
    Egbert C. Fuller, Respondent, v. Wellington Downing, Appellant.
    First Department,
    June 7, 1907.
    Principal and agent — discharge of agent under certain conditions in the . contract of employment — good faith of principal — evidence — proof of good faith.
    .Under a contract.appointing the plaintiff the sole selling, agent of the defendant for a definite period, but providing that the contract' may be terminated on notice at the option of the principal should he dispose of his business at any time during the life of the agreement, or wish to form a combination with other manufacturers of the same goods, the right of the principal to terminate the contract by reason of his wish to form a combination with other manufacturers depends upon whether'the principal in good faith intended to .enter into such combination.
    A letter from the principal to the .agent informing him that the principal, elects to terminate the contract under the provision aforesaid is sufficient notice of discharge,'especially when the agent replies-that he understands his employment is terminated pursuant-to such provision.
    In .an action by the agent to recover for the.breach of such contract of employrhent, it is error to exclude evidence tending to show that the principal was negotiating With other parties to form a combination, for the evidence might j ustify tliedischarge and is relevant on the question of the good faith of the principal.
    ■Appeal by the defendant, Wellington Downing, froth adjudgment of the Supreme Court.in favor of the plaintiff, entered in the office of the clerk of the bounty of hfew York on the 16tli day of' June, 1906, upon the report of a. referee, and also' from- an order entered in said clerk’s'office on the 15th day of June, 1906, granting the plaintiff an extra- allowance of costs, in an. action to recover damages for breach of.a contract of employment as sales agent.
    
      Abram J. Rose of counsel, Robert Lawrence with him on the brief [Kellogg & Rose, attorneys], for the appellant.
    
      Charles De Hart Brower of counsel. [J. Campbell Thompson, attorney], for the respondent.
   Clarke, J.:

On the 11th day-, of December, 1900, the defendant, a manu.faeturer of folding machines, under the name of- Brown Folding Machine Company, at Erie, Pehn., by a.written contract, appointed the plaintiff his sole agent for the sale of folding machines for the period of five years, beginning January 1, 1901. The plaintiff was at that time engaged in the business of selling machinery in the city of New York under the name and’ style of E. C. Fuller & Co; By the lltli paragraph of the contract it was provided as follows: “ It is hereby further agreed that should the party'of the first part dispose of liis business of manufacturing folding machines at any time during the life of this agreement or wish to form a combination with other manufacturers of folding machinery, he shall have the right to terminate this agreement by giving four months’ notice in writing to the party of the second part.”

On the 9th day of April, 1901, the defendant wrote to the plaintiff the following letter: “We- seem to be losing a large majority of orders, owing to the fact that our prices are beyond "those of .Dexter’s and their combining folder and feeder in one at about the price we would ask for our Double 16. This naturally places us in a position wherein we cannot derive any benefit from the agency we established with you on the first of January, and in accordance with the eleventh paragraph thereof we are. obliged, for self-protection, to take advantage of its conditions. We were in hopes that the results would have been vastly different from what they are, but our anticipations have been disappointing. We cannot afford to continue to lose business and have the volume thereof fall short every month over that of last year when we wel’e operating on an entirely different plan. Of course,, until the expiration of the four months, we will adhere to the contract, but at the end of. that time1 we expect to be in a position to give Mr. Dexter and all comers a shake up in prices. In other words, we propose to cut prices, even though we must do so to an extent that will permit of our barely existing. We have arrived at this conclusion after carefully considering the matter, and believe it to be the only plan in which we ban crush Dexter. We presume yon will readily see the position we are in when yon figure up the number of orders we have received since our contract with you and how far it would go toward meeting the volume of business transacted by us last year.” To this letter the plaintiff replied on the 11th day of April, 1901, as follows: “We have your valued favors of the 9th inst., and would have replied yesterday but the writer was in Philadelphia. * * * As the agreement made between you and E. C. Fuller & Company, regarding the sale of your machinery, is not where the writer can. get at it, we do not know what the eleventh paragraph provides for,'but take it that you mean to sever the connection.” This letter was dictated by Mr. E.. E. Bush, who was in the employ of the plaintiff and was in charge'of his business, received his letters' and answered them when Mr. Fuller was away, and .wrote to him about every day.

On April eleventh Mr. ■ Bush wrote to Mr. Fuller, the plaintiff, inclosing a copy of the letter of April ninth,- stating: “ I have replied that while the contract is not where I can see it, that I.presume the eleventh paragraph he refers to provides for the termination of the contract; that we realized up to the present we had not sent thém'many orders-but that we had put in a great deal of hard work which was bound to result in big business. I told them that the matter would be brought to your, attention oil your return from the west;”

It is conceded that tinder the 11th clause of the contract the defendant appellant had the right to terminate the agreement by giving four months’ notice in writing upon either one of two contingencies: First, should the defendant dispose of his'business at any.' time during the life of. the agreement. That ctintingency was based upon the existence of an actual fact, and it is conceded that that fact never existed; Second, .wish to form a combination with other manufacturers- of folding machines. . That condition depended upon the existence of a state of mind. The validityand effectiveness of such a condition in a contract has been sustained by the courts.

: In Wooster v. Sage (67 N. Y. 67) the action was brought to recover back the purchase pricé of two railroad bonds1 purchased with the option to return if the purchaser became sick of them, in which case defendant was to repay the purdíase money. In upholding the right to recover, the court said: “ It was not made matei'ial how’or-for what reason the plaintiff became dissatisfied or by what influences. He may have acted upon the advice of a friend, or submitted to the opinion of a third person. His dissatisfaction, however produced, gave him the unqualified right to return.” (Cited and followed in Fitzpatrick v. Woodruff, 96 N. Y. 561, and Johnston v. Trask, 116 id. 136.)

The appellant admits that this contract of employment was not of the class involving taste, fancy, interest, personal satisfaction or judgment, where the question of whether or not the services of the ■employee were satisfactory was to be determined by the employer and not by the court or jury, as in Crawford v. Mail & Express Pub. Co. (163 N. Y. 404), but rather of the class illustrated in Smith v. Robson (148 id. 252), where, although the master had the power to discharge the employee if satisfied in good faith that he was incompetent, the court held that the question of good faith was one of fact," thus distinguishing it from the cases in which contracts were made to gratify taste, to serve personal convenience or individual preferences. The appellant agrees that the law reads into' this contract the words “ in good faith,” so that the legal effect of the second option would be to cause the phrase to read, “ or in good faith wish to form a combination with other manufacturers of folding machinery.”

With this interpretation we agree. Under it there was a question of fact for the court to determine upon competent evidence,whether, at the time the written notice was given, the defendant did in good faith wish to enter into the specified combination.

The respondent claims that the letter of April.ninth was entirely insufficient as the notice provided for in paragraph 11 of the contract. •

With this contention we do not agree. The letter was specific in its reference to the 11th paragraph, and, as the plaintiff had a copy of the contract, must be interpreted as if the provisions of said clause had been repeated in the letter. That there is no doubt about this is shown by the answer of April eleventh, “(We) take it that yon mean to' sever the connection,” and by the letter of Bush to the plaintiff, inclosing a copy of the April ninth letter, “I presume the eleventh paragraph he refers to provides for the termination of the contract.”

On May thirteenth the defendant wrote: “And at the end-of our notice given you some six weeks ago we propose to dissolve all business relations. * * * In conclusion, we will adhere strictly to our contract until the expiration of our notice, but thereafter you may consider that all business relationsbetween us will cease.” On August thirteenth the defendant wrote: In accordance with our letter of April 9th Ave presume that your understanding is the same .as ours regarding the cancelling of our contract for the sole agency of -our product in this country.” To.this the plaintiff answered oñ August sixteenth,: “ In regard to your letter of August 13th, referring to your letter of April 9th, your understanding of the contract existing between us and our understanding' of it appears to be at variance. We do not understand that you have any right to cancel the contract without our consent, and, therefore, must refuse to accept your proposal-to cancel it.” To that the defendant answered on August nineteenth: “ Hoav can you misinterpret the contract that exists between us; Ave fail to understand. The contract calls for four months’ notice, which we gave, and under the circumstances we can hardly consider ourselves as bounden for any further period of time thereunder.”.

It is evident from this, correspondence that the. plaintiff under stood that by the letter of April ninth the defendant intended- to give the notice canceling the contract under the provisions of paragraph 11. The point-taken by the plaintiff "was not that he did not understand this intention upon the defendant’s' part, hut!that the defendant liad no right'to cancel his contract without the plaintiff’s -consent, and, therefore,- he refused to accept, the defendant’s, .proposal to cancel it. In this he was mistaken. The cancellation was not contingent upon mutual consent, but upon the exercise by the defendant, in good faith, of the option reserved to him.

I. am of. the opinion, therefore, that the notice, considered as a notice, was sufficient, and the determination of the case,- therefore, depends- upon the question whether it was given in good faith and in the, exercise of the-option reserved. This, as hereinbefore pointed ■ out, Avas an issue of fact, which the defendant Was entitled to support by all competent evidence.

' On the fifteenth of April the defendant wrote to Mr. Bush, iñgeneral charge of the plaintiff’s' business, a'letter which the plaintiff saw: “ I will now- write you regarding my recent action so far as ■ giving Mr. Fuller notice in accordance with' the eleventh; paragraph of our agreement. In the' first place, the paragraph reads as follows :' (Quoting it), Some t.wo or three weeks ago I was requested ■ to give my option to a party Avho is now endeavoring tó bring about a consolidation of the three concerns: that is, Dexter, Chambers,- as' well as myself. Both of the others have given their options, and it was at my instigation that the same party, Mr. Sterling L. Bailey, wrote yon requesting Mr; Fuller to enter the compact with the Economic Feeder.” This letter was offered and excluded upon objection of the plaintiff. ■ • •

The defendant was asked: I think you .have already testified, Mr. Downing, that prior to this notice of April 9th that there was under way .and in process of formation a combination of manufacturers of folding machines? A. There was. Q. Did you have any dealings or any correspondence with anybody, and if so, whom, in regard to that combination ? ” . This question was excluded upon objection of the plaintiff. Again, defendant was asked: Mr. Downing, I think you testified yesterday that you knew Mr. Sterling- L. Bailey who was mentioned in certain letters offered for identification ? A. I did. Q. Did you', prior to April, 1901, have any conversations with him, one or more, with reference to entering into a combination of folding machines ? [Objected to. . Sustained.] Q. Willyou.statesuclx;conversations? [Objected to. Sustained.]”

The defendant - offered - in evidence a series of letters ex-tending over a period from January 28, 1901, to May 13, 1902. This correspondence tends to establish that Mr. Bailey had an option for ninety days on the business of each of the two competitors of the defendant; that he wTás endeavoring to make a combination; that he asked of the defendant an option and his terms; that the. defendant gave him terms; that if the terms had been accepted the combination would have been made; that the plaintiff was aware of the attempt' to form this combination, and that upon the suggestion óf the defendant the plaintiff had been approached and requested to join therein. All of these letters were excluded, the result being that a question of fact being presented as' to whether or not. at the time of the giving of the notice the defendant did, in good faith, wish to enter into a combination, all evidence tending to establish that good faith was excluded by the learned referee.

Having excluded this evidence, the learned referee, in his opinion, alluding to the letter -of April ninth, stated: u This letter * * * fairly negatived the idea of a combination, justified the plaintiff in believing that neither of the’ contingencies entitling the defendant to terminate the contract had arisen ; that he, therefore, ‘had no right to terminate the contract ; ■ that the-notice was ineffectual and the contract still in existence.” ■- ■.

What inferences' should have been drawn from the evidence, if admitted, was for the court engaged in trying the facts. To exclude the evidence and. yet to draw the conclusion that neither of the contingencies entitling the defendant to terminate tile contract had arisen cannot. be sustained. Said Judge Yaén in his dissenting opinion nr' Crawford v. Mail & Express Pub. Co. (supra), laying-down the - rule which I understand is not disputed .where the employment is such that the good "faith - of the party exercising the right to discharge can.be inquired.' into by the court; in other words, cases not involving, taste, fancy, "interest, personal satisfaction and judgment, as in the case at bar: “"-Their letter, of dismissal under .the.circumstances permitted the inference that' they discharged the plaintiff..for a reason not- named in the contract hor permitted by-law. Even if the evidence to rebut this inference was very - strong, a-question of fact arose for the jury to decide.”

1 The error in this record is that competent evidence of a justificar tion for the discharge was- not admitted. The learned referee did not permit the question of good faith to be properly submitted.

The judgment, therefore, should- be. reversed, and a- new trialorderéd, with, costs to the appellant to abide the event.

Patteesoh, P. J., Ihobaham, McLauohlih and. Lambéet, JJ., concurred. ' . . " ''

Judgment reversed, hew trial ordered, .costs to appellant to-abide event. .■ ' y • -  