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Robert H. Fox Co. v. Keystone Driller Co.

decided.: April 18, 1956.


Author: Kalodner

Before McLAUGHLIN, KALODNER and STALEY, Circuit Judges.

KALODNER, Circuit Judge.

These appeals are taken by Keystone Drilling Co., a corporation ("Keystone"), from adverse judgments entered in two diversity actions consolidated for trial without jury in the district court. Keystone asserts that the district court erred in its findings, made pursuant to Rule 52, Federal Rules of Civil Procedure, 28 U.S.C.A.; as to damages caused by Keystone's breach of contract; as to disallowance of credits claimed, and as to the computation of interest.

Keystone and Robert H. Fox Co., a partnership ("Fox Co."), entered into a contract in September, 1948, for a term of ten years. The contract, among other things, required Fox Co. to design, engineer and sell, and Keystone to manufacture a type of heavy carriage equipped with rubber tires for mounting cranes, power shovels and other heavy equipment. Keystone was to provide the necessary financing, and Fox Co. was to receive from it a commission of 7 1/2 percent of the net contract price contained in the sales contracts approved by Keystone; Keystone was to advance to Fox Co. $1,500 monthly, against commissions; of this, $1,000 was for selling and $500 for engineering. In addition, Fox Co. was to exercise an option (which it held from a third party) for the purchase of so-called "Drive Units" usable in construction of heavy carriages, and Keystone was to advance $16,500, of which $11,500 was for the purchase of the "Drive Units" and $5,000 was for working capital for Fox Co., on which latter sum Fox Co. was to pay 5 percent interest.Keystone and Fox Co. were to share the profits realized from the use of the Drive Units.

The district court found further facts as follows:

The parties entered upon performance of the contract.*fn1 Fox Co. set up an office in Pennsylvania, where Keystone had its office and plant. Fox Co. designed and engineered a pilot model carriage which Keystone commenced to make. The carriages were to sell for approximately $10,000. At least four orders were obtained by Fox Co. and accepted by Keystone. These were not filled by Keystone, nor did it pay the advance commissions to Fox Co. as scheduled or in full. Although Fox Co., through Robert H. Fox, continually sought performance by Keystone, the latter lacked sufficient cash or credit even to complete the pilot model. Finally, in June, 1951, Fox Co. withdrew from the enterprise, and Robert H. Fox found employment elsewhere. Eventually, Keystone disposed of the Drive Units for $2,800.

Subsequently, Robert H. Fox, as liquidating partner of Fox Co., and his wife, instituted action*fn2 against Keystone for breach of contract. Keystone filed a counterclaim based upon Fox Co.'s promissory note for $16,500, and also instituted an independent action*fn3 against Fox Co. on the note, obtaining judgment by confession. Fox Co. moved to set aside the latter judgment so that it could assert defenses.

The district court found that Keystone was in default under the contract. It determined that Fox Co. was entitled to recover net profits as damages for the thirty-two month period ending June 1, 1951, when Fox Co. withdrew, this being the only period for which damages were claimed. Using the agreed advance commissions as a guide, but relying on all the evidence, the district court found that it was within the contemplation of the parties and that Fox Co. would reasonably have sold an average of two carriages per month, or a total of sixty-four carriages in the period involved.

The district court further found that Fox Co. was the agent of Keystone in the purchase of the Drive Units. It therefore disallowed the credit claimed by Keystone of $8,700.*fn4 However, the district court determined that proof by Fox Co. as to profits to be derived from the use of the Drive Units was inadequate to permit an award of damages, and denied Fox Co.'s claim therefor. Finally, the district court held that Keystone was entitled to recover from Fox Co. the $5,000 working capital loan, together with the specified interest.

Accordingly, the district court entered a money judgment in favor of Fox Co., and at the same time dismissed Keystone's counterclaim and set aside the judgment by confession which it had obtained. Keystone then prosecuted these appeals.

Keystone contends here that Fox Co. did not show with reasonable certainty the number of orders it could have obtained, and that its evidence was inadequate to permit the district court to determine net profits, since there was a failure to show expenses saved by Fox Co. Keystone asserts, further, that orders could have been rejected by it, pursuant to the contract, and that it had valid business reasons for so doing, namely, its financial condition and the physical limitations of its facilities. It contends that the district court erred in failing to take these factors into account in estimating the number of sales on which Fox Co. should be awarded commissions. The district court erred again, according to Keystone, in disallowing as a credit the remaining $8,700 of the $11,500 "loan" for the purchase of the Drive Units, and in the method used by the district court in the calculation of interest.

We note, first, that the contract here involved was executed by Keystone in Pennsylvania, and by Fox Co. in California; Fox Co. mailed it back to Keystone. In measuring the damages to which Fox Co. is entitled for breach of the contract, we apply the law of Pennsylvania, for it appears, on the whole, that the contract was to be performed there, where Keystone had its office and plant and Fox Co. established its office and rendered the required services. This is the rule generally. Smith v. Onyx Oil and Chemical Co., 3 Cir., 1955, 218 F.2d 104, 110. And it is the rule of Pennsylvania. Krauss v. Greenbarg, 3 Cir., 1943, 137 F.2d 569, 570. Of course, the conflict of laws rule of Pennsylvania, as the situs of the forum, controls. Klaxon Co. v. Stentor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477. To the extent that the effect of contractual provisions is involved, Pennsylvania, as the situs of the forum, would in this situation apply its own law as the place of performance. York Metal & Alloys Co. v. Cyclops Steel Co., 1924, 280 Pa. 585, 588, 124 A. 752. Keystone agrees that the law of Pennsylvania applies.

In the process of review, our touchstone is the settled, yet vital principle, that the findings of the district court prevail unless they are clearly erroneous, that is, unless the record leaves us with the "definite and firm" conviction that a mistake has been made.United States v. Oregon Medical Society, 1952, 343 U.S. 326, 339, 72 S. Ct. 690, 96 L. Ed. 978; United States v. United States Gypsum Co., 1948, 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 746.

There is no difference between the parties here as to the law of damages, but their dispute concerns its application. The district court had before it a good deal of evidence relating to the market for the product involved, and certainly enough to apprize it of the technical difficulties of the project. The defendant furnished statistics as to the total number of relevant units sold throughout the country. The district court deduced that the contracted for advance of $1,500 per month, the equivalent of commissions on two orders, indicated that it was within the contemplation of the parties that on the average the commissions would at least equal the advances. Therefore, giving consideration to all of the evidence, it concluded that an average of two orders per month would not be an unreasonable determination. See Burks v. Sinclair Refining Co., 3 Cir., 1950, 183 F.2d 239, ...

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