International Harvester Cr. Corp. v. East Coast Truck

• Decision Date: 03 January 1975
• Docket Number: WPB-74-439-Civ-CF.,No. WPB-74-3009-Civ-CF,WPB-74-3009-Civ-CF
• Citation: 387 F. Supp. 820
• Parties: INTERNATIONAL HARVESTER CREDIT CORPORATION and International Harvester Company, Plaintiffs, v. EAST COAST TRUCK & R. V. SALES, INC., et al., Defendants. EAST COAST TRUCK AND R. V. SALES, INC., Plaintiff, v. INTERNATIONAL HARVESTER COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Florida

387 F. Supp. 820

INTERNATIONAL HARVESTER CREDIT CORPORATION and International Harvester Company, Plaintiffs, v. EAST COAST TRUCK & R. V. SALES, INC., et al., Defendants.

EAST COAST TRUCK AND R. V. SALES, INC., Plaintiff, v. INTERNATIONAL HARVESTER COMPANY, Defendant.

Nos. WPB-74-3009-Civ-CF, WPB-74-439-Civ-CF.

United States District Court, S. D. Florida.

January 3, 1975.

COPYRIGHT MATERIAL OMITTED

Smathers & Thompson, Miami, Fla., for International Harvester.

Mahoney, Hadlow, Chambers & Adams, Jacksonville, Fla., for East Coast Truck.

MEMORANDUM OPINION AND ORDER

FULTON, Chief Judge.

I. BACKGROUND OF THE CASE

This case involves a controversy between the franchisor and franchisee of a truck dealership. On April 24, 1973, the franchisor, International Harvester Company ("Harvester"), a Delaware corporation, with its principal place of business in Chicago, Illinois, and the franchisee, East Coast Truck & R. V. Sales, Inc. ("East Coast"), a Florida corporation with its principal place of business in Delray Beach, Florida, entered into a Light and Medium Duty Dealer's Sales and Service Agreement whereby Harvester would provide trucks, accessories, and parts on a credit basis for retail sale by East Coast. However, before East Coast could commence operations, it had to acquire a motor vehicle dealers license from the Department of Motor Vehicles of the State of Florida. Florida Statutes § 320.642 (1973). Although all parties believed that East Coast would receive such license as a matter of course, the license was not issued for over seven months — until November 28, 1973. The cause of the delay was a formal protest against the issuance of the license by Rich Motors Inc. ("Rich"), a Harvester franchisee located in West Palm Beach, Florida. During the seven month waiting period, while its operating expenses continued to accrue, East Coast was unable to sell any vehicles, and refused to pay Harvester for any items received. Though mutually unanticipated, East Coast subsequently sought to impose liability upon Harvester for the alleged losses that resulted from the delay.

On March 8, 1974, East Coast filed a complaint against Harvester in Federal District Court in the Middle District of Florida which alleged actual fraud in the inducement, constructive fraud in the inducement, negligent misrepresentation, and breach of contract, and which sought to recover damages in excess of $500,000.00. The breach of contract claim was introduced in an amended complaint filed shortly before trial. On April 5, 1974, Harvester filed a complaint in Federal District Court in the Southern District of Florida against East Coast, B. Irwin Emery, ("Emery"), and Grace S. Emery. Emery is president and principal owner of East Coast. The Complaint alleged personal liability against these defendants based upon their personal guaranty of the indebtedness and obligations of East Coast. In its complaint Harvester sued to recover for the amounts due on forty-three vehicles sold and delivered to East Coast, and on notes, a security agreement and a guaranty. Harvester claimed sums due it in excess of $176,000.00. Jurisdiction in both actions was based upon diversity, 28 U.S. C. § 1332 (1966). Because the two actions consisted of essentially a claim and counter-claim between the same parties, on August 23, 1974, the cases were consolidated in the Southern District of Florida. The case was tried before the Court without a jury on November 12 and 13, 1974.

Emery is an astute, experienced, sophistocated dealer in automotive vehicles with thirty years of dealership experience in Pennsylvania and Florida. Emery knew, according to his own statements and the believable testimony of others, that before he could actively operate his dealership, he had to secure a license from the Florida Department of Motor Vehicles. He also knew that if the Department of Motor Vehicles found there was adequate representation in the community by existing licensed franchised dealers, his application could be denied. Florida Statutes § 320.642. Finally, he knew that Rich, as a potential competitor, could object to his application for a license, and that if there was a protest, that a delay would naturally ensue.

Even though both Emery and the Harvester representatives knew that a protest by Rich was possible, the testimony given at the trial established that none of the parties expected Rich to protest. In March, 1973, Emery's attorney, Mr. Ray Osborne, a former Lieutenant Governor of Florida made a statement in the presence of Emery and Harvester representatives that he knew the right people in Tallahassee and would have no trouble securing the license. In the winter of 1972-73 during the contract negotiations, Emery, his sales manager, M. W. Malcom, and Emery's step-son, Robert Powers, inquired of Harvester representative C. F. Moore concerning a possible protest by Rich. Moore responded by expressing his belief that Rich would not protest because the Rich family was primarily concerned with its ice cream business to which the Harvester franchise was a mere adjunct. Moore's good faith was reinforced on March 14, 1973 when he took Malcom to the Rich office to place East Coast's initial orders on Rich's forms. The Court thus finds that Harvester did represent through Moore, the belief that Rich would cause no trouble by protest, but finds that the representation was made in good faith. Delray Beach, where the parties sought to locate the new franchise, is nearly 20 miles south of the Rich franchise location in West Palm Beach. There are three separate cities lying between these two locations. Apparently, the Rich franchise agreement does not precisely delineate the area thereof and there is a serious doubt as to whether the Rich franchise extends as far south as Delray Beach. Prior to Emery's application for the Delray Beach franchise, a large percentage of Rich's total sales of Harvester vehicles were made to Rich's ice cream company, not to others of the purchasing public; and for some time prior thereto, Harvester had regarded and labeled Delray Beach as an "open point", which meant that it was not being adequately serviced by any franchisee. These facts were well known to Harvester and East Coast. Thus, they both had reason to believe that Rich would not object to a new franchise in Delray Beach.

Emery commenced negotiations with Harvester for a franchise in September, 1972. The negotiations were successfully completed on March 13, 1973, when Emery signed the franchise agreement. The contract became effective on April 24, 1974 when the franchise agreement was signed by H. V. Ruth, the appropriate Harvester officer. Because Emery had no valid reason to suspect that Rich would protest, his failure to contact Rich is understandable and excusable. Emery did not learn that Rich would protest until he visited Willard Rich, Sr. ("Rich, Sr."), on April 18, 1973, at which time Rich, Sr., very clearly stated that he would not give a letter of consent. Rich, Sr. is the president of Rich Motors, Inc. and also the president of Rich Ice Cream, Inc. Thus at the time Emery signed the agreement, neither party knew that the license would not be issued until November 28, 1973. Emery received the Order granting the license on December 5, 1973.

The parties became aware of Rich's protest in the first week of June, 1973. The evidence clearly establishes that from then on both Emery and Harvester singly and in concert did everything that could reasonably be done to obviate Rich's protest, and to hasten the issuance of the license to Emery.

The long delay in issuance of the license resulted in losses to both East Coast and Harvester, and created an atmosphere of anxiety and uncertainty. Relations between the parties became openly antagonistic. For example, East Coast had a large inventory of 1973 vehicles which it could not sell, and which would be uneconomical to sell when the 1974 models were introduced in November. Accordingly, Harvester wished to transfer East Coast's inventory to other dealers who were in a position to sell them. East Coast, in the belief that the issuance of its license was imminent and because the vehicles were then in short supply, refused on two occasions, June 20 and July 10, 1973, to transfer its inventory. In retaliation to the second refusal, Harvester revoked its credit arrangements with East Coast, and placed it on a C.O.D. delivery basis. Emery had not paid for and refused to pay for the items received from Harvester until receipt of the license. At that juncture the contractual purpose of the parties was completely frustrated.

II. EAST COAST'S CLAIMS

East Coast sought damages claimed as a proximate result of actual or constructive fraud by Harvester in the inducement of the contract, of negligence by Harvester in failing to advise East Coast of the necessity of securing Rich's consent, and for breach of contract.

The Court finds and concludes that the evidence does not show any actual or constructive fraud on the part of Harvester or its agent, nor was there satisfactory proof of actionable negligence on the part of Harvester. Even assuming that the contract created a duty on the part of Harvester, the Court finds that it acted prudently under the circumstances, and accordingly did not breach any duty. As to East Coast's claim for breach of contract, there was a complete failure on the part of East Coast to prove by the preponderance of the evidence any damages directly resulting from any of its claims. The evidence clearly indicates that Harvester did not breach any duty imposed by the contract. Both parties agreed that East Coast had the obligation of obtaining the license. Harvester's only obligation was to establish, if called upon to do so, that there was inadequate representation of its franchise in the community. After Rich filed its protest, Harvester demonstrated inadequate representation to the appropriate authorities, and the license...