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Kas Oriental Rugs, Inc. v. Ellman

2007 WL 654727 (N.J. Super. App. Div. 2007)

CONTRACTS; SALES COMMISSIONS; DAMAGES; QUANTUM MERUIT — New Jersey’s law does not yet provide for commissions to be received by sales representatives for sales made after termination of its commission agreement, but the provisions of the New Jersey Sales Representatives Rights Act call for outstanding commissions to be paid within thirty days and make the principal of the seller liable for attorneys fees or court costs associated with the recovery of a sales representative’s commissions.

An importer and a sales representative entered into an oral contract which covered certain terms of their business relationship. The agreement did not specify the terms for either party to end the relationship. The importer eventually had concerns over the sales representative’s representation of its competitors and also found him difficult to deal with. As a result, the importer wrote a letter to sales representative informing him that it was terminating the relationship and did not require any more of his services. The importer also offered the sales representative commissions for a two month period following the termination date. According to the importer, the commissions extending beyond the termination date were a gesture of good will and also an attempt to avoid any potential litigation with the sales representative.

Those efforts did not mollify the sales representative. At trial, the lower court found that the importer’s termination of the relationship was not wrongful, but did award commissions due to the sales representative for orders already received by the importer as of the termination date. The lower court also awarded the sales representative post-termination commissions for a ten month period based on quantum meruit (“as much as is deserved” or “reasonable value of services”). The sales representative was also awarded attorney’s fees. The importer’s offer of two months’ commissions was not allowed to be admitted as evidence that the importer acknowledged any liability or wrongdoing. The lower court stated that there was a recent trend in the sales business to pay commissions beyond a termination date in recognition of what is fair and reasonable.

On appeal, the Court upheld the award for orders already received by the importer but reversed the award that was based on quantum meruit. The Appellate Court explained that quantum meruit is different from a contract because it is imposed by law in order to bring about a just remedy to a dispute. The Court also noted that the existence of an express contract excludes an award based on quantum meruit on the same subject matter. It ruled that the law does not allow the enforcement of implied contracts or implied provisions of a contract that are inconsistent with express terms in a contract. The Court did point out that the sales representative was allowed to pursue claims on a contract theory or on a quantum meruit basis in the alternative, but that he could not recover on both claims which were inconsistent with one another. The lower court’s finding of a recent trend towards commissions paid post-termination was rejected by the Court which stated that there was no such evidence in the record. The Court stated that even if such a trend had recently begun, it would not be applicable to the time period when the agreement was formed by the parties.

The remaining question of attorney’s fees was remanded to the lower court for reassessment in light of the reduced damages. The Court emphasized that any amount awarded to the sales representative must be based on the Sales Representative’s Rights Act. Certain provisions of the law were pointed out by the Court, including one that requires any outstanding amounts owed to sales representatives to be paid within thirty days, and that the principal of a seller is liable for the amount and any attorney fees or court costs associated with recovery of a sales representative’s commissions. The Court also pointed to the Act’s provisions which state if a sales representative’s claim is found to be frivolous, the sales representative would be liable for the costs and attorney’s fees incurred by the principal. Issues of whether any of the pre-termination commissions were appropriately made available to the sales representative, whether the sales representative’s claims may have been frivolous, or whether the legal fees incurred by the sales representative were reasonably incurred were left to the lower court. The Court also suggested that the lower court could consider the importer’s pre-litigation offer to settle the matter with an amount that was higher than the sales representative’s award in determining any attorney’s fees to be imposed on the importer.

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