National Micrographics Systems, Inc. v. Oce-Industries, Inc.

Bishop, J., delivered the opinion of the Court. National Micrographics Systems, Incorporated (NMS), appeals several rulings entered by the Circuit Court for Montgomery County in favor of the appellee, OCE-Industries, Incorporated (OCE). The trial court ruled, inter alia, that OCE could recover payment due for goods sold and delivered to NMS; it also upheld jury findings that OCE breached oral and written contracts with NMS, but ruled that NMS could not recover compensatory or punitive damages. NMS urges that the trial court erred by ruling in favor of OCE’s claim, by preventing NMS from recovering the aforementioned damages, and by failing to award NMS the full cost of depositions it introduced into evidence.

The Facts OCE is a Chicago based firm that produces micrographic equipment, parts, and supplies. It sells these goods to customers directly, through branch offices, and also through authorized dealers throughout the country. NMS is an independent retail dealer that represents various suppliers in the sale of micrographic products and other office equipment in the Baltimore-Washingtbn area. NMS was a distributor for ten to fifteen competitors of OCE.

During the first or second quarter of 1974 OCE orally agreed that NMS would sell its products in the Baltimore metropolitan area and the District of Columbia. The parties ⁵²⁹ operated under the oral agreement until September 1976, when they entered into a written dealership agreement. NMS claimed that OCE promised not to compete with NMS’s marketing of OCE micrographic products in the Baltimore-Washington area during the term of the oral agreement. This promise allegedly was made by OCE’s branch manager during the fourth quarter of 1974.

NMS contends that it was mainly in consideration of the promise not to compete that it agreed to enter into the written dealership agreement. This written agreement was to continue from year to year with termination upon two months’ notice by either party. NMS knew that current government contracts listed both NMS and OCE as authorized agents for the sale and service of OCE equipment. In December 1977 or January 1978, NMS discovered that OCE had been selling products authorized to be sold by NMS to customers located in the Baltimore-Washington territory.

NMS told OCE that these sales violated its agreement not to compete, and demanded an explanation. On February 2, 1978, before the matter was resolved, OCE gave NMS notice of its intent to terminate the agreement under the two month termination provision; as a result, in April 1978, the contract terminated. NMS refused to make any payment on its outstanding account to OCE for the goods delivered and sold on behalf of OCE before the termination of the contract. OCE initiated an action on September 28, 1978, against NMS for money due on account for goods it had sold and delivered to NMS from July 1977 through June 1978.

In response, NMS filed a counterclaim on May 14, 1979, alleging in three counts: Count 1, breach of agreement not to compete with NMS during the term of the written contract; Count 2, unfair competition; Count 3, wrongful interference with contractual relations. On December 16, 1980, NMS alleged in three additional counts in its amended counterclaim: ⁵³⁰ Count 4, breach of agreement not to compete with NMS during the term of the oral contract; Count 5, fraudulent inducement to enter into the written contract by a promise not to compete; Count 6, tortious interference with prospective economic advantage. As a result of OCE’s conduct, NMS claimed a loss of profit and claimed actual damages for each count. It also claimed punitive damages for Counts 2 (unfair competition), 3 (wrongful interference), 5 (fraud) and 6 (tortious interference).

The court sustained OCE’s demurrer to counterclaim 2 (unfair competition) and granted OCE’s motion for summary judgment on counterclaim 3 (wrongful interference with contractual relations) and 6 (tortious interference with prospective economic advantage). NMS has not appealed these rulings. NMS is appealing the court’s treatment of counterclaims 1 and 4 (breach of contracts not to compete) and 5 (fraud). On April 30, 1981, before trial, the circuit court granted partial summary judgment on Count 5, holding that NMS was not entitled to recover punitive damages on its fraud claim.

After the parties presented their evidence, the trial court reaffirmed its summary judgment; it also held that OCE was entitled to a directed verdict preventing NMS from recovering compensatory damages for fraud. NMS had earned a commission from OCE for each of its sales of OCE equipment and reorders of OCE supplies. The commission was equal to the difference between the sale price and the dealer cost for each item. In order to establish its damages, NMS introduced a 66 page summary listing all of OCE’s direct sales of micrographic equipment in the Baltimore-Washington region during the terms of both the oral and written agreements, for which NMS received no commission.

NMS argued in the lower court and argues here that OCE’s breach of its agreement not to compete caused NMS to suffer damages equal to the lost commissions and ⁵³¹ fees on all of these sales. NMS did not have any past commercial relationship with a number of the customers listed in the 66 page summary to whom OCE sold equipment. The lower court limited the jury’s consideration of damages to lost commissions on sales to customers with whom NMS had previous commercial relations, rather than on all micrographic equipment sales made by OCE in NMS’s market area. The case was then submitted to the jury.

On May 20,1981, it returned a special verdict in favor of NMS on the counterclaims of fraud (5), for which NMS received no compensatory or punitive damages, breach of oral contract (4), for which the jury awarded NMS $4,911.90; and breach of written contract (1), for which the jury awarded NMS $19,845.11. On July 8, 1981, the trial court treated OCE’s previous motion for a directed verdict as a motion for judgment notwithstanding the verdict. The trial court upheld the jury’s findings that OCE had breached its contracts. Because it believed that NMS had not shown sufficient evidence of lost profits, however, the court granted OCE’s motion for judgment notwithstanding the verdict as to the jury’s damage awards for counterclaims 1 and 4 (breach of the written and oral contracts, respectively).

Each party was held responsible for its respective costs. On November 24, 1981, the trial court entered a judgment against appellant NMS’s counterclaims and in favor of appellee OCE’s claims, ordering NMS to pay $22,535.64 for products delivered under the written dealership agreement of September 1, 1976. On appeal, NMS asks us to review five of the lower court’s rulings: (I) The ruling that the jury, in calculating NMS’s damages, could only consider OCE’s sales to customers with whom NMS had had a commercial relationship. (II) The judgment n.o.v., which prevented NMS from recovering any of the commissions it claimed from the OCE sales. ⁵³² (III) The ruling that there was insufficient evidence to support NMS’s claim for punitive damages under its fraud count.

(IV) The ruling that OCE was entitled to recover on its declaration. (V) The refusal to award NMS the total cost of depositions it introduced into evidence. I. and II. DAMAGES FOR BREACH NMS argues that the innocent party in a breach of contract case is entitled to receive damages that would place him in the same position in which he would have been had the contract not been breached.

Dialist Co. v. Pulford, 42 Md. App. 173, 179 (1979). In this case the amount of damages to bring this about is the profit that would have been realized had no breach occurred. NMS and OCE agree that under Maryland law the innocent party seeking to recover lost profits must prove (1) that the breach was the cause of the loss, (2) that the defendant could have foreseen when the contract was executed that a loss of profits would be a probable result of a breach, and (3) the amount of lost profits with reasonable certainty. Aeropesca Limited v. Butler Aviation International, Inc., 44 Md. App. 610, 632 (1980); John D. Copanos & Sons, Inc. v. McDade Rigging & Steel Erection Co., Inc., 43 Md. App. 204, 206 (1979).

NMS argues that the 66 page summary showing OCE’s actual sales in the NMS territory was the best available evidence to assist the jury in reasonably ascertaining the amount of the damages. The trial court, however, found that NMS had no commercial relationship with many of the listed customers. It stated, "the court finds that any loss of commissions do not flow directly from the breach of the agreement, because there is no evidence to establish had OCE not been in the area, NMS would have either contacted them, sold them, or indeed in any way received those commissions”. Consequently, it partially granted OCE’s motion for directed verdict, ruling that ⁵³³ the jury, when assessing damages, could only consider OCE’s sales to the government and to prior NMS customers.

The jury, however, found in its special verdict that during the period of the oral contract, 1974-1976, OCE had agreed not to sell the same products as NMS to any customers in the Baltimore-Washington territory. The jury found that during the period of the written contract, 1976-1978, OCE had agreed not to contact NMS’s prior customers to sell the same products. This is clear when we consider the jury’s answers to questions I. 1) and 4) and II. 2) & 3): "I. Relationship between OCE and NMS from March 1974 to September 1976. (The oral contract). 1) Did OCE through Mr. Pratt tell NMS that OCE would not sell the same products as NMS in the Baltimore-Washington area?

Yes_No._ 2) Did OCE agree to pay commissions to NMS on all sales made by OCE in the Baltimore-Washington area? Yes_No.__ 3) Was there a meeting of the minds between OCE and NMS on the oral contract? Yes_'/,_No._ 4) Did OCE agree not to 'Compete’ with NMS in the Baltimore-Washington area? Yes__)L_No___ If Yes, what is meaning of Compete? 1.

OCE would not sell in the area__or 2. OCE would not contact the same customers as NMS_ 5) Did OCE breach an oral contract between 1974 and 1976? Yes_)L_No._ 6) NMS knew or should have known before 1976 that OCE was selling the same products in the same area. ⁵³⁴ Yes_No._)/._ II. Agreement of September 1, 1976.

(The written contract) 1) Was there a meeting of the minds as to the meaning of the Dealership Agreement? Yes_J No._ 2) Did OCE agree not to sell any of the same products as NMS in the Baltimore-Washington area? Yes_No._v/_ 3) Did OCE agree not .to contact the same customers for the samé products sold by NMS in the Baltimore-Washington area? Yes_No._ 4) Did OCE breach the written contract?

Yes_'¿,_No. . Fraud_For(NMS)or OCE If you find for NMS, in what amount: For oral agreement $4,911.90 For written agreement $19,845.11” The jury clearly found that OCE breached its agreement (1) not to sell to any customer in the territory during the oral contract, and (2) not to contact NMS customers during the written contract. Nonetheless, the trial court, in its opinion and order of July 8, 1981, found that "NMS was unaware of any of the sales of OCE until after suit was filed. NMS did not introduce evidence of one sale that was made to the same department or agency that NMS was dealing with.

Not one customer was brought in to say they would have bought anything from NMS if OCE had not sold them the order. There is not one iota of evidence that NMS would have called upon the same purchasing agent to sell the product if OCE had not done so.” Accordingly, the court entered judgment n.o.v. against NMS’s counterclaim for breach of oral and written contracts. ⁵³⁵ NMS contends that the lower court erred by substituting its judgment for that of the jury. We agree. In Rowe v. Baltimore Colts, 53 Md.App. 526, 532 (1983), we said: "A directed verdict is never appropriate when there is any legally sufficient and relevant evidence, however slight, from which a rational mind can infer a fact, which if found to exist would preclude entry of judgment for the movant.

In considering whether to grant a directed verdict, the trial judge is required to view all admitted evidence and inferences rationally deducible therefrom in the light most favorable to the party against whom the motion is made. 'Maryland’, as the Court of Appeals has had the opportunity to observe in Fowler v. Smith, 240 Md. at 246 ..., 'has gone almost as far as any Lother] jurisdiction that we know of in holding that meager evidence is sufficient to carry the case to the jury.’ Unless the facts and circumstances permit the drawing of but one inference in regard to the issues, a directed verdict should not be granted.” (Citations omitted.) Similarly, in Impala Platinum v. Impala Sales, 283 Md. 296, 327 (1978), the Court of Appeals held: ''The general rule by which the sufficiency of the evidence is to be tested on appellate review is the same for a judgment n.o.v. and a directed verdict. The evidence and the reasonable inferences to be drawn from it are to be considered in the light most favorable to the party opposing the motion. A party is not entitled to judgment n.o.v. unless the facts and circumstances so considered are such as to permit of only one inference with regard to the issue presented.” (Citations omitted.) Applying these standards, the issue is whether the trial court erred in ruling that there was insufficient evidence of lost profits to permit the jury to calculate NMS’s damages ⁵³⁶ with reasonable certainty. In M & R Contractors & Builders, Inc. v. Michael, 215 Md. 340, 349 (1958) Judge Horney referred to "Speculative Profits as Damages for Breach of Contract,” 46 Harv.

L.Rev. 696 (1933), which stated that "the last hundred years have witnessed continual modification of the once rigid rule that anticipated profits, because inherently uncertain, were per se not a proper element of damages for breach of contract.” The Court noted that: "Some of the modifications aimed at avoiding the harsh requirements of the 'certainty’ rule include: (a) if the fact of damage is proven with certainty, the extent or the amount thereof may be left to reasonable inference; (b) where a defendant’s wrong has caused the difficulty of proving damage, he cannot complain of the resulting uncertainty; (c) mere difficulty in ascertaining the amount of damage is not fatal; (d) mathematical precision in fixing the exact amount is not required; (e) it is sufficient if the best evidence of the damage which is available is produced; and (f) the plaintiff is entitled to recover the value of his contract as measured by the value of his profits. McCormick, Damages, Sec. 27 (1935).” Id. Accord Macke Co. v. Pizza of Gaithersburg, 259 Md. 479, 488-89 (1970); Della Ratta, Inc. v. American Better Community Developers, Inc., 38 Md. App. 119, 139 (1977). There was sufficient evidence from which a rational mind could conclude that NMS could have made the sales and supplied the same products supplied by OCE at the same price.

OCE sold its products directly to its customers at the same price that NMS sold the same products. NMS was OCE’s only sales agent in the area, at least during the term of the oral agreement. The oral agreement, running from October 1974 to September 1976, gave NMS rights to its territory exclusive of OCE competition; the written agreement, running from September 1976 to April 1978, gave NMS exclusive rights to certain customers. The fact ⁵³⁷ that the customers did buy OCE micrographic equipment permits a reasonable inference that NMS could have sold the equipment, had it solicited the same customers.

In a case where the principal has wrongfully terminated a sales agent’s contract and made sales directly to customers, it is permissible to use the principal’s sales to estimate the agent’s lost profits. In John B. Robeson Associates, Inc. v. Gardens of Faith, Inc., 226 Md. 215 (1961), a commercial sales organization brought suit against the cemetery company for which it had agreed under a three year contract to sell cemetery lots and bronze memorials. The Court approved damages, including a percentage of the sales made for one year after the contract had been wrongfully terminated. The Court held that: "The recovery of damages of the nature here claimed by the appellant depends upon the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty.

Professor Corbin, 5 Corbin, Contracts, §1025, points out that, in cases such as the instant one, proof of the sales made and business done in the agreed territory before the breach, or of the sales made by the principal or his agent after the breach, may be such as to 'make possible a reasonably accurate estimate of the commissions that the agent has been prevented from earning.” Id. at 225-26 (Emphasis added.) In Robeson, the principal totally precluded the agent’s sales during the last year of their contract; in this case, OCE sold its products concurrently, without NMS’s knowledge. OCE seizes upon this distinction, contending there is no proof that NMS would have sold to OCE’s customers, had OCE not done so. See Universal Lite Distributors, Inc. v. Northwest Industries, Inc. 602 F.2d 1173 (4th Cir. 1979). We hold, however, that NMS did not have this burden of proof.

As the jury found in its special verdict, OCE orally agreed not to sell any of its products that NMS was autho ⁵³⁸ rized to sell in its designated market area. It later agreed in writing not to contact any of NMS’s customers to sell the same micrographic products. OCE had no authority to make sales to these customers, except through NMS. Its failure to make these referrals prevented NMS from making the sales.

The law seeks to encourage reliable contracting by giving the non-breaching party the benefit of the bargain — placing it in the position it would have occupied had no