Ralston Purina Co. v. Nabisco, Inc.

• Decision Date: 25 August 1976
• Docket Number: No. 75-1444,75-1444
• Citation: 541 F.2d 679
• Parties: RALSTON PURINA COMPANY, Appellee, v. NABISCO, INC., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 679

541 F.2d 679

RALSTON PURINA COMPANY, Appellee, v. NABISCO, INC., Appellant.

No. 75-1444.

United States Court of Appeals,

Eighth Circuit.

Submitted March 11, 1976.

Decided June 16, 1976.

As Modified on Denial of Rehearing and Rehearing En Banc

Aug. 25, 1976.

Veryl L. Riddle, St. Louis, Mo., for appellant; R. H. McRoberts, Thomas C. Walsh and Robert F. Scoular, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., on brief.

Robert S. Allen, St. Louis, Mo., for appellee; Dominic Troiani, David W. Detjen, of Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., on brief.

Before VOGEL and VAN OOSTERHOUT, Senior Circuit Judges, and BRIGHT, Circuit Judge.

BRIGHT, Circuit Judge.

In mid-1972, the Ralston Purina Company (Ralston) entered into a contract to sell its frozen food processing plant located in Wellston, Ohio, to Freezer Queen Foods, Inc. (Freezer Queen), a wholly-owned subsidiary of Nabisco, Inc. (Nabisco). In connection with this transaction, Nabisco presented Ralston with a guaranty letter in which it allegedly guaranteed the contract obligations of its subsidiary. Freezer Queen thereafter declined to perform the contract and Ralston brought the instant action solely against Nabisco for breach of the guaranty contract. The district court submitted the issues to the jury upon a general verdict and special interrogatories. The jury found Nabisco liable to Ralston on the guaranty contract and assessed damages in the sum of $3,333,083.30. Nabisco appeals asserting that it was entitled to a judgment of dismissal as a matter of law and alternatively contends that the district court committed prejudicial error in its instructions relating to damages. ¹

We have fully reviewed the record and reverse on the issue of contract liability.

The written documents and the essentially undisputed testimony relating to the background of the transaction disclose that in mid-1972, Ralston decided to sell its frozen food processing plant in Wellston, Ohio. This plant had been financed in substantial part through the issuance of industrial revenue bonds, which Ralston had assumed under its lease with a community improvement corporation which had constructed the facility for Ralston, and water and sewer bond obligations. ² Corporate officers of Nabisco and Paul Snyder, the president of Freezer Queen (who also served as an officer of Nabisco) entered into preliminary negotiations with Ralston officials concerning the possible purchase of the plant. The parties apparently reached a tentative agreement by mid-September. On September 22, 1972, Nabisco's legal department forwarded to Ralston's attorneys an incomplete first draft of a proposed agreement for a sale transaction of these facilities to Freezer Queen, the Nabisco subsidiary.

Because of income tax ramifications, Ralston was anxious to sign a contract prior to the close of its fiscal year, September 30. Freezer Queen's president, Paul Snyder, had raised some questions relating to the transfer of supervisory personnel at the Wellston plant from Ralston to the proposed new owners, and to the transfer of the natural gas allotment which the gas distributor, Columbia Gas, had allotted to Ralston. Notwithstanding these impediments to consummation of a contract, Thomas Coleman, an attorney for Ralston, and Warren M. Shapleigh, president of Ralston, flew to New York on September 29, and at the Nabisco headquarters obtained a signed agreement for purchase of the Wellston facility by Freezer Queen. The agreement provided that Freezer Queen would pay Ralston one million dollars upon closing and would assume the obligations of the industrial revenue and water and sewer bonds totalling eight million dollars. In return, Ralston agreed to assign to Freezer Queen all of Ralston's rights, title, and interest in and to the Wellston plant. The parties agreed to a closing date as soon as practicable prior to November 30, 1972, but if not closed by that date, either party could terminate the agreement. The contract included several conditions relating to the closing of the transaction, including the following:

Article 5. Conditions of Closing Assignee

The obligation of Assignee (Freezer Queen) to complete the transactions contemplated by this Agreement is subject to the satisfaction on or prior to the Closing Date of the following conditions:

(a) All legal matters shall have been approved by counsel for assignee.

(d) Assignee shall have been satisfied that it will be able to employ those employees of Assignor that in the judgment of Assignee's President Assignee will need to operate the plant being acquired hereunder after the Closing Date.

(e) The restoration of Assignor's allocation of natural gas from Columbia Gas of Ohio, Inc. to 50,800,000 cubic feet per year and the establishment to Assignee's satisfaction that said restored allocation will be available to Assignee on and after the Closing Date. (A: Exhibit Vol. I, E-62-63.)

Pursuant to a request from Ralston's counsel a few days prior to the September 29 signing, Nabisco prepared a guaranty letter signed by its president, Robert M. Schaeberle and addressed to Mr. Shapleigh, president of Ralston. Legal counsel for Nabisco-Freezer Queen delivered the letter to Ralston's counsel at the September 29th conference. That letter read:

This will serve to confirm our mutual understanding and agreement that as long as Freezer Queen Foods, Inc. is a wholly owned subsidiary of Nabisco, Inc., Nabisco, Inc. will guarantee the performance by Freezer Queen Foods, Inc. of its obligations arising out of the Agreement between Freezer Queen Foods, Inc. and Ralston Purina Company of even date with respect to Ralson (sic) Purina Company's Wellston, Ohio facilities.

In the event Nabisco, Inc. should decide to dispose of Freezer Queen Foods, Inc. at some future date, Nabisco, Inc. will use its best efforts to have the purchaser of Freezer Queen Foods, Inc. likewise guarantee the performance by Freezer Queen Foods, Inc. of its obligations under said Agreement. (A: Exhibit Vol. I, E-80 (Ex. 28).)

The evidence, as discussed below, indicates that Shapleigh and Coleman, Ralston's attorney, expressed disagreement with the extent of the guaranty obligation but that J. Stewart English, a vice president of Nabisco, gave some assurance that the language of the guaranty letter could be satisfactorily modified at a later time. With this assurance, Ralston's president signed the agreement for the sale of the Wellston plant and turned the guaranty letter over to Coleman. Coleman thereafter wrote on the face of the letter guaranty the phrase: "Needs to be revised."

Thereafter, in November, Freezer Queen declined to close the contract because its president, pursuant to Article 5 of the contract, quoted above, asserted that Freezer Queen had been unable to employ the necessary personnel from Ralston needed to operate the plant and that Ralston had not established to his satisfaction or the satisfaction of Freezer Queen's counsel, Walter Halliday, that the full natural gas allocation necessary for operating the plant could be restored and transferred from Ralston to Freezer Queen. Based on this alleged breach by Freezer Queen, Ralston brought this action against Nabisco alone on the letter of guaranty. In its brief appellant Nabisco asserts Ralston could not bring a legal action against Freezer Queen for breach of the underlying sales contract since that written contract provided that any controversy arising out of the contract would be settled by arbitration. As of the time of trial, Ralston had not initiated any proceedings looking toward arbitration of any dispute with Freezer Queen. Ralston subsequently sold the Wellston plant to Banquet Foods for $3,750,000 in cash, and Banquet assumed the water and sewer bond obligations but not the industrial revenue bond obligations.

The district court presented the issues tendered by the parties to the jury in the form of five interrogatories, as follows:

As noted above, the jury answered each of the five interrogatories in favor of Ralston and then by way of a general verdict awarded plaintiff damages in the sum of $3,333,083.30. In seeking reversal, Nabisco contends that the district court erred in submitting the contract issues to the jury and in refusing to grant judgment n. o. v., for the following reasons: (a) no contractual relationship existed between the parties because the undisputed evidence showed that Ralston had rejected Nabisco's guaranty letter; (b) even if the guaranty letter did create a contractual relationship between Ralston and Nabisco, it did not encompass a guarantee by Nabisco that Freezer Queen would close the underlying contract; and (c) Freezer Queen did not breach the underlying contract because neither Freezer Queen's president nor its legal counsel were satisfied that the natural gas allocation would be restored and Freezer Queen's president was not satisfied that Freezer Queen could employ the necessary Ralston supervisory personnel at the Wellston plant.

Appellee-Ralston contends that all contract issues rested on disputed matters of facts and were properly submitted to the jury and that the court's rulings and instructions relating to damages did not constitute prejudicial error.

We turn first to a consideration of whether the guaranty letter constituted a completed agreement.

I. Guaranty Letter: Accepted or Rejected?

A. Factual Background.

Appellant contends that Ralston rejected the letter of guaranty on September 29, at the signing of the underlying contract. The resolution of this contention turns on the testimony of the parties and letters exchanged between counsel for the parties.

As we have already noted, Ralston's interest in the frozen food processing plant rested in part upon a lease from the Wellston Growth Corporation, a community improvement corporation at Wellston, Ohio, which had constructed the plant for Ralston and had financed the construction through...