Defendants appeal from an order entered by Judge Knapp in the Southern District on July 10, 1978, after a bench trial, insofar as it dismissed defendants' defenses and counterclaims and awarded damages totalling $27,085.84 to plaintiffs for breach of contract. Dismissal of defendants' defense and counterclaim based on plaintiffs' allegedly defamatory statements affirmed. Vacated and remanded for further findings of fact and conclusions of law with respect to plaintiffs' proof of performance under the contract and with respect to defendants' claim that plaintiffs accepted commercial bribes.
Before Lumbard, Moore and Gurfein, Circuit Judges.
In this diversity case, defendants Wirth Limited, Wirth Incorporated, and Manfred F. Wirth ("Wirth") appeal from a judgment entered by Judge Knapp in the Southern District on July 10, 1978, after a bench trial, insofar as it dismissed Wirth's defenses and counterclaims and awarded damages for breach of contract totalling $27,085.84 to plaintiffs British American and Eastern Co., Inc. and Frederick L. Sunley ("Sunley").*fn1 On appeal, Wirth asserts that Sunley should not recover (1) because Sunley failed to prove performance of the contract, (2) because Sunley's acceptance of alleged "bribes" breached the contract, and (3) because Sunley's allegedly defamatory statements with respect to Wirth's business performance breached the contract. Wirth also contends that he is entitled to recover all sums paid to Sunley pursuant to the contract, the amount of the alleged "bribes" paid to Sunley, and damages for libel. With respect to Wirth's defense and counterclaim growing out of Sunley's allegedly defamatory statements, we affirm. With respect to Wirth's claims that Sunley failed to prove performance and that Sunley's acceptance of bribes breached the contract and entitled Wirth to recover the monies paid as bribes, we remand for further findings of fact and conclusions of law.
Plaintiff Sunley was for twenty years the United States representative for an Austrian steel mill known as VMW. In 1973, when Sunley reached 74 years of age, VMW began looking for a younger successor to Sunley. Relying in part on Sunley's recommendation, VMW engaged defendant Wirth to be its United States representative in February, 1974.
On February 22, 1974, as part of the transitional arrangement, Sunley and Wirth entered into a written agreement which provided in relevant part that:
FLS (Sunley) and MFW (Wirth) agree . . . not to interfere in each other's business, warrant against any competition with each other's business lines, disclosures to outsiders, off-hiring of employees, etc. (The agreement referred to this provision as a "non-competition warranty").
FLS will actively support MFW's sales efforts in the U.S.A. and Canada as well as help obtain maximum quantities of base metals from VMW at competitive prices.
For these efforts, FLS will be entitled to a fee (of 1/4 to 1/2 cents per pound on sales of aluminum, copper and brass products shipped by VMW through Wirth).
Although performance of the agreement began auspiciously enough, the initial harmony proved to be of short duration as Sunley became concerned that Wirth was mishandling VMW's business, thus depriving him of commissions he otherwise would have earned. Sunley began writing a series of letters to the VMW management detailing Wirth's alleged deficiencies and suggesting that VMW should take steps to rid itself of Wirth.
Wirth also claims that Sunley accepted bribes from Non-Ferrous, a customer of Wirth, in exchange for an increase in Non-Ferrous' allocation of scarce aluminum. Wirth testified at trial that he did not know about these alleged bribes until after Sunley had been working for him for several months. Sunley, however, testified that the payments he received from Non-Ferrous were not bribes but were in fact payments for past services, and that he had told Wirth of this arrangement when they first began working together. Sunley also testified that these payments ceased soon after his agreement with Wirth took effect. Sunley's testimony was partially corroborated and partially contradicted by Wirth and by Ames, the president of Non-Ferrous.
Wirth ceased making the payments to Sunley required by the contract in January, 1976. Sunley then sued for breach of contract. The district court awarded Sunley $27,085.84 in damages and Wirth now appeals.
Wirth's first claim on appeal is that the district court's award of damages was made without affirmative proof that Sunley performed his part of the contract. Although New York law, which concededly controls disposition of this case, clearly places the burden of proving performance in an ordinary contract action upon the plaintiff, Bevelheimer v. Slick Airways, Inc., 303 F.2d 69 (2d Cir. 1962), the district court nevertheless precluded proof of performance, apparently for two reasons.
First, although Sunley attempted to offer some proof of performance, he believed that he could recover simply by placing the contract into evidence and rebutting Wirth's affirmative defenses. The district court suggested that to the degree this contract might be construed to be a commission or royalty contract, paying Sunley a percentage of the receipts for all future orders as compensation for his work in building up the business taken over by Wirth, payment would not be dependent on any continuing performance. The contract Sunley relied upon, however, was not a pure commission or royalty contract providing compensation solely for past efforts. It explicitly contemplated continuing performance by Sunley. Sunley was required to "Actively support MFW's sales effort . . . as well as Help obtain maximum quantities of base metals. . . . For these efforts, FLS will be entitled to a fee. . . ." (emphasis added). Thus proof of performance was a necessary part of Sunley's case.
Second, the district court held that even if the contract was not a commission but rather a consulting contract requiring proof of performance by Sunley precedent to recovery, Wirth could not raise this issue in defense because Sunley had, "both at pre-trial and at trial, made clear that he was proceeding on the theory that he had a contract for commissions and was entitled to recover unless some act of disloyalty or other misconduct was established against him, and Wirth did nothing to alert the court or counsel to any contrary view." Paragraph nineteen of Wirth's verified answer, however, states that "Plaintiffs breached the agreement alleged in the complaint by discontinuing to actively support (MFW's) sales efforts in ...