Measday v. Kwik-Kopy Corp.

Decision Date29 August 1983
Docket NumberKWIK-KOPY,No. 82-2219,82-2219
Citation713 F.2d 118
PartiesJohn T. MEASDAY, Plaintiff-Appellee, v.CORPORATION, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Donald H. Fidler, Houston, Tex., for defendant-appellant.

Charles W. Owens, Lakewood, Colo., Joseph S. Cohen, Houston, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before RUBIN, GARZA and WILLIAMS, Circuit Judges.

GARZA, Circuit Judge:

Defendant-appellant, Kwik-Kopy Corporation, is a national franchisor of instant printing centers. In March 1976, Kwik-Kopy and Measday Enterprises, Inc., had an existing franchisor/franchisee relationship. At that time Measday Enterprises, Inc., was equally owned by Mr. and Mrs. John Measday and Mr. and Mrs. McKenzie. From the beginning John Measday had assumed management responsibility for the franchise, and in 1978 he desired to buy out the McKenzies.

In early 1978, in an effort to obtain additional income, plaintiff-appellee, John Measday, began discussions with Kwik-Kopy regarding the possibility of additional employment with Kwik-Kopy. On June 28, 1978, Measday traveled to Kwik-Kopy's headquarters in Houston. While in Houston he entered into a loan guarantee agreement with Kwik-Kopy which allowed him to buy out the McKenzies. Measday and Kwik-Kopy also executed a Regional Franchise Director Agreement (hereinafter RFD Agreement) and Addendum thereto--the subject of the suit below and this appeal.

In pertinent part, the contract generally provided:

(1) Measday would serve as Kwik-Kopy's Regional Franchise Director.

(2) Measday was responsible for selecting proposed Kwik-Kopy locations in his region in negotiating leases, subject to Kwik-Kopy's approval.

(3) Measday's "prime responsibility" under the terms of the contract was "the development of prospects for sale of Kwik-Kopy franchises."

(4) Once an applicant for a Kwik-Kopy franchise has been found to be qualified, Measday was to provide Kwik-Kopy with a completed franchise application along with the applicant's $1,000.00 deposit and was to assist Kwik-Kopy in completing the sale.

(5) Kwik-Kopy was to pay Measday varying commissions, depending on Measday's involvement in the sale, for each sale of a Kwik-Kopy franchise within his region.

(6) In consideration of the rights he received under the contract, Measday agreed to pay Kwik-Kopy $10,000 to be paid out of the commissions to which he was entitled.

(7) Generally, Measday was to pay his own business expenses and operate as an independent contractor.

(8) Measday was "to devote his full time, energy and effort, making the fullest use of his experience and training, to promote and develop the Kwik-Kopy Trademark and Trade Name in the ... regional area, in addition to promoting the sale of Kwik-Kopy franchises in the given area."

(9) Measday was to meet certain quotas. During the first year, he was to deliver to Kwik-Kopy "six applications for the purchase of franchises in said regional area, together with the prescribed deposit payments of $1,000 from each of said applicants." During the second, third, fourth and fifth years, Measday was to deliver "ten applications for the purchase of franchises each year."

(10) "At the end of the fifth year and thirty days prior thereto, a new quota schedule and a new commission schedule, shall be in order, and shall be negotiated by the parties hereto, depending upon the economic conditions, growth factors and other unforeseeable circumstances."

(11) Kwik-Kopy could cancel the agreement, upon proper notice, if Measday failed to meet his quotas.

(12) Kwik-Kopy was to provide a $10,000 advertising budget for Measday to use to promote the purchases of franchises in his region.

(13) For the duration of the contract and for two years thereafter, Measday was not to compete with Kwik-Kopy and was not to divulge any of Kwik-Kopy's trade secrets.

During Measday's tenure as a Regional Franchise Director, he rented an office from which he operated as the Regional Franchise Director; he established certain procedures for contacting potential franchises; he made site selections for potential franchises; he submitted reports to Kwik-Kopy; he communicated frequently with Kwik-Kopy; and within the first year of the contract he submitted eleven applications for Kwik-Kopy franchises. 1

In February 1979, Mr. and Mrs. Measday and Mike Glass, an employee of Measday's Kwik-Kopy shop, incorporated a business known as Mi-Di-Jo, Inc. Mi-Di-Jo, Inc., was operated as a typesetting business. It had two locations: one contiguous to Measday's Kwik-Kopy Printing Center and the other at Measday's Regional Director office.

In October 1979, Tom Malone, Kwik-Kopy's Director of Marketing, visited Measday in Denver. Malone talked to Measday about a new Area Representative Agreement Kwik-Kopy wanted him to sign. Shortly before he left, Malone gave Measday a copy of the instrument. After briefly looking over the agreement, Measday informed Malone that he did not think he could work under the agreement and that he preferred to work under the existing contract. 2 Malone told Measday that he really did not have much choice.

A few weeks later Malone called Measday and inquired as to whether Measday would sign the new agreement. Measday told Malone that he could not sign the new agreement but preferred to work under the existing agreement. Malone told Measday that he did not have that choice and that if he wanted to continue working with Kwik-Kopy he would have to sign the new agreement.

On November 1, 1979, Malone sent Measday a letter terminating the existing RFD Agreement effective November 30, 1979. 3 Mr. Malone's letter attempts to enshroud Kwik-Kopy's reasons for unilaterally terminating the RFD Agreement. The gist of the letter, however, is that Kwik-Kopy terminated the contract because the contract was not economically beneficial to Kwik-Kopy.

On November 15, 1979, Measday's attorney wrote Kwik-Kopy and demanded that Kwik-Kopy either abide by the terms of the RFD Agreement or compensate Measday for breaking the contract. Kwik-Kopy did terminate the contract, and this suit for damages and specific performance was brought on January 18, 1980.

Motions for summary judgment were subsequently filed by both the plaintiff and defendant. In response to the motion for summary judgment, on January 6, 1982, the district court issued an order that the contract was valid between the parties for a term of five years from June 28, 1978 to June 28, 1983. On February 16, 1982, a jury trial began and on February 18, 1982, the jury returned a verdict that plaintiff had substantially performed under the contract and that the plaintiff's damages were $176,408. On April 29, 1982, the trial court awarded the plaintiff approximately $25,000 in attorney's fees. A final judgment for a total of $201,378.50 was entered on April 29, 1982.

Appellant, Kwik-Kopy, raises several issues on appeal. Kwik-Kopy first contends that the trial court erred in granting partial summary judgment for Measday. Appellant argues the contract was terminable at will and was not enforceable for a five-year term. We disagree.

In Texas, whether an instrument is ambiguous is a question of law. Lasater v. Convest Energy Corporation, 615 S.W.2d 340, 343 (Tex.Civ.App.--Eastland 1981, writ ref'd n.r.e.). If the court finds no ambiguity, the construction of the contract is a question of law for the court. City of Pinehurst v. Spooner Addition Water Company, 432 S.W.2d 515, 518 (Tex.1968). In such a case arbitrary rules of construction should not be resorted to; the court must enforce the unambiguous content of the contract. See Monsanto Company v. Tyrrell, 537 S.W.2d 135, 137 (Tex.Civ.App.--Houston [14th Dist.] 1976, writ ref'd n.r.e.); 14 Tex.Jur. 3D Contracts § 184. Here the district court was correct in finding the contract was not ambiguous and in its construction of the terms of the contract.

The RFD Agreement does not specifically innumerate the term of the contractual relationship. In viewing the contract within its "four corners," reading all clauses together and giving effect to each, 4 however, it is unmistakably clear that the parties intended for the contract to be effective for five years. The RFD Agreement sets forth application quotas for Measday to meet for five years; it allows Kwik-Kopy to cancel the agreement, upon proper notice, if Measday fails to comply with the quota schedule; and it provides for negotiation of a new quota schedule at the end of five years. The district court, therefore, was correct when it stated: "Viewing the contract as a whole, the parties expressed their intent to enter into a five-year relationship which could be terminated by the Defendant under certain conditions."

Kwik-Kopy next asserts the jury instruction was in error. The specific complaints concern the district court's instruction on substantial performance and the district court's failure to submit an issue on Measday's alleged breach.

The problem of substantial performance normally is presented where one party has failed to render a part of the performance as or when promised and the question arises as to whether the other party is privileged to refuse to render a reciprocally promised performance. Corbin on Contracts § 700. It typically arises in construction contracts where a builder claims from the owner payment of the unpaid balance due under the contract; if the builder has not substantially performed, the builder has no claim for the unpaid balance. See Restatement (Second) of Contracts § 237 comment (d) (1979). The principle of substantial performance may be expressed by saying:

... that a breach which is material, or which goes to the root of the matter or essence of the contract, is fatal to the plaintiff's case in spite of his part performance; or ... saying that a plaintiff who has substantially performed is entitled to recover,...

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