Oliver B. Cannon & Sons, Inc. v. Dorr-Oliver Inc.

• Decision Date: 18 September 1973
• Docket Number: DORR-OLIVER
• Citation: 312 A.2d 322
• Court: Delaware Superior Court
• Parties: OLIVER B. CANNON & SONS, INC., a Pennsylvania corporation, Plaintiff, v.INCORPORATED, a Delaware corporation, et al., Defendants, S.C.M. Corporation, a New York corporation, Additional Defendant on Counterclaim, William H. Rorer, Inc., a Pennsylvania corporation, Additional Defendant on Cross-Claim.

Page 322

312 A.2d 322

OLIVER B. CANNON & SONS, INC., a Pennsylvania corporation, Plaintiff, v. DORR-OLIVER INCORPORATED, a Delaware corporation, et al., Defendants S.C.M. Corporation, a New York corporation, Additional Defendant on Counterclaim William H. Rorer, Inc., a Pennsylvania corporation Additional Defendant on Cross-Claim.

Superior Court of Delaware, Sussex County.

Sept. 18, 1973.

Courtney H. Cummings, Jr., Wilmington, for plaintiff.

David T. Dana, III, and James T. McKinstry, Wilmington, for defendant Barcroft Co.

OPINION AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

ON DEFENDANT BARCROFT'S COUNTERCLAIM: MOTION DENIED

QUILLEN, Chancellor: ¹

In May of 1968, Barcroft Company ('Barcroft') entered into an agreement with Dorr-Oliver Incorporated ('Dorr'), whereby Dorr was to design and construct a plant for the production of magnesium hydroxide paste on Barcroft's site at Lewes, Delaware. Dorr subcontracted out a portion of this project (preparing and painting the interior linings of certain chemical process tanks) to Oliver B. Cannon & Sons, Inc. ('Cannon'), a paint contractor. Pursuant to a purchase order dated June 13, 1969, Cannon agreed to apply Glid-Flake paint linings to fourteen tanks at the Lewes plant. Glid-Flake is produced by third-party defendant SCM Corporation's Glidden-Durkee Division.

In December 1969, Cannon finished painting the tanks. By late January 1970 the lining of one of the tanks (IS--103) began to show evidence of deterioration. And, by late May 1970 Barcroft was forced to close its plant because the linings of several tanks were coming off in large sheets and the tanks were rusting. The actual cause of this lining failure is a point of vigorous contention among the parties.

Upon requests from Barcroft and Dorr, Cannon performed repair work on all the tanks. Through Dorr, Barcroft paid Cannon $94,306.34 in connection with the repairs.

In January of 1971, Cannon filed suit against Dorr, as general contractor, demanding an additional payment of $113,914.23 for the relining of the chemical process tanks. Cannon also filed a claim for a mechanic's lien in the same amount against Barcroft. ²

Alleging that Cannon failed to properly furnish paint linings for the tanks in question, Dorr counterclaimed against Cannon for $118,599.17. Barcroft also filed a counterclaim against Cannon which is the subject of this motion.

In Count I of its counterclaim, Barcroft seeks the return of the $94,306.34 paid Cannon in connection with the repair work. Barcroft alleges that Cannon was contractually obligated to repair, at its own expense, the defective paint linings. Barcroft further claims that the $94,306.34 was only paid under protest through Dorr to Cannon as an inducement for Cannon to fulfill its contractual obligations.

In Count II of its counterclaim Barcroft charges that the Glid-Flake lining failure was the result of Cannon's negligent workmanship. ³ As a result, Barcroft seeks damages in the total amount of $420,856.36, consisting of (a) the $94,306.34 paid by Barcroft through Dorr to Cannon, and (b) $326,550.02 in profits which were lost to Barcroft during the period when the plant was shut down for repairs.

Denying that it was contractually obligated to correct the defective paint linings or that it was negligent, Cannon has moved for summary judgment on Barcroft's counterclaim under Civil Rule 56 of this Court. Cannon contends that there is no issue of material fact with respect to Barcroft's counterclaim and that it is entitled to summary judgment as a matter of law. This is the decision on Cannon's motion.

In weighing a motion for summary judgment under Rule 56, the Court must examine the present record, including pleadings, depositions, admissions, affidavits, and answers to interrogatories. Continental Cas. Co. v. Ocean Acc. & Guarantee Corp., 8 Storey 338, 209 A.2d 743 (Super.Ct. 1965). The facts must be viewed in a light favorable to the non-moving party (Barcroft), although uncontroverted evidence offered in support of the motion must be accepted as true. The moving party must show that, on unquestioned facts, he is entitled to a judgment as a matter of law. Matas v. Green, 3 Storey 473, 475, 171 A.2d 916, 918 (Super.Ct.1961); 6 Moore's Federal Practice, § 56.15(3); Superior Court Rules, Civil R. 56(c). Wilson v. Tweed,8 Storey 391, 209 A.2d 899 (Sup.Ct.1965). The Court's function is not to weigh evidence or to accept that which appears to have greater weight. Continental Oil Co. v. Pauley Petroleum, Del.Sup., 251 A.2d 824 (1969).

An examination of the record indicates that one factual question is clearly in issue. The parties are unable to agree as to the cause of the Glid-Flake paint lining failure. Barcroft and Dorr offer testimony tending to prove that the failure was due to negligent workmanship by Cannon. On the other hand, Cannon blames the lining failure on chemical attack allegedly occurring when Barcroft (without forewarning Cannon of its intentions) used the tanks to store chemicals of a higher toxicity than Glid-Flake was intended to withstand. At this stage, the Court must take the version most favorable to Barcroft and assume that Cannon was negligent. And, Barcroft's payment for the repair work cannot by called voluntary as a matter of law under any reasonable view of the case.

Assuming its negligence, Cannon argues that, as a matter of law, it is still entitled to summary judgment on Barcroft's counterclaim. Cannon denies that its performance under the purchase order contract with Dorr created any legal duty or obligation to Barcroft. Therefore, Cannon contends, Barcroft's counterclaim cannot stand either in contract or in tort. Accordingly, to decide the issue, the Court must determine whether Barcroft's relation to Cannon is such that the law entitles Barcroft to seek compensation, in contract or in tort, for Cannon's assumed negligence.

Before examining Barcroft's contract claim, the preliminary question of what law to apply must be disposed of. The rule in Delaware is that the courts look to the law of the place of contracting to determine the validity and construction of a contract. Wilmington Trust Company v. Pennsylvania Company, 40 Del.Ch. 1, 172 A.2d 63 (Sup.Ct.1961). It is unclear whether the Cannon-Dorr purchase order contract was executed in Pennsylvania or Connecticut. However, since Connecticut conflict of laws rules would apply Delaware law, and both Delaware and Pennsylvania apply general contract principles to the questions at issue, it is only necessary for the Court to apply general contract principles in reaching its decision. Jenkins v. Indemnity Ins. Co. of North America, 152 Conn. 249, 205 A.2d 780 (1964); Royal Indemnity Co. v. Alexander Industries, Inc., 8 Storey 548, 211 A.2d 919 (Sup.Ct.1965); Sears, Roebuck and Co. v. Jardel Co., 421 F.2d 1048 (3 Cir. 1970).

Turning now to Barcroft's contract claim, Barcroft concedes that it had no direct contractual relationship with Cannon. Rather, Cannon performed under the terms of a purchase order contract which it made with Barcroft's general contractor, Dorr. Unless avoided, lack of privity would preclude Barcroft from recovering for breach of contract between Cannon and Dorr. However, Barcroft claims its status is that of a third-party creditor beneficiary, giving it rights under the Cannon-Dorr paint contract despite a lack of privity.

The Restatement of Contracts, § 133(1)(b) (1932) defines a creditor beneficiary in these terms:

'(1) Where performance of a promise in a contract will benefit a person other than the promisee, that person is . . .

'(b) a creditor beneficiary if no purpose to make a gift appears from the terms of the promise in view of the accompanying circumstances and performance of the promise will satisfy an actual or supposed to asserted duty of the promisee to the beneficiary . . .'.

See also, 2 Williston on Contracts (3rd ed.), § 361 at 863. Generally a secondary promise to discharge a prime promisee's duty creates a duty of the secondary promisor to the prime promisee (creditor beneficiary) to perform the promise. Restatement of Contracts, § 136(a).

Thus, the first question is whether Barcroft was a creditor beneficiary. To apply the Restatement framework to the case at bar, it would appear that Barcroft has certain indicia of a creditor beneficiary of Cannon's promise to Dorr that it would apply the Glid-Flake linings. No gift was intended since Dorr was contractually bound to construct the plant for Barcroft. And Cannon, as a subcontractor on the project, bound itself to perform its task in a workmanlike and non-negligent manner. Dorr's failure to fully disclose Barcroft's identity as owner of the property to Cannon is not fatal to the claim. It is not necessary that the beneficiary be named and identified as an individual. Johnson v. Holmes Tuttle Lincoln-Mercury, 160 Cal.App.2d 290, 325 P.2d 193 (1958); 2 Williston on Contracts (3rd ed.), § 356A. The important fact is that Cannon knew its work was to be performed on the owner's property and for the owner's benefit.

Generally, in both Pennsylvania and Delaware, a third-party creditor beneficiary can sue for breach of the promisor's obligations owed it under the terms of the contract. Burke v. North Huntingdon Township, 390 Pa. 588, 136 A.2d 310 (1957); Clardy v. Barco Construction Co., 205 Pa.Super. 218, 208 A.2d 793 (1965); Wilmington Housing Authority v. Fidelity & Deposit Co., 4 Terry 381, 47 A.2d 524, 170 A.L.R. 1288 (Sup.Ct.1946); Royal Indemnity Co. v. Alexander Industries, Inc., Supra.

However, because the performance promised must be such that it would in fact discharge the promisee's (Dorr's) obligation to the third-party beneficiary, the peculiar nature of the construction subcontract must be examined. The application of the creditor beneficiary rule depends on whether the third party is in fact a creditor beneficiary, a status which in turn depends on the intention of ...