Natl Safe Corp. v. Benedict & Myrick - 371 So. 2d 792 (La. 1979)

Rule:

La. Civ. Code Ann. art. 1901 requires good faith performance of all agreements. A principle of implied obligations in contracts is also stated in La. Civ. Code Ann. art. 1903 in these words: The obligation of contracts extends not only to what is expressly stipulated, but also to everything that, by law, equity, or custom, is considered as incidental to the particular contract, or necessary to carry it into effect. The effect of equity on implied obligations is expressed in La. Civ. Code Ann. art. 1964 in these terms: Equity, usage, and law supply such incidents only as the parties may reasonably be supposed to be silent upon from a knowledge that they are supplied from one of these sources. Insofar as pertinent, the equity intended by this rule is founded in the Christian principle not to do unto others that which we do not wish others to do unto us. La. Civ. Code Ann. art. 1965.

Facts:

In November 1973 National Safe Corporation solicited Benedict & Myrick, Inc. to become its distributor of security equipment in Louisiana. An agreement was entered into whereby Benedict & Myrick were to be the exclusive dealer in Louisiana to sell National's products. Benedict & Myrick also agreed to maintain employees to service, install and adequately handle all work. In the agreement National warranted its products for stipulated periods and set forth that it would assist Benedict & Myrick "in training local service and installation personnel." By its terms the November 1973 agreement could be cancelled by either party subject to 60-day written notice. Thus the original agreement contemplated the hiring by Benedict & Myrick of additional sales and installation staff and the training of that staff by National.

In May of 1975, National presented Benedict & Myrick with an amended agreement which was the same as the original one, except for the deletion of the sixty-day cancellation clause and the insertion of another which stated "This agreement can be cancelled in writing at any time by either party." This agreement was executed, and it replaced the prior agreement. Thomas Seiter, the President of National Safe, testified that the decision was made to change the cancellation clause in the dealership agreement because National was then contemplating changing its dealership arrangements without having communicated this to Benedict & Myrick. A reasonable inference from the record indicates that Steve Sibley understood, prior to the termination of the dealership agreement, that he was to receive the new dealership. On September 3, 1975, Seiter sent Benedict & Myrick a letter cancelling the dealership agreement. Apparently Benedict & Myrick protested the cancellation, but not before Seiter had given the new dealership to a partnership formed by Billingslea, the former Vice President and Sales Manager for National, and Sibley, the former salesman for Benedict & Myrick. Upon receipt of the protest, Seiter postponed the cancellation of the Benedict & Myrick contract and the establishment of the Billingslea-Sibley dealerships. This "abeyance" lasted at most a month, and may have been less; Seiter made a trip to Louisiana to talk with Benedict & Myrick and with Sibley and thereafter Benedict & Myrick's dealership was terminated and Billingslea and Sibleywere "immediately", in Seiter's words, established as the new dealers. Thus, National filed the instant suit to collect an alleged past due account from Benedict & Myrick, Inc. The district court granted summary judgment in favor of National. On appeal, the judgment was affirmed.

Issue:

Did the appellate court err in affirming the summary judgment in favor of National?

Answer:

Yes.

Conclusion:

It must be remembered that not all obligations arising out of contract need be explicitly stated. Into all contracts, therefore, good faith performance is implied. Furthermore, everything that by equity is considered incidental to the particular contract, or necessary to carry it into effect, is also a part of all agreements. And, as Article 1964 of the Civil Code makes clear, equity will supply such incidents only as the parties may reasonably be supposed to have been silent upon from a knowledge that they would be supplied from that source. It is evident from the principles announced in the Code that contracts are to be understood, not only from what is expressed, but also everything that by law, equity or custom is considered as incidental to the particular contract, or necessary to carry it into effect. In light of these code provisions a reasonable interpretation of the contract between National and Benedict & Myrick contemplated that Benedict & Myrick would accept the advice and assistance of National in training its service and installation personnel and National's help on installations to build up its business. With this understanding Benedict & Myrick could not then expect National to offer inducements to Sibley, one of Benedict & Myrick's key employees, to leave Benedict & Myrick's employ thereby rendering its organization virtually destitute of competent help and unable to function properly thereafter. To the contrary, good faith performance of the contract would reprobate National's actions. Moreover, the implication from such an agreement, in the absence of a stipulation to the contrary, is that equity would require National to do to Benedict & Myrick that which it would wish Benedict & Myrick to do to it. The Court is certain if the roles of the contracting parties were reversed National would not expect to be treated as it treated Benedict & Myrick.

On the record of this motion for summary judgment, therefore, National breached its contract with Benedict & Myrick by violating implied obligations of fair dealing which were by the Civil Code as much a part of the written dealership agreement as the obligations expressed in that document. In doing so National has rendered itself liable for the damages resulting from the breach of contract. National's motion for summary judgment only assumed for argument's sake the fact of an inducement and asserted that the plaintiff in reconvention nonetheless had no cause of action for breach of contract "Or any other action recognized under Louisiana law." It does not appear that National at any time conceded the fact of inducement, nor should it be penalized for having desisted from putting that fact at issue in the summary judgment motion, for that matter was simply not the thrust of the motion.