247 N. Y. 377
CATHERINE C. MITCHILL, Respondent,
v.
CHARLES LATH et al., Appellants.

[378] 

Mitchell v Lath, 220 App. Div. 776, reversed.

(Argued January 10, 1928; decided February 14, 1928.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered May 27, 1927, unanimously affirming a judgment in favor of plaintiff entered upon a decision of the court on trial at Special Term in an action to compel specific performance of an alleged contract to remove an ice house.

James G. Meyer, John T. Kelly and Daniel A. Dugan for appellants. The court erred in destroying the contract by receiving evidence of prior negotiations. (Newburger v. Am. Surety Co., 242 N. Y. 134; Filkins v. Whyland, 24 N. Y. 338; Eighmie v. Taylor, 98 N. Y. 288; Emmett v. Penoyer, 151 N. Y. 564; Sturmdorf v. Saunders, 117 App. Div. 762; Marsh v. McNair, 99 N. Y. 174; Lossing v. Cushman, 123 App. Div. 693; 195 N. Y. 386.) The case at bar is not within the exceptions to the general rule that evidence of parol agreements may not be received to contradict or vary the terms of an instrument in writing. (Thomas v. Scutt, 127 N. Y. 133; House v. Walch, 144 N. Y. 418; Mead v. Dunleavy, 174 N. Y. 108; Studwell v. Bush Co., 206 N. Y. 416; Newburger v. American Surety Co., 242 N. Y. 134.)

Arthur H. Haaren for respondent. Specific performance of defendants' oral contract was properly granted below. (Rintelen v. Schaefer, 158 App. Div. 477.) The parol evidence rule has not been violated and no other ground for reversal has been shown. (Newburger v. [379] Am. Surety Co., 242 N. Y. 134; Indelli v. Lesster, 130 App. Div. 548; Finkle v. Lasher, 178 App. Div. 471; Brown v. De Graff, 183 App. Div. 177; Amer. Aniline Products Co. v. Mitsui & Co., 190 App. Div. 485; Taylor v. Hopper, 62 N. Y. 649; Lobel v. Van Hoose, 141 N. Y. Supp. 490; M'Crea v. Purmort, 16 Wend. 460; Hocking Valley Ry. Co. v. Barbour, 192 App. Div. 654; Post v. Thomas, 180 App. Div. 627.) The injunction prayed for was properly granted. (Musgrave v. Sherwood, 23 Hun, 669.)

ANDREWS, J. In the fall of 1923 the Laths owned a farm. This they wished to sell. Across the road, on land belonging to Lieutenant-Governor Lunn, they had an ice house which they might remove. Mrs. Mitchill looked over the land with a view to its purchase. She found the ice house objectionable. Thereupon "the defendants orally promised and agreed, for and in consideration of the purchase of their farm by the plaintiff, to remove the said ice house in the spring of 1924." Relying upon this promise, she made a written contract to buy the property for $8,400, for cash and a mortgage and containing various provisions usual in such papers. Later receiving a deed, she entered into possession and has spent considerable sums in improving the property for use as a summer residence. The defendants have not fulfilled their promise as to the ice house and do not intend to do so. We are not dealing, however, with their moral delinquencies. The question before us is whether their oral agreement may be enforced in a court of equity.

This requires a discussion of the parol evidence rule — a rule of law which defines the limits of the contract to be construed. (Glackin v. Bennett, 226 Mass. 316.) It is more than a rule of evidence and oral testimony even if admitted will not control the written contract (O'Malley v. Grady, 222 Mass. 202), unless admitted without objection. (Brady v. Nolly, 151 N. Y. 258.) It applies, however, to attempts to modify such a contract by parol. It does not [380] affect a parol collateral contract distinct from and independent of the written agreement. It is, at times, troublesome to draw the line. Williston, in his work on Contracts (sec. 637) points out the difficulty. "Two entirely distinct contracts," he says, 

“each for a separate consideration may be made at the same time and will be distinct legally. Where, however, one agreement is entered into wholly or partly in consideration of the simultaneous agreement to enter into another, the transactions are necessarily bound together. . . . Then if one of the agreements is oral and the other is written, the problem arises whether the bond is sufficiently close to prevent proof of the oral agreement."

That is the situation here. It is claimed that the defendants are called upon to do more than is required by their written contract in connection with the sale as to which it deals.

The principle may be clear, but it can be given effect by no mechanical rule. As so often happens, it is a matter of degree, for as Professor Williston also says where a contract contains several promises on each side it is not difficult to put any one of them in the form of a collateral agreement. If this were enough written contracts might always be modified by parol. Not form, but substance is the test.

In applying this test the policy of our courts is to be considered. We have believed that the purpose behind the rule was a wise one not easily to be abandoned. Notwithstanding injustice here and there, on the whole it works for good. Old precedents and principles are not to be lightly cast aside unless it is certain that they are an obstruction under present conditions. New York has been less open to arguments that would modify this particular rule, than some jurisdictions elsewhere. Thus in Eighmie v. Taylor (98 N. Y. 288) it was held that a parol warranty might not be shown although no warranties were contained in the writing.

Under our decisions before such an oral agreement [381] as the present is received to vary the written contract at least three conditions must exist, (1) the agreement must in form be a collateral one; (2) it must not contradict express or implied provisions of the written contract; (3) it must be one that parties would not ordinarily be expected to embody in the writing; or put in another way, an inspection of the written contract, read in the light of surrounding circumstances must not indicate that the writing appears "to contain the engagements of the parties, and to define the object and measure the extent of such engagement." Or again, it must not be so clearly connected with the principal transaction as to be part and parcel of it.

The respondent does not satisfy the third of these requirements. It may be, not the second. We have a written contract for the purchase and sale of land. The buyer is to pay $8,400 in the way described. She is also to pay her portion of any rents, interest on mortgages, insurance premiums and water meter charges. She may have a survey made of the premises. On their part the sellers are to give a full covenant deed of the premises as described, or as they may be described by the surveyor if the survey is had, executed and acknowledged at their own expense; they sell the personal property on the farm and represent they own it; they agree that all amounts paid them on the contract and the expense of examining the title shall be a lien on the property; they assume the risk of loss or damage by fire until the deed is delivered; and they agree to pay the broker his commissions. Are they to do more? Or is such a claim inconsistent with these precise provisions? It could not be shown that the plaintiff was to pay $500 additional. Is it also implied that the defendants are not to do anything unexpressed in the writing?

That we need not decide. At least, however, an inspection of this contract shows a full and complete agreement, setting forth in detail the obligations of each [382] party. On reading it one would conclude that the reciprocal obligations of the parties were fully detailed. Nor would his opinion alter if he knew the surrounding circumstances. The presence of the ice house, even the knowledge that Mrs. Mitchill thought it objectionable would not lead to the belief that a separate agreement existed with regard to it. Were such an agreement made it would seem most natural that the inquirer should find it in the contract. Collateral in form it is found to be, but it is closely related to the subject dealt with in the written agreement — so closely that we hold it may not be proved.

Where the line between the competent and the incompetent is narrow the citation of authorities is of slight use. Each represents the judgment of the court on the precise facts before it. How closely bound to the contract is the supposed collateral agreement is the decisive factor in each case. But reference may be made to Johnson v. Oppenheim (55 N. Y. 280, 292); Thomas v. Scutt (127 N. Y. 133); Eighmie v. Taylor (98 N. Y. 288); Stowell v. Greenwich Ins. Co. (163 N. Y. 298); Newburger v. American Surety Co. (242 N. Y. 134); Love v. Hamel (59 App. Div. 360); Daly v. Piza (105 App. Div. 496) ; Seitz v. Brewers Refrigerating Co. (141 U.S. 510); American Locomotive Co. v. Nat. Grocery Co. (226 Mass. 314); Doyle v. Dixon (12 Allen, 576). Of these citations, Johnson v. Oppenheim and the two in the Appellate Division relate to collateral contracts said to have been the inducing cause of the main contract. They refer to leases. A similar case is Wilson v. Deen (74 N. Y. 531). All hold that an oral stipulation, said to have been the inducing cause for the subsequent execution of the lease itself, concerning some act to be done by the landlord, or some condition as to the leased premises, might not be shown. In principle they are not unlike the case before us. Attention should be called also to Taylor v. Hopper (62 N. Y. 649), where it is assumed that evidence [383] of a parol agreement to remove a barn, which was an inducement to the sale of lots, was improper.

We do not ignore the fact that authorities may be found that would seem to support the contention of the appellant. Such are Erskine v. Adeane (L. R. 8 Ch. App. 756) and Morgan v. Griffith (L. R. 6 Exch. 70), where although there was a written lease a collateral agreement of the landlord to reduce the game was admitted. In this State Wilson v. Deen might lead to the contrary result. Neither are they approved in New Jersey (Naumberg v. Young, 15 Vroom, 331). Nor in view of later cases in this court can Batterman v. Pierce (3 Hill, 171) be considered an authority. A line of cases in Massachusetts, of which Durkin v. Cobleigh (156 Mass. 108) is an example, have to do with collateral contracts made before a deed is given. But the fixed form of a deed makes it inappropriate to insert collateral agreements, however closely connected with the sale. This may be cause for an exception. Here we deal with the contract on the basis of which the deed to Mrs. Mitchill was given subsequently, and we confine ourselves to the question whether its terms may be modified.

Finally there is the case of Chapin v. Dobson (78 N. Y. 74, 76). This is acknowledged to be on the border line and is rarely cited except to be distinguished. Assuming the premises, however, the court was clearly right. There was nothing on the face of the written contract, it said, to show that it intended to express the entire agreement. And there was a finding, sustained by evidence, that there was an entire contract, only part of which was reduced to writing. This being so, the contract as made might be proved.

It is argued that what we have said is not applicable to the case as presented. The collateral agreement was made with the plaintiff. The contract of sale was with her husband and no assignment of it from him appears. Yet the deed was given to her. It is evident that here [384] was a transaction in which she was the principal from beginning to end. We must treat the contract as if in form, as it was in fact, made by her.

Our conclusion is that the judgment of the Appellate Division and that of the Special Term should be reversed and the complaint dismissed, with costs in all courts.

LEHMAN, J. (dissenting). I accept the general rule as formulated by Judge ANDREWS. I differ with him only as to its application to the facts shown in the record. The plaintiff contracted to purchase land from the defendants for an agreed price. A formal written agreement was made between the sellers and the plaintiff's husband. It is on its face a complete contract for the conveyance of the land. It describes the property to be conveyed. It sets forth the purchase price to be paid. All the conditions and terms of the conveyance to be made are clearly stated. I concede at the outset that parol evidence to show additional conditions and terms of the conveyance would be inadmissible. There is a conclusive presumption that the parties intended to integrate in that written contract every agreement relating to the nature or extent of the property to be conveyed, the contents of the deed to be delivered, the consideration to be paid as a condition precedent to the delivery of the deeds, and indeed all the rights of the parties in connection with the land. The conveyance of that land was the subject-matter of the written contract and the contract completely covers that subject.

The parol agreement which the court below found the parties had made was collateral to, yet connected with, the agreement of purchase and sale. It has been found that the defendants induced the plaintiff to agree to purchase the land by a promise to remove an ice house from land not covered by the agreement of purchase and sale. No independent consideration passed to the defendants for the parol promise. To that extent the written [385] contract and the alleged oral contract are bound together. The same bond usually exists wherever attempt is made to prove a parol agreement which is collateral to a written agreement. Hence "the problem arises whether the bond is sufficiently close to prevent proof of the oral agreement." See Judge ANDREWS’ citation from Williston on Contracts, section 637.

Judge ANDREWS has formulated a standard to measure the closeness of the bond. Three conditions, at least, must exist before an oral agreement may be proven to increase the obligation imposed by the written agreement. I think we agree that the first condition that the agreement "must in form be a collateral one" is met by the evidence. I concede that this condition is met in most cases where the courts have nevertheless excluded evidence of the collateral oral agreement. The difficulty here, as in most cases, arises in connection with the two other conditions. The second condition is that the "parol agreement must not contradict express or implied provisions of the written contract." Judge ANDREWS voices doubt whether this condition is satisfied. The written contract has been carried out. The purchase price has been paid; conveyance has been made, title has passed in accordance with the terms of the written contract. The mutual obligations expressed in the written contract are left unchanged by the alleged oral contract. When performance was required of the written contract, the obligations of the parties were measured solely by its terms. By the oral agreement the plaintiff seeks to hold the defendants to other obligations to be performed by them thereafter upon land which was not conveyed to the plaintiff. The assertion of such further obligation is not inconsistent with the written contract unless the written contract contains a provision, express or implied, that the defendants are not to do anything not expressed in the writing. Concededly there is no such express provision in the [386] contract, and such a provision may be implied, if at all, only if the asserted additional obligation is "so clearly connected with the principal transaction as to be part and parcel of it," and is not "one that the parties would not ordinarily be expected to embody in the writing." The hypothesis so formulated for a conclusion that the asserted additional obligation is inconsistent with an implied term of the contract is that the alleged oral agreement does not comply with the third condition as formulated by Judge ANDREWS. In this case, therefore, the problem reduces itself to the one question whether or not the oral agreement meets the third condition.

I have conceded that upon inspection the contract is complete. "It appears to contain the engagements of the parties, and to define the object and measure the extent of such engagement;" it constitutes the contract between them and is presumed to contain the whole of that contract. (Eighmie v. Taylor, 98 X. Y. 288.) That engagement was on the one side to convey land; on the other to pay the price. The plaintiff asserts further agreement based on the same consideration to be performed by the defendants after the conveyance was complete, and directly affecting only other land. It is true, as Judge ANDREWS points out, that "the presence of the ice house, even the knowledge that Mrs. Mitchill thought it objectionable, would not lead to the belief that a separate agreement existed with regard to it;" but the question we must decide is whether or not, assuming an agreement was made for the removal of an unsightly ice house from one parcel of land as an inducement for the purchase of another parcel, the parties would ordinarily or naturally be expected to embody the agreement for the removal of the ice house from one parcel in the written agreement to convey the other parcel. Exclusion of proof of the oral agreement on the ground that it varies the contract embodied in the [387] writing may be based only upon a finding or presumption that the written contract was intended to cover the oral negotiations for the removal of the ice house which lead up to the contract of purchase and sale. To determine what the writing was intended to cover

"the document alone will not suffice. What it was intended to cover cannot be known till we know what there was to cover. The question being whether certain subjects of negotiation were intended to be covered, we must compare the writing and the negotiations before we can determine whether they were in fact covered."

(Wigmore on Evidence [2d ed.], section 2430.)

The subject-matter of the written contract was the conveyance of land. The contract was so complete on its face that the conclusion is inevitable that the parties intended to embody in the writing all the negotiations covering at least the conveyance. The promise by the defendants to remove the ice house from other land was not connected with their obligation to convey, except that one agreement would not have been made unless the other was also made. The plaintiff's assertion of a parol agreement by the defendants to remove the ice house was completely established by the great weight of evidence. It must prevail unless that agreement was part of the agreement to convey and the entire agreement was embodied in the writing.

The fact that in this case the parol agreement is established by the overwhelming weight of evidence is, of course, not a factor which may be considered in determining the competency or legal effect of the evidence. Hardship in the particular case would not justify the court in disregarding or emasculating the general rule. It merely accentuates the outlines of our problem. The assumption that the parol agreement was made is no longer obscured by any doubts. The problem then is clearly whether the parties are presumed to have intended to render that parol agreement legally ineffective [388] and non-existent by failure to embody it in the writing. Though we are driven to say that nothing in the written contract which fixed the terms and conditions of the stipulated conveyance suggests the existence of any further parol agreement, an inspection of the contract, though it is complete on its face in regard to the subject of the conveyance, does not, I think, show that it was intended to embody negotiations or agreements, if any, in regard to a matter so loosely bound to the conveyance as the removal of an ice house from land not conveyed.

The rule of integration undoubtedly frequently prevents the assertion of fraudulent claims. Parties who take the precaution of embodying their oral agreements in a wilting should be protected against the assertion that other terms of the same agreement were not integrated in the writing. The limits of the integration are determined by the writing, read in the light of the surrounding circumstances. A written contract, however complete, yet covers only a limited field. I do not think that in the written contract for the conveyance of land here under consideration we can find an intention to cover a field so broad as to include prior agreements, if any such were made, to do other acts on other property after the stipulated conveyance was made.

In each case where such a problem is presented, varying factors enter into its solution. Citation of authority in this or other jurisdictions is useless, at least without minute analysis of the facts. The analysis I have made of the decisions in this State leads me to the view that the decision of the courts below is in accordance with our own authorities and should be affirmed.

CARDOZO, Ch. J., POUND, KELLOGG and O'BRIEN, JJ., concur with ANDREWS, J.; LEHMAN, J., dissents in opinion in which CRANE, J., concurs.

Judgment accordingly.

Miller, Van Dorn, Hughes & O'Connor, Richard H. McConnell and Daniel C. Miller for Defendant and Appellant.

Richard H. Peterson, Gilbert L. Harrick and Donald Mitchell for Plaintiff and Respondent.

TRAYNOR, C. J.

Defendant appeals from a judgment for plaintiff in an action for damages for injury to property under an indemnity clause of a contract. [36]

In 1960 defendant entered into a contract with plaintiff to furnish the labor and equipment necessary to remove and replace the upper metal cover of plaintiff's steam turbine. Defendant agreed to perform the work "at [its] own risk and expense" and to "indemnify" plaintiff "against all loss, damage, expense and liability resulting from ... injury to property, arising out of or in any way connected with the performance of this contract." Defendant also agreed to procure not less than $50,000 insurance to cover liability for injury to property.plaintiff was to be an additional named insured, but the policy was to contain a cross-liability clause extending the coverage to plaintiff's property.

During the work the cover fell and injured the exposed rotor of the turbine.plaintiff brought this action to recover $25,144.51, the amount it subsequently spent on repairs. During the trial it dismissed a count based on negligence and thereafter secured judgment on the theory that the indemnity provision covered injury to all property regardless of ownership.

Defendant offered to prove by admissions of plaintiff's agents, by defendant's conduct under similar contracts entered into with plaintiff, and by other proof that in the indemnity clause the parties meant to cover injury to property of third parties only and not to plaintiff's property. ^[402] Although the trial court observed that the language used was "the classic language for a third party indemnity provision" and that "one could very easily conclude that ... its whole intendment is to indemnify third parties," it nevertheless held that the "plain language" of the agreement also required defendant to indemnify plaintiff for injuries to plaintiff's property. Having determined that the contract had a plain meaning, the court refused to admit any extrinsic evidence that would contradict its interpretation.

When the court interprets a contract on this basis, it determines [37] the meaning of the instrument in accordance with the "... extrinsic evidence of the judge's own linguistic education and experience." (3 Corbin on Contracts (1960 ed.) [1964 Supp. 579, p. 225, fn. 56].) The exclusion of testimony that might contradict the linguistic background of the judge reflects a judicial belief in the possibility of perfect verbal expression. (9 Wigmore on Evidence (3d ed. 1940) 2461, p. 187.) This belief is a remnant of a primitive faith in the inherent potency ^[403] and inherent meaning of words. ^[404]

[1] The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 520-521 [67 Cal.Rptr. 761, 439 P.2d 889]; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865 [44 Cal.Rptr. 767, 402 P.2d 839]; Hulse v. Juillard Fancy Foods Co. (1964) 61 Cal.2d 571, 573 [39 Cal.Rptr. 529, 394 P.2d 65]; Nofziger v. Holman (1964) 61 Cal.2d 526, 528 [39 Cal.Rptr. 384, 393 P.2d 696]; Coast Bank v. Minderhout (1964) 61 Cal.2d 311, 315 [38 Cal.Rptr. 505, 392 P.2d 265]; Imbach v. Schultz (1962) 58 Cal.2d 858, 860 [27 Cal.Rptr. 160, 377 P.2d 272]; Reid v. Overland Machined Products (1961) 55 Cal.2d 203, 210 [10 Cal.Rptr. 819, 359 P.2d 251].)

A rule that would limit the determination of the meaning of a written instrument to its four-corners merely because it seems to the court to be clear and unambiguous, would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained. [38]

Some courts have expressed the opinion that contractual obligations are created by the mere use of certain words, whether or not there was any intention to incur such obligations. ^[405] Under this view, contractual obligations flow, not from the intention of the parties but from the fact that they used certain magic words. Evidence of the parties' intention therefore becomes irrelevant.

[2] In this state, however, the intention of the parties as expressed in the contract is the source of contractual rights and duties. ^[406] A court must ascertain and give effect to this intention by determining what the parties meant by the words they used. Accordingly, the exclusion of relevant, extrinsic, evidence to explain the meaning of a written instrument could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone.

If words had absolute and constant referents, it might be possible to discover contractual intention in the words themselves and in the manner in which they were arranged. Words, however, do not have absolute and constant referents. [3] "A word is a symbol of thought but has no arbitrary and fixed meaning like a symbol of algebra or chemistry, ..." (Pearson v. State Social Welfare Board (1960) 54 Cal.2d 184, 195 [5 Cal.Rptr. 553, 353 P.2d 33].) The meaning of particular words or groups of words varies with the "... verbal context and surrounding circumstances and purposes in view of the linguistic education and experience of their users and their hearers or readers (not excluding judges). ... A word has no meaning apart from these factors; much less does it have an objective meaning, one true meaning." (Corbin, The Interpretation of Words and the Parol Evidence Rule (1965) 50 Cornell L.Q. 161, 187.) [4] Accordingly, the meaning of a writing "... can only be found by interpretation [39] in the light of all the circumstances that reveal the sense in which the writer used the words. The exclusion of parol evidence regarding such circumstances merely because the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended. [Citations omitted.]" (Universal Sales Corp. v. California Press Mfg. Co., supra, 20 Cal.2d 751, 776 (concurring opinion); see also, e.g., Garden State Plaza Corp. v. S. S. Kresge Co. (1963) 78 N.J. Super. 485 [189 A.2d 448, 454]; Hurst v. W. J. Lake & Co. (1932) 141 Ore. 306, 310 [16 P.2d 627, 629, 89 A.L.R. 1222]; 3 Corbin on Contracts (1960 ed.) 579, pp. 412-431; Ogden and Richards, The Meaning of Meaning, op.cit supra 15; Ullmann, The Principles of Semantics, supra, 61; McBaine, The Rule Against Disturbing Plain Meaning of Writings (1943) 31 Cal.L.Rev. 145.)

[5] Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage, ^[407] but exists whenever the parties' understanding of the words used may have differed from the judge's understanding.

Accordingly, rational interpretation requires at least a preliminary consideration of all credible evidence offered to [40] prove the intention of the parties. ^[408] (Civ. Code, 1647; Code Civ. Proc., 1860; see also 9 Wigmore on Evidence, op. cit. supra, 2470, fn. 11, p. 227.) Such evidence includes testimony as to the "circumstances surrounding the making of the agreement ... including the object, nature and subject matter of the writing ..." so that the court can "place itself in the same situation in which the parties found themselves at the time of contracting." (Universal Sales Corp. v. California Press Mfg. Co., supra, 20 Cal.2d 751, 761; Lemm v. Stillwater Land & Cattle Co., supra, 217 Cal. 474, 480-481.) [6] If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, "is fairly susceptible of either one of the two interpretations contended for ..." (Balfour v. Fresno C. & I. Co. (1895) 109 Cal. 221, 225 [41 P. 876]; see also, Hulse v. Juillard Fancy Foods Co., supra, 61 Cal.2d 571, 573; Nofziger v. Holman, supra, 61 Cal.2d 526, 528; Reid v. Overland Machined Products, supra, 55 Cal.2d 203, 210; Barham v. Barham (1949) 33 Cal.2d 416, 422-423 [202 P.2d 289]; Kenney v. Los Feliz Investment Co. (1932) 121 Cal.App. 378, 386-387 [9 P.2d 225]), extrinsic evidence relevant to prove either of such meanings is admissible. ^[409]

[7] In the present case the court erroneously refused to consider extrinsic evidence offered to show that the indemnity clause in the contract was not intended to cover injuries to plaintiff's property. Although that evidence was not necessary to show that the indemnity clause was reasonably susceptible of the meaning contended for by defendant, it was nevertheless relevant and admissible on that issue. Moreover, since that clause was reasonably susceptible of that meaning, [41] the offered evidence was also admissible to prove that the clause had that meaning and did not cover injuries to plaintiff's property. ^[410] Accordingly, the judgment must be reversed.

[8] Two questions remain that may arise on retrial. On the theory that the indemnity clause covered plaintiff's property, the trial court instructed the jury that plaintiff was entitled to recover unless all of "... the following conditions [were found] to exist:"

"1. That Pacific Gas and Electric Company continued to [42] maintain independent operation on the premises whereon the installation of the cover was in progress;"

"2. That the damage to the turbine was unrelated to the Defendant G. W. Thomas Drayage & Rigging Company, Inc.'s performance;"

"3. That the plaintiff was guilty of active, affirmative negligence; and"

"4. That such active negligence related to a matter over which the plaintiff exercised exclusive control."

The instruction was based on certain guidelines discussed in Goldman v. Ecco-Phoenix Elec. Corp. (1964) 62 Cal.2d 40, 45-46 [41 Cal.Rptr. 73, 396 P.2d 377]; Harvey Machine Co. v. Hatzel & Buehler, Inc. (1960) 54 Cal.2d 445, 448 [6 Cal.Rptr. 284, 353 P.2d 924]; and Safeway Stores, Inc. v. Massachusetts Bonding & Ins. Co. (1962) 202 Cal.App.2d 99, 112-113 [20 Cal.Rptr. 820]. Those cases do not hold, however, that all four conditions specified in the instruction must exist for the indemnitor to be relieved of liability. It is sufficient if the indemnitee's own active negligence is a cause of the harm. As stated in Markley v. Beagle (1967) 66 Cal.2d 951, 952 [59 Cal.Rptr. 809, 429 P.2d 129], "An indemnity clause phrased in general terms will not be interpreted ... to provide indemnity for consequences resulting from the indemnitee's own actively negligent acts."

To prove the amount of damages sustained, plaintiff presented invoices received from Ingersoll-Rand, the manufacturer and repairer of the turbine, the drafts by which plaintiff had remitted payment, and testimony that payment had been made. Defendant objected to the introduction of the invoices on the ground that they were hearsay. Subsequently, plaintiff called a mechanical engineer who qualified as an expert witness on the repair of turbines. On the basis of photographs of the damage after the accident, he testified that to repair the turbine it was reasonable and necessary to dismantle it completely, magnaflux all parts, replace all blades in wheels that had been damaged, reassemble the rotor, balance it, "indicate" it and centrifugate it. Similar repairs were listed in the invoices, and over objection the witness was allowed to testify that the amounts charged therefor were reasonable.

[9] Since invoices, bills, and receipts for repairs are hearsay, they are inadmissible independently to prove that liability for the repairs was incurred, that payment was made, or [43] that the charges were reasonable. (Plonley v. Reser (1960) 178 Cal.App.2d Supp. 935, 937-939 [3 Cal.Rptr. 551, 80 A.L.R.2d 911]; Menefee v. Raisch Improvement Co. (1926) 78 Cal.App. 785, 789 [248 P. 1031].) If, however, a party testifies that he incurred or discharged a liability for repairs, any of these documents may be admitted for the limited purpose of corroborating his testimony (Bushnell v. Bushnell (1925) 103 Conn. 583 [131 A. 432, 436, 44 A.L.R. 788]; Cain v. Mead (1896) 66 Minn. 195 [68 N.W. 840, 841]), and if the charges were paid, the testimony and documents are evidence that the charges were reasonable. (Dewhirst v. Leopold (1924) 194 Cal. 424, 433 [229 P. 30]; Smith v. Hill (1965) 237 Cal.App.2d 374, 388 [47 Cal.Rptr. 49]; Meier v. Paul X. Smith Corp. (1962) 205 Cal.App.2d 207, 222 [22 Cal.Rptr. 758]; Malinson v. Black (1948) 83 Cal.App.2d 375, 379 [188 P.2d 788]; Laubscher v. Blake (1935) 7 Cal.App.2d 376, 383 [46 P.2d 836]. See also Gimbel v. Laramie (1960) 181 Cal.App.2d 77, 81 [5 Cal.Rptr. 88].) Since there was testimony in the present case that the invoices had been paid, the trial court did not err in admitting them.

[10] The individual items on the invoices, however, were read, not to corroborate payment or the reasonableness of the charges, but to prove that these specific repairs had actually been made. No qualified witness was called to testify that the invoices accurately recorded the work done by Ingersoll-Rand, and there was no other evidence as to what repairs were made. This use of the invoices was error. (California Steel Buildings, Inc. v. Transport Indemnity Co. (1966) 242 Cal.App.2d 749, 759 [51 Cal.Rptr. 797]. Accord, Bushnell v. Bushnell, supra, 103 Conn. 583 [131 A. 432, 436]; Ferraro v. Public Service Ry. Co. (1928) 6 N.J. Misc. 463 [141 A. 590]; Nock v. Lloyd (1911) 32 R.I. 313 [79 A. 832, 833].) An invoice submitted by a third party is not admissible evidence on this issue unless it can be admitted under some recognized exception to the hearsay rule. ^[411]

[11] Since plaintiff's expert's testimony as to the reasonableness of the charges was based on hearsay evidence inadmissible to prove that the repairs had been made, defendant's [44] objections to it should have been sustained. "[A]n expert must base his opinion either on facts personally observed or on hypotheses that find support in the evidence." (George v. Bekins Van & Storage Co. (1949) 33 Cal.2d 834, 844 [205 P.2d 1037]. See also Kastner v. Los Angeles Metropolitan Transit Authority (1965) 63 Cal.2d 52, 58 [45 Cal.Rptr. 129, 403 P.2d 385]; Commercial Union Assur. Co. v. Pacific Gas & Electric Co. (1934) 220 Cal. 515, 524 [31 P.2d 793]; Behr v. County of Santa Cruz (1959) 172 Cal.App.2d 697, 709 [342 P.2d 987]; 2 Jones on Evidence (5th ed. 1958) 416, pp. 782-783.)

The judgment is reversed.

Peters, J., Mosk, J., Burke, J., Sullivan, J., and Peek, J., ^[412] concurred.

McComb, J., dissented.

Plaintiff's assertion that the use of the word "all" to modify "loss, damage, expense and liability" dictates an all inclusive interpretation is not persuasive. If the word "indemnify" encompasses only third-party claims, the word "all" simply refers to all such claims. The use of the words "loss," "damage," and "expense" in addition to the word "liability" is likewise inconclusive. These words do not imply an agreement to reimburse for injury to an indemnitee's property since they are commonly inserted in third-party indemnity clauses, to enable an indemnitee who settles a claim to recover from his indemnitor without proving his liability. (Carpenter Paper Co. v. Kellogg (1952) 114 Cal.App.2d 640, 651 [251 P.2d 40]. Civ. Code, 2778, provides: "1. Upon an indemnity against liability ... the person indemnified is entitled to recover upon becoming liable; 2. Upon an indemnity against claims, or demands, or damages, or costs ... the person indemnified is not entitled to recover without payment thereof; ...")

The provision that defendant perform the work "at his own risk and expense" and the provisions relating to insurance are equally inconclusive. By agreeing to work at its own risk defendant may have released plaintiff from liability for any injuries to defendant's property arising out of the contract's performance, but this provision did not necessarily make defendant an insurer against injuries to plaintiff's property. Defendant's agreement to procure liability insurance to cover damages to plaintiff's property does not indicate whether the insurance was to cover all injuries or only injuries caused by defendant's negligence.

[402] 1. Although this offer of proof might ordinarily be regarded as too general to provide a ground for appeal (Evid. Code, 354, subd. (a); Beneficial etc. Ins. Co. v. Kurt Hitke & Co. (1956) 46 Cal.2d 517, 522 [297 P.2d 428]; Stickel v. San Diego Elec. Ry. Co. (1948) 32 Cal.2d 157, 162-164 [195 P.2d 416]; Douillard v. Woodd (1942) 20 Cal.2d 665, 670 [128 P.2d 6]), since the court repeatedly ruled that it would not admit extrinsic evidence to interpret the contract and sustained objections to all questions seeking to elicit such evidence, no formal offer of proof was required. (Evid. Code, 354, subd. (b); Beneficial etc. Ins. Co. v. Kurt Hitke & Co., supra, 46 Cal.2d 517, 522; Estate of Kearns (1950) 36 Cal.2d 531, 537 [225 P.2d 218].)

[403] 2. E.g., "The elaborate system of taboo and verbal prohibitions in primitive groups; the ancient Egyptian myth of Khern, the apotheosis of the words, and of Thoth, the Scribe of Truth, the Giver of Words and Script, the Master of Incantations; the avoidance of the name of God in Brahmanism, Judaism and Islam; totemistic and protective names in mediaeval Turkish and Finno-Ugrian languages; the misplaced verbal scruples of the 'Precieuses'; the Swedish peasant custom of curing sick cattle smitten by witchcraft, by making them swallow a page torn out of the psalter and put in dough. ...' from Ullman, The Principles of Semantics (1963 ed.) 43. (See also Ogden and Richards, The Meaning of Meaning (rev. ed. 1956) pp. 24- 47.)

[404] 3. " 'Rerum enim vocabula immutabilia sunt, homines mutabilia,' " (Words are unchangeable, men changeable) from Dig. XXXIII, 10, 7, 2, de sup. leg. as quoted in 9 Wigmore on Evidence, op. cit. supra, 2461, p. 187.

[405] 4. "A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent." (Hotchkiss v. National City Bank of New York (S.D.N.Y. 1911) 200 F. 287, 293. See also C. H. Pope & Co. v. Bibb Mfg. Co. (2d Cir. 1923) 290 F. 586, 587; see 4 Williston on Contracts (3d ed. 1961) 612, pp. 577-578, 613, p. 583.)

[406] 5. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, 1636; see also Code Civ. Proc., 1859; Universal Sales Corp. v. California Press Mfg. Co. (1942) 20 Cal.2d 751, 760 [128 P.2d 665]; Lemm v. Stillwater Land & Cattle Co. (1933) 217 Cal. 474, 480 [19 P.2d 785].)

[407] 6. Extrinsic evidence of trade usage or custom has been admitted to show that the term "United Kingdom" in a motion picture distribution contract included Ireland (Ermolieff v. R.K.O. Radio Pictures, Inc. (1942) 19 Cal.2d 543, 549-552 [122 P.2d 3]); that the word "ton" in a lease meant a long ton or 2,240 pounds and not the statutory ton of 2,000 pounds (Higgins v. California Petroleum etc. Co. (1898) 120 Cal. 629, 630-632 [52 P. 1080]); that the word "stubble" in a lease included not only stumps left in the ground but everything "left on the ground after the harvest time" (Callahan v. Stanley (1881) 57 Cal. 476, 477-479); that the term "north" in a contract dividing mining claims indicated a boundary line running along the "magnetic and not the true meridian" (Jenny Lind Co. v. Bower (1858) 11 Cal. 194, 197-199) and that a form contract for purchase and sale was actually an agency contract. (Body-Steffner Co. v. Flotill Products (1944) 63 Cal.App.2d 555, 558-562 [147 P.2d 84]). See also Code Civ. Proc., 1861; Annot., 89 A.L.R. 1228; Note (1942) 30 Cal.L.Rev. 679.)

[408] 7. When objection is made to any particular item of evidence offered to prove the intention of the parties, the trial court may not yet be in a position to determine whether in the light of all of the offered evidence, the item objected to will turn out to be admissible as tending to prove a meaning of which the language of the instrument is reasonably susceptible or inadmissible as tending to prove a meaning of which the language is not reasonably susceptible. In such case the court may admit the evidence conditionally by either reserving its ruling on the objection or by admitting the evidence subject to a motion to strike. (See Evid. Code, 403.)

[409] 8. Extrinsic evidence has often been admitted in such cases on the stated ground that the contract was ambiguous (e.g., Universal Sales Corp. v. California Press Mfg. Co., supra, 20 Cal.2d 751, 761). This statement of the rule is harmless if it is kept in mind that the ambiguity may be exposed by extrinsic evidence that reveals more than one possible meaning.

[410] 9. The court's exclusion of extrinsic evidence in this case would be error even under a rule that excluded such evidence when the instrument appeared to the court to be clear and unambiguous on its face. The controversy centers on the meaning of the word "indemnify" and the phrase "all loss, damage, expense and liability." The trial court's recognition of the language as typical of a third party indemnity clause and the double sense in which the word "indemnify" is used in statutes and defined in dictionaries demonstrate the existence of an ambiguity. (Compare Civ. Code, 2772, "Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person," with Civ. Code, 2527, "Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability, arising from an unknown or contingent event." Black's Law Dictionary (4th ed. 1951) defines "indemnity" as "A collateral contract or assurance, by which one person engages to secure another against an anticipated loss or to prevent him from being damnified by the legal consequences of an act or forbearance on the part of one of the parties or of some third person." Stroud's Judicial Dictionary (2d ed. 1903) defines it as a "Contract ... to indemnify against a liability. ..." One of the definitions given to "indemnify" by Webster's Third New International Dict. (1961 ed.) is "to exempt from incurred liabilities.")

[411] 10. It might come in under the business records exception (Evid. Code, 1271) if "... supported by the testimony of a witness qualified to testify as to its identity and the mode of its preparation." (California Steel Buildings, Inc. v. Transport Indemnity Co., supra, 242 Cal.App.2d 749, 759.)

[412] *. Retired Associate Justice of the Supreme Court sitting under assignment by the Chairman of the Judicial Council.

Riggs, Ferris & Geer, New York City (John P. Hale, New York City, of counsel), for plaintiff.

Sereni, Herzfeld & Rubin, New York City (Herbert Rubin, Walter Herzfeld, New York City, of counsel), for defendant.

FRIENDLY, Circuit Judge.

The issue is, what is chicken? Plaintiff says "chicken" means a young chicken, suitable for broiling and frying. Defendant says "chicken" means any bird of that genus that meets contract specifications on weight and quality, including what it calls "stewing chicken" and plaintiff pejoratively terms "fowl". Dictionaries give both meanings, as well as some others not relevant here. To support its, plaintiff sends a number of volleys over the net; defendant essays to return them and adds a few serves of its own. Assuming that both parties were acting in good faith, the case nicely illustrates Holmes' remark "that the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs—not on the parties' having meant the same thing but on their having said the same thing." The Path of the Law, in Collected Legal Papers, p. 178. I have concluded that plaintiff has not sustained its burden of persuasion that the contract used "chicken" in the narrower sense.

The action is for breach of the warranty that goods sold shall correspond to the description, New York Personal Property Law, McKinney's Consol. Laws, c. 41, § 95. Two contracts are in suit. In the first, dated May 2, 1957, defendant, a New York sales corporation, confirmed the sale to plaintiff, a Swiss corporation, of

"US Fresh Frozen Chicken, Grade A, Government Inspected, Eviscerated

2½-3 lbs. and 1½-2 lbs. each

all chicken individually wrapped in cryovac, packed in secured fiber cartons or wooden boxes, suitable for export

75,000 lbs. 2½-3 lbs........@$33.0025,000 lbs. 1½-2 lbs........@$36.50per 100 lbs. FAS New York

scheduled May 10, 1957 pursuant to instructions from Penson & Co., New York."^[1]

The second contract, also dated May 2, 1957, was identical save that only 50,000 lbs. of the heavier "chicken" were called for, the price of the smaller birds was $37 per 100 lbs., and shipment was scheduled for May 30. The initial shipment under the first contract was short but the balance was shipped on May 17. When the initial shipment arrived in Switzerland, plaintiff found, on May 28, that the 2½-3 lbs. birds were not young chicken suitable for broiling and frying but stewing chicken or "fowl"; indeed, many of the cartons and bags plainly so indicated. Protests ensued. Nevertheless, shipment under the second contract was made on May 29, the 2½-3 lbs. birds again being stewing chicken. Defendant stopped the transportation of these at Rotterdam.

This action followed. Plaintiff says that, notwithstanding that its acceptance was in Switzerland, New York law controls under the principle of Rubin v. Irving Trust Co., 1953, 305 N.Y. 288, 305, 113 N.E.2d 424, 431; defendant does not dispute this, and relies on New York decisions. I shall follow the apparent agreement of the parties as to the applicable law.

Since the word "chicken" standing alone is ambiguous, I turn first to see whether the contract itself offers any aid to its interpretation. Plaintiff says the 1½-2 lbs. birds necessarily had to be young chicken since the older birds do not come in that size, hence the 2½-3 lbs. birds must likewise be young. This is unpersuasive—a contract for "apples" of two different sizes could be filled with different kinds of apples even though only one species came in both sizes. Defendant notes that the contract called not simply for chicken but for "US Fresh Frozen Chicken, Grade A, Government Inspected." It says the contract thereby incorporated by reference the Department of Agriculture's regulations, which favor its interpretation; I shall return to this after reviewing plaintiff's other contentions.

The first hinges on an exchange of cablegrams which preceded execution of the formal contracts. The negotiations leading up to the contracts were conducted in New York between defendant's secretary, Ernest R. Bauer, and a Mr. Stovicek, who was in New York for the Czechoslovak government at the World Trade Fair. A few days after meeting Bauer at the fair, Stovicek telephoned and inquired whether defendant would be interested in exporting poultry to Switzerland. Bauer then met with Stovicek, who showed him a cable from plaintiff dated April 26, 1957, announcing that they "are buyer" of 25,000 lbs. of chicken 2½-3 lbs. weight, Cryovac packed, grade A Government inspected, at a price up to 33¢ per pound, for shipment on May 10, to be confirmed by the following morning, and were interested in further offerings. After testing the market for price, Bauer accepted, and Stovicek sent a confirmation that evening. Plaintiff stresses that, although these and subsequent cables between plaintiff and defendant, which laid the basis for the additional quantities under the first and for all of the second contract, were predominantly in German, they used the English word "chicken"; it claims this was done because it understood "chicken" meant young chicken whereas the German word, "Huhn," included both "Brathuhn" (broilers) and "Suppenhuhn" (stewing chicken), and that defendant, whose officers were thoroughly conversant with German, should have realized this. Whatever force this argument might otherwise have is largely drained away by Bauer's testimony that he asked Stovicek what kind of chickens were wanted, received the answer "any kind of chickens," and then, in German, asked whether the cable meant "Huhn" and received an affirmative response. Plaintiff attacks this as contrary to what Bauer testified on his deposition in March, 1959, and also on the ground that Stovicek had no authority to interpret the meaning of the cable. The first contention would be persuasive if sustained by the record, since Bauer was free at the trial from the threat of contradiction by Stovicek as he was not at the time of the deposition; however, review of the deposition does not convince me of the claimed inconsistency. As to the second contention, it may well be that Stovicek lacked authority to commit plaintiff for prices or delivery dates other than those specified in the cable; but plaintiff cannot at the same time rely on its cable to Stovicek as its dictionary to the meaning of the contract and repudiate the interpretation given the dictionary by the man in whose hands it was put. See Restatement of the Law of Agency, 2d, § 145; 2 Mecham, Agency § 1781 (2d ed. 1914); Park v. Moorman Mfg. Co., 1952, 121 Utah 339, 241 P.2d 914, 919, 40 A.L.R.2d 273; Henderson v. Jimmerson, Tex.Civ.App.1950, 234 S.W. 2d 710, 717-718. Plaintiff's reliance on the fact that the contract forms contain the words "through the intermediary of: ", with the blank not filled, as negating agency, is wholly unpersuasive; the purpose of this clause was to permit filling in the name of an intermediary to whom a commission would be payable, not to blot out what had been the fact.

Plaintiff's next contention is that there was a definite trade usage that "chicken" meant "young chicken." Defendant showed that it was only beginning in the poultry trade in 1957, thereby bringing itself within the principle that "when one of the parties is not a member of the trade or other circle, his acceptance of the standard must be made to appear" by proving either that he had actual knowledge of the usage or that the usage is "so generally known in the community that his actual individual knowledge of it may be inferred." 9 Wigmore, Evidence (3d ed. 1940) § 2464. Here there was no proof of actual knowledge of the alleged usage; indeed, it is quite plain that defendant's belief was to the contrary. In order to meet the alternative requirement, the law of New York demands a showing that "the usage is of so long continuance, so well established, so notorious, so universal and so reasonable in itself, as that the presumption is violent that the parties contracted with reference to it, and made it a part of their agreement." Walls v. Bailey, 1872, 49 N.Y. 464, 472-473.

Plaintiff endeavored to establish such a usage by the testimony of three witnesses and certain other evidence. Strasser, resident buyer in New York for a large chain of Swiss cooperatives, testified that "on chicken I would definitely understand a broiler." However, the force of this testimony was considerably weakened by the fact that in his own transactions the witness, a careful businessman, protected himself by using "broiler" when that was what he wanted and "fowl" when he wished older birds. Indeed, there are some indications, dating back to a remark of Lord Mansfield, Edie v. East India Co., 2 Burr. 1216, 1222 (1761), that no credit should be given "witnesses to usage, who could not adduce instances in verification." 7 Wigmore, Evidence (3d ed. 1940), § 1954; see McDonald v. Acker, Merrall & Condit Co., 2d Dept.1920, 192 App.Div. 123, 126, 182 N.Y.S. 607. While Wigmore thinks this goes too far, a witness' consistent failure to rely on the alleged usage deprives his opinion testimony of much of its effect. Niesielowski, an officer of one of the companies that had furnished the stewing chicken to defendant, testified that "chicken" meant "the male species of the poultry industry. That could be a broiler, a fryer or a roaster", but not a stewing chicken; however, he also testified that upon receiving defendant's inquiry for "chickens", he asked whether the desire was for "fowl or frying chickens" and, in fact, supplied fowl, although taking the precaution of asking defendant, a day or two after plaintiff's acceptance of the contracts in suit, to change its confirmation of its order from "chickens," as defendant had originally prepared it, to "stewing chickens." Dates, an employee of Urner-Barry Company, which publishes a daily market report on the poultry trade, gave it as his view that the trade meaning of "chicken" was "broilers and fryers." In addition to this opinion testimony, plaintiff relied on the fact that the Urner-Barry service, the Journal of Commerce, and Weinberg Bros. & Co. of Chicago, a large supplier of poultry, published quotations in a manner which, in one way or another, distinguish between "chicken," comprising broilers, fryers and certain other categories, and "fowl," which, Bauer acknowledged, included stewing chickens. This material would be impressive if there were nothing to the contrary. However, there was, as will now be seen.

Defendant's witness Weininger, who operates a chicken eviscerating plant in New Jersey, testified "Chicken is everything except a goose, a duck, and a turkey. Everything is a chicken, but then you have to say, you have to specify which category you want or that you are talking about." Its witness Fox said that in the trade "chicken" would encompass all the various classifications. Sadina, who conducts a food inspection service, testified that he would consider any bird coming within the classes of "chicken" in the Department of Agriculture's regulations to be a chicken. The specifications approved by the General Services Administration include fowl as well as broilers and fryers under the classification "chickens." Statistics of the Institute of American Poultry Industries use the phrases "Young chickens" and "Mature chickens," under the general heading "Total chickens." and the Department of Agriculture's daily and weekly price reports avoid use of the word "chicken" without specification.

Defendant advances several other points which it claims affirmatively support its construction. Primary among these is the regulation of the Department of Agriculture, 7 C.F.R. § 70.300-70.370, entitled, "Grading and Inspection of Poultry and Edible Products Thereof." and in particular § 70.301 which recited:

"Chickens. The following are the various classes of chickens:

(a) Broiler or fryer . . .

(b) Roaster . . .

(c) Capon . . .

(d) Stag . . .

(e) Hen or stewing chicken or fowl . . .

(f) Cock or old rooster . . .

Defendant argues, as previously noted, that the contract incorporated these regulations by reference. Plaintiff answers that the contract provision related simply to grade and Government inspection and did not incorporate the Government definition of "chicken," and also that the definition in the Regulations is ignored in the trade. However, the latter contention was contradicted by Weininger and Sadina; and there is force in defendant's argument that the contract made the regulations a dictionary, particularly since the reference to Government grading was already in plaintiff's initial cable to Stovicek.

Defendant makes a further argument based on the impossibility of its obtaining broilers and fryers at the 33¢ price offered by plaintiff for the 2½-3 lbs. birds. There is no substantial dispute that, in late April, 1957, the price for 2½-3 lbs. broilers was between 35 and 37¢ per pound, and that when defendant entered into the contracts, it was well aware of this and intended to fill them by supplying fowl in these weights. It claims that plaintiff must likewise have known the market since plaintiff had reserved shipping space on April 23, three days before plaintiff's cable to Stovicek, or, at least, that Stovicek was chargeable with such knowledge. It is scarcely an answer to say, as plaintiff does in its brief, that the 33¢ price offered by the 2½-3 lbs. "chickens" was closer to the prevailing 35¢ price for broilers than to the 30¢ at which defendant procured fowl. Plaintiff must have expected defendant to make some profit—certainly it could not have expected defendant deliberately to incur a loss.

Finally, defendant relies on conduct by the plaintiff after the first shipment had been received. On May 28 plaintiff sent two cables complaining that the larger birds in the first shipment constituted "fowl." Defendant answered with a cable refusing to recognize plaintiff's objection and announcing "We have today ready for shipment 50,000 lbs. chicken 2½-3 lbs. 25,000 lbs. broilers 1½-2 lbs.," these being the goods procured for shipment under the second contract, and asked immediate answer "whether we are to ship this merchandise to you and whether you will accept the merchandise." After several other cable exchanges, plaintiff replied on May 29 "Confirm again that merchandise is to be shipped since resold by us if not enough pursuant to contract chickens are shipped the missing quantity is to be shipped within ten days stop we resold to our customers pursuant to your contract chickens grade A you have to deliver us said merchandise we again state that we shall make you fully responsible for all resulting costs."^[2] Defendant argues that if plaintiff was sincere in thinking it was entitled to young chickens, plaintiff would not have allowed the shipment under the second contract to go forward, since the distinction between broilers and chickens drawn in defendant's cablegram must have made it clear that the larger birds would not be broilers. However, plaintiff answers that the cables show plaintiff was insisting on delivery of young chickens and that defendant shipped old ones at its peril. Defendant's point would be highly relevant on another disputed issue—whether if liability were established, the measure of damages should be the difference in market value of broilers and stewing chicken in New York or the larger difference in Europe, but I cannot give it weight on the issue of interpretation. Defendant points out also that plaintiff proceeded to deliver some of the larger birds in Europe, describing them as "poulets"; defendant argues that it was only when plaintiff's customers complained about this that plaintiff developed the idea that "chicken" meant "young chicken." There is little force in this in view of plaintiff's immediate and consistent protests.

When all the evidence is reviewed, it is clear that defendant believed it could comply with the contracts by delivering stewing chicken in the 2½-3 lbs. size. Defendant's subjective intent would not be significant if this did not coincide with an objective meaning of "chicken." Here it did coincide with one of the dictionary meanings, with the definition in the Department of Agriculture Regulations to which the contract made at least oblique reference, with at least some usage in the trade, with the realities of the market, and with what plaintiff's spokesman had said. Plaintiff asserts it to be equally plain that plaintiff's own subjective intent was to obtain broilers and fryers; the only evidence against this is the material as to market prices and this may not have been sufficiently brought home. In any event it is unnecessary to determine that issue. For plaintiff has the burden of showing that "chicken" was used in the narrower rather than in the broader sense, and this it has not sustained.

This opinion constitutes the Court's findings of fact and conclusions of law. Judgment shall be entered dismissing the complaint with costs.

[1] The Court notes the contract provision whereby any disputes are to be settled by arbitration by the New York Produce Exchange; it treats the parties' failure to avail themselves of this remedy as an agreement eliminating that clause of the contract.

[2] These cables were in German; "chicken", "broilers" and, on some occasions, "fowl," were in English.

[589] Michael B. Apfeld (argued), Jane C. Schlicht, William Duffin, Godfrey & Kahn, Milwaukee, Wis., for plaintiffs-appellants.

James W. Greer (argued), Diane S. Sykes, Bruce G. Arnold, Whyte & Hirschboeck, Milwaukee, Wis., for defendants-appellees.

Before CUMMINGS and POSNER, Circuit Judges, and NOLAND, Senior District Judge.^[1]

POSNER, Circuit Judge.

Market Street Associates Limited Partnership and its general partner appeal from a judgment for the defendants, General Electric Pension Trust and its trustees, entered upon cross-motions for summary judgment in a diversity suit that pivots on the doctrine of "good faith" performance of a contract. Cf. Robert Summers, "`Good Faith' in General Contract Law and the Sales Provisions of the Uniform Commercial Code," 54 Va.L.Rev. 195, 232-43 (1968). Wisconsin law applies — common law rather than Uniform Commercial Code, because the contract is for land rather than for goods, UCC § 2-102; Wis.Stat. § 402.102, and because it is a lease rather than a sale and Wisconsin has not adopted UCC art. 2A, which governs leases. But before we can get to the substance of the dispute we need to consider a jurisdictional and a procedural question.

The suit was filed in a Wisconsin state court and removed to federal district court. The defendants were required in the petition for removal to set forth the facts establishing federal jurisdiction. 28 U.S.C. § 1446(a). Mistakenly believing that the only citizenships that count in the case of a limited partnership are those of the partnership itself and of its general partners, the defendants contented themselves with alleging that the plaintiff is a Wisconsin limited partnership, that its sole general partner is a citizen of Wisconsin, and that none of the defendants is a citizen of that state. In fact, for purposes of deciding whether a suit by or against a limited partnership satisfies the requirement of complete diversity of citizenship — that no party on one side of the case may be a citizen of the same state as any party on the other side — the citizenship of all the limited partners, as well as of the general partner, counts. Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). Although Carden was decided after the present suit was removed to federal district court, the rule adopted in that case had been the law of this circuit since Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984). Later cases reiterating the rule include Northern Trust Co. v. Bunge Corp., 899 F.2d 591, 594 (7th Cir.1990); F. & H.R. Farman-Farmaian Consulting Engineers Firm v. Harza Engineering Co., 882 F.2d 281, 284 (7th Cir.1989), and Stockman v. LaCroix, 790 F.2d 584, 587 (7th Cir.1986). Even when the appeal was argued, more than a year after Carden came down, the parties' lawyers were unaware of the rule; indeed they seemed astonished at the suggestion that the citizenship [590] of the limited partners was relevant to jurisdiction.

After the oral argument, we directed the parties to submit affidavits concerning the citizenship of the limited partners and that of the individual defendants, the trustees, for it is their citizenship, not that of the trust, that counts for diversity purposes. Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980); Goldstick v. ICM Realty, 788 F.2d 456, 458 (7th Cir.1986). All that the record contained on that score was an allegation that none of the defendants is a citizen of Wisconsin, which would not be good enough should it turn out that some of the limited partners are nonresidents of Wisconsin as well.

We have now received the submissions and determined that there is complete diversity of citizenship; although not all of the limited partners are Wisconsinites, none of them is a citizen of the same state as any of the trustees. But by their insouciance concerning jurisdiction the litigants not only ran the risk of having to start the case over in state court but also made more work for us and delayed the decision of the appeal. We remind the bench and bar of this circuit that it is their nondelegable duty to police the limits of federal jurisdiction with meticulous care and to be particularly alert for jurisdictional problems in diversity cases in which one or more of the parties is neither an individual nor a corporation. For it is with respect to the other, the unconventional entities — two of which, a partnership and a trust, are involved in this case — that mistakes concerning the existence of diversity jurisdiction are most common. Among other unconventional entities that lawyers and judges in diversity suits should be wary of tripping over are joint ventures, joint stock companies, labor unions, religious and charitable organizations, municipal corporations and other public and quasi-public agencies, and the governing boards of unincorporated institutions. For a partial list, see 13B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3630, at pp. 682-89 (2d ed. 1984).

The procedural question is whether, as the pension trust argues, Market Street Associates waived its right to a trial by moving for summary judgment and arguing in support of the motion that there were no genuine issues of material fact. That motion was filed in response to the pension trust's own motion for summary judgment, which the judge granted. If the pension trust is right, all that Market Street Associates can argue on appeal is that it was entitled to judgment as a matter of law — not that it was entitled to a trial.

The pension trust is wrong. Moving for summary judgment is not a waiver of the right to a trial if the motion is denied. It is true that the moving party must claim that there are no genuine issues of material fact, for if there are, summary judgment is improper. But if the judge disagrees, it doesn't mean that the party loses the whole case on the spot; it just means that he cannot avoid a trial, as he had hoped to do by filing the motion.

The principle is the same if both parties move for summary judgment. Zook v. Brown, 748 F.2d 1161, 1166 (7th Cir.1984); Case & Co. v. Board of Trade, 523 F.2d 355, 360 (7th Cir.1975). Each party will be arguing that the facts are so one-sided in his favor that there is no need for a trial, but if the judge disagrees, neither party has waived the right to a trial. The filing of cross motions for summary judgment must be distinguished from the case in which the parties stipulate that the judge may enter final judgment on the record compiled in the summary judgment proceedings. May v. Evansville-Vanderburgh School Corp., 787 F.2d 1105, 1115-16 (7th Cir.1986); Lac Courte Oreilles Band v. Voigt, 700 F.2d 341, 349 (7th Cir.1983); Nielsen v. Western Electric Co., 603 F.2d 741, 743 (8th Cir.1979); Starsky v. Williams, 512 F.2d 109, 112-13 (9th Cir.1975). If they do that, they waive their right to a trial. There was no such stipulation here.

All this is settled law. The pension trust's counsel should no more have argued that Market Street Associates waived its right to a trial then he should have removed [591] the case to federal court without ascertaining that the court would have jurisdiction.

We come at last to the contract dispute out of which the case arises. In 1968, J.C. Penney Company, the retail chain, entered into a sale and leaseback arrangement with General Electric Pension Trust in order to finance Penney's growth. Under the arrangement Penney sold properties to the pension trust which the trust then leased back to Penney for a term of 25 years. Paragraph 34 of the lease entitles the lessee to "request Lessor [the pension trust] to finance the costs and expenses of construction of additional Improvements upon the Premises," provided the amount of the costs and expenses is at least $250,000. Upon receiving the request, the pension trust "agrees to give reasonable consideration to providing the financing of such additional Improvements and Lessor and Lessee shall negotiate in good faith concerning the construction of such Improvements and the financing by Lessor of such costs and expenses." Paragraph 34 goes on to provide that, should the negotiations fail, the lessee shall be entitled to repurchase the property at a price roughly equal to the price at which Penney sold it to the pension trust in the first place, plus 6 percent a year for each year since the original purchase. So if the average annual appreciation in the property exceeded 6 percent, a breakdown in negotiations over the financing of improvements would entitle Penney to buy back the property for less than its market value (assuming it had sold the property to the pension trust in the first place at its then market value).

One of these leases was for a shopping center in Milwaukee. In 1987 Penney assigned this lease to Market Street Associates, which the following year received an inquiry from a drugstore chain that wanted to open a store in the shopping center, provided (as is customary) that Market Street Associates built the store for it. Whether Market Street Associates was pessimistic about obtaining financing from the pension trust, still the lessor of the shopping center, or for other reasons, it initially sought financing for the project from other sources. But they were unwilling to lend the necessary funds without a mortgage on the shopping center, which Market Street Associates could not give because it was not the owner but only the lessee. It decided therefore to try to buy the property back from the pension trust. Market Street Associates' general partner, Orenstein, tried to call David Erb of the pension trust, who was responsible for the property in question. Erb did not return his calls, so Orenstein wrote him, expressing an interest in buying the property and asking him to "review your file on this matter and call me so that we can discuss it further." At first, Erb did not reply. Eventually Orenstein did reach Erb, who promised to review the file and get back to him. A few days later an associate of Erb called Orenstein and indicated an interest in selling the property for $3 million, which Orenstein considered much too high.

That was in June of 1988. On July 28, Market Street Associates wrote a letter to the pension trust formally requesting funding for $2 million in improvements to the shopping center. The letter made no reference to paragraph 34 of the lease; indeed, it did not mention the lease. The letter asked Erb to call Orenstein to discuss the matter. Erb, in what was becoming a habit of unresponsiveness, did not call. On August 16, Orenstein sent a second letter — certified mail, return receipt requested — again requesting financing and this time referring to the lease, though not expressly to paragraph 34. The heart of the letter is the following two sentences: "The purpose of this letter is to ask again that you advise us immediately if you are willing to provide the financing pursuant to the lease. If you are willing, we propose to enter into negotiation to amend the ground lease appropriately." The very next day, Market Street Associates received from Erb a letter, dated August 10, turning down the original request for financing on the ground that it did not "meet our current investment criteria": the pension trust was not interested in making loans for less than $7 million. On August 22, Orenstein replied to Erb by [592] letter, noting that his letter of August 10 and Erb's letter of August 16 had evidently crossed in the mails, expressing disappointment at the turn-down, and stating that Market Street Associates would seek financing elsewhere. That was the last contact between the parties until September 27, when Orenstein sent Erb a letter stating that Market Street Associates was exercising the option granted it by paragraph 34 to purchase the property upon the terms specified in that paragraph in the event that negotiations over financing broke down.

The pension trust refused to sell, and this suit to compel specific performance followed. Apparently the price computed by the formula in paragraph 34 is only $1 million. The market value must be higher, or Market Street Associates wouldn't be trying to coerce conveyance at the paragraph 34 price; whether it is as high as $3 million, however, the record does not reveal.

The district judge granted summary judgment for the pension trust on two grounds that he believed to be separate although closely related. The first was that, by failing in its correspondence with the pension trust to mention paragraph 34 of the lease, Market Street Associates had prevented the negotiations over financing that are a condition precedent to the lessee's exercise of the purchase option from taking place. Second, this same failure violated the duty of good faith, which the common law of Wisconsin, as of other states, reads into every contract. In re Estate of Chayka, 47 Wis.2d 102, 107, 176 N.W.2d 561, 564 (1970); Super Valu Stores, Inc. v. D-Mart Food Stores, Inc., 146 Wis.2d 568, 577, 431 N.W.2d 721, 726 (App.1988); Ford Motor Co. v. Lyons, 137 Wis.2d 397, 442, 405 N.W.2d 354, 372 (App.1987); Sunds Defibrator AB v. Beloit Corp., 930 F.2d 564, 566 (7th Cir.1991); Restatement (Second) of Contracts § 205 (1981); 2 E. Allan Farnsworth, Farnsworth on Contracts § 7.17a (1990). In support of both grounds the judge emphasized a statement by Orenstein in his deposition that it had occurred to him that Erb mightn't know about paragraph 34, though this was unlikely (Orenstein testified) because Erb or someone else at the pension trust would probably check the file and discover the paragraph and realize that if the trust refused to negotiate over the request for financing, Market Street Associates, as Penney's assignee, would be entitled to walk off with the property for (perhaps) a song. The judge inferred that Market Street Associates didn't want financing from the pension trust — that it just wanted an opportunity to buy the property at a bargain price and hoped that the pension trust wouldn't realize the implications of turning down the request for financing. Market Street Associates should, the judge opined, have advised the pension trust that it was requesting financing pursuant to paragraph 34, so that the trust would understand the penalty for refusing to negotiate.

We begin our analysis by setting to one side two extreme contentions by the parties. The pension trust argues that the option to purchase created by paragraph 34 cannot be exercised until negotiations over financing break down; there were no negotiations; therefore they did not break down; therefore Market Street Associates had no right to exercise the option. This argument misreads the contract. Although the option to purchase is indeed contingent, paragraph 34 requires the pension trust, upon demand by the lessee for the financing of improvements worth at least $250,000, "to give reasonable consideration to providing the financing." The lessor who fails to give reasonable consideration and thereby prevents the negotiations from taking place is breaking the contract; and a contracting party cannot be allowed to use his own breach to gain an advantage by impairing the rights that the contract confers on the other party. Variance, Inc. v. Losinske, 71 Wis.2d 31, 40, 237 N.W.2d 22, 26 (1976); Ethyl Corp. v. United Steelworkers of America, 768 F.2d 180, 185 (7th Cir.1985); Spanos v. Skouras Theatres Corp., 364 F.2d 161, 169 (2d Cir.1966) (en banc) (Friendly, J.); 3A Corbin on Contracts § 767, at p. 540 (1960). Often, it is true, if one party breaks the contract, the other can walk away from it [593] without liability, can in other words exercise self-help. First National Bank v. Continental Illinois National Bank, 933 F.2d 466, 469 (7th Cir.1991). But he is not required to follow that course. He can stand on his contract rights.

But what exactly are those rights in this case? The contract entitles the lessee to reasonable consideration of its request for financing, and only if negotiations over the request fail is the lessee entitled to purchase the property at the price computed in accordance with paragraph 34. It might seem therefore that the proper legal remedy for a lessor's breach that consists of failure to give the lessee's request for financing reasonable consideration would not be an order that the lessor sell the property to the lessee at the paragraph 34 price, but an order that the lessor bargain with the lessee in good faith. But we do not understand the pension trust to be arguing that Market Street Associates is seeking the wrong remedy. We understand it to be arguing that Market Street Associates has no possible remedy. That is an untenable position.

Market Street Associates argues, with equal unreason as it seems to us, that it could not have broken the contract because paragraph 34 contains no express requirement that in requesting financing the lessee mention the lease or paragraph 34 or otherwise alert the lessor to the consequences of his failing to give reasonable consideration to granting the request. There is indeed no such requirement (all that the contract requires is a demand). But no one says there is. The pension trust's argument, which the district judge bought, is that either as a matter of simple contract interpretation or under the compulsion of the doctrine of good faith, a provision requiring Market Street Associates to remind the pension trust of paragraph 34 should be read into the lease.

It seems to us that these are one ground rather than two. A court has to have a reason to interpolate a clause into a contract. The only reason that has been suggested here is that it is necessary to prevent Market Street Associates from reaping a reward for what the pension trust believes to have been Market Street's bad faith. So we must consider the meaning of the contract duty of "good faith." The Wisconsin cases are cryptic as to its meaning though emphatic about its existence, so we must cast our net wider. We do so mindful of Learned Hand's warning, that "such words as `fraud,' `good faith,' `whim,' `caprice,' `arbitrary action,' and `legal fraud' ... obscure the issue." Thompson-Starrett Co. v. La Belle Iron Works, 17 F.2d 536, 541 (2d Cir.1927). Indeed they do. Summers, supra, at 207-20; 2 Farnsworth on Contracts, supra, § 7.17a, at pp. 328-32. The particular confusion to which the vaguely moralistic overtones of "good faith" give rise is the belief that every contract establishes a fiduciary relationship. A fiduciary is required to treat his principal as if the principal were he, and therefore he may not take advantage of the principal's incapacity, ignorance, inexperience, or even naîveté. Olympia Hotels Corp. v. Johnson Wax Development Corp., 908 F.2d 1363, 1373-74 (7th Cir.1990); United States v. Dial, 757 F.2d 163, 168 (7th Cir.1985); Faultersack v. Clintonville Sales Corp., 253 Wis. 432, 435-37, 34 N.W.2d 682, 683-84 (1948); Schweiger v. Loewi & Co., 65 Wis.2d 56, 64-65, 221 N.W.2d 882, 888 (1974); Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546 (1928) (Cardozo, C.J.). If Market Street Associates were the fiduciary of General Electric Pension Trust, then (we may assume) it could not take advantage of Mr. Erb's apparent ignorance of paragraph 34, however exasperating Erb's failure to return Orenstein's phone calls was and however negligent Erb or his associates were in failing to read the lease before turning down Orenstein's request for financing.

But it is unlikely that Wisconsin wishes, in the name of good faith, to make every contract signatory his brother's keeper, especially when the brother is the immense and sophisticated General Electric Pension Trust, whose lofty indifference to small (= < $7 million) transactions is the signifier of its grandeur. In fact the law contemplates that people frequently will take advantage [594] of the ignorance of those with whom they contract, without thereby incurring liability. Restatement, supra, § 161, comment d. The duty of honesty, of good faith even expansively conceived, is not a duty of candor. You can make a binding contract to purchase something you know your seller undervalues. Laidlaw v. Organ, 15 U.S. (2 Wheat.) 178, 181 n. 2, 4 L.Ed. 214 (1817); Teamsters Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522, 528 (7th Cir.1985); United States v. Dial, supra, 757 F.2d at 168; 1 Farnsworth on Contracts, supra, § 4.11, at pp. 406-10; Anthony T. Kronman, "Mistake, Disclosure, Information, and the Law of Contracts," 7 J. Legal Stud. 1 (1978). That of course is a question about formation, not performance, and the particular duty of good faith under examination here relates to the latter rather than to the former. But even after you have signed a contract, you are not obliged to become an altruist toward the other party and relax the terms if he gets into trouble in performing his side of the bargain. Kham & Nate's Shoes No. 2, Inc. v. First Bank, 908 F.2d 1351, 1357 (7th Cir.1990). Otherwise mere difficulty of performance would excuse a contracting party — which it does not. Northern Indiana Public Service Co. v. Carbon County Coal Co., 799 F.2d 265, 276-78 (7th Cir.1986); Jennie-O Foods, Inc. v. United States, 217 Ct.Cl. 314, 580 F.2d 400, 409 (1978) (per curiam); 2 Farnsworth on Contracts, supra, § 7.17a, at p. 330.

But it is one thing to say that you can exploit your superior knowledge of the market — for if you cannot, you will not be able to recoup the investment you made in obtaining that knowledge — or that you are not required to spend money bailing out a contract partner who has gotten into trouble. It is another thing to say that you can take deliberate advantage of an oversight by your contract partner concerning his rights under the contract. Such taking advantage is not the exploitation of superior knowledge or the avoidance of unbargained-for expense; it is sharp dealing. Like theft, it has no social product, and also like theft it induces costly defensive expenditures, in the form of overelaborate disclaimers or investigations into the trustworthiness of a prospective contract partner, just as the prospect of theft induces expenditures on locks. See generally Steven J. Burton, "Breach of Contract and the Common Law Duty to Perform in Good Faith," 94 Harv.L.Rev. 369, 393 (1980).

The form of sharp dealing that we are discussing might or might not be actionable as fraud or deceit. That is a question of tort law and there the rule is that if the information is readily available to both parties the failure of one to disclose it to the other, even if done in the knowledge that the other party is acting on mistaken premises, is not actionable. Kamuchey v. Trzesniewski, 8 Wis.2d 94, 98 N.W.2d 403 (1959); Southard v. Occidental Life Ins. Co., 36 Wis.2d 708, 154 N.W.2d 326 (1967); Lenzi v. Morkin, 103 Ill.2d 290, 82 Ill.Dec. 644, 469 N.E.2d 178 (1984); Guyer v. Cities Service Oil Co., 440 F.Supp. 630 (E.D.Wis.1977); W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 106, at p. 737 (5th ed. 1984). All of these cases, however, with the debatable exception of Guyer, involve failure to disclose something in the negotiations leading up to the signing of the contract, rather than failure to disclose after the contract has been signed. (Guyer involved failure to disclose during the negotiations leading up to a renewal of the contract.) The distinction is important, as we explained in Maksym v. Loesch, 937 F.2d 1237, 1242 (7th Cir.1991). Before the contract is signed, the parties confront each other with a natural wariness. Neither expects the other to be particularly forthcoming, and therefore there is no deception when one is not. Afterwards the situation is different. The parties are now in a cooperative relationship the costs of which will be considerably reduced by a measure of trust. So each lowers his guard a bit, and now silence is more apt to be deceptive. Cf. AMPAT/Midwest, Inc. v. Illinois Tool Works Inc., 896 F.2d 1035, 1040-41 (7th Cir.1990).

Moreover, this is a contract case rather than a tort case, and conduct that might not rise to the level of fraud may nonetheless violate the duty of good faith in [595] dealing with one's contractual partners and thereby give rise to a remedy under contract law. Burton, supra, at 372 n. 17. This duty is, as it were, halfway between a fiduciary duty (the duty of utmost good faith) and the duty merely to refrain from active fraud. Despite its moralistic overtones it is no more the injection of moral principles into contract law than the fiduciary concept itself is. Tymshare, Inc. v. Covell, 727 F.2d 1145, 1152 (D.C.Cir.1984); Summers, supra, at 204-07, 265-66. It would be quixotic as well as presumptuous for judges to undertake through contract law to raise the ethical standards of the nation's business people. The concept of the duty of good faith like the concept of fiduciary duty is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute. The parties want to minimize the costs of performance. To the extent that a doctrine of good faith designed to do this by reducing defensive expenditures is a reasonable measure to this end, interpolating it into the contract advances the parties' joint goal.

It is true that an essential function of contracts is to allocate risk, and would be defeated if courts treated the materializing of a bargained-over, allocated risk as a misfortune the burden of which is required to be shared between the parties (as it might be within a family, for example) rather than borne entirely by the party to whom the risk had been allocated by mutual agreement. But contracts do not just allocate risk. They also (or some of them) set in motion a cooperative enterprise, which may to some extent place one party at the other's mercy. "The parties to a contract are embarked on a cooperative venture, and a minimum of cooperativeness in the event unforeseen problems arise at the performance stage is required even if not an explicit duty of the contract." AMPAT/Midwest, Inc. v. Illinois Tool Works, Inc., supra, 896 F.2d at 1041. The office of the doctrine of good faith is to forbid the kinds of opportunistic behavior that a mutually dependent, cooperative relationship might enable in the absence of rule. "`Good faith' is a compact reference to an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting, and which therefore was not resolved explicitly by the parties." Kham & Nate's Shoes No. 2, Inc. v. First Bank, supra, 908 F.2d at 1357. The contractual duty of good faith is thus not some newfangled bit of welfare-state paternalism or (pace Duncan Kennedy, "Form and Substance in Private Law Adjudication," 89 Harv.L.Rev. 1685, 1721 (1976)) the sediment of an altruistic strain in contract law, and we are therefore not surprised to find the essentials of the modern doctrine well established in nineteenth-century cases, a few examples being Bush v. Marshall, 47 U.S. (6 How.) 284, 291, 12 L.Ed. 440 (1848); Chicago, Rock Island & Pac. R.R. v. Howard, 74 U.S. (7 Wall.) 392, 413, 19 L.Ed. 117 (1868); Marsh v. Masterson, 101 N.Y. 401, 410-11, 5 N.E. 59, 63 (1886), and Uhrig v. Williamsburg City Fire Ins. Co., 101 N.Y. 362, 4 N.E. 745 (1886).

The emphasis we are placing on postcontractual versus precontractual conduct helps explain the pattern that is observed when the duty of contractual good faith is considered in all its variety, encompassing not only good faith in the performance of a contract but also good faith in its formation, Summers, supra, at 220-32, and in its enforcement. Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 363 (7th Cir.1990). The formation or negotiation stage is precontractual, and here the duty is minimized. It is greater not only at the performance but also at the enforcement stage, which is also postcontractual. "A party who hokes up a phony defense to the performance of his contractual duties and then when that defense fails (at some expense to the other party) tries on another defense for size can properly be said to be acting in bad faith." Id.; see also Larson v. Johnson, 1 Ill.App.2d 36, 46, 116 N.E.2d 187, 191-92 (1953). At the formation of the contract the parties are dealing in present realities; performance still lies in the future. As performance unfolds, circumstances change, often unforeseeably; the [596] explicit terms of the contract become progressively less apt to the governance of the parties' relationship; and the role of implied conditions — and with it the scope and bite of the good-faith doctrine — grows.

We could of course do without the term "good faith," and maybe even without the doctrine. We could, as just suggested, speak instead of implied conditions necessitated by the unpredictability of the future at the time the contract was made. Farnsworth, "Good Faith Performance and Commercial Reasonableness under the Uniform Commercial Code," 30 U.Chi.L.Rev. 666, 670 (1963). Suppose a party has promised work to the promisee's "satisfaction." As Learned Hand explained, "he may refuse to look at the work, or to exercise any real judgment on it, in which case he has prevented performance and excused the condition." Thompson-Starrett Co. v. La Belle Iron Works, supra, 17 F.2d at 541. See also Morin Building Products Co. v. Baystone Construction, Inc., 717 F.2d 413, 415 (7th Cir.1983). That is, it was an implicit condition that the promisee examine the work to the extent necessary to determine whether it was satisfactory; otherwise the performing party would have been placing himself at the complete mercy of the promisee. The parties didn't write this condition into the contract either because they thought such behavior unlikely or failed to foresee it altogether. In just the same way — to switch to another familiar example of the operation of the duty of good faith — parties to a requirements contract surely do not intend that if the price of the product covered by the contract rises, the buyer shall be free to increase his "requirements" so that he can take advantage of the rise in the market price over the contract price to resell the product on the open market at a guaranteed profit. Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 (7th Cir.1988). If they fail to insert an express condition to this effect, the court will read it in, confident that the parties would have inserted the condition if they had known what the future held. Of similar character is the implied condition that an exclusive dealer will use his best efforts to promote the supplier's goods, since otherwise the exclusive feature of the dealership contract would place the supplier at the dealer's mercy. Wood v. Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917) (Cardozo, J.).

But whether we say that a contract shall be deemed to contain such implied conditions as are necessary to make sense of the contract, or that a contract obligates the parties to cooperate in its performance in "good faith" to the extent necessary to carry out the purposes of the contract, comes to much the same thing. They are different ways of formulating the overriding purpose of contract law, which is to give the parties what they would have stipulated for expressly if at the time of making the contract they had had complete knowledge of the future and the costs of negotiating and adding provisions to the contract had been zero.

The two formulations would have different meanings only if "good faith" were thought limited to "honesty in fact," an interpretation perhaps permitted but certainly not compelled by the Uniform Commercial Code, see Summers, supra, at 207-20 — and anyway this is not a case governed by the UCC. We need not pursue this issue. The dispositive question in the present case is simply whether Market Street Associates tried to trick the pension trust and succeeded in doing so. If it did, this would be the type of opportunistic behavior in an ongoing contractual relationship that would violate the duty of good faith performance however the duty is formulated. There is much common sense in Judge Reynolds' conclusion that Market Street Associates did just that. The situation as he saw it was as follows. Market Street Associates didn't want financing from the pension trust (initially it had looked elsewhere, remember), and when it learned it couldn't get the financing without owning the property, it decided to try to buy the property. But the pension trust set a stiff price, so Orenstein decided to trick the pension trust into selling at the bargain price fixed in paragraph 34 by requesting financing and hoping that the pension trust would turn the request down [597] without noticing the paragraph. His preliminary dealings with the pension trust made this hope a realistic one by revealing a sluggish and hidebound bureaucracy unlikely to have retained in its brontosaurus's memory, or to be able at short notice to retrieve, the details of a small lease made twenty years earlier. So by requesting financing without mentioning the lease Market Street Associates might well precipitate a refusal before the pension trust woke up to paragraph 34. It is true that Orenstein's second letter requested financing "pursuant to the lease." But when the next day he received a reply to his first letter indicating that the pension trust was indeed oblivious to paragraph 34, his response was to send a lulling letter designed to convince the pension trust that the matter was closed and could be forgotten. The stage was set for his thunderbolt: the notification the next month that Market Street Associates was taking up the option in paragraph 34. Only then did the pension trust look up the lease and discover that it had been had.

The only problem with this recital is that it construes the facts as favorably to the pension trust as the record will permit, and that of course is not the right standard for summary judgment. The facts must be construed as favorably to the nonmoving party, to Market Street Associates, as the record permits (that Market Street Associates filed its own motion for summary judgment is irrelevant, as we have seen). When that is done, a different picture emerges. On Market Street Associates' construal of the record, $3 million was a grossly excessive price for the property, and while $1 million might be a bargain it would not confer so great a windfall as to warrant an inference that if the pension trust had known about paragraph 34 it never would have turned down Market Street Associates' request for financing cold. And in fact the pension trust may have known about paragraph 34, and either it didn't care or it believed that unless the request mentioned that paragraph the pension trust would incur no liability by turning it down. Market Street Associates may have assumed and have been entitled to assume that in reviewing a request for financing from one of its lessees the pension trust would take the time to read the lease to see whether it bore on the request. Market Street Associates did not desire financing from the pension trust initially — that is undeniable — yet when it discovered that it could not get financing elsewhere unless it had the title to the property it may have realized that it would have to negotiate with the pension trust over financing before it could hope to buy the property at the price specified in the lease.

On this interpretation of the facts there was no bad faith on the part of Market Street Associates. It acted honestly, reasonably, without ulterior motive, in the face of circumstances as they actually and reasonably appeared to it. The fault was the pension trust's incredible inattention, which misled Market Street Associates into believing that the pension trust had no interest in financing the improvements regardless of the purchase option. We do not usually excuse contracting parties from failing to read and understand the contents of their contract; and in the end what this case comes down to — or so at least it can be strongly argued — is that an immensely sophisticated enterprise simply failed to read the contract. On the other hand, such enterprises make mistakes just like the rest of us, and deliberately to take advantage of your contracting partner's mistake during the performance stage (for we are not talking about taking advantage of superior knowledge at the formation stage) is a breach of good faith. To be able to correct your contract partner's mistake at zero cost to yourself, and decide not to do so, is a species of opportunistic behavior that the parties would have expressly forbidden in the contract had they foreseen it. The immensely long term of the lease amplified the possibility of errors but did not license either party to take advantage of them.

The district judge jumped the gun in choosing between these alternative characterizations. The essential issue bearing on Market Street Associates' good faith was Orenstein's state of mind, a type of inquiry that ordinarily cannot be concluded on summary [598] judgment, and could not be here. If Orenstein believed that Erb knew or would surely find out about paragraph 34, it was not dishonest or opportunistic to fail to flag that paragraph, or even to fail to mention the lease, in his correspondence and (rare) conversations with Erb, especially given the uninterest in dealing with Market Street Associates that Erb fairly radiated. To decide what Orenstein believed, a trial is necessary. As for the pension trust's intimation that a bench trial (for remember that this is an equity case, since the only relief sought by the plaintiff is specific performance) will add no illumination beyond what the summary judgment proceeding has done, this overlooks the fact that at trial the judge will for the first time have a chance to see the witnesses whose depositions he has read, to hear their testimony elaborated, and to assess their believability.

The judgment is reversed and the case is remanded for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

[1] Hon. James E. Noland, of the Southern District of Indiana, sitting by designation.

Action by Jacob & Youngs, Incorporated, against George E. Kent. From an order of the Appellate Division (187 App. Div. 100,175 N. Y. Supp. 281), reversing judgment for defendant entered on verdict directed by the court and granting new trial, defendant appeals.

Order affirmed and judgment absolute directed in favor of plaintiff.

McLaughlin, Pound, and Andrews, JJ., dissenting. [890]
[230 N.Y. 239]Appeal from Supreme Court, Appellate Division, First department.
[230 N.Y. 240]Henry W. Hardon, of New York City, for appellant.

Frederick Hulse and Cornelius J. Sullivan, Jr., both of New York City, for respondent.

CARDOZO, J.

The plaintiff built a country residence for the defendant at a cost of upwards of $77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of construction ceased in June, 1914, and the defendant then began to occupy the dwelling. There was no complaint of defective performance until March, 1915. One of the specifications for the plumbing work provides that--

‘All wrought-iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.'

The defendant learned in March, 1915, that some of the pipe, instead of being made in Reading, was the product of other factories. The plaintiff was accordingly directed by the architect to do the work anew. The plumbing was then encased within the walls except in a few places where it had to be exposed. Obedience to the order meant more than the substitution of other pipe. It meant the demolition at great expense of substantial parts of [230 N.Y. 241]the completed structure. The plaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit.

The evidence sustains a finding that the omission of the prescribed brand of pipe was neither fraudulent nor willful. It was the result of the oversight and inattention of the plaintiff's subcontractor. Reading pipe is distinguished from Cohoes pipe and other brands only by the name of the manufacturer stamped upon it at intervals of between six and seven feet. Even the defendant's architect, though he inspected the pipe upon arrival, failed to notice the discrepancy. The plaintiff tried to show that the brands installed, though made by other manufacturers, were the same in quality, in appearance, in market value, and in cost as the brand stated in the contract-that they were, indeed, the same thing, though manufactured in another place. The evidence was excluded, and a verdict directed for the defendant. The Appellate Division reversed, and granted a new trial.

[1] We think the evidence, if admitted, would have supplied some basis for the inference that the defect was insignificant in its relation to the project. The courts never say that one who makes a contract fills the measure of his duty by less than full performance. They do say, however, that an omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture. Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238; Woodward v. Fuller, 80 N. Y. 312; Glacius v. Black, 67 N. Y. 563, 566;Bowen v. Kimbell, 203 Mass. 364, 370, 89 N. E. 542,133 Am. St. Rep. 302. The distinction is akin to that between dependent and independent promises, or between promises and conditions. Anson on Contracts (Corbin's Ed.) § 367; 2 Williston on Contracts, § 842. Some promises are so plainly independent that they can never [230 N.Y. 242]by fair construction be conditions of one another. Rosenthal Paper Co. v. Nat. Folding Box & Paper Co., 226 N. Y. 313, 123 N. E. 766;Bogardus v. N. Y. Life Ins. Co., 101 N. Y. 328, 4 N. E. 522. Others are so plainly dependent that they must always be conditions. Others, though dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant. 2 Williston on Contracts, §§ 841, 842; Eastern Forge Co. v. Corbin, 182 Mass. 590, 592, 66 N. E. 419; Robinson v. Mollett, L. R., 7 Eng. & Ir. App. 802, 814; Miller v. Benjamin, 142 N. Y. 613, 37 N. E. 631. Considerations partly of justice and partly of presumable intention are to tell us whether this or that promise shall be placed in one class or in another. The simple and the uniform will call for different remedies from the multifarious and the intricate. The margin of departure within the range of normal expectation upon a sale of common chattels will vary from the margin to be expected upon a contract for the construction of a mansion or a ‘skyscraper.’ There will be harshness sometimes and oppression in the implication of a condition when the thing upon which labor has been expended is incapable of surrender because united to the land, and equity and reason in the implication of a like condition when the subject-matter, if defective, is in shape to be returned. From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication. There will be no assumption of a purpose to visit venial faults with oppressive retribution.

Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification[230 N.Y. 243]where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this state commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it. Dakin & Co. v. Lee, 1916, 1 K. B. 566, 579. Where the line is to be drawn between the important and the trivial cannot be settled by a formula. ‘In the nature of the case precise boundaries are impossible.’ 2 Williston on Contracts, § 841. The same omission may take on one aspect or another according to its setting. Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other. Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract. Crouch v. Gutmann, 134 N. Y. 45, 51,31 N. E. 271,30 Am. St. Rep. 608. There is no general license to install whatever, in the builder's judgment, may be regarded as ‘just as good.’ Easthampton L. & C. Co., Ltd., v. Worthington, 186 N. Y. 407, 412,79 N. E. 323. The question is one of degree, to be answered, if there is doubt, by the triers of the facts (Crouch v. Gutmann; Woodward v. Fuller, supra), and, if the inferences are certain, by the judges of the law (Easthampton L. & C. Co., Ltd., v. Worthington, supra). We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be implied by law as a condition. This is not to say that the parties are not free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery. That question is not here. This is merely to say that the law will be slow to impute the purpose, in the silence of the parties, where the significance [230 N.Y. 244]of the default is grievously out of proportion to the oppression of the forfeiture. The willful transgressor must accept the penalty of his transgression. Schultze v. Goodstein, 180 N. Y. 248, 251,73 N. E. 21;Desmond-Dunne Co. v. Friedman-Doscher Co., 162 N. Y. 486, 490,56 N. E. 995. For him there is no occasion to mitigate the rigor of implied conditions. The transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong. Spence v. Ham, supra.

[2] In the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. Some of the exposed sections might perhaps have been replaced at moderate expense. The defendant did not limit his demand to them, but treated the plumbing as a unit to be corrected from cellar to roof. In point of fact, the plaintiff never reached the stage at which evidence of the extent of the allowance became necessary. The trial court had excluded evidence that the defect was unsubstantial, and in view of that ruling there was no occasion for the plaintiff to go farther with an offer of proof. We think, however, that the offer, if it had been made, would not of necessity have been defective because directed to difference in value. It is true that in most cases the cost of replacement is the measure. Spence v. Ham, supra. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value. Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction. ‘There may be [230 N.Y. 245]omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations, and at the same time the omission may not affect the value of the building for use or otherwise, except so slightly as to be hardly appreciable.’ Handy v. Bliss, 204 Mass. 513, 519, 90 N. E. 864,134 Am. St. Rep. 673. Cf. Foeller v. Heintz, 137 Wis. 169, 178, 118 N. W. 543,24 L. R. A. (N. S.) 321; [892] Oberlies v. Bullinger, 132 N. Y. 598, 601,30 N. E. 999; 2 Williston on Contracts, § 805, p. 1541. The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end.

The order should be affirmed, and judgment absolute directed in favor of the plaintiff upon the stipulation, with costs in all courts.

McLAUGHLIN, J.

I dissent. The plaintiff did not perform its contract. Its failure to do so was either intentional or due to gross neglect which, under the uncontradicted facts, amounted to the same thing, nor did it make any proof of the cost of compliance, where compliance was possible.

Under its contract it obligated itself to use in the plumbing only pipe (between 2,000 and 2,500 feet) made by the Reading Manufacturing Company. The first pipe delivered was about 1,000 feet and the plaintiff's superintendent then called the attention of the foreman of the subcontractor, who was doing the plumbing, to the fact that the specifications annexed to the contract required all pipe used in the plumbing to be of the Reading Manufacturing Company. They then examined it for the purpose of ascertaining whether this delivery was of that manufacture and found it was. Thereafter, as pipe was required in the progress of the work, the foreman of the subcontractor would leave word at its [230 N.Y. 246]shop that he wanted a specified number of feet of pipe, without in any way indicating of what manufacture. Pipe would thereafter be delivered and installed in the building, without any examination whatever. Indeed, no examination, so far as appears, was made by the plaintiff, the subcontractor, defendant's architect, or any one else, of any of the pipe except the first delivery, until after the building had been completed. Plaintiff's architect then refused to give the certificate of completion, upon which the final payment depended, because all of the pipe used in the plumbing was not of the kind called for by the contract. After such refusal, the subcontractor removed the covering or insulation from about 900 feet of pipe which was exposed in the basement, cellar, and attic, and all but 70 feet was found to have been manufactured, not by the Reading Company, but by other manufacturers, some by the Cohoes Rolling Mill Company, some by the National Steel Works, some by the South Chester Tubing Company, and some which bore no manufacturer's mark at all. The balance of the pipe had been so installed in the building that an inspection of it could not be had without demolishing, in part at least, the building itself.

I am of the opinion the trial court was right in directing a verdict for the defendant. The plaintiff agreed that all the pipe used should be of the Reading Manufacturing Company. Only about two-fifths of it, so far as appears, was of that kind. If more were used, then the burden of proving that fact was upon the plaintiff, which it could easily have done, since it knew where the pipe was obtained. The question of substantial performance of a contract of the character of the one under consideration depends in no small degree upon the good faith of the contractor. If the plaintiff had intended to, and had, complied with the terms of the contract except as to minor omissions, due to inadvertence, then he might be allowed to recover the contract price, less the amount [230 N.Y. 247]necessary to fully compensate the defendant for damages caused by such omissions. Woodward v. Fuller, 80 N. Y. 312; Nolan v. Whitney, 88 N. Y. 648. But that is not this case. It installed between 2,000 and 2,500 feet of pipe, of which only 1,000 feet at most complied with the contract. No explanation was given why pipe called for by the contract was not used, nor that any effort made to show what it would cost to remove the pipe of other manufacturers and install that of the Reading Manufacturing Company. The defendant had a right to contract for what he wanted. He had a right before making payment to get what the contract called for. It is no answer to this suggestion to say that the pipe put in was just as good as that made by the Reading Manufacturing Company, or that the difference in value between such pipe and the pipe made by the Reading Manufacturing Company would be either ‘nominal or nothing.’ Defendant contracted for pipe made by the Reading Manufacturing Company. What his reason was for requiring this kind of pipe is of no importance. He wanted that and was entitled to it. It may have been a mere whim on his part, but even so, he had a right to this kind of pipe, regardless of whether some other kind, according to the opinion of the contractor or experts, would have been ‘just as good, better, or done just as well.’ He agreed to pay only upon condition that the pipe installed were made by that company and he ought not to be compelled to pay unless that condition be performed. Schultze v. Goodstein, 180 N. Y. 248, 73 N. E. 21; Spence v. Ham, supra; Steel S. & E. C. Co. v. Stock, 225 N. Y. 173, 121 N. E. 786;Van Clief v. Van Vechten, 130 N. Y. 571, 29 N. E. 1017;Glacius v. Black, 50 N. Y. 145, 10 Am. Rep. 449;Smith v. Brady, 17 N. Y. 173, and authorities cited on [893] page 185, 72 Am. Dec. 442. The rule, therefore, of substantial performance, with damages for unsubstantial omissions, has no application. Crouch v. Gutmann, 134 N. Y. 45, 31 N. E. 271,30 Am. St. Rep. 608;Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238.

[230 N.Y. 248]What was said by this court in Smith v. Brady, supra, is quite applicable here:

‘I suppose it will be conceded that every one has a right to build his house, his cottage or his store after such a model and in such style as shall best accord with his notions of utility or be most agreeable to his fancy. The specifications of the contract become the law between the parties until voluntarily changed. If the owner prefers a plain and simple Doric column, and has so provided in the agreement, the contractor has no right to put in its place the more costly and elegant Corinthian. If the owner, having regard to strength and durability, has contracted for walls of specified materials to be laid in a particular manner, or for a given number of joists and beams, the builder has no right to substitute his own judgment or that of others. Having departed from the agreement, if performance has not been waived by the other party, the law will not allow him to allege that he has made as good a building as the one he engaged to erect. He can demand payment only upon and according to the terms of his contract, and if the conditions on which payment is due have not been performed, then the right to demand it does not exist. To hold a different doctrine would be simply to make another contract, and would be giving to parties an encouragement to violate their engagements, which the just policy of the law does not permit.’ (17 N. Y. 186, 72 Am. Dec. 422).

I am of the opinion the trial court did not err in ruling on the admission of evidence or in directing a verdict for the defendant.

For the foregoing reasons I think the judgment of the Appellate Division should be reversed and the judgment of the Trial Term affirmed.

HISCOCK, C. J., and HOGAN and CRANE, JJ., concur with CARDOZO, J.

POUND and ANDREWS, JJ., concur with McLAUGHLIN, J.

Order affirmed, etc.

3 Best & S. 826
122 Eng. Rep. 310 (Q.B. 1863)
TAYLOR
v.
CALDWELL
Queen’s Bench
May 6, 1863

The declaration alleged that by an agreement, bearing date the 27th May, 1861, the defendants agreed to let, and the plaintiffs agreed to take, on the terms therein stated, The Surrey Gardens and Music Hall, Newington, Surrey, for the following days, that is to say, Monday the 17th June, 1861, Monday the 15th July, 1861, Monday the 5th August, 1861, and Monday the 19th August, 1861, for the purpose of giving a series of four grand concerts and day and night fetes, at the Gardens and Hall on those days respectively, at the rent or sum of 100l. for each of those days. It then averred the fulfilment of conditions etc., on the part of the plaintiffs; and breach by the defendants, that they did not nor would allow the plaintiffs to have the use of The Surrey Music Hall and Gardens according to the agreement, but wholly made default therein, etc.; whereby the plaintiffs lost divers moneys paid by them for printing advertisements of and in advertising the concerts, and also lost divers sums expended and expenses incurred by them in preparing for the concerts and otherwise in relation thereto, and on the faith of the performance by the defendants of the agreement on their part, and had been otherwise injured, etc.

Pleas. First. Traverse of the agreement.

Second. That the defendants did allow the plaintiffs to have the use of The Surrey Music Hall and Gardens according to the agreement, and did not make any default therein, etc.

Third. That the plaintiffs were not ready or willing to take The Surrey Music Hall and Gardens.

Fourth. Exoneration before breach.

Fifth. That at the time of the agreement there was a general custom of the trade and business of the plaintiffs and the defendants, with respect to which the agreement was made, known to the plaintiffs and the defendants, and with reference to which they agreed, and which was part of the agreement, that in the event of the Gardens and Music Hall being destroyed or so far damaged by accidental fire as to prevent the entertainments being given according to the intent of the agreement, between the time of making the agreement and the time appointed for the performance of the same, the agreement should be rescinded and at an end; and that the Gardens and Music Hall were destroyed and so far damaged by accidental fire as to prevent the entertainments, or any of them, being given, according to the intent of the agreement, between the time of making the agreement and the first of the times appointed for the performance of the same, and continued so destroyed and damaged until after the times appointed for the performance of the agreement had elapsed, without the default of the defendants or either of them.

Issue on all the pleas. On the trial, before Blackburn J., at the London Sittings after Michaelmas Term, 1861, it appeared that the action was brought on the following agreement:

"Royal Surrey Gardens,

"27th May, 1861.

"Agreement between Messrs. Caldwell & Bishop, of the one part, and Messrs. Taylor & Lewis of the other part, whereby the said Caldwell & Bishop agree to let, and the said Taylor & Lewis agree to take, on the terms hereinafter stated, The Surrey Gardens and Music Hall, Newington, Surrey, for the following days, viz.:

"Monday, the 17th June, 1861,

Monday the 15th July, 1861,

Monday the 5th August, 1861,

Monday the 19th August, 1861,

for the purpose of giving a series of four grand concerts and day and night fetes at the said Gardens and Hall on those days respectively at the rent or sum of £100 for each of the said days. The said Caldwell & Bishop agree to find and provide at their own sole expense, on each of the aforesaid days, for the amusement of the public and persons then in the said Gardens and Hall, an efficient and organised military and quadrille band, the united bands to consist of from thirty-five to forty members; al fresco entertainments of various descriptions; coloured minstrels, fireworks and full illuminations; a ballet or divertissement, if permitted; a wizard and Grecian statues; tight rope performances; rifle galleries; air gun shooting; Chinese and Parisian games; boats on the lake, and (weather permitting) aquatic sports, and all and every other entertainment as given nightly during the months and times above mentioned. And the said Caldwell & Bishop also agree that the before mentioned united bands shall be present and assist at each of the said concerts, from its commencement until 9 o'clock at night; that they will, one week at least previous to the above mentioned dates, underline in bold type in all their bills and advertisements that Mr. Sims Reeves and other artistes will sing at the said gardens on those dates respectively, and that the said Taylor & Lewis shall have the right of placing their boards, bills and placards in such number and manner (but subject to the approval of the said Caldwell & Bishop) in and about the entrance to the said gardens, and in the said grounds, one week at least previous to each of the above mentioned days respectively, all bills so displayed being affixed on boards. And the said Caldwell & Bishop also agree to allow dancing on the new circular platform after 9 o'clock at night, but not before. And the said Caldwell & Bishop also agree not to allow the firework display to take place till a J past 11 o'clock at night. And, lastly, the said Caldwell & Bishop agree that the said Taylor & Lewis shall be entitled to and shall be at liberty to take and receive, as and for the sole use and property of them the said Taylor & Lewis, all moneys paid for entrance to the Gardens, Galleries and Music Hall and firework galleries, and that the said Taylor & Lewis may in their own discretion secure the patronage of any charitable institution in connection with the said concerts. And the said Taylor & Lewis agree to pay the aforesaid respective sum of £100 in the evening of the said respective days by a crossed cheque, and also to find and provide, at their own sole cost, all the necessary artistes for the said concerts, including Mr. Sims Reeves, God's will permitting.(Signed)

"J. CALDWELL."

Witness "CHAS. BISHOP.

(Signed) "S. Denis."

On the 11th June the Music Hall was destroyed by an accidental fire, so that it became impossible to give the concerts. Under these circumstances a verdict was returned for the plaintiff, with leave reserved to enter a verdict for the defendants on the second and third issues.

Petersdorff Serjt., in Hilary Term, 1862, obtained a rule to enter a verdict for the defendants generally.

The rule was argued, in Hilary Term, 1863 (January 28th); before Cockburn C.J., Wightman, Crompton and Blackburn JJ.

H. Tindal Atkinson shewed cause. First. The agreement sued on does not shew a "letting" by the defendants to the plaintiffs of the Hall and Gardens, although it uses the word "let," and contains a stipulation that the plaintiffs are to be empowered to receive the money at the doors, and to have the use of the Hall, for which they are to pay £100, and pocket the surplus; for the possession is to remain in the defendants, and the whole tenor of the instrument is against the notion of a letting. Whether an instrument shall be construed as a lease or only an agreement for a lease, even though it contains words of present demise, depends on the intention of the parties to be collected from the instrument; Morgan d. Dowding v. Bissell (3 Taunt. 65). Christie v. Lewis (2 B. & B. 410) is the nearest case to the present, where it was held that, although a charter party between the owner of a ship and its freighter contains words of grant of the ship, the possession of it may not pass to the freighter, but remain in the owner, if the general provisions in the instrument qualify the words of grant.

Secondly. The destruction of the premises by fire will not exonerate the defendants from performing their part of the agreement. In Paradine v. Jane (Al. 26) it is laid down that, where the law creates a duty or charge, and the party is disabled to perform it without any default in him, and hath no remedy over, there the law will excuse him; but when the party, by his own contract, creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. And there accordingly it was held no plea to an action for rent reserved by lease that the defendant was kept out of possession by an alien enemy whereby he could not take the profits.

Pearce, in support of the rule. First. This instrument amounts to a demise. It uses the legal words for that purpose, and is treated in the declaration as a demise.

Secondly. The words "God's will permitting" override the whole agreement.

Cur. adv. vult.

The judgment of the Court was now delivered by

BLACKBURN, J. In this case the plaintiffs and defendants had, on the 27th May, 1861, entered into a contract by which the defendants agreed to let the plaintiffs have the use of The Surrey Gardens and Music Hall on four days then to come, viz., the 17th June, 15th July, 5th August and 19th August, for the purpose of giving a series of four grand concerts, and day and night fetes at the Gardens and Hall on those days respectively; and the plaintiffs agreed to take the Gardens and Hall on those days, and pay £100 for each day.

The parties inaccurately call this a "letting," and the money to be paid a "rent;" but the whole agreement is such as to shew that the defendants were to retain the possession of the Hall and Gardens so that there was to be no demise of them, and that the contract was merely to give the plaintiffs the use of them on those days. Nothing however, in our opinion, depends on this. The agreement then proceeds to set out various stipulations between the parties as to what each was to supply for these concerts and entertainments, and as to the manner in which they should be carried on. The effect of the whole is to shew that the existence of the Music Hall in the Surrey Gardens in a state fit for a concert was essential for the fulfilment of the contract,—such entertainments as the parties contemplated in their agreement could not be given without it.

After the making of the agreement, and before the first day on which a concert was to be given, the Hall was destroyed by fire. This destruction, we must take it on the evidence, was without the fault of either party, and was so complete that in consequence the concerts could not be given as intended. And the question we have to decide is whether, under these circumstances, the loss which the plaintiffs have sustained is to fall upon the defendants. The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it, so that the answer to the question must depend upon the general rules of law applicable to such a contract.

There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible. The law is so laid down in 1 Roll. Abr. 450, Condition (G), and in the note (2) to Walton v. Waterhouse (2 Wms. Saund. 421 a. 6th ed.), and is recognised as the general rule by all the Judges in the much discussed case of Hall v. Wright (E. B. & E. 746). But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied: and there are authorities which, as we think, establish the principle that where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.

There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract. For in the course of affairs men in making such contracts in general would, if it were brought to their minds, say that there should be such a condition. Accordingly, in the Civil law, such an exception is implied in every obligation of the class which they call obligatio de certo corpore. The rule is laid down in the Digest, lib. xlv., tit. l, de verborum obligationibus, 1. 33. "Si Stichus certo die dari promissus, ante diem moriatur: non tenetur promissor." The principle is more fully developed in l. 23. "Si ex legati causa, aut ex stipulatii hominem certum mihi debeas: non aliter post mortem ejus tenearis mihi, quam si per te steterit, quominus vivo eo eum mihi dares: quod ita fit, si aut interpellatus non dedisti, aut occidisti eum." The examples are of contracts respecting a slave, which was the common illustration of a certain subject used by the Roman lawyers, just as we are apt to take a horse; and no doubt the propriety, one might almost say necessity, of the implied condition is more obvious when the contract relates to a living animal, whether man or brute, than when it relates to some inanimate thing (such as in the present case a theatre) the existence of which is not so obviously precarious as that of the live animal, but the principle is adopted in the Civil law as applicable to every obligation of which the subject is a certain thing. The general subject is treated of by Pothier, who in his Traite des Obligations, partie 3, chap. 6, art. 3, § 668 states the result to be that the debtor corporis certi is freed from his obligation when the thing has perished, neither by his act, nor his neglect, and before he is in default, unless by some stipulation he has taken on himself the risk of the particular misfortune which has occurred.

Although the Civil law is not of itself authority in an English Court, it affords great assistance in investigating the principles on which the law is grounded. And it seems to us that the common law authorities establish that in such a contract the same condition of the continued existence of the thing is implied by English law.

There is a class of contracts in which a person binds himself to do something which requires to be performed by him in person; and such promises, e.g. promises to marry, or promises to serve for a certain time, are never in practice qualified by an express exception of the death of the party; and therefore in such cases the contract is in terms broken if the promisor dies before fulfilment. Yet it was very early determined that, if the performance is personal, the executors are not liable; Hyde v. The Dean of Windsor (Cro. Eliz. 552, 553). See 2 Wms. Exors. 1560, 5th ed., where a very apt illustration is given. "Thus," says the learned author, "if an author undertakes to compose a work, and dies before completing it, his executors are discharged from this contract: for the undertaking is merely personal in its nature, and, by the intervention of the contractor's death, has become impossible to be performed."For this he cites a dictum of Lord Lyndhurst in Marshall v. Broadhurst (1 Tyr. 348, 349), and a case mentioned by Patteson J. in Wentworth v. Cock (10 A. & E. 42, 45-46). In Hall v. Wright (E. B. & E. 746, 749), Crompton J., in his judgment, puts another case. "Where a contract depends upon personal skill, and the act of God renders it impossible, as, for instance, in the case of a painter employed to paint a picture who is struck blind, it may be that the performance might be excused."

It seems that in those cases the only ground on which the parties or their executors, can be excused from the consequences of the breach of the contract is, that from the nature of the contract there is an implied condition of the continued existence of the life of the contractor, and, perhaps in the case of the painter of his eyesight. In the instances just given, the person, the continued existence of whose life is necessary to the fulfilment of the contract, is himself the contractor, but that does not seem in itself to be necessary to the application of the principle; as is illustrated by the following example. In the ordinary form of an apprentice deed the apprentice binds himself in unqualified terms to "serve until the full end and term of seven years to be fully complete and ended," during which term it is covenanted that the apprentice his master "faithfully shall serve," and the father of the apprentice in equally unqualified terms binds himself for the performance by the apprentice of all and every covenant on his part. (See the form, 2 Chitty on Pleading, 370, 7th ed. by Greening.) It is undeniable that if the apprentice dies within the seven years, the covenant of the father that he shall perform his covenant to serve for seven years is not fulfilled, yet surely it cannot be that an action would lie against the father? Yet the only reason why it would not is that he is excused because of the apprentice's death.

These are instances where the implied condition is of the life of a human being, but there are others in which the same implication is made as to the continued existence of a thing. For example, where a contract of sale is made amounting to a bargain and sale, transferring presently the property in specific chattels, which are to be delivered by the vendor at a future day; there, if the chattels, without the fault of the vendor, perish in the interval, the purchaser must pay the price and the vendor is excused from performing his contract to deliver, which has thus become impossible.

That this is the rule of the English law is established by the case of Rugg v. Minett (11 East, 210), where the article that perished before delivery was turpentine, and it was decided that the vendor was bound to refund the price of all those lots in which the property had not passed; but was entitled to retain without deduction the price of those lots in which the property had passed, though they were not delivered, and though in the conditions of sale, which are set out in the report, there was no express qualification of the promise to deliver on payment. It seems in that case rather to have been taken for granted than decided that the destruction of the thing sold before delivery excused the vendor from fulfilling his contract to deliver on payment.

This also is the rule in the Civil law, and it is worth noticing that Pothier, in his celebrated Traite du Contrat de Vente (see Part. 4, § 307, etc.; and Part. 2, ch. 1, sect. 1, art. 4, § 1), treats this as merely an example of the more general rule that every obligation de certo corpore is extinguished when the thing ceases to exist. See Blackburn on the Contract of Sale, p. 173.

The same principle seems to be involved in the decision of Sparrow v. Sowyate (W. Jones, 29), where, to an action of debt on an obligation by bail, conditioned for the payment of the debt or the render of the debtor, it was held a good plea that before any default in rendering him the principal debtor died. It is true that was the case of a bond with a condition, and a distinction is sometimes made in this respect between a condition and a contract. But this observation does not apply to Williams v. Lloyd (W. Jones, 179). In that case the count, which was in assumpsit, alleged that the plaintiff had delivered a horse to the defendant, who promised to redeliver it on request. Breach, that though requested to redeliver the horse he refused. Plea, that the horse was sick and died, and the plaintiff made the request after its death; and on demurrer it was held a good plea, as the bailee was discharged from his promise by the death of the horse without default or negligence on the part of the defendant. "Let it be admitted," say the Court, "that he promised to deliver it on request, if the horse die before, that is become impossible by the act of God, so the party shall be discharged, as much as if an obligation were made conditioned to deliver the horse on request, and he died before it." And Jones, adds the report, cited 22 Ass. 41, in which it was held that a ferryman who had promised to carry a horse safe across the ferry was held chargeable for the drowning of the animal only because he had overloaded the boat, and it was agreed, that notwithstanding the promise no action would have lain had there been no neglect or default on his part.

It may, we think, be safely asserted to be now English law, that in all contracts of loan of chattels or bailments if the performance of the promise of the borrower or bailee to return the things lent or bailed, becomes impossible because it has perished, this impossibility (if not arising from the fault of the borrower or bailee from some risk which he has taken upon himself) excuses the borrower or bailee from the performance of his promise to redeliver the chattel. The great case of Coggs v. Bernard (1 Smith's L. C. 171, 5th ed.; 2 L. Raym. 909) is now the leading case on the law of bailments, and Lord Holt, in that case, referred so much to the Civil law that it might perhaps be thought that this principle was there derived direct from the civilians, and was not generally applicable in English law except in the ease of bailments; but the case of Williams v. Lloyd (W. Jones, 179), above cited, shews that the same law had been already adopted by the English law as early as The Book of Assizes. The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.

In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel. In the present case, looking at the whole contract, we find that the parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given; that being essential to their performance.

We think, therefore, that the Music Hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the gardens and paying the money, the defendants from performing their promise to give the use of the Hall and Gardens and other things. Consequently the rule must be absolute to enter the verdict for the defendants.

Rule absolute.

L.R. 2 K.B. 740
KRELL
v.
HENRY.
IN THE COURT OF APPEAL.
August 11, 1903

Contract—Impossibility of Performance—Implied Condition—Necessary Inference—Surrounding Circumstances—Substance of Contract—Coronation—Procession—Inference that Procession would pass.

By a contract in writing of June 20, 1902, the defendant agreed to hire from the plaintiff a flat in Pall Mall for June 26 and 27, on which days it had been announced that the coronation processions would take place and pass along Pall Mall. The contract contained no express reference to the coronation processions, or to any other purpose for which the flat was taken. A deposit was paid when the contract was entered into, As the processions did not take place on the days originally fixed, the defendant declined to pay the balance of the agreed rent :—

Held (affirming the decision of Darling J.), from necessary inferences drawn from surrounding circumstances, recognised by both contracting parties, that the taking place of the processions on the days originally fixed along the proclaimed route was regarded by both contracting parties as the foundation of the contract; that the words imposing on the defendant the obligation to accept and pay for the use of the flat for the days named, though general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards happened, and consequently that the plaintiff was not entitled to recover the balance of the rent fixed by the contract.

Taylor v. Caldwell, (1863) 3 B. & S. 826, discussed and applied.

APPEAL from a decision of Darling J.

The plaintiff, Paul Krell, sued the defendant, C. S. Henry, for £50, being the balance of a sum of £75, for which the defendant had agreed to hire a flat at 56A, Pall Mall on the days of June 26 and 27, for the purpose of viewing the processions to be held in connection with the coronation of His Majesty. The defendant denied his liability, and counterclaimed for the return of the sum of £25, which had been paid as a deposit, on the ground that, the processions not having taken place owing to the serious illness of the King, there had been a total failure of consideration for the contract entered into by him. The facts, which were not disputed, were as follows. The plaintiff on leaving the country in March, 1902, left instruc [741] tions with his solicitor to let his suite of chambers at 56A, Pall Mall on such terms and for such period (not exceeding six months) as he thought proper. On June 17,1902, the defendant noticed an announcement in the windows of the plaintiff's flat to the effect that windows to view the coronation processions were to be let. The defendant interviewed the housekeeper on the subject, when it was pointed out to him what a good view of the processions could be obtained from the premises, and he eventually agreed with the housekeeper to take the suite for the two days in question for a sum of 751. On June 20 the defendant wrote the following letter to the plaintiff's solicitor:—

“I am in receipt of yours of the 18th instant, inclosing form of agreement for the suite of chambers on the third floor at 56A, Pall Mall, which I have agreed to take for the two days, the 26th and 27th instant, for the sum of £75. For reasons given you I cannot enter into the agreement, but as arranged over the telephone I inclose herewith cheque for £25 as deposit, and will thank you to confirm to me that I shall have the entire use of these rooms during the days (not the nights) of the 26th and 27th instant. You may rely that every care will be taken of the premises and their contents. On the 24th inst. I will pay the balance, viz., £50, to complete the £75 agreed upon."

On the same day the defendant received the following reply from the plaintiff's solicitor:—

“I am in receipt of your letter of to-day's date inclosing cheque for £25. deposit on your agreeing to take Mr. Krell's chambers on the third floor at 56A, Pall Mall for the two days, the 26th and 27th June, and I confirm the agreement that you are to have the entire use of these rooms during the days (but not the nights), the balance, £50, to, be paid to me on Tuesday next the 24th instant."

The processions not having taken place on the days originally appointed, namely, June 26 and 27, the defendant declined to pay the balance of £50 alleged to be due from him under the contract in writing of June 20 constituted by the above two letters. Hence the present action.

[742] Darling J., on August 11, 1902, held, upon the authority of Taylor v. Caldwell^[1] and The Moorcock^[2], that there was an implied condition in the contract that the procession should take place, and gave judgment for the defendant on the claim and counter-claim.

The plaintiff appealed.

Spencer Bower, K.C., and Holman Gregory, for the plaintiff. In the contract nothing is said about the coronation procession, but it is admitted that both parties expected that there would be a procession, and that the price to be paid for the rooms was fixed with reference to the expected procession. Darling J. held that both the claim and the counter-claim were governed by Taylor v. Caldwell^[1], and that there was an implied term in the contract that the procession should take place. It is submitted that the learned judge was wrong. If he was right, the result will be that in every case of, this kind an unremunerated promisor will be in effect an insurer of the hopes and expectations of the promisee.

Taylor v. Caldwell^[1] purports to be founded on two passages in the Digest. But other passages in the Digest are more directly in point, and shew that the implied condition is that there shall not lie a physical extinction of the subject-matter of the contract.

[VAUGHAN WILLIAMS L.J. The English cases have extended the doctrine of the Digest.]

The limits of the extension are—(1.) the not coming into being of a thing which was not in existence at the date of the contract; (2.) the case of a thing, e.g., a ship, or a person in a contract for personal service, being incapacitated from doing the work intended. In order that the person who has contracted to pay the price should be excused from doing so, there must be (1.) no default on his part; (2.) either the physical extinction or the not coming into existence of the subject-matter of the contract; (3.) the performance of the contract must have been thereby rendered impossible.

In the present case there has been no default on the part of [743] the defendant. But there has been no physical extinction of the subject-matter, and the performance of the contract was quite possible. Rule 1, laid down in Taylor v. Caldwell^[3], and not rule 3, is the rule that regulates this case. Rule 1 is directly in the plaintiff's favour, for here the contract was positive and absolute. In that case the music hall which was the subject of the contract had been burnt down, so that performance of the contract by either party had become impossible.

[VAUGHAN WILLIAMS L.J. referred to Wright v. Hall.^[4]]

The cases which will be relied on for the defendant are all distinguishable from the present case.

Appleby v. Meyers^[5], Boast v. Firth^[6], Baily v. De Crespigny^[7], Howell v. Coupland^[8], and Nickoll v. Ashton^[9] are all distinguishable from the present case, in which two of the necessary elements do not exist.

There are a number of authorities in favour of the plaintiff, such as Paradine v. Jane^[10] ; Barker v. Hodgson^[11] ; Marquis of Bute v. Thompson^[12] ; Hills v. Sughrue^[13] ; Brown v. Royal Insurance Co.^[14] These cases were all anterior to Taylor v. Caldwell.^[1] There are other cases subsequent to Taylor v. Caldwell^[1] , such as Kennedy v. Panama & c., Mail Co.^[15] ; In re Arthur^[16] ; The Moorcock.^[17]

The real question is, What was the position of the parties on June 20, and what was the contract then entered into between them? The right possessed by the plaintiff on that day was the right of looking out of the window of the room, with the opportunity of seeing the procession from that window; the only sale to the defendant was of such right as the plaintiff had, and that was all that the plaintiff was parting with by the contract. There was, of course, the risk that the procession, [744] the anticipation or which gave the room a marketable value, might, from some cause or other, never take place; but that risk passed to the defendant by the contract. On entering into the contract with the defendant the plaintiff put it out of his power to let the room to anyone else: he passed the right and the risk at the same time. No implied condition can be imported into the contract that the object of it shall be attained. There can be no implied condition that the defendant shall be placed in the actual position of seeing the procession. This case is closely analogous to that of London Founders' Association, Limited v. Clarke^[18] , where it was held that in a contract for the sale of shares in a company there was no implied covenant that the purchaser should be put into the status of a shareholder by registration. So in Turner v. Goldsmith^[19] , where the defendant contracted to employ the plaintiff for a fixed term as agent in a business which he, the defendant, ultimately abandoned before the expiration of the term, it was held that there was no implied condition for the continued existence of the business, and accordingly the plaintiff was held entitled to damages for breach of contract. And that was so although part of the res had perished; here no part of the res had perished. The rule is that the Court will not imply any condition in a contract except in case of absolute necessity: Hamlyn, v. Wood.^[20] No doubt under the Sale of Goods Act, 1893 (56 & 57 Vict. c. 71), s. 7, where the specific goods, the subject of the contract, perish, the contract is gone; but this is not a case of that kind. And s. 14 enacts that, unless specified, no implied warranty or condition as to the quality or fitness of the goods supplied under a contract shall be imported. Ashmore v. Cox^[21] is an authority in favour of the plaintiff, for it was there held that a buyer under a contract took the risk of the performance of the contract being rendered impossible by unforeseen circumstances.

Blakeley v. Muller^[22] is also in the plaintiff's favour to the extent of the counter-claim.

[745] [Duke, K.C. The defendant abandons his counter-claim for £25 so that the sole question is as to his liability for the £50.

Upon the main question, then, it is submitted that both the decision in Blakeley v. Muller^[23] and of Darling, J. in the present case are opposed to the principle of Taylor v.Caldwell.^[1] The contract here is absolute, and the defendant has not, as he might have done, guarded himself against the risk by suitable words.

Then, if it is said that this was a mere licence to use the room and therefore revocable as not being under seal, it has now been decided that even if such a licence is revoked an action is still maintainable for breach of contract: Kerrison v. Srnith.^[24]

In conclusion it is submitted that the Court cannot imply an express condition that the procession should pass. Nothing should be implied beyond what was necessary to give to the contract that efficacy which the parties intended at the time. There is no such necessity here; in fact, the inference is the other way, for money was paid before the days specified; which shews that the passing of the procession did not really constitute the basis of the contract, except in a popular sense. The truth is that each party had an expectation, no doubt; but the position is simply this: one says, "Will you take the room?" and the other says, "Yes." That is all. The contract did nothing more than give the defendant the opportunity of seeing whatever might be going on upon the days mentioned.

Duke, K.C., and Ricardo, for the defendant. The question is, What was the bargain? The defendant contends that it was a bargain with an implied condition that the premises taken were premises in front of which a certain act of State would take place by Royal Proclamation. A particular character was thus impressed upon the premises; and when that character ceased to be impressed upon them the contract was at an end. It is through nobody's fault, but through an unforeseen misfortune that the premises lose that character. The price agreed to be paid must he regarded: it is equivalent to [746] many thousands a year. What explanation can be given of that, except that it was agreed to be paid for the purpose of enabling the defendant to see the procession? It was the absolute assumption of both parties when entering into the contract that the procession would pass.

The principle of Taylor v. Caldwell^[1] —namely, that a contract for the sale of a particular thing must not be construed as a positive contract, but as subject to an implied condition that, when the time comes for fulfilment, the specified thing continues to exist—exactly applies. The certainty of the coronation and consequent procession taking place was the basis of this contract. Both parties bargained upon the happening of a certain event the occurrence of which gave the premises a special character with a corresponding value to the defendant; but as the condition failed the premises lost their adventitious value. There has been such a change in the character of the premises which the plaintiff agreed the defendant should occupy as to deprive them of their value. When the premises become unfit for the purpose for which they were taken the bargain is off: Taylor v. Caldwell^[25] , the principle of which case was adopted by the Court of Appeal in Nickoll v. Ashton.^[26] What was in contemplation here was not that the defendant should merely go and sit in the room, but that he should see a procession which both parties regarded as an inevitable event. There was an implied warranty or condition founded on the presumed intention of the parties, and upon reason: The Moorcock.^[27] No doubt the observations of the Court in that ca.se were addressed to a totally different subject-matter, but the principle laid down was exactly as stated in Taylor v. Caldwell ^[1]and Nickoll v. Ashton.^[28] In Hamlyn v. Wood^[29] it was held that a contract there must be a reasonable implication in order to give the transaction such efficacy as both parties intended it to have, and that without such implication the consideration would fail. In the case of a demise, collateral bargains do not arise; but here [747] there is an agreement, and what has to be done is to ascertain the meaning and intention the parties had in entering into it.

[STIRLING L.J. In Appleby v. Myers^[30] there was a contract to supply certain machinery to a building, but before the completion of the contract the building was burnt down; and it was held that both parties were excused from performance of the contract.]

In that case the contract had been partly performed; but the defendant's case is stronger than that. When, as here, the contract is wholly executory and the subject-matter fails, the contract is at an end.

[STIRLING L.J. In Baily v. De Crespigny^[31] , where the performance of a covenant woo rendered impossible by an Act of Parliament, it was held that the covenantor was discharged.

VAUGHN WILLIAMS L.J. In Howell v. Coupland^[32] the contract was held to be subject to an implied condition that the parties should-be excused if performance became impossible through the perishing of the subject-matter.]

That applies here: it is impossible for the plaintiff to give the defendant that which he bargained for, and, therefore, there is a total failure of consideration.

To sum up, the basis of the contract is that there would be a procession; that is to say it is a contract based upon a certain thing coming into existence: there is a condition precedent that there shall be a procession. But for the mutual expectation of a procession upon the days mentioned there would have been no contract whatever. The basis of the contract was also the continuance of a thing in a certain condition; for on June 20 the rooms were capable of being described as a place from which to view a procession on two particular days; whereas when those days arrived the rooms were no longer capable of being so described.

Holman Gregory replied.

Cur. adv. vult.

Aug. 11. VAUGHAN WILLIAMS L.J. read the following written judgment:—The real question in this case is the extent [748] of the application in English law of the principle of the Roman law which has been adopted and acted on in many English decisions, and notably in the case of Taylor v. Caldwell.^[1] That case at least makes it clear that

“where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless, when the time for the fulfilment of the contract arrived, some particular specified thing continued to exist, so that when entering into the contract they must have contemplated such continued existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor."

Thus far it is clear that the principle of the Roman law has been introduced into the English law. The doubt in the present case arises as to how far this principle extends. The Roman law dealt with obligationes de certo corpore. Whatever may have been the limits of the Roman law, the case of Nickoll v. Ashton^[33] makes it plain that the English law applies the principle not only to cases where the performance of the contract becomes impossible by the cessation of existence of the thing which is the subject-matter of the contract, but also to cases where the event which renders the contract incapable of performance is the cessation or non-existence of an express condition or state of things, going to the root of the contract, and essential to its performance. It is said, on the one side, that the specified thing, state of things, or condition the continued existence of which is necessary for the fulfilment of the contract, so that the parties entering into the contract must have contemplated the continued existence of that thing, condition, or state of things as the foundation of what was to be done under the contract, is limited to things which are either the subject-matter of the contract or a condition or state of things, present or anticipated, which is expressly [749] mentioned in the contract. But, on the other side, it is said that the condition or state of things need not be expressly specified, but that it is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made. In such a case the contracting parties will not be held bound by the general words which, though large enough to include, were not used with reference to a possibility of a particular event rendering performance of the contract impossible. I do not think that the principle of the civil law as introduced into the English law is limited to cases in which the event causing the impossibility of performance is the destruction or non-existence of some thing which is the subject-matter of the contract or of some condition or state of things expressly specified as a condition of it. I think that you first have to ascertain, not necessarily from the terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognised by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the non-existence of the state of things assumed by both contracting parties as the foundation of the contract, there will be no breach of the contract thus limited. Now what are the facts of the present case? The contract is contained in two letters of June 20 which passed between the defendant and the plaintiff's agent, Mr. Cecil Bisgood. These letters do not mention the coronation, but speak merely of the taking of Mr. Krell's chambers, or, rather, of the use of them, in the daytime of June 26 and 27, for the sum of £75, £25. then paid, balance £50 to be paid on the 24th. But the affidavits, which by agreement between the parties are to be taken as stating the facts of the case, shew that the plaintiff exhibited on his [750] premises, third floor, 56A, Pall Mall, an announcement to the effect that windows to view the Royal coronation procession were to be let, and that the defendant was induced by that announcement to apply to the housekeeper on the premises, who said that the owner was willing to let the suite of rooms for the purpose of seeing the Royal procession for both days, but not nights, of June 26 and 27.

In my judgment the use of the rooms was let and taken for the purpose of seeing the Royal procession. It was not a demise of the rooms, or even an agreement to let and take the rooms. It is a licence to use rooms for a particular purpose and none other. And in my judgment the taking place of those processions on the days proclaimed along the proclaimed route, which passed 56A, Pall Mall, was regarded by both contracting parties as the foundation of the contract; and I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or the processions not take place on those days along the proclaimed route; and I think that the words imposing on the defendant the obligation to accept and pay for the use of the rooms for the named days, although general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards occurred. It was suggested in the course of the argument that if the occurrence, on the proclaimed days, of the coronation and the procession in this case were the foundation of the contract, and if the general words are thereby limited or qualified, so that in the event of the non-occurrence of the coronation and procession along the proclaimed route they would discharge both parties from further performance of the contract, it would follow that if a cabman was engaged to take some one to Epsom on Derby Day at a suitable enhanced price for such a journey, say £10, both parties to the contract would be discharged in the contingency of the race at Epsom for some reason becoming impossible; but I do not think this follows, for I do not think that in the cab case the happening of the race would be the foundation of the contract. No doubt the purpose of the engager would be to go to see the Derby, and the price would be proportionately high; but the cab had [751] no special qualifications for the purpose which led to the  selection of the cab for this particular occasion. Any other cab would have done as well. Moreover, I think that, under the cab contract, the hirer, even if the race went off, could have said, "Drive me to Epsom; I will pay you the agreed sum; you have nothing to do with the purpose for which I hired the cab," and that if the cabman refused he would have been guilty of a breach of contract, there being nothing to qualify his promise to drive the hirer to Epsom on a particular day. Whereas in the case of the coronation, there is not merely the purpose of the hirer to see the coronation procession, but it is the coronation procession and the relative position of the rooms which is the basis of the contract as much for the lessor as the hirer; and I think that if the King, before the coronation day and after the contract, had died, the hirer could not have insisted on having the rooms on the days named. It could not in the cab case be reasonably said that seeing the Derby race was the foundation of the contract, as it was of the licence in this case. Whereas in the present case, where the rooms were offered and taken, by reason of their peculiar suitability from the position of the rooms for a view of the coronation procession, surely the view of the coronation procession was the foundation of the contract, which is a very different thing from the purpose of the man who engaged the cab—namely, to see the race—being held to be the foundation of the contract. Each case must be judged by its own circumstances. In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative (as I think they should be in this case), I think both parties are discharged from further performance of the contract. I think that the coronation procession was the foundation of this contract, and that the non-happening of it prevented the performance of the contract; and, secondly, I think that the [752] non-happening of the procession, to use the words of Sir James Hannen in Baily v. De Crespigny^[34] , was an event “of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, and that they are not to be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happened." The test seems to be whether the event which causes the impossibility was or might have been anticipated and guarded against. It seems difficult to say, in a case where both parties anticipate the happening of an event, which anticipation is the foundation of the contract, that either party must be taken to have anticipated, and ought to have guarded against, the event which prevented the performance of the contract. In both Jackson v. Union Marine Insurance Co.^[35] and Nickoll v. Ashton^[28] the parties might have anticipated as a possibility that perils of the sea might delay the ship and frustrate the commercial venture: in the former case the carriage of the goods to effect which the charterparty was entered into; in the latter case the sale of the goods which were to be shipped on the steamship which was delayed. But the Court held in the former case that the basis of the contract was that the ship would arrive in time to carry out the contemplated commercial venture, and in the latter that the steamship would arrive in time for the loading of the goods the subject of the sale. I wish to observe that cases of this sort are very different from cases where a contract or warranty or representation is implied, such as was implied in The Moorcock^[36] , and refused to be implied in Hamlyn v.Wood,^[29] But The Moorcock^[36] is of importance in the present case as shewing that whatever is the suggested implication—be it condition, as in this case, or warranty or representation—one must, in judging whether the implication ought to be made, look. not only at the words of the contract, but also at the surrounding facts and the knowledge of the parties of those facts. There seems to rile to be ample [753] authority for this proposition. Thus in Jackson v. Union Marine Insurance Co.^[37] , in the Common Plead, the question of whether the object of the voyage had been frustrated by the delay of the ship was left as a question of fact to the jury, although there was nothing in the charterparty defining the time within which the charterers were to supply the cargo of iron rails for San Francisco, and nothing on the face of the charterparty to indicate the importance of time in the venture; and that was a case in which, as Bramwell B. points out in his judgment at p.148, Taylor v. Caldwell^[1] was a strong authority to support the conclusion arrived at in the judgment—that the ship not arriving in time for the voyage contemplated, but at such time as to frustrate the commercial venture, was not only breach of the contract but discharged the charterer, though he had such an excuse that no action would lie. And, again. in Harris v. Dreesman^[38] the vessel had to be loaded as no particular time was mentioned, within a reasonable time; and, in judging of a reasonable time, the Court approved of evidence, being given that the defendants, the charterers, to the knowledge of the plaintiffs, had no control over the colliery from which both parties knew that the coal was to come; and that, although all that was said in the charterparty was that the vessel should proceed to Spital Tongue's Spout (the spout of the Spital Tongue's Colliery), and there take on board from the freighters a full and complete cargo of coals, and five tons of coke, and although there was no evidence to prove any custom in the port as to loading vessels in turn. Again it was held in Mumford v. Gething^[39] that, in construing a written contract of service under which A. was to enter the employ of B., oral evidence is admissible to shew in what capacity A. was to, serve B. See also Price v. Mouat.^[40] The rule seems to be that which is laid down in Taylor on Evidence, vol. ii. s. 1082:

"It may be laid down as a broad and distinct rule of law that extrinsic evidence of every material fact which will enable the Court to ascertain the nature and qualities of the subject-matter of the instrument, or, in other words, to identify the [754] persons and things to which the instrument refers, must of necessity be received."

And Lord Campbell in his judgment says:

"I am of opinion that, when there is a contract for the sale of a specific subject-matter, oral evidence may be received, for the purpose of shewing what that subject-matter was, of every fact within the knowledge of the parties before and at the time of the contract."

See per Campbell C.J., Macdonald v. Longbottom.^[41] It seems to me that the language of Willes J. in Lloyd v. Guibert^[42] points in the same direction. I myself am clearly of opinion that in this case, where we have to ask ourselves whether the object of the contract was frustrated by the non-happening of the coronation and its procession on the days proclaimed, parol evidence is admissible to shew that the subject of the contract was rooms to view the coronation procession, and was so to the knowledge of both parties. When once this is established, I see no difficulty whatever in the case. It is not essential to the application of the principle of Taylor v. Caldwell^[1] that the direct subject of the contract should perish or fail to be in existence at the date of performance of the contract. It is sufficient if a state of things or condition expressed in the contract and essential to its performance perishes or fails to be in existence at that time. In the present case the condition which fails and prevents the achievement of that which was, in the contemplation of both parties, the foundation of the contract, is not expressly mentioned either as a condition of the contract or the purpose of it; but I think for the reasons which I have given that the principle of Taylor v. Caldwell^[1] ought to be applied. This disposes of the plaintiff's claim for £50 unpaid balance of the price agreed to be paid for the use of the rooms. The defendant at one time set up a cross-claim for the return of the £25 he paid at the date of the contract. As that claim is now withdrawn it is unnecessary to say anything about it. I have only to add that the facts of this case do not bring it within the principle laid down in Stubbs v. Holywell Ry. Co.^[43] ; that in the case of contracts falling directly within the rule of [755] Taylor v. Caldwell^[1] the subsequent impossibility does not affect rights already acquired, because the defendant had the whole of June 24 to pay the balance, and the public announcement that the coronation and processions would not take place on the proclaimed days was made early on the morning of the 24th, and no cause of action could accrue till the end of that day. I think this appeal ought to be dismissed.

ROMER L.J. With some doubt I have also come to the conclusion that this case is governed by the principle on which Taylor v. Caldwell^[1] was decided, and accordingly that the appeal must be dismissed. The doubt I have felt was whether the parties to the contract now before us could be said, under the circumstances, not to have had at all in their contemplation the risk that for some reason or other the coronation processions might not take place on the days fixed, or, if the processions took place, might not pass so as to be capable of being viewed from the rooms mentioned in the contract; and whether, under this contract, that risk was not undertaken by the defendant. But on the question of fact as to what was in the contemplation of the parties at the time, I do not think it right to differ from the conclusion arrived at by Vaughan Williams L.J., and (as I gather) also arrived at by my brother Stirling. This being so, I concur in the conclusions arrived at by Vaughan Williams L.J. in his judgment, and I do not desire to add anything to what he has said so fully and completely.

STIRLING L.J. said he had had an opportunity of reading the judgment delivered by Vaughan Williams L.J., with which he entirely agreed. Though the case was one of very great difficulty, he thought it came within the principle of Taylor v. Caldwell.^[1]

Appeal dismissed.

Solicitors: Cecil Bisgood; M. Grunebaum.

NOTE.—For other cases arising out of the postponement of the coronation, See the next following case; Elliott v. Crutchley, ante, p. 476, and Herne Bay Steam Boat Co. v. Hutton, ante, p. 683.

[1] 3 B. & S. 826.

[2] (1889) 14 P. D. 64.

[3] 3 B. & S. at p. 833.

[4] (1858) E. B. & E. 746.

[5] (1867) L. R. 2 C.P. 651.

[6] (1868) L. R.4 C. P. 1.

[7] (1869) L. R. 4 Q. B. 180.

[8] (1876) 1 Q. B. D. 258.

[9] [1901] 2 K. B. 126.

[10] (1646) Al. 26.

[11] (1814) 3 M. & S. 267; 15 R. R. 485.

[12] (1844) 13 M. & W. 487.

[13] (1846) 15 M. & W. 253.

[14] (1859) 1 E. & E. 853. 

[15] (1867) L. R. 2 Q. B. 580.

[16] (1880) 14 Ch. D. 603.

[17] 14 P. D. 64.

[18] (1888) 20 Q. B. D. 576, 579, 580,582.

[19] [1891] 1 Q. B. 544, 548, 551.

[20] [1891] 2 Q. B. 488, 491-2.

[21] [1899] 1 Q. B. 436, 441

[22] [1903] 88 L.T. 90; 67 J.P. 51: post, p. 760 (note).

[23] 88 L. T. 90; 67 J. P. 51.

[24] [1897] 2 Q. B. 445.

[25] 3 B. & S. at p. 832.

[26] [1901] 2 K. B. 126, 137.

[27] 14 P. D. 64, 68.

[28] [1901] 2 K. B.126.

[29] [1891] 2 Q. B. 488.

[30] L. R. 2 C. P. 651.

[31] L. R. 4, Q. B. 180.

[32] 1 Q. B. D. 258. 

[33] [1901] 2 K. B.126.

[34] L. R. 4 Q. B. 185.

[35] (1873) L. R. 8 C. P. 572.

[36] 14 P. D. 64.

[37] L. R. 8 C. P. 572; (1874) 10 C. P: 125; 42 L. J. (C.P.) 284.

[38] (1854) 23 L. J. (Ex.) 210.

[39] (1859) 7 C. B. (N.S.) 305.

[40] (1862) 11 C. B. (N.S.) 508.

[41] (1859) 1 E. & E. 977, at p. 983.

[42] (1865) 35 L. J. (Q.B.) 74, 75.

[43] (1867) L. R.. 2 Ex. 311.