Champion Spark Plug Co. v. Automobile Sundries Co.

• Decision Date: 06 April 1921
• Docket Number: 142.
• Citation: 273 F. 74
• Parties: CHAMPION SPARK PLUG CO. v. AUTOMOBILE SUNDRIES CO.
• Court: U.S. Court of Appeals — Second Circuit

273 F. 74

CHAMPION SPARK PLUG CO. v. AUTOMOBILE SUNDRIES CO.

No. 142.

United States Court of Appeals, Second Circuit.

April 6, 1921

Denison & Curtis, of New York City (James F. Curtis and Chauncey Belknap, both of New York City, of counsel), for plaintiff in error.

Robert H. Koehler, of New York City, for defendant in error.

For convenience, we shall refer to the parties as plaintiff and defendant. The plaintiff is an Ohio corporation, and the defendant a New York corporation. Under date of July 15 1913, a contract was entered into between the plaintiff and defendant. This contract provided that plaintiff be made and constituted the 'sales agent and distributor' of the defendant, with exclusive and sole right to sell and distribute the products of the defendant, known as spark plugs, in the territory described as follows: 'All foreign countries outside of the boundary limits of the United States, including dependencies and possessions of the United States of America, with the exception of the Dominion of Canada and British Columbia. ' It provided as to the prices of 'regular' Champion plugs, all types and sizes, 'Champion X' and 'Champion priming plugs.' No other plugs are referred to in the contract. It further provided: 'The first party (defendant) agrees that during the life of this agreement it will not sell or cause any of its articles to be sold in the above-described territory, except through the second party (plaintiff), and to refer all inquiries concerning its product from the above-described territory that may be received by it through any source or by any means whatsoever to the second party (plaintiff) for attention.'

It further provided that the plaintiff use its best efforts in promoting the sales of the products of the defendant and to cover the territory by 'agents, traveling representatives, correspondents, and other methods at its command to increase the business in the products of the defendant,' and further 'the first party (defendant) shall as far as able furnish the second party (plaintiff) promptly with such qualities of any of its products as the second party may require,' and 'it shall not advance the prices on its product to the second party beyond those in effect on the date of the execution thereof, and shall give the second party at all times the benefit and advantage of its lowest published prices and discounts on its products, * * * shall furnish the second party from time to time with reasonable quantities of literature and cuts for circularizing and promoting the sale of its products contemplated by this agreement, such literature to bear the name of the second party as the sole foreign distributor for the product of the first party,' and further 'the second party (plaintiff) shall order not less than 100,000 Champion spark plugs of assorted sizes in lots of 200 or over, as its needs may require during the first year of the term of this agreement, and an increase of 33 1/3 per cent. each succeeding year over the preceding year during the term of this agreement, and, failing to do so, the first party (defendant) may, at its election at any time thereafter terminate this agreement by giving not less than 30 days' notice in writing to the second party,' and further 'it is further agreed that spark plugs furnished the second party at the special prices herein indicated, are for export only, * * * and the second party agrees to push the sale of Champion spark plugs in preference to any other makes, but does not agree not to sell any other plugs for which it may receive orders.'

Claiming a breach of this contract, the plaintiff instituted this action upon a complaint which contains six causes of action and demanded judgment for $353,000. The defendant interposed an answer which, in addition to affirmative defenses, set up a counterclaim and demanded judgment thereon for $130,000. It appears from the contract that the defendant had brands of spark plugs under the three specifications of 'Champion.' The plaintiff, by the terms of the contract, was made the sales agent and distributor exclusively for foreign territory. It therefore had no right to enter the domestic market and sell the defendant's product. But it is quite clearly established, and, indeed, admitted by the plaintiff, that, in violation of the terms of its contract, the plaintiff not only entered the domestic market and sold the defendant's products, the Champion spark plugs, but did so at reduced prices. Charged with the breach of this obligation, the plaintiff at first made denial thereof, but subsequently admitted that it sold in the domestic market. This constituted a breach of the contract, and of itself would be sufficient to defeat the plaintiff. It was contended below, and it is here, that, after entering the domestic market and selling plugs, the defendant accused the plaintiff thereof, and at a conference had at Toledo, Ohio, the defendant expressly waived this breach of the contract. This meeting took place on September 28, 1916. On the 25th of September, 1916, the defendant wrote a letter to the plaintiff, canceling the contract, giving as the reason that in violation of the contract the plaintiff had entered the domestic market, to the defendant's damage. Mr. Walters, the president of the plaintiff company, testified that he and the vice president, on their way to this meeting from New York to Toledo, discussed the question of whether they would make a clean breast of their violation of the contract, but they determined not to do so. At this conference, Mr. Walters testified that, after the denial of having sold in the domestic market, it was agreed by the defendant to make deliveries of other plugs ordered, and that thereafter shipments were made and the business relations of the parties continued. Thereafter, it is clear, the plaintiff continued to sell in the domestic market, and further complaint was made in correspondence which ensued. A meeting was held on November 24, 1916, at a hotel in New York City, where the defendant was represented by its sales manager, and it was testified by plaintiff's president that the sales manager said at this conference: 'You want to stop writing those letters. * * * They'll only get you in trouble, and we'll start a clean slate now. Let bygones be bygones. Everything will be all right, but don't sell any more plugs in the domestic field. ' Later other shipments of plugs were made to the plaintiff. On February 5, 1917, the defendant gave final notice that it would no longer ship plugs to the plaintiff, and none were shipped after this date.

The first cause of action seeks to recover $25,000 for an order given for plugs on July 28, 1916; the second cause of action seeks to recover $5,000 damages for a failure to supply an order for 100,000 plugs, which order was given on December 7, 1916; and the third cause of action seeks to recover damages for orders given between January 30, 1915, and August 4, 1916. The fifth and sixth causes of action are for loss of profits due to failure to carry out the terms of the contract, by which failure the plaintiff lost profits during the periods mentioned in the second amended complaint. It is apparent that no orders were received for spark plugs, and no orders were in existence or received by defendant for spark plugs, such as are mentioned in the third and fifth causes of action, at the time of making the contract. In September, 1914, the defendant bought out the business and took on new lines, buying out other manufacturers of spark plugs, to wit, the Jeffery De Witt Company, of Detroit, and the Star Specialty Company, of Chicago. The former manufactured the line known as the 'J-D,' which were manufactured and marketed as such. The Star Specialty Company placed upon the market and sold the brands of plugs herein referred to as 'Ajax' and 'Star.' These lines were separately advertised and catalogued, and distinctly known and sold under such brands. There is no evidence to show that at the time of the making of the contract it was known or contemplated that the defendant would purchase either of these companies or handle their brands.

The plaintiff contended upon the trial, and was permitted to offer proof to substantiate a loss of profit due to failure of the defendant to supply it with these brands for sale in foreign markets. There is some correspondence in the record not amounting to an admission, as to exclusive agency for these new plugs. Damages were claimed for the failure of the defendant to give the exclusive foreign agency to the plaintiff. Defendant made sales of these brands to the Lodge Sparking Plug Company, of England, and of the Champion line to the Fiat Company and Luigi Berrardo, of Italy. Upon the trial a claim was made for damages on the theory that such sales breached the contract. It further appeared upon the trial that, in the case of these latter sales (Fiat and Berrardo) to the respective companies, a commission was paid to plaintiff after explanation, and which commission it accepted with full knowledge of the facts. Upon the trial, and as sustaining a part of the third cause of action, plaintiff claimed damages for the Champion plugs shipped into the foreign territory during the life of the contract by the Ford Motor Company. The Champion X plug, standard Ford equipment, was sold at a low price to the Ford Company under the contract of 1911. Each car which the Ford Company shipped contained four Champion spark plugs, and plugs were also sent to the service stations as service stock. It appears that the Ford Motor Company did not enter into the spark plug business; that is to say, it did not place spark plugs upon the market, but used them solely for the service of customers of the Ford car. There is no evidence that ...