Taylor v. Kenco Chemical & Mfg. Corp.

• Decision Date: 14 March 1985
• Docket Number: No. AX-66,AX-66
• Citation: Taylor v. Kenco Chemical & Mfg. Corp., 465 So.2d 581, 10 Fla. L. Weekly 649 (Fla. App. 1985)
• Parties: 10 Fla. L. Weekly 649 Ronald D. TAYLOR, Sr., Appellant, v. KENCO CHEMICAL & MFG. CORP. and Emerald Manufacturing Co., Inc., Appellees.
• Court: Florida District Court of Appeals

Page 581

465 So.2d 581

10 Fla. L. Weekly 649

Ronald D. TAYLOR, Sr., Appellant, v.KENCO CHEMICAL & MFG. CORP. and Emerald Manufacturing Co., Inc., Appellees.

No. AX-66.

District Court of Appeal of Florida First District.

March 14, 1985.

C. Ray Greene, Jr., of Greene, Greene, Falck & Coalson, Jacksonville, for appellant.

Stephen D. Busey, of Smith & Hulsey, Jacksonville, for appellees.

JOANOS, Judge.

This is an appeal from a summary judgment on a counterclaim in a suit brought by Emerald Manufacturing Company, Inc. and Kenco Chemical and Manufacturing Corporation("Rid-a-Bug")(hereinafter the "buyers") against Ronald D. Taylor, Sr., founder and seller of the company, ("Taylor").The issues raised on appeal are (1) whether the acceptance of a portion of the benefits of a contract to which a party is entitled creates an estoppel or waiver of the party's right to the balance of the entitled benefits, (2) whether a party may recover compensatory and punitive damages in a suit for deceit arising out of a contract, and (3) whether acceptance of the benefits of a contract from which tort damage arose creates an estoppel or waiver of a right to tort damages.We affirm in part and reverse in part.

Since this is an appeal from a counterclaim, we view the evidence in a manner most favorable to Taylor, who was ruled against.Taylor began the business which eventually came to be known as Kenco Chemical and Manufacturing Corporation, in Jacksonville in 1964.Initially, the business was a family operation, but by 1966 or 1967 sales had increased to such an extent that Taylor employed persons outside his immediate family.By 1979 Kenco employed forty to fifty full-time employees and fifty part-time employees, and realized annual sales of approximately six million dollars.

For about a year, from June 1978 until June 1979, Taylor gradually withdrew from the day-to-day operation of the business.On June 7, 1979, his efforts to move toward a semi-retirement were thwarted by a fire which completely destroyed the company's production facilities.For the remainder of 1979 and the early part of 1980, Taylor's family and employees put forth a concerted effort to restore production.

During this rebuilding period, Taylor also attempted to resolve the company's container difficulties, through development of a pocket bottle, a concept which he designed and eventually patented.Taylor initially assigned the task of the pocket bottle production to his son and to Hugh Patterson, an executive of Kenco.Later, the pocket bottle project was turned over to a friend, Drew Dugan, because Ronald Taylor, Jr. and Hugh Patterson were so involved with other company business they had been unable to make any progress on the container problem.

By January 1980 Taylor had decided to sell the business.The rebuilding process had entailed much personal effort, resulting in Taylor's hospitalization for two weeks.Taylor consulted a broker, who put him in contact with a number of potential buyers.Ultimately, Taylor sold Kenco to a local (Jacksonville) group of four individuals who specialize in finance and law.These individuals formed Emerald Manufacturing Company, Inc. for the purpose of buying Kenco.The decision to sell to the local group was based primarily on the group's assurances that the business would continue to operate with the same chief executives and employees that had been with Kenco and Taylor for a long period of time.In addition, the original agreement with these buyers contemplated a cash transaction.

As it turned out, the buyers were unable to complete the transaction on a cash basis, and asked Taylor to finance the deal.Taylor agreed to do so, and a complex financial package was put together.During negotiations the parties agreed that the rate of interest on the promissory note executed by the buyers to Taylor would be lower than the prevailing rate of interest, and the difference would be made up in a consulting agreement which retained Taylor in an advisory capacity for the term of the promissory note.The financing package was assembled by the buyers, with their tax consequences in mind.The promissory note provided for quarterly payments of principal and interest over a three-year period.Taylor alleges that during negotiations the parties also agreed that the consulting fees, which decreased as the principal was reduced, were to be paid on a quarterly basis coincident with the quarterly payments on the promissory note.In addition, the promissory note obligated the buyers to prepay the note to the extent of 50% of the annual combined net earnings, after tax, of Kenco and related companies acquired by the buyers from Taylor, as those earnings exceeded the aggregate principal payments made under the note during any fiscal year.

The final consulting agreement executed by the parties provided for annual rather than quarterly payment of fees.Taylor was unaware of the provision for annual consulting fees until the first payment was due and remained unpaid.It was at that point in January 1981, when Taylor contacted the buyers and protested the nonpayment of the consulting fee, that he was advised the contract provided for payment on an annual basis.Taylor immediately notified his attorney who, after checking the executed document, advised him that it did in fact provide for annual, rather than quarterly, consulting fees.

The first annual payment on the consulting agreement was made in September 1981.According to Taylor, he discussed the error in the consulting agreement payment schedule with Ken Kirschner, an attorney and one of the buyers of Kenco.This discussion allegedly took place in October 1981 at a company party on board Taylor's yacht.Kirschner, who had drafted the final consulting agreement, indicated to Taylor that he knew the provision for annual consulting fees did not reflect the parties' intent, and he(Kirschner) hoped Taylor did not bear any ill will because of the error.Kirschner explained that Emerald (the company which had been formed to buy Kenco) was experiencing financial difficulties at that time; but he assured Taylor, when the final payment was made on the promissory note, Emerald would pay the $100,000 or $120,000 that Taylor could have received in interest over the intervening three years.

The sale of Kenco to Emerald was closed on September 25, 1980.In the spring of 1980 prior to the sale, Taylor arranged financing which enabled his friend, Drew Dugan, to form Drew Dugan Distributors, Inc.Drew Dugan Distributors was formed for the purpose of supplying Kenco with sprayers and bottles.On May 23, 1980, Taylor contracted with Drew Dugan Distributors for the purchase of sprayers and bottles.The companies that formerly supplied Kenco with containers were in the process of discontinuing the manufacture of farm and garden sprayers, and available alternative sources of supply would have cost Kenco considerably more than the contract entered into with Drew Dugan Distributors.

After the new owners had been operating Kenco for approximately a year, they negotiated a new contract with Drew Dugan Distributors for bottles and sprayers.Although the quantities contracted for ultimately proved excessive, since Kenco's sales did not increase to the extent that had been projected, the record reflects that Drew Dugan did not pressure Kenco to accept sprayers it did not need.Nevertheless, the Kenco owners (the buyers) approached Taylor about a possible buy-out of Drew Dugan Distributors.On the basis of this professed interest, Taylor made available to Kenco officials the records of Drew Dugan Distributing and Ronco Distributing, a subsidiary.Kenco did not make an offer to purchase--instead it contacted Drew Dugan's suppliers in an effort to deal directly with them.

In the summer of 1982 the buyers filed suit against Taylor.The buyers' principal allegations concerned violation of the consulting agreement, and specifically the supply contracts with Drew Dugan Distributors which obligated Kenco to purchase more sprayers than it needed.The sprayer contracts had been negotiated on the basis of projected needs viewed in the light of past sales.Kenco alleged that Taylor's interest in Drew Dugan Distributors resulted in the contract for excessive quantities of sprayers and constituted a violation of the terms of the consulting agreement.Taylor counterclaimed, seeking reformation of the consulting agreement, and alleging that Emerald had diverted Kenco's income in order to reduce net earnings and thus avoid prepayment obligations.

A jury trial was held on the allegations of the main complaint, and Taylor prevailed on the claims brought against him by the buyers.However, the buyers prevailed on their motion for summary judgment on Taylor's counterclaim.It is from the trial court's order awarding summary judgment that this appeal is taken.

In Count I of his counterclaim, Taylor sought reformation of Paragraph 4(a) of the consulting agreement.Paragraph 4(a) provides for annual payment of consulting fees, which Taylor claims was error, for the parties intended the consulting fees would be paid on a quarterly basis.The trial court denied reformation, on the basis of estoppel and waiver.First, the trial court cited the general rule that one who is able to read a written instrument and who has an opportunity to do so, is estopped from denying that he knows the contents, and accordingly is bound thereby.The trial court's finding of waiver was premised on the court's determination that appellant accepted and retained the benefits of the consulting agreement as written and unduly delayed in formally asserting his rights.

In Count II of his counterclaim, Taylor sought compensatory and punitive damages, alleging that Kenco and Emerald had "systematically, intentionally and fraudulently diverted the income of Kenco" to avoid the prepayment obligation.The record reflects that Taylor's agreement with...