J. R. Watkins Co. v. Goudeau

• Decision Date: 17 January 1953
• Docket Number: No. 7871,7871
• Parties: J. R. WATKINS CO. v. GOUDEAU et al.
• Court: Court of Appeal of Louisiana — District of US

Page 161

63 So.2d 161

J. R. WATKINS CO. v. GOUDEAU et al.

No. 7871.

Court of Appeal of Louisiana, Second Circuit.

Jan. 17, 1953.

Rehearing Denied March 2, 1953.

John G. Gibbs, Natchitoches, C. Stanley McMahon, Winona, Minn., for appellant.

W. T. McCain, Colfax, for appellees.

McINNIS, Judge.

Plaintiff brings this suit against Eugene H. Goudeau and W. L. and J. A. Fletcher to collect $708.98 alleged to be due to it by Goudeau for merchandise sold and delivered to him. The other two defendants signed a guaranty agreement to pay the debt if Goudeau did not pay.

Goudeau filed an exception to the capacity of plaintiff to stand in judgment in this cause, because it is a foreign corporation doing business in the State of Louisiana without having complied with the law of Louisiana applicable to foreign corporations doing business in Louisiana. The other two defendants filed jointly, the same plea.

The exceptions were all tried together and after hearing evidence on the exceptions the district judge sustained the exceptions and dismissed plaintiff's suit. From this judgment plaintiff prosecutes a devolutive appeal.

The district judge found as a fact that plaintiff, a foreign corporation, is doing business in this state without qualifying, as required by Act No. 8, Secs. 1 and 2, 3rd Extraordinary Session of 1935; LSA-R.S. 12:211, so that at this time, this is the only question to be answered. The Legislature has not spelled out what constitutes doing business in this State by a foreign corporation, leaving to the courts the determination of whether or not the corporation is engaged in business after hearing the facts. The district judge in this case likely felt impelled to follow the decision of the Court of Appeal, First Circuit, in the consolidated cases of J. R. Watkins Co. v. Stanford (J. R. Watkins Co. v. Carmouche) 52 So.2d 325, where similar pleas were considered and sustained.

In the instant case, from the maze of testimony, oral and documentary, the following facts appear: Plaintiff is a Delaware corporation with its principal office at Winona, Minnesota and branches at Memphis, Tennessee and other cities in the United States and Canada. It has no office in and owns no property in Louisiana. It sells its products principally through itinerant dealers on four different plans:

1. Dealers who send cash with their orders for products.

2. Dealers who deposit $1,000 cash with plaintiff.

3. Dealers who deposit collateral security to secure their accounts.

4. Dealers who secure the payment of their accounts by obtaining the signatures of guarantors.

In the instant case, the credit of the dealer was secured by the signatures of two guarantors, who are defendants along with the dealer. These dealers are set up in business by plaintiff to sell its products in certain areas. They are given creditor for products of the plaintiff and are required to send in weekly reports of the amount of sales on credit and for cash and of the amount collected on accounts and to remit to plaintiff 60% of the amount of cash taken in each week. Plaintiff has a field man in Louisiana whose duties are to secure new dealers, and when the account of the dealer is to be secured by the signatures of guarantors, to check the public rocords to ascertain whether or not the guarantors are financially responsible, and then to send the contract to the Home Office for acceptance or rejection. The field man also visits with dealers at times to assist them in any way he can to increase sales and to conduct business for profit of dealers and plaintiff. To this end periodical meetings of dealers are held at certain points, where dealers meet to discuss their problems, and the field man attends these meetings. Dealers are invited, but not compelled to attend these meetings. The dealers pay their own expenses in attending meetings, except that they are invited to lunch at the expense of plaintiff. The right to terminate the contract at will by giving notice in writing is given plaintiff and dealer. Right is given the dealer to return unsold products on termination of the contract, and receive credit for whatever is returned, or cash if he is not indebted to plaintiff. Dealers are encouraged to enlist other persons to engage in business, and if successful, and the prospect is accepted, plaintiff pays the dealer who secured the recruit $60. Dealers own their own automobiles or other means of conveyance, pay for their license to sell merchandise from house to house, as required by Act No. 166 of 1942, LSA-R.S. 47:369, and pay their other expenses. Certain instructions or suggestions are sent to dealers, such as:

1. Five to six days each and every week on your routes.

2. Extend to your good customers a liberal time sales program.

3. Call on 20 to 25 customers each day.

4. Offer each customer group deals, specials, and pass the many bargains the company offers on to your customers.

5. Mail advance notices four or five days ahead of each call so your customer will know you are coming.

6. Study the labels on your products, and other literature you receive from the company, so you will know the many and various uses of the products you have to sell.

The field man, Mr. Soileau and the Memphis General Manager, Mr. Harry M. Myers, both testified that these are suggestions for the successful operation of the dealer, and not requirements. Their testimony is to the effect that the dealer selects the territory in which he expects to operate his business, and that in order to be successful, a dealer in a rural area should have about 800 families to serve, and he is protected in the territory he serves.

Dealers are also supplied with retail price lists of the products, but the evidence is to the effect that these prices are suggestions to the dealer, and that he is not bound to abide by them. In fact Mr. Myers says the dealer could give the products away if he wanted to, but he would still owe the company for them.

The business of plaintiff in Louisiana amounts to about 4% of its business, according to the record in this case.

The district judge reasoned despite the testimony that the suggestions are not requirements, that they are, and that if the sales by plaintiff to the dealer are outright sales, it is unusual then to direct the dealer how to dispose of the merchandise unless there is a contract of agency hidden in the contract. He also reasoned that because the dealer has the right to return unsold merchandise for credit, the sales by plaintiff to dealers are conditional sales, and concluded that plaintiff is a foreign corporation doing a substantial business in Louisiana without being authorized to do so.

Numerous decisions from this and other jurisdictions have been cited. We prefer, where possible, to rest our decisions on cases from our own State, and we find no serious difficulty in doing so in this case, despite the decision of our brothers of the First Circuit in the case of J. R. Watkins Company v. Carmouche, supra. In the cited case the court held:

'Where a foreign corporation entered into a contract to sell its products to certain dealers, but the contract indicated and facts showed that so called dealers were subject to control of seller as to selling price of goods, area to work and sellers (dealers) were required to submit weekly reports of their sales and were required to attend sales conferences conducted by seller, foreign corporation was actually doing substantial business in the State, and therefore was not entitled to sue upon matters arising out of contracts until it had properly qualified with the Secretary of State. LSA-R.S. 12:211.' Syl. 3.

And in support of its conclusions the court cited such cases as: W. T. Rawleigh Co. v. Hicks, La.App., 171 So. 616; J. R. Watkins Co. v. Brown, 13 La.App. 244, 126 So. 587; J. R. Watkins Co. v. Gann, La.App., 159 So. 747; W. T. Rawleigh Co. v. Coen, La.App., 195 So. 660.

In the Hicks case the contract was branded as a subterfuge, and the court concluded that the so-called dealer was the agent of plaintiff to sell its products in a designated territory only, and to sell at prices fixed by plaintiff, and affirmed the judgment for defendant.

In the Brown, Gann and Coen cases the decision was based on violation by plaintiff of Act No. 56 of 1914, Sec. 12, which when enacted read as follows:

'Section 12. Be it further enacted, etc., That any itinerant vendor of any drug, nostrum, ointment or application of any kind, intended for the treatment of disease or injury, or who may by writing, print or other methods, profess to cure or treat disease or deformity by any drug, nostrum, manipulation, or other expedient in this State, shall if found guilty, be fined in any sum not less than twenty ($20) dollars and not exceeding one hundred ($100) dollars for each offense, to be recovered in an action of debt, before any court of competent jurisdiction, or shall be imprisoned for a term of not less than ten (10) days or more than thirty (30) days, or be both fined and imprisoned.'

It is interesting to note that when incorporated into the LSA-Revised Statutes of 1950, section 12 as brought over in LSA-R.S. 37:1288, reads as follows:

'No itinerant vendor shall profess to cure or treat disease or deformity by any drug, nostrum, manipulation, or other expedient which he may offer for sale or demonstration.

'Whoever violates this Section shall be fined not less than twenty dollars nor more than one hundred dollars for each offense, or imprisoned for not less than ten days nor more than thirty days or both.'

It is evident that the compilers of the Revised Statutes were influenced to make this change in Sec. 12 of Act 56 of 1914 by the enactment by the Legislature of Act 166 of 1942, LSA-R.S. of 1950, 47:369.

Plaintiff has cited the case of J. R. Watkins Company v. Rachal, La.App., 31 So.2d 871. One of the defenses raised in that case was that the contract was one of agency, and another that some...