Caseflicks

Court of Appeals for the Third Circuit • 1975

William B. Tanner Co., Inc., and Pepper & Tanner, Inc. v. Wioo, Inc.

528 F.2d 262 | 1975 U.S. App. LEXIS 11751

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Takeaway

In short, a business that knowingly lets an employee appear to be its general manager may be bound by that employee's contracts, but a plaintiff still must prove its claimed contract damages with non-speculative evidence.

Background

Tanner, a Tennessee producer of radio jingles and promotional materials, entered five licensing agreements with WIOO, a Pennsylvania radio station. The agreements were signed for WIOO by F. Eugene Waite, who identified himself as the station's general manager. In exchange for Tanner's materials, WIOO owed cash payments and advertising-time "spots"—one-minute blocks of airtime—described as valid until used.

After WIOO challenged Waite's authority and refused to run Tanner's spots, Tanner sued for breach of contract in federal diversity court. Following a bench trial, the district court found that Waite lacked actual authority but had apparent authority; that WIOO anticipatorily breached the agreements; and that only Contract No. 5 remained enforceable. It awarded Tanner $12,628, including $928 in unpaid cash and $11,700 as the value of 1,560 unprovided spots. WIOO appealed.

Issues

Issue #1

Whether Pennsylvania law governed the disputed contract-performance, anticipatory-breach, and damages questions.

Holding

Yes. Pennsylvania law governed the remaining substantive issues, and it also supplied the applicable apparent-authority rule.

Reasoning

A federal court sitting in diversity applies the forum state's choice-of-law rules. Pennsylvania was the forum, and the relevant conduct by WIOO and Waite concerning Waite's authority occurred there. In any event, Pennsylvania and Tennessee followed materially the same Restatement approach to apparent authority, so the authority issue did not turn on a conflict between the two states' laws.

Pennsylvania was also the place where the contracts were to be performed because WIOO's promised airtime was to be broadcast from its Pennsylvania station. Under Pennsylvania choice-of-law principles, matters connected with contractual performance are governed by the law of the place of performance. Pennsylvania law therefore controlled anticipatory breach and damages.

Issue #2

Whether Waite had apparent authority to bind WIOO to the licensing agreements.

Holding

Yes. WIOO's conduct created apparent authority for Waite to act as its general manager in dealing with third parties.

Reasoning

Under Pennsylvania law, apparent authority arises from the principal's manifestations, not merely the agent's assertions. A principal is bound when it knowingly permits an agent to exercise authority or holds the agent out as possessing it, thereby reasonably leading third parties to believe the agent may act for the principal.

The evidence supported the district court's factual findings. Waite used the title "general manager" on four of the five agreements, and industry publications listed him as WIOO's general manager for several years. WIOO's owners knew he used that title and did not object. They also signed numerous checks payable to Tanner without asking why the station was paying Tanner. These facts showed that WIOO knowingly allowed Waite to appear to the public as its general manager.

Issue #3

Whether Waite's apparent authority as general manager extended to these contracts, including the provisions granting spots valid until used.

Holding

Yes. The agreements were within the ordinary apparent authority of a radio station's general manager.

Reasoning

An agent acting with apparent authority may bind the principal when the transaction falls within the authority the principal caused or permitted the agent to appear to possess. The relevant question was therefore whether a general manager of a radio station would ordinarily have authority to execute a promotional-material agreement of this kind.

Tanner's credit manager testified without contradiction that roughly 95 percent of Tanner's contracts with stations were signed by general managers. He also testified that the "valid until used" term was Tanner's standard contractual language. That evidence supported the conclusion that the agreements were not so unusual that Tanner should have doubted a purported general manager's authority.

Issue #4

Whether Tanner reasonably and in good faith relied on Waite's apparent authority.

Holding

Yes. Tanner established reasonable reliance on Waite's ostensible authority.

Reasoning

A principal is bound by apparent authority only as to third parties that rely on it in good faith. Every agreement stated that the station official signing it certified that he had authority to bind the station, and Tanner's evidence showed that general managers ordinarily signed this type of agreement in the radio industry.

Tanner entered the agreements with Waite as WIOO's ostensible general manager and then created and shipped highly customized jingles and promotional materials bearing WIOO's identity. The court concluded that this performance sufficiently demonstrated Tanner's good-faith reliance; no separate or more formal proof of reliance was necessary.

Issue #5

Whether WIOO's refusal to honor the promised spots was an anticipatory breach, even though Tanner continued to seek performance after the refusal.

Holding

Yes. WIOO unequivocally repudiated Contract No. 5, and Pennsylvania law did not require Tanner to accept that repudiation before suing.

Reasoning

Pennsylvania requires an anticipatory repudiation to be an absolute and unequivocal refusal to perform, or a distinct and positive statement of inability to perform. Crediting Tanner credit manager Elmore's contemporaneous notes and testimony, the district court found that WIOO said it would not run any Tanner spots even if Tanner sent them. That finding was supported by the record and established a complete repudiation rather than a response to an improper demand.

The court predicted that Pennsylvania would no longer follow older cases requiring the injured party to promptly accept a repudiation before it becomes a breach. Although Article 2 of the Uniform Commercial Code did not directly govern a licensing agreement for recordings, Pennsylvania's UCC provision on anticipatory repudiation allowed an aggrieved party to pursue breach remedies even after urging the repudiating party to perform. The court saw no logical basis for imposing a different acceptance requirement on non-Code contracts.

Because acceptance was not required, Tanner did not lose its claim by attempting to secure WIOO's performance after the February 1971 repudiation or by waiting before filing suit. Those efforts did not undo WIOO's unequivocal breach.

Issue #6

Whether Tanner proved recoverable damages for WIOO's failure to provide the promised radio spots.

Holding

No. Tanner proved the unpaid $928 cash obligation but did not prove damages for the unprovided spots with reasonable certainty.

Reasoning

Pennsylvania contract damages are compensatory: they should put the injured party as nearly as possible in the position it would have occupied absent breach, but no better. The claimant bears the burden of proving loss with reasonable certainty; damages cannot rest on guesswork.

For Tanner, the economic value of the promised spots depended on the revenue or profit Tanner could obtain by selling them to advertisers. Yet the record contained no evidence that Tanner had prospective buyers, that it had ever requested or sold any spots under these agreements, or what price Tanner itself could have obtained for the spots.

WIOO's published rates for spots did not establish Tanner's loss. The record did not show that WIOO actually sold spots at those rates during the relevant period, and, more importantly, it did not show that Tanner could sell its allotted spots at WIOO's listed prices. Without evidence of Tanner's lost profits or another non-speculative measure of loss, the $11,700 award for the spots could not stand. The court therefore directed entry of judgment for Tanner only for the undisputed $928 cash obligation, plus appropriate interest.

Dissents

Chief Justice Seitz

Reasoning

Chief Justice Seitz dissented, arguing that chief Judge Seitz agreed that Waite had apparent authority and that WIOO's refusal to provide spots was an anticipatory repudiation. He would not, however, broadly predict that Pennsylvania had abandoned the historical acceptance requirement for every non-Code contract. In his view, resolving that question was unnecessary because Tanner had fully performed its own obligations, WIOO never attempted to retract its repudiation, and Tanner accepted the repudiation by filing suit before WIOO was prejudiced by the delay.

He concluded that Tanner's suit, filed after efforts to negotiate a settlement, was a sufficiently prompt acceptance under the older Pennsylvania rule. The delay did not prejudice WIOO, which had already received the benefits of Tanner's performance and had not sought to perform its own promised obligations.

Chief Judge Seitz also disagreed with the majority's damages analysis. The spots were expressly partial payment for Tanner's services, so their value was not limited to profits Tanner might earn from resale. Tanner could have used the spots itself, donated them, or otherwise benefited from them; at a minimum, it should recover the reasonable replacement cost of what WIOO failed to deliver.

In his view, WIOO's published spot rates supplied a sufficiently reliable measure of the spots' value, particularly because WIOO's breach made a precise resale-profit calculation difficult. He would have used the applicable bulk rate of $4.25 per spot, rather than the district court's later-effective $7.50 rate, and remanded for findings on whether the number of spots should be reduced to account for the period in which Tanner had not requested them.