Opinion
No. 4127.
December 31, 1929. Rehearing Denied March 17, 1930.
Appeal from the District Court of the United States for the Eastern Division of the Northern District of Illinois.
Suit by the King-Richardson Company against John Rudin. Decree for plaintiff, following the report of the master, increasing the amount of recovery allowed by the master, and defendant appeals. Affirmed.
Appellant is a citizen of Illinois. Appellee is a New Jersey corporation, with its home office at Springfield, Mass.
For several years prior to January 1, 1914, appellee was engaged in publishing, selling, and distributing books which were sold on an installment payment plan. It sold single volumes, and a set known as the "Bible Story." It had established a large and remunerative business, with a good will, and this was based almost entirely on the sale of "Bible Story." It had two principal branch offices, one at Springfield, Mass., and the other at Chicago, Ill. Appellee's right to manufacture and sell "Bible Story" was upon a royalty contract with Hall and Wood, and appellee owned the plates from which the work was printed. The printing and binding of appellee's books were done by one William H. Nevins, doing business as the Springfield Printing Binding Company.
During the time covered by the events in this case Nevins owned more than 50 per cent. of the stock of appellee, was its controlling manager, and, from about February 1, 1916, was its president. Appellant owned a small block of stock of appellee.
Appellant had been associated with appellee about 27 years, and continuously since 1910. He had served appellee as a selling agent, a department manager, and in the years 1915 and 1916 as president of the corporation. He was thoroughly familiar with appellee's method of conducting its business.
On January 1, 1914, appellee and appellant entered into a written agreement, witnessing as follows:
"That Whereas said Rudin for some years has been in the service and employ of said Company in various capacities and is now the manager of the Chicago Branch of said Company and
"Whereas it is sought to continue said Rudin in the service of said Company, particularly in the capacity of manager of said Chicago Branch:
"Now, Therefore, in consideration of the mutual undertakings of the parties hereinafter expressed, it is agreed as follows:
"1. Said Company agrees to employ said Rudin for the period and upon the terms hereinafter stated as manager of the branch of its business located in said Chicago, known and hereinafter designated as `Chicago Branch.'
"2. Said Company agrees to bill to said Chicago Branch its publications at a uniform discount of seventy-five per cent. (75%) from the retail prices as stated in the prospectuses furnished by said Company for use by said Chicago Branch, and also to bill to said Chicago Branch prospectuses, printed matter and all supplies at cost.
"3. So long as this agreement remains in force, as compensation for his services as manager and for such other services as may be performed by him in connection with the business of said Company, said Rudin shall be allowed and shall be paid the entire net profits of said Chicago Branch realized after paying for all books sold by said Branch at twenty-five per cent. (25%) of retail price, all supplies at cost and all expenses of said Branch, including all salaries, wages, commissions, freight and rent, and in anticipation of said net profits said Rudin shall be entitled to draw out of the business of said Chicago Branch, Four Hundred Sixteen Dollars and Sixty-six Cents ($416.66) per months, payable at the end of each and every month.
"4. Said Rudin hereby covenants and agrees to devote his entire time and attention exclusively to the business of said Company, to do all business in the name of the King-Richardson Company, whose agent he is, to pay for all publications and all prospectuses, printed matter and supplies as hereinbefore specified, and to pay all expenses of said Chicago Branch, including salaries, wages, commissions, freight and rent, and to satisfy all claims and obligations created by or through him in connection with the business of said Chicago Branch, all of which expenses and obligations shall be satisfied in full before said Rudin shall (except in anticipation as hereinbefore provided) become entitled to draw any portion of the net profits of said business. For the purposes of said business, said Rudin shall keep a bank account in some Chicago bank, said account to be in the name of `King-Richardson Company, Chicago Branch.'
"5. Said Rudin further agrees to keep an accurate record of all territory assigned and worked or partially worked, showing the number of books sold in each city, town or village, recorded in a book furnished by said Company and to be paid for by said Chicago Branch, and to keep all the reports and correspondence with agents carefully and systematically filed. Said Rudin further agrees to keep full, true and accurate books of account, showing in detail the scope and nature of the business of said Chicago Branch, open at all times to inspection by the officers of said Company, all of which books, records, accounts and correspondence at the termination of this agreement he agrees to turn over to said Company, together with daily and weekly reports and expired contracts and all other original papers and documents. He further agrees that no credit shall be given to any one in the employ of said Chicago Branch until adequate letter of credit or other security is furnished.
"6. The term of this agreement shall begin January 1, 1914, and end December 31, 1918, unless said Company shall be adjudged a bankrupt or shall go into the hands of a receiver, in which event this agreement shall become and be thenceforth null and void.
"7. No oral agreement shall in any way modify the terms or be construed as a waiver of any part of this agreement.
"8. It is mutually understood and agreed that the so-called existing Department Manager Contract made and entered into between the parties is superseded by this agreement, and the parties thereto are hereby released from all obligations thereunder."
On January 12, 1916, a supplemental agreement was entered into "providing that Rudin should pay his indebtedness to King-Richardson, including the amount due for 1914, on or before February 1, 1916, that the balance due for business done during 1915, should be paid on or before September 1, 1916, and that thereafter the balance due on any year's business was to be paid by September 1st following, but Rudin was to render monthly statements of the collections and disbursements and remit to the company the amount remaining after deducting proper disbursements, retaining not more than $700.00 on deposit for conducting the business.
"The contract contains the same provision as that of January 1, 1914, with reference to King-Richardson billing to the Chicago Branch all books at 75% from the retail prices stated in the prospectuses and supplies at cost, and further provides that when the business of the Chicago Branch should for any year equal $85,000 all books in excess of that would be billed at a discount of 80% from the retail prices.
"In this contract Rudin agreed to devote his entire time and attention to the business of King-Richardson, to serve the company and fulfill in every particular the contract of January 1, 1914, as modified by this contract, that he would not directly or indirectly associate himself with or in any manner aid or enter into any business which directly or indirectly competed with the business of King-Richardson, and guaranteed the payment of all sums to become due to King-Richardson under the contract and the time of payment thereof.
"On September 8, 1917, a second supplemental agreement was entered into by which Rudin was given the exclusive right to sell the publications of King-Richardson in twenty specified states and part of another state, additional territory, if not already assigned, to be given upon application in writing; King-Richardson agreed to fill Rudin's orders within a reasonable time, but to deliver at least one car load once each year and at other times to keep Rudin reasonably supplied; Rudin agreed to furnish to King-Richardson a bond protecting it against loss caused by Rudin's failure to pay his indebtedness according to the terms of his contract, King-Richardson to pay 50% of the premium on the bond; King-Richardson agreed that the prices then being charged for publications to Rudin should not be increased unless cost of material and manufacture increased; Rudin waived his claim for damage by reason of the failure of King-Richardson to deliver books at certain times and King-Richardson waived its claim for interest on the balance due from Rudin at September 1, 1917.
"On October 19, 1918, a contract was entered into between the parties renewing and continuing in force until January 1, 1922, the contract of January 1, 1914, and supplemental contracts of January 12, 1916, and September 8, 1917.
"By this contract Rudin was given the option upon its expiration of paying the entire amount due King-Richardson with a two per cent. discount or of taking until September 1st following and furnishing satisfactory security therefor to King-Richardson, the security to be either in the form of cash deposit, real estate, bonds or personal guaranty.
"The contract provides that when Rudin's account should be paid in full and he had satisfied all just claims against the Chicago Branch all accounts receivable of the Chicago Branch, together with the books of account in which the accounts were kept, should become the property of Rudin and he should have the right to collect the accounts in the name of King-Richardson and convert the proceeds to his own benefit, all other records of the business of the Chicago Branch of King-Richardson, particularly territory records, also all furniture and all other property in Chicago belonging to King-Richardson to be delivered to King-Richardson upon demand at the termination of the contract, and Rudin agreed to protect King-Richardson from any and all claims for compensation or for any other cause arising from his conduct as manager of the Chicago Branch.
"It was provided that in the event of Rudin's death during the period of the contract his legal representative should continue the business and carry out the contract to completion as nearly as possible the same as though Rudin were living and have the same rights and benefits, said representative to put in the place of Rudin some one familiar with the business and satisfactory to King-Richardson, preferably some one from Rudin's organization, the representative to co-operate as far as possible with King-Richardson in turning over Rudin's organization to King-Richardson at the end of the contract.
"It was also agreed in this contract that owing to the increased cost of paper in the retail price of `Bible Story' sets should after February 1, 1919, be increased one dollar and charged to the Chicago Branch at 25c above the price then being charged, no other increase in price to be made without Rudin's consent, provided that in the event the cost of manufacture advanced so as to make it inequitable for King-Richardson to continue the prices, the actual net increase in cost was to be added to the billing price, and in case of a decrease in the manufacturing cost an equitable readjustment in prices was to be made.
"On January 3, 1920, a supplemental contract was entered into fixing certain prices per set for `Bible Story' to be maintained for the edition then being printed without regard to the amount of business done, providing for an increase of 35c a set on the following edition, the prices of subsequent editions to be increased or decreased in proportion to an increase or decrease in the cost of manufacture.
"On December 23, 1920, a supplemental contract was entered into providing that in consideration that the Springfield and Chicago Branches of King-Richardson agreed to take 20,000 sets of `Bible Story' each year for two years commencing January 1, 1921, and pay for the same as per the terms of Rudin's contract, King-Richardson would make certain prices therein named, to be increased if the price of paper and material increased 5%, that as the prices were based upon the annual sale of 20,000 sets there would be an increase for less than 20,000 sets sold each year, and therefore if the two branches purchased less than 20,000 but more than 15,000 sets, the price of each set would be increased 50c and if they purchased less than 15,000 sets the price would be increased one dollar, a discount of 50c per set to be allowed on all above 20,000 purchased. This contract provides for the extension of Rudin's `agency contract' for one year or until December 31, 1922.
"On May 4, 1922, an agreement was entered into reciting that it was for the purpose of adjusting certain claims each party made against the other. It provided that Rudin would upon delivery of the agreement pay $10,000 on his account, that within ten days King-Richardson would ship 400 sets of `Bible Story' and on or before July 1st would ship approximately 2,000 sets depending upon the minimum permitted to obtain a car load rate, Rudin upon receipt of the bill of lading for said car to pay $20,000 to be applied on his 1921 account.
"Rudin agreed to remit and pay weekly on each Saturday beginning May 13th, except during the week the $20,000 was paid, all sums received by the Chicago Branch after deducting the usual and necessary expenses of the branch, retaining as a working account in bank a balance of not more than $3,000, the payments of $10,000 and $20,000 not to be considered a part of the weekly remittances.
"The agreement states that Rudin claimed certain damages and credits on his 1921 account which King-Richardson disputed and provides for the appointment of arbitrators to determine the merits of the claims of each party, their decision to be final, one arbitrator to be selected by each party and a third by the other two, Rudin to be permitted to withhold not to exceed $4,000 of the amount due on the 1921 account until the decision of the arbitrators, the remainder of the 1921 account to be paid on or before September 1, 1922.
"King-Richardson agreed to continue to manufacture and ship to the Chicago Branch `Bible Story' sets, `How to Use' volumes, single volumes, prospectuses, and supplies within a reasonable time after ordered in writing and in car load lots if ordered.
"The contract recites that it is specifically understood that none of the terms of the contracts then in existence were waived or set aside and that the modifications made were for the purpose of specifying certain deliveries and payments on the account of Rudin with the company.
"The supplemental contracts contained provisions retaining in force the original contract of January 1, 1914, and all supplements thereto except as modified by the particular supplement being made."
The arbitration provision was carried out, and on May 10, 1923, appellee was awarded $4,000. This was in full for appellant's account for books during 1921, but it was never paid.
When Rudin began his duties under the contracts, he stepped into a going concern with an established business and a valuable good will. The business continued in the same name and manner as before, with the same selling organization and in the same quarters. Rudin employed and discharged the salesmen and other employees, and took care of all details in connection with the business of the Chicago branch, doing all business in the name of King-Richardson Company, and paying the employees and all other expenses of the branch out of collections coming into his hands from books sold.
Early in 1922 Rudin began to negotiate with the department managers and office managers of the Chicago branch with a view to taking over the organization at the expiration of the contract. These negotiations resulted in an understanding that they, carrying with them the solicitors and agents under them, would associate themselves with Rudin at the expiration of the contract, either in carrying on the business of King-Richardson Company, if control of that company were purchased, or in some new enterprise; and during the remainder of the period of the contract preparations were going on among them looking to the taking over of the organization and the carrying on of the new business; and at the expiration of his contract Rudin, as planned, took over the whole organization.
When Rudin assumed the management of the Chicago branch, the business was carried on at 2301 Prairie avenue under a lease to King-Richardson Company as lessee. It was so continued, by renewal or extension, until November 27, 1920, at which time Rudin, contrary to the order, and without the knowledge, of appellee, took a lease to himself individually for said premises, running from January 1, 1921, to January 1, 1926.
In carrying on the business, appellee, from time to time, shipped to Rudin such books and supplies as it thought would provide for the filling of the orders taken by the Chicago branch, basing its estimate of the necessary amount on stock and sales reports furnished by Rudin. Up until December 31, 1920, inclusive, appellee credited Rudin's account for the year with whatever books were on hand, and charged his account for the next year with the same, thereby arriving at the balance to be paid by the following September 1, and requiring Rudin to pay on any year's business only for the books sold. Appellee fixed the retail price at which the books were sold.
Prior to 1921 the parties understood that the branches were to base their orders for the year on the sales they expected to make during the year. In the year 1921, after the execution of the supplemental agreement of December 23, 1920, appellant began to complain of lack of shipments; to which appellee replied that appellant had been furnished more books than he had sold, and cautioned him not to overorder, as under the different conditions none of the books could come back on the inventory at the end of the year. During 1921 appellee shipped to Rudin the 13,000 sets ordered by him. At the end of that year appellant had on hand, unsold, 3,400 sets. They were treated, and charged in the 1921 account, as sold sets, without objection by either party.
Up to March or April, 1921, Rudin furnished to appellee monthly statements of collections and disbursements of the Chicago branch; after that time he failed and refused to furnish said statements, although frequently requested by appellee to do so. He also failed to make remittances to appellee of all receipts of the Chicago branch, after deducting all proper disbursements and the bank balance as provided in the contract, although frequently requested to do so by appellee. This situation continued until the termination of the contract.
On March 25, 1922, Rudin placed what he termed his 1922 "Bible Story" order for both the Chicago and Springfield branches, stating that he was increasing his proportion of the 20,000 sets and taking 14,000 sets. Appellant denies that this order was accepted by appellee, and appellee, under its interpretation of the contract, insists that it did accept the order. In any event, some books were shipped to appellant under this order, and he received them.
During the early months of 1922 appellant still failed and refused to send reports and remittances to appellee; and appellee, in turn, diminished the shipments. The situation became acute. Appellant was claiming credits, and damages for failure to ship, and appellee denied liability therefor. This resulted in the execution of the supplemental agreement of May 4, 1922. After this appellant, at various times previous to and including November 8, 1922, ordered a total of 14,252 sets. Whether these were original orders, or specific orders under the general order of March 25, 1922, is immaterial.
During 1922 appellee delivered to appellant 7,701 sets. On December 22, 1922, it made a shipment to Chicago of 3,225 sets in the name of the Springfield Printing Binding Company, consigned to the same name, which sets appellee refused to deliver to appellant. These Rudin recovered in a replevin suit in the state court, and thereafter retained them. Payment for this carload of books is not sought in this case, but these books are to be calculated in the number received by Rudin under his contract. Appellee also held a carload of said books at Springfield, Mass., consisting of 3,075 sets, which it refused to deliver to appellant.
On January 10, 1923, appellee served a written demand upon appellant covering all the items of relief prayed for in its amended bill.
Appellee's refusal to deliver more than 7,701 sets to appellant in 1922 was due to the fact, so it alleged, that appellant had violated his contract in not making reports and remittances. During 1922 appellant refused to permit appellee to make an audit of the books of the Chicago branch. The master ordered one to be made, which was done, and also ordered appellant to produce papers and correspondence for appellee's inspection. This was also done, and thereafter appellee filed its amended bill, alleging the following additional violations of said contracts on the part of appellant, as a further justification of appellee's action in refusing to deliver the books: (1) That appellant conspired with other employees of appellee to ruin appellee's business: (2) that he enticed away appellee's employees who were under contract with appellee; (3) that he failed to devote his entire time and attention to the business of appellee; (4) that he took the lease of the Chicago premises in his own name; (5) that he and the manager of the Springfield branch copied and exchanged territory and subscription records; (6) that he signed promissory notes in the name of appellee without appellee's knowledge or authority; (7) that he refused to permit appellee to audit the books of the Chicago branch. Much, if not all, of the information upon which these additional charges of violation of the contract were based was secured by appellee, for the first time, from the results of the audit and the inspection of the correspondence.
Prior to 1922 it had been the practice of appellee to furnish appellant with odd volumes of "Bible Story," though it had threatened to discontinue the practice on account of the frequency of the demands. On November 29, 1922, appellant placed an order for odd volumes, which appellee refused to fill unless appellant would agree to take the broken sets appellee had left on hand.
During 1922 appellant made efforts to purchase the stock owned by Nevins in appellee company. These efforts were continued in the early months of 1923, but without success. Appellant also did many things, as shown by the evidence, to depreciate the value of the stock of appellee company. He entered into negotiations with Hall and Wood to rewrite "Bible Story"; and to write another book of the same nature, for his new organization, to compete with "Bible Story," in case he was not successful in purchasing the stock of Nevins. He importuned Hall and Wood to cancel their royalty contract with appellee, and furnished them legal advice for that purpose. He urged them to bring suit to accomplish that end, and also to collect their royalties on books ordered by him and not delivered. He discouraged prospective purchasers of the stock of appellee, as well as prospective managers of the Chicago branch. He tried, by over ordering in 1922, to secure a sufficient number of sets of "Bible Story" to run him until about the middle of 1923, at which time he expected to have his new production well under way. He continued to sell his unsold "Bible Story" in 1923 in the name of appellee, after the termination of the contract. He continued to borrow money at the bank in the name of appellee after December 31, 1922, and this same money constituted a very large proportion of the tenders which appellant made to appellee in order to avoid this controversy.
Appellee was able to dispose of only a few sets of the carload of books held at Springfield, and was thus unable to minimize its damages, all of which were caused by appellant's activities as above set forth.
On the 9th day of April, 1924, appellee filed its amended bill of complaint against appellant, praying for an accounting, money judgment, a receiver, and mandatory and injunctive relief.
Appellant filed an amended answer, in which he prayed for damages against appellee for failure to deliver books, loss of profits, overcharges on books and supplies, and failure to furnish volumes to complete broken sets, in the total sum of $86,006.68. Against this he admitted the following credits due appellee:
Balance due on 1921 account ........... $ 4,000 00 Balance due on 1922 account ........... 46,951 83
— leaving an alleged balance due appellant of $35,054.65. The issues were closed by appellee's reply, and the matter was referred to the master in chancery. No receiver was appointed by reason of the fact that appellant deposited with the clerk of the court, on March 8, 1923, the sum of $52,055.10. Of this amount $7,680 was paid to appellee on December 27, 1923, by order of the court. Such proceedings were had before the master that on the 27th day of October, 1926, he filed his report, finding nothing due appellant on his counterclaim, and that there was then due appellee from appellant the following amounts:
Balance due on 1922 account ........... $47,910 03 Balance due on 1921 account ........... 4,000 00 Interest on remittances withheld ...... 352 09 __________ $52,262 12 Less amount paid by clerk, December 27, 1923 ................................ 7,680 00 __________ $44,582 12
To this report both appellant and appellee filed exceptions, and upon hearing same the court approved the master's findings but added to the amount due appellee from appellant the following items:
Disallowing appellant's objections ................. $ 580 00 Allowing appellee's exceptions ..................... 40 00 Carload of books which appellee held in Springfield and refused to deliver to appellant because he breached his contract, and later, by his conduct, prevented appellee from selling ..................................... 26,726 20 Increased price of 7,701 sets delivered by appellee in 1922, by reason of fact that appellant failed to take, in that year, as many as 20,000 sets .............................. 7,701 00 Interest on arbitrators' award from May 10, 1923, to September 23, 1927 .................. 873 44 Interest on deposit with clerk from March 8, 1923, to December 27, 1923 .................... 1,934 52 Interest on said deposit from December 27, 1923, to September 23, 1927 ...................... 3,511 85 __________ $41,367 01 Amount found due by master ......................... 44,582 12 __________ Total amount due appellee by decree ................ $85,949 13
The decree further ordered that appellant, upon demand by appellee, should assign to appellee a lease upon certain business premises in Chicago, and should turn over to appellee certain records; and enjoined appellant from thereafter collecting certain accounts receivable, from doing any business in the name of appellee, from handling mail addressed in the name of appellee, and from interfering with or preventing appellee from re-establishing its business in Chicago.
The mandatory and injunctive provisions of the decree are entirely incidental to the issues involved in the money judgment.
Louis G. Caldwell, of Chicago, Ill., for appellant.
Edward W. Everett, of Chicago, Ill., for appellee.
Before ALSCHULER, PAGE, and SPARKS, Circuit Judges.
Most of the questions involved herein as raised and discussed in the arguments and briefs, depend for solution upon a construction of the contracts — whether they constitute an agreement of agency or of sale. Most of the cases in which such questions have arisen have been cases where the rights of creditors of the parties were involved. Here there is no such question, and in this case we must therefore look to the contracts themselves and the acts of the parties thereunder in order to determine the intention of the parties in relation thereto.
When appellant first became manager of the Chicago branch, under the contract of January 1, 1914, he was placed in charge of a going concern which was owned by, and conducted under the name of, appellee, and had been for many years; and the contract at that date referred to him as an agent. There was no claim on his part, and never has been, that he sustained any other relationship to appellee, either under the original contract or any of the supplemental agreements which were executed prior to December 23, 1920. The books were all shipped to the Chicago branch under appellee's name; the bank account was carried in that name; all the contracts of the employees of the Chicago branch, and all the individual subscribers' contracts for books, were made in appellee's name, as was also the lease for the premises. Appellant was required to pay for only the books he had sold, and those remaining unsold at the end of the year were carried on the inventory for the ensuing year.
During the latter part of 1920 a sharp controversy arose between the parties relating to the prices which appellee was charging appellant for "Bible Story." Appellant vigorously demanded a reduction in price, and threatened appellee with suit for damages and with termination of his contract of employment. This led to, and resulted in, the supplemental agreement of December 23, 1920, which appellant claims terminated his agency and constituted him a purchaser. With this contention we cannot agree. The contract of December 23, 1920, was made for the express purpose of adjusting existing differences, and they were adjusted. It merely proposed to furnish appellant so many books at a certain price, provided appellant would agree to take that many books each year for two years, beginning with January 1, 1921, and pay for them as per terms of the old contract; and it further provided that appellant's agency contract be extended to December 31, 1922.
The business of the Chicago branch was carried on, and all contracts were continued or executed, in the name of appellee, and in exactly the same manner as before, until May 4, 1922. In the meantime reports and remittances were not being made by appellant; a controversy arose as to the amount due appellee for the year 1921; damages and credits were claimed by Rudin; and this situation continued until the supplemental agreement of May 4, 1922, was entered into. Likewise appellant claimed that this agreement terminated the agency contract and constituted him a purchaser thereafter. Neither can we agree with this contention. The language of the contract forbids any such construction. It was made expressly for the purpose of adjusting conflicting claims, and not to modify, add to, or take from the former contracts except as stated. It further stated that "none of the terms of the contracts now in existence are waived or set aside. Modifications made by this agreement are for the purpose of specifying certain deliveries and payments on the account of Rudin with said company." This is the language of appellant as well as of appellee.
The business of the Chicago branch was carried on under this contract in the name of appellee and in the same manner as before, except that the unsold books in the hands of appellant at the end of 1921 were not carried forward in the inventory of 1922, but were charged to appellant's 1921 account; and appellant had prior notice of that fact. This act certainly was not sufficient to change the contract of agency to one of sale. Appellee's, not appellant's, money was invested in the contents of the inventories, and it was only good business judgment on the part of appellee to avoid the accumulation of unsold stock. We hold therefore that under all the contracts appellant was at all times the agent of appellee. Willcox Gibbs Co. v. Ewing, 141 U.S. 627, 12 S. Ct. 94, 35 L. Ed. 882; Champion Spark Plug Co. v. Automobile Sundries Co. (C.C.A.) 273 F. 74.
Being the agent of appellee, it was appellant's duty to exercise good faith in relation to all of his dealings with the subject-matter of the agency, and at the termination thereof to account properly and accurately for and to turn over to appellee all the property and rights intrusted to his care. We have been unable to find any evidence warranting the adoption of appellant's theory that he was the owner of the organization of the Chicago branch, or of the lease for the premises. It is true that he greatly improved the organization which appellee turned over to him, and made it more efficient, but this of itself could not convey title of the organization to him. The labor occasioned by this effort must be held to have been compensated by the remuneration he received under his contract. He was not the owner of the lease, and never claimed to own it until November 27, 1920, when he took the lease in his own name without the knowledge or consent of appellee. Equity will not permit this to be done. Appellant should have turned over the lease and the organization to appellee on demand. He might not have been able to turn over the working force of the organization, but equity cannot excuse him from this obligation until he has made an effort, in good faith, so to do. Stephens v. Gall (D.C.) 179 F. 938.
The contract does provide that under certain conditions precedent appellant shall be entitled to the accounts receivable and the books in which they are kept. These conditions are that he shall pay his indebtedness to appellee, and that he shall satisfy all just claims against the Chicago branch. These things were not done, and for this reason appellant is in no position to demand the benefit of the contract in this particular.
Appellant insists that the contracts permitted him to keep said organization and lease to the extent necessary to sell the unsold books on hand, and to make collections in the name of appellee. The contracts give no right to retain the lease and to sell books after their termination. They do give him the right to collect accounts in the name of appellee, provided he has paid appellee's claim in full and has satisfied all just claims against the Chicago branch. These provisions were not complied with.
Appellant insists that he had a right to make arrangements in 1922 looking to his continuing in business with a new publication in 1923. This we do not question, provided he did nothing in that respect, at those times, which seriously affected the present interests of appellee's business, which he had promised faithfully to serve. This right is also dependent on the further provision that he did not infringe on the time which he had promised to devote to appellee's interest. The size and completeness of his new organization, and the effectiveness of it in practically destroying appellee's business, evidently convinced the District Court that appellant had not brought himself within these provisions. We think the court was clearly right.
With respect to appellant borrowing money at the bank and executing appellee's notes therefor, which notes were also signed or indorsed by himself, it is sufficient to say that neither the contracts nor the prior conduct of the parties warranted any such conduct on appellant's part. The fact that appellant and an officer of the bank stated on the trial that they did not consider them as obligations of appellee is not a sufficient answer except as to appellant and the bank. It certainly would not be a good answer as against an innocent purchaser for value before maturity. Appellant had no right to subject appellee to any such possible liability.
In the matter of failure to make remittances to appellee, it is appellant's contention that, after he had paid appellee in full for books delivered to him during any calendar year, he had a right to withdraw his profits on books sold during that year, after such profits were collected; or, in other words, to deduct the amount owing (but not paid) to employees before making his weekly payments. The express provisions of this contract prevent this construction. Appellee was liable for the debts of the Chicago branch incurred by appellant when he was acting within the scope of his authority. He was authorized to make contracts with employees. They were made by him in writing, and appellee's name was signed to them. These obligations were not questioned. They were not paid, as appellant states, as a matter of convenience. If this be true, he must assume the obligation which such a departure from the contract lays upon him. Appellant agreed to remit and pay on each Saturday all sums received by the Chicago branch after deducting the usual, customary, and necessary expenses of said Chicago branch and also a working bank balance of $3,000. We think appellant was not warranted in deducting unpaid obligations from his weekly cash balances; but that he should have deducted only the actual expenditures and the authorized working bank balance of $3,000, and remitted the remainder each week to appellee. Appellee, under the contract, was entitled to this protection.
Appellant contends that appellee's obligation to bill supplies to him at cost did not permit appellee to include "overhead"; and that, in any event, the amount so charged as "overhead" was excessive. Overhead is a part of the cost of production of any manufactured article. Whether the charge therefor in this case was excessive was found adversely to appellant, and the court adopted that finding. We cannot disturb it.
We are unable to agree with appellant's contention that the term "single volumes" should be construed to include "odd volumes" for broken "Bible Story" sets. We think the District Court ruled correctly in deciding this question adversely to appellant.
Appellant contends that under the contract appellee was obligated to furnish to appellant, in 1922, the number of books ordered, and that that number was not dependent upon appellant's probable sales for that year. He bases this contention on the supplemental agreements executed December 23, 1920, and May 4, 1922. These agreements are not to be construed alone, but in connection with the prior contracts between the parties. By express terms the prior contracts are made a part of the last two agreements, except wherein they are inconsistent. Prior to December 23, 1920, both parties understood that appellee was to deliver no more books in any one year than appellant could probably sell in that year. For some time in the latter part of 1920 appellant had complained vigorously of appellee's prices, and had threatened to terminate his contract with appellee if a reduction in price were not made. It was under these circumstances that appellee proposed by letter, on December 23, 1920, to make certain prices to the Chicago and Springfield branches if they would take 20,000 sets each year for two years and pay for them as per terms of "your contract." There being no terms of payment in this proposition, this statement without doubt refers to the former contracts. This contract also provides that, if appellant took more than 20,000 sets in each year, the price would be decreased; and if he took less than 20,000 sets, the price would be increased. Appellant was not bound to take any definite number, and it is quite evident that appellee did not know how many appellant would take. This proposition was accepted by appellant, and, of course, both parties were bound by it; but we are of the opinion that it did not materially change the prior contracts, except as to prices, and that appellee was under no obligation to furnish appellant more books for each year than appellant would reasonably need for sale in that particular year.
Prior to the execution of the contract of May 4, 1922, appellant had been complaining greatly of appellee's failure to ship books, and there were other serious differences between the parties; and it was under these circumstances that the parties entered into the agreement of that date, for the express purpose of "adjusting claims, and not to modify, add to or take from the former contracts." It was agreed therein, on the part of appellee, to deliver certain specified sets, and also to ship others in carload lots if ordered by appellant. This, in our opinion, was not sufficient to warrant appellant in ordering more books than he could reasonably expect to sell up to and including December 31, 1922, that being the date of the expiration of the contract. The reasons for this construction seem to us to be very cogent. This had been their own construction prior to 1921. Appellant had not sold all of the books delivered to him in 1921. He had never before sold so many books in any one year as he ordered in 1922. He did not intend to sell in 1922 all the books ordered in that year, and he had no right to sell them after 1922. Appellant was not paying on his account as he had agreed. Appellee was, and had been, protesting against unnecessarily tying up its capital in frozen assets, either by inventory or long running accounts.
The interests of both parties herein should be, and we think are, determinative of their intentions. We can see no reason, under the contracts, why either party should desire such a construction on this phase as that asked by appellant. The reason for such demand, of course, is not based on any right under the contract, but it is based on the fact that appellant was, by that construction, attempting to secure a sufficient stock of books for sale to keep his new organization going until his new publications should be on the market. This he had no right to do. Appellant and the Springfield branches having sold less than 15,000 sets during 1922, appellant was chargeable with $1 per set extra for the 7,701 sets which appellee delivered to him in that year.
That appellant was liable to appellee for interest on remittances withheld in 1922, we have no doubt. The computation is accurate, and the court was fully justified in charging appellant with this item.
That appellant violated his contract with appellee in the many respects stated in the decree there can be no question, and no good purpose can be served by repeating them. We hold that these violations were sufficient to justify appellee in refusing to deliver books to appellant.
It is strenuously insisted by appellant, however, that he should not be charged with $26,726.20 which he says represents the contract price of 2,692 sets remaining unsold out of the Springfield carload, plus $1 per set. This statement is at least confusing. This amount does not represent the contract price; it represents damages which the court found appellee sustained by reason of being prevented by appellant from selling the books. It is true that appellant wanted, and tried, to take them, but he had violated his contract, and appellee refused to deliver. To have delivered them to appellant would only have furthered the conspiracy to ruin appellee's business. We must bear in mind also that appellee was a publisher, and disposed of its product only through branch offices. It was well within its right, when it refused to deliver the Springfield carload to appellant, in thinking that it could dispose of those books through other branch offices. In any event, it was not, under the circumstances, obligated by law to deliver them to appellant. Later, when the facts were fully developed, it was found that appellee had neither branch offices nor agents. There was no accessible market for appellee's unsold books. Thus was appellee damaged by not being able to sell the books on hand at Springfield, and it had no opportunity of minimizing such damage. The court found that appellant was the cause of that damage, and measured it by the price which appellant had agreed to pay for the books under his contract, and ordered them delivered to appellant. In this we think the court was right, and by the order of delivery protected appellant as much as the circumstances warrant.
We have examined the contents of the various tenders made by appellant, and are not disposed to set them out in this opinion. They were either insufficient in amount or substance, or the principal amounts of such tenders were procured by notes to which appellant had unlawfully signed appellee's name. By reason of these facts, and the further fact of appellant's violations of the contract, the tenders were of no avail to appellant.
The fact that appellee continued to fill appellant's orders after it had knowledge that appellant had, in some respects, violated his contract, would not preclude it from relying on these same violations after other and more serious violations had been revealed to appellee. Champion Spark Plug Co. v. Automobile Sundries Co. (C.C.A.) 273 F. 74. Likewise, certain allegations of violation in the original bill would not prevent appellee from inserting others in its amended bill, of which it had no knowledge, or not sufficient knowledge, at the time it filed the original bill, and which were for the first time revealed to it under an order of the court. Farmer v. First Trust Co. (C.C.A.) 246 F. 671, L.R.A. 1918C, 1027.
Under all the circumstances surrounding the relations of the parties to this case, covering a period of many years, we are not inclined to make an allowance to appellee for attorneys' fees or for the expenses incurred in making an audit of the books.
What has herein been said necessarily leads us to the conclusion that appellant can recover nothing on his counterclaim.
The judgment is affirmed.