41 F. 163 | U.S. Circuit Court for the District of Southern New York | 1890
This is an equity action for the specific performance of contracts between the parties, and also for an injunction and an accounting. On the 21st of May, 1878, the defendant, under the name, at that time, of the Telegraph Supply Company of Cleveland, Ohio, entered into an agreement with Charles M. Rowley and Thomas J. Montgomery, of Boston, Mass., the predecessors of the complainant, whereby they were given an exclusive agency and license for the sale, in New England, of dynamo-electric machines, and apparatus made by the Cleveland Company under various patents covering what was known as the “Brush System of Electric Lighting.” This agreement was to continue in force for 17 years from April 24, 1877, unless sooner abrogated by mutual agreement, or by a decision of a- board of arbitration. The ninth clause of the agreement is as follows:
“If at any time the pecuniary responsibility of the party of the second part, becomes so impaired as not to be sufficient to enable the party of the first part to safely transact their business in said territory through them then this contract may be abrogated, provided that the question of the aforesaid pecuniary responsibility of the party of the second part must first be determined by the board of arbitration hereinafter named.”
This board was to consist of a member chosen by each of the parties to the agreement and a third to be chosen by the two so selected. Any. matter in dispute was to be formally presented and tried, and the decision of the board, in writing, was to be binding upon the parties. . In the autumn of 1878 this contract, with the approbation of the defendant, was assigned by Rowley and Montgomery to the Brush Electric Light Company of New England. In December, 1879, the territory covered by the May, 1878, agreement was largely extended, and, in June', 1880, a second contract, substantially like the first, but embracing the extended territory, was entered into between the parties. On the 23d of February, 1882, a supplemental agreement was entered into between the Brush Electric Light Company of New England and the defendant,, under its present name, by which the prior agreement-was changed in certain matters ,of detail, the principal modification being the insertion of a clause prohibiting the defendant from selling in the licensed territory without the consent of the New England Company. On the 31st of May, 1882, all the contracts were assigned to the complainant — the Brush-Swan Electric Light Company of New England, and this company was accepted by the defendant as having succeeded to all the rights under the previous agreements. In the spring of 1885, for the reason, inter alia, that the storage battery, which the defendant expected to furnish in connection with the Swan incandescent lamp, had not proved a success, the financial condition of the complainant was seriously embarrassed. In these circumstances the complainant and defendant entered into an agreement, dated June 15, 1885, whereby the complainant transferred to the defendant all its property, of every name
The bill alleges “that the provisions of the original contract with said Brush Electric Company" in regard to the modo of payment by your orator had been modified to this extent, that in cases of the installation of new plants your orator should make payments to said Brush Electric Company when and as it received payments from its customers. This modification was made in the year 1885, and was observed and remained in force until the time in 1887, when, as above stated, said Brush Electric Company violated said contracts.” The answer denies the foregoing allegation, “except to this extent that such a modification of the modes of payment as is therein stated was allowed in a few specified cases for special reasons, but the general rule was not changed, and all of the special arrangements had been canceled and withdrawn by the defendant a considerable time before the said demand for arbitration.” There is no dispute, either in the pleadings or in tho proof, that in December, 1886, the president óf the defendant met the president, and other officers, of the complainant in the latter’s office and there entered into an agreement with them upon the subject of special discounts and credits. There is, however, a controversy as to the terms of the agreement. The only witness who testifies on the subject is Charles W. Spear, the complainant’s
The imprudence of the defendant dates back of the modification. The extension of the contracts in June, 1885, was an unwise proceeding, unless the defendant had implicit faith in the integrity and business ability of the officers of the complainant. The extension being once made, something very like the modification of December woidd seem to follow as a logical conclusion. From what possible source could the complainant, concededly insolvent, have drawn for remittances, except the payments received from its customers? The probabilities are not all, therefore, with the defendant.
But it is not a question requiring-the court to indulge in guesswork and conjecture. An unimpeached witness has testified to the agreement in unqualified language. He says that its terms were officially communicated to him, by George W. Stockly, the defendant’s president. Mr. Stockly, thus challenged, remains silent. - When, in addition to the persuasive presumption thus created is added the fact that the business was-transacted in accordance with this modification, it is entirely clear that it would be an unprecedented proceeding, arbitrarily to reject Mr. Spear’s testimony, because expressions in the correspondence may seem inconsistent with it. Besides, taking the correspondence in its entirety, it cannot be said that the defendant, after December, 1885, ever refused to fill an order, or at any time asserted its right to terminate the contract on the sole ground that the stipulated credit had been exceeded. After that date the defendant did not draw, and the complainant did not accept, drafts payable in 75 days. The modification of December, 1885, must, therefore, be taken as a fixed fact.
The terms of the original contracts, which related to the submission of the question of pecuniary responsibility, were necessarily changed by the agreement of June, 1885. The parties contracted in the light of ascertained facts. The nature of their agreement cannot be arrived at without a reference to the then existing circumstances. The defendant knew that the complainant was insolvent. The evidence of this was in the defendant’s hands. It knew that the complainant owed $17,500 and had absolutely nothing with which to pay, but some unsalable machinery and furniture, valued at $4,298. To assert that the defendant extended
It appears from the correspondence that the fault charged by the defendant was, not that the complainant was behind in payment for past sales, but that it declined to give security for future sales. If the complainant were in default for past sales the defendant could have insisted that these debts should be paid or secured. This it did not do. It insisted upon security before filling new orders, and based its right to do so, not upon past defaults but upon the fact, the existence of which had been known from the inception of the June agreement, that the complainant was not “fully solvent.” The defendant, on the 3d of October, 1887, wrote as follows:
“We understand from all that has passed hitherto that you decline to give us the security we are justly entitled to, and we therefore ask that an arbitration be immediately had in exact accordance with the ninth and twelfth clauses in our contract with you, to which we refer you.”
As the ninth clause is understood by the couh, the right to an arbitration existed irrespective of the non-performance of the contracts. In other words, if, prior to June 15, 1885, the complainant’s credit had become impaired, the defendant could have demanded an arbitration even though every provision of the contract had been performed to the letter. On the other hand if every provision had been violated the contract could not have been abrogated under this clause without proof of financial impairment. A clearly defined failure to perform on the part of the complainant would have made proceedings under this clause wholly unnecessary, as the contracts could then have been terminated
It seems that the defendant must stand or fall upon its right to take this course. It is too late now to justify its acts by asserting that there were other faults of the complainant which might have been made available. If such faults existed they were venial in character and were waived or condoned. The complainant’s insolvency and refusal to give security “ were the reasons and the only reasons which led the defendant to ask for an arbitration. ” If the defendant founded its right to terminate the contracts upon an untenable ground it cannot justify its course upon the theory that complainant was guilty of other acts which might have been used as the basis of a complaint, if defendant had thought of them in time. It is said that the complainant did not furnish the in
The agreement of 1885 being a mere extension of the time in which payments were to he made was not void under the statute of frauds or otherwise. Such agreements have frequently been upheld. Canal Co. v. Ray, 101 U. S. 527; Homer v. Insurance Co., 67 N. Y. 478.
A number of matters now involved in doubt might have been made clear if the court had had the benefit of the testimony of the chief actors in this controversy, but they have not been called on either side. Upon the record as presented the court is forced to the conclusion that the original contracts were modified in 1885 and, as so modified, have been performed by the complainant in all material matters.
The opinion was formed at the hearing that the argument of the defendant’s counsel that these contracts are of such a character that they cannot be specifically enforced, was unanswerable. This opinion is still entertained, hut it is thought that the bill may be retained for the purposes of an injunction and an account. Sewing-Machine Co. v. Embroidery Co., 1 Holmes, 253. By the terms of the contracts the defendant is especially prohibited from selling in the designated territory any of the machinery in question. The exclusive right to do this is given to the complainant. If, from the nature of the agreement, the court cannot give the profits of this business to the complainant, it should, at least, restrain the defendant from reaping them, particularly where, as in this cause, the remedy at law is wholly inadequate. There should be a decree for the complainant for an injunction and an accounting.