James A. Head & Co. v. Rolling

• Decision Date: 13 September 1956
• Docket Number: 6 Div. 954
• Citation: 90 So.2d 828,265 Ala. 328
• Court: Alabama Supreme Court
• Parties: JAMES A. HEAD & COMPANY, Inc. v. Fred ROLLING et al.

Page 828

90 So.2d 828

265 Ala. 328

JAMES A. HEAD & COMPANY, Inc. v. Fred ROLLING et al.

6 Div. 954.

Supreme Court of Alabama.

Sept. 13, 1956.

Rehearing Denied Nov. 29, 1956.

The accountant's draft of the contract involved is as follows:

'Memorandum of Agreement dated August 1, 1949, between James A. Head & Company, Inc., hereinafter called 'Company', and Carl W. Bryson and Fred Rolling, all of Birmingham, Alabama.

'A separate department of the business of James A. Head & Company, Inc. to be known as 'Contract Department', is set up as of August 1, 1949. The gross business of the Contract Department consists of the sales made by James A. Head & Company, Inc., including contracts resulting from orders negotiated by C. W. Bryson and/or Fred Rolling, on or after August 1, 1949, but including the contract with Mississippi State College, which contract though negotiated prior to August 1, 1949, is to be treated as if negotiated subsequent to that date.

'The costs to be charged against the gross sales, including contracts, above referred to, shall, in the case of contracts, include all labor, material and expense costs paid for or on account of the performance of such contracts. In the case of sales other than contracts there shall be charged as cost the actual cost of merchandise sold plus inward transportation charges. If, however, the merchandise sold was on hand and included in the latest inventory, the cost shall be the amount at which such merchandise was included in said inventory.

'The operating expenses of the contract department shall include all direct charges for travelling expenses, advertising, contributions, association expense, selling supplies and expenses, expenses resulting from unsuccessful attempts to negotiate contracts, salaries paid to all persons directly employed by said contract department, long distance telephone and telegrams, licenses and taxes levied directly upon the business of the contract department, including social security taxes upon its employees, and any other direct expenses. In addition to the direct expenses the contract department shall be charged, by monthly installments aggregating $750.00 per month, with the following indirect expenses.

                'Rent  $1,500.00
                Store Supplies and Expense  120.00
                Light, Heat and Water  480.00
                Salaries, Clerical  2,875.00
                Office Supplies and Expense  300.00
                Postage  600.00
                Salaries, Shipping and Porters  2,000.00
                Accounting and Legal  400.00
                Insurance  350.00
                Taxes, General  75.00
                Interest  300.00
                'Total  $9,000.00
                

'The net profit of the contract department shall be the excess of the said sales including contract sales including contract sales, over and above the aggregate of the costs and the direct and indirect expenses, not including any compensation for C. W. Bryson or Fred Rolling. On December 31, 1949, and at the close of each annual accounting period of James A. Head & Company, Inc., thereafter, the net profit of the Contract Department shall be determined, and one-third of said net profit shall be credited to the account of C. W. Bryson and one-third to the account of Fred Rolling.

'It is recognized that the said Bryson and Rolling have been conducting the contract business of James A. Head & Company for sometime prior to August 1, 1949, in the course of which various sales orders and contracts have been negotiated, which were not completely carried out at the close of business July 31, 1949. With the exception of the contract with Mississippi State College, above referred to, all sales and completed contracts pursuant to orders taken or contracts negotiated on or before July 31, 1949, shall be considered the business of James A. Head & Company, Inc. and shall not be considered as revenues of the contract department herein referred to. No salary or other compensation shall be paid to C. W. Bryson, other than his share of the net profits of the contract department, on or after August 1, 1949. On the gross profit on sales and completed contracts, resulting from orders taken or contracts negotiated by Fred Rolling on or before July 31, 1949, the said Rolling shall be paid a commission at the rate prevailing prior to August 1, 1949, and such compensation paid to Fred Rolling with respect to the business negotiated prior to August 1, 1949, shall not be an operating expense of the contract department as constituted and existing on and after August 1, 1949.

'Witness the signature of James A. Head & Company, Inc., by its President, James A. Head, and of Carl W. Bryson and Fred Rolling, in triplicate, this August 1, 1949.'

Lange, Simpson, Robinson & Somerville, Reid B. Barnes, Jas. A. Simpson and Dan J. Meador, Birmingham, for appellant.

Lucien D. Gardner, Leigh M. Clark, J. Asa Rountree, III, and Cabaniss & Johnston, Birmingham, for appellees.

MERRILL, Justice.

James A. Head & Company, Inc., a corporation in Birmingham, hereinafter referred to as 'Head,' is and has been engaged in the office supply business. The president of the Company, James A. Head, is the majority stockholder in the corporation and is practically the alter ego of the corporation.

Carl Bryson, Bob Bodine and Fred Rolling had been employees of the company for various periods of time; Bryson since 1926, Bodine since 1936 and Rolling since 1946. The first two named were directors of the corporation until 1952.

The company's sales were of two types. Ordinary or commercial sales were made to individuals who desired office equipment or supplies, and 'contract' sales were made to schools, churches, hospitals and institutions, where large orders of equipment were installed. Bryson and Rolling were employed to make and service 'contract' sales, while Bodine's sales were of the commercial type.

Prior to August 1, 1949, Bryson and Rolling became dissatisfied with the terms under which they were employed, and were contemplating severing their relations with the company. Negotiations ensued between them and Mr. Head, which resulted in a new contract of employment. This contract was never reduced to writing and signed by the parties, but Mr. Francis Latady, an attorney and Head's accountant and financial adviser, who sat in on the negotiations, prepared a draft of a contract which contained most of the things agreed upon, but it was not totally satisfactory to any of the parties, and was never signed. This draft is referred to by the parties as the 'Latady Draft.' The essence of the contract was that Bryson, Rolling and the company would each receive one-third of the net profits of a new department which would be known as the 'contract department' and that Bryson and Rolling were to manage this department. The net profits were to be arrived at by deducting $9,000 each year for certain itemized expenses, plus all direct expenses.

Mr. Head became dissatisfied with this new agreement, because Bryson and Rolling began making a large amount of commercial or ordinary sales, which Head contends were outside the scope of the 'contract' department, and Head felt their compensation was too large and their 'commercial' sales worked to his disadvantage.

Mr. Head notified both Rolling and Bryson on October 30, 1951 that the contract of employment would be terminated as of December 31, 1951, but that he would like to enter negotiations for a new contract with them. These negotiations proved futile and Rolling and Bryson both submitted their resignations on December 14 and 15, 1951, effective on December 31 of that year. Bodine submitted his resignation on December 16, 1951, also effective on December 31 of that year.

On January 2, 1952, a partnership was formed by the three former employees under the name of Bodine-Bryson & Rolling to engage in the office supply business. One Mrs. Pace, who had been Bryson's secretary, resigned on December 31, 1951 and went with the new partnership. Eventually, 9 former Head employees came to work with the new business.

Immediately upon forming the partnership, Bryson and Rolling began the aggressive solicitation of certain suppliers of lines of merchandise for which Head had been the exclusive dealer. A total of seventeen of these manufacturers eventually terminated their dealership contracts with Head and made new ones with the partnership.

In March and April 1952, Bryson and Rolling began demanding settlement from Head for their share of the profits on business done under their agreement. Head refused to make any settlement and on August 26, 1952, Bryson sued James A. Head & Company, claiming $66,368.25 in a complaint embodying the common counts and a count based on alleged breach of an oral contract. Rolling filed a like suit for $66,836.66 on the same day. On motion of the company, these cases were transferred to the equity side of the court and, as required by the case of Cornelius v. Moore, 208 Ala. 237, 94 So. 57, Head filed its bill of complaint and has since been treated as the complainant.

The tenor and gist of these bills of complaint was that during the period of their employment by complainant and/or immediately after its termination respondents Rolling and Bryson solicited and induced a large number of manufacturers, then selling their products through complainant, to cancel these existing relationships with complainant and to transfer their agencies to respondents or to a partnership called Bodine-Bryson & Rolling, which had been organized by respondents in association with J. R. Bodine (likewise an employee of complainant) to carry on the same type of business as that engaged in by the complainant. They also employed several experienced and trained employees from complainant's organization and began business as of January 2, 1952, and within weeks had twenty-two manufacturers agencies, seventeen of which were with complainant as of December 31 previously and with eleven personnel, including the three partners, nine of whom came out of complainant's organization. The complainant prayed appropriate relief for the breach...