaintiff corporation whereby the defendant corporation has agreed to pay a 10 per cent commission on orders obtained by said plaintiff corporation and approved by defendant corporation at its home office in Philadelphia, Pennsylvania.' (Emphasis added.) At no time has defendant given plaintiff exclusive distribution rights in any state or states, the oral arrangement being 'strictly to pay' the aforesaid commission. '[O]n or about January 18, 1962, defendant corporation terminated any association with plaintiff corporation and terminated its oral agreement with said plaintiff corporation.' (Emphasis added.)

The affidavit further alleges: At all times prior to the termination of the oral agreement by defendant, plaintiff would send orders to defendant and defendant, after approving the same in its Philadelphia office, would mail or ship the items purchased directly to the purchasers, would bill the purchasers directly from its home office in Philadelphia and would receive payment therefor directly from the purchasers at its home office. During this period of time, plaintiff received from defendant no compensation other than the above commission. Plaintiff has in addition been paid a commission for products ordered directly by the purchasers in the western states serviced by plaintiff although orders for the same came directly from the purchasers rather than from plaintiff. The purpose of this was to encourage plaintiff to obtain orders in the area serviced. The only items of merchandise and products sold by the defendant in the area serviced by plaintiff were on a mail order basis and were limited to caulking compounds and caulking guns. Approximately 90 percent of all orders from west coast wholesalers or distributors came directly to defendant from such wholesalers or distributors. Plaintiff at no time during the duration of the oral agreement had any authority to accept or reject orders, adjust claims, or exercise any administrative or other function in relation to the mail order sales.

It is also alleged that the gross sales by defendant in California from these products from 1957 to 1961 were as follows: 1957, s4,172.20; 1958, s5,350.71; 1959, $6,332.28; 1960, $6,632.90; 1961, $5,303.96.

According to Mr. Dewees' affidavit, plaintiff is not an agent of defendant, the only connection between them being the above agreement to pay commissions, plaintiff having been in essence 'only an order-taking conduit' for defendant. Defendant has never advertised in any trade papers, magazines or other forms of communication in California. At no time during the duration of the above oral agreement was there any activity by defendant in the State of California other than the above described sales through plaintiff as an independent distributor. At no time has defendant maintained any property or items of inventory in the State of California. Mr. Dewees summarizes his position in one of the closing paragraphs of the affidavit: 'At no time during the duration of said oral agreement or at any other time has the defendant corporation maintained in the State of California a representation which gave it in a practical sense and to a substantial degree the benefits and advantages it would have enjoyed by operating through its own office or paid sales force.'

The affidavit of A. Jackson Detsch, plaintiff's president, in opposition to defendant's motion to quash, denying the allegations of specified paragraphs of Mr. Dewees' affidavit, thereby denies that there was an oral agreement between the parties as therein alleged and controverts all allegations of the alleged relationship between them based on such oral agreement; denies that commissions paid plaintiff by defendant for orders received from purchasers directly rather than from plaintiff were for the purpose of encouraging plaintiff to obtain orders in the areas serviced by plaintiff; denies that the defendant, prior to its termination of the agreement, had paid plaintiff all commissions due on orders secured by plaintiff and approved by defendant; and denies that plaintiff is not the employee, agent, servant or officer of defendant and that plaintiff was only an order-taking conduit for defendant.

The affidavit affirmatively alleges in substance as follows: Defendant 'took over' the business and obligations of Albion, including the contract dated August 15, 1935. On or about July 18, 1936, defendant entered into an agreement with plaintiff providing that the same agreement that existed between Albion and plaintiff would apply to plaintiff's representation of defendant on the West Coast. ⁵ Pursuant to the contract and understanding between the parties, plaintiff performed specified functions ⁶ in respect to sales of defendant's products 'for and on behalf of defendant in the State of California continuously from the date of said contract on or about July 18th, 1936, to and including its wrongful termination by defendant on or about January 18th, 1962, * * *' (Emphasis added.) Until the wrongful termination or breach of the agreement, plaintiff acted as defendant's sales department within the State of California and other western states, and as a result defendant obtained substantially the same commercial advantages that would be available to it through an office or force of employees in the state.

Mr. Detsch further alleges that plaintiff has requested a complete accounting from defendant in addition to damages for breach of contract; that all witnesses, with the exception of defendant, namely the companies to whom shipments were made without proper commission or accounting by the defendant, are located in and are residents of the State of California and adjacent states; that it...