Opinion
October 2, 1962 —
October 30, 1962.
APPEAL from an order of the circuit court for Rock county: ARTHUR L. LUEBKE, Circuit Judge. Affirmed in part; reversed in part.
For the appellant there was a brief and oral argument by Roscoe Grimm and Jacob Geffs, both of Janesville.
For the respondent there was a brief by Dougherty, Campbell, Brennan Steil, and oral argument by Paul M. Ryan, all of Janesville.
Sonotone Corporation commenced this action of replevin against Victor M. Ladd on May 26, 1961. Sonotone alleged that Mr. Ladd had been a district manager for Sonotone, but that Sonotone terminated its contract and demanded return of its consigned stock and user and prospect files. The action was for recovery of possession of this property.
Defendant Ladd filed a plea in abatement, and applied for a stay of proceedings and remand to arbitration. It was alleged in part that the parties had a contract, dated December 1, 1957, in regard to the sale of hearing aids and other products of Sonotone; that the contract provided for arbitration of any dispute, difference, or controversy arising between the parties with respect to the contract or performance thereunder; that Sonotone attempted to avoid Ladd's right to arbitrate by arbitrarily declaring the contract terminated for Ladd's failure to make quota; that Sonotone was responsible for the failure; had put out defective instruments and failed to produce new models to compete successfully with other hearing aids, causing sales to come to a standstill; that Ladd wrote Sonotone asking for reimbursement for services and disbursements; that there existed a dispute and controversy at the time of the commencement of the action as to who was to blame for the nonquota situation. The plea also challenged the jurisdiction of the court.
Sonotone made a motion to dismiss the plea in abatement "as a mere sham interposed for purposes of delay," supporting its motion by affidavit listing what were referred to as "stalling tactics," and a second affidavit supplying copies of the contract of December 1, 1957, a letter dated March 30, 1961, purporting to terminate the contract effective April 29, 1961, and a receipt indicating delivery to Ladd April 1st.
On July 3, 1961, the circuit court entered an order staying the proceedings until hearing of the plea in abatement and denying Sonotone's motion.
Mr. Ladd moved for summary judgment abating the action, incorporating the contract and letter of termination and asserting that the contract had not been terminated because Sonotone failed to serve a thirty-day notice of termination. After hearing on this motion, Sonotone moved for an order terminating the stay.
On February 28, 1962, the circuit court entered an order dismissing the plea in abatement, dismissing the motion for summary judgment, and terminating the stay of proceedings. Mr. Ladd appealed from the first two parts of the order.
The contract contained these provisions:
Section 19: "Manufacturer shall have the right to terminate this contract on thirty (30) days' written notice to manager if manager shall not have sold at retail for account of manufacturer a minimum of six (6) complete units of Sonotone hearing aids per month, each having a list price of $205 or more, computed on the net number of sales. Overages of previous months of each current calendar year shall be applicable to the curing of shortages of subsequent months, and, provided that no written notice of termination shall have been served by manufacturer, overages in later months of the current calendar year shall also be applicable to the curing of shortages in preceding months."
Section 23: "In the event of the expiration or termination of this contract by manufacturer at any time for any cause whatever, or in the event of voluntary termination by manager, manager shall thereupon deliver promptly into the possession of manufacturer or its agent duly authorized in writing all consigned Sonotone stocks and in the event any of manufacturer's consigned stocks are damaged or in unsalable condition, then manager shall pay to manufacturer the cost of restoring such stocks to salable condition. Manager shall turn over intact to manufacturer or upon its order to a succeeding manager all records of Sonotone transactions which have occurred during his period of managership, such records to include among others all sales contracts, prospects, and users files, consultants' reports, instrument records, and records of battery-deposit accounts showing amount of credit to customers' accounts and all correspondence pertaining to manufacturers' business. Manager agrees to turn over to manufacturer or upon its order to a succeeding manager batteries or cash to buy batteries to cover all customers' credits on battery-deposit accounts."
Section 27: "This contract shall be governed by the laws of the state of New York, both as to interpretation and performance. Any difference, dispute, or controversy arising between the parties with respect to this contract or performance hereunder while this contract is in effect and prior to any expiration or termination thereof shall be settled by arbitration in accordance with the provisions of the arbitration laws of the state of New York and the award rendered in such arbitration shall be enforceable in any court of competent jurisdiction."
Further facts will be referred to in the opinion.
The circuit court, in dismissing the plea in abatement, appears to have considered the provisions of the contract and the purported notice of termination, which were properly before the court on the motion for summary judgment, but which were not incorporated in the plea in abatement. In their briefs and upon oral argument here the parties have argued the matter virtually as if those facts were a part of the plea. Under the circumstances, we will consider the matter in the same light, and will treat the part of the order which dismisses the plea as an order sustaining a demurrer to the plea on the ground that it does not state a defense.
A plea in abatement is an answer and subject to demurrer when it does not state a defense. A motion to dismiss a plea in abatement on such ground amounts to a demurrer.
Stephens v. Wheeler (1927), 193 Wis. 164, 213 N.W. 464, and Binsfeld v. Home Mut. Ins. Co. (1944), 245 Wis. 552, 555, 15 N.W.2d 828.
Sec. 263.17, Stats.
Kilcoyne v. Trausch (1936), 222 Wis. 528, 532, 269 N.W. 276. See Lounsbury v. Eberlein (1957), 2 Wis.2d 112, 86 N.W.2d 12, treating a motion to strike as a demurrer.
Two questions appear to be presented: (1) Assuming that Ladd's failure to sell his quota of hearing aids gave Sonotone the right to terminate under paragraph 19 of the contract, did Sonotone fail to give the required thirty-day written notice and thus fail to terminate the contract? (2) Assuming that a proper thirty-day written notice was given, then, if a controversy over whether Sonotone was responsible for Ladd's failure to sell his quota arose before the attempted termination, must there be arbitration of that controversy before the termination can be given effect? Ladd's motion for summary judgment raised only the first question since he produced no evidentiary facts to show the existence of the controversy before termination.
1. Sufficiency of notice. Notice was mailed by Sonotone March 30th and received by Ladd April 1st. It stated that termination would be effective April 29th (thirty days after the date of mailing, but twenty-eight days after the date of receipt). Sonotone claims that the time is to be measured from the date of mailing, citing New York decisions which reached that conclusion, but which appear to us to be distinguishable on the facts and not to lay down a general rule wherever a contract calls for written notice of a specified duration.
Reed v. St. John (1867), 2 Daly (N.Y.) 213; Metropolitan Life Ins. Co. v. Schmidt (1949), 299 N.Y. 428, 87 N.E.2d 442; Kantrowitz v. Dairymen's League Co-op. Asso. (1947), 71 N.Y. Supp. 2d 821, 272 App. Div. 470.
Sonotone further argues that the reference to April 29th as the effective date was superfluous, and that since the notice was clearly given under paragraph 19, it became effective thirty days after receipt, or May 1st. We agree.
"What is the legal effect of a notice of cancellation which fails to comply with a policy or statutory requirement that it be given a certain specified number of days in advance of the cancellation date? In the instant case, insofar as the plaintiff bank is concerned, we hold that the policy continued in force and effect for five additional days from February 9, 1950. We held in Amberg Granite Co. v. Marinette County (1945), 247 Wis. 36, 18 N.W.2d 496, and Valentine v. Patrick Warren Construction Co. (1953), 263 Wis. 143, 56 N.W.2d 860, that this was the proper rule to apply in cases involving notices rescinding contracts."
Seeburger v. Citizens Mut. Fire Ins. Co. (1954), 267 Wis. 213, 219, 64 N.W.2d 879.
It follows that summary judgment was properly denied.
2. Sufficiency of defense in the nature of abatement. Sec. 298.02, Stats., provides:
"If any suit or proceeding be brought upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."
Although the contract in two instances uses the words "employed" and "employ" with respect to the relationship between the manager and Sonotone, it does not appear from the contract that Sonotone had such right to control the activity of the manager as to constitute the relationship one of employer and employee. It follows that the arbitration clause in this contract is not excepted from the Wisconsin Arbitration Act by sec. 298.01, Stats. We note, of course, that the contract calls for arbitration in accordance with the arbitration laws of New York, and this may render some of the provisions of the Wisconsin Act inoperative. But sec. 298.02 will control the procedure within Wisconsin courts. It happens, to be sure, that the procedure provided in New York is virtually the same.
6B Gilbert-Bliss, Civil Practice of New York, p. 322, sec. 1451.
Thus, if Ladd's plea that he is entitled to arbitration is sufficient and is established, he will not be entitled to abatement of the action in the ordinary sense (dismissal without prejudice to commencement of a new action when the cause of action accrues), but only to a stay until arbitration has been had.
Binsfeld v. Home Mut. Ins. Co., supra, footnote 1, p. 558.
Sonotone's counsel, and the circuit court, read paragraph 27 as if the arbitration must have been demanded before termination. The contract, however, says that there shall be arbitration of any difference, dispute, or controversy arising before expiration or termination. It is clear that "expiration" and "termination" are not used in the sense that all the provisions of the contract become inoperative upon expiration or termination. By paragraph 17, the manager agrees to indemnify Sonotone from certain claims and demands; paragraph 23, previously quoted, creates obligations of the manager after expiration or termination; paragraph 24 requires the manager to permit Sonotone to assume his lease at that time; and by paragraph 25, the manager agrees not to engage in the hearing-aid business in the same territory for fifteen months from the date of termination or expiration. Under these circumstances it does no violence to the meaning of the terms "expiration" or "termination" to hold that the obligation to arbitrate continues thereafter, if the difference, dispute, or controversy arose before.
In the instant case, moreover, the dispute and controversy, alleged in the plea, go to the validity of the cause on which the termination was predicated, and therefore to the right to terminate and the effectiveness of the attempted termination. The court of appeals of New York has held that under an agreement to arbitrate any and all controversies in connection with the contract, an issue over a claim that the contract was canceled by a subsequent contract must be arbitrated. We conclude that if, before termination, a dispute arose concerning the right to terminate, Sonotone was not permitted to transfer the resolution of the dispute from the arbitration procedure to the courts by attempting a termination, predicated upon the cause about which a dispute had arisen.
Lipman v. Haeuser Shellac Co. (1942), 289 N.Y. 76, 43 N.E.2d 817, 142 A.L.R. 1088.
It may be argued that the termination provisions supersede, to the extent of any conflict, the provision for arbitration, so that the right to terminate is always to be determined by the judicial process. Sonotone, however, prepared the contract. Any ambiguity is to be construed most strongly against the party who prepared the contract.
Strong v. Shawano Canning Co. (1961), 13 Wis.2d 604, 609, 109 N.W.2d 355.
Construing the allegations of the plea liberally, it makes a claim that a dispute arose before the termination of the contract as to whether Ladd or Sonotone was responsible for Ladd's failure to sell his quota and whether under the circumstances Ladd's failure entitled Sonotone to terminate the contract under paragraph 19. The contract does not require that a demand for arbitration must have been made before May 1st. Ladd, in order to sustain his right to arbitration, must satisfy the court at a hearing for the purpose of sec. 298.02, Stats., that the dispute can reasonably be said to have arisen before that date.
Counsel for Sonotone has contended that Mr. Ladd believed on April 1st that the contract had been terminated and did not challenge termination until July 19th. In support of the motion to dismiss the plea as sham and dilatory, he produced a copy of a form letter written by Ladd on April 1st to his customers, and an advertisement published May 31st, announcing that Ladd would continue in the hearing-aid business for himself. It is suggested that Ladd has made an election to consider the contract terminated. These facts may be relevant at the hearing on the issue of whether a difference, dispute, or controversy had arisen. They do not establish as a matter of law that Ladd waived his right to arbitration. If counsel contends that Ladd's conduct in opening his own business is an acknowledgment that Sonotone effectively terminated the contract under paragraph 19, it must be observed that although Ladd's action is consistent with a termination of the relationship with Sonotone, it is not consistent with a rightful termination under paragraph 19. After termination pursuant to the contract, Ladd's continuation in the hearing-aid business in the same area would violate paragraph 26, binding him not to engage in the hearing-aid business in the area and during the time prescribed.
By the Court. — Order affirmed insofar as it denied summary judgment; reversed insofar as it dismissed the plea in abatement. Cause remanded for further proceedings.