Smyth Sales v. Petroleum Heat & Power Co.

• Decision Date: 24 February 1944
• Docket Number: No. 8365.,8365.
• Citation: 141 F.2d 41
• Parties: SMYTH SALES, Inc., v. PETROLEUM HEAT & POWER CO., Inc.
• Court: U.S. Court of Appeals — Third Circuit

141 F.2d 41 (1944)

SMYTH SALES, Inc., v. PETROLEUM HEAT & POWER CO., Inc.

No. 8365.

Circuit Court of Appeals, Third Circuit.

Argued January 18, 1944.

Decided February 24, 1944.

George W. C. McCarter, of Newark, N. J. (McCarter, English & Egner, of Newark, N. J., on the brief) for appellant.

Charles S. Barrett, Jr., of Newark, N. J. (Lum, Fairlie & Wachenfeld, of Newark, N. J., on the brief) for appellee.

Before MARIS and JONES, Circuit Judges, and KALODNER, District Judge.

MARIS, Circuit Judge.

The plaintiff brought an action for fraud and deceit in the District Court for the District of New Jersey. The first trial resulted in a nonsuit. This court reversed and ordered a new trial. 128 F.2d 697. The second trial resulted in a verdict and judgment for the plaintiff. This appeal followed.

The cause of action arose out of a contract entered into between the plaintiff and defendant in 1933, with especial reference to a clause therein which read as follows:

"It is understood that this is an exclusive agreement for the Dealer, insofar as Essex County, New Jersey is concerned, based on our present set up. In the event we purchase, or merge with any other companies, the business we secure through such sources in Essex County is not covered by this agreement, but a basis covering such business will be consummated at the time of such purchase or merger."

The plaintiff alleged that this contract obligated the defendant to pay the plaintiff commissions upon all sales of the defendant's fuel oil in Essex County, New Jersey, no matter by whom the sales were made; that sales were made by others; that the defendant failed to pay the plaintiff commissions upon these sales; that by concealing the fact as to the sales the defendant induced the plaintiff to sell its business to the defendant and to settle for commissions at substantially less than due. The jury by its verdict found all these facts in favor of plaintiff.

The defendant in its fifth separate defense, which is the only defense with which we have any concern upon this appeal, alleged that the clause which we have quoted should be construed as providing that the defendant is under no legal obligation to pay commissions upon business procured by a company which was purchased by the defendant subsequent to the exclusive agency contract; that the sales in Essex County upon which it did not pay commissions to the plaintiff were sales made by Electrol, Incorporated, a Missouri corporation, and by Electrol, Incorporated, a Delaware corporation, which was organized as a result of a reorganization proceeding under the Bankruptcy Act to take over the assets of the Missouri corporation. It urges that the district court erred in ruling that the defendant had not purchased the Missouri corporation and that it should have ruled as a matter of law that the defendant had purchased it. In order to prove that it had purchased the Missouri corporation, the defendant offered in evidence a number of documents.

The first document upon which the defendant relies is an agreement in the form of a letter dated April 18, 1935 written by Electrol Corporation of America to and accepted in writing by the defendant. In the letter Electrol Corporation of America states that its wholly owned subsidiary Electrol, Incorporated, a Missouri corporation, is in financial difficulties and proposes a plan of reorganization under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. The reorganization plan envisages the purchase by the defendant of current claims against the Missouri corporation amounting to $64,750 and of deferred claims amounting to $98,317.24. All the assets of the Missouri corporation are to be transferred to a new company to be incorporated under the laws of Delaware. The Delaware corporation is to have an authorized capital stock consisting of not more than $300,000 par value of preferred stock and 200,000 shares of common stock without par value. The defendant is to transfer all claims it may have against the Missouri corporation to the Delaware corporation and is to receive in exchange preferred stock of the par value of the claims and 158,977 shares of common stock. In addition it is to subscribe to $50,000 par value of the preferred stock of the Delaware corporation to provide working capital for that corporation. Electrol Corporation of America is to receive $50,000 par value of preferred stock and 41,023 shares of the common stock of the Delaware corporation and to have a representative upon its board of directors. The defendant is to enter into an agreement with the Delaware corporation to manufacture oil burning equipment for it and to pay for fuel oil contracts secured by the Missouri corporation. This proposal was accepted by the defendant, as we have stated.

The plan thus contemplated the reorganization of the Missouri corporation and the creation of a new corporation as its successor and assignee. Insofar as the Missouri corporation was concerned the defendant was to assume the status of a creditor only, since it was agreed that the defendant was to become the assignee by purchase of all the outstanding claims against that corporation. It is quite clear that the parties did not contemplate the purchase of the Missouri corporation by the defendant. They did contemplate that the defendant would obtain a majority of both the preferred and common stock of the Delaware corporation when organized. The most that can be predicated upon the letter of April 18, 1935, therefore is that the defendant was to become the controlling shareholder in a corporation not then in being.

The next document offered in evidence by the defendant is an agreement dated February 8, 1936, in which the defendant assigns to Morgan J. Hammers and George P. Robinson all its rights under the 1935 agreement with Electrol Corporation of America, and Hammers and Robinson assume all the obligations of the defendant under that agreement. Hammers and Robinson agree to cause either the Missouri corporation or the Delaware corporation when organized to enter into a contract with the defendant to solicit orders for the defendant's fuel oil, to be sold at prices established by the defendant and in line with prevailing prices and upon stipulated commissions. This was not only not an agreement on the part of the defendant to purchase a company but was the release by the defendant of any rights to purchase which it might have had under the 1935 agreement. By an assignment dated May 28, 1936, Hammers and Robinson assigned their rights in the 1935 contract to the Delaware corporation, its successors and assigns.

The next document relied upon is an agreement between the defendant and the Delaware corporation made May 28, 1936. In it the Delaware corporation undertakes to solicit orders for the defendant's fuel oil within territory in which the defendant has suitable facilities and the defendant agrees to pay a fixed commission not only upon sales made by the Delaware corporation but also upon sales made to customers previously secured by the Missouri corporation. This agreement was a sales agency contract and by no stretch of the imagination can it be treated as a purchase of the Delaware corporation by the defendant.

We accordingly conclude that the trial judge properly instructed the jury that there was no evidence of the purchase of a company by the defendant and that he did not err in refusing to rule as a matter of law that the Electrol sales were made by a company purchased by the defendant.

The defendant has another wholly different objection to the judgment entered against it. It asserts that the trial judge erred in molding the verdict of the jury as to punitive damages. The verdict as returned by the jury on March 12, 1943, was "for the plaintiff against Petroleum Heat & Power Company, Inc., for $6,925.56 damages plus interest and punitive damages not to exceed $1,500.00.". Upon motion of the plaintiff the verdict, insofar as it allowed punitive damages "not to exceed $1,500.00", was molded by the trial judge on April 6, 1943, "to the amount of $1,500.00". Thereafter on April 26, 1943, the trial judge, by an order reciting that "A verdict having been rendered by the jury in the above stated cause awarding the plaintiff damages in the sum of $6,925.56 plus interest and punitive damages not to exceed $1,500 against the defendant Petroleum Heat and Power Co., Inc., and the court having fixed the punitive damages at $1,500 and the Clerk having computed the interest at $2,344.32", directed the entry of judgment for the plaintiff for $6,925.56...