Liberty Insulation, Inc. v. Metrix, Ltd.

94-1923 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)
  • Opinion Date: June 2, 1998

CONTRACTS; TORTIOUS INTERFERENCE—Although a buyer may be aware that under the buyer’s supply contract with a distributor, a particular manufacturer expects to supply the goods, the buyer is under no obligation to reject goods produced by a different manufacturer.

A manufacturer of insulation products negotiated and exchanged various drafts of a proposed sales agency agreement with an insulation distributor. Although nothing was ever reduced to writing, the manufacturer alleged that the distributor agreed to act as its agent. The distributor denied that an agreement had been reached and pointed to a letter that it had sent rejecting a proposed agency agreement. In response, the manufacturer claimed that the letter had no effect because the parties already had agreed in principle to enter into an agency relationship before the letter was sent and alleged that the parties had ratified the agreement through their conduct. After the time that the negotiations had begun, but before the insulation distributor had sent its rejection letter to the manufacturer, a shipyard solicited insulation bids from various suppliers including the insulation distributor but not the insulation manufacturer. Nonetheless, hoping to secure the contract, the manufacturer provided the distributor with the necessary pricing information to formulate a bid and instructed it to bid on behalf of the manufacturer. Without the manufacturer’s knowledge, the distributor submitted a bid for the insulation contract in its own name and on its own letterhead. In testimony, the distributor said that at the time of the bid, it was not an agent of the manufacturer. The bid did not list the manufacturer as a contracting party, but did state that the manufacturer would furnish all of the materials. The distributor was the low bidder. Nevertheless, negotiations with the shipyard took place to discuss possible price reduction. During these negotiations, the shipyard contacted the insulation manufacturer directly to negotiate freight terms and packaging methods. The manufacturer admitted it never referred to its agency agreement with the distributor during discussions with the shipyard.

Subsequently, the distributor submitted its “best and final bid” and that bid listed itself as the contracting party, was on its own letterhead, and was signed by its president on behalf of the distributor. The bid was successful. The government approved the distributor as a supplier, and the purchase order listed the distributor as the vendor. There was no reference in the purchase order to the insulation manufacturer. The shipyard still was never advised of the alleged agency relationship between the insulation manufacturer and the distributor. Even though the purchase order was subsequently modified to state that this particular manufacturer would be the manufacturer for all items on the purchase order, at no time did the distributor indicate that it was acting as an agent for the manufacturer.

The manufacturer periodically contacted the distributor to inquire into the status of the contract and was provided with “evasive responses and false representations” that the yard was not ready yet and that “there’s nothing happening.” The manufacturer contacted the shipyard directly and was promised a response but never received one. During those conversations, it still never advised the shipyard that the distributor was the manufacturer’s agent. As it turned out, the shipyard had been making requests for insulation and the distributor had been filling those requests with materials from one of the insulation manufacturer’s competitors. In the course of the contract, the distributor had submitted a request to add this second manufacturer to the purchase order as an additional source of insulation and that request was granted. As time went by, the distributor got into financial trouble and arranged for the shipyard to pay the second insulation manufacturer directly because it refused to extend any further credit to the distributor. The contract was changed and it operated that way until the contract between the shipyard and the distributor was terminated and replaced with a separate contract between the shipyard and the second manufacturer.

At that point, the original insulation manufacturer filed suit alleging that the shipyard had breached its contractual obligation in the purchase order to obtain insulation products and materials from it. The Court rejected this because the original manufacturer was not one of the contracting parties. The evidence showed that the distributor was the only contracting party and that there was no evidence of an intention on the part of the shipyard to create an enforceable agreement with the original insulation manufacturer. Although the shipyard knew that the original manufacturer expected to supply the insulation to the distributor for the contract, this did not create an enforceable agreement between the shipyard and the original manufacturer. Furthermore, modification of the purchase order to identify the original manufacturer as the supplier of the insulation did not create the contractual obligation on the part of the shipyard to purchase material from the manufacturer. The modification was not the product of any bargaining or negotiation between the original manufacturer and the shipyard, and the original manufacturer did not provide any additional consideration in exchange for the modification. In addition, the Court found that there was no evidence to suggest that the shipyard was aware or should have been aware that the distributor was acting on behalf the original manufacturer as alleged. A claim by the original manufacturer that there was an “implied-in-fact-contract” between the shipyard was also rejected. The Court found no evidence that the shipyard manifested an intent to enter into an enforceable contract.

The original manufacturer also claimed that the shipyard tortiously interfered with its prospective advantage under the alleged agreement between the manufacturer and the distributer by refusing to amend the contract and name the manufacturer as a contracting party, by accepting insulating products from a second manufacturer, and by changing the contract to add the second manufacturer as the supplier under the contract. An element of that tort is that any interference be done intentionally and with “malice.” Malice is defined “to mean that the harm be inflicted intentionally and without justification or excuse.” Even if there were an oral agency agreement between the manufacturer and the distributor, there was no evidence that the shipyard knew of the arrangement at the time of the supposedly tortious actions. Absent evidence of the shipyard’s knowledge of the alleged agency contract, no reasonable fact finder could conclude the shipyard intentionally and maliciously interfered with the agreement or prospective economic benefit that the manufacturer anticipated. The shipyard simply awarded the contract to the lowest bidder, refused to amend the contract to name the original manufacturer as the direct contracting party when it had no obligation and was offered no economic advantage to do so, granted a vendor change order to add another supplier, and accepted the second supplier’s insulation delivered via the distributor when it had no obligation to restrict sources of supply.