Opinion
November 27, 1914.
William M. Chadbourne [ Albert F. Jaeckel with him on the brief], for the appellant.
Thomas Downs, for the respondent.
Mr. George Kneuper, as the inventor, and the Filtrine Manufacturing Company, of which Mr. Kneuper was president, manufactured filters in Brooklyn. On December 27, 1910, they entered into an agreement with the Phœnix Cap Company for an exclusive sale of their filters of the standard sizes (but excepting those which required special installation), at a stated schedule of prices. The manufacturers agreed to fill all orders of the Phœnix Cap Company, also to be ready to make deliveries at certain weekly rates; for example, 1,000 weekly was to be the rate of delivery for the "Mountain Spring" filter, one of the principal patterns. The manufacturers also bound themselves not to sell directly or indirectly any filter save through the Phœnix Cap Company; also, not to license any one else to make these filters. They undertook to prosecute infringers, the costs to be borne equally, not exceeding $1,000 a year. The Phœnix Cap Company had an option to take over the manufacturing plant on a royalty basis. After the first year the Phœnix Cap Company could terminate the contract on three months' notice, then taking over any goods manufactured on its order; otherwise the contract was to last for fifteen years, except that after the second year, unless the third party (the Phœnix Cap Company) "purchases annually thirty thousand dollars' worth of products of the first and second parties, said parties may discontinue the agreement after three months' notice in writing to said third party."
The day after execution of this instrument Mr. Alexander, the secretary of the Phœnix Cap Company, had a personal interview with Mr. Kneuper, and urged that the manufacturers increase their production. Mr. Alexander then went to California and made some sales there. Upon his return in February, 1911, he again urged that a larger stock be made up. In March he was equally optimistic, and asked for larger production, in view of the more active distribution his company was planning. Defendants had placed an order with an outside house for the production of the Mountain Spring filter. Mr. Alexander approved of this large order for 50,000, so as to have an ample stock to meet the expected sales, and said the Phœnix Cap Company and the defendants would carry the thing with the responsibility divided equally. On April 6, 1911, the directors of the Phœnix Cap Company voted to spend $10,000 in advertising these filters. Eight salesmen were employed to cover New York and the vicinity. There had also been installed in different drug stores some three or four demonstrators to illustrate the actual operation of these filters.
In May the Phœnix Cap Company began negotiations with Mr. Giles of Chicago for a sale of the New York company to the Hermetic Closure Company, which, about June twentieth, led to a reorganization or merger, forming the present plaintiff. Mr. Alexander resigned on June twentieth, but stayed at the office until July sixth, when Mr. Huxley from Chicago took charge as manager.
The new company first wished to enlarge the scope of the filter contract so as to include special installations. When a draft of a proposed modification was submitted to defendants Mr. Kneuper, as a condition, asked to have a minimum of yearly sales fixed. By July eighteenth these negotiations appear to have been dropped. Plaintiff also objected that some of the filters were lighter in construction than those earlier produced, and suggested some change in the design of the "Mountain Spring" filter.
Mr. Kneuper wrote on July eighteenth that the Filtrine Company had made up from $30,000 to $40,000 of filters under the order of the Phœnix Cap Company, adding, "We have received no orders for nearly a month, and are unwilling that there should be any further delay." Mr. Giles answered on same day that the plaintiff had "until the end of the third year to sell $30,000 worth of your filters and we will certainly not order them faster than we sell them." The next day Mr. Kneuper replied that "The fair construction of the contract is that you shall go ahead and do your best to sell these goods, and make the joint venture as profitable to you and to us as is possible. That does not mean that you are to discharge all your salesmen and lie down on the contract and do nothing. It means energetic effort on your part to sell goods, that is the spirit of the agreement. You have done practically nothing for a month and this course is most unsatisfactory to us. * * * We shall not hold the goods you have already ordered to be manufactured much longer, not beyond a reasonable time."
Defendants, about July twenty-fifth, tendered a truckload of its filters at plaintiff's office, which was declined. On July twenty-sixth defendants wrote setting forth that the Phœnix Company had discharged its salesmen and incapacitated itself from carrying out the contract. It referred to the tender of goods "yesterday" and plaintiff's refusal, claiming that these acts were a breach, and that it, therefore, elected to terminate the contract and to hold the Phœnix Company for damages. The Phœnix Company replied that the letter had been turned over to Mr. Saxe, their attorney.
Up to June twentieth the Phœnix Company had purchased filters and material and its payments therefor up to July fourteenth amounted to $7,733.02; its own sales of such filters in the month of July, up to the twenty-sixth, were over $2,000.
The present action was to recover $150,000 damages for breaking off the contract, to which defendants interposed a counterclaim for $22,592 damages for breach of contract, in that plaintiff intentionally, fraudulently and without justification sought and compelled the defendants to terminate the contract, by withdrawing salesmen and discontinuing all advertising, and by changing the officers of the former company.
The issues, therefore, were: Who committed the first breach? Was the repudiation of July twenty-sixth justified?
It seems to be admitted that all merchandise regularly ordered in writing had been paid for. The defendants' right to terminate rests on establishing inaction by plaintiff such as puts on plaintiff a voluntary disability, by acts like the discharge of employees, and other neglects, amounting to a breach of the agreement. Against this it is urged that all such omissions were within the plaintiff's rights — that the letter of the contract only fixed $30,000 as the annual sales for the third year, also that Alexander's so-called orders for $30,000 or $40,000 were simply general suggestions to have a large stock ready from which orders could be promptly filled. Considering, however, the unsatisfactory testimony as to these directions to manufacture more filters, the omission to enter any such order in the defendants' books, and the entire absence of any written confirmation, and the question whether Mr. Alexander had authority thus to vary the contract, we cannot find that this stock thus made up had been "ordered" by the plaintiff so as to entitle defendants to tender the merchandise. Without written order or demand, and in the absence of any notice, the tender of this truckload was ineffective.
The voluntary stoppage, however, of effort to sell amounted to a breach of an implied condition. The Phœnix Company controlled the sole and entire output of the standard filters. It had the "Mountain Spring" filter stamped "Phœnix Cap Co., sole distributors," which was the imprint on all these filters made after the contract. The Phœnix Company did not deal on a commission basis, but took the goods at stated prices. The total stoppage of orders after June twentieth; the discontinuance of advertising; reducing the selling force from eight to three and then to one; and the like reduction of demonstrators; with Mr. Giles' later direction to defendants to stop manufacture altogether, gave defendants a right to terminate the contract, under the doctrine of a breach of a promise legally implied. This is because the law will intend a promise, when equity and justice require the party to do the thing in question, even though it expressly appears that he never actually made the promise or agreement, which by such implication the law attributes to him. ( Scrantom v. Booth, 29 Barb. 171, 174; Genet v. Delaware Hudson C. Co., 136 N.Y. 593; Wilson v. Mechanical Orguinette Co., 170 id. 542; Creamer v. Metropolitan Securities Co., 120 App. Div. 422, 429.) Especially does this apply in case the buyer himself creates the disability which prevents full performance on his part. ( Wells v. Alexandre, 130 N.Y. 642; Page Cont. § 1443.)
A question arises as to the verdict on the counterclaim. The defendants' gross product could not be charged up against the plaintiff. The verdict on this basis stands in part unsupported, based on the considerations here stated. Taking the situation as it existed on July twenty-sixth, when defendants decided to end their relations with the plaintiff, we think their legal damages were not $7,500, a sum apparently based on the entire stock on hand and even then not clearly established.
It follows that the judgment and order must be reversed and a new trial granted, costs to abide the event, unless defendants stipulate to reduce their recovery on the counterclaim to $2,500, in which event the judgment, as so modified, and order are affirmed, without costs.
JENKS, P.J., CARR, STAPLETON and PUTNAM, JJ., concurred; THOMAS, J., dissented.
Judgment and order reversed and new trial granted, costs to abide the event, unless within twenty days after entry of this order defendants stipulate to reduce the recovery on the counterclaim to $2,500, in which event the judgment, as so modified, and the order are affirmed, without costs.