Appeal from the Judgment of the Court of Common Pleas, Civil Division, of Allegheny County, No. GD 84-9536.
James P. Hollihan, Pittsburgh, for appellants.
James R. Cooney, Pittsburgh, for appellees.
Brosky, Rowley and Popovich, JJ.
[ 368 Pa. Super. Page 562]
Stanhope Steel, Inc. (Stanhope) and Cambridge Industries, Inc. (Cambridge) appeal from the judgment entered against them in the amount of $127,698.76 in favor of appellee, Robert W. Dorn, following the denial of appellants' motions seeking post-trial relief in this action for breach of a written exclusive brokerage agreement. Three issues are raised on appeal: (1) Were obligations which Stanhope had under its brokerage contract with its agent, Dorn, extinguished as a matter of law when Stanhope voluntarily discontinued business? (2) Was the continued existence and operation of Stanhope an implied condition of the brokerage contract when the contract contained specific provisions for termination, and such provisions did not address the continued existence and operation of the corporation? (3) Is Stanhope entitled to a new trial to establish that it is excused from performing under the contract because of supervening impracticability and supervening frustration. We affirm.
The case had its genesis in a written agreement entered into between appellee and Stanhope on October 1, 1979 and a written five year extension of the agreement executed on May 1, 1981. Throughout the 1960's and 1970's, prior to execution of the agreement at issue here,
[ 368 Pa. Super. Page 563]
appellee sold and leased steel pilings for R.C. Stanhope, Inc. In 1979, R.C. Stanhope, Inc. was purchased by Cambridge, a holding company. Thereafter, R.C. Stanhope, Inc.'s name was changed to Stanhope Steel, Inc. and was operated as a subsidiary of Cambridge. Shortly thereafter, Stanhope and appellee executed a written brokerage agreement.*fn1 The agreement defined appellee's role as Stanhope's "sole and exclusive broker in the rental and sale of steel sheet piling and H-bearing piles" in certain regions and as a "broker and independent contractor engaged in promoting and selling various lines . . . ." The agreement was for a term of three years and contained the following provision for termination before the term of three years expired:
[T]his exclusive Broker's Agreement may be terminated at any time, at the option of Stanhope Steel, Inc. (1) in the event of your death or disability, (2) if for any reason beyond your control you are prevented from fully carrying out all of the provisions of this Broker's Agreement, or (3) if for other reasons it is deemed advisable to the best interest of all parties concerned. Notice of any such termination, at the option of Stanhope Steel, Inc., as aforesaid, shall be given in writing at least six months . . . before such termination.
[ 368 Pa. Super. Page 564]
In 1981, appellee sought and secured a five year extension of the 1979 agreement. The extension took effect on May 1, 1981. In early 1984 Cambridge sold the assets of Stanhope to L.B. Foster Company.*fn2 On February 7, 1984 appellee was notified in writing that the agreement was terminated.
Appellee filed the present action seeking damages for breach of the exclusive brokerage agreement against Stanhope, Cambridge and L.B. Foster. The case was tried before a jury and the trial court directed a verdict in favor of appellee against Stanhope. The amount of appellee's claimed damages was stipulated subject, however, to appellant's argument that appellee, if entitled to recover at all, was entitled to recover, at the most, six months compensation. The only issues submitted to the jury were the liability of Cambridge and L.B. Foster. The jury returned a verdict in favor of appellee against Cambridge, and in favor of L.B. Foster against appellee. On appeal appellants argue that they are entitled to judgment n.o.v. or, in the alternative, a new trial.
Appellants present four arguments in support of their contention that they are entitled to judgment n.o.v., as a matter of law, based on the record before us.*fn3 Appellee,
[ 368 Pa. Super. Page 565]
on the other hand, argues that he was entitled to, and properly received, a directed verdict based on the record. For reasons which follow, we reject each of appellants' four claims that they were entitled to judgment n.o.v. on this record.
Our standard of review in considering appellants' argument for judgment n.o.v. is well settled:
[O]n appeal from the refusal of the lower court to enter judgment n.o.v., the sole duty of the appellate court is to decide whether there was sufficient evidence to sustain the verdict, granting the verdict winner the benefit of every favorable inference reasonably to be drawn from the evidence and rejecting all unfavorable testimony and influences.
Walasavage v. Marinelli, 334 Pa. Super. 396, 407, 483 A.2d 509, 514-15 (1984) (citation omitted). In reviewing appellants' arguments relative to their judgment n.o.v. claim, we will consider only the evidence on record. "In determining the sufficiency of the evidence, we consider the evidence actually received, whether the trial rulings thereon were correct or not." Reichman v. Wallach, 306 Pa. Super. 177, 185, 452 A.2d 501, 505 (1982) (citations omitted). Additionally, it is crucial to bear in mind the distinction between appellants' claim that they are entitled to judgment n.o.v., and their claim, addressed in Part II. of this opinion, that the trial court erred in directing a verdict in favor of appellee.
Appellants first argue that they are entitled to judgment n.o.v. because any obligations which Stanhope had under the agreement were extinguished when it discontinued business and its assets were sold to L.B. Foster.*fn4 At
[ 368 Pa. Super. Page 566]
the outset, we note the general maxim that "a corporation dissolved by its voluntary act remains bound by its outstanding executory contracts." 19 Am.Jur.2d Corporations § 2888. In the case before us, the act of selling Stanhope's assets to L.B. Foster was the functional equivalent to corporate dissolution because all of the assets were sold and the company went out of business. Thus, the distinction is one without a difference in this case. Professor Williston states in his treatise that where the corporation voluntarily dissolves itself, "a contract, although made impossible of performance, is made so by the act of the corporation, and [the corporation] or its assets are liable for its failure to fulfill its obligation." 18 Williston on Contracts (1978) § 1960; Martin v. Star Publishing Co., 50 Del. 181, 126 A.2d 238, 243 (1956). These concepts are addressed by §§ 1907 and 2111 of the Pennsylvania Business Corporation Law. "The dissolution of a business corporation . . . shall not take away or impair any remedy given against such corporation, its directors or shareholders, for any liability incurred prior to such dissolution, if suit thereon is brought and service of process had before or within two years after the date of such dissolution." 15 Pa.S. § 2111(A). As to corporate mergers, "[t]he surviving or new corporation shall thenceforth be responsible for all the liabilities and obligations of each of the corporations so merged or consolidated." 15 Pa.S. § 1907. These statutes and general principles support the view, preferable to that of appellants, that contracts generally survive the discontinuance of business operations.
Appellants' contention that their obligations were extinguished by reason of discontinued operations and sale of assets must fail unless the agreement falls within the purview of a valid exception. In determining whether the agreement in question falls within a valid exception to the general rule, it is important to distinguish between employment contracts and agency contracts. A corporation's rights and duties regarding its employee or agent vary according to the nature of the relationship. The distinction
[ 368 Pa. Super. Page 567]
becomes crucial when termination is involved. A contract of employment for a definite term cannot be lawfully terminated by an employer prior to the expiration date. Alpern v. Hurwitz, 644 F.2d 943 (2d Cir.1981). However, a principal always has the power to revoke agency. Restatement (Second) of Agency § 118, comment b. Nevertheless, such power to revoke does not necessarily absolve the principal of liability for breach of the agency contract. Under the Restatement, "[a] principal has a duty not to repudiate or terminate the employment in violation of the contract of employment." Restatement (Second) of Agency § 450.
There can be no doubt that the relationship between Stanhope and Dorn was one of principal and agent. First, Stanhope referred to the agreement as a "brokerage arrangement," and the agreement states that Dorn is "acting as a broker and independent contractor." As stated in 12 Am.Jur.2d Brokers § 30, "[t]he essential and basic feature underlying the relation of a broker to his employer is that of agency, and the principles of law applicable to principal and agent govern their respective rights and liabilities throughout . . . ." Second, the agreement specified that Dorn's duties were to "diligently and aggressively promote the rental, sale, and purchase for Stanhope Steel of [steel sheet piling and H-bearing piles] by diligently calling on customers and prospective customers located in your exclusive territories." This comports with the view that "an agent represents his principal in business dealings and is employed to establish contractual relations between the principal and third persons, while a servant is not." 53 Am.Jur.2d Master & Servant § 3. Thus, the terminology given to the agreement, and the duties thereunder, establish that a contract of agency existed between Stanhope and Dorn, and not a contract of employment.
"[T]o terminate an agency, there must be either a lapse of time, accomplishment of the anticipated results, external changes in the relationship (e.g., death of parties, changes in business conditions), or mutual consent, revocation, or renunciation." Scott v. Purcell, 264 Pa. Super. 354,
[ 368 Pa. Super. Page 568399]
A.2d 1088, 1093, aff'd 490 Pa. 109, 415 A.2d 56 (1979). The sale of Stanhope's assets undoubtedly constituted an external change in the relationship. Therefore, we hold that the agency agreement between Stanhope and Dorn was terminated by operation of law when Stanhope voluntarily discontinued operations.
We now address the question of whether appellants were entitled to judgment n.o.v. in light of the termination. If, as appellants claim, Stanhope's obligations to Dorn were extinguished when the agency agreement was terminated, appellants would be entitled to judgment n.o.v. For reasons which follow, we find that Stanhope remained obligated under the agreement to pay Dorn the agreed upon compensation,*fn5 notwithstanding our holding that the voluntary dissolution terminated the agency agreement by operation of law. In reaching this conclusion we look to the seminal case of John L. Rowan & Co. v. Hull, 55 W.V. 335, 47 S.E. 92 (1904), which has been widely cited for the proposition that although an agency, not coupled with an interest, but of a fixed duration, may be revoked by the principal at will, the principal will be liable to the agent for damages for wrongful revocation within such time. Geyler v. Dailey, 70 Ariz. 135, 217 P.2d 583 (1950); Levander v. Johnson, 181 Wis. 68, 193 N.W. 970 (1923); Rucker & Co. v. Glennan, 130 Va. 511, 107 S.E. 725 (1921); Cloe v. Rogers, 31 Okl. 255, 121 P. 201 (1912); Hancock v. Stacy, 103 Tex. 219, 125 S.W. 884 (1910); Novakovich v. Union Trust Co., 89 Ark. 412, 117 S.W. 246 (1909).
In Rowan, the owner of a farm entered into a written agreement with a real estate agent to list his farm for a period of three months. The agent found a buyer during that time, but the owner decided not to sell and revoked the
[ 368 Pa. Super. Page 569]
agent's authority to find a buyer. The agent sued to recover his commission under the agreement. The owner/principal contended that he had the power to revoke at any time, notwithstanding the three-month term under the agreement, and that the agent at most was entitled to compensation for his expenses incurred under the power. The Court held that the agent was entitled to his full commission. It reasoned:
[T]he principal may revoke the authority at any time. But it by no means follows that, though possessing this power, the principal has a right to exercise it without liability, regardless of his contract in the matter. It is entirely consistent with the existence of the power that the principal may agree that for a definite period he will not exercise it, and for the violation of such agreement the principal is as much liable as for the breach of any other contract.
47 S.E. at 93. We agree with the reasoning in Rowan, and we adopt the principles set forth by that court. Under the facts of the case at bar, we find no material difference between appellant Stanhope's decision to voluntarily discontinue its business by selling its assets to L.B. Foster, thereby eliminating the purpose of its relationship with appellee, and the owner's exercise of his right to terminate the agency in Rowan. The methods of terminating the agent/broker's authority were different, but the agent/broker has been no less wronged in either case, and liability attaches to the same extent, due to the voluntary nature of the principal's conduct in each case. Therefore, we hold that the trial court acted properly in directing that the verdict be entered in favor of the appellee.
We are cognizant of cases which hold that a principal will not be liable for breach of "output" agreements*fn6 with an agent, where the principal, in good faith, was forced to
[ 368 Pa. Super. Page 570]
cease production due to circumstances beyond its control. In Sheesley v. Bisbee Linseed Co., 337 Pa. 197, 10 A.2d 401 (1940), the defendant manufactured edible oils from crushed seeds and sold the meal as a by-product. Plaintiff, a livestock feed dealer with many years of sales experience, entered into an exclusive brokerage contract*fn7 with defendant, agreeing to aggressively push the sale of Colza Oilmeal in certain specified counties of Pennsylvania and Maryland. Defendant's letter agreement covered "only our production of pure Colza Oilmeal . . . and all other products which we produce are specifically exempted from this agreement." Id., 337 Pa. at 200, 10 A.2d at 403. The contract was for a period of one year with an option to extend it to five years. When Congress imposed a two cents per pound tax on import of the seed, defendant determined that the retail price of the meal would be too high for the product to sell. Id. Defendant ceased production, and plaintiff brought suit for breach of contract.
The Court found that because the written instrument expressly stated "[t]his agreement covers only our production of pure Colza Oilmeal," it was an output contract. As such, the Court held, there was no implied obligation to keep the plant in operation. Id., 337 Pa. at 202, 10 A.2d at 404. Thus, since the action was taken in "entire good faith and not for the purpose of injuring plaintiff," the Court reasoned, defendant did not violate any of its obligations to plaintiff by ceasing production of the product.
In Du Boff v. Matam Corp., 272 A.D. 502, 71 N.Y.S.2d 134 (1947), plaintiffs were appointed sales agents for "all home appliance products produced" by defendant for a period of five years. Defendant liquidated its business and sold all assets. The Court held that defendant had no obligation to continue in business, ...