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DYNAMICS CORP. OF AMERICA v. INTERNATIONAL HARVEST

March 18, 1977

DYNAMICS CORPORATION OF AMERICA, Plaintiff,
v.
INTERNATIONAL HARVESTER COMPANY, Defendant


Edward Weinfeld, District Judge.


The opinion of the court was delivered by: WEINFELD

FINDINGS OF FACT AND CONCLUSIONS OF LAW

EDWARD WEINFELD, District Judge.

 Plaintiff, Dynamics Corporation of America ("Dynamics") brought this action against International Harvester Company ("International") to recover damages for alleged breaches of a contract for the sale of trucks and for alleged fraudulent representations made by International to induce Dynamics to enter into that contract and to purchase International's truck manufacturing facilities in Bridgeport, Connecticut. *fn1" International counterclaims, alleging a cause of action for breach of contract.

 The trial took eleven days, with the transcript of testimony totalling almost 2200 pages and with several hundred exhibits in evidence. Since the trial was to the Court, some testimony and a number of exhibits, which upon their face included hearsay matter or self-serving declarations or were of doubtful competency, were received with the observation that the Court's determination of the issues would be based only upon a consideration of proper evidence. *fn2" The trial, of course, afforded the Court the opportunity to appraise the demeanor of witnesses where their testimony was in conflict.

 I. FACTUAL BACKGROUND

 Prior to 1966, International owned and operated, through one of its subsidiaries, a truck manufacturing plant in Bridgeport, Connecticut, which was referred to as the "Bridgeport Works" ("Works"). In April 1966 it began to operate the Works directly as a part of its Motor Truck Division. For a number of years International produced at the Works a new model line of steel-bodied, multi-stop delivery trucks called "Metros." The trucks were sold through International's marketing organization, which included various company-owned retail branches and independently owned retail dealerships.

 In early 1968, International decided for various reasons, including operating losses and a decline in the market for Metros, to close the Works. On or about May 23, 1968, International publicly announced its decision; in early August 1968, all operations at the plant closed. About the time of the public announcement, Dynamics, which had no prior experience in the manufacturing or marketing of delivery trucks, manifested an interest in acquiring the Works. Negotiations between Dynamics and International for the sale of the Works ensued. During the course of bargaining, meetings of Dynamics and International representatives, sometimes attended by lawyers, took place in Bridgeport and Chicago. In addition, at Dynamics' request, its independent outside auditors, Alexander Grant Company ("Alexander Grant"), were permitted to visit the Works to observe its operation and to inspect its books and records. The negotiations extended from about the end of May until October 16, 1968, when the parties executed two documents that are the subject of this litigation, entitled "Purchase Agreement" and "Agreement." The "Purchase Agreement" (hereinafter "Works contract") set out the terms and conditions under which the land, buildings, manufacturing equipment and other assets constituting the Works would be transferred from International to Dynamics; the "Agreement" (hereinafter "Truck contract") obligated Dynamics to produce and sell, and International to purchase, specified minimum numbers of Metros over a three-year period.

 In October 1968, Dynamics took possession of the Works, which then became its "Dyna-Truck Division" ("Dyna-Truck"), and began readying the plant for resumption of Metro production. Before actually commencing manufacturing operations, however, Dyna-Truck bid on and was awarded a contract under which it was to produce 6,961 special-order trucks for the United States Post Office ("Post Office contract"). In late January or early February of 1969, Dyna-Truck produced its first Metro and began to fulfill its obligations under the Truck contract. Simultaneously, Dyna-Truck made preparations for the production of vehicles for the Post Office, and by the latter part of 1969 these vehicles were being manufactured in quantity.

 Dyna-Truck's operation of the Works was not, however, without its difficulties. The plant experienced numerous problems with production, labor, management, finances and customer goodwill, and in each of its first three years of operation under Dynamics it sustained annual losses ranging from $786,565 to $2,772,082. After being notified by International that the Truck contract would not be renewed upon its expiration, Dynamics decided in late 1971 to sell the Dyna-Truck division. Production was discontinued in early 1972, but no purchaser for the facilities as a going concern could be located, and Dyna-Truck's assets were finally sold to a liquidator in 1973. At the time of this sale, Dynamics was undergoing an arrangement under Chapter XI of the Bankruptcy Act, as a result of which six of its nineteen divisions and subsidiaries were sold.

 Dynamics filed the present action on October 15, 1974, only one day short of six years after the execution of the Truck and Works contracts. As noted, Dynamics seeks damages both for International's alleged breaches of the Truck contract and for International's alleged fraudulent representations and practices in inducing Dynamics to enter into the Works contract and Truck contract. These claims will be treated separately.

 II. CONTRACTUAL CLAIMS

 (a) Statute of Limitations.

 In its complaint Dynamics alleges that International breached the Truck contract by failing: (1) to furnish Dynamics with technical information, specified in the agreement, which was to aid Dynamics in producing trucks; (2) to provide Dynamics with quarterly forecasts of International's truck requirements; (3) to make the minimum annual purchases of trucks called for by the agreement; (4) to place the requisite minimum numbers of monthly orders for trucks; and (5) to make diligent efforts to sell more than the minimum number of trucks required to be purchased from Dynamics under the contract. *fn3" Although International denied, and introduced evidence at trial intended to repel, these charges, it contends that the various claims are partly and in some instances wholly barred by the applicable statute of limitations. It asserts that the Truck contract upon which the claims are based is one "for the sale of goods" and is thus governed by the New York Uniform Commercial Code ("UCC"), which contains a four-year statute of limitations. *fn4"

 Dynamics, to the contrary, argues that the New York six-year statute of limitations, applicable to actions based on general contractual obligations, *fn5" should govern its claims under the agreement for the sale of trucks to International. Dynamics contends that for purposes of applying a statute of limitations, the Works contract and the Truck contract must be read as a single contract. Accordingly, it urges that its agreement with International is not one primarily "for the sale of goods" and thus is not covered by the UCC *fn6" because the sale of the trucks was only incidental to the predominant purpose of selling the Bridgeport plant and the steel-bodied Metro business to Dynamics. Thus it emphasizes that an integral part of the sale of the Works to Dynamics obligated International to provide technical information as well as marketing services to assure smooth-running operations and distribution.

 The issue whether separate documents executed simultaneously should be treated as a single contract is governed by the intent of the parties manifested at the time of contracting and viewed in light of all the surrounding circumstances. *fn7" Clearly, Dynamics' purchase of the Works and International's agreement to purchase trucks were parts of a single underlying transaction. Dynamics, at the time a budding conglomerate, but without prior experience in truck manufacturing or marketing, desired to enter that field. International desired to dispose of its antiquated plant with its idle machinery and equipment. It is beyond peradventure that Dynamics would not have purchased the Works with its productive facilities unless International agreed to purchase trucks to assure the Works a demand for its production during the initial years of Dynamics' operations. *fn8" Similarly, International would never have agreed to buy trucks from Dynamics, an inexperienced newcomer to the field, unless Dynamics bought the Works. The Truck contract and the Works contract were thus contemporary documents that implemented a single coordinated transaction, albeit each dealt with a different subject matter. All the surrounding circumstances prior to and contemporaneous with the execution of the two documents leave no room to doubt that the parties intended that the documents constitute a single, indivisible contract and that their obligations under each be common and interdependent. *fn9" The fact that the parties executed separate documents, although evidential of a contrary intent, is not conclusive, *fn10" and loses much of its force in the instant case due to the undisputed testimony that tax considerations dictated the use of separate contracts. The Works contract and the Truck contract must therefore be read as one agreement for the purpose of applying a statute of limitations.

 In determining whether a contract is for the sale of goods, and thus covered by the UCC, it is necessary to look to the "essence" or main objective of the parties' agreement. *fn11" If the provision of services or rendition of other performance predominates and is not merely incidental or collateral to the sale of goods, then the contract will not be subject to Article Two of the UCC with its four-year limitation. *fn12"

 The evidence establishes that Dynamics' dominant objective in contracting was to acquire the Works, just as International's dominant objective was to divest itself of an asset that it had ceased to use. During the course of negotiations for the sale of the Works, it became apparent that Dynamics would be unable to operate its acquisition as a profitable enterprise unless it was assured of a minimum demand for trucks in its first years of ownership. International thus agreed in the Truck contract to purchase annual minimum numbers of vehicles from Dynamics, to supply Dynamics with technical information concerning the production of such vehicles, to attempt to market more than the minimum numbers of Metros required to be purchased, and to render various other services to Dynamics in connection with the latter's operations. These obligations were incidental and collateral to the main object of effecting a transfer of the Works, and the parties' agreement, taken as a whole, cannot be characterized as being primarily for the sale of goods. *fn13"

 Upon the totality of all evidence, the Court holds that the six-year statute of limitations contained in section 213 of the New York Civil Practice Law and Rules which is applicable to "an action upon a contractual obligation or liability" governs with respect to Dynamics' claims under the Truck contract. Since this action was filed prior to six years after the occurrence of the alleged breaches, Dynamics' contractual claims are not barred.

 (b) Technical Information.

 Dynamics charges that International breached its obligations under the Truck contract to furnish Dynamics with technical information concerning the production of Metros. The two paragraphs in the parties' agreement that deal with technical information provide:

 
[A](b) DCA agrees that specification trucks and M-800 trucks shall, in all respects, conform to the design and material specifications established by IH and now in effect for each particular model truck, unless changed by mutual agreement. Such design and material specifications will be furnished by IH to DCA at or prior to ...

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