Case Name: Joseph Herzstam v. Unit Steel Corporation
Court: Montgomery County Court of Common Pleas
Jurisdiction: Ohio
Decision Date: 1928-01-04
Citations: 27 Ohio N.P. (n.s.) 300
Docket Number: 
Parties: Joseph Herzstam v. Unit Steel Corporation.
Judges: 
Reporter: Ohio nisi prius and general term reports (new series)
Volume: 27
Pages: 300–306

Head Matter:
Montgomery County Common Pleas Court.
Joseph Herzstam v. Unit Steel Corporation.
Decided January 4, 1928.
Carroll Sprigg arid McConnaughey & Shea.iov the In-tervenors.
Kusworm & Shaman, and Craighead, Cowden, Smith & Schnacke, for the Receiver.

Opinion:
SNEDIKER, J.
This case is before the court on several intervening petitions filed by Henry M. Waite, Stone & Ellis, a partnership, and the Theis Unit Steel Company. In each of these petitions these several parties claim a breach by the Unit Steel Corporation of what is known as a distributor's agreement, which was entered into by and between them severally and the defendant company. These agreements are alike in their terms except as to the territory awarded to the distributors and except that in Item 3 of the Waite contract there is provision made for a drawing account and that the company will keep in stock in the territory such quantities of materials as may be deemed necessary to satisfactorily take care of the business, etc., while in the Stone & Ellis contract and the contract under which the Theis Unit Steel Company was operated, which was originally signed by Stone & Ellis, Item 3 shows:
"To be sold to distributor at the Unit Steel Corporation list price; price to customer to be made by the distributor."
These contracts were executed long prior to the time when the defendant company went into the hands of a receiver and were then in existence. At the appointment of the receiver there was no application by him for nor was there an order made by the court directing him to accept these contracts.
The breach which is claimed, and on account of which these intervening petitions were filed by the distributors is made the subject of a claim against the Unit Steel Corporation as such and, if it is allowed, will entitle these intervening petitioners as general creditors to participate in any dividends declared by the court out of any funds arising from the sale of the assets of the corporation and that is the prayer of these intervening petitions.
When the cases were heard by the court evidence was introduced by the intervening petitioners in support of their claims. What evidence was offered by the receiver was not of a kind tending to deny the correctness of any item thereof as to amount. At the close of the evidence of each of the intervening petitioners a demurrer was interposed to the evidence and a motion made for judgment in favor of the receiver and the dismissal of the intervening petitions. Where any testimony was offered by the receiver, this demurrer and motion also were interposed at the close of all the testimony.
The theory on which the receiver urged his demurrer to the evidence and moved for a dismissal of the interven-1 ing petitions was that in their intervening petitions and in all their proof they did not come within the measure of damages properly applicable to the breach of the contracts which they claim, and this is the question which we are now called upon to determine, and which having decided, it will not be difficult for the receiver and his counsel to compute the amount which each is entitled to recover, if anything, against the corporation on account of the breach of the distributors' contracts by it. That there was a breach cannot be denied. These several intervening petitioners, after entering into their agreements with the defendant company, immediately proceeded to conduct a business of selling the product of the Unit Steel Corporation in their respective localities. In making preparation therefor and during the time that they were so engaged they incurred expenses all for the purpose of pursuing that particular business which involved the sale to the public of the article manufactured by the defendant and which could not be elsewhere- procured. During the time they were so engaged, the defendant company did not live up to the terms of the distributors' contracts. It is futile to say that any provision of these contracts, which recites that the company is not to be responsible for any expense incurred in the conduct of the business of a distributor, relieves the company under circumstances which constitute a breach of the contracts on its part. The breach by the company deprives it of the right to look to the contracts for protection against any such claim. These cases come under a special rule or measure of damages which the court is entitled to apply because any profits which the intervening petitioners might have made from the contracts are so uncertain that they cannot be used as an effective measure of damages, and, because, that being true, the intervening petitioners are entitled to recover as against the defendant company on account of its breach the expense of preparation for transacting the business which on account of the breach was never entered upon, and we find that as applied to the claims of these several intervening petitioners, they come within this category.
As a matter of law it may be said that for any inexcusable violation of a valid contract the defaulting party must respond in damages to the extent of fairly compensating the other party for the injuries he has suffered. This principle governs every contract whether there be any express stipulation to that effect or not.
It was with this in mind that the decisions in the different cases from which we now quote were rendered by the courts. In the case of Kiralfy et al. v. Macauley et al., 9th Ohio Decisions, Reprints, page 833, the Superior Court of Cincinnati, Judges Harmon, Force and Peck sitting, say:
"Where one party to a contract pursuant to its terms expends money or incurs liability in preparing to perform it on his part,- and the expenditures, etc., are of such a nature as to be entirely lost unless the contract is fully performed, he may recover the full amount thereof from the other party, upon the latter's wrongful refusal to perform, upon mere proof that they were reasonable and proper."
In the case of F. D. Taylor et al., as Partners, etc., v. W. W. Spencer, 75 Kansas, page 152, the first syllabus reads:
"Where one party to a contract terminates it wrongfully, the other party, in an action for damages on account of the breach, may recover all the direct and proximate loss sustained on account thereof, including expenses incurred, expenditures made in preparation to perform his part of the agreement, loss of time, and for his own personal services."
This case was one where the owners'of mineral springs agreed to furnish water therefrom at a stipulated price and for a definite period to a dealer who was to have exclusive right to sell the same at the place named and such dealer upon faith of such contract expended large sums of money in preparation for the sale of the water, giving his personal attention thereto, and the owners of the springs before the expiration of the time limited.in the contract refused without just cause to fur,nish the water according to the agreement and destroyed the business of the dealer.
We find Howe Machine Co. v. Bryson et al., in the 44 Iowa, to be a case in which one of the parties made a contract with the general agents of a sewing machine company by the terms of which he was to rent a room, provide himself with a team and furnish other necessary means for the sale of sewing machines and devote his time thereto, the agents of the company agreeing to furnish him with all machines he could sell at a price twenty-five per centum below the retail price. The complaining party performed his undertaking but the machines were not supplied as the general agents had agreed. It was held by the court that the party who was to act as dealer under the terms of the contract was entitled to recover damages for the breach and that he was entitled to recover the value of the time he had lost as a result thereof without reference to the profits which might have been realized if the contract had been performed. And in the opinion the court say:
"The real question in this case, then is: Are the defendants entitled to recover for loss of time, or loss of profits? We are of the opinion that they are entitled to recover for loss of time. To this should be added, to be sure, their reasonable expenditures."
The Appellate Division of the Supreme Court of. the state of New York decided a case found in the 172 New York Supplement bearing upon the questions we are discussing. We refer to K. & R. Film Co. Inc., v. Brady. The syllabi are as follows:
"1. Where defendant broke his contract to furnish theater for production of moving pictures, and to pay a royalty to plaintiff, plaintiff could recover the amount expended in preparation for the production of the film.
"2. In action for theater owner's refusal to display moving pictures according to contract, the owner of the film could recover the profits lost, but in so far as they were purely speculative, and not susceptible of proof, there could be no recovery."
In the opinion Judge Lehman says:
"There is no doubt but that, upon the evidence presented, the plaintiff should be permitted to recover at least the amount which it had expended in preparing to carry out its part of the contract which the defendant thereafter repudiated."
In the XXXIX Federal, page 440, Taylor Manuf'g Co. v. Hatcher Manuf'g Co., which is a case decided in the Circuit Court of the United States in Georgia, the court holds:
"When there has been part performance, and expenditures properly made by one of the parties to a contract, which is broken by the fault of the other party, the party performing may recover his reasonable expenditures. jf the expenditures of the party not at fault are unreasonable, it is the duty of the opposite party to show it."
In the contracts of these distributors while they are so designated and they themselves are recognized as dealers yet there is about their relations to the company an obligation of duty which brings them very nearly within the scope of the term of agent. In the 1 Queen's Bench Division, page 544, we find the case of Turner v. Goldsmith, decided by the Court of Appeals (which at that time was composed of some of the most distinguished judges in England), which had to do with a situation very similar to the one at bar. We quote the syllabus:
"The defendant, a shirt manufacturer, by contract in writing, agreed to employ the plaintiff, and the plaintiff agreed to serve the defendant as agent, canvasser, and traveller on the terms — first, that the agency should be determinable by either party át the end of five years by notice; secondly, that the plaintiff should do his utmost to obtain orders for and sell the various goods 'manufactured or sold by the defendant as should from time to time be forwarded or submitted by sample or pattern to T.' And it was further provided that the plaintiff should be remunerated by such commission as was specified in the contract. After about two years the defendant's manufactory was burnt down, and he did not resume business, and thenceforth did not. employ the plaintiff, who brought an action for damages for breach of contract:
"Held, by the Court of Appeal, reversing the decision of Grantham, J., that the action was maintainable, and that the plaintiff was entitled to substantial damages, for the defendant, having agreed to employ the plaintiff for five years, did not fulfil that'agreement unless he sent him a reasonable amount of samples to enable him to earn his commission; and that the defendant was not excused from fulfilling his agreement by the destruction of his manu-factory by fire."
Without the disaster which occurred in the case from which we have last quoted, the defendant company breached its contract as to the supplying of samples with which these distributors could work and in other particulars; which entitles them to damages on account of the breach, and to these damages we think should be applied the measure which is found in the cases in this opinion referred to.
Other authorities which may be said to carry the same rule are: Curran et al. v. Smith et al., 149 Federal, page 945; The Paola Gas Co. v. The Paola Glass Co., 56 Kas., p. 614; Griffin v. The Sprague Electric Co., 115 Federal, p. 749; Johnson v. Arnold, Jr., 2 Cushing, p. 46.
Taking this measure, we ask counsel for all parties to compute the amount due on these respective claims and it is the direction of this court that that having been determined, the receiver allow to that extent the claims- presented to him.