Professor Andrej Thomas Starkis

United States Court of Appeals, 37

Second Circuit. 37

DEMIAN, LTD., Plaintiff-Appellant, 37

v. 37

CHARLES A. FRANK ASSOCIATES, Charles A. Frank and Jaguar International, Inc., 37

Defendants-Appellees. 37

No. 113, Docket 81-7392. 37

Argued Oct. 23, 1981. 37

Decided Feb. 4, 1982. 37

MANSFIELD, Circuit Judge: 37

In this diversity suit for damages for breach of a contract for services in the importation of men's leather and suede garments, plaintiff-appellant, Demian, Ltd. ("Demian"), the purchaser, appeals from a judgment of the Southern District of New York entered by Judge Charles L. Brieant in favor of the defendants Charles A. Frank Associates, Charles A. Frank and Jaguar International, Inc., New York residents and business organizations (herein collectively referred to as "Frank"), dismissing the complaint after a non-jury trial. We remand the case to the district court for further findings of fact, affirm the dismissal of Frank's counterclaim for commissions, and deny Frank's request for an award of costs, damages, and expenses, including attorneys' fees. 37

At all pertinent times Demian, a Pennsylvania corporation, was an importer of high grade men's leather garments for sale in the United States and Frank was a service organization with business acquaintances in the Orient. For a commission paid by American importers, Frank would locate manufacturers or sources of supply in the Far East and make arrangements for the manufacture of the goods in the Orient and their importation into the United States. To facilitate importation into the United States of goods made in Korea, Frank entered into an arrangement with K. C. Sun of Da Chong Hong Trading Co., Ltd. ("Sun") in Korea, whereby, for 50% of Frank's commission received for its services, Sun would locate Korean manufacturers and, following Frank's instructions, do anything further required to effectuate the manufacture, sale and importation of goods purchased by Frank's American clients. One of these clients was Demian. 37

After approving samples of leather jackets to be manufactured in Korea by Koreanna Moulson, Ltd., a manufacturer located by Frank and Sun, who submitted the samples for consideration, Demian placed two *722 orders with Sun for the purchase of two styles meeting the specifications of the samples. Pursuant to arrangements made by Frank, Demian forwarded to Korea letters of credit in favor of Koreanna, to be honored upon presentation of a certificate by Sun that it had inspected the shipment of the leather jackets made by Koreanna and found them to be of merchantable quality, meeting the sample specifications. 37

Unfortunately Sun did not properly perform its inspection duties, issuing a certificate that released the purchase price to Koreanna against jackets that did not meet the specifications. In June 1980 Demian brought the present suit against Frank for breach of contract, alleging that in return for commission payments Frank had agreed to: 38

"(A) Assist plaintiff in the designing of leather jackets which were to be manufactured in the Republic of Korea; 38

"(B) Arrange for the manufacture of said jackets in the Republic of Korea; 38

"(C) Inspect said jackets upon completion of the manufacturing to insure that they complied with the standards and specifications required by plaintiff, and in accordance with the terms of a Letter of Credit opened by plaintiff. 38

"(D) Perform all services necessary to accomplish the importation of the jackets into the United States." 38

Frank entered a general denial and counterclaimed for a 5% commission "for his services." 38

At trial Michael Driban, President and owner of Demian, testified that, after Charles A. Frank had described his qualifications and his extensive experience in locating Oriental manufacturers, arranging for their manufacture of goods and importing garments into the United States, they entered into an arrangement under which Frank was to "oversee any program we would enter from start to finish." Frank stated: 38

"Q What do you mean, from start to finish? 38

"A From the placing of the orders to making sure that the work was done in time, to make sure the garments were packed in time, that every step of the production process was followed through, that the skins arrived in time to be cut, that the cutting was done in time, that the sewing was done in time, that the skins, when they arrived, were first quality, that when all was said and one (sic), the garments were inspected. Evenness of color, quality of skin, sewing details, etc., were packed, the documents were completed in a satisfactory manner, and that it went out on a ship that would ultimately get to us in time to permit us timely deliveries to our customer, which was our responsibility." 38

With respect to responsibility for inspection of goods in Korea before release of Demian's letter of credit, Driban testified that Frank advised that full responsibility would be assumed by him or, if he was not in Korea at the time of shipment, by his "man in Korea," K. C. Sun, whom Driban had never met. On cross-examination by Mr. Frank, Driban testified: 38

"Q Did I ever represent to you as a guarantor of the factory- 38

"THE COURT: He said yes, you sure did. Why do you keep fooling around? 38

Answer the question. 38

"A You told me you would be personally or someone from your office would be responsible for the final inspection of those garments. Without a certificate certifying to that effect payment would not be made to the factory." 38

Frank's defense was that he acted merely as a broker, without assuming responsibility other than to bring the principals together. On his deposition, however, he testified that he entered into a relationship with Mr. Sun whereby Sun would perform numerous services for him in Korea, including location of factories, help in obtaining clients, manufacture of garments, and inspection, and that "(i)f there were requirements that a particular client had that I could not do for the clients because I was not there, he would do it." (App. 45A). Frank testified: "If I gave him instructions, he following them out.... Mr. Sun was to execute what I asked him to execute." (App. 47A). 39

*723 At the close of the trial Judge Brieant, although he found that Frank's "services were totally useless" and he had been a malefactor who had engaged in "unconscionable" conduct, concluded: 39

"The most the proof shows, an agent was authorized by the principal to delegate a sub-agent and in the absence of some knowledge of it at the time of appointing Sun, that Sun was an improper person to be appointed, there is no liability, no vicarious liability when a sub-agent with the permission of the principal is appointed by an agent to work for the principal, and that is really what happened here with K. C. Sun. 39

"... there is no joint venture because, in order to have a joint venture, there must be an agreement proved to share losses and profits. 39

"... When two persons could broker in effect like that, neither one becomes the agent for the other, and Mr. Frank does not, by the facts of this case, become the person vicariously liable for the sins and omissions or defaults or delicts (sic) of K. C. Sun, and that is what is sought to be shown here in this case." (App. 37A-38A). 39

Accordingly the court entered judgment dismissing the complaint. Finding that Frank's services were worthless, he also dismissed its counterclaim for commissions, without costs to either side. 39

DISCUSSION 39

We do not question the district court's finding that no joint venture existed between the parties since there is no evidence of profit or loss sharing between them, which is essential to recovery on a joint venture theory. Steinbeck v. Gerosa, 4 N.Y.2d 302, 317, 175 N.Y.S.2d 1, 13, 151 N.E.2d 170 (1958); Backus Plywood Corp. v. Commercial Decal, Inc., 208 F.Supp. 687, 691 (S.D.N.Y.1962); Allen Chase & Co. v. White, Weld & Co., 311 F.Supp. 1253, 1259 (S.D.N.Y.1970); Jasper v. Bernstein, 259 App.Div. 638, 639-40, 20 N.Y.S.2d 362, 363-64 (1st Dept. 1940); Gordon Co. Inc. v. Garcia Sugars Corp., 241 App.Div. 155, 156, 271 N.Y.S. 303 (1st Dept. 1934). Under the law of agency Frank's liability to Demian for Sun's improper certification turns on whether Sun was employed as Frank's subagent to perform his duties as Demian's agent or as an independent agent of Demian for which it would assume responsibility. If Sun was Frank's subagent, Frank would be liable to Demian for the subagent's conduct. 2 Restatement (Second) of Agency, s 406. 39

"s 406. Liability for Conduct of Subagent 39

"Unless otherwise agreed, an agent is responsible to the principal for the conduct of a subservant or other subagent with reference to the principal's affairs entrusted to the subagent, as the agent is for his own conduct; and as to other matters, as a principal is for the conduct of a servant or other agent." Id. 252. 39

On the other hand, if Sun was not a subagent but a separate agent acting solely for Demian, Frank would not be liable. Restatement (Second) of Agency, ss 5, 405. 40

s 405. Liability for Conduct of Other Agents 40

"(1) Except as stated in Subsections (2) and (3), an agent is not subject to liability to the principal for the conduct of other agents who are not his subagents. 40

"(2) An agent is subject to liability to the principal if, having a duty to appoint or to supervise other agents, he has violated his duty through lack of care or otherwise in the appointment or supervision, and harm thereby results to the principal in a foreseeable manner. He is also subject to liability if he directs, permits, or otherwise takes part in the improper conduct of other agents. 40

"(3) An agent is subject to liability to a principal for the failure of another agent to perform a service which he and such other have jointly contracted to perform for the principal." Id. 251. 40

Here we need not speculate as to the nature of the legal theory asserted by Demian as the basis for its claim against Frank. It does not ask the court to infer from the circumstances that Sun must have *724 been Frank's subagent rather than an independent agent procured by it as a broker. It claims that Frank breached an express agreement with it to inspect the jackets upon completion of the manufacture "to insure that they complied with the standards and specifications required by plaintiff, and in accordance with the terms of the Letter of Credit opened by plaintiff." (Compl. Par. 6(C)). Under such an agreement Frank would be obligated either personally to inspect the manufactured jackets or to see to it that they were properly inspected by Sun and to issue a certificate or have Sun do so only if they conformed to the samples approved by Demian, which they admittedly did not. If Frank failed to perform these promises and allowed substandard jackets to be certified, he would under elementary principles of contract law be liable in damages to Demian regardless of any joint venture or subagency theory of liability. 40

The district court does not appear to have considered this issue of whether Frank expressly entered into an agreement with Demian to inspect properly and made no findings with respect to such an agreement. If there were no supporting evidence, we might let stand the dismissal of this claim for breach of an express contract. But here the record contains an abundance of testimony by Driban to the effect that Frank agreed to insure that Sun, whom Frank described as his "man in Korea" who followed Frank's "instructions" and who would "execute what I asked him to execute," would make a proper inspection and issue a certificate only if the jackets conformed to Demian's specifications. Nor does Judge Brieant appear to have discredited Driban as a witness. Indeed at one point he appears to have accepted Driban's testimony that Frank represented himself to be a "guarantor." Judge Brieant's characterization of Mr. Frank, on the other hand, indicates some doubt as to his reliability. The finding that Frank's services were worthless and in violation of his contractual obligations, disentitling him to a commission, is supported by the record and not clearly erroneous. 40

In view of these circumstances we vacate the judgment dismissing the complaint and remand the case to the district court for further proceedings, findings, and decision. We affirm Judge Brieant's denial of Frank's counterclaim and deny as frivolous Frank's claims for damages, costs, and attorney's fees under 28 U.S.C. ss 1912, 1927 and Fed.R.App.P. 38. Costs are awarded to Demian. 40

Court of Appeals of New York. 41

ELL DEE CLOTHING CO., Inc., 41

v. 41

MARSH. 41

Feb. 14, 1928. 41

ANDREWS, J. 41

In November, 1923, the receiver of the plaintiff applied to his broker for a policy of burglary insurance to cover the stock of goods which had come into his possession. In turn, the broker passed on the application to another firm of brokers. They endeavored to place the insurance, and finally succeeded in making some arrangement with the defendant. 41

Mr. Marsh was the agent in New York of the 'London Lloyds.' Precisely what were his powers is not clear; but, when the application was handed to him, it was understood by all parties that a 'Lloyds' policy was to be received. 41

The application had been made out upon a form appropriate to marine insurance. On the back were printed the clauses relating to that class of risk and immaterial here. It was headed, 'Underwriters' and *395 Brokers' Emergency Agreement,' and the form was stated to be 'Provisional.' The application was said to be made by the brokers for the receiver of the Ell Dee clothing store. The amount of the insurance was to be $15,000. It was to protect against burglary for 60 days, 'at and from 189 Stanton street, New York' (where in fact the goods were located), and then follows: 'Amount under deck, $101.50.' That sum was in fact the agreed premium for the policy. Then follow the words 'Binding' and the signature 'Marsh--for Company.' 41

This paper was delivered to the receiver. He drew a check for $101.50, which was received by the negotiating brokers. On December 6 there was a burglary at 189 Stanton street; clothing in the receiver's hands being taken. Shortly thereafter Marsh was notified of the burglary, and about January 21 he received proofs of loss made out to 'F. A. Marsh, Representing Lloyds.' 41

No formal policy was ever executed by any one, and the plaintiff, having been vested with all the rights of the receiver in the subject-matter upon his discharge, brings this action to recover the loss directly of the defendant. It claims that he is personally liable upon the so-called 'binder' executed by him. 42

Some preliminary matters must be considered before we reach the more important question involved in this case. It is said that the plaintiff has failed to show that Mr. Marsh ever received the check for the premium. It is true. But, if the defendant considered it important and intended to rely on a missing bit of proof that might have been supplied, he should have called attention to the defect. No reference to it was made on the trial. It is said the goods supposed to be covered by the binder are not described. But the application is against burglary made by the receiver of the Ell Dee Clothing store at 189 Stanton street. This would seem to cover the personal property, held by Mr. Derby as receiver of the corporation, at that place. It is said there is here no *396 complete contract. The binder is intended to be superseded by a formal policy. Such a policy contains conditions to be performed by the assured. In its absence the nature of the risk assumed is not shown. So there is a failure to prove a meeting of the minds of the parties and a contract. A 'binder' is a present contract of insurance, issued to protect the assured temporarily while the assurer investigates the risk and determines whether or not to issue a permanent policy. Imported into it, however, are all the obligations 'according to the terms of the policy in ordinary use by the company.' Sherri v. National Surety Co., 243 N. Y. 266, 153 N. E. 70. If the form of the **653 policy is fixed by the state, then its provisions are held to be included in any binder. If there is proof that the company has adopted any particular and customary form, the same thing is true. But it is for the company to show this fact. In the absence of legislative direction, it may use such a policy as it chooses. It may adopt many or few conditions. In the absence of all testimony, there is no presumption that in its policy it has inserted any conditions precedent. If it has adopted conditions subsequent, it is for it to show that fact and that they have been broken by the assured. There is no reason why it may not simply agree to indemnify for the loss by burglary of certain goods in return for a consideration. So whether the binder is to be interpreted by itself or with the addition of implied conditions, the minds of the parties meet. And in the absence of state regulations, it is for the assurer to show that conditions are implied and what they are. Such seems to be intimated in Underwood v. Greenwich Ins. Co., 161 N. Y. 413, 55 N. E. 936. There may be an exception to this rule. Some conditions may be so well understood as universally entering into insurance contracts, such as the necessity of notice and proofs of loss given to the insurer within a reasonable time, that the courts will imply them even though the binder be silent. They must, however, be few. 42

*397 We come, therefore, to the substantial question which we must determine. The general rule may be stated that, where one party to a written contract is known to the other to be in fact acting as agent for some known principal, he does not become personally liable whether he signs individually or as agent. Johnson v. Cate, 77 Vt. 218, 59 A. 830. On the other hand, although known to be acting for an unknown principal, he is personally liable. Knowledge of the real principal is the test, and this means actual knowledge, not suspicion. Cobb v. Knapp, 71 N. Y. 348, 27 Am. Rep. 51; Arsinger v. Macnaughton, 114 N. Y. 535, 21 N. E. 1022, 11 Am. St. Rep. 687; McClure v. Central Trust Co., 165 N. Y. 108, 58 N. E. 777, 53 L. R. A. 153; De Remer v. Brown, 165 N. Y. 410, 59 N. E. 129; Winsor v. Griggs, 5 Cush. (Mass.) 210. If this be a correct statement of the law, it determines the case before us. 42

London Lloyds is a voluntary association of merchants, shipowners, underwriters, and brokers, originating in the seventeenth century, and growing into a vast commercial organization. To it is due much of the law of marine insurance. In 1871 it was granted all the rights and privileges of a corporation. In its rooms an extensive insurance business is carried on. Lloyds itself, however, writes no policies. A broker for one wishing insurance posts the particulars of the proposed risk. Then each underwriting member of the association who wishes to do so subscribes his name and the share of the total desired that he wishes to take. When that total is reached, the insurance is effected. A policy, in the form approved by Lloyds is then issued, containing the names of the underwriters bound thereby and the name of their attorney in fact who handles the insurance affairs of the group. So who will become obligated on any policy is not and cannot be known until the underwriting is completed. And in each case only those who underwrite each particular policy are liable for any loss under that policy, and liable for the amount which they have underwritten. The insured contracts with each separately, *398 not with the group jointly. Fish v. Vanderlip, 218 N. Y. 29, 112 N. E. 425, Ann. Cas. 1916F, 150. 43

Therefore, while the binder was signed by Marsh, with the knowledge by all that he was acting as agent, who were or were to be his principals, even he did not and could not then know. Under such circumstances the agent becomes personally liable on his contract. Not only were his supposed principals unknown to either Mr. Dewey and his agents; in fact there were none. Some time in the future a group might be formed who would assume the risk. None existed when the binder was signed. And the mere knowledge by the plaintiff or its predecessors of all these facts is not, as a matter of law, sufficient to exonerate the defendant. 43

The judgments should be reversed, and a new trial granted, with costs to abide the event. 43

CARDOZO, C. J., and CRANE, LEHMAN, KELLOGG, and O'BRIEN, JJ., concur. 43

POUND, J., not sitting. 43

Judgment reversed, etc. 43

RESNICK 43

v. 43

ABNER B. COHEN ADVERTISING, Inc. 43

No. 1461. 44

Municipal Court of Appeals for the District of Columbia. 44

Argued March 8, 1954. 44

Decided April 13, 1954. 44

CAYTON, Chief Judge. 44

This action was brought against David E. Resnick for an amount due on a contract *255 signed by him as president of American Communication Co. Resnick filed an answer in which he in effect admitted that 'American Communication Co.' was not the official name of a corporation, but stated that he was only an employee of Royal Appliance Co., Inc., which was trading as American Communication Co. Plaintiff moved for summary judgment, and the trial court granted the motion on the theory that since defendant had signed the contract as president of a nonexistent company, or on behalf of an undisclosed principal, he was personally liable on the contract. Defendant appeals, contending that summary judgment should not have been granted because his answer raised questions of fact. 44

In this jurisdiction an agent who enters into a contract without disclosing his principal is held personally liable on it, [FN1] and he does not escape liability by purporting to act for a fictitious or nonexistent principal. [FN2] On the other hand, when his principal is fully disclosed, the agent ordinarily does not incur personal liability. [FN3] Hence the liability of appellant in the present case depends upon whether a principal existed, and if so, upon the extent to which such principal was disclosed. In determining this issue on appeal from a summary judgment, we are to be guided only by the pleadings and the contract. If they raise a material question of fact, or if they fail to establish appellant's liability as a matter of law, the summary judgment cannot stand. 44

FN1. Magruder v. Belt, 12 App.D.C. 151, certiorari denied, 169 U.S. 737, 18 S.Ct. 944, 42 L.Ed. 1216; Mayer v. Buchanan, D.C.Mun.App., 50 A.2d 595. 44

FN2. See Downs v. Bankhead, 44 App.D.C. 101. 44

FN3. International Trading Corporation v. Edison, 71 App.D.C. 210, 109 F.2d 825, certiorari denied, 310 U.S. 652, 60 S.Ct. 1099, 84 L.Ed. 1417; Ezersky v. Survis, D.C.Mun.App., 43 A.2d 294. 44

We first note that the answer states that a corporation is trading under the name which appears in the contract. At a trial on the merits this allegation may or may not be substantiated by proof; but at present it stands uncontradicted and must be accepted as fact. It is well established that a corporation may in the absence of fraud enter into binding contracts under an assumed or trade name. [FN4] If, as defendant's answer indicates, he contracted for an existing corporation, using its trade name, it cannot be said that he was representing a nonexistent or fictitious principal. 44

FN4. See Sorivi v. Baldi, D.C.Mun.App., 48 A.2d 462; Note, 56 A.L.R. 450, and cases collected therein. 44

[7] Likewise it cannot be held that the pleadings establish that the principal was undisclosed. In Restatement, Agency § 4 (1933), it is said that a principal is disclosed if 'at the time of a transaction conducted by the agent, the other party thereto has notice that the agent is acting for a principal and of the principal's identity * * *.' The contract in this case appears on its face to be an ordinary contract of a corporation executed by appellant as an officer thereof. (It is signed thus: 45

David E. Resnick, Pres. 45

Authorized Signature 45

American Communication Co.) 45

From such signature and from the allegations of the pleadings, there is no basis for saying that appellee was led to believe that Resnick was acting for himself and not for a principal. 45

The next question is whether there was a sufficient disclosure of the principal's identity. We have found no case in which this precise issue was presented and determined on the pleadings. Among the cases dealing with the problem there is some conflict. [FN5] But in all of them it appears that the issues *256 were developed at trial. In the Amans, Givner, and Saco Dairy cases, the trade name used was as consistent with personal ownership of the business as with agency for another, and the evidence revealed no further disclosure by the agent; so that, under the circumstances, there was no disclosure either of the agency relationship or of the principal's identity. But as we have already pointed out the evidence may develop that the contract in this case afforded sufficient notice of the existence of an agency relationship. 45

FN5. Saco Dairy Co. v. Norton, 140 Me. 204, 35 A.2d 857, 150 A.L.R. 1299; Amans v. Campbell, 70 Minn. 493, 73 N.W. 506; Cobb v. Knapp, 71 N.Y. 348, 27 Am.Rep. 51; Nelson v. Andrews, 19 Misc. 623, 44 N.Y.S. 384; Givner v. United States Hoffman Machinery Corp., 49 Ohio App. 410, 197 N.E. 354; contra, Rabinowitz v. Zell, Sup., 191 N.Y.S. 720. See also Golden's Foundry & Machine Co. v. Wight. 35 Ga.App. 85, 132 S.E. 138; Beilin v. Krenn & Dato, 350 Ill. 284, 183 N.E. 330; Note, 150 A.L.R. 1303. 45

From the cases we have cited, the law seems to be that the mere use of a trade name in a contract signed by an agent is not sufficient to show as a matter of law that the principal was disclosed. But it does not follow that solely because a trade name was used, the principal was as a matter of law undisclosed. It has been recognized that contracts may be executed in a trade name under such circumstances as to disclose the identity of the principal. [FN6] We think that such a possibility exists here. Therefore, appellant should have the opportunity to prove the extent of appellee's knowledge of the principal's identity. [FN7] It cannot be said that the pleadings exclude the possibility of such knowledge. There is nothing to show the extent of the dealings between the parties, the familiarity of appellee with the business operated as American Communication Co., or whether the name was used in good faith to describe the principal. It must be determined whether the identity of the principal was shown either by the use of its trade name or in some other manner. These are issues of fact which cannot be decided on motion for summary judgment. 45

FN6. Saco Dairy Co. v. Norton, supra; Amans v. Campbell, supra. 45

FN7. Evidence that appellee knew that Royal Appliance Co. used the trade name of American Communication Co. may be received without violating the parol evidence rule. Beilin v. Krenn & Dato, supra, Note 5. 46

Appellant assigns as error the refusal of the trial court to permit him to file an amended answer and counterclaim. He also says there was error in denying a motion for leave to intervene by Royal Appliance Co. We need not pass on these claims of error. We assume that with the remanding of the case for trial on the merits the trial court will exercise its discretion so as to permit such amendments by either party as will fairly develop the issues, and will also entertain any proper motion for intervention. 46

Reversed. 46