STEELDUCT CO v. HENGER SELTZER CO (1944)

Plaintiff is a corporation with its principal place of business at Youngstown, Ohio, and authaorized to do business in the State of California. It is engaged in the sale and merchandizing of rigid steel conduit, rigid steel elbows and couplings

Defendant is a copartnership consisting of Edward W. Henger and Ira R. Seltzer, doing business under the firm name and style of Henger-Seltzer Company, with its principal place of business in the City of Los Angeles, California, where it acted as a manufacturers' agent.

On September 1, 1928, plaintiff and defendants entered into an agency contract, by the terms of which the former agreed that the latter would act as the exclusive agents of plaintiff in marketing its products in the State of California. Subsequently, on May 11, 1934, by mutual agreement the agency contract was revised by limiting defendants' exclusive territory to Southern California and the State of Arizona.

So far as pertinent to the determination of this appeal, the agency contract provided that defendants would faithfully and honestly, to the best of their ability ‘carry out and perform the obligations imposed upon them by the fiduciary relationship for which provision is made in this agreement’; and further that defendants ‘shall neither sell nor attempt to sell, any of such material outside of said territory, nor any similar and/or competitive material either in or out of said territory’.

The Seventh paragraph of said contract provided ‘That either party to this contract may terminate the same upon ten days written notice of its intention so to do to the other party’.

In March of 1938, defendants, through correspondence, urged upon plaintiff that the contract be further revised so as to provide for a definite and certain term for the duration of such agreement. In support of their request that the contract be made for a definite term, defendants wrote plaintiff in part as follows: ‘Since we have so much more of an investment than the average so-called manufacturers' agency in our business, we feel that we would like to have an assurance in writing of continued cooperation with concerns such as yours'. In this correspondence, defendants gave expression to their fear that a charge in the officer personnel or management of plaintiff corporation might, on account of the ten day termination clause in the contract, result in defendants finding themselves ‘out on a limb without anything to hang onto’, if such new or changed officer personnel decided to take advantage of such ten day termination provision.

In a letter dated April 4, 1938, defendants submitted to plaintiff a letter contract embodying a suggested revision of the agreement so that defendants would be appointed as plaintiff's exclusive agent in Southern California for a definite period of five years. On May 31, 1938, plaintiff adopted the language contained in defendants' letter and forwarded to the latter a communication amending the original contract by appointing defendants exclusive agents for the territory of Southern California and Arizona for a definite period of five years without the right to terminate upon notice of such intention. The letter reads as follows:

‘This is to confirm our agreement appointing the Henger-Seltzer Company as our exclusive agents for Southern California for a period of five years on such lines of our manufacture as they have been regularly handling heretofore.

‘It is understood that they will, throughout this period, maintain an organization sufficient to adequately represent us in that market and that they will handle no lines conflicting with our own.

‘The basis of remuneration will be the same as is now in effect, or as may be mutually agreed upon from time to time.

‘The purpose of this agreement is to continue the mutually satisfactory relationship we have had with each other for some years with an understanding for a definite period of time which we hope may be further extended at the end of this period.’

In reply to the foregoing letter, defendants, under date of June 7, 1938, in confirmation of the amended contract, wrote plaintiff as follows:

‘We very much appreciate your letter of May 31st confirming our understanding in regard to representing you in Southern California.

‘We sincerely hope that our very pleasant relations continue for many many times five years.’

However, less than one year thereafter, defendants negotiated a contract with Central Tube Company of Pittsburgh, Pennsylvania, a competitor of plaintiff, and by the terms of which contract defendants became the exclusive agents of plaintiff's competitor and placed orders for the merchandise of such competitor. The contract between defendants and plaintiff's competitor was dated March 20, 1939, and provided that defendants would call upon ‘all buyers of rigid steel conduit’ in Southern California and Arizona and, by such agreement, defendants agreed not to ‘carry a stock of rigid steel conduit, manufactured by * * * any other manufacturer of such product’.

After their appointment as agents for plaintiff's competitor the defendants, under date of March 10, 1939, wrote plaintiff: ‘It is with extreme regret that we find it necessary to advise you that we are terminating our agreement * * * on conduit, and that we are making other arrangements'.

On March 16, 1939, plaintiff, in a telegram to defendants, advised them ‘Cannot accept cancellation and expect you to maintain contract’.

Thereafter plaintiff commenced this action for an injunction, accounting and damages. The cause proceeded to trial before the court sitting without a jury, resulting in a judgment for defendants herein. From such judgment plaintiff prosecuted an appeal which resulted in the reversal of such judgment by Division Two of this court. Steelduct Company v. Henger-Seltzer Company, 50 Cal.App.2d 475, 123 P.2d 100, 101, hearing denied by the Supreme Court.

After stating that ‘The primary question is whether the agents had a right to cancel the contract, which was made for a definite period, and if not, what are the rights and remedies of the manufacturer.’ Division Two of this Court said in its decision:

‘It is abundantly clear from the letter of respondents, which induced appellant to execute the letter contract, that respondents desired a definite term contract without a right of cancellation. A contract that was to endure for a term of five years with a right of cancellation on ten days written notice with or without cause, would have left them ‘out on a limb’, exactly as they felt they were by the terms of the contract of September 1, 1928. The letter contract did not in terms adopt or reject the provisions of the earlier contract, but it is plain from the language used that the terms thereof were to govern, except the provision for cancellation, which we think was impliedly eliminated. The respondents were responsible for the terms of the letter contract, and so all ambiguities therein are to be resolved against them. The court's finding that the contract was validly terminated ten days after the notice was given is not sustained by the record.

‘Respondents' further contention that they had just cause for cancellation is plainly an afterthought. Such cause, if any, was not made the basis for cancellation. Moreover, the evidence does not sustain the contention and there is no finding on it.’

Upon the going down of the remittitur, plaintiff filed an amended complaint containing three causes of action, and wherein they prayed for damages; an accounting; and an injunction restraining defendants from representing, during the term of the contract, within the territory therein defined, any competitor of plaintiff.

By their answer to the amended complaint, defendants denied all allegations of wrongdoing on their part and, as separate defenses, alleged that any and all agreements existing between plaintiff and defendants were mutually abandoned by them on or abut April 17, 1939, by reason of plaintiff's appointment of Tri-State Supply Corporation as its exclusive agent in said territory in the place and stead of defendants and with the latters' consent thereto. And that any and all agreements existing between plaintiff and defendants for the sale of plaintiff's merchandise in the territory involved were breached or revoked by plaintiff in the months of November and December 1938 and January and February 1939 in that plaintiff refused and continued to refuse to permit its products ‘to be sold in the territory in competition with products of like character and quality, and said plaintiff further refused like or equal discounts to the purchasers of its materials in said territory, but was giving and continued to give greater discounts or rebates to one or more purchasers of its materials, than it gave or allowed to other purchasers of its said materials purchasing similar quantities and under similar conditions in said territory’.

The cause proceeded to a retrial on June 4, 1943, before the court sitting with a jury. Plaintiff offered no evidence in support of the third cause of action in its amended complaint and, as to such cause of action, a nonsuit was granted.

The issues presented by the first and second causes of action were submitted to the jury, resulting in a verdict for defendants.

From the judgment entered upon such verdict and ‘from the orders and rulings made in the above entitled action * * * entered on or about the 20th day of July, 1943,’ plaintiff prosecutes this appeal. Reference by us to the Clerk's Transcript on Appeal discloses no such ‘orders and rulings', nor are the same referred to in the briefs. Consequently, the attempted appeal from such ‘orders and rulings' must be dismissed.

Appellant's first contention on this appeal is that, by its decision in the former appeal, this court established the validity of the contract between the parties; that such contract was not mutually abandoned by the parties thereto; and that no just or legal cause existed for cancellation of the contract by defendants. Appellant's contention in this regard must be sustained, and there being no claim that the evidence produced at the second trial in regard to these issues was not substantially the same as was offered at the first trial, the decision on the former appeal became the law of the case, and it was the duty of the trial court to proceed with the second trial upon the theory that the aforesaid issues were determined in favor of plaintiff by the former decision on appeal and that such determination was binding upon the trial court and conclusive of those questions at the second trial.

With reference to defendants' right to terminate the contract, the District Court of Appeal, on the former appeal, in plain and unequivocal language states ‘Respondents' further contention that they had just cause for cancellation is plainly an afterthought. Such cause, if any, was not made the basis for cancellation. Moreover, the evidence does not sustain the contention and there is no finding on it’. Even though it be conceded that, upon the retrial, the evidence was different, the doctrine of the law of the case applies unless on the second trial the evidence was substantially different in a material respect. And this is the rule notwithstanding the fact that in the previous decision evidence contained in the record was not quoted or cited in the opinion. In re Estate of Baird, 193 Cal. 225, 236, 223 P. 974. The case of People's Lumber Co. v. Gillard, 5 Cal.App. 435, 438, 90 P. 556, is authority for the statement that the doctrine of the law of the case is not confined to that portion of the decision of the appellate tribunal which can be said to be strictly essential to the disposition of the case.

From the foregoing, it follows that the defendants are precluded by the ‘law of the case’ now to attack the validity of their contract, or to maintain that such contract was mutually abandoned, or that there existed any just or legal grounds for their cancellation of such agreement. Davis v. Edmonds, 218 Cal. 355, 358, 359, 23 P.2d 289; Sorensen v. Pyrate Corporation, 9 Cir., 65 F.2d 982, 984, 985; Wells v. Lloyd, 35 Cal.App.2d 6, 94 P.2d 373; Coats v. General Motors Corp., 11 Cal.2d 601, 81 P.2d 906.

Furthermore, the evidence clearly establishes the fact that at no time was there a mutual abandonment of the contract, but, on the contrary, abundantly establishes the fact that defendants terminated and breached the contract in violation of the terms thereof.

There is, therefore, left for consideration but two questions: (1) Did appellant fail to prove by a preponderance of the evidence that it lost profits or sustained damages? and (2) If lost profits and damages were proven, did appellant fail to prove, by a preponderance of the evidence, the amount of the damages with reasonable certainty?

To us it clearly appears that there can be no question but what appellant proved by a preponderance of the evidence the net profits it would have made on the business done by respondents for the competitor of appellant after respondents had breached their contract. However, respondents raise the question as to the correct measure of damage. Respondents epitomize appellant's contentions in that regard as follows: ‘You breached your contract with us. You represented a competitor thereafter. We appointed a new agent in your place. Nevertheless, everything you sold for the competitor you sold for us. You are estopped to deny that our merchandise would have been satisfactory to all buyers of your new principal's products and you are also estopped to deny that you could have sold for us all of the material that our new agent sold as well as all that you sold for our competitor.’

It is respondents' contention that if appellant sustained any damage in this case, it would be the difference, if any, between the profits it would have realized had respondents performed throughout the term of their contract, and the amount of profits appellant realized during said term through the activities and performance of its new agent, appointed after respondents had abandoned their contract with appellant. In other words, respondents contend that when the contract was breached the legal duty devolved upon appellant to do, as it did,—appoint a new agent in the territory and thereby minimize its damages. Respondents further argue that appellant's failure to offer proof as to the results achieved through its new agent created a fatal defect in its proof of damage. At the trial, respondents were prepared to prove that appellant's sales were greater in volume and amount than were the sales made by respondents, and that appellant's profits were greater in the years in which it was served by the new agent than in the preceding years when it was served by respondents, but that such evidence was excluded by rulings of the court sustaining objections thereto, as well as to respondents' offers of proof in that regard.

By the terms of their contract with appellant, the respondents accepted the exclusive agency for appellant's products and specifically agreed not to sell or attempt to sell ‘any similar and/or competitive material in or out of said territory’. When respondents breached their contract and sold the merchandise of appellant's competitor in the territory wherein they had agreed not to, we are convinced that the measure of appellant's damage was the profits it would have made had respondents, in accordance with their contract, sold appellant's merchandise as they had agreed to do. In other words, the products of appellant and its competitor being similar and the appellant having provided its ability to furnish such products to the respondents and it being the duty of respondents to sell only appellant's merchandise, it follows that whatever would have been the profit to appellant from the sale of a like quantity of its products by respondents would be the measure of damage. The evidence showed that appellant was able to supply to respondents the same type and character of merchandise which the latter sold for the former's competitor. As to the claimed uncertainty of the amount of damage sustained by appellant we are impressed that the difficulties with which such an issue is beset do not afford a ground upon which respondents can complain since such uncertainties, if any, existed only because of the wrongful act of respondents themselves in breaching the contract. Our view of the measure of damages in this case is supported by the holdings in Long Beach Drug Co. v. United Drug Co., 13 Cal.2d 158, 88 P.2d 698, 89 P.2d 386; Sorensen v. Pyrate Corp., 9 Cir., 65 F.2d 982, 985, 986; Hollywood Cleaning & Pressing Co. v. Hollywood Laundry Service, 217 Cal. 124, 17 P.2d 709; Ahlers v. Smiley, 163 Cal. 200, 205, 124 P. 827; Oakland California Towel Co., Inc., v. Sivils, 52 Cal.App.2d 517, 126 P.2d 651. We hold that appellant was entitled to recover as damages the profits it would have made on the competitive products which respondents, as agents, sold for a competitor in violation of their contract with appellant. What we have herein said is determinative of both the measure of damage and the question of whether such damage was proved with reasonable certainty.

From the foregoing, it is obvious that the judgment appealed from by plaintiff must be reversed. However, there is no reason for the retrial of any issues, except those of damage. All other issues were determined by the law of the case established in the previous decision on appeal.

With regard to the injunctive relief sought in the case at bar, it appears that the contract here in question contains both affirmative and negative stipulations and is a contract of such a nature that specific performance could not be decreed. Therefore, equity will not interfere to prevent a breach of the negative covenants when the affirmative covenants cannot be specifically enforced by judicial decree. To enforce affirmative covenants of the contract with which we are here concerned would require constant and protracted supervision by the court because such covenants provide for a succession of acts and their performance cannot be consummated by one transaction. Manifestly an injunction could not properly be granted herein. Long Beach Drug Co. v. United Drug Co., supra.

Appellant urges that, because there can be no dispute in this case of its right to recover judgment against respondents, and because ‘there is absolutely no conflict in the evidence as to the amount of the damage suffered by appellant’ that in reversing the judgment herein this court should direct the entry of judgment by the court below in appellant's favor for the amount of damages allegedly proved.

As hereinbefore noted, the instant action was not only one in which a jury trial was a matter of right, but the cause was actually tried before a jury. The amount of damages due from defendant was expressly put in issue by the pleadings. By its verdict in favor of the defendants, the jury impliedly found that no amount of damages was due plaintiff from defendants. While section 4 1/212, article 6, of our State Constitution and section 956a of the Code of Civil Procedure gives to the appellate courts, in proper cases, the power to make findings in nonjury cases, the rule seems to be that, in cases where a jury trial is a matter of right and has not been waived, an appellate court will not make findings contrary to the conclusions of the jury. Tupman v. Haberkern, 208 Cal. 256, 280 P. 970. In the instant case, where the parties were entitled to and actually had a jury trial, if this court should direct the trial court to render a judgment in favor of plaintiff after an adverse verdict by the jury, such judgment would be unsupported either by verdict or findings, and on appeal thereafter would be reversed.

For the foregoing reasons the attempted appeal from ‘the orders and rulings made in the above entitled case * * * entered on or about the 20th day of July, 1943’ is dismissed. The judgment is reversed and the cause remanded for a retrial of the isues of damage only.

WHITE, Justice.

YORK, P. J., and DORAN, J., concurred.