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BURTON v. ASBESTOS LTD.

July 15, 1950

BURTON
v.
ASBESTOS LIMITED, Inc.



The opinion of the court was delivered by: FORMAN

The lengthy history of the litigation prior to the present trial is recited in an opinion filed herein. *fn1" To review it briefly: Quigley Company, Inc., of New York, sued Asbestos Limited, Inc., also of New York, in the former Court of Chancery of New Jersey for specific performance of its contract with the latter dated January 29, 1942, *fn2" alleging substantially that is exclusive rights and franchise to market the product of Asbestos had been breached. After a trial the court refused to grant specific performance, but without prejudice to the institution of an action which the court stated could be maintained for the recovery of damages for the alleged breach of contract by Asbestos. *fn3" Notwithstanding its success in resisting specific performance Asbestos appealed that decision to the then New Jersey Court of Errors and Appeals complaining that when the Court of Chancery of New Jersey declined to grant the relief of specific performance it exhausted its capacity for remedy and had no jurisdiction to decree the subsisting validity of the contract. The then highest court of New Jersey affirmed the decree of the Court of Chancery in a per curiam opinion. *fn4"

Thereupon Quigley assigned its rights to George L. Burton, the present plaintiff, who started a suit at law against Asbestos in the former New Jersey Supreme Court, which it removed to this court and filed an answer here. Plaintiff moved to strike paragraphs 4 and 5 of the answer and ten separate defenses contained in it and an amendment thereto, and the motion was granted in an opinion to which reference was first made herein, on the theory that the defenses set up by Asbestos in this suit were pressed in the Court of Chancery, negatived by it in its ruling and affirmed by the Court of Errors and Appeals, making a similar ruling binding upon this court by virtue of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487.

An appeal was taken by Asbestos to the United States Court of Appeals for the Third Circuit, *fn5" but it was dismissed on motion of the appellee with the consent of the appellant.

 Thereupon the case was tried to this court without a jury. At the trial defendant moved to strike the complaint on the ground that plaintiff failed to establish the allegations thereof, upon which motion ruling was reserved along with decision on the case. Much testimony was heard and numerous documents were offered in evidence.

 The evidence disclosed that prior to January 1942 Mr. John A. Mulcahy, Secretary and Treasurer of Quigley, met with Mr. George H. Rhinehart, then a vice president of a banking house having the accounts of both Quigley and Asbestos. Mr. Rhinehart confided to Mr. Mulcahy that he knew that Asbestos was about to market its new invention extensively, an expanded asbestos under the name of New Era Block Insulation, and that it was superior competitively to 85% magnesia, then the presumably standard material in the field. In fact Mr. Rhinehart shortly thereafter left the banking field to become a vice president of Asbestos. Following tests which proved the material to be highly satisfactory, negotiations were conducted by Messrs. Mulcahy and Rhinehart in which the abilities of Quigley to act as the sales representative of Asbestos were explored. It appeared that Quigley had broad contacts in the field in which this material would be used and kindred fields and was in position to devote its force of distributors and sales people to the exploitation of the sale of the product, even to the extent of limiting itself from selling its own or other products which might be in competition with it. Asbestos, on the other hand, was in production in a small way, and, expecting to be to a much larger extent in the comparatively near future, welcomed the idea of obtaining the use of the ready made sales organization of Quigley rather than spend the time and money in building one of its own. The above mentioned officers and the presidents of both principals finally reached an understanding which resulted in the contract in this case. Quigley signed on January 29, 1942 and Asbestos executed it on February 13, 1942. Quigley immediately organized its sales force and began to sell the product at resale prices in accordance with the agreement.

 It also appears from the evidence that certain shares of stock in Quigley were presented to Mr. Rhinehart and to Mr. Newman, the president of Asbestos. No serious attempt at recovery of these shares was put forth in this litigation.

 Until September of 1942 relations between the contracting parties were apparently fairly amicable. Some time around the latter period, however, it appears that Quigley felt that the time contemplated by the contract when it would receive a discount of 65% or even 70% instead of the initial rate of 60% had arrived. It was contended by plaintiff's witnesses that this was expected when the plant to be built by the Navy would get into production. As a matter of fact, it appeared that the Navy plant was completed in October of 1942 and took several months to get into production. However, Quigley hastened, in September, to deduct 65% from the bills of Asbestos notwithstanding that they were made out at the rate of 60%. In the light of the price structure which was fixed at 30 cents a board foot subject to discounts according to classifications as appeared from Exhibit P-4 *fn6" and which coincided with prices and discounts as fixed in the 85% magnesia industry (P-5), it would appear that, in many instances, Quigley would be selling for precisely the same discount of 60% for which it would be buying, and it could only be supposed that it engaged in this relatively unlucrative enterprise with the notion that better days were to come. For some time as fast as Quigley deducted 65% Asbestos would rebill at 60%. Finally in October of 1942 there was a considerable sum due Asbestos according to its calculations.

 In consequence of the success of the motion to strike what amounted to the backbone of the answer of Asbestos it was left with but two attacks upon the contract per se. The first is that the contract with Quigley is invalid for it failed to specify a term for which it is to run. It is true that no definitive provision is made therein in this respect. The question was also raised before Vice Chancellor Fielder in the Chancery case, concerning which he said: 'Complainant contends that although the contract fixes no term for which it shall run, the presumption is that the term intended is for the life of the defendant's patents. The evidence does not disclose what that term is but it may be quite long because the contract states that defendant owns patents and patent rights for material it has 'newly put out' and the inference is that the patent rights had been acquired but a short time prior to the contract date and therefore still have a long period to run.' Quigley Co., Inc. v. Asbestos, Ltd., Inc., 44 A.2d at page 92, 23 N.J.Misc. at page 305, Asbestos continued to deal with Quigley until October of 1943 and continued to manufacture and sell the product which was the subject of the contract until 1945. Plaintiff has framed its demand for damages within that period and the term of the contract as characterized by the Court of Chancery is definite enough to sustain plaintiff's claim.

 The other attack upon the contract, which Asbestos pressed with vigor, was that when it undertook to sell the product contemplated by the contract to others than Quigley it did not violate its terms. Paragraph 2 of the contract provided as follows: 'In reinforcement of such exclusive rights Asbestos Inc. hereby covenants (a) that it will not compete with Quigley Co. nor aid competition in the refractory field; and (b) that it will not sell New Era materials or products to any manufacturer, distributors or dealers in the refractory field other than Quigley Co; and (c) that it will not license or give consent to any person or concern to manufacture or sell New Era materials or products in the refractory fields; and (d) that it will not license or give consent to any person or concern to manufacture or sell New Era materials or products in other than the refractory field without first giving Quigley Co. an option to provide mutually satisfactory manufacturing or selling facilities therefor. And Asbestos Inc. further agrees that as to any metropolitan area or state wherein Quigley Co. has establishes or may establish a branch office or distributor, then upon request Asbestos Inc. will engage Quigley Co. exclusively to act as sales agent therein for all fields other than refractory fields.' Asbestos contended that in every instance it sold the product to a vendee not in the refractory field or industry and hence it had committed no violation of its contract.

 Asbestos urged that its construction of 'refractory' was not different from that of Vice Chancellor Fielder when he interpreted it to mean 'in which the defendant's products could be used successfully' but contended that the words 'for refractory purposes' must be added so that the sense would be a field 'in which the defendant's products could be used successfully for refractory purposes'.

 The broader interpretation given to 'refractory' by Vice Chancellor Fielder, not limited as claimed by 'asbestos, appears controlling both from the standpoint of law and logic. From a legal point of view it was made the subject matter of controversy by the same parties before him and was determined by him, Quigley Co. v. Asbestos Limited, 44 A.2d 89, 91, 23 N.J.Misc. 301, and that determination was affirmed by the opinion of the highest court of New Jersey, 138 N.J.Eg. 111, 46 A.2d 787.

 The New Jersey law holds that a prior judgment between the same parties or their privies is conclusive as to such matters actually litigated and necessarily determined as questions of law. McAlpine v. Garfield, 137 N.J.L. 197, 199, 59 A.2d 3. The same parties or their privies are before this court as were before the Court of Chancery. Having litigated the construction to be placed upon the term 'refractory' Asbestos is ...


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