Hornell Brewing Co. v. Spry

664 N.Y.S.2d 698 (1997)

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Nature of the Case

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Facts

D approached P about becoming a distributor of P's Arizona beverages. Rumor was that D was an extremely wealthy and successful beer distributor who had recently sold his business. D presented P with an ambitious plan for distributing Arizona beverages in Canada. P granted D the exclusive right to purchase Arizona products for distribution in Canada, and D formed a Canadian corporation, Arizona Iced Tea Ltd., for that express purpose. The arrangement was purely oral. P provided a letter in July 1993 confirming their exclusive distributorship arrangement, but without spelling out the details of the arrangement so D could get financing. During 1993 and until May 1994, P sold to D on 10-day credit terms. In May 1994, after an increasingly problematic course of business dealings, P de facto terminated its relationship with D and permanently ceased selling its products to them. This was due to D's failure to remit timely payment for shipments of beverages. From November and December 1993, and February 1994, D's unpaid invoices grew from $20,000 to over $100,000, and their $1,000 check to P was returned for insufficient funds. D's 1993 sales in Canada were far below D's initial projections. On March 27, 1994, D showed P a letter from Vanguard Financial Group, Inc. confirming 'the approval of a $1,500,000 revolving credit facility' to Arizona Tea Products Ltd., which never materialized into an actual line of credit. During March and April 1994, D repeatedly broke his promises to pay by a specified deadline, causing P to question whether Vanguard's $1.5 million revolving line of credit was genuine. D then arranged for P to speak on the telephone with Richard Worthy of Metro Factors, Inc. P believed Worthy was from an 'unusual lending institution' or bank which was going to provide D with a line of credit, and that nothing was expressly said to make him aware that Worthy represented a factoring company. Worthy also testified that P told him that once D cleared up the arrears, P would provide Spry with a '$300,000 line of credit, so long as payments were made on a net 14-day basis.' P told Worthy that once he was paid in full, he was willing to resume shipments to D 'so long as Steve fulfills his requirements with us.' Payment in arrears would be made by April 19, 1994. P received no payment on that date. Instead, on April 25, P received from D a proposed letter for P to address to a company named 'Metro' at a post-office box in Dallas, Texas. The letter stated the debt owed and that once paid P was to give D a line of credit up to $300,000 with net 14 terms. P received no payment on May 2, 1994. It did receive a wire transfer from Metro of the full amount on May 9, 1994. D then ordered 30 trailer loads of 'product' from P, at a total purchase price of $390,000 to $450,000. D learned from several sources, including its regional sales manager, that D's warehouse was empty, that he had no managerial, sales or office staff, that he had no trucks, and that in effect his operation was a sham. P wrote to D, acknowledging receipt of payment and confirming that they would extend up to $300,000 of credit to him, net 14 days cash 'based on your prior representation that you have secured a $1,500,000. US line of credit.' The letter also stated, that before any more product would be released, P wanted confirmation of the line of credit and a personal guarantee with a personal financial statement that can be verified or in the alternative an irrevocable letter of credit in the amount of $300,000. D did not respond to this letter. P met with D to discuss termination of their business relationship. D never signed the agreement. P sued for a declaration of rights.