Bronken's Good Time Co. v. J. W. Brown & Associates

No. 82-140
IN THE SUPREME COURT OF THE STATE OF MONTANA
1983

BRONREN'S GOOD TIPm COMPANY,

Plaintiff and Respondent,
-vs-
J. W. BROWN & ASSOCIATES,
Defendant and Appellant.

Appeal from: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Xonorable VJ. W. Lessley, Judge presiding.

Counsel of Record:
For Appellant:
Drysdale, McLean & Screnar, Bozeman, Montana
For Respondent:
Lyman B. Bennett, 111, Eozeman, Montana

Submitted: January 27, 1983
Decided: April 14, 1983
Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of
the Court:
This is an appeal from an order of the Eighteenth
Judicial District Court, Judge W.W. Lessley presiding,
awarding damages to Bronken's Good Time Company, a wine
distribution business, based on breach of a distributorship
contract by J. W. Brown & Associates, a wine brokerage firm.
On May 4, 1979, Bronken's Good Time Company (Bronken)
was appointed as exclusive distributor of wines marketed by
J. W. Brown & Associates (Brown) for the four-county area
consisting of Gallatin, Park, Sweet Grass and Meagher
counties. The agreement between Bronken and Brown contained
no provision for its termination. Bronken began distributing
Brown wines in July, 1979.
On February 7, 1980, Brown informed Bronken the
agreement would be terminated as of March 1, 1980.
Termination was later postponed until April 1, 1980.
Bronken brought this action against Brown claiming that
the agreement had been terminated prematurely and without
cause. Trial was before the District Court sitting without a
jury. The District Court concluded that the appointment of
Bronken by Brown was an enforceable, executory contract
binding upon both parties for a reasonable time, that Bronken
was terminated without cause, and that a reasonable time for
an appointment as an exclusive distributor was twenty-four
months. Damages were assessed in the sum of twenty-four
thousand six hundred seventy-eight and 60/100ths dollars
($24,678.60) and included sixteen thousand seven hundred
seventy-nine dollars ($16,779.00) in lost profit for a
seventeen-month period, five thousand dollars ($5,000.00) in
personnel time spent explaining termination of the
distributorship to Bronken's customers, and two thousand
eight hundred ninety-nine and 60/100ths dollars ($2,899.60)
for unsold inventory of Brown wines which were either
destroyed or consumed by Bronken.
Brown appeals, raising four issues.
We affirm in part and reverse in part, vacating the
District Court's order and remanding for consideration in
light of this opinion.
First Brown contends that the District Court erred by
finding that the distributorship agreement was wrongfully
terminated because a reasonable time of twenty-four months
had not passed. Since Bronken had made a relatively
insubstantial investment in distributing Brown's wines and
had not undertaken any advertising or promotion for Brown's
wines, Brown believes the distributorship agreement should
have been terminable at will upon reasonable notice.
Whether distributorship agreements containing no express
provision for duration or termination may be terminated at
will or only after a reasonable time has expired, has not
been decided by this Court. However, this question has been
addressed by courts in other jurisdictions and is discussed
at length in Annotation, 19 A.L.R.3d 196, "Termination by
Principal of Distributorship Contract Containing No Express
Provision for Termination."
Our review of this annotation and the cases discussed
therein, reveals that two rules have evolved based on
divergent, somewhat inconsistent rationales. One provides
that such agreements are terminable at will by either party;
reasonable notice may or may not be required. The other,
sometimes referred to as the "modern majority rule", provides
such agreements are terminable at will only after a lapse of
a reasonable time and upon reasonable notice.
 While it appears that both rules are still viable, we
adopt the modern majority rule. The record discloses that
the instant distributorship agreement was analogous to an
employment or agency contract where the employee or agent
provided consideration in addition to his or her mere
services.
Williston explains:
" ...for the purpose of determining the duration
of the relation between the parties and the power
to terminate it, [a true sales agency contract and
a sales and distribution contract] are so
substantially similar that cases of either type are
authoritative on this point for the other . . .
"Usually, in these situations, the agent or buyer,
as the case may be, is doing more than merely
offering to render services or to pay the price for
the goods. It is at least expected and understood,
and, in fact, frequently expressly provided in the
contract, that he is to make a substantial
investment and to build up or maintain a business
establishment for the distribution of the
manufacturer's products ...
"[Therefore,] where the agreement contains no
provision whatever for its termination[:]
"Quite properly, this has frequently been held an
enforceable executory contract, binding upon each
party for a reasonable time ...
"It is the settled law of agency that if the agent
or employee furnishes a consideration in addition
to his mere services, he is deemed to have
purchased the employment for at least a reasonable
period where the duration of employment is not
otherwise defined." 9 Williston, Contracts (3rd
ed.), Section 1017A, pp. 138-141, 150-151.
The record here indicates Bronken did more than just
distribute wines -- he purchased trucks for distribution,
rented and constructed warehouse space, hired staff,
maintained an inventory of Brown wines, and assumed the risk
of destruction of the wines. Although testimony indicates
the percentage of Bronken's sales and inventory for which
Brown's wines accounted was relatively low and the
advertising on Bronken's trucks promoted wines other than
those carried by Brown, that evidence does not negate the
District Court's finding, which is based on substantial
credible evidence, that Bronken provided consideration in
addition to his mere services, and that he was therefore
entitled to distribute Brown wines for a reasonable time.
We hold that, where a distributorship agreement contains
no provision for its termination and the distributor has made
substantial investment in establishing or furthering the
distributorship, the agreement may be terminated only after a
reasonable time has lapsed and reasonable notice of
termination is given.
As to what is a reasonable period of time i-n a given
situation, we will defer to the judgment of the trier of
fact. Absent an abuse of discretion, this Court will not
interfere. We find no abuse of discretion in the case at
bar. It is apparent the District Court has considered the
testimony and the extent of Bronken's investment and arrived
at a considered decision.
Brown next argues that the District Court erred by
finding that the distributorship agreement was terminated
without cause. This claim is without merit. The record does
not support a finding of termination for cause. It is
evident Brown's performance standards were ambiguous and not
related to Bronken in an acceptable or definitive manner.
While Bronken might have been more aggressive in his sales
approach, the evidence does not compel a finding that the
performance was inadequate and termination justified.
The third issue presented by Brown regards Bronken's
failure to mitigate damages. Brown bases his contention on
testimony that Bronken refused Brown's offer to repurchase
his remaining inventory and instead either sold the wines for
a loss or consumed or destroyed the remainder.
 The rule in Montana is that a nondefaulting party in a
contractual arrangement must act reasonably under the
circumstances so as not to unnecessarily enlarge damages
caused by default. Town Pump, - -v. Diteman (1981),
Inc.
Mont . , 622 P.2d 212, 38 St.Rep. 54, [indemnity action
developing mitigation of damages rule from Business Finance

- -Inc. v. Red Barn, - (1973), 163 Mont. 263, 517 P.2d
Co., - - - Inc.
383, and Brown - First Federal - -and L. Ass'n. - Great
v. Sav. - of
Falls (1969), 154 Mont. 79, 460 P.2d 97.1

Whether the injured party violated his duty to mitigate
damages is a question for the trier of fact when there is
conflicting evidence. Fairway Builders, - -v.
Inc. Malouf
Towers Rental -- (1979), 124 Ariz. 242, 603 P.2d 513.
Co., Inc.
Our function then is to review the record to determine if
there is substantial credible evidence to support the trial
court's finding.
Since the trial court's order and memorandum in support
thereof does not include any findings regarding Bronken's
duty to mitigate damages or the reasonableness of his actions
in consuming or destroying wine he did not sell, we vacate
.
the damage award and remand for further consideration of this
issue.
As a. final matter, Brown contends the assessed damages
were speculative and therefore are improper under section
27-1-311, MCA. This Court cannot agree with Brown's
contention that the damages assessed were speculative. The
exhibits and Bronken's testimony provide a basis for
estimating loss of profits and the damages incurred as a
result of the breach.
While we cannot agree the damages are speculative, the
record indicates that Bronken presented conflicting evidence
regarding appropriate computation his loss profits.
Exhibit 7 purportedly computes loss profits on a gross, per
month basis and was used by the District Court in fixing
damages. However, Bronken testified that there were expenses
associated with the sale of Brown wines that are not
reflected in Exhibit 7. Bronken acknowledged that labor,
gas, insurance, accounting, etc., expenses were not
represented in the exhibit.
The general rule in breach of contract actions is that
where overhead or operating expenses are saved as a result of
the breach, the proper measure of recovery is net, not gross,
profit, and where such expenses are constant, and no savings
occurs, the rule is otherwise. Compare Covington Bros. -
v.
Valley Plasterinq, Inc. (1977), 93 Nev. 355, 566 P . 2 d 814,
and P & [I Vending z Inc.
, - Half Shell - Boston, -
v. of Inc.

Here it was improper to grant recovery without
considering that there were expenses associated with the sale
of Brown wines.
Therefore, we vacate the damage award and remand this
issue for reconsideration by the District Court.

We Concur:

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