International Nikoh Corp. v. H. K. Porter Co.

358 F.2d 284
CourtCourt of Appeals for the Seventh Circuit
DecidedFebruary 28, 1966
DocketNos. 14982-14986
StatusPublished
Cited by5 cases

This text of 358 F.2d 284 (International Nikoh Corp. v. H. K. Porter Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
International Nikoh Corp. v. H. K. Porter Co., 358 F.2d 284 (7th Cir. 1966).

Opinion

KILEY, Circuit Judge.

[286]*286This is a diversity action to recover damages for the alleged fraud and misrepresentations of the two defendants, H. K. Porter Company, Inc. and Lombard Corporation. In Nos. 14983 through 14986, they appeal from judgments entered against them for $56,860.00 and $81,239.99, respectively, in favor of International Nikoh Corporation; in No. 14982 International appeals from its judgment against Porter, challenging the court’s theory of damages. We reverse in part and affirm in part.

The suit is based on the purchase by International, for $150,000.00, in 1959, of a “continuous hot weld pipe mill” owned by Porter. Earlier in 1959 Porter had acquired the mill from National Electric Products Corporation which had built it in 1950 to produce “heavy wall conduits” of %-ineh to 2-inch diameters.1 The transaction was arranged by Lombard,2 an intermediary, and effectuated through sale of the mill by Porter to Lombard and a sale by Lombard to International. The contract between Lombard and International was dated June 23, 1959; that between Porter and Lombard, reciting “entered into as of this day of July 1959,” was executed on August 5, 1959. After the mill was shipped to International and installed, difficulties arose with respect to missing parts and the mill’s operation.

On December '5, 1960, International wrote Porter that the mill had not produced the pipe as “guaranteed” and gave Porter ten days to furnish it with a schedule of what action Porter expected to take “and when we may expect the guaranteed production.” On December 15, Porter responded, stating it sold to Lombard on a “where is and as is” basis, denying any contractual relationship with International, and denying that it gave any guarantees to International or “to anyone.” This suit followed.

The complaint, so far as relevant here, charged fraud against Porter in knowingly misrepresenting to International, through Lombard, the production capabilities of the mill, and charged fraud against Lombard in falsely representing its authority to warrant the mill’s capacity and to effect a sale, falsely representing that Porter would guarantee the mill’s commercial production, and in concealing from International Porter’s refusal to so guarantee.

The district court found for International, but applied equitable principles in assessing damages against Porter and Lombard. The court’s conclusions were that Porter, having “made representations” with respect to past production operations of the mill which were “incomplete and therefore inaccurate, may not in equity” benefit; that Lombard, by its concealment of facts from International, was “guilty of misrepresentation” and liable for resultant damages; that International, because of its pre-purchase knowledge and the “low price” paid for the mill, took an “entrepreneurial risk” hoping for a great return on a small investment and “is not entitled to recover those damages proximately resulting from its assumed risk”; and that neither Porter nor Lombard is entitled to recover “any amount” from the other.

A principal question is raised by International’s contention that on its finding of fraud the district court failed to apply the correct measure of damages. We do not accept the premise that the court found Porter guilty of fraud, nor do we accept Porter’s contention that because all parties agree 3 the court erroneously as[287]*287sumed equity jurisdiction, there is no basis for awarding any damages against Porter.

The issue at the trial centered upon the various representations of Porter to International, through Lombard, with respect to the history of the capacity of the mill to produce %-inch and %-inch pipe and its future capacity based on International’s restoration of parts, minor repairs, and operation under conditions similar to those in which the mill had been previously operated.

The court made three relevant factual findings concerning the production record of the mill under National Electric:

74. In the ten years from 1950 through 1959 between six and ten million feet of half-inch pipe were produced on the mill by National. This represents less than four months production at the speeds which Porter represented the mill had been operated. While production records are incomplete, they indicate that this limited production was achieved in the three years 1950-52 when the mill was run intermittently but with frequent mechanical failures and other production problems.
75. Not over 300,000 feet of three-quarter inch pipe was made on the mill at any time. Such a negligible quantity does not constitute commercial production operation.
76. No pipe of any kind was produced on the mill after February, 1955, and the mill was abandoned.

The court then found that, “read in context,” Porter’s representations “can only be interpreted” to mean that the mill had operated as an “economical production unit manufacturing commercially acceptable %" pipe in production quantities at 250 ft. per minute and commercially acceptable %" pipe in production quantities at 200 ft. per minute”; and that with replacement of various parts and minor repairs, the mill should and could again produce that pipe at those speeds.

The court’s conclusion of law was not that Porter was guilty of fraud, but that its “representations with respect to past production operations * * * were incomplete and therefore inaccurate,” and that Porter may not in equity benefit. therefrom. Furthermore, the court discriminated between Porter’s representations and the “deliberate withholding” of facts and “misrepresentations” by Lombard. Finally, the court granted relief upon an equitable theory. We decide the court did not find Porter guilty of fraud.

We think there is substantial support for the court’s interpretation of the representations made by Porter. There is substantial evidence to support the following findings: In March, 1959, International had been informed by Lombard that “they have * * * indicated” the mill would produce %-ineh pipe at the rate of 250 feet per minute. Representatives of International on two occasions in March, 1959, inspected the mill without restriction; on one occasion a representative was informed that the mill had made pipe but that it had run very little and had not ru._ for a long time; on the other occasion no inquiry was made of Porter employees concerning the mill, but the International representative suggested that it be sold to a “junk man.” The mill had been partially “cannibalized,” and it was apparent that parts were missing, damaged or in need of repair.

In April, 1959, Porter wrote Lombard that it was selling the mill “as is, where is” — International’s personnel did not see this letter until the fall of 1960. Porter knew that Lombard had International as a prospective buyer and wrote Lombard that “we have run” %-inch and %-inch pipe at 250 feet per minute and 200 feet per minute respectively.

In May of 1959, International insisted, in correspondence with Lombard, that the mill be complete to produce “commercially acceptable heavy wall rigid conduit” with the following speeds guaranteed inter alia: %-ineh, 250 feet per minute; %- inch, 200 feet per minute. Lombard informed Porter of these conditions of purchase. In response, Porter wrote Lorn-[288]

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