Gambar Enterprises, Inc. v. Kelly Services, Inc.

Hancock, Jr., J. (concurring).

I agree that the order denying the motion to dismiss the complaint and granting the preliminary injunction should be affirmed. I cannot, however, accept the majority’s conclusion that Michigan law necessarily requires that the termination clause in question may only be exercised in good faith. A requirement of good faith, in my opinion, entails a demonstration of the existence of some sufficient reason for termination.

The termination clause of subdivision (b) of paragraph 8 when viewed in the context of the contract as a whole may arguably be read to permit defendant to terminate the contract for any reason whatsoever. At the very least, the clause is ambiguous, and without parol evidence it may not be interpreted to mean that defendant may terminate the contract only for sufficient cause.

The full termination clause of subdivision (b) of paragraph 8 states: "Should Kelly wish to terminate this agreement for any reason other than as set forth in [par 8, subd (a); pars 7, 9, 10, or 19], Kelly may do so.” (Emphasis added.) Paragraph 9 provides for "Termination for Cause.” Thus, the clause itself appears to rule out "cause” as a requirement for termination under subdivision (b) of paragraph 8, because it provides for termination "for any reason other than as set forth in * * * paragraph 9,” i.e., for any reason other than "cause”.

An analysis of other provisions of the contract lends weight to this interpretation. Paragraph 9, "Termination for Cause,” allows defendant to cancel the contract without payment of any sum for various reasons including bankruptcy of the manager, conviction of the manager of certain felonies, and, most importantly, violation of any of the provisions of the agreement.¹ It should be noted that a violation of the contract which would give cause for cancellation under subdivision (a) of paragraph 9 would include failure of the manager to fulfill his obligations under paragraph 3, entitled "Manager’s Duties.” One such duty is to "[djevote such time and employ such resources as are necessary to achieve and maintain 'satisfactory sales performance’.” Thus, under paragraph 9, the manager may be discharged (after notice and a reasonable opportunity to comply) without payment of any sum for inadequate performance under the contract.

Plaintiffs would interpret subdivision (b) of paragraph 8 as impliedly containing a requirement of sufficient cause for termination identical to the requirement set forth expressly in paragraph 9. To read into subdivision (b) of paragraph 8 such a requirement would result in two provisions for termination for "cause” and would render one or the other unnecessary and meaningless. In interpreting a contract one must assume that the parties intended to give effect to every provision of the contract (see 10 NY Jur, Contracts, §208). Plaintiffs’ interpretation violates this rule. Moreover, plaintiffs’ interpretation would result in an anomaly because paragraph 9 provides for termination for cause without payment and subdivision (b) of paragraph 8 as read by plaintiffs would provide for termination for cause with payment to the manager of a specified sum. Thus, as read by plaintiffs, there would be two provisions in the contract for termination for the same reason, one of which requires payment upon termination and one of which does not. A construction of the contract which would result in such an anomaly should be avoided (see, generally, 10 NY Jur, Contracts, §§ 208, 214).

Plaintiffs’ construction also seems inconsistent with what appears to be the logical business sense of the arrangement, i.e., that where there was a sufficient reason for canceling the contract (as where the manager violated the provisions of the contract or was convicted of a felony involving moral turpitude) defendant could do so with no financial liability. Where, however, defendant wished to exercise the privilege of cancellation without sufficient reason, defendant would be required to pay for exercising that privilege by compensating the manager on termination as provided in subdivision (b) of paragraph 8.

In sum, I believe significant questions exist with respect to the meaning of the termination clause. The parties should, therefore, be permitted to present evidence as to their intentions at the time the contract was formed.

I cannot agree that, if the trial court were to find that the contract permitted termination for any reason whatsoever, Michigan law would, despite that finding, impose upon the defendant an obligation to terminate in good faith. Watkins Co. v Rich (254 Mich 82) does not create such a requirement. In that case, plaintiff, a distributor, entered into a 14-month contract with defendant, a salesman, in connection with which plaintiff insisted that defendant obtain numerous sureties to secure a previous debt owed plaintiff by defendant as well as any future debt. After the sureties were obtained and before defendant had an opportunity to make further sales, plaintiff terminated the contract and sued the sureties for the entire amount due pursuant to a clause in the contract allowing either party to terminate "at any time.” The court held that the termination was not a reasonable and good faith exercise of the power conferred by the contract, noting (p 85) that "[plaintiff’s conduct justifies a serious doubt that it ever intended to extend to Rich the benefit of the contract for its term. The testimony strongly indicated that plaintiff was concerned with securing the execution of a contract to pay the old debt by sufficient sureties, and, having obtained their guaranty, desired to make immediate collection.” The Second Circuit, interpreting Michigan law in Bushwick-Decatur Motors v Ford Motor Co. (116 F2d 675, 676) stated that in Watkins, " 'good faith’ * * * seems to have meant an original intention to offer the agent a fair opportunity, without which the contract would obviously have been void for fraud in its inception.” In Bushwick (p 677), the court rejected the argument that Michigan law requires that termination options be exercised in good faith and affirmed summary judgment in favor of a manufacturer who gave notice of termination under a contract of indefinite duration providing for termination "at any time 'at the will of either party’.” (See Busam Motor Sales v Ford Motor Co., 203 F2d 469; Biever Motor Car Co. v Chrysler Corp., 108 F Supp 948, affd 199 F2d 758; Martin v Ford Motor Co., 93 F Supp 920, all of which apply Michigan law; see, also, Corenswet, Inc. v Amana Refrigeration, 594 F2d 129.) The court in Bushwick noted that the contract in Watkins, which extended the relationship between the parties for 14 months to terminate on a specified date, was one for a "definite and stated duration.” The contract before us is not such a contract. It contains no specific termination date but provides for termination upon the death, incompetence, or attainment of retirement age of one of the parties.²

Dillon, P. J., and Doerr, J., concur with Moule, J.; Simons and Hancock, Jr., JJ., concur in an opinion by Hancock, Jr., J.

Order unanimously affirmed, with costs.

1 . Paragraph 9 reads as follows:

"Termination for Cause. Kelly may, at its option, terminate this agreement immediately upon giving written notice of such termination in the event that:

"(a) The Manager or his agents or employees shall violate any of the provisions of this agreement, provided that notice of such violation has been given and a reasonable period of time not in excess of sixty (60) days granted for compliance.

"(b) The Manager: (1) shall enter into bankruptcy, receivership or shall make an assignment for the benefit of creditors; (2) shall be convicted of a felony or a crime involving moral turpitude, or converts or embezzles any property or funds of Kelly or others; (3) allows his reputation for honesty, integrity, fair dealing or good moral character to become impaired through publicity or notoriety; (4) competes, directly or indirectly, with Kelly within fifty (50) miles of any city in which Kelly shall now or shall be doing business or assists such competition; (5) discloses to any person not specifically authorized by Kelly any of the confidential data or trade secrets furnished to the Manager by Kelly in connection with the Kelly Services business.”

2 . It is arguable that the contract before us is a contract of indefinite duration with outside limits permitting defendant to terminate when the manager is presumed to be no longer able to perform. I do not think such limits preclude the application of Bushwick and the cases cited therewith. In any event, it appears that the term of the contract is but one element to be considered in ascertaining the intention of the parties with respect to a termination clause. Certainly Watkins cannot be read as stating a rule that all contracts of "definite and stated duration” contain an implied requirement that a termination option be exercised in good faith.