Pharo Distributing Co. v. Stahl

• Decision Date: 01 December 1989
• Docket Number: 88-CA-2484-MR and 88-CA-2550-MR,Nos. 88-CA-0982-M,s. 88-CA-0982-M
• Citation: 11 U.C.C. Rep. Serv.2d 814,782 S.W.2d 635
• Parties: 11 UCC Rep.Serv.2d 814 PHARO DISTRIBUTING COMPANY; David Pharo; and David Pharo, d/b/a Pharo Distributing II, Appellants, v. Eric STAHL, Appellee. and PHARO DISTRIBUTING COMPANY; David Pharo, Individually; and Pharo Distributing Company and David Pharo, d/b/a Pharo Distributing II, Appellants, v. Eric STAHL, Appellee. and Eric STAHL, Cross-Appellant, v. PHARO DISTRIBUTING COMPANY; David Pharo, Individually; and Pharo Distributing Company and David Pharo, d/b/a Pharo Distributing II, Cross-Appellees.
• Court: Kentucky Court of Appeals

Page 635

782 S.W.2d 635

11 UCC Rep.Serv.2d 814

PHARO DISTRIBUTING COMPANY; David Pharo; and David Pharo, d/b/a Pharo Distributing II, Appellants, v. Eric STAHL, Appellee. and PHARO DISTRIBUTING COMPANY; David Pharo, Individually; and Pharo Distributing Company and David Pharo, d/b/a

Pharo Distributing II, Appellants, v. Eric STAHL, Appellee. and Eric STAHL, Cross-Appellant, v. PHARO DISTRIBUTING COMPANY; David Pharo, Individually; and Pharo Distributing Company and David Pharo, d/b/a

Pharo Distributing II, Cross-Appellees.

Nos. 88-CA-0982-MR, 88-CA-2484-MR and 88-CA-2550-MR.

Court of Appeals of Kentucky.

Dec. 1, 1989.

Discretionary Review Denied

by Supreme Court

Jan. 31, 1990.

Ed W. Tranter, Ft. Thomas and Dale L. Horner, Jr., Maysville, for Pharo Distributing Co., et al.

Bernard C. Hargett, Maysville, for Eric Stahl.

Before McDONALD, MILLER and REYNOLDS, JJ.

MILLER, Judge.

These are two appeals and a cross-appeal from a judgment of the Mason Circuit Court wherein appellee/cross-appellant, Eric Stahl, upon trial by jury, was awarded $50,000 damage for breach of contract.

The facts are as follows: Appellant/Cross-Appellee, Pharo Distributing Company (the company), had a franchise agreement with Strohs-Schlitz Brewery to distribute in several Kentucky counties, including Bracken, Mason, and Lewis. The company entered into an oral, open-ended subdistributorship agreement with Stahl to distribute Schlitz products in the above-named counties. This arrangement continued for many years. Strohs products were distributed in Bracken, Mason, and Lewis counties by Parker Beverage company. On or about June 9, 1987, appellant, David Pharo (Pharo), president of the company, advised Stahl that the subdistributorship would be terminated effective June 15, 1987. Pharo had purchased the Parker Beverage Company and apparently intended to let Parker Beverage distribute both Strohs and Schlitz products.

On June 27, 1987, Stahl filed suit in the Mason Circuit Court against Pharo and the company, alleging breach of contract, willful destruction of business, tortious interference with prospective business arrangements (based upon Stahl's alleged efforts to purchase Parker Beverage) and slander. He sought actual and punitive damages, as well as injunctive relief. He posted a $5,000 injunction bond. Kentucky Rules of Civil Procedure (CR) 65.05. A temporary injunction was granted by the trial court, but upon motion to the Court of Appeals, pursuant to CR 65.07, same was dissolved. A hearing was held to determine whether the company and Pharo had sustained any damages during the time frame the temporary injunction was in effect. The trial court denied same.

The case proceeded to trial and the jury returned a verdict in favor of Stahl for $50,000. Pharo and the company appeal, alleging (1) Stahl did not properly prove his damages (Appeal No. 88-CA-2484-MR), and (2) the trial court erred in refusing to award damages as a result of the temporary injunction (Appeal No. 88-CA-0982-MR). Stahl cross-appeals (No. 88-CA-2550-MR), alleging the trial court erred in failing to give certain instructions.

We first address Appeal No. 88-CA-0982-MR. The trial court made a finding that Pharo could not recover for any damages while the injunction was in effect because this Court, upon dissolving same, did not make the dissolution retroactive. This fallacious argument was advanced by Stahl and is without merit. An appellate court ruling that an injunction should not have been issued is impliedly retroactive. Were we to adopt the position of Stahl, then no litigant would ever be entitled to damages for the wrongful issuance of an injunction. This is plainly not the law in this jurisdiction. As stated in Teamsters Local # 783 v. National Linen Service, Ky., 472 S.W.2d 671 (1971):

The whole concept of an injunction bond, particularly in the case of an ex parte restraining order, is that the order is issued on peril of a subsequent determination that injunctive relief is not properly grantable. The party who obtains the order takes the chance of the validity of a grant of injunctive relief.

Id. at 674.

It does not follow from the foregoing, however, that Pharo and the company are automatically entitled to damages. Where injunctive relief is the sole relief sought, damages and attorney fees are not recoverable. See International Brotherhood of Firemen and Oilers, Local 320 v. Board of Educ. of Jefferson County, Ky., 393 S.W.2d 793 (1965). However, the ancillary grant of an injunction may form a predicate for damages. Stahl argued below that the injunctive relief was not ancillary, but an integral element of the damages he sought. It appears he has abandoned this position on appeal. We conclude the injunction was ancillary to the relief sought by Stahl which was, essentially, money damages for alleged tortious conduct and breach of contract.

Liability of the surety and the principal may be enforced by motion. ¹ CR 65.05(1), (2). Where an injunction was wrongfully issued, a business may recover lost profits, costs, and attorney fees, provided same are ascertainable with reasonable certainty. See Holliday v. Sphar, 274 Ky. 556, 119 S.W.2d 656 (1938) (overruled in Pauline's Chicken Villa, Inc. v. KFC Corp., Ky., 701 S.W.2d 399 (1985) on the issue of damages to unestablished businesses), and Teamsters Local # 783, Ky., 472 S.W.2d at 672. Upon review of the record, we find that Pharo offered evidence of loss of gross receipts, not lost profits, and thus cannot prevail on this issue. However, he properly established that he incurred costs and attorney fees in the amount of $2,515. He is entitled to recover that sum. Thus, the judgment in Appeal No. 88-CA-0982-MR is affirmed in part and reversed in part.

We now turn to Appeal No. 88-CA-2484-MR wherein Pharo and the company attack the $50,000 judgment on the basis Stahl failed to properly prove his damages. The parties agree the contract is one pertaining to the sale of goods and within the purview of the Uniform Commercial Code (Kentucky Revised Statutes (KRS) 355.2-309(2), (3)). ² The code was held applicable to a franchise agreement similar to this case in Leibel v. Raynor Mfg. Co., Ky.App., 571 S.W.2d 640 (1978). Such contracts might be variously referred to as contracts "indefinite in duration," "on-going," "at-will," or "open-ended." We observe at the outset that suits for breach of this type of contract are not unique. As in any other suit for breach, the object is to place the offended party in the position in which he would have been had the contract been performed as required by law. See Evergreen Land Co. v. Gatti, Ky.App., 554 S.W.2d 862 (1977). Simply stated, under the code provision, an at-will contract is to continue for a reasonable period of time and may be breached by termination without reasonable notice beforehand. ³ Reasonable notice is that period of time which, under the circumstances of the case, would allow one to make alternate arrangements upon cessation of the contract and minimize losses. Cf. McGinnis Piano and Organ Co. v. Yamaha Int'l Corp., 480 F.2d 474 (8th Cir.1973) (court discusses damages for breach arising from failure to give reasonable notice of termination and for failure to provide for reasonable duration of a contract). In this jurisdiction, whether reasonable notice was given under the circumstances of the case is a question of fact. See Leibel, 571 S.W.2d at 644. Cf. McCoy v. American Fidelity Bank & Trust Co., Ky., 715 S.W.2d 228 (1986). It is to be determined by the finder of fact unless only one legitimate inference can be drawn from the facts proven, in which case the question is one of law for the court. See Meriweather's Adm'x v. Pickering, 273 Ky. 367, 116 S.W.2d 670 (1938). Cf. Teitelbaum v. Hallmark Cards, Inc., 25 Mass.App. 555, 520 N.E.2d 1333 (1988) (court held notice reasonable as a matter of law where retailer obtained another full line of inventory and thus incurred no harm), and Aaron E. Levine and Co. v. Calkraft Paper Co., 429 F.Supp. 1039 (E.D.Mich.1976) (in granting defendant/supplier's motion for summary judgment, court held reasonable notice of termination given as a matter of law). The obvious object of the reasonable notice requirement is to afford the party losing the contract an opportunity to make appropriate arrangement in lieu thereof by dispersing inventory, adjusting work force, exploring probable alternatives, and in general, "getting his house in order" to proceed in absence of the former relationship. It is based upon fairness and equity.

It is not the termination of an at-will contract that constitutes the breach; the...