Productora E Importadora De Papel, S.A. De C.V. v. Fleming

• Decision Date: 15 December 1978
• Citation: 383 N.E.2d 1129,376 Mass. 826
• Parties: , 25 UCC Rep.Serv. 729 PRODUCTORA E IMPORTADORA DE PAPEL, S.A. DE C.V. v. James S. FLEMING. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1129

383 N.E.2d 1129

376 Mass. 826, 25 UCC Rep.Serv. 729

PRODUCTORA E IMPORTADORA DE PAPEL, S.A. DE C.V. v. James S. FLEMING. ¹

Supreme Judicial Court of Massachusetts.

Argued Sept. 15, 1978.

Decided Dec. 15, 1978.

Robert C. Gerrard, Boston (Carolyn Thayer Ross, Boston, with him), for plaintiff.

James S. Fleming, Worcester, for defendant, submitted a brief.

Before HENNESSEY, C. J., and QUIRICO, BRAUCHER, KAPLAN and LIACOS, JJ.

QUIRICO, Justice.

The plaintiff, herein referred to as PIPSA, alleges in several counts of its complaint that the defendant, James S. Fleming, owes it $870,533.81 as the result of certain business transactions described below in this opinion. An interlocutory default judgment on the issue of liability was entered against Fleming because of his refusal to comply with an order of a judge of the Superior Court that he give a deposition. This was followed by an evidentiary hearing to assess damages, and a judgment was entered against Fleming for more than $1,000,000. Fleming is appealing from that judgment, claiming error in several evidentiary rulings and in the amount of damages awarded. We hold that the judge failed to properly segregate the damages attributable to Fleming, and we therefore reverse.

The plaintiff is an entity apparently equivalent to a corporation. It was organized under the laws of Mexico and has its principal place of business in Mexico City. As its name suggests, PIPSA produces and imports paper products. Fleming is a Worcester attorney who entered the business of selling newsprint. It is necessary to set forth at considerable length the dealings and litigation between Fleming and PIPSA that led to this appeal. We rely primarily on PIPSA's complaint and exhibits annexed thereto.

About December 20 and 21, 1973, George W. Dietrich executed a newsprint supply contract with PIPSA in Mexico City. Although Dietrich purported to act as president of Trans-Milpak, Incorporated (TM), a Massachusetts corporation, TM was not actually formed until December 21, 1973. The agreement provided, in substance, that PIPSA should purchase from TM 30,000 metric tons of "standard, white, first-class newsprint appropriate for offset or letterpress printing" annually for the duration of the contract. The quantity was subject to revision by PIPSA during the first quarter of each contract year. The agreement was to continue in force from year to year, with PIPSA having the option to terminate after the first year and either party having such an option after the third year. Payment at the rate of $300 per metric ton, F.O.B. Boston, was to be in United States dollars against drafts drawn under irrevocable, confirmed letters of credit. The unit price was subject to annual adjustment on anniversaries of the agreement by reference to the Department of Commerce price index "and/or" price changes by Canadian producers. The agreement was to be interpreted under the laws of Mexico.

Pursuant to its agreement with TM, on January 19, 1974, PIPSA sent a purchase order for 2,500 tons of newsprint at $300 per ton. Delivery was to occur at Veracruz during April of 1974. Although the record does not disclose how or why, the parties apparently modified this order to call for shipment of 1,893.9 tons at $330 per ton on or before October 25, 1974. Whatever the order may have provided, TM shipped 393.92 tons in several lots during October of 1974 and received payment at the rate of $330 per ton. ² No further orders or shipments were made under the contract between PIPSA and TM.

About February 1, 1974, Fernando Ysita-Septien (Ysita), a Mexican attorney who was designated the Mexican representative of TM in the December 20 contract, negotiated a supply contract between PIPSA and Trans-Milpak International, Incorporated (TMI). In doing this, Ysita acted on the instructions of Fleming. Although Fleming purported to execute the agreement as president of TMI on or about February 1, TMI did not in fact become a corporation until March 26, 1974. The contract between PIPSA and TMI was for 10,000 metric tons of newsprint annually at an initial price of $290 per metric ton, and was otherwise identical to the contract between PIPSA and TM.

Pursuant to its contract with TMI, PIPSA placed four orders with TMI during 1974. ³ On January 31, 1974 the day before the contract was executed by Fleming for TMI PIPSA ordered 3,500 tons of paper at $300 per ton to be shipped during April of 1974. This order was subsequently modified by changing the price on 2,989 tons to $330 per ton and the delivery date to early November, 1974. ⁴ Between May and November of 1974, TMI shipped a total of 1,822.53 tons in response to this order, receiving a total of $593,922.83 in payment. On March 27, 1974 the day after TMI was incorporated in Massachusetts PIPSA ordered an additional 5,000 tons of newsprint at $310 per ton for immediate delivery. This order, too, was apparently modified by changing the price to $330 per ton for delivery before January 12, 1975. ⁵ TMI shipped 1,536.90 tons at $300 per ton under this order before mid-January of 1975. PIPSA placed two orders on April 10, 1975, one for 3,000 tons and another for 4,500 tons, both at $300 per ton. TMI made no shipments referable to these orders.

To summarize the facts stated so far, PIPSA entered into contracts with TM and TMI before either of those entities was incorporated. Pursuant to its contract with TM, which required orders totaling 30,000 tons of newsprint before December 21, 1974, PIPSA actually ordered 2,500 tons and received only 393.92 tons. Pursuant to its contract with TMI, which required orders totaling 10,000 tons before February 1, 1975, PIPSA actually ordered 16,000 tons and received only 3,359.43 tons. For no reason apparent on the record, the prices stated in the purchase orders were not in compliance with the written agreements. Neither TM nor TMI ever completely filled one of PIPSA's purchase orders.

PIPSA filed suit in the Superior Court on April 11, 1975, naming TM, TMI, Fleming, and other individuals as defendants. The complaint set forth the facts summarized above and demanded judgment in the amount of $870,533.81, plus interest and costs against each defendant. As against the defendant Fleming, PIPSA asserted four separate claims. Count 6 of the complaint alleged the facts summarized above concerning TM and that "Fleming was a promoter and prospective incorporator" of TM. Count 7 alleged, in substance, that Ysita knowingly misrepresented the existence of TMI and of TMI's production capacity for the purpose of inducing PIPSA to contract with TMI, that Ysita acted as Fleming's authorized agent in so representing, that Fleming misrepresented the existence of TMI by signing the contract on TMI's behalf, and that PIPSA reasonably relied to its detriment on these misrepresentations. Count 10 alleged the facts summarized above concerning TMI and that "Fleming was a promoter and prospective incorporator" of TMI and executed the contract "purportedly on behalf of" TMI. Count 15, which the trial judge does not seem to have considered, alleged that all the actions complained of were unfair and deceptive business practices in violation of G.L. c. 93A and demanded treble damages against every defendant.

Fleming and other defendants who are not before us were served in this action on August 27, 1975. Fleming answered, essentially denying the material allegations of PIPSA's complaint. On January 13, 1976, PIPSA served a notice under Mass.R.Civ.P. 30(b), 365 Mass. 780 (1974), to depose Fleming in Worcester on January 22. The deposition was rescheduled at Fleming's request to January 28, and on that date Fleming refused to be deposed. PIPSA obtained an order from a judge of the Superior Court on that same day compelling discovery. When the taking of the deposition was resumed later on January 28, Fleming still refused to testify. On PIPSA's motion filed January 30, the judge entered a default against Fleming. See Mass.R.Civ.P. 37(b)(2)(C), 365 Mass. 797 (1974). Thereafter on February 12, 1976, the judge entered an interlocutory default judgment against Fleming on the issue of liability. See Mass.R.Civ.P. 55(b) (2), 365 Mass. 822 (1974). We note that PIPSA and the judge conformed exactly to the procedures outlined in the Massachusetts Rules of Civil Procedure for sanctioning wilful failure to give discovery. On April 12, Fleming's (newly retained) counsel filed a motion to set aside the default judgment against Fleming on the ground that Fleming had previously retained counsel who, without explanation, had failed to act for him. The judge denied this motion.

Following a hearing to assess damages, final judgment was entered against Fleming on November 2, 1976, in the amount of $879,419.03, together with interest in the amount of $140,707.04 and costs. Fleming appealed to the Appeals Court from the order assessing damages and from the final judgment. Acting on our own initiative, we ordered the case transferred to this court for direct appellate review. See G.L. c. 211A, § 10(A).

1. Segregation of damages. During the hearing to assess damages, Fleming's counsel attempted to cross-examine a vice president of PIPSA to determine how many of the 18,500 tons of paper that PIPSA ordered were ordered from TM and from TMI, respectively. After an extensive colloquy and an offer of proof on Fleming's behalf, ⁶ the judge excluded the line of questioning as irrelevant. We hold that this ruling was erroneous.

[a] Effect of default judgment on liability. PIPSA advances two arguments to support the exclusion of evidence tending to show how many of the 18,500 tons were ordered from TM. First, PIPSA contends that the default judgment entered on counts 6, 7, and 10 of the complaint established Fleming's liability without regard to which corporate defendant breached its contract. In effect, PIPSA thus argues that count 6 could support a damage award even if it failed...