Ampex Corp.v.Sound Institute, Inc.

Supreme Court of WisconsinNov 25, 1969
44 Wis. 2d 674 (Wis. 1969)
44 Wis. 2d 674172 N.W.2d 170

No. 118.

Argued October 28, 1969. —

Decided November 25, 1969.

APPEAL from a judgment of the county court of Milwaukee county: EARL D. MORTON, County Judge of Kenosha county, Presiding. Reversed and remanded.

For the appellant there was a brief by Kohner, Mann Kailas, attorneys, and Robert L. Mann of counsel, all of Milwaukee, and oral argument by Robert L. Mann.

For the respondent there was a brief by Frisch, Dudek, Slattery Denny, attorneys, and Edward A. Dudek, Robert D. Scott, and C. Michael Hausman of counsel, all of Milwaukee, and oral argument by Mr. Scott.




The action is upon account for goods sold to the defendants. The trial court granted a motion for directed verdict and dismissed the complaint as to the defendant, Bernice A. Kokal. The action then proceeded and the jury found the value of the goods sold to defendant, Sound Institute, Inc., to be $11,000.

The defendant, Sound Institute, Inc., is not a party to this appeal.

The plaintiff-appellant, Ampex Corporation, is a manufacturer and wholesaler of electronic sound equipment. The defendant Bernice Kokal was, prior to his death, the wife of Allan J. Weber, d/b/a Allan's Camera Center, a retail photography and sound equipment store on the south side of Milwaukee. Pursuant to a franchise agreement Mr. Weber had been doing business with Ampex since August, 1964. Following his death in October, 1965, his widow, Bernice, operated the store for about one year and continued to deal with Ampex. Assisting her with the operation and management of the store was a former employee of Mr. Weber's, Mr. P. Del MacFall.

MacFall and one Gareth Nelson formed a partnership known as "The Sound Room," and obtained a franchise from Ampex Corporation in April, 1966. The address given for The Sound Room was Nelson's home address on the north side of Milwaukee. In July, 1966, the enterprise was incorporated as Sound Institute, Inc. In September, 1966, MacFall and Nelson, as principals of Sound Institute, Inc., contacted Mrs. Kokal regarding the purchase of Allan's Camera Center.

On October 6, 1966, an offer to purchase the business known as Allan's Camera Center was made by Sound Institute, Inc., and accepted by Bernice A. Weber. The contract to purchase provided for a complete transfer of the business from Bernice Weber to Sound Institute, Inc., for $50,000 plus assumption of accounts payable. The title to the real estate involved was to remain in Mrs. Kokal's name. A lease arrangement was provided between the parties to allow the business to stay on the same premises at 2341 South Kinnickinnic avenue, Milwaukee. The closing was set for October 15, 1966. The contract further provided that it was subject to the approval of the probate court having jurisdiction of the estate of Mr. Weber. A down payment of $500 was tendered and accepted with the offer.

Sound Institute, Inc., could not arrange for financing the purchase price and no closing was ever had. Neither was the approval of the probate court sought or granted to carry out the sale. On October 8, 1966, notices of the pending sale were mailed to creditors in accordance with the bulk sales law. Ampex responded indicating a balance due of $2,059.98. That amount was paid by Sound Institute, Inc., November 21, 1966.

On November 18, 1966, Sound Institute, Inc., took over active management of the business. A franchise agreement with Ampex was entered into on the same date with Del MacFall signing as president of Sound Institute, Inc. An inventory of the stock was taken November 17, 1966, pursuant to the contract to purchase prior to the transfer of management. Both Mrs. Weber and the officers of Sound Institute, Inc., MacFall and Nelson, participated in taking the inventory.

Mrs. Weber, a/k/a Mrs. Kokal, did not participate in the operation of the store subsequent to November 18, 1966. During the next several months Ampex furnished goods to Sound Institute, Inc., pursuant to its orders. Some payments were made by the defendant corporation, but according to the December, 1967, business records of Ampex there was a balance due of $11,461.14. No demand for payment of this account was ever made by Ampex upon Mrs. Weber. All demands for payment were directed to Sound Institute, Inc.

Several conferences between Mrs. Kokal and Sound Institute, Inc., were held respecting the contract for sale executed October 6, 1966. When no agreement could be reached, MacFall and Nelson removed most of the inventory from the store on September 27, 1967. Subsequently, a conference was held September 30, 1967, which was attended by Mr. and Mrs. Kokal, their attorneys, and MacFall, Nelson and their attorneys for Sound Institute, Inc. Two documents were signed at this meeting. One was an option given by Mrs. Kokal to MacFall and Nelson to purchase Allan's Camera Center. The other document was a memorandum agreement purporting to set forth a clarification of the ownership of Allan's Camera Center and the business relationship between Mrs. Kokal and Sound Institute, Inc.

The memorandum agreement stated that Bernice Weber had employed MacFall, Nelson and Sound Institute, Inc., to manage the store since November, 1966, and such employment would continue until November 1, 1967. It provided that all merchandise would be returned to the store and, further, that Mrs. Kokal would hold MacFall, Nelson and Sound Institute, Inc., harmless from all claims due as of November 1, 1967, subject to an accounting for the claims arising after November 18, 1966.

Mr. and Mrs. Kokal took over the inventory and the operation of the store on November 10, 1967, and operated it through December 15, 1967. The business was then closed and the fixtures sold to The Dark Room, Inc., the operator of a chain of camera stores, in March, 1968.

This action was commenced with the service of a summons and complaint on February 1, 1968. The complaint alleged three causes of action. Among other motions, a demurrer was served and filed against plaintiff's second cause of action. Though no decision on the demurrer appears of record, plaintiff concedes that the second cause of action was stricken on demurrer.

The remainder of the complaint alleges that plaintiff corporation is a foreign corporation engaged in the manufacture of sound equipment; that defendant, Sound Institute, Inc., is a Wisconsin corporation engaged in the retail business of selling camera and sound equipment; defendant Kokal, the widow of Allan J. Weber, is a resident of Wisconsin and the owner and operator of a retail store selling camera and sound equipment formerly owned and operated by her deceased husband, d/b/a Allan's Camera Center; that about October 6, 1966, the two defendants entered into an agreement (incorporated by reference) whereby it was contemplated Sound Institute, Inc., would purchase Allan's Camera Center; subsequent to the agreement the business continued to operate and plaintiff was unsure which defendant was the owner and operator; that on September 30, 1967, the defendants executed a memorandum agreement (incorporated by reference) pertaining to the ownership and operation of the business; between April 25, 1966, and November 29, 1967, plaintiff sold and furnished certain goods to the defendants, either separately, jointly, or jointly and severally at the defendants' special request for which only partial payment had been received, leaving a balance due of $12,235.30 for which demand had been made and no further payment received.

It was further alleged as a third cause of action that each defendant had abandoned the enterprise claiming the business and merchandise belonged to the other defendant. Other allegations as part of the third cause of action related to the appointment of a receiver, a matter not pertinent to this appeal.

During the trial some discussion was had respecting the possibility of amending the complaint. Plaintiff's counsel, however, did not move to amend.

No cross complaints were made between defendants.

After the plaintiff had rested and the defendants had put in the bulk of their evidence the trial court directed a verdict dismissing the complaint against defendant Kokal with prejudice.

Defendant Sound Institute, Inc., then put in the remainder of its case. The court found as a matter of law that the plaintiff furnished goods to the defendant, Sound Institute, Inc., at its request and that the defendant, Sound Institute, Inc., was liable for those goods. The jury found that the amount owed to the plaintiff was $11,000.

Defendant, Sound Institute, Inc., made alternative postverdict motions for judgment notwithstanding the verdict, for remittitur and for a new trial on the following grounds:

"(a) In the interest of justice:

"1. Because the court erred in granting the directed verdict to the defendant, Bernice A. Weber, et al.

"2. Because the court erred in limiting the scope of the complaint of the plaintiff, Ampex Corporation.

"3. Because the court erred in not allowing plaintiff's exhibit 24 admitted into evidence.

"4. Because the court erred in not allowing the defendant's, Sound Institute, Inc., exhibit No. A-1 into evidence.

"(b) Because the verdict is contrary to law.

"(c) Because the verdict is contrary to the evidence."

In its decision on the motions after verdict, the trial court indicated that the plaintiff's counsel joined in defendant's motion for a new trial on the issues of limiting the scope of the complaint, granting the directed verdict in favor of defendant, Bernice Weber Kokal, and not allowing plaintiff's Exhibit 24 (memorandum agreement of 9-30-67) into evidence. The motions for a new trial and judgment notwithstanding the verdict were denied.

Plaintiff, Ampex Corporation, appeals.


Three issues are presented:

1. Does the plaintiff-appellant's failure to move for a new trial, independent of the motion submitted by the defendant, Sound Institute, Inc., deprive it of an appellate review of alleged trial errors as a matter of right?

2. Is the complaint sufficient to raise an issue as to whether the plaintiff was a third-party beneficiary of the agreements of defendants Sound Institute, Inc., and Mrs. Kokal?

3. Is the complaint sufficient to raise the issue of principal and agent between the defendants Mrs. Kokal and Sound Institute, Inc.?

Counsel for the plaintiff-appellant stated at oral argument that a motion for new trial was not made by the plaintiff. The transcript further shows that the plaintiff did not desire a hearing on motions after verdict. The decision of the trial judge on motions after verdict, on the other hand, indicates that counsel for the plaintiff, Mr. Mann, joined in the motion of defendant Sound Institute, Inc., for a new trial. The trial court fully considered the issues relating to the directed verdict in favor of Kokal as well as the scope of the complaint as construed during the trial. The court upheld its previous determination that the complaint did not raise an issue as to either third-party beneficiary or agency. In addition, it considered and affirmed its decision not to admit the agreement of September 30, 1967, into evidence.

This court has consistently refused to grant review as a matter of right in jury cases to issues not presented to the trial court by way of a motion for a new trial. Wells v. Dairyland Mut. Ins. Co. (1957), 274 Wis. 505, 80 N.W.2d 380. The policy of this rule as expressed in Wells is to provide the trial court with an opportunity, upon reflection, to correct its mistakes and to avoid the necessity of an appeal by the ordering of a new trial.

In Peppas v. Milwaukee (1966), 29 Wis.2d 609, 139 N.W.2d 579, 141 N.W.2d 228, one of the two appellants failed to include a request for a new trial in its postverdict motions. Both appellants had raised the same questions of law, but only one asked for a new trial. Though no direct holding was required on the issue of preservation of right to review, the court stated at page 613:

"The purpose of the rule of Wells is to provide an opportunity to the trial court to correct errors before any party has a right to raise the same errors on appeal. This purpose is fully satisfied in the instant case since both appellants raise the same legal questions on appeal that were raised in the trial court by their motions after verdict."

The purposes of Wells have been fulfilled by the trial court's examination of the case upon Sound Institute, Inc.'s motion for new trial joined in by plaintiff, Ampex Corporation. All the issues now presented on appeal by Ampex were reviewed by the trial court with an opportunity to reverse itself. Plaintiff-appellant is therefore entitled to review on this appeal.

All the parties agreed that the complaint stated alternative causes of action in at least one regard. There is no dispute to the claim the complaint alleges liability on the part of one or the other defendant for goods furnished and delivered to the defendants. In his written decisions on both the objection to the admission of plaintiff's Exhibit 24 and on motions after verdict the trial judge construed the complaint as alleging only a simple contract, i.e., that one or both of these defendants ordered and took delivery of these goods.

The appellant argues that the incorporation by reference of the agreement of September 30, 1967, and the offer to purchase dated October 6, 1966, provide a factual basis for a claim as a third beneficiary of contracts between the defendants. In Winnebago Homes, Inc. v. Sheldon (1966), 29 Wis.2d 692, 699, 139 N.W.2d 606, this court reaffirmed the position that a third person can only recover on a contract between two other persons if the claimant can show that the agreement was intentionally entered into "`directly and primarily for his benefit.'" An indirect benefit, merely incidental to the contract between the parties, will not give rise to a third-party beneficiary claim.

The necessity of a concise allegation supporting the third-party beneficiary theory is noted in Peters v. Peters Auto Sales, Inc. (1967), 37 Wis.2d 346, 155 N.W.2d 85. The plaintiff in that case failed to set forth the agreement and consideration upon which she claimed a third-party benefit. The court refers to 2 Williston, Contracts (3d ed.), sec. 347, where it is stated at pages 796, 797:

"Before any question as to the rights of third party beneficiaries can arise, it must be established that the agreement between the parties contains all the elements of an enforceable contract. `Where a contract for the benefit of a third party exists, such a party is subject to the ordinary rules governing a party to a contract.'

"Thus, consideration is, of course, essential; there must be the intent to contract; and the agreement must in all respects conform to the principles governing the formation of a contract."

Even if it could be determined that the complaint does allege all the requisites of a contract there is still no showing of express intent to benefit Ampex Corporation. Rather, the only expressed intention in the agreement of September 30, 1967 is that "[t]his is to further clarify any dispute as to who is the owner of the business which has been operated . . . as Allan's Center and Sound Institute Inc." In the absence of any fact allegation that the agreement was entered into primarily and directly for the benefit of Ampex Corporation, the complaint does not state a cause of action as a third-party beneficiary claim and the plaintiff cannot claim a right to judgment upon a third-party beneficiary theory.

Plaintiff-appellant asserts that it was not necessary to make any allegation of agency in its complaint. Clearly no such allegation was made in this case; the trial judge consistently pointed out during the trial all that was alleged was that one of the defendants ordered and accepted goods from the plaintiff. Appellant's argument is in accord with the general rule as set forth in 3 C. J. S., Agency, p. 244, sec. 312:

"(1) In General

"In pleading an act done or contract executed by an agent of defendant, plaintiff may omit reference to the agency and allege the act or contract to be that of the defendant or he may aver the agency and the authority of the agent."

Further support for the appellant's position is found in an annotation entitled Manner of Pleading Agency, 45 A.L.R. 2d 597, where it is stated:

"It is clear that under the general rule upholding a pleading stating that the principal himself performed the act sued upon, the agent, since he is not even mentioned, need not be named or otherwise identified. Similarly, . . . the courts have attached no importance to the question whether or not the agent was named or otherwise identified."

A statement of the policy underlying this rule is found in 3 Am. Jur. 2d, Agency, pp. 699, 670, sec. 343:

"A question which frequently arises concerns the necessity of alleging the fact of agency in declaring upon a contract made by a party through an agent. Generally it is held, in the absence of express statutory provision, that in actions on contracts, either by or against the principal, there is no necessity of alleging that the contract was executed through an agent; in other words, the contract may be pleaded as if it were the contract of the principal, without mentioning the agency. The theory of this rule of pleading is that the act of the agent is the act of the principal, and hence, may be declared upon as such. An additional reason advanced in support of the general rule is that it would savor strongly of pleading evidence, or at least redundancy, for the pleader to state that the business under consideration was done by an agent, or that, having been transacted without the defendant's sanction, it was afterward ratified by him. Even though the contract is executed by the agent in his own name, without the name of the principal appearing thereon or being disclosed to the other contracting party, there is authority to the effect that it need not be alleged in a complaint by the principal that the contract was made through the agent."

In line with the majority rule, Wisconsin has held that agency may be proved in a case without pleading more than the acts of the agent upon which liability is predicated. Lessard v. Northern Pacific R. R. (1892), 81 Wis. 189, 51 N.W. 321.

We are of the opinion that the allegation in the present complaint charging Mrs. Kokal with having ordered the goods suffices, under the general rule espoused above, to allow it to put in proof of agency without exceeding the scope of the pleadings. The allegations of the complaint being sufficient to prove agency, it follows that it was error to exclude the proof offered by the plaintiff upon the grounds that it was immaterial assuming, of course, the evidence was otherwise admissible. We believe that if the documentary evidence of the September 30, 1967, conference and the offer to sell had been received in evidence there would have been some credible evidence upon which a jury could reasonably find the defendant Kokal liable. Under these circumstances the directed verdict was inappropriate and the case must go to a jury. Zillmer v. Miglautsch (1967), 35 Wis.2d 691, 151 N.W.2d 741.

Whether the plaintiff or Sound Institute, Inc., can eventually prove an agency relationship is conjecture at this point.

It is, however, apparent to us that the real controversy, namely, the business status existing between the defendant, Mrs. Kokal, and the defendant, Sound Institute, Inc., has not been fully tried.

In addition to a reversal for prejudicial error, we deem this is a proper case to invoke sec. 251.09, Stats., and order a reversal and new trial with the right of the parties to amend their pleadings so as to reflect the real controversy (excepting the issue of a third-party beneficiary). Lowe v. Cheese Makers Mut. Casualty Co. (1953), 265 Wis. 365, 61 N.W.2d 317.

By the Court. — Judgment reversed, and remanded for a new trial.