The opinion of the court was delivered by: KIRKPATRICK
In this action, tried to the Court without a jury, the plaintiff claims damages on two counts, (1) breach of an exclusive distributorship contract and (2) late and defective deliveries of merchandise prior to the breach. The defendant having been found liable on both counts in a separate trial, the case is now before the Court for the assessment of damages. The facts bearing upon both breaches are fully set forth in the opinion of this Court filed May 4, 1959, 200 F.Supp. 55, and need not be repeated here.
1. Damages for breach of the exclusive distributorship contract.
On February 17, 1956, the defendant without legal justification notified the plaintiff that it would no longer supply the plaintiff with furniture for the New York Board of Education (by far the largest buyer in the East), following which the defendant through a different sales agency obtained a large portion of the New York contracts for itself. The contract with Willred could have been terminated on notice by either party as of December 31, 1957.
The amount claimed by the plaintiff in this branch of its case is $ 443,268.30 which is mainly made up of the profit which it asserts would have been realized by it if the contract had been carried out. The defendant, although not admitting liability contends that the plaintiff's losses arising from the termination of the contract were nil.
The plaintiff in the present case, a sales organization having an established business extending over four years prior to the breach, not only continued in business after the breach but, having obtained another supplier, competed actively with the defendant and succeeded in getting a very substantial amount of business on which the defendant had bid both directly and through another sales organization. This situation, together with the fact that competition in the business is principally for large contracts awarded on sealed bids, presents such perplexing questions that a rather wide latitude should be accorded to the trier of facts in fixing damages if this plaintiff, unquestionably injured by the inexcusable repudiation of a contract, is not to be left without a remedy.
The problem involves two questions, (1) what volume of business could the plaintiff reasonably be expected to have done had the contract not been breached, and (2) what profit could the plaintiff have reasonably been expected to have made on such business?
To arrive at the volume of business which the plaintiff lost by reason of the breach, I accept the figure of $ 1,759,512.75. This figure represents the business within the orbit of the contract obtained by the defendant after the breach.
After considering all the circumstances, I think it is a fair measure of the business of which the plaintiff was deprived by reason of the breach and which, had there been no breach, it could have obtained. (See Ross v. Houck, 184 Pa.Super. 448, 136 A.2d 160) This figure eliminates the mark-up of 15% Plus 5% Which the plaintiff wished to add. It includes the price of round tables, kindergarten tables, dressing tables and stools for the New York contracts. These, I think, were within the scope of the original contract between the parties.
I cannot accept the defendant's contention that, under the decision of the Supreme Court of Pennsylvania in Lambert et al. v. Durallium Prod. Corp., 364 Pa. 284, 72 A.2d 66, profits on the contracts for school furniture which the plaintiff obtained following the breach and within the contract period must be an offset against the plaintiff's damages for profits lost. A significant difference between the facts of the Lambert case and the present one makes the rule of the former inapplicable here. In the Lambert case the plaintiff was a manufacturer, and, upon the breach, he merely changed the material used by him and continued to manufacture the same articles. The plaintiff produced no evidence to show that the change of the material affected the volume of his business in any way and there was nothing to show that, after the breach, he was not doing all the business he could do. Hence, there was no problem of restoring to the plaintiff the value of lost business. It was a simple matter to place him in the same position which he would have occupied had the contract not been breached, and he would be fully compensated by allowing him the difference between the profit on the business he did which he would have made with the defendant's material and that which he made with the substitute. Anything more would have been a windfall.
It is obvious that, had the contract not been breached, the plaintiff's volume of business would have been a great deal larger than it was. True, the plaintiff could not have obtained furniture from outsiders but, for all practical purposes, there was no limit to the amount it could get from the defendant. The plaintiff here would not be put in the position which it would have had if the contract had been carried out if it were allowed no more than the difference between the profit which it would have made on the business done by the defendant in violation of the contract and the profit which it did make using other suppliers. It is apparent that it would have been able to obtain the contracts which the defendant obtained as well as the same ones it got. Even in cases where the plaintiff obtained business in direct competition with the defendant, it appears that in all but a small number the defendant's bid was the next lowest responsible bid so that the defendant would have obtained the business in the absence of the competition of Willred, and it follows that the plaintiff would have done that business if it had been representing the defendant. Thus, even in these instances of direct competition a deduction for the business done by the plaintiff is not justified.
Under these circumstances, the applicable rule is that stated in Section 336 of the Restatement of Contracts, comment c., 'Gains made by the injured party on other transactions after the breach are never to be deducted from the damages that are otherwise recoverable unless such gains could not have been made had there been no breach. * * * manufacturing facilities can usually be expanded to meet all demands; therefore profit made on the manufacture and sale of a second article is not deducted.'
I am unable to allow the plaintiff any recovery for additional lost profits based on its theory that, with the defendant as a supplier, it would have earned more than it did with its substituted suppliers, Norcor and Emeco. The claim in this regard is not unreasonable, but the difficulty with it is that there is no evidence in the record from which the Court can determine with any reasonable degree of certainty whether the arrangements which it had with Norcor and Emeco were any less advantageous than the terms which it could have obtained from the defendant. The contracts between the plaintiff and Norcor and the plaintiff and Emeco were not produced, although it appears that they were in writing, and no explanation was forthcoming as to why the plaintiff did not put them in evidence. The testimony relating to them makes it clear that they contain certain terms differing widely from those of the Westmoreland contract. There is insufficient evidence as to the extent and significance of these differences to meet the plaintiff's burden of proof as to this item of its claim. It is, therefore, disallowed.
One other transaction calls for comment. The plaintiff, in order to build up a volume of business for Norcor, submitted a bid to the New Britain school board and obtained a contract, with the understanding with Norcor that it (the plaintiff) would take no profit on the contract unless Norcor was able to establish a plant in the East, which it never did. The plaintiff now claims from the defendant the profit which it did not make. The claim must be disallowed. The transaction was not entered into with the idea of making a profit and, in effect, amounted to no more than the plaintiff's placing its sales force at Norcor's disposal, gratis, in order to obtain future business advantages. If such transactions could give rise to damages, there would be nothing to prevent the injured party from selling his goods at any sacrifice price he chose, relying upon being able to collect his profits from the person who wrongfully breached the contract.
Having found the amount of business which the plaintiff lost as a result of the defendant's breach of the contract, our next problem is to find the profit which it would have made on that volume of business. Williston on Contracts, Section 1346A, points out various methods of proving prospective profits (cited with approval in Massachusetts Bonding & Ins. Co. v. Johnston & Harder, Inc., 343 Pa. 270, 279, 22 A.2d 709). One method is, 'Evidence of past profits in an established business furnish a reasonable basis for estimating future profits.' The methods are not mutually exclusive, and the Court may consider more than one in arriving at a conclusion, nor do they exclude from the Court's consideration any other relevant evidence which may throw light upon the question. In the present case, the plaintiff having had an established business covering a five year period extending both before and after the breach, the percentage of profit which it actually realized will be the chief consideration. This figure can be obtained by referring to the plaintiff's income tax returns for its fiscal years 1953, 1954, 1955, 1956, and 1957. These returns should give a better picture of what profit, was received on the business done than any method of ...