MacKenzie Laboratories v. Lawrence

• Decision Date: 29 October 1948
• Docket Number: Civil Action No. 3849.
• Citation: 80 F. Supp. 710
• Parties: MacKENZIE LABORATORIES, Inc. v. LAWRENCE et al.
• Court: U.S. District Court — District of Maryland

80 F. Supp. 710

MacKENZIE LABORATORIES, Inc. v. LAWRENCE et al.

Civil Action No. 3849.

United States District Court District of Maryland.

October 29, 1948.

John G. Rouse, Jr., of Baltimore, Md., and Ledward & Hinkson and Wm. C. Hogg, Jr., all of Chester, Pa., for plaintiff.

E. Paul Mason, Jr., of Baltimore, Md., and Albert F. Adams, of Washington, D. C., for defendant.

CHESNUT, District Judge.

Findings of Fact, Conclusions of Law and Discussion

This claim presents claims for damages for alleged breach of contract relating to the processing of a substitute for soap called "Softee". The jurisdiction of the court is based on diversity of citizenship, the plaintiff being a Pennsylvania corporation and the defendants are sued as a copartnership. The plaintiff's claims embrace three separate items: (1) In the amount of $3,990.32 for processing work done on material of a particular kind; (2) a separate item of $13,364.86 for processing work on somewhat different material and (3) a claim for profits allegedly lost for breach of the original contract with respect to the processing of material of the first kind. The amount of lost profits so claimed, after admitted credits, is $33,457.57, or $44,447.20, according to different calculations submitted by the plaintiff.

The contract sued on consists of a written order for work to be done, a copy of which is filed with the complaint; but the evidence in the case shows that the arrangement between the parties was largely oral. The first question in the case is whether the contract was between the parties to the suit or between the plaintiff and a corporation not sued, the Du-Rite Products Company, a Delaware corporation. It will be noted that the written portion of the contract, copy of which is attached to the complaint, is written on a printed purchase order form with the name "Du-Rite Chemical Company" partly printed and partly written on the blank at the top; but the signature to the order is "By D. R. Lawrence", and is, literally at least, not that of Du-Rite Chemical Company, the partnership. Douglas R. Lawrence was not only a member of the partnership but was also president of the Du-Rite Products Company, the corporation, and was also interested at the time in another corporation known as the "Du-Rite Detergents Company" all of which businesses were in part conducted at Brentwood, Maryland, near Washington, D.C. The plaintiff contends that the contract was made with the partnership and that the individual signature of D. R. Lawrence was the authorized signature of the partnership. But the defendants contend that the contract was in fact made by the plaintiff with the Du-Rite Products Company, the corporation; and they further contend that even if the partnership is to be held bound on the original contract, there was later a novation both of parties and of subject matter which transferred the obligation, if any, to the corporation.

The first question to be determined is whether the original contract was made with the partnership or corporation. There is evidence in the case to support either contention. The principal witnesses were MacKenzie, the president of the plaintiff corporation, and D. R. Lawrence. Their evidence on this particular point is directly in conflict. The plaintiff's evidence is to the effect that prior to March 26, 1946, the date of the original order for work to be done by the plaintiff, it had had some prior business transactions with the Du-Rite Chemical Company, the partnership, and that when the large order dated March 26, 1946 was under negotiation and two days prior thereto, in a verbal conversation between MacKenzie and Lawrence, the former insisted that the order must be given by the Du-Rite Chemical Company because it had a satisfactory credit rating which would enable the plaintiff to obtain the necessary bank loan for equipment to perform the work to be done; while the Du-Rite Products Company, the corporation, at that time was without a credit rating because it had only very recently become active in the business, although it had been organized in 1944. Therefore, testified MacKenzie, he insisted that the word "Chemical" should be written at the top of the order blank between the words "Du-Rite" and "Company", when the order was signed by Lawrence. On the other hand Lawrence testified in substance that there was no such conversation between him and MacKenzie at the time of giving the order; that the prior negotiations for practical terms and conditions of the order had occurred between MacKenzie and Bernard Sussman, the vice-president of the Du-Rite Products Company, the corporation, and that MacKenzie well knew that the business to be done with respect to the material known as "Softee", mentioned in the order, was to be entirely the business of the corporation and not in any way that of the partnership; that from the very inception of the work all bills therefor were in fact paid by the corporation and all materials processed by the plaintiff were received and sold by the corporation; that it was a part of the verbal arrangement that the Du-Rite Products Company, the corporation, make an initial advance or loan of $10,000 to the plaintiff for which the plaintiff in his own handwriting drew up and delivered his note for that amount payable to the corporation, which was produced in evidence and still held by the corporation; and that the partly printed and partly written name "Du-Rite Chemical Company" at the top of the order resulted inadvertently. The two witnesses were of substantially similar age and business experience, and both equally interested in the outcome of the litigation. Intrinsically they seemed to be of equal credibility and the question of fact to be decided is a close one. However, I have reached the conclusion that the contention of the plaintiff in this respect must be adopted giving deciding weight to the physical appearance of the order blank itself and because the correspondence between the parties and the invoices for work done shortly after the giving of the order and until July 31, 1946, were addressed by the plaintiff to the Chemical Company, the partnership, although I am not disposed to fully credit the reasons given by the plaintiff for stressing the importance to it of having the Chemical Company as the contracting party.

But while I feel obliged to conclude that the weight of the evidence shows the original contract was made with the partnership, I find from the evidence as a whole that later and before the termination of the relations between the parties and the institution of this suit there was a novation with respect to both the subject matter of the material to be processed and the obligor on the contract whereby the corporation became substituted for the partnership as the contracting party. Without reviewing in detail all the evidence bearing on this point, it will be sufficient to point out the principal facts.

In the first place, it is important to understand the economic and business conditions and rapid developments relating to the subject matter of the contract. It will be remembered that during the war and until toward the end of 1945 ordinary commercial soap was scarce and the demand therefor was much greater than the available supply on the market. This condition naturally occasioned the manufacture and sale of substitutes for soap; but it will also be remembered that many materials, including supplies suitable for soap substitutes, were also very scarce in supply and required the obtaining of priority orders therefor not available to all manufacturers. It thus resulted that the Du-Rite Products Company, although earlier formed with the intention of going into the business of manufacture and sale of soap substitutes, was not able to actively undertake the business until early in 1946 when supplies first became available to it. But as soon as it was in a position to manufacture the soap substitutes, it received orders therefor in large quantities practically without advertisement. To fill these orders it contracted with various processors including particularly the plaintiff, and the written order of March 26, 1946 with respect to quantities is illustrative of the very great demand for the product. This order called for the processing and shipping by the plaintiff of approximtely 1,000,000 pounds of "Softee" per month; and the order read "Process Mix and ship 10,000,000 lbs of Softee in accordance with formulas submitted by Milton Harris Associates. All materials involved to be supplied by us and finished product subject to spot check approval @ the rate of $1.50 per cwt".

So rapid was the expansion of the corporation's business that, although it had been originally capitalized at only $1,000, it had on hand and in bank $38,000 after advancing to the plaintiff $10,000 on March 26, 1946. And during the year 1946 the business expanded so rapidly in a really mushroom growth that during the year and prior to December the corporation had $500,000 of net assets, and it contracted for and began the erection of a new plant at a cost of about $375,000. However, another important change in economic conditions resulted in December when price control over genuine soap was removed and a very large apparently reserve supply in warehouses became available on the market. This in turn practically destroyed the market for soap substitutes and at once caused financial disaster for the Du-Rite Products Company resulting in a few months and considerably before the institution of this suit in the insolvency and liquidation of the corporation. But in July and August 1946 the financial condition of the Products Company was very different. It was then, apparently at least, very prosperous and was much stronger financially than the partnership. Assuming that in March 1946 when the written order was given the plaintiff had good reason to prefer contracting with the partnership rather than the...