Pyrate Corp. v. Sorensen

WILBUR, Circuit Judge. The appellant, who will hereinafter be referred to as the plaintiff, entered into a contract with the defendants Sorensen and Dee, who will hereinafter he referred to as the defendants, giving to the defendants the exclusive right to manufacture and sell Pyrate products within tho state of California for a period of twelve months from the date of the contract, July 10, 1925, with certain renewal privileges. This proviso of the contract with reference to renewal is the only question involved on the appeal; plaintiff contending that the contract had been renewed and that the defendant broke the contract by refusal to continue thereunder. In order to understand the situation of the parties, it will be necessary to state some of the facts as to which there is no disagreement. The agreement between the parties may be briefly summarized as follows: The defendants entered into a contract with the plaintiff stating that the plaintiff corporation is exclusive owner of all varieties of cleansing product known and sold under the registered trade-name of “Pyrate”; that the defendants desire to act as exclusive agents for tho marketing of the product in the state of California, and in consideration of being granted that right agreed “that they will purchase every twelve months continuation of tho within contract, a minimum quantity of 800,000 pounds of the above described product.” The contract fixed the price per pound for the product, but provided for a change in cost in accordance with the fluctuations of the market. Plaintiffs were to furnish to the defendants formulas of* the special mixtures supplied to them provided that such formulas should remain the property of the plaintiffs, and that “upon the cancellation of the within contract by either party the buyers (defendants) agree to deliver to the seller (plaintiffs) on demand all records of sales of bulk Pyrate and/or special mixtures.” Defendants agreed not to engage in any similar or competing business or to use tho formulas or information furnished them to further the interests of any similar or competing business. It is also provided: “It is further understood and agreed that buyers (defendants) will conduct and operate their business during the life of this contract under the name of ‘Pyrate Products of California.’ ” The agreement in regard to the term of tho contract is as follows: “It is agreed that this contract is to continue for a period of twelve months from date, with the privilege of renewal for a fur-. [324] tier period of four years, and at tie expiration of said second period, for an additional five year period; provided tie terms of tie witiin contract iave been faithfully performed by said buyers during such previous period.” The contract was modified in writing so as to reduce tie minimum quantity agreed to be purchased from 800,000 to 200,000 pounds. Tie business of-selling said product witiin tie state of California was continued by tie defendants acting under tie name of tie Pyrate Products Company of California as therein agreed until September, 1926. Tie defendants did not at any time give tie plaintiff formal notice of intention to renew tie contract at tie expiration of tie twelve months’ period, and both parties by their conduct treated the contract as continuing in force until September, 1927, at which time defendants sought to terminate tie eon-. tract, claiming that it had not been renewed. It is apparently conceded by tie parties that tie option to renew tie contract was with tie defendants, and tie question is whether they exercised that option. It would seem clear that any conduct of defendants entirely inconsistent with tie termination of tie lease at tie end of twelve months brought to tie knowledge of tie plaintiff would in effect operate as an election to renew' tie contract. In this connection it should be stated that tie contract itself makes no provision, as is frequently done, for the method by which tie parties shall manifest its intent to renew tie contract. In June, 1926, tie defendants entered into similar sales contracts with sub-agents for portions .of California for a period of five years. These contracts were brought to tie attention of tie plaintiff and actually drawn by one of their employees, but these contracts were not executed by or on behalf of tie plaintiff. Their validity depended entirely upon the right of tie defendant to give tie exclusive agency for five years in tie territory in California covered by their blanket agreement for tie entire state. It would seem difficult to express more definitely to the plaintiff tie intention of tie defendants to continue tie conduct of- tie business for at least five years than was thus done by tie defendants in executing a contract which could only be valid in tie event that such option was exercised. .It may be that a mere purchase of supplies by tie defendants would not alone constitute a renewal of the contract, even though tie prices quoted were those specified in tie contract; but here we iave in addition to tie conduct of tie business acts of tie defendants entirely inconsistent with any other theory than that tie contract was to be continued in force for at least tie additional term of four years. We also, in this case, have in addition to that tie fact that tie defendants continued to operate under tie name of tie Pyrate Products of California, which they were authorized and required- to do under tie terms of tie contract, which provided that they would “operate their business during tie life of this contract under tie name of Pyrate Products of California.” Tie continued use of this name after tie expiration of tie first year was also an indication of their intent to continue their business tinder and in pursuance of tie contract between tie parties. Tie notice of terminating tie contract relied upon by tie defendants was given in tie name of tie Pyrate Products of California, and tie correspondence between plaintiff and defendants on that subject was addressed to tie Pyrate Products of California by plaintiff and was responded to by the defendants in that name. Tie letter of September 9th serving notice of terminating tie contract was signed “Pyrate Products of California, M. J. Dee, L. C. Sorensen.” Tie letter of September 19th discussing tie proper interpretation of tie contract was addressed to tie plaintiff by tie defendants signed “Pyrate Products of California, L. C. Sorensen.” There seem to be few reported eases upon tie subject of renewals of contracts under similar conditions. Tie only one called to our attention is by tie Supreme Court of New York, Jacob Dold Packing Co. v. Kings County Refrigerating Co., 176 App. Div. 407, 162 N. Y. S. 1035, 1038, wherein it was held that where tie privilege of renewal of a contract for refrigeration was not made dependent upon prior notice, tie, option “was sufficiently exercised by continuing tie use of defendant’s refrigeration and making payments therefor.” This decision was predicated upon Kelly v. Varnes, 52 App. Div. 100, 64 N. Y. S. 1040, which was a contract in relation to tie renewal of tie lease. Most of tie eases cited to us relate to tie renewal of leases, and while there is some analogy between tie renewal of a lease and tie renewal of a contract such as that involved in this case, there is one fundamental difference. In the case of leases we are dealing with an estate in real property, and in such case time and manner of renewal must be determined with relation to that estate. In case of an option for renewal or extension contained in a lease, it has been held that tie continued occupancy of tie premises after tie expiration of tie term by tie lessee is a sufficient [325] indication of his election to extend the term for additional stipulated time. Hall v. Willmering (Tex. Civ. App.) 209 S. W. 226, citing Street-Whittington v. Sayres (Tex. Civ. App.) 172 S. W. 775; Tiffany on Landlord and Tenant § 222; Underhill on Landlord and Tenant § 803. In the opinion on rehearing the court cited additional eases. In Hall v. Willmering the court applied the rule with regard to leases by analogy to the contract there under discussion. In Monmouth County Elec. Co. v. Cons. Gas Co., 83 N. J. Law, 531, 83 A. 900, the Court of Errors and Appeals of New Jersey had under consideration the question of renewal of a contract for furnishing electric current for the fixed period of three years, with an agreement to renew the contract at its expiration “for an additional three years, should the party of the first part desire such a renewal.” It is there held that the desire of the plaintiff for a renewal should have been communicated to the party furnishing the current on or before the last day of the original term. While this case is somewhat analogous to the case at bar, the decision is based partly upon the language there used and partly upon the reasonableness of acquiring specific notice from the purchaser to the seller of the electric current. In the case at bar the contract for renewal is to be construed most strongly in favor of the plaintiff. Hall v. Willmering, supra; 2 Elliott on Contracts § 1548; Williston on Contracts, § 620; Rutledge & Taylor Coal Co. v. Mermod, 209 Mo. App. 292, 237 S. W. 849. If therefore the plaintiff is bound by the contract for the additional period of four years by reason of its conduct in connection with that of the defendant, the defendant must also be bound. How can we escape the conclusion that the plaintiff was bound when it had knowledge of and acquiesced in the execution of the contract by the defendants, which should only be valid in the event that it was bound by the extension? In view of all the circumstances, and particularly in view of the fact that the parties both treated the contract as still in effect after the date fixed for its expiration unless extended, we must hold that the plaintiff accepted the conduct of the defendant as sufficient to exercise its option and that both are bound thereby. It is suggested that this view may be inconsistent with the statute of frauds requiring contracts of this nature for a period of over a year to be in writing, but we think that the original contract between the parties satisfies the statute of frauds by reason of the fact that it expressly provided for the term of five years in the event that the defendant manifested a desire that such contract shall remain in force for that period. The views which we have expressed will necessitate a reversal of the judgment in so far as it denies to the plaintiff such damages as they may have suffered by reason of the breach of the contract by the defendants. Plaintiff has offered evidence tending to show the amount of profits they would derive from the continuance of the contract. These profits are based upon the volume of sales which it was estimated would have occurred had the defendants continued their efforts Under the contract. In view of the fact that the contract expressly requires the defendants to take a minimum of 200,000 pounds of Pyrate per annum and the price is fixed in the contract subject to increase or decrease in accordance with the market conditions, it is evident that the plaintiff has suffered some damage by reason of the termination of the contract. The parties have not attempted on this appeal to present a record sufficient for us to determine therefrom the amount of damages, nor to adequately instruct the trial court upon that subject upon a rehearing of that question. Both appellant and appellees seem to contemplate that in the event this court holds that the contract between the parties was extended for four years that the question of damages is a matter for determination by the trial court. We refrain from expressing any further views with regard to the amount or measure of damages. Decree is reversed, and the action remanded to the trial court for further proceedings not inconsistent herewith.