Big Cola Corporation v. World Bottling Co., 9327.

• Decision Date: 08 April 1943
• Docket Number: No. 9327.,9327.
• Citation: 134 F.2d 718
• Parties: BIG COLA CORPORATION et al. v. WORLD BOTTLING CO., LIMITED.
• Court: U.S. Court of Appeals — Sixth Circuit

134 F.2d 718 (1943)

BIG COLA CORPORATION et al. v. WORLD BOTTLING CO., LIMITED.

No. 9327.

Circuit Court of Appeals, Sixth Circuit.

April 8, 1943.

Ben C. Welch, of Memphis, Tenn. for appellants.

Harry McEnerny Jr., of New Orleans, La., and Harold W. S. Leeker, of Memphis, Tenn. (Harold W. S. Leeker and Frank J. Glankler, both of Memphis, Tenn., Harry McEnerny, Jr., of New Orleans, La., Canale, Glankler, Loch & Little, of Memphis, Tenn., and Legier, McEnerny & Waguespack, of New Orleans, La., on the brief), for appellee.

Before ALLEN, MARTIN, and McALLISTER, Circuit Judges.

McALLISTER, Circuit Judge.

In May, 1939, appellee World Bottling Company entered into a contract with appellant Big Cola Corporation in which appellee granted the right to manufacture a soft drink concentrate, known as "Dr. Nut," according to appellee's secret formula, as well as the exclusive right to use the registered name "Dr. Nut" in the sale of the concentrate in all states except Louisiana. Adjudication of the rights of the World Bottling Company binds the other appellants of record; and we shall, therefore, refer only to a single appellant as representing all. Under the contract, appellant agreed to pay appellee certain royalties on each gallon of the product which it made and sold. It was further provided by the agreement that appellant keep accurate records of all ingredients purchased by it and used in the making of the concentrate; that such records be open at all reasonable times to the inspection of appellee; and that monthly reports covering the concentrate made and sold be furnished to appellee.

In September, 1940, appellee, becoming dissatisfied with the information furnished by appellant, made an examination of its books and ascertained, according to its claim, that due to an inadequate system of accounting which was maintained by appellant, it was impossible to determine the actual extent of its operations. Thereafter, in March, 1941, appellee declined to accept further payments of royalties from appellant and filed its bill, seeking an adjudication that the contract was void and for remedy by injunction. After trial without a jury, the district court found that the contract was void for lack of mutuality, and decreed relief appropriate to its determination. On review, the issue is narrowed to the question — whether the contract lacked mutuality.

The record on appeal does not contain the contract in controversy and, except for the briefs, we are informed of its terms, including, the foregoing references, only by the trial court's findings of fact and conclusions of law; which, however, as to the stipulations of the contract are undisputed.

In addition to what has been previously recited with reference to the agreement, the court found that the contract was for an indefinite term; that appellee could cancel only if appellant failed to keep adequate records and remit royalties for as much of the product as it manufactured; that appellant had the unqualified right to cancel it on thirty days' notice, if it should prove unprofitable; and that the determination of the unprofitableness of the contract was left solely to the discretion and whim of appellant. Furthermore, the court found that while appellee was bound by the contract in perpetuity, appellant could cancel at will, and as long as the contract was in force, appellant was not bound to do or refrain from doing anything, and that appellant "did not promise to do anything or to refrain from doing anything, and any assumed or imagined obligation upon defendants' (appellant's) part, was subject to their unqualified right to cancel at any time."

From appellant's brief we may conclude that the following were stipulations of the contract:

"In the event that the said party of the second part should find that the manufacture of said concentrate is not profitable, then upon giving thirty (30) days notice to the party of the first part of its desire to cancel this agreement, this agreement shall immediately become null and void, and all the rights granted herein to said party of the second part shall automatically become the property of the party of the first part.

"Failure of the party of the second part to carry out the terms of this agreement promptly and to pay the amounts due to the party of the first part within thirty (30) days of the dates upon which they fall due, shall be considered a breach of this agreement, and the party of the first part reserves the right to cancel this agreement under such circumstances."

However, the foregoing provisions are not in conflict with the court's findings.

It is contended by appellant that mutuality may be implied from the contract in this case. Most of the decisions relied upon, however, have to do with the certainty of the terms of a contract. In several of the cited cases there were stipulations that one party would furnish or sell materials and the other would pay for or buy them; and the question was what quantity was to be so furnished or purchased. Minnesota Lumber Co. v. Whitebreast Coal Co., 160 Ill. 85, 43 N.E. 774, 31 L.R.A. 529; Feuchtwanger v. Manitowoc Malting Co., 8 Cir., 187 F. 713; Dark Tobacco Growers' Coop. Ass'n v. Mason, 150 Tenn. 228, 263 S.W. 60; Rozier v. St. Louis & S. F. R. Co., 147 Mo.App. 290, 126 S.W. 532. In the instant case, we have no mutual promises. In Mississippi River Logging Co. v. Robson, 8 Cir., 69 F. 773, it was held that where a logging company agreed to drive logs for a specified consideration, the fact that the contract did not show that the promisee gave a consideration for the promise, did not render the contract void for mutuality inasmuch as it appeared that previous to the logging company's agreement, plaintiff had executed a release of various claims he had against it, and that such release could be implied as a consideration for the logging company's agreement. In Butler v. Thomson, 92 U. S. 412, 23 L.Ed. 684, the question was whether a memorandum of sale signed by agents of a purchaser and a seller, bound the parties. In Frierson v. International Agricultural Corp., 24 Tenn.App. 616, 148 S.W.2d 27, where a party paid a certain sum for the privilege of holding certain mining property, with rights to mine it or not, for a period of thirty years, suit was filed to cancel the lease on the ground that defendant had failed to mine the property and failed to pay royalties. The Court of Appeals of Tennessee affirmed dismissal of the bill, holding that defendant had paid for its rights to retain the leased premises without obligation to exploit or develop them within the period above mentioned. The application of these cases is not controlling in the present controversy.

In this case, as far as can be ascertained from the contract, appellant did not agree to manufacture or sell any amount of appellee's product. Its only obligation was to keep an account of amounts sold and pay royalties — if it did sell any. It did not promise to do anything or refrain from doing anything; and it could cancel the contract if it felt it was unprofitable.

On the question of mutuality, it may be said at the outset that the mere fact that a party fails to bind himself expressly to the performance of contract stipulations does not in itself render a contract void for want of mutuality. An obligation will be implied when it is clear that such was intended. Crossland v. Kentucky Blue Grass Seed Growers' Coop. Ass'n, 6 Cir., 103 F.2d 565. As otherwise expressed, when the whole contract is "instinct with an obligation," an agreement of a party to perform may be implied. Globe Steel Abrasive Co. v. National Metal Abrasive Co., 6 Cir., 101 F.2d 489. See McCall Co. v. Wright, 133 App.Div. 62, 117 N.Y.S. 775. So where a party promised an agent that he should have the exclusive privilege of marketing designs, and the agent made no return promise, but notification to the agent recited that the party's compensation for the grant of the exclusive privilege was to be one-half of the profits resulting from the efforts of the agent, who was to make monthly accountings and to take out copyrights and trade-marks as might be necessary in his discretion to protect the rights and articles affected, it was held that a promise on the part of the agent to use reasonable efforts in carrying out the contract, was to be implied. Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214. See also Moran v. Standard Oil Co. of New York, 211 N.Y. 187, 105 N.E. 217. Thus, although it may be said that the fact that a party fails to bind himself expressly to perform, may be an indication of lack of mutuality, nevertheless, upon a consideration of the entire contract, if his promise can be implied, the agreement is binding.

Various factors enter into a determination of whether a promise is to be implied from the contract and understanding of the parties, and the question, in the adjudicated cases, is often linked to consideration of contracts void for uncertainty.

Absence of express promise, duration of the contract, performance conditioned only upon the wish or convenience of one party, termination at whim, and whether the terms of the agreement were ascertainable, are among the various circumstances that have been considered decisive of the certainty and mutuality of contracts.

In the Crossland case, supra, while the duration of the contract was indeterminate, and the acts to be performed under the agreement of employment were indefinite, it was held that the contract did not lack mutuality. It was said that where the duration is indefinite, a contract must be performed within a reasonable time; and obligations, even when incapable of exact measurement, may be implied — the test of performance being the exercise of good faith and the expenditure of reasonable effort to the end that the agreement may be fruitful to the contracting parties. In Ken-Rad Corp. v. R. C. Bohannan, Inc., 6 Cir., 80 F.2d 251, where a contract was...