Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.
Before SPARKS, MAJOR, and KERNER, Circuit Judges.
This is an appeal from a judgment in an action to recover damages for breach of a sales agency contract. Jury was waived, and the court entered judgment for the defendant.
The question presented is whether appellant is entitled to damages for loss of profits alleged to have resulted from the illegal termination of his contract.
Appellant sued upon a contract entered into between the parties as of April 1, 1929, although it was not actually signed until about June 10, 1029. According to its provisions, appellant was given an exclusive agency for the sale of appellee's products in a district including the State of Ohio, parts of Michigan, West Virginia, New York, Pennsylvania, Virginia, and Kentucky, as well as parts of Ontario, Canada. The contract provided for a commission of 8% on certain products and 5% on others, the rate depending upon the type of product sold. The products consisted of fibre and bakelite articles. The term of the contract was fixed by the follwoing paragraphs:
"It is mutually agreed by both parties of this contract that it is to cover the period from April 1st, 1929 to December 31st, 1933 and that it is to continue thereafter from year to year, unless either gives notice in writing at least thirty days prior to the December 31st its termination is desired.
"Upon giving such notice of termination, this contract shall become null and void upon the next date of expiration, which in that case will be on the December 31st following the giving of notice, and both parties agree that notice of termination implies and carries with it a complete release from all the conditions of the contract."
The contract itself made no reference to the payment of expenses of the sales district, although that matter was covered in a letter written by the president of the company shortly before appellant took over the district, as follows: "Under our regular selling terms to Sales Managers covering certain definite districts, all the expense of selling is assumed by the Sales Manager, and his compensation from the Company is in the form of a commission at the rate of 8%, figured on the net sales."
January 18, 1930, appellant was requested to and did sign a supplemental instrument which provided that the 1929 agreement might be terminated at any time upon thirty days notice prior to the termination of any contract year, said notice to be given in writing, addressed to the appellant, for any of the following causes:
"(a) In the event that party of the second part shall at any time while the agreement is in force fail to devote his entire time, skill and attention to the business of the party of the first part; or that without the consent of the party of the first part he shall undertake to sell or sell materials manufactured by any person or corporation other than the party of the first part; or that without the consent of the party of the first part he shall undertake to sell any materials of the party of the first part in any territory other than specified in his Agreement; or that in the event that in the opinion of the Board of Directors of the party of the first part he shall at any time for a reasonable period fail to produce sales of the product of the party of the first part which shall be satisfactory under the conditions in the industry then existing.
"(b) In the event that the existence of the said Agreement shall prove to be of such a nature as to prevent or delay negotiations which may during the term of said Agreement be instituted for a sale, merger, consolidation or other change in the corporate structure of the party of the first part, or of the identity of the interests controlling the same."
The supplement also provided that in the event of the cancellation and termination of the original agreement in accordance with any of the foregoing conditions, the party of the first part agreed to indemnify the party of the second part for any loss or damage to which he might be put by reason of liabilities upon leases of office space or warehouse accommodations, clerical bills, telephone and similar office charges or any other obligations he had assumed as an incident to the contract and which had been approved by the Board of Directors either at or prior to such termination. The contract was further modified in December, 1931, by a substantial increase in the rate of commissions payable under it.
Appellant entered upon performance of the contract in April, 1929, establishing headquarters first at Cincinnati and later at Cleveland. Until 1931, he maintained offices in a factory, the operation of which he supervised until its dismantlement in that year. Offices were also maintained in several other cities in the territory. Appellant paid all rentals of the various offices, salaries of office help, salesmen, entertainment and other expenses incurred in the operation of the sales organization. During the year 1929, he made a profit of almost $30,000 on his business. The year 1930 was less profitable, with net earnings of only a little over $12,000. By the year 1931, expenses had mounted, and sales declined, so that the net result for the year was a loss of over $5,000. The ...