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Red Wing Shoe Co. v. Shepherd Safety Shoe Corp.

December 3, 1947


Author: Sparks

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

SPARKS, Circuit Judge.

This appeal is from a judgment declaring a contract void for indefiniteness and uncertainty. The principal questions raised are whether a contract for an exclusive agency, if valid, obligates a manufacturer to continue to manufacture all the types of goods it made at the time the contract was entered into, and, if no valid, whether the agent designated by it is entitled to recover for alleged breaches in the manufacturer's performance during the period when the parties purported to operate under it.

The contract in controversy was entered into in December, 1933, between a shoe manufacturer and a distributor whom we shall designate as Red Wing and Shepherd. We set it forth in the margin, omitting paragraphs not here material, and abridging the names of the parties.*fn1

The complaint alleges that at the time the contract was executed, appellee Red Wing was manufacturing a complete line of shoes including work, dress and safety shoes, boots, oxfords and specialty items such as golf shoes and bedroom slippers. It further alleges, and appellant denies, that shortly after the signing of the contract, the arrangement relating to prices was modified, and the parties orally agreed that the price to be paid Red Wing for all shoes should be determined by adding 6% to its estimated costs for labor and materials for safety shoes, and that Shepherd itself fixed the prices at which it sold safety shoes to its customers.

The complaint further alleged that Red Wing continued to make and Shepherd to sell the same types of shoes as in 1933 until 1941, when Red Wing's production was sharply curtailed as a result of war time restrictions and regulations; that as a result of these restrictions and controls, the shoe industry generally entered upon a program of specialization, with particular factories concentrating their entire productive capacity upon fewer and similar types and styles of shoes, and thus absorbing increased costs for labor and materials; that appellee, following this general trend, determined to eliminate several of the types and styles of shoes it had previously manufactured; that it nofified Shepherd of this decision by letter of November 19, 1945, stating that it was standardizing its production and had entirely discontinued certain lines.

Correspondence attached to the bill of complaint shows that controversy developed as to the construction of the contract generally, with Red Wing asserting its right to discontinue several types and styles previously manufactured by it and sold by Shepherd, and the latter insisting upon its right to have all orders filled and Red Wing's obligation to carry a floor stock of safety shoes adequate to meet requirements for prompt shipment to its accounts.

By letter of February 18, 1946, Red Wing restated its intention to discontinue the lines, but agreed to fill all orders for those types and styles until June 1, 1946, in a volume equivalent to the volume previously made for Shepherd. It then, on February 19, 1946, filed suit for a declaration of its rights under the contract, asking that it be held not obligated to continue manufacture of the types and styles it made when the contract was entered into, that Shepherd was not entitled to specify the styles to be manufactured by Red Wing, that the latter's election to discontinue certain styles did not constitute a breach of the contract, assuming it to be valid, and that the notice of the election to discontinue certain styles was reasonable as to time. Appellant counterclaimed for a judgment construing the contract adversely to appellee's prayer, enjoining appellee from refusing to carry out the terms of the contract as construed by appellant, and asking for damages for alleged breach of the contract. The judgment was entered following pre-trial conference on the pleadings.

Although appellee did not, in its bill of complaint, ask to have the contract declared void, but merely to have its rights and obligations thereunder construed, on appeal it contends that the contract is void for lack of mutuality, but that if the court should not so find, then that it retained the right thereunder to determine for itself what types and styles of shoes it would manufacture.

Regardless of the validity or invalidity of the contract, we think there can be no doubt that appellee, by its terms, did not abrogate its right to determine what kind of shoes it would manufacture. The contract did not provide that Red Wing must make shoes for Shepherd to sell, but that Shepherd would, during the period of the agreement, devote itself exclusively to the sale of shoes and safety shoes manufactured by Red Wing, and that Red Wing agreed that Shepherd should have the sole and exclusive right to sell shoes manufactured by it. The promises to carry a floor stock to meet the requirements of Shepherd, and to fill and ship orders, must be read in conjunction with the description of the subject matter of the contract, which was in general terms, "shoes and safety shoes manufactured by Red Wing." Shepherd at no time bound itself to sell any amount of any particular style or type of shoe or safety shoe, hence Red Wing cannot be held obligated to manufacture any particular type or style of shoe or safety shoe. Appellant vigorously contends that this is a "service" contract. If so, then it seems clear that appellant, as the exclusive agent of appellee, was obligated to devote itself exclusively to the sale of whatever shoes its principal manufactured, instead of the latter's being compelled to continue manufacturing whatever appellant ordered. This being the case, we think Red Wing was wholly within its rights in discontinuing certain specified styles of shoes theretofore manufactured by it.

While appellee did not, in its bill of complaint, challenge the validity of the contract under which the two parties were doing business, the question arose as a result of the demand by appellant in its counterclaim for damages for alleged overcharges under the contract and for alleged breach of the contract by sales to industries and jobbers, and for loss of profits resulting from failure to fill orders unnecessarily restricted during the war period. The court found, as a matter of law, that there was no provision in the contract whereby the number, quantity, quality or price could be determined with any reasonable degree of certainty, and there was no formula by which a court could determine with any certainty the price at which the shoes were to be sold by the Shepherd Company for Red Wing, or damages for any breach by either party. Hence its finding that the contract was void for indefiniteness and uncertainty.

Appellant, on appeal, earnestly contends that the contract is a binding and enforceable one, but that even if it were not, it is entitled to recover on at least two of the claims of its counterclaim, for damages for alleged sales to customers of the four classes as to whom it was to have the exclusive agency, and for failure to comply with the pricing formula established by the contract, during the period during which the parties purported to act under the contract.

Studying the contracts as a whole we are convinced that it was not a binding and enforceable one. First, as to the term, it purported to be of indefinite duration, so long as sales made on account of Shepherd "amount to a yearly average of $35,000." This language is the subject of serious difference of interpretation by the parties. Appellee contends that it means the average between the four classes of customers referred to in the contract, with an aggregate of at least $35,000 a year. Appellant argues that it means the average between years; by its answer it contended that the contract must remain in force until 1960 by virtue of the sales made during the first thirteen years of its operation, dividing the total of those sales by $35,000, the annual average required, and taking no account of sales to be made during the balance of the period which presumably would push the termination still further into the future. And, by inference, if Shepherd's exclusive devotion to the sale of Red Wing shoes resulted in no sales whatever during that period, it would already have done enough to establish the earliest termination date at 1960, and during this time, Red Wing would be required to maintain at all times floor stocks sufficient to meet the requirements for prompt shipment of goods to fill any such orders as Shepherd might send in. Moreover, Red Wing would be required to refrain during the entire period from any sales to the four classes of customers covered by the contract as to whom it gives Shepherd exclusive rights. This contention is sufficient proof of the indefiniteness of the contract if it had no other vulnerable features. "It is not often that a promise will properly be interpreted as calling for perpetual performance." Williston on Contracts (Rev.Ed) section 38.

The contract is equally defective as to its terms relating to the fixing of prices which appear to us to be quite unworkable: "on the basis of the actual cost of manufacture of the current retail line of mens shoes * * * (made by Red Wing) plus the general average of profit made on said shoes and that from said price, a deduction of 20% shall be * * * net price to Shepherd." The contract does not explain on what basis the cost of the entire retail line plus the general average of profits is to be allocated to each item handled by the parties. Appellant argues that the language is quite clear because every manufacturing plant maintains a cost-accounting system and an accounting system whereby profits and losses in any department can be readily ascertained. That may be, but it still would not explain how the costs and profits were to be broken down to establish the actual gross price from which the net to Shepherd was to be fixed for each item ...

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