Opinion
The contract between the parties granted the plaintiff the exclusive distributorship of the defendant's refrigeration products in a designated territory. It reserved to the defendant the power to change the territory on written notice and empowered either party to cancel the distributorship on written notice specifying the effective date. The defendant committed a breach of the contract when it assigned to another distributor a part of the plaintiff's territory without notice to the plaintiff. A few days later, the plaintiff gave the defendant written notice that it canceled its distributorship for its entire remaining territory, effective in thirty days. Held: 1. The mutual obligations undertaken by the parties furnished sufficient consideration, moving from each party, to make the contract enforceable. 2. The executory obligations were not rendered illusory by the power of cancellation, since the power had to be exercised in a specified manner. 3. The claim of the defendant that there was no valid contract as far as executory dealings were concerned and that therefore it could break the contract without liability for future losses was without merit. When parties to a contract agree to a rescission of it, in the technical sense of that term, they agree to annul the contract or blot it out. As a result, neither party can be held liable for a breach of the contract. But a cancellation of the contract pursuant to a power conferred by it does not extinguish a liability that has accrued before the cancellation, and this is so no matter which party committed the breach. Held: 1. The court properly treated the cancellation as amounting to a termination of the contract rather than a rescission. 2. The cancellation did not preclude or diminish the plaintiff's right to recover for the antecedent breach. Although the plaintiff could recover for loss of profits proximately caused by the breach, it could not recover for losses resulting from its own act of cancellation. The plaintiff was thus presented with a difficult problem of proof. In an effort to surmount the difficulty, it offered in evidence a computation by an accountant purportedly showing the loss of profits resulting from the breach. Held: 1. The computation was properly admitted in evidence. 2. While the proof may have lacked mathematical precision, it could not be said that the loss, to the extent allowed in the judgment, was not proved with the certainty which the law requires. The trier was not required to conclude, from the plaintiff's failure to claim damages for breach of contract during the negotiations for settling the account between the parties after the cancellation, that the plaintiff was barred from recovery by waiver or estoppel. There was nothing in the conduct of the plaintiff which compelled a finding that it intentionally relinquished a known right, and nothing in the evidence to require the trier to find that the defendant changed its position to its prejudice in reliance on the plaintiff's failure to claim damages sooner. Testimony that it was the custom in the trade to give notice before a change of distributorship was relevant and admissible. It tended to show that the failure of the defendant to notify the plaintiff of the change, so that the plaintiff could inform its customers, might adversely affect the plaintiff's prestige with its customers.
Argued June 6, 1961
Decided July 5, 1961
Action to recover damages for breach of a distributorship contract and for interference with business relationships, brought to the Superior Court in Hartford County and tried to the court, MacDonald, J.; judgment for the plaintiff and appeal by the defendant. No error.
The appellant filed a motion for reargument which was denied.
James W. Carpenter, with whom was William E. Glynn, for the appellant (defendant).
Irving S. Ribicoff, with whom was Louise H. Hunt, for the appellee (plaintiff).
Many of the material facts were outlined in the opinion on a previous appeal and need not be repeated here. See Stern Co. v. International Harvester Co., 146 Conn. 42, 43, 147 A.2d 490. For some time the parties had done business under a contract granting the plaintiff the exclusive distributorship of the defendant's refrigeration products throughout a wide territory which embraced all of Connecticut, most of Vermont and some of Massachusetts. The defendant was empowered to change the territory "by giving notice in writing . . . of such change." On a number of previous occasions it had made changes, sometimes increasing and sometimes decreasing the plaintiff's territory, but always giving written notice as called for in the contract. On or about October 6, 1953, the defendant again changed the territory by giving to another concern the distributorship for the counties of New London and Windham, in Connecticut; and on this occasion the defendant failed to give the plaintiff prior written notice of the change. Indeed, the plaintiff was given no notice at all and first learned of the change from its own salesmen in New London and Windham counties; they telephoned that salesmen of another company were calling on the plaintiff's customers in those counties and were selling the defendant's refrigeration products.
The plaintiff brought this action to recover damages for injury to its business prestige, good will and sales, alleged to have been caused by the defendant's breach of contract. The contract contained a provision empowering either party to cancel the distributorship "without cause . . . by giving written notice to the other party, specifying the effective time of cancellation." On October 13, 1953, the plaintiff gave written notice to the defendant that, effective in thirty days, it canceled its distributorship for the entire remaining territory covered by the contract. The plaintiff asked the defendant to notify it as to what disposition the defendant wanted made of its products then on hand. The contract defined the rights and duties of the parties in settling accounts upon cancellation but contained no provision as to antecedent breaches of contract, though such breaches might motivate cancellation. The power in each party to cancel, upon giving written notice, did not, as the defendant seems to claim, result in the creation of an illusory contract, void for lack of any obligation on the part of either party. The contract remained operative until the power of cancellation was properly exercised. 1 Corbin, Contracts 163, 167, 169. As to the portions of the contract which had been executed on the effective date of cancellation, the rights of the parties remained unaffected by the cancellation. Id. 168; see Gurfein v. Werbelovsky, 97 Conn. 703, 706, 118 A. 32; R. F. Baker Co. v. P. Ballantine Sons, 127 Conn. 680, 683, 20 A.2d 82. The defendant places great stress on the latter case. The facts in it differed markedly from those here. The right of cancellation of the oral contract was given only to the buyer (plaintiff) and was "at will." Here, the right of cancellation could be exercised by either party, but only by giving written notice of cancellation. Restatement, Contracts 79, comment b, illust. 1. Furthermore, during the life of the present contract, that is, prior to the exercise by either party of the privilege of cancellation, there were mutual obligations which existed under the terms of the contract. There were also the provisions as to the rights and duties of the parties after cancellation. Necessarily, these survived cancellation. There was sufficient consideration moving from each party to make the contract enforceable. An interesting annotation on the effect of the reservation of an absolute right to cancel on the validity of a contract so far as it is executory may be found in 137 A.L.R. 919, appended to a report of R. F. Baker Co. v. P. Ballantine Sons, supra. The decision in that case does not support the defendant's contention that here there was no valid contract, as far as executory dealings were concerned, and that therefore the defendant could break the contract with impunity and without liability for future losses.
The defendant claims that the exercise of the power to cancel constituted a rescission and thus necessarily brought about a forfeiture of the right to recover damages for any antecedent breach. Cases on the effect of the exercise of a flower of cancellation which has been expressly provided for in a contract on liability accruing before the exercise of the power are collected in 166 A.L.R. 391. The effect of the exercise of a cancellation provision in a sales agency contract is the subject of an annotation in 32 A.L.R. 209, 215, supplemented in 52 A.L.R. 546, 547, and 89 A.L.R. 252, 254.
It is true that if the parties to a contract mutually agree to its rescission, in the technical sense of the term, they have agreed to annul or blot out the contract and consequently can claim no rights under it and no damages for any breach. Haaser v. A. C. Lehmann Co., 130 Conn. 219, 221, 33 A.2d 135. But even where the parties have employed the technical term "rescind" or "rescission," the term will not necessarily be given its technical meaning. The meaning to be accorded it depends on the fair interpretation of the acts and conduct of the parties. "From all the evidence before it the trier must determine what the intention [of the parties in the use of the word `rescind' or `rescission'] was. Intention is an inference of fact, and the conclusion [of the trier] is not reviewable unless it was one which the trier could not reasonably make." Finlay v. Swirsky, 98 Conn. 666, 671, 120 A. 561. Here, of course, the case is stronger for the plaintiff, since the term "cancel," rather than the term "rescind," was employed. Furthermore, this was not the termination of a contract by mutual agreement after partial performance. Such a termination might constitute a true rescission. Rather, this was the exercise by one party of the power to cancel which was expressly given to each party in the contract itself.
The cases referred to in the annotation in 166 A.L.R. 391 support the statement of the writer of the annotation (p. 392) that "when a contract . . . contains a provision or option giving the right or privilege of cancelation and the agreement is canceled in pursuance of the right [or] privilege thus given, such cancelation does not extinguish liabilities that have already accrued under the contract . . . regardless of whether the liability is that of the party who exercised the option to cancel the agreement or [as in the instant case] is the liability of the party against whom cancelation is made." In the instant case, to equate the cancellation of the contract with a rescission of it in the technical sense would be a wholly unreasonable interpretation, since it would require a forfeiture of the right to damages for any antecedent breach as a condition precedent to the exercise of the power of cancellation, although that power is expressly conferred, without any such condition, in the contract itself. The court properly rejected the defendant's claim of rescission and treated the cancellation as amounting to a termination of the contract which left the parties in the exact condition they were then in. Finlay v. Swirsky, supra, 670; Haaser v. A. C. Lehmann Co., supra; 5 Corbin, Contracts, p. 958. The cancellation did not preclude or diminish any right to recover damages for injuries proximately resulting from the admitted antecedent breach. Factory Realty Corporation v. Corbin-Holmes Shoe Co., 312 Mass. 325, 329, 44 N.E.2d 671; 5 Corbin, op. cit. 1236.
Loss of prospective profits proximately caused by the breach, was, if proven, a proper element of damage. Kay Petroleum Corporation v. Piergrossi, 137 Conn. 620, 624, 79 A.2d 829, and cases cited. The court properly concluded that the plaintiff had proven a loss of profits, to the extent allowed in the judgment, with the certainty which the law requires. See id. This allowance was made only for the period of one year immediately following the breach, and we cannot say the allowance was not warranted under our rule. The defendant complains about the lack of mathematical precision in the plaintiff's evidence of damages. This claim amounts to little more than a repetition of one which was made on the first trial. Stern Co. v. International Harvester Co., 146 Conn. 42, 46, 147 A.2d 490. There was no error in the assessment of damages.
The defendant, in special defenses, stated that the plaintiff, in negotiations for the settling of its account with the defendant after the cancellation, failed to make any claim for damages for the breach of contract and thereby waived them. Waiver is the intentional relinquishment of a known right. DelVecchio v. DelVecchio, 146 Conn. 188, 194, 148 A.2d 554. The court was not required to conclude that the defendant had proven any waiver. The defendant also claims that the plaintiff, for the same reason, is estopped to claim any damages. It is true that the defense of estoppel need not be pleaded. DelVecchio v. DelVecchio, supra, 195. But here there is nothing to require the court to find that the defendant in any way changed its position to its injury or prejudice as a result of the failure of the plaintiff to assert its claim for damages more promptly. See id.
The defendant claimed error in the admission in evidence, in the course of an examination of the accountant who had prepared it, of a plaintiff's exhibit which contained a computation of the plaintiff's loss of prospective profits resulting from the defendant's breach of contract. The exhibit was an effort on the plaintiff's part to surmount a rather difficult problem of proof. While the plaintiff could recover damages for losses resulting from the defendant's breach, it could not recover damages for losses resulting from its own act of cancellation. The court committed no error in admitting the exhibit. See cases such as State v. Hayes, 127 Conn. 543, 601, 18 A.2d 895.
The defendant objected to testimony by the witnesses Charles A. Delia and Arthur DeBiasi that it was the custom of the trade to give notice before a change of distributorship, as was required in the contract here. The court was fully warranted in concluding that the parties knew or ought to have known of a business usage corresponding to a particular provision inserted in their contract. Sottosanto v. Lucas, 108 Conn. 521, 523, 143 A. 902. The evidence of trade usage was material, if not essential, to the plaintiff's case, because it helped to explain why and how the defendant's breach could be a proximate cause of any damage at all. It was largely because of this custom of the trade that the failure of the defendant to notify the plaintiff of the change of territory, so that it could inform its customers before the change became effective, created confusion and doubt in the minds of the customers and thereby adversely affected the plaintiff's business prestige and caused it a loss of profits, as alleged in the complaint.
The other claims of error, including one that the court in fact treated the case as a hearing in damages after admitted liability, in disregard of all defenses, are not well founded and require no discussion.