Fromm Sales Co. v. Troy Sunshade Co.

Horney, J., delivered the opinion of the Court. This appeal concerns the propriety of the termination of the distributorship agreement between the Fromm Sales Company, Inc. (Fromm or plaintiff), a Maryland corporation, and the Troy Sunshade Company (Troy or defendant), an Ohio corporation. When Troy canceled the partly written and partly oral agreement because Fromm had failed to meet its financial obligations, this action was brought by Fromm against Troy for damages arising out of breach of contract. At the trial, the court reserved a ruling on the motion for a directed verdict and submitted the case to the jury.

The jury returned a verdict for the defendant. It is from the entry of the judgment for costs on the verdict that this appeal was taken. After extended negotiations. Troy, a manufacturer of awnings and canopies, which it sold throughout the country, by a letter dated January 26, 1954, designated Fromm as its exclusive distributor in Baltimore City, fourteen Maryland ²³¹ counties, the District of Columbia, and parts of Delaware and Virginia.

There was also an oral agreement that Fromm was to be a warehouse-distributor—the highest distributor classification for maximum discounts—which required the stocking of Troy products as a part of its inventory and payment therefor as they were supplied. Fromm had a right, however, under the agreement to sell the products directly to sub-distributors or other dealers in the agreed areas. The terms of the credit provisions are not important here except to note that prompt payment was required in order to assure further deliveries. Fromm also carried competing products in stock.

Fromm started as a satisfactory distributor in all respects but it was not long before it began to lag in making the required payments for products supplied. By May of 1954 it was over $10,000 in arrears on total purchases of approximately $16,000. Numerous suggestions were made by the parties for reducing the past due payments. In fact the balance was reduced to about $5,400 by August of that year.

Fromm contends that Troy’s sales manager told it not to worry about the amount owed, but this was denied by Troy and the denial was confirmed by the correspondence of the parties during this period in that continuance of the distributorship agreement was constantly predicated on prompt payment of the past due balance of the running account. Finally, when the account was not sufficiently made current to meet the demands of Troy, a reduction of the territory, and a transfer of some of its inventory to the District of Columbia sub-distributor to be credited on Fromm’s past due account, was suggested in letters from Troy to Fromm dated August 6, September 9 and September 16 of 1954. Therein Fromm was told that legal action was imminent and would ensue unless the past due indebtedness was paid without further delay, and it was asked to submit to a reduction of its territory to a lesser number of counties in Maryland and to exclude the out-of-state distribution points which experience had shown were not satisfactory. These letters were written by the manager of the awning division, who was not present at the trial.

The letter of September 9 specifically warned Fromm that “all of our distributing agreements are naturally based ²³² upon the specific understanding that failure to pay for merchandise on the basis of our [Troy’s] published credit terms constitutes good and sufficient cause for cancellation of any distributorship.” There was a general objection by the plaintiff to the admissibility of these letters on the ground that they contained self-serving declarations, hearsay statements and legal conclusions based on the defendant’s interpretation of the contractual obligations of the parties. The letters were admitted into evidence over these objections. It was conceded—since there was no understanding between the parties as to how long the distributorship should last—that the agreement was for an indefinite time. Furthermore, there was no dispute that Fromm was in default when the agreement was terminated by Troy with respect to payments due for products supplied on credit.

On this appeal the parties have raised many questions concerning alleged errors on the part of the trial court with respect to its rulings on the evidence, the instructions to the jury and the motion for a directed verdict, which, when summarized appear to fall into five closely related problems: (i) was there sufficient mutuality to