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Bruce Lincoln-Mercury Inc. v. Universal C.I.T. Credit Corp.

October 31, 1963; As Amended November 18, 1963.


Author: Forman

Before BIGGS, Chief Judge, and KALODNER and FORMAN, Circuit Judges.

FORMAN, Circuit Judge.

Bruce Lincoln-Mercury, Inc. (referred to hereinafter as Bruce Lincoln or appellee), a Pennsylvania corporation, having its principal place of business in Altoona, Pennsylvania, filed a complaint May 28, 1959, in the United States District Court for the Western District of Pennsylvania against Universal C.I.T. Credit Corporation (referred to hereinafter as U.C.I.T. or appellant). It alleged, among other things: "By reason of the wilful and malicious acts of the defendant, plaintiff has been forced out of business, has incurred operating losses [and] has failed to receive accounting from the defendant of moneys due and owed. * * *" U.C.I.T. filed an answer on December 31, 1959, wherein, among other things, it not only denied the commission of acts causing Bruce Lincoln to go out of business, but declared that it went out of business as the result of its own mismanagement. The trial came on before the court and a jury, which awarded $50,000 compensatory and $5,000 punitive damages to Bruce Lincoln.

U.C.I.T. has appealed. Appellant contends that the Trial Court erred in refusing to grant either its motions for directed verdict or for judgment after the verdict.*fn1 The Court should have granted these motions by virtue of Bruce Lincoln's failure, appellant urges, to show that U.C.I.T.'s acts were tortious and that there was a basis in the record to support the damages awarded by the jury. At a minimum appellant requests that a new trial should be ordered on the ground that the trial judge acted under a mistake of law and the verdict is against the clear weight of the evidence.

The material facts of the instant case are in dispute. Since the verdict of the jury favored Bruce Lincoln, the testimony must be construed in the light most favorable to the appellee.

At the trial it was disclosed that on or about March 17, 1956, Bruce M. Lingenfelter purchased the assets of the Lincoln-Mercury automobile agency in Altoona, Pennsylvania from John Stallard for $15,000. Included in this purchase were parts, equipment, used and new cars. Ford Motor Company approved the sale and issued a franchise to Mr. Lingenfelter to sell Lincoln and Mercury automobiles.

Mr. Lingenfelter was without the capital to pay cash to the manufacturer in order to purchase new cars. Hence, he applied to the appellant for the customary financing. As a result, on March 17, 1956, Mr. Lingenfelter and U.C.I.T. entered into an "Agreement for Wholesale Financing". Among other things, the conditions of this contract called for appellant to pay to the Lincoln-Mercury division of Ford Motor Company invoice prices for newly manufactured automobiles ordered by Mr. Lingenfelter from Ford and delivered by it to his showroom floor. Such an arrangement was commonly known as "Floor Plan Accommodation". In exchange Mr. Lingenfelter agreed to pay to appellant immediately upon the sale of the new automobiles the sum advanced by appellant to Ford, plus certain interest and carrying charges. In addition, the parties entered into a plan whereby appellant would finance the purchase or lease of new and used cars by retail customers.

On March 20, 1956, a corporation was formed under the name of Bruce Lincoln-Mercury, Inc. The incorporators and stockholders were: Mr. Lingenfelter, an experienced dealer in used cars; Louis Kline, a meat packer; and Harry Benton, a local attorney. The outstanding stock of the company consisted of 30 shares. A certificate for ten shares was issued to each of the three incorporators. Mr. Lingenfelter became president of the corporation, Mr. Kline, vice president, and Mr. Benton, secretary-treasurer.

Mr. Lingenfelter and appellant entered into their contractual relationship on March 17, 1956, although the corporation was not chartered until three days later - March 20, 1956. Appellant, however, was aware that the corporation was in substance the real purchaser of the Lincoln Mercury franchise.

On April 2, 1956, appellee borrowed $10,000 from appellant as a capital loan, for which appellee gave a demand judgment note in that amount endorsed by Messrs. Lingenfelter, Kline and Benton. In the absence of a demand the note called for a payment of $280.00 per month for eleven consecutive months followed by one payment of $6,920 with interest at 5 1/2 percent per annum. Additionally, Messrs. Lingenfelter, Kline and Benton pledged their 30 shares of stock in the appellee to appellant as security for the capital loan; and Mr. Lingenfelter assigned a life insurance policy to appellant as further security.

Mr. Lingenfelter and David C. Miller, then district manager of appellant at Altoona, negotiated the financing of the appellee. Mr. Miller recommended the account on the basis of a "pro forma" financial statement designed to reflect a picture of the business on its starting day, and the representations that Messrs. Lingenfelter and Benton were substantial citizens. The financial statement was signed and delivered on March 14, 1956 by Mr. Lingenfelter in the name of "Bruce Lincoln-Mercury", evidently anticipating the formation of the corporation.

After being assured of the requisite financing from appellant, appellee began to operate its automobile agency, selling new Mercurys and Lincolns and used cars. According to Mr. Lingenfelter, business relations with appellant proceeded smoothly until August of 1956 when Adrian W. Mather replaced Mr. David C. Miller as district manager. Testimony revealed that Mr. Mather developed an immediate hostility to Mr. Lingenfelter and their relationship rapidly developed from bad to worse.

Appellee charges that appellant committed two separate acts which constituted the tortious conduct for which it seeks damages. The first act, it is alleged, occurred on the night of September 19, 1956, when appellant's agents demanded the balance due on the $10,000 judgment note under threat of execution on the following morning if it were not paid that night. The other act, is alleged to have occurred on the evening of November 14, 1956. Appellee asserts that appellant's district manager Mather and other of its employees entered the showroom of appellee that evening without prior notice or demand, ordered prospective customers away from the five 1957 Mercury cars being shown therein and then "auctioned off the five cars to the used car dealers. * * *"

The Incident of September 19, 1956

On September 19, 1956, about 11:00 p.m., Mr. Lingenfelter received a telephone call from Mr. Mather, who ordered him to go to Stover's Restaurant immediately. Mr. Mather also called Mr. Benton. He commanded him to communicate with Mr. Kline and go with him to the restaurant forthwith.*fn2 All three arrived at Stover's Restaurant between 11 o'clock and midnight. After looking inside, they saw no one familiar to them. A short time later Mr. Mather, and Fred Bennett, the director of sales for the Pittsburgh Division of the appellant, emerged from a nearby beer garden.

According to testimony given by Mr. Lingenfelter and Mr. Benton, both Messrs. Mather and Bennett thereupon insisted, in a bullying, loud, and drunken manner, which was to continue throughout this meeting, that everyone go inside Stover's. All five sat at a table in the restaurant which Mr. Lingenfelter claimed at trial "was crowded at that time of night" and contained "familiar faces".

Messrs. Mather and Bennett declared that they were calling the capital loan and threatened to close appellee's business. Mr. Lingenfelter asked them, he testified, to discuss the matter in his office so that they could preclude the people present from hearing this embarrassing conversation. The appellant's representatives, however, declined the request. Finally, Mr. Lingenfelter said that he would pay off the loan the next morning. According to Mr. Benton the meeting at Stover's lasted "five to ten minutes".

Besides its belief that appellee's financial structure was deteriorating, appellant suggested the following two reasons for the calling of the note on September 19: (1) that appellant believed appellee had issued a check which was not covered with sufficient funds, and (2) that appellant believed appellee had breached the Agreement for Wholesale Financing, which provided that appellee would pay appellant for each car financed by U.C.I.T. forthwith after it had been sold.

On or about September 14, appellee's bookkeeper, Frank Oessinich, informed John Mitchell, an employee of the Altoona office and Howard Allison, an adjustor of appellant, that a check for $7,898.16 made by appellee on September 13, was not covered by sufficient funds at time of issuance. Mr. Mather immediately reported this to the Pittsburgh office. Mr. Bennett then proceeded to Altoona to collect on the check and call the capital loan. The check, unbeknown to Mr. Bennett, had cleared prior to Mr. Bennett's departure for Altoona. Appellant submitted that it was not a question of the check's clearance but whether sufficient funds were in the bank at time of its issuance.

It was adduced at the trial that the bank balances of appellee at the end of each day, for the period surrounding the check were: September 11 - $9,597.08; 12th - $12,529.49; 13th - $8,476.00; and the 14th - $7,916.46. Appellant's witness, Mr. Oessinich, conceded that according to the statement rendered by the bank there was a sufficient balance on September 10, 11, 12, 13, and 14 to cover the check of $7,898.16. However, he claimed that appellee's books and records under his charge disclosed that there was insufficient money to clear the check on the date it was issued.

Both Messrs. Allison and Mitchell testified that when they visited appellee prior to September 19, 1956, for the purpose of making physical checks of the inventory on the floor, there were several occasions when the full inventory of cars which should have been located at the dealership were not there.

Henry G. Ahlquist, Jr., a certified public accountant, employed by appellant in the preparation for trial, conducted an audit of appellee's books. He certified the audit on a qualified basis, i.e., only to the extent of the records made available to him. A statement formulated by the accountant revealed the following lapses of time between the due date and date of payment for certain cars:

Serial Date Date Lapsed Amount

Number Due Paid Days Delinquent

56ME84597M 8-21-56 8-29-56 8 $2,081.71

56ME86214M 8-21-56 8-29-56 8 $2,404.31

56ME86242M 8-20-56 8-29-56 9 $2,112.96

56WA45717L 8-22-56 8-29-56 7 $3,969.95

Mr. Lingenfelter expressed the view that a new car dealer "can't run up" and make a payment to his financing company every time he sells a car. He stated: "I would wait two and three cars. Pay them off at once."

Messrs. Bennett and Mather denied any unseemly conduct in their demand upon the stockholders of appellee that the capital note be liquidated. They testified that they only carried out the directive of their superiors to effect the collection. After appellant's representatives delivered their ultimatum on the night of September 19, 1956, appellee's stockholders immediately conferred how the demand should be met. As a consequence, Mr. Kline advanced to the corporation his checks for $8,600 to liquidate the balance due on the capital note.

On September 20, 1956, at about 9:00 a.m., Mr. Lingenfelter delivered the checks at the Altoona office of the appellant. At the same time he notified appellant of appellee's decision to terminate their business relationship and that thenceforth appellee would obtain financing from Commercial Credit Corporation.

The Car Selling Incident of Mid-November 1956

Following is an endeavor to distill from the hodgepodge of often conflicting and obviously mistaken testimony some semblance of order of the circumstance and events upon which this segment of the litigation is based.

Even before September 19, 1956, Mr. Lingenfelter had explored with Commercial Credit the possibility of its replacing appellant as its financing agency. Through its branch manager in Altoona, Charles McLaughlin, Commercial Credit agreed to finance appellee's wholesale purchase of new cars and retail sales of existing inventory. On or about October 3, 1956, the Altoona office notified appellee by letter that Commercial Credit accepted appellee's "Dealer Wholesale Underlying Agreement" and related contracts. Accordingly Commercial Credit delivered its checks for $65,665.92 and $2,757.57 to appellant in full liquidation of appellee's financing transactions. But subsequently the divisional credit department of Commercial Credit in Pittsburgh refused financing on appellee's wholesale purchase of new cars.

On November 15, 1956, the Pittsburgh office of Commercial Credit notified the Altoona office by letter that it had declined the wholesale account of appellee. Carl S. Kreiling, the assistant divisional manager of Commercial Credit at Pittsburgh, testified that he assumed the credit manager of the Pittsburgh office orally notified the Altoona office of the declination before November 15.*fn3 The reason for the refusal was that appellee was insufficiently financed "for us to carry it for the extension of this much credit." Nevertheless, it did continue financing appellee's retail transactions.*fn4

The branch manager of Commercial Credit in Altoona stated that he "must have" notified appellee his company would not finance the new 1957 automobiles. But appellee maintained that it did not receive such notification.

Ford had extensively advertised the first showing of its 1957 Mercury, which Mr. Lingenfelter testified was to be on November 14, 1956. He had ordered one hundred 1957 Mercurys under the expectation, he stated, that Commercial Credit would supply financing. Ford allocated eight new cars to appellee, but reference is made only to the delivery of seven in this suit.

From November 7 to 14, Ford, by reason of blundering between it and appellant, delivered the seven new Mercurys from its plant in Michigan to appellee's Altoona premises. Ford had erroneously charged appellant's Detroit purchasing office for these cars. And even though appellant's Altoona office had sent its Detroit office the terminating papers relating to appellee's account, the Detroit office compounded Ford's mistake. It paid for the seven 1957 models.

Appellee claimed it sent two of the seven cars to other dealers in the vicinity who had been unable to secure new models. How appellant was compensated for them is not revealed in the testimony. The trial dealt with the disposition of the remaining five cars.

The Altoona office of the appellant received from Ford "notices of transactions purchased" with attached copies of the invoices sent to the appellee, which informed it that appellant had financed the purchase of Mercury cars for the appellee. The testimony fails to show exactly when such papers were received in Altoona, but it appears that they arrived two or three days after the actual transactions in Detroit.

After the Altoona office received a notice of a transaction purchased with an attached copy of invoice, it prepared, in the regular course of business either that day or on the next, a billing consisting of a wholesale discount and payment record on the reverse side of which is a trust receipt. There were three such billings covering the five cars in question. It mailed one copy of the billing to the dealer, sent two to its accounting department, and retained one itself. Appellee disclaimed ever reciving such information.

The wholesale discount and payment records disclosed, among other things, that appellant paid Ford for one Mercury on November 7, one on November 9, and three on November 13, and that the dates upon which appellee was to make a payment on the purchase price of these cars, unless sold at an earlier date, were respectively February 7, 9, and 13, 1957.

The trust receipt provided that the appellee should hold the cars in trust for the appellant and contained, among other things, the following clauses:

"Universal C.I.T. may at any time repossess said chattels, and we agree on demand to return them ...

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