Case Title: Zelensky v. Viking Equipment Co.

Citation: 422 P.2d 293, 70 Wash. 2d 78

Docket Number: 

State: washington

Court: Washington Supreme Court

Date: 1966-12-29T00:00:00Z

Document:
70 Wn.2d 78 (1966) 422 P.2d 293 EUGENE D. ZELENSKY, Respondent, v. THE VIKING EQUIPMENT CO., INC., Appellant, SIMONSEN RADIO A/S, Respondent.[*] No. 38528. The Supreme Court of Washington, Department One. December 29, 1966. *79 Newman H. Clark (of Matsen, Clark, Cory & Matsen), for appellant. Pomeroy, Zelensky, Furnia & Munro, for respondents. SOULE, J.[] This proceeding started as a simple action by Eugene Zelensky, the assignee of a Norwegian manufacturer, to collect an account from a local distributor. It developed into a sharp controversy arising from a counterclaim by the distributor. Simonsen Radio A/S is a Norwegian corporation which manufactures echo-sounding and sonar equipment suitable for use on fishing vessels. It also manufactures a very advanced line of experimental electronic equipment for research purposes. For the purposes of this action, plaintiff Zelensky's interests are identical with Simonsen Radio A/S, and in the opinion hereafter we will refer only to Simonsen Radio A/S, the true party in interest, and for brevity will refer to it as Simonsen. The Viking Equipment Company is a Washington corporation which distributes machinery. In 1959 it entered into a written contract with Simonsen whereby it became the exclusive distributor for Simonsen in Washington, Oregon, and California. On October 9, 1960, a new contract was executed similar in terms, but enlarging Viking's territory to include Alaska and Hawaii. That contract provided, in part, as follows: .... Under the contract Viking was to actually buy the articles and resell them for its profit rather than to be compensated by commissions. Relations between the parties eventually came to an end though not precisely on October 9, 1962. By informal mutual agreement, manifested by letters in evidence, the relation continued into the month of February 1963, but after October 9, 1962, the relation was terminable at will. By February 1, 1963, Viking owed Simonsen the sum of $16,404.28, for merchandise received but not paid for. This amount is not disputed, but Viking asserts a counterclaim based upon loss of profits from four sales which Simonsen allegedly made directly to the ultimate purchasers in violation of the agreement. Claims based on two of the sales were withdrawn during trial. Additionally, Viking asserts that the contract provision protecting it on governmental sales "instigated" by Viking was violated to its damage by virtue of a direct sale by Simonsen to the United States Department of the Interior Fish and Wildlife Service, Bureau of Commercial Fisheries, in Seattle on March 7, 1963. This is the sale upon which Viking claims to have been working for more than a year prior to the unilateral termination of the distributorship agreement. For convenience we will hereafter refer to this customer as the Bureau of Fisheries. The case was tried to a jury, but at the end of all the evidence the trial judge took the matter from the jury, granted judgment on the primary debt, and dismissed the cross complaint in its entirety. In so doing we believe that he was in error as to that portion of the counterclaim addressed to the sale to the Bureau of Fisheries and to that based on the transaction with one Nick Trutanich. *81 We will consider first the problem of the sale to the Bureau of Fisheries. Section IV of the distributorship contract, as previously noted, provides that the distributor and dealers will be protected in their selling rights according to sales instigated by the distributor. The word "instigated" is an unusual one in this context. In The Oxford English Dictionary (1st ed. 1933), we find: "Instigate to spur, urge on; to stir up, stimulate." Whether the benefits of the protection clause can properly be applied to a sale "instigated" by Viking but not consummated at a time when Simonsen chose to terminate the contract relation was not discussed by the trial judge in his oral opinion. He rested his decision entirely on the ground that the contract had expired. The subject of the sale was a unique electronic device not available from any source other than Simonsen. The eventual sale price was $163,500, so the dollar value of the sale made it of great interest both to Simonsen and to Viking. Its installation had to be carefully planned in advance in close correlation with the planning of the research vessel upon which it was to be installed. That this was known to Simonsen is shown by its letters of January 2 and 11, 1962, in which it recommended to Viking a course of action in seeking to get the equipment placed on a Bureau of Fisheries' vessel. The details of the sales efforts Viking made from that time forward are not entirely clear, but by letter of January 24, 1963, Viking informed Simonsen that the call for bids would be issued soon. This letter further informed Simonsen that Viking had been working for the past year on the promotion of the sale. No reply was received to the letter, but on February 21, Viking sent a cable to Simonsen asking for a price to be used as a basis for the bid. This was followed by another cable on February 25, noting that Viking had submitted complete specifications and drawings and that the customer wanted a firm price. The reply received was a cable of February 28, 1963, in which Simonsen requested that Ted Jules, Viking's former *82 sales manager, go to the Bureau of Fisheries and get certain bid forms and airmail them to Simonsen. In early March Viking's president, Mr. Isaacson, went to Oslo, Norway, to try to get the quotation. His requests for information were met with evasions. The requested price was never furnished and thus Viking could not bid. Simonsen submitted a direct bid which was successful. [1] The fact pattern here presented is very similar to that of Hamilton v. C.L. Best Gas Traction Co., 123 Wash. 488, 494, 212 Pac. 1077 (1923). In that case the plaintiff was granted the exclusive right to sell defendant's products in certain parts of Eastern Washington and Northern Idaho. The contract contained provisions very similar to the one presently under consideration insofar as the method of buying and paying for the wares was concerned. It also contained a clause which permitted cancellation on written notice. The plaintiff entered into negotiations with a prospective purchaser. Negotiations were protracted. The plaintiff notified defendant of the pending sale and kept it informed of the progress. Just before the sale was to be consummated defendant terminated plaintiff's contract. We declined to permit the defendant to use its right to terminate to defeat the claim for compensation. This court said: In so doing we relied on cases which protect brokers who, having no fixed term of employment, are discharged in the midst of negotiations which are thereafter concluded directly by the principal. Knox v. Parker, 2 Wash. 34, 25 Pac. *83 909 (1891); Norris v. Byrne, 38 Wash. 592, 80 Pac. 808 (1905); Lawson v. Black Diamond Coal Mining Co., 53 Wash. 614, 102 Pac. 759 (1909); Merritt v. American Catering Co., 71 Wash. 425, 128 Pac. 1074 (1912); Duncan v. Parker, 81 Wash. 340, 142 Pac. 657 (1914). In its brief Simonsen argues that the first notice Viking had of the request by the Bureau of Fisheries for bids was received by it on March 1, 1963. This position finds no support in the record in view of Viking's letter of January 24, 1963, and its cables of February 21 and 25, 1963. We hold that, although Simonsen had the right to terminate the distributorship at will, and apparently did so in February of 1963, that as to the government sale then pending, it could not terminate Viking's right to compensation if Viking was the procuring cause of the sale. On the record before us, viewing the evidence and reasonable inferences therefrom in the light most favorable to Viking, we believe that this was a question for the jury. The contract actually provides that Viking will be protected on sales instigated by it. If the record were more definite it might be possible to hold, as a matter of law, that Viking is entitled to compensation simply because it stimulated or spurred on the sale, even if its efforts were not the procuring cause, but the record is confused as to what specifically was done by Viking after it received Simonsen's letters of January 2 and 11, 1962. The claim for damages from the sale to Nick Trutanich arises from the efforts of Viking and its San Pedro distributor, Benrad, to sell a commercial sonar installation to Nick Trutanich for use on his vessel, Western King. These efforts initially took place in the early months of 1961. Thereafter, in the fall of 1961, a sale of the equipment was made directly by Simonsen in Puerto Rico to Nick Trutanich for installation on the Western King in Panama. Simonsen's position, as evidenced by its brief, seems to be that the sale was to some other man of the same name and in any event, the eventual sale was made outside of Viking's territory. In disposing of this aspect of the case, and holding that there was no question for the jury, the trial court said: [2] In reasoning that there was no question of fact for the jury, the learned trial judge perhaps overlooked the import of certain correspondence and oral testimony concerning this sale, which for the purposes of the motion, must be considered in the light most favorable to Viking. Fannin v. Roe, 62 Wn.2d 239, 382 P.2d 264 (1963). The correspondence reveals a sequence of communications from which the jury could well conclude that for the purposes of this sale Simonsen enlarged the territorial rights of Viking to include Puerto Rico; that in so doing Simonsen undertook not to deal directly with Trutanich; and that it thereafter violated its undertaking to Viking by dealing directly and secretly with Trutanich. On January 5, 1961, Mr. Hallre, Simonsen's sales director, wrote directly to Benrad in San Pedro complimenting them on their extensive promotional and developmental work with the San Pedro tuna fleet and making special note of the work done aboard a vessel called the Sea Pride of the Star-Kist organization. In closing he said: A copy of this letter went to Viking in Seattle, and by it Simonsen clearly recognized that the development of the market required the investment of time and money, a fact which was implicit in the Simonsen-Viking contract. On February 6, 1961, Mr. Jules, the sales manager of Viking, wrote to Simonsen reporting on sales activities in the San Pedro area, and closing with: Concerning these negotiations, Mr. Jules testified that he went to San Pedro and, with a Benrad representative, negotiated with Trutanich. He testified as follows: As a result of that experience, Viking wrote to Simonsen on March 27, 1961, suggesting the possibility of some arrangement whereby Viking could have authority to act in Mexico. Among other things, the letter said: By coincidence on that very same day Simonsen sent a letter to Mr. Trutanich at a Puerto Rico address: In the meantime, we remain, A copy of this letter was eventually sent to Viking, but not until more than a month had elapsed. On May 9, 1961, Simonsen wrote to Viking, and in a letter well calculated to reassure them that there would be no direct dealings, said: Western King From this letter, signed by Hallre, it is apparent that Simonsen was not in doubt as to the identity of the prospect and recognized Trutanich as Viking's and Benrad's customer. Simonsen even authorized Viking to operate outside its assigned territory, if necessary, to procure the sale. More than that, the reference to the Trutanich letter of March 21, and its reply to him indicating that they did not *88 usually make direct sales, when read with the language "you need not worry at all" warranted Viking in assuming that Simonsen was protecting the integrity of its distribution program by refusing to deal directly. What further sales efforts were made by Viking and Benrad between then and October is not clear, but that the direct sale was made to a customer whose business was well rooted in California is shown by the letter of October 17, in which Benrad wrote to Viking as follows: On receipt of this inquiry Viking cabled Simonsen as follows: Apparently Simonsen replied to the cable by telephone and acknowledged the direct sale, because on October 24, Viking wrote to Simonsen sharply protesting its action. Reference was made to the letter received from Benrad with whom Trutanich had been negotiating and closed with Viking's statement of its position: No settlement was made at that time; thereafter, officers of Viking attended a conference in Norway which resulted in the supplemental agreement of December 6, 1961. That agreement states: This agreement does not, by its terms, settle any past controversy. Mr. Isaacson, president of Viking, after recounting that he went to Norway in December of 1961, concerning this matter, testified: "[Y]ou went there, wasn't it, because of the Western King? A. Because of the Western King, yes. Q. And at that time you signed an agreement, is that correct? A. Yes. Q. And at that time you settled any arguments you had with respect to Western King, isn't that right? A. No, sir." (Italics ours.) Mr. Jules was also in Norway at the time. He testified on cross-examination concerning the agreement of December 6: "... and it was understood, I believe at that time, that it would be retroactive to the Trutanich deal, which did not prove to be the case." Notwithstanding the foregoing, the position of Simonsen is that the sale was not made in the territory covered by *90 the contract and that it was not made to the same Nick Trutanich with whom Viking and Benrad were dealing in San Pedro. Simonsen's sales director, Mr. Hallre, testified as follows concerning this sale: "But later it was proved it was not this Nick Trutanich, but was another man by the same name." And, "No, he was not the original buyer. This was a Puerto Rican company and this Nick Trutanich from California was not the same man, as I recall." It appears to us that there was sufficient evidence to warrant submission of the matter to the jury upon the question of whether or not the sale was to the same Nick Trutanich with whom Viking and Benrad dealt in San Pedro and whether or not their efforts were the procuring cause of the sale. [3] Because of the language in the letter of May 9, it also appears to us that there was a jury question as to whether or not the rights under the contract which were enjoyed by Viking were modified and extended to Puerto Rico for the purpose of this sale. We recognize that, as a general rule, a distributor with a contract such as that under consideration in this case, has no claim for commissions, discounts, or damages, where a sale in which he has had no part is made outside of his territory, even though the customer resides therein and may even thereafter bring the chattel into the territory. See Annotation 12 A.L.R.2d 1360; 3 C.J.S. Agency § 179. But, where as here, the distributor is required by his contract to spend time and money to develop the market for the benefit of his principal, and in fact does so; where he does in fact, with his dealer engage in substantial negotiations with a customer; where the principal has recognized the prospect as the customer of his distributor and dealer; where the distributor is led to believe by his principal that there will be no direct dealings, and then without further notice to the distributor, the principal does deal directly; where it does not conclusively appear that the distributor and dealer have terminated their sales efforts; where circumstances make permissible the inference that *91 the efforts of the distributor and dealer were the procuring cause of the sale; and, where the principal has waived the territorial restriction in the contract and has authorized pursuit of the sale in the territory where the sale is actually made, we think a jury question is presented, notwithstanding the fact that the sale and delivery of the goods is made at a point outside the regularly assigned territory. The trial judge was impressed by the fact that there had been a lapse of some months between the original negotiations and the actual sale, but in a case such as this where the product is complex, new to the market, somewhat untried and expensive, and where the owner and the vessel are apparently absent from the area from time to time, negotiations well may be protracted and intermittent. Whether the original negotiations should be deemed ended merely because of the lapse of time seems properly to present a question of fact. In addition, the jury might well consider the Simonsens' communicated assurances that they would not sell direct as justifying any temporary inactivity in pursuing the sale. Certainly, after giving such assurances it seems to us that if Simonsen wished to change its position it owed a duty to speak and to affirmatively advise Viking of its change. Hanson v. Puget Sound Nav. Co., 52 Wn.2d 124, 323 P.2d 655 (1958). The jury might even infer from the circumstances that Trutanich and Simonsen dealt directly, not only for the purpose of saving the duty, but insofar as Simonsen is concerned, for the additional purpose of cutting Viking and Benrad out of the discounts to which they otherwise would have been entitled. Such a purpose was termed fraudulent in White Co. v. W.P. Farley & Co., 219 Ky. 66, 292 S.W. 472, 52 A.L.R. 541 (1927). We do agree with the trial judge that even viewing the evidence in the light most favorable to the non-moving party, there was no substantial evidence upon which to base a claim for recovery of damages for the Schmidt sale. As to the Schmidt sale, the judgment of dismissal will be *92 affirmed; as to the Trutanich and Bureau of Fisheries sales, the judgment of dismissal is reversed with direction to grant a new trial on all issues. ROSELLINI, C.J., HILL, OTT, and HALE, JJ., concur. [*] Reported in 422 P.2d 293. [] Judge Soule is serving as a judge pro tempore of the Supreme Court pursuant to Art. 4, § 2(a) (amendment 38), state constitution.