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Smith v. Onyx Oil and Chemical Co.

decided: January 3, 1955.


Author: Goodrich

Before GOODRICH, STALEY and HASTIE, Circuit Judges.

GOODRICH, Circuit Judge.

These are appeals from a judgment for the plaintiff in a suit for breach of contract. The action was tried to the court without a jury. Both sides have appealed; the plaintiff because he says he did not get damages enough, the defendant because it says that plaintiff should not have any damages at all.

The subject matter of the contract, if there was a contract, is an agreement whereby the plaintiff, Smith,*fn1 entered into an arrangement to sell a chemical product for use as a sizing in the wet washing of fabrics.

The defendant is a Delaware corporation, plaintiffs are New Yorkers. The suit in the District Court for the District of Delaware is based on diversity only. The court takes its rules of reference as laid down by the courts of Delaware. Klaxon Co. v. Stentor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477. The Delaware rule with regard to the formation and validity of an agreement purporting to be a contract is determined by the law of the place of contracting. Harris v. New York Life Ins. Co., 1943, 27 Del.Ch. 170, 177-178, 33 A.2d 154, 157-158; Wilmington Trust Co. v. Mutual Life Ins. Co., 3 Cir., 1949, 177 F.2d 404, 406; Kane v. Chrysler Corp., D.C.D.Del.1948, 80 F.Supp. 360, 364. The defendant corporation has its principal place of business in New Jersey and some of the negotiations between the parties took place there. Plaintiff Smith does business in Syracuse, New York, and the defendant's lawyer, Tully, has his office in New York.The reference therefore will be to New Jersey or New York law as the facts discussed below indicate.

The defendant has, in the parlance of the criminal courts, thrown the book at the plaintiff in an effort to establish a defense to his claim. We agree with the district judge that none of the alleged defenses are valid. And since the case was discussed with great thoroughness in an opinion by Judge Leahy our discussion of the facts will not need to be nearly so elaborate as it would have had to be if he had not stated them so fully. See Smith v. Onyx Oil & Chemical Co., D.C.D.Del.1954, 120 F.Supp. 674.


Was there a contract? This is the first challenge which defendant offers the plaintiff. The first contact between Onyx and Smith was made by Onyx through one Trezise, a salesman, and one Jacobs, a technical representative, both employed by Onyx, at the suggestion of one Harris, who was in the dry cleaning and chemical business in Cortland, New York. Following this call on Smith, demonstrations were arranged for early in September, 1949, in which the parties were to try out the efficiency of this sizing mixture. Following these demonstrations Jacobs, the technical man for Onyx, worked on the problem of combining the ingredients of this mixture into one marketable product. Smith thought up a name for the combined product which he christened "Revitex." In October there was another demonstration following which it was thought that the technical problems had been met satisfactorily. On November 19, 1949, Smith wrote to Onyx and suggested a written agreement giving him exclusive distribution rights. A meeting at the Onyx office in Jersey City on December 12th was arranged. A phalanx of Onyx representatives were present at this meeting to which Smith and his lawyer, Mr. Barnes, brought a proposed draft of a contract. The president of Onyx left before the meeting was over but stated that, in the language of the district court, "Tully would take things in hand and whatever Smith agreed upon with Tully would be perfectly acceptable to Onyx." 120 F.Supp. at page 677. Mr. Tully is a New York lawyer and counsel for Onyx.

We do not think that it can really be said that a contract resulted from this December meeting in Jersey City. The parties reached agreement on many points, as the district court says, but it is quite clear to us that they had a re-draft of the original paper in mind and other points still to be discussed.

Further negotiations continued. Mr. Tully mailed a second draft to Mr. Barnes, Smith's lawyer, on December 16th. On December 20th, Mr. Barnes sent back to Mr. Tully a third draft. And on December 28th, Mr. Tully wrote to Mr. Barnes suggesting some minor changes. On January 9th, 1950, Mr. Barnes sent back to Mr. Tully a letter confirming the changes made and requesting an additional item to be covered. There were other intermediate letters not necessary to outline. Then on January 18th, 1950, Mr. Tully, who had prepared the fourth draft, sent it to Mr. Barnes for Smith's signature. Smith signed this draft in the Barnes office on January 21st. The letter which sent this copy of the agreement to the Barnes office had advised Mr. Barnes, by Mr. Tully, that after Smith had signed the contract Onyx would send back a signed contract for Smith's files.

Onyx never did sign. Its excuse was that it had received a letter from a lawyer for the Harris mentioned earlier in this narration, making claims for a portion of Smith's earnings for selling Revitex and threatening Onyx with a law suit if Harris was not paid. There seems to be no doubt that if a contract was made between the parties Onyx repudiated it. Whether that repudiation was excused will be considered later.

Was there a contract? On this subject there are two rules which can be stated without the slightest disagreement by anyone. If the parties intend not to be bound until a written memorial is executed by each, then they are not bound until that event takes place. On the other hand, although parties may intend to put their agreement in writing, it does not follow that they have not made a contract until the writing is completed and signed. These two rules are set out in Williston on Contracts, § 28 (Rev. ed., 1936), and in Corbin on Contracts, § 30 (1950). The emphasis of these two eminent writers is, it seems to us, inclined toward finding the formation of a contract prior to the signing of the document unless the parties pretty clearly show that such signing is a condition precedent to legal obligation. And since contract law has passed the formalism of elaborate doctrines pertaining to sealed instruments, it seems to us such emphasis is quite natural and quite correct. It is furthermore emphasized by some rather strong language in the New York cases. Sanders v. Pottlitzer Bros.' Fruit Co., 1894, 144 N.Y. 209, 39 N.E. 75, 29 L.R.A. 431; Disken v. Herter, 73 App.Div. 453, 77 N.Y.S. 300 (1st Dept.1902), affirmed without opinion, 1903, 175 N.Y. 480, 67 N.E. 1081; Boysen v. Van Dorn Ironworks Co., 94 App.Div. 95, 87 N.Y.S. 995 (4th Dept.1904); Eisenberg v. Spachmann, 117 Misc. 109, 190 N.Y.S. 662 (Sup.Ct.1921); Habib v. Caputo, 168 Misc. 202, 5 N.Y.S.2d 382 (N.Y.Munic.Ct.1938); Schwartz v. Greenberg, 279 App.Div. 750, 108 N.Y.S.2d 421 (2d Dept.1951).

As the text writers point out, the question here is one of intention of the contracting parties. Corbin is especially clear on this. He says:

"The courts are quite agreed upon general principles. The parties have power to contract as they please. They can bind themselves orally or by informal letters or telegrams if they like. On the other hand, they can maintain complete immunity from all obligation, even though they have expressed agreement orally or informally upon every detail of a complex transaction. The matter is merely one of expressed intention. If their expressions convince the court that they intended to be bound without a formal document, their contract is ...

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