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05/23/97 CARLOS R. LEFFLER v. JEROME E. HUTTER

May 23, 1997

CARLOS R. LEFFLER, INC., APPELLEE
v.
JEROME E. HUTTER, JR., NANCY F. REAM AND HUTTER STORES, INC., APPELLANTS; CARLOS R. LEFFLER, INC., APPELLANT V. JEROME E. HUTTER, JR., NANCY F. REAM AND HUTTER STORES, INC., APPELLEES



Appeal from the DECREE February 27, 1996, in the Court of Common Pleas of LEBANON County, CIVIL, No. 87-00765. Before GATES, J.

Before: Cavanaugh, Popovich, and Olszewski, JJ. Opinion BY Olszewski, J. Cavanaugh, J. and Popovich, J., Concur in the Result.

The opinion of the court was delivered by: Olszewski

OPINION BY OLSZEWSKI, J.:

Filed May 23, 1997

In 1977, Carlos R. Leffler, Inc. (Leffler) entered into a contract with Dick Reber's Service Station, Inc. (Reber's). Twenty years later, we are called upon to interpret the terms of that contract and to bring finality to this heated, protracted controversy.

At the time Leffler entered into the disputed contract with Reber's, the service station was owned by How-Kee, Inc. (How-Kee). How-Kee, in turn, was owned by Alan and Mary Lou Howe. Similarly, the real property where Reber's was located was owned by Keegan, Inc. which, again, was a corporate entity wholly owned by the Howes.

In consideration for Leffler's duty to install and maintain a variety of Texaco gasoline products and equipment at the station, Reber's agreed to buy its petroleum products solely from Leffler and, further, to use its best efforts to promote those products. It was further agreed that: (1) the lifespan of the contract would be twelve years; (2) Leffler would deliver all of Reber's required petroleum; and (3) Reber's would pay Leffler on a commission-of-sales basis.

From the agreement's inception until early 1983, the parties abided by the contract terms. Then, in February of 1983, Jerome E. Hutter, Jr. and Nancy F. Ream bought all of the shares of How-Kee and Keegan from the Howes. The result of these purchases was that Hutter and Ream owned both Reber's service station and the real property upon which Reber's was located.

Prior to finalizing these negotiations, however, Hutter met with Carlos Leffler. After outlining the terms of the Leffler-Reber's contract, including the fact that Reber's was bound to buy all of its required petroleum from Leffler, Hutter proposed several changes relating to the hauling and pricing of the petroleum.

Specifically, Hutter proposed that Reber's pay for the product on a per-shipment basis and that trucks belonging to Hutter, Inc. deliver the petroleum to Reber's. *fn1 These changes worked to decrease Reber's expenses and, after Leffler assented, the parties began to haul and pay for the petroleum according to the renegotiated terms.

In April of 1984, Hutter formed a new corporation named Hutter Stores, Inc. Two months thereafter, Reber's obtained an $85,000 bank loan in order to buy and install new equipment at the service station. The loan was signed for by Hutter and Ream as individuals and as officers of Reber's. Hutter Stores then bought all of the assets of Reber's. Additionally, Hutter Stores assumed liability for repayment of Reber's $85,000 equipment loan as well as payment of Reber's property taxes and utility bills. Hutter and Ream, as the only shareholders of Reber's, then distributed to themselves the value of the remaining assets of Reber's and began the process of formally dissolving Reber's as a legal entity.

Leffler was not notified that Hutter Stores bought Reber's assets or that Reber's was dissolved. Also, Leffler was not aware of the bank loan that was intended to buy equipment replacing the equipment previously installed by Leffler in accord with the 1977 contract.

Soon after Hutter and Ream installed the newly purchased equipment, most of Leffler's equipment was returned to him. Leffler immediately contacted Hutter and asked him why the equipment was returned. Hutter responded that he did not have to buy all of his required petroleum from Leffler and, in fact, intended to buy from other sources.

Following a three-year period during which the parties could not reach an independent resolution of their dispute, Leffler commenced the instant action by filing a complaint in equity on May 12, 1987. The three counts included in the complaint requested: (1) an injunction to prevent Hutter, Ream and Hutter Stores from buying petroleum from other suppliers; (2) an accounting in anticipation of relief in the nature of money damages for lost profits; and (3) liquidated damages as provided for in the original 1977 contract.

Hutter and Ream filed preliminary objections to the complaint, asserting that Leffler was barred from receiving money damages due to the liquidated damages provision of the requirements contract. Said objections were denied by the trial court on October 19, 1987. Hutter and Ream then filed an answer with new matter and counterclaim, to which Leffler timely responded.

On March 1, 1990, Leffler filed a petition for leave to amend the original complaint to include a request that the court hold the individual defendants personally liable by piercing the corporate shields of Reber's and Hutter Stores. Contending that the amendment sought to aver a new theory of liability now barred by the statute of limitations, Hutter and Ream opposed the petition. Holding that the proposed amendment did not assert a new theory of liability, but merely amplified the previously pled causes of action, the trial court granted Leffler's motion and permitted Leffler to amend the complaint to include the additional count.

A non-jury trial commenced on September 5, 1991, in the Court of Common Pleas of Lebanon County. At the close of testimony, Hutter and Ream moved for a non-suit. Almost two years later, on June 16, 1993, the court issued an order denying the motion. On November 9, 1993, the trial reconvened.

On February 16, 1994, the court entered a decree nisi finding in favor of Leffler and against the individual defendants Hutter and Ream in the amount of $192,830.96. Liability was not imposed against Hutter Stores. *fn2 Hutter and Ream filed timely post-trial motions on February 25, 1994. Eleven days thereafter, Leffler filed its post-trial motion. Two years later, the lower court denied all post-trial motions and, on February 7, 1996, entered the final decree from which the parties presently appeal.

Appellants Hutter and Ream, as individuals, ask this Court to review the propriety of the $192,830.96 judgment assessed against them. Their initial argument in support of the contention that the judgment is erroneous is that, at the time of its dissolution, Reber's had no outstanding liabilities to Leffler because Hutter, Inc. was substituted in place of Reber's as the responsible party under the original 1977 contract. Essentially, Hutter and Ream contend that a novation occurred, thus fully discharging Reber's from its duties under the original contract.

As the party asserting a novation, appellants have the burden of proving: (1) the extinction of a valid contract; (2) substitution of a new valid contract; (3) consideration for the new contract; and (4) consent of the parties. See, e.g., Melat v. Melat, 411 Pa. Super. 647, , 602 A.2d 380, 384 (1992); Schmucker v. Hanna, 377 Pa. Super. 301, , 547 A.2d 379, 381-82 (1988).

Instantly, we find appellants' proffer insufficient to prove a novation. Although the facts support a finding that Hutter renegotiated several contract terms with Leffler, we find that these Discussions served to modify ancillary terms of the Leffler-Reber's contract, not to displace such.

When one considers the crux of the Leffler-Reber's contract, it is inescapable that its essence was defined by the duty of Reber's to buy all of its required petroleum from Leffler in return for Leffler's duty to supply and maintain the station's equipment. The pricing and hauling terms were standard provisions of the Leffler contracts, but were not iron-clad. Indeed, Leffler testified that he was quite amenable to pricing and hauling changes because his main interest lay in assuring the continued purchase from Leffler of all Reber's required petroleum.

Hutter contends that, as part of these renegotiations, he assured Leffler that he recognized Leffler's interest under the original contract and intended to respect that interest by purchasing solely from Leffler so long as Leffler's equipment remained at Reber's. Hutter additionally contends, however, that he notified Leffler that, in the event Hutter ever became solvent enough to purchase and install his own equipment, he would not be duty-bound to continue to purchase petroleum solely from Leffler.

For several reasons, we cannot find that the above conversation evidences an intent to dissolve the initial contract. First, Leffler specifically denied that Hutter told him of his desire to someday purchase his own equipment and extinguish the requirements contract. The renegotiations, Leffler testified, were limited to the contract's pricing and hauling terms. It is evident that the trial Judge, sitting as factfinder, found this testimony credible. As an appellate court, our function is to review errors of law, not to displace competent findings of fact. See, e.g., Commonwealth v. Miller, 455 Pa. Super. 534, , 689 A.2d 238, 240 (1997); Stonehedge Square Limited Partnership v. Movie Merchants, Inc., 454 Pa. Super. 468, , 685 A.2d 1019, 1022 (1996).

Moreover, even if such a conversation actually occurred, Hutter's own testimony was that the conversation was indefinite and speculative; there was no time frame proposed and Hutter merely presumed that, should he buy his own equipment, he would no longer be sworn to purchase only from Leffler. It is axiomatic that one individual's presumption is not tantamount to the mutual agreement necessary to a valid contract. See, e.g., O'Brien v. Nationwide Mutual Insurance Co., 455 Pa. Super. 568, , 689 A.2d 254, 258 (1997) (parties' objective manifestations control in determining contractual offer and acceptance.)

Faced with this quantum of evidence, we hold that the trial court did not err in finding that the parties agreed to modify their original contract rather than extinguish in toto its original provisions in favor of a substituted contract. The modifications did not relate to the requirement that Reber's purchase solely from Leffler and use its best efforts to promote Leffler's products. Thus, because a modified contract substitutes for the initial contract only to the extent that it alters it, Reber's remained obligated to purchase its petroleum requirements only from Leffler throughout the duration of the twelve-year contract. See Melat, 411 Pa. Super. at , 602 A.2d at 385. *fn3

After holding that Reber's was contractually required to purchase petroleum solely from Leffler even after Reber's was bought by Hutter and Ream, the trial court held that pursuant to the old Pennsylvania Business Corporation Law, 15 Pa.C.S.A. § 1001 et seq., Hutter and Ream were personally liable for the damages resultant from the breach that occurred when Hutter returned Leffler's equipment and began to purchase from other suppliers. The court rationalized that, at the time of Reber's dissolution, Reber's had outstanding liabilities and duties to Leffler which had to be satisfied prior to any shareholder distributions. Instead, without even notifying Leffler of the dissolution, Hutter and Ream distributed Reber's remaining assets to themselves.

Section 2111 of the old Pennsylvania Business Corporation Law provides for the survival of remedies following the dissolution of a corporation and reads, in pertinent part:

The dissolution of a business corporation, either by the issuance of a certificate of dissolution by the Department of State or by the decree of a Court of Common Pleas, when the court has not liquidated the assets and property of the corporation, whether by expiration of its period of duration, or by the sale of its franchises, property and assets to another business corporation, shall not take away or impair any remedy given against such corporation, its directors or shareholders, for any liability incurred prior to such dissolution, if suit thereon is brought and service of process had before or within two years after the date of such dissolution. Such suits may be prosecuted against and defended by the corporation in its corporate name.

15 P.S.A. § 2111(a).

Like its modern-day counterpart, § 2111 was intended to preserve the ability of a creditor to enforce its rights following a company's dissolution provided that such rights existed prior to the dissolution. *fn4 In Heaney v. Riddle, 343 Pa. 453, 23 A.2d 456 (1942), our Supreme Court embraced this principle when it held that appellants, former stockholders of The Riddle Company, were personally liable for liquidation ...


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