General Mills v. Steele

• Decision Date: 27 May 1946
• Docket Number: No. 11313.,11313.
• Parties: GENERAL MILLS, Inc., v. STEELE.
• Court: U.S. Court of Appeals — Fifth Circuit

154 F.2d 367 (1946)

GENERAL MILLS, Inc., v. STEELE.

No. 11313.

Circuit Court of Appeals, Fifth Circuit.

January 8, 1946.

Rehearing Denied February 15, 1946.

Writ of Certiorari Granted May 27, 1946.

Alfred McKnight, of Fort Worth, Tex., and Charles E. France, of Oklahoma City, Okl., for appellant.

Cecil A. Morgan and T. S. Christopher, both of Fort Worth, Tex., for appellee.

Grover Sellers, Atty. Gen., of Texas, for amicus curiae.

Before HUTCHESON, WALLER, and LEE, Circuit Judges.

Writ of Certiorari Granted May 27, 1946. See 66 S.Ct. 1341.

WALLER, Circuit Judge.

Appellee agreed to transport, as a contract motor carrier, the merchandise of Appellant for a period of three years, in an area having a radius of 150 miles, for the compensation of his actual expenses plus ten per cent. He performed his agreement until it was lawfully terminated three years later. There was in effect at the time of the making of this agreement, and during the entire three years, a statute, and an order of the Railroad Commission, of Texas, providing that the rates which a contract motor carrier, in competition with a common carrier, could charge should not be less than the minimum rates that a common carrier, performing substantially similar services, could charge.

Before Plaintiff could engage in the business as a contract motor carrier it was necessary for him to make application to, and secure a permit from, the Railroad Commission. In the application for such permit it was at least appropriate, and perhaps requisite, that the applicant should exhibit the contract under which he proposed to engage in such carriage. In conformity with the understanding between the parties, a proposed contract was prepared by Appellant, in which Sec. 13 provided that for such transportation of the Defendant's merchandise the Plaintiff would receive his actual expenses, plus ten per cent. But when this contract was submitted by Mr. Steele to Mr. Morgan, one of his attorneys, the latter, on February 28, 1941, wrote Mr. Steele as follows:

"Dear Mr. Steele:

"Since you left this morning, I have again carefully considered the proposed contract to be entered into between you and General Mills.

"Paragraphs 13, 14, 15, 16 and 17, which are set forth on pages 4 to 7, are in direct conflict with the statutes of the State of Texas and therefore they must be eliminated from the contract. In lieu thereof the following paragraph should be inserted:

"`It is mutually agreed between the parties that the rate to be charged by the first party and paid by the second party for the services contemplated to be rendered as provided in this contract shall be such rates, charges or tariffs as may be fixed by the Railroad Commission of the State of Texas, and in conformity with the rules and regulations now in existence or that may hereafter be promulgated by said Commission.'

"Therefore, we recommend that your contract be rewritten whereby you delete the paragraphs above listed and insert in lieu of the above.

"Very truly yours "(Sgd.) Cecil A. Morgan. "Mr. Steele:

"P. S. A custom has long prevailed in this state that contract carriers must carry such provision as outlined in the letter to which this is attached relating to rates and charges. Then after the contract carrier certificate has been issued the contract carrier and shipper work out their own arrangements. Therefore there is very little for your company to be concerned about regarding this change.

"Very truly yours "(Sgd.) Cecil A. Morgan. "Special delivery."

On March 27, 1941, Mr. Colfix, the Division Comptroller of General Mills, Inc., after Mr. Steele had shown him Mr. Morgan's letter of February 28, wrote an interoffice communication¹ to Mr. Steele, who was then an employee of the Defendant, in which he stated, among other things, that if the substitution of the paragraph as suggested by Mr. Morgan were made:

"It would appear from this that if we are to live up to the contract that the basis of charges you would make to us would be the rate specified by the Railroad Commission. McCraney had the idea that the Railroad Commission might not promulgate any rates. In that case we would have to have a charge not in conformity with the contract, which might cause difficulty."

On April 3, 1941, Mr. Christopher, a law partner of Mr. Morgan, and one of counsel for the Plaintiff, wrote Mr. Colfix, Division Comptroller for Defendant, stating among other things:

"For your information and the basis upon which Mr. Morgan's recommendation was made with reference to the paragraph pertaining to rates, the Texas law (Article 911b, Vernon's Annotated Civil Statutes) provides as follows:

"`The Commission is hereby vested with power and authority and it is hereby made its duty to prescribe rules and regulations covering the operation of contract carriers in competition with common carriers over the highways of this State and the Commission shall prescribe minimum rates, fares and charges to be collected by such contract carriers which shall not be less than the rates prescribed for common carriers for substantially the same service.'

"From the foregoing, you will see that the Statute itself fixes the rate to be charged by contract carriers as `not less than the rate prescribed for common carriers for substantially the same service.'"

Mr. Christopher then concludes this letter as follows:

"I believe this fully answers your question, but if there are other questions we shall be pleased to answer them, and further than that I might make some valuable suggestions to Mr. Steele or to yourself with reference to this matter the next time Mr. Steele is in the office."

On April 5 Mr. Colfix wrote another interoffice communication to Mr. Steele, suggesting that the latter make arrangements for them to meet with Mr. Christopher at Fort Worth at an early date. This conference was held and concerning what occurred the testimony of Mr. Colfix is undisputed. He testified that:

"I indicated to these gentlemen that the form of contract that they proposed to us was entirely different than the understanding that Mr. Steele and our company had as to the financial arrangements for compensation, and I attempted to determine from them whether or not this contract was first, legal, and second, whether or not it would make possible the type of financial arrangement that we wished, and they assured me, first, that in order to get a permit it was necessary to put in the standard clause and that the Railroad Commission had never prescribed rates for this type of service, and it was their opinion that such rates would never be prescribed; that we could go ahead and make this form of contract and then before we started our operations that we could legally execute a supplemental contract for the type of service that would be rendered by Steele for us."

On April 11, 1941, a letter from Mr. Christopher to Mr. Colfix stated:

"It is absolutely necessary so far as obtaining the grant of the contract carrier permit is concerned that the contract between General Mills and Mr. Steele recite that the charges to be made will be such charges as have been prescribed by the Railroad Commission of Texas, * * *."

Mr. Christopher further stated in this letter:

"It is my thought on this matter that it should be entirely agreeable with you to make the contract as is proposed by Mr. Steele now in your possession, and that thereafter and after the contract carrier permit is granted, if it is granted, and after you have had some experience with the operation that it is going to be necessary and entirely proper under the law that some supplemental contract be entered into based upon the service rendered."

Mr. Christopher further stated:

"Personally I do not believe that there will be any element of violation of the law involved if subsequently some additional contract is entered into supplemental to the original contract adjusting the rates based upon experience and the service actually rendered in comparison to service of common carriers. To me, however, it is simply a reasonable business risk, if it is a risk, which you can afford to take."

On April 17, 1941, the Defendant, by Mr. Colfix, wrote Mr. Christopher, stating, among other things, that:

"After full consideration of the matter our attorneys are of the opinion that it is quite in order for us to make this type of contract and later have a supplemental agreement for costs as may be agreed upon between Mr. Steele and General Mills."

The real intention of the parties for compensation to Mr. Steele by the payment of expenses, plus ten per cent, was, upon the suggestion, advice, and assurance of the attorneys for Mr. Steele, withdrawn and paragraph 13, as drafted and suggested by Mr. Morgan, was inserted in the writing to be submitted to the Railroad Commission. The inserted paragraph is as follows:

"13. It is mutually agreed between the parties that the rate to be charged by the first party and paid by the second party for the services contemplated to be rendered as provided in this contract shall be such rates, charges or tariffs as may be fixed by the Railroad Commission of the State of Texas, and in conformity with the rules and regulations now in existence or that may hereafter be promulgated by said Commission for the kind and character of service to be rendered hereunder."

The permit was granted to Mr. Steele on July 9, 1941, and on July 31, 1941, the amendatory contract, as contemplated and agreed upon, was executed between Appellant and Appellee, in which paragraph 13 of the prior instrument was amended so as to put into effect that which had been the real agreement all along, namely, to pay the Plaintiff his expenses, plus ten per cent for the services to be rendered.

The testimony of Mr. Colfix, the letters aforementioned, the fact that the original contract of August 26, 1940, was promptly amended after the permit was granted, and the fact that Mr. Steele was compensated on...