Mathews Conveyer Co. v. Palmer-Bee Co.

• Decision Date: 09 April 1943
• Docket Number: No. 9218.,9218.
• Citation: 135 F.2d 73
• Parties: MATHEWS CONVEYER CO. v. PALMER-BEE CO.
• Court: U.S. Court of Appeals — Sixth Circuit

135 F.2d 73 (1943)

MATHEWS CONVEYER CO. v. PALMER-BEE CO.

No. 9218.

Circuit Court of Appeals, Sixth Circuit.

April 9, 1943.

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Harold Olsen, of Chicago, Ill. (Harold Olsen, of Chicago, Ill., and Whittemore, Hulbert & Belknap and Clarence B. Zewadski, all of Detroit, Mich., on the brief), for appellant.

I. Joseph Farley, of Detroit, Mich. (I. Joseph Farley and Donald N. Sweeny, both of Detroit, Mich., on the brief), for appellee.

Before HICKS, SIMONS, and McALLISTER, Circuit Judges.

McALLISTER, Circuit Judge.

The Mathews Conveyer Company brought suit against the Palmer-Bee Company, claiming breach of an agency agreement and asking for an accounting from its alleged agent. The complaint further charged that the Palmer-Bee Company was guilty of unfair competition, infringement of copyright, and patent infringement, for which the conveyer company asked damages and injunctive relief. For convenience and clarity, the parties will be hereinafter referred to as plaintiff and defendant, the capacities in which they appeared on the trial of the case. The district court dismissed the complaint, holding that the agreement in question was one of sale rather than agency, and that the plaintiff was not entitled to an accounting; that defendant was not guilty of unfair competition or infringement of copyright; and that the patents sued upon were void.

Plaintiff is a manufacturer of industrial machinery and equipment, one of its principal products being conveyer machinery for industrial plants. Defendant is, likewise, a manufacturer, and an erector of like products. The agency action arises out of a sale and installation of such machinery, referred to by the parties as the "Chevrolet sale." Plaintiff contends that defendant breached its agency agreement by installing its own machinery in this transaction; that defendant was bound to use its best efforts to promote the sale of plaintiff's product and not to sell any other kind of gravity conveyer machinery; and that it is entitled to an accounting for the profits which it would have secured if its own machinery had been installed instead of that of defendant.

The alleged agreement of agency upon which plaintiff relies is in the form of a letter written by the president of defendant company to plaintiff, confirming prior oral conversations on the matter. Inasmuch as the determination of this issue depends to a large extent upon the terms of the agreement, it is necessary to recite the substance of the stipulations therein contained. The letter set forth that it was the understanding of the parties that defendant was appointed the exclusive sales agent and representative of the plaintiff for the State of Michigan; and that plaintiff would furnish defendant with catalogues and printed matter, which were to bear the impress of the defendant, to assist in the promotion of sales, would furnish engineering data sheets and engineering assistance, and would refer all inquiries from the Michigan territory to defendant. It was further stated that sale of plaintiff's products to defendant would be at prices subject to changes of market conditions, but at no time would exceed the lowest net cost to any other of plaintiff's agents; and it was required that defendant devote its best efforts to the sale of plaintiff's products, keeping plaintiff fully advised as to the progress of the sales department on the more important prospects, and rendering plaintiff, if desired, monthly statements of sales, giving names of purchasers, locations, and list of materials purchased. Defendant also agreed not to sell any other make of gravity conveyer. Prices to defendant were to be subject to market conditions, and terms of payment, 30 days net, 2% cash discount, payable the 10th of the month following purchase. It was also stated that the agreement could be canceled by either party on 60-days' notice in writing.

While the foregoing constitutes the written agreement under which the parties proceeded, the evidence of their dealings disclosed additional understandings; and the parties have assumed that their further agreements and conduct thereunder are to be considered as part of their contract It appears, then, that during the course of their dealings, defendant received from plaintiff a commission on sales made of plaintiff's products and sold the products at prices established by the plaintiff, departing from them only upon plaintiff's approval and at defendant's request. Defendant was permitted to grant a discount to customers not exceeding 10% off plaintiff's list price; and whenever it was necessary to grant a larger discount in order to secure the business, defendant's commission was reduced. The defendant dealt directly with its own customers in securing orders and in delivering and installing the products of the plaintiff. It purchased the products outright from the plaintiff and paid the plaintiff directly for them. Furthermore, defendant billed customers directly in its own name, assumed credit risks for the goods, and obtained full title to the goods by purchase from the plaintiff, exercising complete control therein, including all liability incidental to the installation and erection thereof. The name of the plaintiff appeared in the Detroit telephone directory under the same address and with the same telephone number as defendant's, and inquiries from the public, made direct to plaintiff, were referred to defendant. Defendant kept no stock of plaintiff's product in the state of Michigan and all goods sold to defendant were manufactured by plaintiff and loaded upon cars f.o.b. plaintiff's plant in Pennsylvania.

Agency Agreement

Whether the agreement between the parties and their subsequent understandings and dealings constitute a contract of agency, or sale, is the issue to be determined on this phase of the case.

At the outset, it may be remarked that the word "agency" is frequently used to indicate that a dealer has the exclusive right to sell a specified article in certain territory; but such dealer does not thereby represent the manufacturer as agent in the sense in which that relation is understood in the law of principal and agent, but simply buys from the manufacturer in the regular course of trade and sells the article to the public. Such a transaction is a sale rather than an agency. See Poirier Mfg. Co. v. Kitts, 18 N.D. 556, 120 N.W. 558. In W. T. Rawleigh Co. v. Trerice et al., 224 Mich. 420, 195 N.W. 79, where a contract provided that a defendant in Michigan purchase goods from a foreign corporation f.o.b. in Illinois, and that he give his entire time to the sale of such products in Michigan, make a detailed weekly report to plaintiff, and sell only in a certain locality determined by plaintiff, it was held that the contract was one of sale, the court observing that the business so conducted was the defendant's business and not that of plaintiff.

To establish its claim that the contract was one of agency, plaintiff relies on Willcox & Gibbs Sewing Machine Co. v. Ewing, 141 U.S. 627, 12 S.Ct. 94, 35 L.Ed. 882; and to sustain the contrary view, defendant relies on Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 42 S.Ct. 360, 66 L.Ed. 653. Oddly enough, counsel for neither party attempts to distinguish or even comment upon the authority cited by the other. But the determination of this controversy requires some discussion of both of the cited cases.

In Willcox & Gibbs Sewing Machine Co. v. Ewing, supra 141 U.S. 627, 12 S.Ct. 95, 35 L.Ed. 882, defendant company had appointed plaintiff as its "exclusive vendor" in a defined territory, and had agreed to sell him its machines at a large discount from its retail New York prices. It further agreed that it would not knowingly supply its goods at a discount to go within that territory. The plaintiff accepted the appointment and agreed to pay for the machines at the discount rate; not to sell them below the retail rate; and not to solicit orders in the territory of other agents. It was further agreed that plaintiff's time, attention, and abilities "must primarily be devoted to the forwarding of the interest" of defendant, and that the "appointment or agency" was not saleable or transferable by plaintiff without defendant's consent. When defendant discharged plaintiff and terminated the contract, plaintiff sued for breach of a sales agreement. The court held that the contract was one of agency and that, inasmuch as plaintiff had the right to terminate it on reasonable notice, the defendant had the same right in default of stipulations to the contrary.

In its holding the court stated that plaintiff was "none the less an agent because of his appointment as `exclusive vendor' * * * or because of the peculiar privileges granted to or the peculiar restrictions imposed upon him," and emphasized that he was prohibited from soliciting trade from the territory of "other agents"; that he had agreed to bind "all subvendors or agents" to sustain the established retail prices of the company; and that there were provisions of restrictions upon the sale of his "appointment or agency." "The agreement constituted him the sole agent of the company for the sale of its machines within a certain territory. It is true that the machines he undertook to sell were to be purchased by him from the company at a large discount. But he could not sell them by retail below the regular retail prices. This arrangement was the mode adopted to protect the company's interest, and to secure the plaintiff such compensation for his services as would induce him to devote his time, attention, and abilities to the company's interests. He was still a mere agent to sell such machines as might be delivered to him under the contract." (page 636, of 141 U.S., page 97 of 12 S.Ct., 35 L.Ed. 882.)

The court, in its determination of the case, did not remark upon the fact that the contract in question was preceded...