APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS, DIVISION OF ST. THOMAS (D.C. Civil No. 284-1963).
Seitz, Chief Judge, and Van Dusen and Rosenn, Circuit Judges. Seitz, Chief Judge, concurring in part and dissenting in part.
VAN DUSEN, Circuit Judge.
Netherlands Mead N.V. (Mead),*fn1 the defendant, and Walter, the plaintiff, appeal and cross-appeal the January 7, 1974, judgment of the district court.
This suit resulted from the disintegration of Walter's association with Mead.*fn2 Prior to that association, Walter and his wife, operating through Walter Quick Freeze Corporation (WQF), were in the retail food business in the Virgin Islands. In 1959, in connection with this business, Walter negotiated the purchase of a cargo ship, the Santo Antonio. Rather than purchase the ship through WQF, however, Walter entered into a complicated arrangement with Mead, a corporation owned and controlled in 1959 by Walter's friend, Reynolds. This arrangement involved four parts. Mead purchased the Santo Antonio. On January 1, 1960, WQF and Mead signed a 10-year agreement which made WQF the preferred customer of Mead's "Shipping Division," i.e., the Santo Antonio, which guaranteed Mead specified minimum gross revenues and which granted to Mead 50% of WQF's net profits. At the same time, Mead and Walter signed a 10-year employment agreement which made Walter a "Managing Director" of Mead's Shipping Division. And Walter purchased eight profit-sharing debentures from Mead, each having a face value of $1,000. Each debenture entitled Walter to 4.4% of the annual net profits of the Shipping Division.
This litigation concerns the employment contract and debentures. Some of the terms of these agreements must be set forth for an understanding of the issues. Clauses 2 and 7 of the employment agreement provided:
"(2) During the term of this Agreement, Walter shall devote such time and energy to the furtherance of the business of the Employer as its Managing Director of the Shipping Division as may be required and, except in connection with his employment with Walter Quick Freeze Corporation, Walter shall not act in any advisory or other capacity for any individual, firm, association or corporation other than for the first party in any matter or matters without the prior written consent of the employer.
"(7) Walter shall not during the term of this Agreement and for a period of two (2) years following the expiration of the term provided for engage directly or indirectly or own an interest in any business which shall be in competition with the shipping business conducted by the Employer or by any subsidiary of the Employer or by any other business in which the Employer may have a controlling or substantial interest."
In clause 3, the agreement gave Walter "sole responsibility for the management of the Shipping Division," but directed Walter to "report, as required, to a committee appointed by the Board of Directors of the Employer for its Shipping Division." Clause 6 provided that Walter could be removed only for cause.
The debentures provided, in pertinent part:
"This Debenture is registered and is nontransferable without the prior written consent of the Managing Director of the Company. In the event the registered holder hereof ceases, for any reason, to be associated with the Shipping Division of the Company either as officer, director or employee or if the registered holder of this Debenture takes any action to sell, assign, convey, transfer or pledge his interest in this Debenture without the prior written consent of the Managing Director of the Company, the Company may, at its option, redeem this Debenture at its face amount plus any interest the holder would be entitled to receive had this Debenture matured at that time.
"Upon sending notice of redemption to the registered holder of this Debenture at his registered address together with payment of such face amount and interest, such holder shall cease to have any rights hereunder."*fn3
The district court observed that the "foundation stone of these intricate arrangements was the underlying personal relationship between Reynolds and Walter, between whom there was highest confidence and respect, and who counted on the venture to succeed primarily because of this mutual esteem." 9 V.I. at 447. In 1961 Walter lost control of WQF and was dismissed as its manager in January 1962. By January of 1963, one O'Neil had acquired full ownership of Mead; by May of that year O'Neil controlled WQF as well.
As the ownership of the two companies changed, potential sources of disagreement between Walter and Mead became increasingly active. In November of 1962, and repeatedly thereafter, the directors of Mead requested Walter to transfer to Mead's account in Miami, Florida, all funds in excess of $15,000. which Walter maintained in St. Thomas for the account of the Santo Antonio. Walter initially responded that $15,000. was too little for the operation of the ship, adding that he lacked confidence in the directors of Mead, but finally made a substantial transfer in July of 1963. During the same period, Walter surreptitiously began the construction of a new supermarket. This project was not revealed to O'Neil until August 12, 1963, when Walter attempted to use his interest in the new market to advantage in negotiating his future relations with O'Neil.
Despite Walter's plans for the new market, the negotiations led only to his being discharged as manager of the Shipping Division on or about September 10, 1963. On October 4, 1963, Walter sold the partially completed supermarket to a competitor of WQF, Pueblo Supermarkets. On October 19, 1963, Mead's Managing Director wrote Walter a letter which attempted, pursuant to the above-mentioned clauses of the debenture, a redemption of the six debentures still owned by Walter.*fn4 The letter recited that Mead was exercising its right to redemption. It stated that $13,412.11 in interest had accrued on the debentures through December 31, 1962, but informed Walter that interest for 1963 could not be computed until Walter relinquished the necessary records. Thus, the total amount which Mead could compute to be due Walter was $19,412.11, representing $6,000. principal plus interest through 1962. However, rather than tendering this full amount, Mead proposed to pay Walter $10,000. upon receipt of the debentures. This latter amount represented the full amount computed, less an amount for which Mead claimed Walter had not properly accounted, conveniently estimated to be $9,412.11. Walter did not surrender the debentures and the $10,000. was never paid.
In December 1963, the new Pueblo market opened across the street from one of the WQF markets. WQF, which had a profit before taxes of $38,371.47 in 1963, lost $296,139.81 in 1964. Mead's 50% interest in WQF's profits suffered accordingly.
Walter filed this suit (see note 2 above) September 20, 1963, claiming both damages due to wrongful discharge and amounts due on the debentures. Mead counterclaimed for damages resulting from Walter's alleged breaches of clauses 2 and 7 of his employment contract.*fn5 The case came to trial on January 10, 1970, in the District Court of the Virgin Islands. The district court's judgment was entered on January 7, 1974; it was supported by a memorandum dated March 27, 1973.*fn6 The court found that Walter's discharge had been proper, but awarded Walter principal and interest on the debentures through their expressed maturity date because it found Mead's attempted redemption of the debentures to have been ineffectual. The court also found that Walter did not breach clauses 2 and 7 of his employment contract when he began construction of the new supermarket. Other parts of the district court's judgment were not challenged on appeal.
I. The Employment Contract
Both parties object to the district court's interpretation of the employment contract between Walter and Mead.
Walter contends that the district court erred in holding that his refusal to transfer to Mead the amounts in excess of $15,000. was a sufficient reason for his discharge. He maintains that the law of agency should control his contract with Mead, and advances three arguments for reversal under the agency rubric: first, that the directives to transfer funds were not issued by Walter's "principal "; second, that the directives were unreasonable within the meaning of Restatement (Second) of Agency § 385 (1957); third, that Mead breached the employment contract in making the demand so that any subsequent breach by Walter was excused.
Although we find the district court's opinion on the question of Walter's discharge to be satisfactory, we will briefly respond to each of the above contentions. With respect to Walter's first argument, the instructions to Walter were issued by Messrs. Lidstone, O'Neil, and Smeets. The district court, with its more thorough knowledge of the complex understandings between the various participants, never doubted that these men had authority to issue the instructions; instead, the court occupied its opinion with the question whether the instructions were merely suggestions. See 9 V.I. at 451-57. But Walter contends that Lidstone, O'Neil and Smeets were at best his equals in Mead, not his superiors. Walter relies, for example, on the fact that both Lidstone and he were called "Managing Directors of the Shipping Division."*fn7 It is true that the corporate titles for these men do not give a clue as to their comparative responsibilities. But Mead has directed our attention to minutes of a December 30, 1959, meeting of the shareholders of Mead which clarify their relative responsibilities:
"7. Proposal to approve the nomination by the Management of Mr. Ahto Walter, Mr. Ian Major, Mr. Richard J. Reynolds and Herrick K. Lidstone as Special Attorneys of the company in charge of the Shipping Division of the company referred to above, Mr. Walter, Mr. Reynolds and Mr. Lidstone each with the title of 'Managing Director of the Shipping Division of the Company' and Mr. Major with the title of 'Director of the Shipping Division of the Company', with the capacity in either Mr. Walter or Mr. Major to represent the Company jointly, judicially and extra judicially, in all matters concerning said Shipping Division, but only with the approval of either Mr. Reynolds or Mr. Lidstone, and with the capacity in Mr. Walter to represent the Company singly, judicially and extra judicially, in all matters concerning the routine, day-to-day affairs of the Shipping Division, such as from the day of this meeting.
"These proposals put to the vote, are unanimously adopted by the meeting."*fn8
It was at this meeting that Mead's shareholders ratified the contracts between WQF, Walter, and Mead. These minutes are, therefore, important evidence on the parties' intent in making Walter a "Managing Director" of the Shipping Division, and in giving him "sole responsibility" for its operation. A fair reading of the minutes suggests that decisions regarding the overall management of the Shipping Division were made subject to Mr. Lidstone's approval, but the implementation of such decisions was left to Walter's sole discretion. The total amount of cash available for immediate withdrawal by Walter would seem to fall into the former category; by contrast, decisions regarding the proper disbursement of the cash for the efficient operation of the ship would be left entirely to Walter. We conclude, therefore, that at least Lidstone*fn9 was empowered to direct Walter to transfer funds in excess of $15,000.*fn10
Walter's second and third arguments have also failed to persuade us. Restatement (Second) of Agency § 385 (1957)*fn11 provides:
"(1) Unless otherwise agreed, an agent is subject to a duty to obey all reasonable directions in regard to the manner of performing a service that he has contracted to perform.
"(2) Unless he is privileged to protect his own or another's interests, an agent is subject to a duty not to act in matters entrusted to him on account of the principal contrary to the directions of the principal, even though the terms of the ...