West, Weir & Bartel, Inc. v. Mary Carter Paint Co.

• Decision Date: 15 February 1966
• Citation: 25 A.D.2d 81,267 N.Y.S.2d 29
• Parties: WEST, WEIR & BARTEL, INC., Plaintiff-Appellant-Respondent, v. MARY CARTER PAINT COMPANY, Defendant-Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 29

267 N.Y.S.2d 29

25 A.D.2d 81

WEST, WEIR & BARTEL, INC., Plaintiff-Appellant-Respondent, v. MARY CARTER PAINT COMPANY, Defendant-Respondent-Appellant.

Supreme Court, Appellate Division, First Department.

Feb. 15, 1966.

A. Walter Socolow, New York City, of counsel (Max E. Lynne, New York City, with him on the brief), for plaintiff-appellant-respondent.

Adelbert C. Matthews, Jr., New York City, of counsel (Malvern Hill, Jr., New York City, with him on the brief; Havens, Wandless, Stitt & Tighe, New York City, attorneys,) for defendant-respondent-appellant.

Before BREITEL, J. P., and RABIN, VALENTE, STEVENS and EAGER, JJ.

BREITEL, Justice Presiding.

These are cross-appeals from a judgment rendered after non-jury trial in an action for damages for wrongful termination of an advertising agency contract. Plaintiff is the successor by merger of an advertising agency, and defendant is a paint manufacturer which contracted for the advertising services. The trial court rendered a judgment in favor of plaintiff in the sum of $76,251.85, of which the only component in serious issue is the principal sum of $59,145 plus interest representing the trial court's evaluation of the damages sustained by reason of the breach of contract.

Defendant contends that it terminated the agency contract for justifiable cause and frustration of purpose, therefore disentitling plaintiff to any damage recovery for breach, and that, in any event, damages were improperly determined. Plaintiff contends that damages in the principal sum of $59,145 were improperly determined and that it is entitled instead to a recovery of $188,791.43. It is concluded that the trial court correctly found on the issues of law and fact that a breach of contract had occurred, while, at the same time, on the issue of damages plaintiff is entitled to a recovery on a different basis than it received but nowhere in the amount claimed. In consequence, the judgment should be modified as indicated later.

The relevant events are as follows:

In 1961 defendant was interested in changing its advertising program. For some time it had conducted its own direct national advertising for itself and some 80 company-owned retail stores through a Florida advertising agency, coupled with a so-called cooperative plan whereby its approximately 600 franchised independent dealers operated their own local advertising programs for which, without monetary limitations, defendant reimbursed the independent dealers for one-half of their advertising expenditures. Defendant solicited presentations from advertising agencies providing for a reconstitution of its advertising program with closer control of all advertising of its products, inclusive of that by dealers. Plaintiff's predecessor, Ellington & Company, submitted a presentation including a plan for centralized control of all defendant's advertising. On the basis of this presentation Ellington's bid was accepted. A written agency agreement was executed under which Ellington was to handle for the customary 15 percent commission all advertising ordered by defendant. The agreement was for one year beginning July 1, 1961 and was thereafter terminable on three months' notice by either party. Performance under the agreement ceased at the end of 1961, and the present action eventually followed.

The advertising plan suggested by Ellington provided for direct national advertising by defendant to the exclusion of the franchised independent dealers. The dealers were to be surcharged on their purchases to defray the cost of advertising substituted for local advertising. The plan was not incorporated into the written agency agreement. Nor was any reference made in the agreement to any minimum amounts of advertising or commissions, although prior to the execution of the written agreement defendant represented that a $2,000,000 advertising budget was contemplated.

Promptly after the Ellington agency was retained defendant expressed concern with too abrupt a change-over to the direct national plan. It was eventually agreed that only the western region of the country should be shifted over to 'national control', and that as problems discovered in the shift-over were resolved, national control would be instituted in the remainder of the country, the midwestern and eastern regions. The change-over was installed in the western region and produced disastrous results. While there was little, if any, criticism of physical advertising material prepared by Ellington, the independent dealers, with few exceptions, complained of a breakdown in the handling of local advertising campaigns for lack of familiarity with local market conditions and local advertising media. By December 1961 defendant decided to abandon the national control plan and revert to its old system. It offered to continue Ellington as its advertising agency on direct national advertising. Because of the limited commissions it would receive from a national advertising budget on the old basis, Ellington declined this suggestion. By March 1962 defendant in writing unilaterally declared the agreement terminated.

During the abortive change-over period covering the first half of the fixed term of the agreement (the second half of 1961) Ellington had prepared all or most of the physical advertising material whether used in direct national or local cooperative advertising. (This material, once distributed, was available to defendant and its independent dealers all through the balance of the fixed term of the agreement.) It billed for and received commissions only on nationally or centrally placed advertising, including that for the western region, totalling $271,599. This aggregated, after stipulated adjustments, to commissions of $36,445.22. During that period direct national advertising amounted to $86,000 and local cooperative advertising amounted to $529,800 (half of which was reimbursed to dealers by defendant). These figures and commissions were in contrast with Ellington's rosy expectations of a 15 percent commission on an annual advertising budget of $2,000,000.

For the second half of the fixed term of the advertising agreement (the first half of 1962) direct national advertising aggregated $115,700 and local cooperative advertising amounted to $557,200 (half of which was reimbursed to dealers by defendant). These figures represented a small increase over those for the previous half-year.

For the one-year fixed term of the written agreement the aggregate advertising budget, local and national, was $1,474,299, more than a half-million dollars short of the expected or hoped-for budget of $2,000,000. It is out of this discrepancy as well as the allocation between local and national advertising budgets that the disputes in this case over the amount of damages, if damages are allowable, arises. In this connection plaintiff asserts and puts into evidence proof that its predecessor incurred costs of $130,378.64 during the first half of the fixed term in performance of the agreement. ¹

On the question of breach of the agreement and the liability for damages there was a mixed question of law and fact properly resolved by the trial court.

Accepting the evidentiary facts established by both parties (but not necessarily their respective interpretations) it is evident, regardless of the terms of the original agreement however interpreted, that they later agreed that instead of a total and relatively abrupt changeover to the national plan there should be a phasing-in by first applying the plan to the western region and later to the two others. By practical construction of the parties in the actual billing and payment of commissions the liability for commissions was incurred during this period only as to directly placed national advertising (Janos v. Peck, 21 A.D.2d 529, 535, 251 N.Y.S.2d 254, 260 [per Eager, J.], aff'd 15 N.Y.2d 509, 254 N.Y.S.2d 115, 202 N.E.2d 560; Restatement, Contracts, § 235 [e]; 10 N.Y.Jur., Contracts, § 221). In legal effect, and by its own terms, this subsequent agreement and conduct was a modification, but one which subsisted only for the period in which, by agreement, it was in effect (Lieberman v. Templar Motor Co., 236 N.Y. 139, 146-147, 140 N.E. 222, 223 [per Cardozo, J.]; Restatement, Contracts, §§ 407, 408; 17A C.J.S. Contracts § 373). Consequently, plaintiff has no valid claim for commissions on local advertising placed during that first period or on the local reimbursements expended by defendant. That Ellington may have waived a possible claim to such commissions to accommodate a client or under the compulsion of not offending a client with which it hoped to do much future business is not the equivalent of economic duress as it seems to contend (Oleet v. Pennsylvania Exch. Bank, 285 App.Div. 411, 414-415, 137 N.Y.S.2d 779, 782; 17 N.Y.Jur., Duress and Undue Influence, § 13). It, therefore, follows that the trial court was correct in not awarding any damages for breach for this first period.

Plaintiff's effort to claim damages on the basis of the prospective advertising budget of $2,000,000 must likewise fail. This representation was never one of fact but a statement, never established to be insincere, of an expectation (cf. Banner v. Lyon & Healy, Inc., 249 App.Div. 569, 571, 293 N.Y.S. 236, 238, aff'd 277 N.Y. 570, 13 N.E.2d 774; 24 N.Y.Jur., Fraud and Deceit, §§ 36-37; see Restatement, Contracts, § 474). Moreover, omission of so basic a representation from the written agreement bars proof under the parol evidence rule, assuming it were otherwise available to plaintiff (Fogelson v. Rackfay Constr. Co., 300 N.Y. 334, 338-340, 90 N.E.2d 881, 882 [per Fuld, J.]).

On the foregoing reasoning plaintiff is not entitled to recover commissions on the aggregate actual expenditures by defendant and its dealers for advertising in the sum of $1,474, 299 or on the expectation figure of $2,000,000. Hence, plaintiff may not recover on its maximum claims.

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