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BLACKWOOD COAL CO. v. DEISTER CONCENTRATOR CO.

December 16, 1985

BLACKWOOD COAL COMPANY, INC.
v.
DEISTER CONCENTRATOR COMPANY, INC.



The opinion of the court was delivered by: HUYETT

HUYETT, J.

 MEMORANDUM OPINION AND ORDER

 Plaintiff initiated this action to recover damages allegedly caused by its detrimental reliance on a "performance guarantee" given by defendant Deister Concentrator Co. ("Deister") to entice plaintiff's corporate promoters to buy certain equipment manufactured and sold by defendant. Presently pending before me is defendant's motion for summary judgment or in the alternative for partial summary judgment. For the reasons set forth below, I shall grant the motion for partial summary judgment in part.

 Sometime prior to April 1980, Jeffrey Sammak, then owner of a contracting business named SENACO, decided to enter the coal reprocessing business. In April 1980, he attended the "Coal Show" in Chicago at which he met representatives of defendant Deister. On August 15, 1980, Jeffrey Sammak and his brother, Douglas Sammak, formed the proposed coal reprocessing business and registered it under the fictitious name Blackwood Coal Company. A month later, in September, 1980, Douglas Sammak contacted the representatives from Deister and requested information pertaining to the possible purchase of machinery for the coal reprocessing operation.

 John A. Christopherson, Director of Engineering at Deister, responded to Sammak's inquiry in a letter addressed to Mr. Douglas Sammak, Blackwood Coal Company, dated September 30, 1985. After citing certain technical data, including the claim that "each deck would remove approximately 2.25 TPH (tons/hour) of refuse and produce approximately 4 TPH of clean coal product," the letter stated:

 
Deister guarantees that for a typical anthracite coal that the combination CONCENCO Refuse Superscalper - CONCENCO "88" Tables - Model HCRD will produce a coal product with an ash content that is within 2% of the theoretical ash of a float product at the intended specific gravity of separation.
 
The performance figures given in the second paragraph of this letter are realistic and, therefore, considered conservative. The above system could handle a higher feed rate or a feed containing more or less than 50% refuse still produce a product consistent with your requirements.

 See, Exhibit A, attached to defendant's motion for summary judgment. Sometime thereafter, pursuant to further conversations, Jeffrey Sammak verbally submitted the "coal washability data." Based on these data, John A. Christopherson wrote a second letter to the Blackwood Coal Company in which he stated the performance of the Scalper-Table which Deister guaranteed.

 In its complaint, plaintiff contends that it has sustained incidental and consequential damages as the direct result of defendant's breach of express warranties, including the performance guarantee included in the two letters, as well as implied warranties of merchantability and fitness for a particular purpose under the Uniform Commercial Code. The purchase order for the equipment in question was placed on December 16, 1980. Plaintiff Blackwood Coal Company, Inc. was incorporated on January 21, 1981. Subsequently, on April 3, 1981, plaintiff corporation made a payment in the amount of $38,015 to defendant Deister for the equipment which payment defendant accepted. Plaintiff now seeks damages for the alleged breach of the warranties in excess of three million dollars.

  Federal Rule of Civil Procedure 56(c) states that summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Small v. Seldows Stationery, 617 F.2d 992 (3d Cir. 1980). The court does not decide any issues of facts but simply determines if there is an issue of fact to be tried. Ettinger v. Johnson, 556 F.2d 692 (3d Cir. 1977). The facts must be viewed in the light most favorable to the opposing party, and any reasonable doubt as to the existence of a genuine issue of fact is to be resolved against the moving parties. Continental Insurance Co. v. Bodie, 682 F.2d 436 (3d Cir. 1982).

 Standing

 Defendant's motion for summary judgment is based upon the contention that whatever the nature of the warranty or "performance guarantee" given by Deister, it cannot be enforced by plaintiff Blackwood Coal Company, Inc. in this action because plaintiff was not incorporated until January 21, 1981. Defendant contends that the contract and the warranties given, if any, were between Deister and either Jeffrey Sammak, Douglas Sammak, or the Blackwood Coal Company. Because corporate plaintiff was not in existence at the time the September 30, 1980 and November 24, 1980 letters were sent, the warranties contained therein could not have been intended to cover the plaintiff, and therefore, the corporate plaintiff does not have standing to assert the warranty claims.

 In further support of this position, defendant provides a lengthy discussion of the law governing third party beneficiaries to warranties under the Uniform Commercial Code. I do not believe it is necessary to reach the merits of defendant's argument. Plaintiff is entitled to pursue its breach of warranty claims on any of several different theories which negate the necessity of finding it a third party beneficiary to the warranties.

 First, for the purposes of this action, Jeffrey and Douglas Sammak should be viewed as pre-incorporation promoters. Generally, a corporation does not exist as a legal entity until it is incorporated, and it, therefore, cannot have agents prior to its organization. 18 Am. Jur. Corporations ยง 120 (1985). A promoter's activities, however, may form the basis for corporate liability when pre-incorporation acts have been ratified by post-incorporation acts of the corporation. Harnett v. Ryan Homes, Inc., 360 F. Supp. 878, 893 (E.D. Pa. 1973), aff'd., 496 F.2d 832 (3d Cir. 1974); McCloskey v. Charleroi Mountain Club, 390 Pa. 212, 216-17, 134 A.2d 873, 876 (1957). The corporation's act of ratification relates back to the time of the original activities and establishes an agency relationship permitting the act of the promoters to constitute, in effect, ...


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