Appeal and cross-appeal from the District Court of the United States for the Southern District of New York.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
The plaintiff, a New Jersey corporation, brought this action against the defendant, a New York corporation, to recover "the agreed and reasonable value" of goods sold and delivered to the defendant, asking judgment for $20,634.98 and interest thereon from February 1, 1931. The defendant filed an amended answer to the complaint setting forth a separate and distinct defense to the alleged cause of action and four counterclaims. The plaintiff moved to dismiss all four counterclaims on the ground that none of them stated facts sufficient to constitute a cause of action, to dismiss the second counterclaim on the additional ground that it could not properly be interposed in the action, and to strike out the separate defense on the ground that it was insufficient in law upon its face. The District Court, by an order dated July 2, 1931, granted the motion and ordered that all four counterclaims be dismissed and the separate defense stricken out. In an opinion dated July 2, 1931, however, the District Court held that certain of the allegations in the first counterclaim might "form the basis of affirmative relief against the plaintiff," and accordingly the order of dismissal gave the defendant leave to serve an amended answer in conformity with the directions in the opinion. The defendant filed exceptions to the order, and seasonably interposed a second amended answer, setting forth a single counterclaim, to which the defendant replied. The matter was referred by the court to a referee, who determined that the plaintiff was entitled to recover from the defendant the principal sum of $19,119.47, and that the defendant might set off the principal sum of $2,533.80 on the basis of its counterclaim. Interest was allowed on various fractions of the principal sums from various dates. The District Court confirmed the referee's report, and judgment was entered for the plaintiff for $19,053.58. The defendant has appealed from the judgment in so far as it dismisses the second, third, and fourth counterclaims set forth in the first amended answer. The plaintiff has taken a cross-appeal from so much of the judgment as allows the defendant a set-off on the basis of the counterclaim set forth in the second amended answer.
This litigation arises out of an agreement in the form of a letter sent by the defendant to the plaintiff on February 1, 1929, "to confirm and set forth the terms of the agreement arrived at on January 22, 1929, between yourselves and our company," and accepted by the plaintiff as expressing the agreement on February 25, 1929. By the terms of this agreement, the plaintiff, a manufacturer of radios and phonographs, appointed the defendant distributor of the plaintiff's products in a designated territory, and agreed to appoint no other distributor, or to act as its own distributor, within that territory "while this agreement remains in effect." The defendant might elect to discontinue handling and distributing the plaintiff's products "at any time during the life of this agreement," in which case the plaintiff might appoint other distributors within the territory. The agreement further provided that: "We are to be free, if we so desire, to handle other radio, combination radio and phonograph, and phonograph products, including records, in said territory until June 1, 1930, and we are to advise you on February 1, 1930, whether or not we desire to continue as distributors of your said products after June 1, 1930. If we advise you on February 1, 1930, that we desire to continue to act as distributors of your said products, we shall continue to act as such distributors in said territory until February 1, 1933, with the understanding that during the period from June 1, 1930, to February 1, 1933, we will agree if you so desire, to handle only Edison radio, combination radio and phonograph, and phonograph products including records, and with the further understanding that if we so elect to extend the term of our distributorship to February 1, 1933, this agreement may be cancelled by either party on six (6) months written notice given at any time after December 1, 1930."
The defendant duly exercised its option to extend the life of the agreement to February 1, 1933, and agreed, waiving a request from the plaintiff, to handle only Edison products. It is conceded that the defendant became bound to handle only radios and phonographs manufactured by the plaintiff. The parties acted under the agreement for several months during 1930. Other pertinent provisions of the agreement are as follows:
"If you" (the plaintiff) "should elect * * * to cancel this agreement and give us said six months' notice, you will, at our option, take over and assume the lease covering the premises occupied by us at 28 West 23rd Street, New York City, which runs to February 1, 1933, and will purchase the furniture and fixtures, reasonably comparable with the present furniture and fixtures, which we have installed in said premises at a price which shall be mutually agreeable, or in the event that the price cannot be mutually agreed upon, a third party, agreeable to both of us, shall be selected as an arbitrator and the price determined by him shall be final and accepted by both of us and you will make payment for the said furniture and fixtures at the time this agreement terminates. It is further understood that in the event you elect to cancel this agreement and give us the said required notice, you will, upon the termination of the agreement, take back from us all the merchandise of your manufacture and purchased by us from you, which we then have on hand and which is new or saleable in the regular course of business as new, and will pay us for such merchandise the net cost to us of same. * * *
"All prices are to be F.O.B. your factory and the list prices are to be no greater than those made to other distributors; also discounts from list prices and for cash payments to be no less than that given to other distributors. It is also understood that if the prices of your said products are lowered at any time during the period of this agreement, we shall be refunded the difference between the cost to us under new prices and the cost to us under the old prices of any of such products which have been billed to us within the preceding ninety (90) days, which are on hand unsold, whether they are on hand in our establishment or whether they have been delivered to our dealers and remain on hand unsold by them. * * *
"It is further understood that it is your intention to manufacture and that you will endeavor to have ready to market on or about June 1, 1929, a reasonably complete line of radio sets, phonographs or combination phonograph and radio sets to be sold at list prices commencing at or about One hundred and twenty-five dollars ($125.00) and ranging upwards in accordance with the type of such products, and it is your intention that these list prices shall be reasonably competitive with similar merchandise offered to the public by other manufacturers."
On June 20, 1930, the defendant by letter indicated some dissatisfaction with the highprice range of the plaintiff's products, and asked whether the latter would insist that the defendant comply with the requirement that no other "make" of radio or phonograph should be handled by the defendant. The plaintiff by a letter dated June 25, 1930, replied that, unless the agreement under which the parties were acting should be substantially modified for the benefit of the plaintiff, the requirement that no other "make" might be handled would be insisted on. On July 11, 1930, the defendant by letter referred to the clause of the agreement stating the plaintiff's "intention" to bring out "a reasonably complete line of radio sets, phonographs or combination phonograph and radio sets to be sold at list prices commencing at or about One hundred and twenty-five dollars ($125.00) and ranging upwards," and called upon the plaintiff to furnish lower priced sets than had as yet been supplied. No answer to this communication appears in the record, but the referee found that the plaintiff had already on July 9, 1930, informed the defendant that it would not manufacture a cheaper line of merchandise. The referee further found that the plaintiff did not consent to the defendant's handling other makes, and that on August 6, 1930, the defendant notified the plaintiff that it had taken on and was handling the Clarion radio, which was not manufactured by the plaintiff. However, no protest was made by the plaintiff until nearly three months later, when, on November 5, 1930, it informed the defendant by letter that the latter's distribution of the Clarion radio "breaches in a vital respect your agreement with us" and that "we therefore notify you that our agreement is at an end." To this letter the defendant replied on November 7, 1930, that: "We do not consider that your letter is proper notice to us of your cancellation of this agreement, and this is to advise you that we do not accept it as such."
The goods for the agreed value of which this action is brought were all sold by the plaintiff to the defendant after the notice of cancellation of the agreement by the plaintiff and rejection of such notice by the defendant referred to above. These goods were sold pursuant to an offer by the plaintiff contained in a letter sent November 12, 1930, which made no reference to prior dealings or disputes between the parties, and was couched in the most cordial, not to say familiar, terms, and extended best wishes for "a bang-up holiday business." This offer was accepted by the defendant in a letter dated November 22, 1930, and, accordingly the merchandise for the price of which this action is brought was delivered to the defendant by the plaintiff. The defendant admits that it is indebted to the plaintiff for this merchandise in an amount exceeding $17,000.
We shall deal first with the appeal taken by the defendant from the order and judgment of the District Court in so far as they dismiss the second, third, and fourth counterclaims set forth in the first amended answer.
The second counterclaim attempts to set forth a cause of action in tort for ...