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A.R.A. Mfg. Co. v. Pierce

Supreme Court of Arizona

July 9, 1959

A. R. A. MANUFACTURING COMPANY, a corporation, Appellant,
Dewey L. PIERCE and Rosamond S. Pierce, husband and wife, and Arctic Automotive Air Conditioning Company, Inc., a corporation, Appellees.

Page 929

[86 Ariz. 137] Conner & Jones, and A. O. Johnson, Tucson, for appellant.

[86 Ariz. 138] May, Lesher & Dees, and Robert O. Lesher, Tucson, for appellees.


This is an action to recover damages for breach of a contract of exclusive distributorship. It arose by way of a counterclaim by appellees to a claim for moneys owing asserted by appellant (the validity of which was admitted at the trial), and comes to us on appeal from a judgment upon a jury verdict for appellees on their counterclaim.

Appellant, a manufacturer of automobile air conditioning units, conceded that, by written contract, it had granted to appellee Arctic an exclusive distributorship for the sale of appellant's product in the State of Arizona, effective from March 16 to December 14, 1955; and that on or about July 25, 1955, it mailed to dealers in Arizona, customers or prospective customers of Arctic, an 'announcement' that 'With the increasing demand brought on by competitive advertising of low prices for less effective units to the public, A.R.A. has decided to place its dealers in a strictly competitive position with such units price-wise,' enclosing 'revised prices' to dealers which, in fact, were the prices at which sales were made to Arctic. Appellant

Page 930

assigns as error: (1) the ruling of the trial court that it had breached the contract as a matter of law, relying on proof or offer of proof that the mailing to Arizona dealers was a mistake, that it never sold (and, by implication, that it never meant to offer to sell) to Arizona dealers, but only to Texas and Oklahoma dealers, and that it corrected its mistake by a 'Bulletin' dated August 2, 1955, stating that the new prices 'were mailed to you in error and are not effective in the territory of Arizona'; (2) instructions concerning the computation of damages; (3) miscellaneous rulings related to the foregoing; and (4) failure to grant a new trial because of newly discovered evidence. We find none of the assignments meritorious.

First, we deem it unnecessary to decide whether appellant's July 25 'announcement' could be interpreted as something other than an offer to sell to Arctic customers. Whether it was or was not such an offer, an implicit promise of every exclusive distributorship agreement is that the manufacturer will do nothing to impair the efforts of the distributor to sell the manufacturer's product. See Buckley & Scott Utilities, Inc. v. Petroleum Heat & Power Co., 313 Mass. 498, 503, 48 N.E.2d 154, 157; cf. Arcoil Co. of Maryland v. Jacobson Mfg. Co., 7 N.J. Misc. 1024, 147 A. 739; Milton v. Hudson Sales Corporation, 152 Cal.App.2d 418, 313 P.2d 936. The corollary promise of the distributor party to such an agreement, established by Judge Cardozo's opinion in Wood v. Lucy, Lady Duff-Gordon, 222 [86 Ariz. 139] N.Y. 88, 118 N.E. 214, of course, is that he will use his best efforts to promote the sale of the manufacturer's product. See, e. g., J. C. Millett Co. v. Park & Tilford Distillers Corp., D.C.N.D.Cal., 123 F.Supp. 484. In this case the manufacturer's promise was made explicit by the statement of the agreement that

'* * * A.R.A. will endeavor to encourage all of our customers in the State of Arizona to patronize the facilities made available by Arctic in Phoenix and Tucson and to cooperate wholeheartedly for the material benefit and profit of both parties to the agreement.'

The facts which are to be considered in connection with the July 25th announcement are that, prior to March, 1955, dealers in Arizona purchased directly from appellant; dealers in Texas and Oklahoma continued to purchase directly from appellant even after March, 1955, and were doing so in July and August, 1955, apparently at the prices recited in the July announcement; and the freight from appellant's location in Texas to Tucson was only about $10 per air conditioning unit. In these circumstances, we think the certain tendency of the announcement was to undermine the efforts of Arctic to sell appellant's product 'for the mutual benefit and profit of both parties,' contrary to appellant's promise 'to encourage' appellant's former customers in Arizona 'to patronize the facilities made available by Arctic.'

'Business contracts,' we are reminded by the words of Mr. Justice Holmes, 'must be construed with business sense, as they naturally would be understood by intelligent men of affairs.' The Kronprinzessin Cecilie, 244 U.S. 12, 24, 37 S.Ct. 490, 492, 61 L.Ed. 960. Here, the business sense of the agreement was that appellant would rely on Arctic, and Arctic would undertake a corresponding obligation, to accomplish the efficient distribution of appellant's air conditioning units. That Arctic could not do if its customers were enticed or intrigued by the prospect of cheaper prices available elsewhere, cf. Checket-Columbia Co. v. Lipman, 201 Md. 494, 94 A.2d 433, 435, or if they were made explicitly aware that doing business with Arctic as an intermediary resulted in a higher market price than otherwise might prevail. Just so, in Arcoil Co. of Maryland v. Jacobson Mfg. Co., supra, 7 N.J. Misc. at page 1025, 147 A. at pages 739-740, it was said that

'* * * The contract provision was that the defendant would assist

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the dealer in effectively promoting the sale of Arcoil oil burners. We think that under the contract the defendant owed it to the plaintiff not to assume a belittling attitude before the public toward dealers, distributors, and middlemen, and that the advertisements in [86 Ariz. 140] question might well be considered as ridiculing the middleman and discouraging the purchasing public from doing business through him. * * *'

The testimony of one of Arctic's customers on the point aptly illustrates the demoralizing effect of appellant's conduct in this case. Robert H. Bowyer, Vice President of Bowyer Motor Company, testified that the reaction of his company to the July 25th announcement was as follows:

'I called up Mr. Pierce and told him we had fairly well projected what his cost was on what he was selling us, and apparently A.R.A. prices were different than what he was quoting to us, and if this were the case we would go into the ...

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