Famous Knitwear Corporation, Appellee, v. Drug Fair, Inc., Appellant.famous Knitwear Corporation, Appellant, v. Drug Fair, Inc., Appellee, 493 F.2d 251 (4th Cir. 1974)

In the course of urging reversal of the judgment below, appellant Drug Fair insists that the district judge's decision is 'freely reviewable,' i.e., that we need only disagree and need not be convinced that the decision is 'clearly erroneous' in order to reverse. More succinctly, Drug Fair insists that the 'findings' below are without the protection of Fed. R. Civ. P. 52(a). We disagree and affirm.

* The central issue is whether it was reasonable for Aaron Feder, Famous Knitwear's agent, to rely upon the manifestations of apparent authority made by Drug Fair as to Bert Arthur, its buyer. The district judge concluded that, based on the appointment of Arthur to a position in which his predecessor had apparent authority to enter binding contracts and the authority, generally, of buyers in the trade to make binding commitments on behalf of their principals, Drug Fair had clothed Arthur with apparent authority to enter into the contract in question. The district judge further found that the size of the transaction was not, of itself, so unusual as to lead a reasonable man to question the scope of that apparent authority. The finding of apparent authority, including, as it must, the reasonableness of Feder's reliance on Drug Fair's manifestations in that regard, is an 'ultimate factual inference' and is to be reviewed under the 'clearly erroneous' standard¹  of Rule 52(a) unless such inference is made 'in disregard of the applicable principles of law' or through 'gross overemphasis on one relevant principle to the exclusion of others.' Piedmont Minerals Co. v. United States, 429 F.2d 560, 562 (4th Cir. 1970); Jewell Ridge Coal Corp. v. C.I.R., 318 F.2d 695 (4th Cir. 1963). The district court's inference of apparent authority was not 'induced by an erroneous view of the law,' Bogue Elec. Mfg. Co. v. Coconut Grove Bank, 269 F.2d 1, 4 (5th Cir. 1959), nor are the underlying findings of fact upon which that inference was made clearly erroneous within the meaning of Rule 52(a).

We are not unaware of language contained in Hicks v. United States, 368 F.2d 626 (4th Cir. 1966), to the effect that a judge's finding of negligence is a conclusion of law and is reviewable on appeal free of the protection of Rule 52(a). / 2/ The fact that negligence, a socalled 'mixed question of law and fact,' has been treated as freely reviewable does not mean that all questions which can be so characterized are free of the 'clearly erroneous' stricture. See C. Wright & A. Miller, Federal Practice and Procedure: Civil 2589-90. We believe that the creation, duration, and scope of an agency relationship and, specifically, the question of the reasonableness of a third party's reliance on a principal's manifestations of the apparent authority of his agent are essentially questions of fact. Bogue Elec. Mfg. Co. v. Coconut Grove Bank, 269 F.2d 1 (5th Cir. 1959); Steinbrugge v. Haddock, 281 F.2d 871 (10th Cir. 1960). As such, the clearly erroneous standard is applicable.

II

Without explanation the district court adopted the lost profits measure of damages set out in section 2-708(2) of the Uniform Commercial Code.³  Whether this was proper or whether the more usual⁴  contract-market formula of section 2-708(1) should have been applied depends upon whether section 2-708(2) was intended to apply to the so-called 'lost volume' seller⁵  and whether Famous Knitwear was, in fact, a 'lost volume' seller. We are persuaded both by the statutory history⁶  of section 2-708 and by Official Comment 2 that the lost profits measure of damages outlined in section 2-708(2) was meant to apply to the 'lost volume' situation. As the Comment states:

This section permits the recovery of lost profits in all appropriate cases, which would include all standard priced goods. The normal measure there would be list price less cost to the dealer or list price less manufacturing cost to the manufacturer.

It may well be that Famous Knitwear, a 'middleman' between manufacturer and retailer (Drug Fair), was a lost volume seller, as was the retailer in Neri v. Retail Marine Corp., 30 N.Y.2d 393, 334 N.Y.S.2d 165, 285 N.E.2d 311 (1972). If so, the view of the Court of Appeals of New York in Neri that 'the last sentence of subsection (2) (of section 2-708 . . . referring to 'due credit for payments or proceeds of resale' is inapplicable to this retail sales contract,'⁷  334 N.Y.S.2d at 169, 285 N.E.2d at 314, is probably the proper approach in this case as well. Were this not the case, then the measure of damages would be substantially the same as the contractmarket differential of 2-708(1), and 2-708(2) would have meaning only for seller-manufacturers and not for other sellers of 'standard priced goods.' The Official Comment negates any such purpose on the part of the drafters.

We are still left with the question of whether Famous Knitwear is a lost volume seller and, hence, a seller for whom 'the measure of damages provided in subsection (1) is inadequate.' Due to the seasonal nature of the goods involved (sweaters) and the long lead-time necessary for Famous Knitwear to secure goods from its suppliers, Drug Fair alleges that, but for its placement of such a large order with Famous Knitwear, the seller would not have had the necessary goods in stock to sell to other buyers subsequent to Drug Fair'sbreach. Famous Knitwear, on the other hand, contends that it could have fulfilled its contract with Drug Fair and procured additional goods for sale to the later buyers. Because there are no findings of fact by the district judge as to the conflicting assertions, we are unable to determine if Famous Knitwear is a lost volume seller and, as such, entitled to lost profits under 2-708(2). We, therefore vacate the amount of the judgment and remand for further proceedings. On remand, the district court may make supplemental findings or, in its discretion, reopen the trial on the question of damages.

III

In Famous Knitwear's crossappeal we are asked to review the district court's finding that Drug Fair's order of two lines of sweaters was unconditionally cancelled and that Famous Knitwear was, therefore, not entitled to damages as to those lines. We think these findings were clearly erroneous, and reverse.

Concerned about the failure of Drug Fair to supply a written confirmation, including shipment instructions, for Arthur's February 24 oral commitment, Aaron Feder, Famous Knitwear's agent, paid a visit to Drug Fair's corporate headquarters in Alexandria, Virginia, in June of 1970. Feder met with Arthur and expressed his concern. On condition that the entire fall order (except for two lines of sweaters) remain intact, and in exchange for Arthur's assurance to that effect, Feder agreed to accept cancellation of that part of the February 24 order which dealt with spring goods and for which the delivery date had already passed without shipment instructions from Drug Fair. Since Drug Fair later refused to honor Arthur's commitment, the condition failed and Famous- Knitwear correctly was awarded damages for Drug Fair's refusal to accept the spring goods.

At this same June meeting, Feder and Arthur also agreed to cancel two lines of sweaters which were part of the fall goods ordered on February 24. Drug Fair contends that this cancellation was unconditional, though admittedly arising from the same negotiations that led to the conditional cancellations of spring goods. In his opinion from the bench the district judge agreed:

I do think, however, that the Defendant is entitled to the credits for 5R and 1950R because it is my recollection of Mr. Aaron Feder's testimony in court, not just his deposition, that he said that he could have cancelled those, and I don't think it was the cancellation of any fall orders that was contingent on their performing their contract.

The district judge correctly recollected that Aaron Feder, on cross-examination, admitted that the two sweater lines had been cancelled.⁸  But only on redirect examination was Feder questioned as to the relationship between the agreement to cancel the spring goods and the agreement to cancel the two fall sweater lines. It is apparent from Feder's testimony on redirect that both agreements were conditioned on Drug Fair's acceptance of the remainder of the February 24 order.⁹  The district judge's opinion does not reveal that he disbelieved Feder's redirect testimony, but that he remembered only the content of Feder's testimony on cross-examination. Lacking any contradictory testimony on the part of Bert Arthur, who was Drug Fair's agent at the meeting in question and who testified for Drug Fair at the trial, we believe that Feder's testimony, taken as a whole, establishes a conditional cancellation as to both spring goods and the two fall sweater lines and that the district judge's contrary conclusion is clearly erroneous. As to Famous Knitwear's cross-appeal, the judgment is reversed, and the case is remanded to the district court to determine the proper measure of damages as discussed in Part II above.

Affirmed in part, reversed in part, and remanded.