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Don Kemper Co. v. Beneficial Standard Life Insurance Co.

decided: October 25, 1968.


McLaughlin, Freedman, and Van Dusen, Circuit Judges.

Author: Mclaughlin


Appellee sued appellant for certain alleged advertising work, labor and services, claiming appellant was directly or impliedly responsible therefor. The case was tried to a jury, resulting in a judgment in favor of the plaintiff for $32,451.49 plus interest. On October 25, 1967 the Court without opinion denied defendant's motions for judgment n.o.v. and in the alternative for a new trial. This appeal followed.

Setting out the basic facts as briefly as possible, the evidence shows that around the beginning of 1963 Mrs. Margaret Hughes, the owner of a New York advertising agency, suggested to Arthur Gillman, a member of Gillman Associates, a New York insurance agency, the idea of promoting health and accident insurance policies for people who abstain from drinking alcoholic beverages. In accord with this, Gillman and Joel Price of his firm sought out the Beneficial Insurance Group in New York. The latter embraced a number of insurance companies, including defendant-appellant. Price and Gillman after going over preliminary questions with Group representatives went to Philadelphia and talked with Beneficial Standard people regarding such contemplated abstainers policy. The parties agreed that Price and Gillman would have exclusive right to handle the policy to be issued by appellant or one of the Group companies if Price and Gillman would provide certain advertising and promotion for the policy. Mrs. Margaret Hughes, then connected with Thomas and Whitney Associates an advertising agency, offered her services to Price and Gillman to furnish an advertising campaign including the funds to support it. On March 22, 1963 Gillman wrote Alfred Golden, a vice president of appellant, setting out his understanding of the responsibilities to be undertaken by National Abstainers Agency, and the Beneficial Insurance Group. The former was to be a wholly owned corporation to be established by Gillman Associates and which was to merchandise the Abstainer program. During the first year its advertising promotion budget was to be approximately $250,000. with the provision that "Increased amounts will be subsequently invested if initial first year efforts are successful." Mrs. Hughes was to direct the advertising program. Gillman provided that "The Beneficial Insurance Group and its member companies will give full support to the program from a technical, underwriting and sales standpoint." The Agency was given the "exclusive privilege of merchandising the 'Abstainer Policy' throughout the United States subject to the following conditions: * * *." The Agency was to be given 75% of the Commission on Quarterly Premium payment mode policies, 70% Commission on Semi-Annual modes and 60% on annual modes. Appellant by Mr. Golden and its manager of Special Risks Division agreed that: "The conditions set forth above are acceptable to the Beneficial Standard Life Insurance Company of Los Angeles."

On March 20, 1963, Abstainers, Inc. and Mrs. Hughes entered into an agreement (modified by a subsidiary agreement between said parties of April 19, 1963) whereby Mrs. Hughes was to handle the advertising campaign, that Abstainers, Inc. "* * * shall be obligated to pay monies to Hughes only, for advertising and promotion matter expended by her or contracted by her. * * * The Corporation shall pay to Hughes 50% of all commissions it actually receives in cash from the sale of their Abstainers policy, to pay for her advertising expenditures. Payments to Hughes are to be made in accordance with this clause only, * * *." Abstainers, Inc. gave Mrs. Hughes an exclusive contract to act as its advertising agent for advertising placed by it. As stated by Price of Abstainers, Inc. in his trial testimony and not denied, Mrs. Hughes said "I have the financing. I can get the program off the ground." Mrs. Hughes, working with Abstainers, Inc., planned the advertising, including the brochures for which she was paid by Abstainers, Inc. She placed advertisements in various specialized magazines in which Abstainers, Inc. was the advertiser of the Beneficial Insurance Group's abstainer policies.

In August of 1963 the plaintiff advertising agency was endeavoring to buy a small New York advertising agency. Mrs. Hughes talked with plaintiff's president regarding this and showed him her agreement with Abstainers, Inc. Plaintiff employed her, made her a vice president of the corporation and accepted responsibility for the advertising she had placed for Abstainers, Inc. From then on all matters in connection with the advertising of the policies were sent to Abstainers, Inc. The first time plaintiff had anything to do with defendant was in December 1963 when the former's executive vice president talked by telephone to one of defendant's officers and told of plaintiff having trouble being paid by Abstainers, Inc. After that Price wrote plaintiff stating that Abstainers, Inc. would not pay plaintiff because it was only required to pay Mrs. Hughes under her contract with Abstainers, Inc. Plaintiff then discharged Mrs. Hughes and started the present action.

Plaintiff-appellee advances three theories of why it maintains that defendant is responsible for its charges. The first of these alleges that Abstainers, Inc. was operated as a Division of defendant by Price as its manager. Therefore claims plaintiff, Price was a general agent of defendant and entitled to subject defendant to liability for advertising expense Price incurred with plaintiff.

Plaintiff's next proposition is that Abstainers, Inc. and Mrs. Hughes were defendant's agents; that defendant by conduct led plaintiff to believe that Abstainers, Inc. and Mrs. Hughes had authority to incur advertising expense for it. In support of this plaintiff urges that defendant required Abstainers, Inc. to order $250,000. of advertising for defendant's policy. It repeats its charge that defendant operated Abstainers, Inc. as one of its divisions with Price in charge and that it made such representation to the public. Lastly it states defendant approved the advertising ordered by Abstainers, Inc. and Mrs. Hughes in a form which indicated that defendant was to pay for same.

Appellee's third theory is as stated in appellee's brief, "that plaintiff incurred the expense for which it is seeking payment at the instance of Margaret Hughes * * *." Plaintiff then goes on to contend that it did so on its belief that Mrs. Hughes had authority from the Beneficial Life Insurance Company through Abstainers, Inc. to incur that advertising expense on its behalf. Plaintiff concludes therefore that even if Mrs. Hughes was guilty of fraud in misstating that authority, it was defendant's fault and responsibility.

Appellant argues very strongly that there was no proper trial evidence produced by plaintiff to make a jury question out of plaintiff's claim whatever its alleged base. Therefore appellant urges that it should be granted judgment n.o.v. Appellant's second point is that it is entitled to a new trial because (1) inadmissible, prejudicial evidence, irrelevant to plaintiff's claim was allowed at the trial and (2) the jury was without proper guidance on the fundamental agency question involved.

We take up the new trial problem first because we consider that there was clearly and unfortunately, substantial prejudicial evidence against the defendant erroneously introduced on behalf of the plaintiff.

The entire employment contract between Mrs. Hughes and Kemper was allowed in evidence over defense objection. Inter alia that contained the language:

"2. It is represented by Second Party (Hughes) and is a condition precedent of this contract that Second Party is the exclusive advertising agent for the National Abstainers Agency, Inc., the Abstainers Division of Beneficial Insurance Group * * *."

Kemper asserts the agreement was offered "to show the contractual relationship between Hughes and plaintiff (Kemper)." It went to the jury without limitation or explanation. Mrs. Hughes was never brought into court by plaintiff. Her representation above quoted was in a contract between Kemper and herself. Defendant never saw that paper, never had any knowledge that it included the above language, had nothing to do with it. However, if the jury believed it and interpreted the quoted clause as meaning Mrs. Hughes was defendant's exclusive advertising agent for its Abstainers policy, there was enough to have resulted in the verdict in favor of the plaintiff. This was serious error. The trial judge himself in his charge calling Mrs. Hughes "the real culprit here" said "She certainly made representations to Kemper when she well knew she was not the agent of the defendant company. There is no question about that; she wasn't and she knew it. She had ...

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