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Callahan v. Prince Albert Pulp Co.

decided: July 20, 1978.


Appeal from a judgment following a non-jury trial in the United States District Court for the Southern District of New York, Carter, J., which denied recovery to appellants for commissions allegedly due under a sales agency agreement. Affirmed in part and reversed in part.

Before Gurfein, Van Graafeiland, Circuit Judges, and Dooling,*fn* District Judge.

Author: Van Graafeiland

Robert Callahan and Callahan Associates, Inc.,*fn1 appeal from a judgment entered on August 3, 1977, in the Southern District of New York after a trial without a jury. Trial was limited to the issue of liability. The district court held that appellee Prince Albert Pulp Company was not liable to Callahan, whom it employed as a sales agent, for commissions allegedly due and owing. We affirm in part and reverse in part.

Callahan is in the business of soliciting sales of wood pulp; Prince Albert manufactures bleached sulfate wood pulp. Acting without legal counsel, they entered into a sales agency agreement on December 28, 1971. The agreement, in the form of a letter from appellee's Vice President to Callahan, is set forth in the margin.*fn2

During the first half of 1972, nine customers ordered trial lots. During the last half, Prince Albert signed contracts with five of them. The first three were one-year contracts with Georgia-Pacific Corporation (January 1, 1973 December 31, 1973), Finch Pruyn Company, Inc. (April 1, 1973 March 31, 1974), and Consolidated Papers, Inc. (July 1, 1973 to June 30, 1974). A one-year agreement was also made with Ward Paper Company for the 1973 year. However, on April 19, 1973, a second contract was entered into with Ward which ran from January 1, 1974, to December 31, 1977, and continued thereafter subject to termination by either party on one year's notice. The fifth contract was with Blandin Paper Company. It ran from January 1, 1973, to December 31, 1975, and continued thereafter subject to termination by either party on one year's notice.

Although each of the contracts provided that the buyer would purchase a specified quantity of pulp over a given period, it appears to have been the custom in the trade that these were not treated as firm commitments but rather as options to purchase. For example, in 1976, Ward took delivery on only 26% Of the quantity for which it had contracted. Other customers were shipped as little as 18%, 31%, 33% And 42%. Price changes and/or discounts were negotiated quarterly, and failure to agree could result in termination of the contract.*fn3 A defense witness described the agreements as "reservation" contracts which are negotiated every quarter at the seller's announced price. Another witness testified that during 1976 only 10% Of the world's pulp buyers took their entire contract quantity. Callahan's contract provided that commissions were to be paid him only after payments for deliveries had been made.

In January 1972, when the agreement between plaintiff and defendant was effected, there was a buyer's market in pulp. However, within a year thereafter, this changed to a seller's market, and the demand for pulp exceeded the supply. Between 1973 and 1975, the market price rose from $160 a ton to $367 a ton. Because of this price increase, Callahan's commissions per ton more than doubled. At the same time, his job as a salesman became markedly less demanding. Customers were begging for pulp. Prince Albert requested therefore that Callahan reduce his commissions.*fn4 Upon his refusal to do so, Prince Albert decided to dispense with his services at the conclusion of his contract.

Callahan's first claim against Prince Albert was for alleged loss of commissions arising out of Prince Albert's refusal to enter into new contracts with four of his customers at the termination of their existing ones. Callahan contends that appellant's refusal was based on a desire to avoid paying him commissions. The district court correctly held that a salesman's right to commissions can not be defeated by his employer's arbitrary refusal to accept orders which he has procured. See Nat Nal Service Stations, Inc. v. Wolf, 304 N.Y. 332, 339-40, 107 N.E.2d 473 (1952). On the other hand, the employer need not abdicate its own business judgment and is not required to enter into contracts which will be unprofitable or contrary to its own business interests. See Friede v. White Co., 244 F. 272, 274 (S.D.N.Y.1917). Applying these tests, the district court found the defendant was not liable for failing to enter into any new contracts with plaintiff's customers.

With regard to three of them, Georgia-Pacific, Finch Pruyn and Blandin, the district court's findings are supported by the record. When the market switched to one of short supply, appellee wished to use its limited resources in satisfying its customers with whom it had or could expect to have long term relations. It wanted customers upon whom it could rely in good times and bad. Georgia-Pacific was an integrated mill, I. e., one which both manufactured and consumed pulp. It was in and out of the market as purchaser and could not be depended upon for long-term loyalty. Finch Pruyn was in a poor freight area for trading with appellee. Appellee's witnesses testified repeatedly and unequivocally that appellee's decision not to enter into new contracts with Georgia-Pacific and Finch Pruyn was not related in any way to Callahan's right to commissions.

Prince Albert did sign renewal contracts with Blandin and Ward, the first of which ran until the end of Callahan's contract term and the second of which ran beyond it. Some discussions were had concerning a possible third contract with Blandin for a period beginning in 1976, but, as the district court found, "nothing concrete was settled upon." Prince Albert's only contact with Blandin was through Callahan, and Prince Albert was reluctant to enter into an agreement commencing after its association with Callahan had been terminated. Callahan had a close personal friendship with the president of Blandin, and Prince Albert was concerned that after Callahan left its employ he might take Blandin with him. Prince Albert felt that Callahan's influence over Blandin made a business relationship with Blandin a bad long-term risk. The district court found that this was a valid business reason for not continuing Blandin as a customer. Appellee's witnesses also testified that it was contrary to firm policy to enter into long-term contracts and that they did not have sufficient available pulp to undertake any such arrangement with Blandin. Finally, there was never a definite and firm contract proposal submitted on behalf of Blandin upon which a claim for commissions could reasonably be based. We need not reach the question whether Callahan's influence over Blandin, standing alone, could be considered a valid business reason for Prince Albert's decision to terminate its dealings with Blandin. Under the totality of circumstances outlined above, we cannot say that the district court erred in rejecting Callahan's contention that termination was improper.

With regard to Consolidated, however, the situation is different. Callahan did submit to Prince Albert a proposed written contract running from July 1, 1974, to December 31, 1977, and continuing thereafter unless terminated on one year's notice. This called for annual purchases of 4800 tons, taken in approximately equal monthly installments. Appellee's Vice President indicated that, in principle, the company was "enthusiastic about making this long-term arrangement with this excellent company" but would not commit itself until the situation concerning its future supply of tonnage was clarified. Despite this enthusiasm, appellee thereafter refused to consummate any contract with Consolidated unless Callahan released his commissions after 1975. We conclude that the details of this proposed contract were sufficiently definite to support a claim for lost commissions. We conclude also that, in refusing to consummate the proposed deal, appellee was motivated, not by business judgment, but by the desire to deprive Callahan of commissions for post-1975 sales.

We hold therefore that Callahan is entitled to recover lost commissions based upon the proposed contract with Consolidated which is Exhibit 73 in evidence and remand to the district court for an appropriate computation of damages. In making this computation, the district court should determine upon appropriate proof what portion of the 4800 tons per annum would with reasonable probability have been called for and delivered during the three and one-half year contract term. Hedeman v. Fairbanks, Morse & Co., 286 N.Y. 240, 250, 36 N.E.2d 129 (1941). The district court should also make allowance for the non-contract deliveries actually made by Prince Albert to Consolidated between July 1, 1974, and December 31, 1977, and for any commissions on such deliveries already paid to Callahan.

Callahan's second claim arises from Prince Albert's reduction of contract tonnage to Callahan's customers during 1973 and 1974 as a result of the pulp shortage. Relying upon the force majeure clause in its contracts, Prince Albert reduced tonnage by some 8% In 1973 and 16% In 1974. Substantially similar reductions were made with regard to Prince Albert's other contract customers. At the same time, however, Prince Albert took on some new customers and voluntarily increased delivery of tonnage to others. To the extent that this occurred, Prince Albert was not entitled to rely on force majeure in curtailing shipments to its contract customers. Callahan therefore sustained damages in lost commissions because his customers did not receive all of the shipments which they requested and to which they were entitled.

We remand this issue also to the district court for a determination as to the quantity of deliveries voluntarily made by Prince Albert to non-contract or new customers or in excess of existing contract requirements during 1973 and 1974. The total amount of such voluntary deliveries should then be apportioned theoretically and ratably among all of Prince Albert's contract customers, who did not benefit from its largesse. If Callahan can establish that his customers were denied delivery of ...

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