Matter of Deemer Steel Casting Co., Inc.
| Decision Date | 19 July 1990 |
| Docket Number | Bankruptcy No. 87-28,Adv. No. 88-59. |
| Citation | 117 BR 103 |
| Parties | In the Matter of DEEMER STEEL CASTING CO., INC., a Delaware corporation, Debtor. DEEMER STEEL CASTING CO., INC., Plaintiff, v. LEBANON FOUNDRY AND MACHINE COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — District of Delaware |
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Charlene D. Davis, Bayard, Handelman & Murdoch, P.A., Wilmington, Del., for debtor, plaintiff.
Stanley W. Katz, Davis, Katz, Buzgon, Davis, Reed & Charles, Ltd., Lebanon, Pa., for defendant.
Deemer Steel Casting Co., Inc. asserts it is entitled to a recovery against Lebanon Foundry and Machine Company for breach of an oral agreement, or alternatively, under quasi-contract. The dispute centers about a purported post-petition sale by Deemer to Lebanon of estate property. As such, it is a core proceeding and final judgment may be entered by this court. See In re Sarasota Casual, Inc., 90 B.R. 496 (Bankr. M.D. Fla.1988); In re National Equipment & Mold Corp., 71 B.R. 24 (Bankr. N.D. Ohio 1986).
The procedural posture of this adversary proceeding is a long and tortured one. Deemer initiated this action in August 1988; Lebanon answered in September. In December, the parties reached a settlement. That settlement fell through; and, several months later, Deemer requested a trial date. Thereafter, discovery problems arose. Then, a witness' serious heart condition required his being excused from testifying at trial and his deposition had to be arranged. Trial was held August 17 and 18, 1989.
The following facts and law support a ruling in Deemer's favor.
One of Deemer's principal assets was its worldwide marine hardware business. It had been a leading source of custom castings for the maritime industry since 1910 but was not operating at the time of its Chapter 11 filing because of labor and senior management's health problems. Its president, Robert Dick, was attempting to sell the foundry as a going concern or its assets to fund a liquidating plan. In response to Dick's solicitations, A. Albert Broslow, president of Lebanon, telephoned Dick in February of 1987 expressing interest in purchasing the marine hardware assets.
Harvey Redmond, Deemer's vice president of engineering, then spoke by phone with Frank Watts, an employee of Lebanon, about generating additional business for Lebanon as well as the possibility of his obtaining employment with Lebanon. Redmond subsequently visited Lebanon's plant. He discussed with Broslow and Watts a possible position for him at Lebanon, the prospects of Lebanon acquiring Deemer's marine hardware business, and other business matters such as Deemer's annual gross sales. Redmond arranged for Broslow and Watts to visit the Deemer facility in March of 1987.
As scheduled, Broslow and Watts arrived at the Deemer foundry the late morning of March 25. Broslow and Redmond claim they, together with Dick and Watts, went to lunch and discussed some preliminary aspects of Lebanon acquiring Deemer's marine hardware business and giving Redmond a job. Upon returning from lunch, the visitors toured the foundry. Dick does not recall meeting Broslow or Watts at that time and is certain he did not have lunch with them. Under either version, it is clear there was only a general discussion about Lebanon's acquisition of Deemer's business.
Approximately one week later, Watts, at Broslow's behest, called Redmond to arrange for Dick and Redmond to visit Lebanon for the purpose of working out a deal. Redmond and Dick drove to the Lebanon foundry and discussed proposed terms during the drive. After arriving at Lebanon, the four men drove to a Myerstown restaurant for lunch. Dick and Broslow have differing recollections of subsequent events.
Dick claims that an oral agreement was reached after he outlined his proposed terms during lunch. His terms of sale for Deemer's marine hardware and customer lists were $25,000 up front, 5% on the marine hardware business' gross sales for five years, and 3% of other sales generated from former Deemer customers for three years. Broslow allegedly responded that he was short of cash but expected money in late June and eventually said something similar to, "If I could pay this $25,000 in July or late June or July, we got a deal." The modification was accepted along with the understanding that Redmond would be hired by Lebanon to run the marine hardware business. No further negotiations, meetings, or other discussions subsequently took place regarding this matter.
Broslow claims that no terms were discussed at lunch except possibly Deemer's sales and costs. After returning to the Lebanon facility, he and Dick discussed the proposed deal during which Broslow said he was willing to pay 3% of sales from Deemer's customers (other than marine hardware sales) for three years, but no agreement was struck as to the $25,000 up front nor the 5% for five years from Deemer's marine hardware business.
Redmond did not recall whether there were any business discussions at lunch other than discussions about Lebanon employing him. Watts is deceased.
Despite the conflicts as to when a discussion took place, Broslow and Dick at some point during that visit went through a series of payment terms for Deemer's marine hardware patterns and goodwill. After that meeting, Dick gave Redmond permission to begin shipping Deemer's patterns for casting the hardware to Lebanon. Actually, delivery of patterns began two days after Broslow and Watts' visit to Deemer's foundry on March 25. Another delivery was made April 24.
Redmond terminated his employment with Deemer on June 1, 1987, and commenced working for Lebanon. Nevertheless, Redmond continued to visit the Deemer facility several times a week and acted as a liaison for the transition of the marine hardware business. Occasionally, Redmond would select patterns at the Deemer plant and transport them in the trunk of his car to Lebanon. On one occasion, Redmond rented a truck and with the help of William Tracy loaded it with patterns and shipped them to Lebanon. The patterns selected and shipped by Redmond were in good condition — not rotted, split, or cracked. Overall, Redmond transferred about one hundred patterns from Deemer to Lebanon.
Deemer referred inquiries and orders regarding the marine hardware items to Redmond or Lebanon. On at least two occasions where Deemer referred customers but was paid directly by them, Deemer retained 5% of the purchase price. Lebanon acknowledged the propriety of this practice by negotiating Deemer's check for 95% of the purchase price. Moreover, Redmond knew Deemer's main customers and some large accounts were moved to Lebanon due to his efforts.
In late July of 1987, Dick asked Redmond for the $25,000 payment. Redmond told Dick that he was recording all sales in which Deemer was entitled to a percentage but that Lebanon was a little short of cash. In October, Dick's telephone calls to Broslow went unanswered. Again, Dick turned to Redmond who said Broslow was doing a lot of traveling. In December 1987, Dick drafted a handwritten memorandum of his understanding of the April oral agreement. Redmond acknowledged that the terms were essentially those Dick proposed in April 1987 and he delivered the memorandum to Broslow who said that the memorandum was "close" to their discussion. There was no response to the memo nor did Lebanon send any payments to Deemer.
After Redmond's transfer of the patterns to the Lebanon facility, the items were logged in, stored, rigged, mounted, and used in Lebanon's marine hardware business. Broslow and two Lebanon employees testified that the patterns were in poor condition which necessitated extensive repairs. Nevertheless, it was admitted that every pattern had to be rigged in its new location. Still, Lebanon's marine hardware business generated gross sales of $418,807.00 from April through December 1987 and $194,569.45 from January through July 1988. This total comes to $613,376.45 for the entire period. Lebanon shut down its marine hardware business in July of 1988. No payments were ever made by Lebanon to Deemer.
In cases sounding in contract, Delaware's conflicts of law rules require application of the law of the state with the most significant contacts. McIntosh v. Arabian American Oil Co., 633 F.Supp. 942, 945 (D. Del.1986). See also Restatement (Second) of Conflict of Laws § 188 (1971). The Restatement factors, such as place of contracting, performance, and the location of the contract's subject matter, dictate that Pennsylvania law governs resolution of this dispute. Since both states have adopted the Uniform Commercial Code, choice of law has minimal impact on the contract issue. Federal equity principles control in determining Deemer's demand for attorney's fees. See In re Swofford, 112 F.Supp. 893, 894 (D.Minn.1952).
Article Two prevents enforcement of contracts for the sale of goods in excess of $500 unless there is a writing signed by the party to be charged. 13 Pa.Cons.Stat. § 2201(a). Nevertheless, where goods are received and accepted, an oral contract is enforceable under 13 Pa.Cons.Stat. § 2201(c)(3). See also Woodward & Dickerson, Inc. v. Yoo Hoo Beverage Co., 502 F.Supp. 395 (E.D.Pa.1980).
Though defendant Lebanon does not assert the statute of frauds as a defense, it argues vehemently that the terms of an agreement were never concluded and the conduct of the parties did not recognize the existence of any contract.
In order for a contract to be formed, there must be a mutual manifestation of assent to the same terms reflecting an agreement. Typically, this mutual assent is ordinarily established through a process of offer and acceptance. See Hahnemann Medical College & Hospital v. Hubbard, 267 Pa.Super. 436, 406 A.2d 1120 (1979). But, it is still possible to have mutual assent despite the fact that it is...
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