PHILADELPHIA STORAGE B. CO. v. Kelley-How-Thomson Co.

• Decision Date: 31 May 1933
• Docket Number: No. 9617.,9617.
• Citation: 64 F.2d 834
• Parties: PHILADELPHIA STORAGE BATTERY CO. v. KELLEY-HOW-THOMSON CO.
• Court: U.S. Court of Appeals — Eighth Circuit

64 F.2d 834 (1933)

PHILADELPHIA STORAGE BATTERY CO. v. KELLEY-HOW-THOMSON CO.

No. 9617.

Circuit Court of Appeals, Eighth Circuit.

April 24, 1933.

Rehearing Denied May 31, 1933.

D. S. Holmes, of Duluth, Minn. (R. L. Mayall, of Duluth, Minn., W. Barclay Lex, of Philadelphia, Pa., Baldwin, Holmes, Mayall & Reavill, of Duluth, Minn., and Hepburn & Norris, of Philadelphia, Pa., on the brief), for appellant.

James G. Nye, of Duluth, Minn. (Oscar Mitchell, A. C. Gillette, Donald D. Harries, and Mitchell, Gillette, Nye & Harries, all of Duluth, Minn., on the brief), for appellee.

Before STONE, GARDNER, and SANBORN, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from a judgment rendered in favor of appellee in an action for damages for fraud and deceit. The parties will be referred to as they appeared below.

Plaintiff is a hardware jobber, with headquarters at Duluth, Minn., and having dealer customers throughout the Northwest, from Northern Michigan to Montana. Defendant is a manufacturer of storage batteries and of radios and radio accessories, which are marketed and advertised under the trade-name "Philco." The parties had had business relations with each other for a number of years prior to the occurrences here involved.

The cause of action is claimed to have arisen in January, 1930, at which time plaintiff was distributor of defendant's radios and accessories under a contract, which, by its terms, expired May 1, 1930. Plaintiff in substance claims that it undertook an advertising and sales promotion program for defendant's radio products in reliance on certain promises made to it by the defendant on January 3, 1930, from which it was inferred and understood that plaintiff would be continued as the distributor of defendant's products in the above-mentioned territory during the year 1930. When plaintiff's contract expired, however, it was not renewed, and the damages claimed are those caused by the expenses incurred by plaintiff in undertaking the advertising and promotion program induced by defendant.

The written contract between plaintiff and defendant, which, as noted, by its terms, was to expire May 1, 1930, provided for certain quotas of purchases by plaintiff from defendant for the period May 1, 1929, to January 1, 1930; but the quota of purchases for the period January 1, 1930, to May 1, 1930, was to be announced by defendant. These quotas were not binding on plaintiff, but defendant was given the right forthwith to terminate the agreement upon plaintiff's failure to order in accordance with its quota.

At the time of the negotiations involved in this action, defendant was represented by Mr. Ramsdell, its manager of sales promotion, in charge of advertising for sales promotion; Mr. Skinner, its vice president and general manager in charge of all sales and advertising, over Ramsdell; and Mr. Heberling, its manager of the central division under Skinner and Ramsdell. For plaintiff, the negotiations were carried on by Mr. Barnes, Mr. Welles, and Mr. Higgins.

In the radio trade it had been customary for the manufacturers to produce their new models twice a year, in January and June. In December, 1929, a jobber's meeting was held at Philadelphia, preliminary to the introduction of the January, 1930, models. This meeting was attended by Mr. Welles and Mr. Barnes; and defendant there announced that its distributors, before leaving, would be expected to sign orders for a certain quota of radios, and Mr. Skinner, on behalf of defendant, announced that if 80 per cent. of the distributors were able to sell their allotment or quota, and 20 per cent. could not do so, that defendant would be forced, at the close of the radio season, to replace such delinquent distributors. Defendant determined the quotas by estimating the total number of radio sets which could be sold in the territory, and then apportioning this total number among the various distributors on the basis of certain factors, the most important of which was the number of wired homes in the territory of each distributor.

At the close of this Philadelphia meeting, Mr. Heberling presented to Mr. Welles and Mr. Barnes proposed orders for January and February radio requirements of plaintiff. Barnes and Welles protested that the order was too large, and that they had no authority to sign it. It was then agreed that they should return to Duluth and report the quota demanded, and that Heberling would shortly come to Duluth to discuss the whole matter; and on January 3, Heberling and Ramsdell came to Duluth, where conference was held between them and representatives of plaintiff. It is during the conversations had at this meeting that the fraudulent representations forming the basis of this action are alleged to have been made.

Defendant's representatives proposed a reorganization of plaintiff's business, the establishment of a separate radio department, and the employment of additional special radio salesmen, and the embarking on an extensive advertising program. It is plaintiff's claim that its officers objected to the large expense that would be incurred should it adopt the program of defendant for the reorganization of its business and for advertising, and that it could not, in the remaining months of its contract, which included the first few months of the year, sell enough radios to warrant these expenditures. It is claimed that in answer to these protests defendant's representatives gave assurance to the plaintiff that if it embarked on defendant's program, that while it might not prove remunerative during the early months of 1930, the profit from this business in the second half of the year would be so substantial as to render a normal profit for the entire period; and that plaintiff, believing and relying upon the assurance that it would be continued as defendant's distributor after the expiration of its contract, was induced by the representations and promises to that effect made by defendant, to embark on defendant's expansive program of reorganization and advertising, and expended large sums of money in carrying out its undertaking.

At the close of all the testimony, counsel for defendant moved for a directed verdict, which motion was denied. The jury returned a verdict in favor of plaintiff, and from a judgment of $18,131.55 entered thereon, the defendant prosecutes this appeal, assigning numerous errors, all of which, however, are substantially embodied in the alleged error of the court in denying defendant's motion for a directed verdict.

In discussing this question we do not perform the functions of a jury, but only determine whether or not there is substantial evidence to sustain the verdict. We must assume that the jury believed plaintiff's version of the negotiations of January 3, 1930. In referring to that conference, plaintiff's witness Barnes testified: "We said we thought that was too many radio sets for us to buy at that time of the year and that our records in the past would indicate we couldn't sell that many radio sets, and Mr. Heberling said he would cut the number in two and we would have to buy only half that number, or something over 4,000 sets, and Mr. Welles, Jr., discussed or stated that he did not believe we could profitably spend all the money necessary to follow the program out. Mr. Heberling stated that we could increase our sales greatly if we would reorganize and form a separate radio division, not just a department of the Kelley-How Company, but that we should have a separate sales division, and it was decided that we would form such a division and that George Welles, Jr., should be in charge of sales of that division. Mr. Heberling also stated we should have more specialty salesmen, and there were details discussed as to how they should operate. We stated that we didn't see how we could afford to do that then and Mr. Heberling or Mr. Ramsdell stated or brought out the same statement that had been made at Philadelphia that if we spent this money and put on extra salesmen and reorganized our department that in the fall of 1930 we would sell a larger number of radio sets and the year as a whole would be profitable."

Mr. Welles, on behalf of plaintiff, testified: "One of the objections which I brought up at that time was that I could not see how any organization could get underway to the extent that it would be necessary to cash in on such an advertising program or sales program considering the expense involved during the first five months. It was stated by Mr. Ramsdell or Mr. Heberling that they realized the program seemed large, but if it wasn't cashed in on during the first six months that during the second six months when the radio season was at its height we would probably double or treble our sales because of the background laid in the spring. * * * I refer to the representations of Mr. Heberling and Mr. Ramsdell on January 3d, which were such as to make us believe we would continue with the distributorship of the Philco line during 1930, that this advertising would be cumulative in its effect and even though it was not immediately profited by, it would be profited by in the later part of the year when the radio season was at its height. * * * I said that I didn't see how we could cash in on such an expenditure in the first five months of the year, and Mr. Heberling said that, if we didn't cash in on it in the first five months the profit in the second half of the year would be substantially enough to give us a normal profit over the entire period."

Mr. Higgins, testifying for plaintiff, among other things said: "It was said by some of these gentlemen (Heberling and Ramsdell) that while the campaign would be expensive during the spring and probably not bring a satisfactory return, that we could hope to receive returns during the fall by keeping the name Philco before the public."

There was evidence to the effect that the later months of the year were more favorable for the sale of radios than...