Warner-Lambert Pharmaceutical Co. v. Sylk

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: SEITZ, , and FORMAN and GIBBONS, Circuit
• Citation: Warner-Lambert Pharmaceutical Co. v. Sylk, 471 F.2d 1137 (3rd Cir. 1972)
• Decision Date: 17 November 1972
• Docket Number: No. 71-1944.,71-1944.
• Parties: WARNER-LAMBERT PHARMACEUTICAL CO., Appellee, v. William SYLK, Appellant.

471 F.2d 1137 (1972)

WARNER-LAMBERT PHARMACEUTICAL CO., Appellee, v. William SYLK, Appellant.

No. 71-1944.

United States Court of Appeals, Third Circuit.

Submitted October 5, 1972.

Decided November 17, 1972.

John David Egnal, Egnal & Egnal, Philadelphia, Pa., for appellant.

Robert P. Herzog, New York City, for appellee.

Before SEITZ, Chief Judge, and FORMAN and GIBBONS, Circuit Judges.

OPINION OF THE COURT

FORMAN, Circuit Judge.

Warner-Lambert Pharmaceutical Co., (herein called Warner-Lambert) appellee, a corporation of Delaware, doing business in Morris Plains, New Jersey, pursuant to authority granted by that State, delivered to Collins Wholesale Drug Company, Inc. (Collins), a Pennsylvania corporation, merchandise to an amount of about $20,000.00, for which Collins failed to pay. Thereupon Warner-Lambert sought its remedy in a suit in the Superior Court of New Jersey, Chancery Division, Camden County, for an injunction restraining Collins from any activity and for a receiver. A temporary restraining order was issued on August 4, 1969, and a hearing was set for August 15.

On August 14 at a last minute settlement of the New Jersey litigation, in which William Sylk, appellant, a resident of Pennsylvania, engaged, Collins executed and delivered to Warner-Lambert a series of thirteen promissory notes to it or its order, in the aggregate sum of $19,567.07.¹ Each note was payable at the office of Berenson, McLaughlin and Kohn, 744 Broad Street, Newark, New Jersey, and bore the provision: "that upon the default in the payment of any of the notes, the remaining notes shall become due and payable without notice together with attys. fees."

Each note contained the following endorsement on its reverse side:

"For value received the undersigned and each of them hereby forever waives presentment, demand, protest, notice of protest and notice of dishonor of the within note and the undersigned and each of them guarantees the payment of said note with interest at maturity or any time thereafter and consents without notice to any and all extensions of time or terms of payment made by holder of said note.

"Name WILLIAM SYLK "Address 400 Bryn Mawr Ave Bryn Mawr, Pa. 19010"

The payment of Collins's indebtedness as represented by the notes was protected by a security agreement executed by Collins covering a schedule of its goods described therein. It provided for a cash payment of $1,070.98 upon its execution. Also, Collins and Mr. William Sylk (said to be the principal stockholder in New Sun Ray Drug Company) each executed a bond and warrant on August 15, 1969, to confess judgment in favor of Warner-Lambert for $20,640.05.

The foregoing recital is gleaned from the pleadings in this suit filed by Warner-Lambert in the United States District Court for the Eastern District of Pennsylvania on November 18, 1969, (Civil Action No. 69-2730) against Mr. William Sylk, which followed the alleged default by Collins and him to pay the third note due October 31, 1969, for $5,000.00. Warner-Lambert alleged the default under the terms of the accelerated payment provision on all of the notes and demanded judgment for $14,469.07 plus $5,000.00 for attorney's fees, or an aggregate of $19,569.07 (sic).

Mr. Sylk filed an answer and crossclaim² in which he resisted Warner-Lambert's complaint on the grounds that he owed Warner-Lambert nothing for the following reasons:

(1) Because an arrangement was orally made between Mr. Thomas Sylk, son of Mr. William Sylk, and Secretary³ of Collins and the attorney of Warner-Lambert, which provided for a change in the original agreement under which the third note for $5,000.00 due October 31, 1969, was to be liquidated by two payments of $1,000.00 each and an additional payment of $2,500.00 on or before December 31, 1969; the next installment of $1,000.00 was to be deferred until March 1, 1970, and the other payments of $1,000.00 and the balance each were to be made monthly thereafter.

(2) After payments of $9,500.00 and credits given for $488.47, Collins would owe only $9,134.14 less the value of returned merchandise, leaving the court without jurisdiction.

(3) Briefly stated, the so-called cross-claim alleged that Collins was without funds to meet its indebtedness to Warner-Lambert and offered its bond and promissory notes, but Warner-Lambert advised Mr. William Sylk, principal stockholder of New Sun Ray Drug Company, that it would accept them only if he endorsed the notes. At the time of this demand Warner-Lambert and Mr. William Sylk, as he alleged, believed that the receivership proceedings, in the light of the understanding in the drug industry that there was an "affinity" between Collins and New Sun Ray, would be considered as a proceeding against New Sun Ray and threatened to cause serious financial damage to New Sun Ray by inducing its creditors to initiate a "collective adversary proceeding against it." This was claimed to constitute duress on the part of Warner-Lambert against Mr. William Sylk. The dismissal of the claim was requested and restoration of sums paid by Mr. William Sylk.

Warner-Lambert, after filing a reply to Mr. Sylk's "cross-claim," noticed a motion for summary judgment pursuant to Rule 56 F.R.Civ.P., which District Judge Hannum considered on the pleadings, documents and affidavits filed by the parties. In a Memorandum and Order⁴ he rejected Mr. William Sylk's argument that the oral agreement modified the original written agreement with respect to the time for and amount of payments to be made, as not presenting a genuine issue of fact preventing relief under Rule 56.⁵

Another argument was presented by Mr. Sylk, predicated on the allegations in his "cross-claim" that he had been forced to endorse and guarantee the payment of the promissory notes under circumstances of economic duress and, therefore, his participation was involuntary. The District Judge, on this contention, concluded:

"It is not clear, however, on the record as it now exists, whether this defense is present and available to the defendant. In a situation such as this, the court may pursuant to Fed.R.Civ.P. 56(f) order a continuance to permit further discovery. With the aid of additional discovery, affidavits could then be filed stating with particularity the facts which form the basis of the alleged duress. Additional discovery could also clarify whether the transactions in question did in fact involve circumstances of duress or were in fact economically beneficial to the defendant. But in any event, what is needed is more information to afford the court a basis upon which a decision could properly be made.

"Accordingly, the court enters the following:

"ORDER

"AND NOW, this 31st day of December, 1970, it is hereby ORDERED that plaintiff\'s motion for summary judgment is DENIED WITHOUT PREJUDICE to permit further discovery on the question of alleged economic duress."⁶

Later the case came up on a trial calendar before District Judge Gorbey, whereupon Warner-Lambert renewed its motion for summary judgment. In a Memorandum and Order Judge Gorbey, 53 F.R.D. 206, confined his consideration only to the issue: whether Warner-Lambert was entitled to judgment as a matter of law in the face of Mr. Sylk's allegation that his endorsement and guarantee arose from business compulsion. After noting that Mr. Sylk, subsequent to the Rule 56(f) continuance, had not availed himself of the opportunity to provide a factual basis for his claim, which had been pleaded in the broadest generalities (denied by Warner-Lambert in its reply to the "cross-claim"), and, furthermore, had not offered proof of his inability to do so, concluded:

"Plaintiff, under all the facts presented, is entitled to judgment as a matter of law. This Court has before it no factual basis for defendant\'s defense or counterclaim. Accordingly, for the above reasons, plaintiff\'s motion for summary judgment is granted."⁷

He ordered the entry of judgment in favor of Warner-Lambert for $14,569.07 with interest and for $3,866.50 as reasonable attorney's fees.

This appeal by Mr. Sylk followed. He reiterates the issues he presented to the District Court, and also raises the issues of the propriety of the award of attorney's fees and the application of the acceleration provision, both of which were provided on the face of the notes but not in the endorsement signed by Mr. Sylk.

I

No question is raised but that the case is governed by New Jersey law.⁸ In Romano v. Brown,⁹ considered by the District Court, the test — "to whom was the credit given" — is used to determine whether a contract is primary or collateral, and so whether it is within or without the operation of the New Jersey Statute of Frauds.¹⁰ There is no doubt that the undertaking was collateral in the first place, since the credit was extended to Collins and guaranteed by Mr. Sylk. However, Mr. Sylk contends that the forbearance by Warner-Lambert to sue Collins constituted a new consideration running to the promisor and thus took the agreement out of the Statute. Romano goes on to say:

"And where the promise to pay the debt of another is founded upon a new consideration, and this consideration passed between the parties to the promise, and gives the promisor a benefit which he did not enjoy before, and would not have possessed but for the promise, it will be regarded as an original promise, though not in writing. Federal Wine, &c., Co. v. Jabberwock Country Club, supra (at p. 334, 199 A. at 595)."¹¹

Here the guarantee agreement was in writing, but Mr. Sylk raises the defense that it was not required to be in writing and therefore could be verbally modified. See Nephi Processing Plant v. Western Co-op. Hatcheries.¹²

In Willow Brook Recr. Center, Inc. v. Selle,¹³ cited by Judge Hannum, the general rule is stated "that a contract which the statute of frauds requires to be in writing may not be modified by a subsequent oral agreement." By negative implication the agreement could be orally...