Smith v. Onyx Oil & Chemical Co., Civ. A. No. 1333.

• Decision Date: 02 April 1954
• Docket Number: Civ. A. No. 1333.
• Parties: SMITH et al. v. ONYX OIL & CHEMICAL CO.
• Court: U.S. District Court — District of Delaware

120 F. Supp. 674

SMITH et al. v. ONYX OIL & CHEMICAL CO.

Civ. A. No. 1333.

United States District Court D. Delaware.

April 2, 1954.

Arthur G. Logan, of Logan, Marvel & Boggs, and Stephen E. Hamilton, Jr., Wilmington, Del., for plaintiffs.

Arthur G. Connolly and Januar D. Bove, Jr., of Connolly, Cooch & Bove, Wilmington, Del., for defendant.

LEAHY, Chief Judge.

1. This is an action for breach of contract. Plaintiffs seek damages for loss of profits and expenses incurred because of repudiation by defendant of the agreement.

Plaintiffs, Laurence C. Smith and Laura C. Smith, are partners trading as Laurence C. Smith Co. in Syracuse, New York. The firm has been for years engaged in distributing dry cleaning supplies and equipment to establishments, laundries, institutions, hospitals and laundermats.

Defendant Onyx is a Delaware corporation. It has been for 43 years engaged in the manufacture and sale of chemical products. It is a leading company in the manufacture of chemicals for use in the textile finishing business. Its gross sales in 1949 were approximately $3,000,000. In 1949, Onyx was not in the dry cleaning industry.

But in that year there was a need for a sizing product which dry cleaners could use when they wet washed clothes to clean them. The evidence shows most fabrics have a finish added at the mill which often is removed when they are wet washed leaving a rather raggedy piece of goods, and, in order to make the fabric feel new again, sizing is used to put back into the fabric what it had in it before. This gives it drape and body.

At the suggestion of Fred G. Harris, who was with his brother Roy Harris in the dry cleaning business and also the chemical business in Cortland, New York, two representatives of Onyx called on plaintiff Smith in Syracuse, New York, in August of 1949, in an effort to get him to promote the sale in the dry cleaning field of two products manufactured by Onyx, which it was believed would supply the need for a sizing in the wet cleaning division of the dry cleaning industry. The two representatives of Onyx were Paul D. Jacobs and Stanley A. Trezise.

Smith agreed to arrange for a demonstration in Syracuse. In early September 1949, Jacobs and Trezise returned to Syracuse and demonstrations were conducted in three dry cleaning establishments in Syracuse with the two Onyx products. The two products were Resin 362 and Onyxsan HSB. The demonstrations consisted of mixing the two products after one had been heated and emersing garments which had been wet washed into the mixture. Demonstrations disclosed the mixture of the two products produced results. It became obvious in order to interest operators in the dry cleaning industry to use the mixture, it would be necessary to combine the two products into a single product and package it as a single product for sale. Smith requested Onyx to try to combine the two products into one so as to have a saleable product. Onyx promised Smith they would go back to their plant and "attempt to combine them (the two products) into a marketable product."

On September 9, 1949, Trezise wrote to Smith and said:

"Paul (Jacobs) is now at work on compatibility and dilutibility tests with a view toward making the best stock solution. We should have some results in the near future. It may be some time, however, discounting a degree of luck before we can find a suitable solvent soluble resin to complete the picture."

On September 21, 1949, Trezise wrote to Smith saying:

"I have your letter of September 14 and am offering my apology for not answering sooner but I have been anticipating the completion of Jacobs' work on the incorporation of the two products in one. We now have that work completed and have a stock solution of the two materials which consists of 16 2/3 % Resin 362, 16 2/3 % Onyxsan HSB and the balance water. This stock solution can be used in the ratio of 66:1 for actual application — or in more plain language, 1 1/3 pounds to ten gallons of water."

Onyx worked on combining the two products into the new single product. Jacobs, who had created the formula for it, advised the manufacturing part of Onyx how to make the new product and package it. The combination of the two products into a single product was worked out in the Onyx plant after the second trip of Jacobs and Trezise to Syracuse in September. On October 11, Trezise advised Smith the new mixture was being forwarded, although refrigeration tests were still under way.

After a demonstration at the Harris plant, Jacobs and Trezise drove Smith from Cortland to Syracuse; they were all enthusiastic about the future of the new product. Jacobs was exuberant "because of a job well done". On the trip, the name Revitex was coined for the new product. It was agreed the name Revitex should be the property of Smith; Onyx would manufacture the new product, put Smith's labels on it and ship it to purchasers from Smith. The cost of the new product was calculated. Smith said he would not be interested unless he had an "exclusive" right to sell the new product and Trezise agreed to take that aspect of the matter up with Onyx.

On November 19, Smith wrote Onyx and added as a P. S., "How about drawing up some agreement on the exclusive distribution of this product?" Smith wanted a contract giving him exclusive rights with respect to Revitex in order to protect him and to aid him in making sales. He did not want to spend money on nationwide advertising and promotional efforts without a written contract. Onyx understood this.

A meeting was arranged in the Onyx offices in Jersey City, on December 12, to negotiate a contract between Onyx and Smith for the distribution of Revitex by Smith. Smith and his lawyer, Lawson Barnes, went to the meeting. Onyx was represented by Victor H. Berman, who has been president and treasurer of Onyx for 43 years; Leon P. Brick, vice-president in charge of sales; Albert R. Jenny, vice-president and general sales manager; James H. Tully, an attorney who had represented Onyx for 40 years, and Jacobs and Trezise. When the meeting opened, Trezise made a statement of what had happened to that date and stated the meeting was being held to negotiate a contract. It was understood at the meeting Revitex was Smith's trade name and it consisted of a combination of Resin 362 and Onyxsan HSB, the two products of Onyx.

Prior to the meeting, Barnes (Smith's lawyer) drafted a proposal which Tully read to the meeting, clause by clause. Tully acted as Chairman of the meeting. Berman left the meeting but announced Tully would take things in hand and whatever Smith agreed upon with Tully would be perfectly acceptable to Onyx. At the meeting the parties reached an agreement on all important points and it was decided an agreement between Onyx and Smith should be put in writing and Tully was "empowered" and "commissioned" to prepare a second draft.

Tully did prepare a second draft which he mailed to Barnes on December 16. This second draft embodied all of the important points discussed and agreed upon at the meeting. It gave Smith exclusive rights; it provided for minimum sales; it specified the price, and provided terms. It left undecided the period of credit Smith was to get. In the letter transmitting this second draft to Barnes, Tully said:

"I am sending to you herewith a redraft of the proposed agreement between your client, Mr. Smith, and Onyx Oil & Chemical Co., which I ask you to kindly examine.

"As I see it, the contemplated arrangement between the parties is a simple one, which has for its primary purpose the manufacture and sale by Onyx to Mr. Smith of the Product Revitex at a stated price and the agreement upon the part of Onyx that it will not sell that product to dry cleaners, laundries and dyers serving the dry cleaning and laundry trade during the period of the contract, as long as Mr. Smith makes the minimum purchases after the first year. Correspondingly, Mr. Smith agrees to purchase exclusively from Onyx during the period of the agreement. The marketing of the product in the dry cleaning and laundry trade will be the business and should be the responsibility of Mr. Smith."

On December 20, Jenny, Onyx' sales manager, wrote Smith confirming the understanding reached at the meeting with respect to an area within which Onyx would ship to Smith's accounts without charging Smith for freight. Jenny said:

"As you will recall this matter was discussed after Mr. Tully left the meeting and therefore does not appear in the original draft of the contract."

On December 20, 1949, Barnes wrote Tully enclosing a third draft of the agreement. The third draft contained ten changes. The letter concludes:

"I am hopeful that the above changes will be agreeable to you and your client, and will appreciate further words from you as soon as possible."

On December 22, 1949, Tully wrote Barnes and acknowledged receipt of the letter of December 20, together with the third draft. Tully stated:

"Your various changes have been submitted to our client for its approval and as soon as I hear from them, I shall be pleased to again communicate with you." Tully then discusses the question of insurance for the sale of Revitex.

On December 28, 1949, Tully again wrote Barnes. He stated:

"I have gone over with Onyx your redraft (third draft) of the proposed agreement between it and Laurence C. Smith Co., and it would appear that we are in general accord except for some minor changes which I suggest as follows: * * *."

On January 9, 1950, Barnes wrote Tully concerning the suggestions contained in Tully's letter of December 28. Barnes stated:

"The proposed agreement between Onyx Oil & Chemical Company and Laurence C. Smith Co. has been revised in accordance with the suggestions contained in your most recent letter.

"You will no doubt recall that the sale of the product by Smith to institutions was discussed at the Onyx plant and the same was agreeable to Onyx. Smith desires that such sales be...