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Dialist Co. v. Pulford

Decided: April 12, 1979.

DIALIST COMPANY
v.
DAVID W. PULFORD



Appeal from the Circuit Court for Montgomery County; Shure, C. J.

Thompson, Moore and MacDaniel, JJ. Thompson, J., delivered the opinion of the Court.

Thompson

In this case we are concerned with whether or not Judge Ralph G. Shure, sitting in the Circuit Court for Montgomery County, properly used parol evidence to interpret a contract, properly determined that there had been a material breach of the contract, and properly determined the amount of damages.

The Dialist Company (appellant) of Houston, Texas produces a small plastic tray which contains printed advertising of merchants and is designed to slide underneath a telephone so consumers can refer to it when calling merchants. This item is referred to as a "Dialist." In October 1976, the appellant advertised in the Washington Post for a "Sales Director." The Sales Director was expected to sell advertising space on the Dialists and arrange for their distribution at business establishments, such as banks, where there existed a high volume of customer traffic.

David Pulford (appellee) replied to the newspaper advertisement, and James Cronin, Vice President of the appellant, came to the Washington area to meet with him and other prospects. In a series of three meetings, Mr. Cronin and Mr. Pulford discussed the product, Mr. Pulford's background in the sale of advertising space, and the way in which the territory of the Baltimore-Washington-Virginia market would be divided. In the second of the meetings, Mr. Cronin told appellee the company was considering two distributorships in this market, but that "the final lines on the map had not been drawn." Mr. Cronin admitted in his testimony that he told appellee that no one would infringe on this territory and no one else would sell in his territory.

The meetings resulted in the execution of a contract on a typewritten form with handwritten terms added at spaces

provided for that purpose. The company granted a distributorship to Mr. Pulford to sell the product and required that he purchase a minimum of 2,000 of the products every month, beginning in February 1977, at a stated price, subject to change on thirty days' notice. The distributor paid the initial sum of $2,500 and agreed to develop the territory to his and the company's advantage. The specific clause in issue reads as follows:

"2. Company hereby grants to Distributor the distributorship to sell Dialists and the supplies therefor within the following territories to-wit: See Maryland Map 8718, Signed by James R. Cronin and David W. Pulford which is incorporated herein by reference for all purposes." (The underlined portions are handwritten.)

A map was attached showing an outline in pen encircling the District of Columbia and the State of Maryland except for the four southern Maryland counties. In the center of the circled territory, in block capital letters, appear the words "DAVID W. PULFORD TERRITORY."

In reliance on the contract the appellee terminated his employment, sold some stock in order to raise funds, and expended funds in order to begin working on the project.

On January 3, 1977, Mr. Pulford telephoned William Krauser, the other distributor in this area, and learned that both of them had been assigned the territory of the District of Columbia and each considered it his exclusive territory. When Mr. Pulford contacted Mr. Cronin in Houston over the apparent discrepancy, he was informed that the matter would be checked into but he never heard from Mr. Cronin again. He did receive some correspondence from Mr. Herman L. Smith, president of the appellant, exhorting him to sell. The appellee testified that, nevertheless, he began calling on prospective customers in Montgomery County on January 3, 1977. In the ensuing weeks he received commitments from seven businesses for an advertising gross of $531.35. After obtaining five of those advertising commitments, Mr. Pulford wrote to Herman Smith, on January 18, 1977, inquiring about

possible sales tax liability and in another note, of the same date, stated, "I am more than concerned that I have not heard from you since . . . I advised you that my contract was in direct conflict with that of Bill Krauser . . .," adding, "Perhaps you would rather forget the whole thing. If so, please return my $2,500.00 and I will return your samples, etc."

On January 31, 1977, appellee, by letter, demanded rescission of the agreement because a part of his territory had been assigned to Krauser. On February 10, 1977, the appellant company sent a letter to the appellee explaining the sales tax issue and stating that the distributorship agreement was a non-exclusive contract under Texas law*fn1 and otherwise would be in violation of the Sherman Antitrust Act.*fn2 Mr. Pulford again on February 17, 1977 and once more on March 2, 1977, demanded that his $2,500.00 be returned. On March 10, 1977, the appellant notified the appellee that his distributorship was terminated for failure to fulfill his monthly sales quota as per the contract. Mr. Pulford testified that he had spent "parts of 5 or 6 days" working in Montgomery County on selling advertising space for Dialist units. Mr. Pulford testified he never made any sales in the District of Columbia, was not aware that any other person sold any Dialists in the District of Columbia and was never told not to sell in the District of Columbia.

Judge Shure, sitting without a jury, held that the intent of the parties was to give the appellee an exclusive distributorship, and as Mr. Pulford was not given what he bargained for he had a right to rescind, which he did either on January 31, 1977, or February 17, 1977, which rescission was accepted by the appellant on March 10, 1977. The court

stated that as the appellee had the right to rescind he was entitled to damages.*fn3

Parol Evidence

The appellant first contends that although it was proper for the trial judge to permit parol testimony as to the alleged fraud it was improper for him to consider such testimony in construing the written contract after he disallowed the count for fraud. Citing Billmyre v. Sacred Heart Hospital, 273 Md. 638, 331 A.2d 313 (1975); Kermisch v. Savings Bank of Baltimore, 266 Md. 557, 295 A.2d 776 (1972); and Devereux v. Berger, 253 Md. 264, 269, 252 A.2d 469 (1969), appellant argues that when the language of a contract is clear the test of what is meant is not what the parties intended it to mean but what a reasonable person in the position of the parties would have thought it meant. This position is correct as far as it goes, but in our view the contract here under consideration was not without ambiguity and, therefore, the court could properly rely on the parol evidence in its interpretation. See Canaras v. Lift Truck Services, 272 Md. 337, 322 A.2d 866 (1974) and DWS Holdings, Inc. v. Hyde Park Assoc., 33 Md. App. 667, 365 A.2d 554 (1976). We entirely agree with Mister Filters, Inc. v. Weber Page 178} Environmental Systems, 44 A.D.2d 639, 353 N.Y.S.2d 835, 837 (1974) in which the Court said:

"[T]he combination of an assigned territory and the failure to specify whether or not it was an exclusive territory render the meaning of the contract unclear and ambiguous. The trial court properly permitted oral testimony of the facts and circumstances surrounding the making of the contract including the prior oral agreements between the parties, and of the representations made by the representatives of the appellant to respondent for the purpose of arriving at the meaning of the terms of the agreement."

Materiality of the Breach

Appellant argues that any breach of the contract was immaterial because appellee was never prevented from selling in the District of Columbia and no sales were made there by anyone else. Appellee contracted for the exclusive right to distribute appellant's product in Washington, D.C. and most of Maryland. The exclusivity feature of the contract was material because it meant that appellee would be the sole distributor in those areas and any work he did to build up the sales of the Dialist there would redound to his own benefit and not to the benefit of someone else. Where the breach is such that further performance of the contract would be "different in substance from that which was ...


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