66 Mich. 568
THEODORE C. SHERWOOD
v.
HIRAM WALKER ET AL.

Sale—Mistake—Rescission.

1. A party who has given an apparent consent to a contract of sale may refuse to execute it, or may avoid it after it has been completed, if the consent was founded, or the contract made, upon the mistake of a material fact,—such as the subject-matter of the sale, the price, or some collateral fact materially inducing the agreement; and this can be done when the mistake is mutual.

2. Where, in such a case, the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold, there is no contract; but if it be only a difference in some quality or accident, even though the mistake may have been the actuating motive to the purchaser or seller, or both of them, the contract remains binding.

3. Where a cow was contracted to be sold upon the understanding of both parties that she was barren and useless for breeding purposes, and it appeared that such was not the case,—

Held, that the vendors had a right to rescind the contract, and refuse to deliver the property.

Error to Wayne. (Jennison, J.) Argued May 3 and 4, 1887. Decided July 7, 1887.

Replevin. Defendants bring error. Reversed. The facts are stated in the opinion.

William Aikman, Jr. (D. C. Holbrook, of counsel), for appellants.

C. J. Reilly, for plaintiff.

MORSE, J. Replevin for a cow. Suit commenced in justice's court. Judgment for plaintiff. Appealed to circuit court of Wayne county, and verdict and judgment for plaintiff in that court. The defendants bring error, and set out 25 assignments of the same.

[569] The main controversy depends upon the construction of a contract for the sale of the cow.

The plaintiff claims that the title passed, and bases his action upon such claim.

The defendants contend that the contract was executory, and by its terms no title to the animal was acquired by plaintiff.

The defendants reside at Detroit, but are in business at Walkerville, Ontario, and have a farm at Greenfield, in Wayne county, upon which were some blooded cattle supposed to be barren as breeders. The Walkers are importers and breeders of polled Angus cattle.

The plaintiff is a banker living at Plymouth, in Wayne county. He called upon the defendants at Walkerville for the purchase of some of their stock, but found none there that suited him. Meeting one of the defendants afterwards, he was informed that they had a few head upon this Greenfield farm. He was asked to go out and look at them, with the statement at the time that they were probably barren, and would not breed.

May 5, 1886, plaintiff went out to Greenfield and saw the cattle. A few days thereafter, he called upon one of the defendants with the view of purchasing a cow, known as "Rose 2d of Aberlone." After considerable talk, it was agreed that defendants would telephone Sherwood at his home in Plymouth in reference to the price. The second morning after this talk he was called up by telephone, and the terms of the sale were finally agreed upon. He was to pay five and one-half cents per pound, live weight, fifty pounds shrinkage. He was asked how he intended to take the cow home, and replied that he might ship her from King's cattle-yard. He requested defendants to confirm the sale in writing, which they did by sending him the following letter:

[570] “WALKERVILLE, May 15,1886.
"T.C. SHERWOOD,
President, etc.,—
“Dear Sir: We confirm sale to you of the cow Rose 2d Aberlone, lot 56 of our catalogue, at five and a half cents per pound, less fifty pounds after shrink.  We inclose herewith order on Mr. Graham for the cow. You might leave check with him, or mail to us here, as you prefer.
“Yours truly,
"HlRAM WALKER & SONS."

The order upon Graham inclosed in the letter read as follows:

“WALKERVILLE, May 15, 1886.
“George Graham: You will please deliver at Kings cattle-yard to Mr. T.C. Sherwood, Plymouth, the cow Rose 2d of Aberlone, lot 56 of our catalogue. Send halter with cow, and have her weighed.
"Yours truly,
"HIRAM WALKER & SONS."

On the twenty-first of the same month the plaintiff went to defendants' farm at Greenfield, and presented the order and letter to Graham, who informed him that the defendants had instructed him not to deliver the cow. Soon after, the plaintiff tendered to Hiram Walker, one of the defendants, $80, and demanded the cow. Walker refused to take the money or deliver the cow. The plaintiff then instituted this suit.

After he had secured possession of the cow under the writ of replevin, the plaintiff caused her to be weighed by the constable who served the writ, at a place other than King's cattle-yard. She weighed 1,420 pounds.

When the plaintiff, upon the trial in the circuit court, had submitted his proofs showing the above transaction, defendants moved to strike out and exclude the testimony from the case, for the reason that it was irrelevant, and did not tend to show that the title to the cow passed, and that it showed [571] that the contract of sale was merely executory. The court refused the motion, and an exception was taken.

The defendants then introduced evidence tending to show that at the time of the alleged sale it was believed by both the plaintiff and themselves that the cow was barren and would not breed; that she cost $850, and if not barren would be worth from $750 to $1,000; that after the date of the letter, and the order to Graham, the defendants were informed by said Graham that in his judgment the cow was with calf, and therefore they instructed him not to deliver her to plaintiff, and on the twentieth of May, 1886, telegraphed to the plaintiff what Graham thought about the cow being with calf, and that consequently they could not sell her. The cow had a calf in the month of October following.

On the nineteenth of May, the plaintiff wrote Graham as follows:

"PLYMOUTH, May 19, 1886.”
MR. GEORGE GRAHAM,
"Greenfield, —
"Dear Sir: I have bought Rose or Lucy from Mr. Walker, and will be there for her Friday morning, nine or ten o'clock. Do not water her in the morning.
"Yours, etc.,
"T. C. SHERWOOD."

Plaintiff explained the mention of the two cows in this letter by testifying that, when he wrote this letter, the order and letter of defendants were at his house, and, writing in a hurry, and being uncertain as to the name of the cow, and not wishing his cow watered, he thought it would do no harm to name them both, as his bill of sale would show which one he had purchased. Plaintiff also testified that he asked defendants to give him a price on the balance of their herd at Greenfield, as a friend thought of buying some, and received a letter dated May 17, 1886, in which they named the price of five cattle, including Lucy at $90, and Rose 2d at $80. When he received the letter he called defendants up by tele [572] phone, and asked them why they put Rose 2d in the list, as he had already purchased her. They replied that they knew he had, but thought it would make no difference if plaintiff and his friend concluded to take the whole herd.

The foregoing is the substance of all the testimony in the case.

The circuit judge instructed the jury that if they believed the defendants, when they sent the order and letter to plaintiff, meant to pass the title to the cow, and that the cow was intended to be delivered to plaintiff, it did not matter whether the cow was weighed at any particular place, or by any particular person; and if the cow was weighed afterwards, as Sherwood testified, such weighing would be a sufficient compliance with the order; if they believed that defendants intended to pass the title by the writing, it did not matter whether the cow was weighed before or after suit brought, and the plaintiff would be entitled to recover.

The defendants submitted a number of requests, which were refused. The substance of them was that the cow was never delivered to plaintiff, and the title to her did not pass by the letter and order; and that under the contract, as evidenced by these writings, the title did not pass until the cow was weighed and her price thereby determined; and that, if the defendants only agreed to sell a cow that would not breed, then the barrenness of the cow was a condition precedent to passing title, and plaintiff cannot recover. The court also charged the jury that it was immaterial whether the cow was with calf or not. It will therefore be seen that the defendants claim that, as a matter of law, the title to this cow did not pass, and that the circuit judge erred in submitting the case to the jury, to be determined by them, upon the intent of the parties as to whether or not the title passed with the sending of the letter and order by the defend- ants to the plaintiff.

This question as to the passing of title is fraught with dif [573] ficulties, and not always easy of solution. An examination of the multitude of cases bearing upon this subject, with their infinite variety of facts, and at least apparent conflict of law, ofttimes tends to confuse rather than to enlighten the mind of the inquirer. It is best, therefore, to consider always, in cases of this kind, the general principles of the law, and then apply them as best we may to the facts of the case in hand.

The cow being worth over $30, the contract of sale, in order to be valid, must be one where the purchaser has received or accepted a part of the goods, or given something in earnest or in part payment, or where the seller has signed some note or memorandum in writing. How. Stat. § 6186.

Here there was no actual delivery, nor anything given in payment or in earnest, but there was a sufficient memorandum signed by the defendants to take the case out of the statute, if the matter contained in such memorandum is sufficient to constitute a completed sale. It is evident from the letter that the payment of the purchase price was not intended as a condition precedent to the passing of the title. Mr. Sherwood is given his choice to pay the money to Graham at King's cattle-yard, or to send check by mail.

Nor can there be any trouble about the delivery. The order instructed Graham to deliver the cow, upon presentation of the order, at such cattle-yard. But the price of the cow was not determined upon to a certainty. Before this could be ascertained, from the terms of the contract, the cow had to be weighed; and, by the order inclosed with the letter, Graham was instructed to have her weighed. If the cow had been weighed, and this letter had stated, upon such weight, the express and exact price of the animal, there can be no doubt but the cow would have passed with the sending and receipt of the letter and order by the plaintiff.

Payment was not to be a concurrent act with the delivery, and therein this case differs from Case v. Dewey, 55 Mich. [574] 116. Also, in that case, there was no written memorandum of the sale, and a delivery was necessary to pass the title of the sheep; and it was held that such delivery could only be made by a surrender of the possession to the vendee, and an acceptance by him.

Delivery by an actual transfer of the property from the vendor to the vendee, in a case like the present, where the article can easily be so transferred by a manual act, is usually the most significant fact in the transaction to show the intent of the parties to pass the title, but it never has been held conclusive. Neither the actual delivery, nor the absence of such delivery, will control the case, where the intent of the parties is clear and manifest that the matter of delivery was not a condition precedent to the passing of the title, or that the delivery did not carry with it the absolute title. The title may pass, if the parties so agree, where the statute of frauds does not interpose, without delivery, and property may be delivered with the understanding that the title shall not pass until some condition is performed.

And whether the parties intended the title should pass before delivery or not is generally a question of fact to be determined by the jury. In the case at bar the question of the intent of the parties was submitted to the jury. This submission was right, unless from the reading of the letter and the order, and all the facts of the oral bargaining of the parties, it is perfectly clear, as a matter of law, that the intent of the parties was that the cow should be weighed, and the price thereby accurately determined, before she should become the property of the plaintiff.

I do not think that the intent of the parties in this case is a matter of law, but one of fact. The weighing of the cow was not a matter that needed the presence or any act of the defendants, or any agent of theirs, to be well or accurately done. It could make no difference where or when he was weighed, if the same was done upon correct [575] scales, and by a competent person. There is no pretense but what her weight was fairly ascertained by the plaintiff. The cow was specifically designated by this writing, and her delivery ordered, and it cannot be said, in ray opinion, that the defendants intended that the weighing of the animal should be done before the delivery even, or the passing of the title. The order to Graham is to deliver her, and then follows the instruction, not that he shall weigh her himself, or weigh her, or even have her weighed, before delivery, but simply, “Send halter with the cow, and have her weighed."

It is evident to my mind that they had perfect confidence in the integrity and responsibility of the plaintiff, and that they considered the sale perfected and completed when they mailed the letter and order to plaintiff. They did not intend to place any conditions precedent in the way, either of payment of the price, or the weighing of the cow, before the passing of the title. They cared not whether the money was paid to Graham, or sent to them afterwards, or whether the cow was weighed before or after she passed into the actual manual grasp of the plaintiff. The refusal to deliver the cow grew entirely out of the fact that, before the plaintiff called upon Graham for her, they discovered she was not barren, and therefore of greater value than they had sold her for.

The following cases in this Court support the instruction of the court below as to the intent of the parties governing and controlling the question of a completed sale, and the passing of title: Lingham v. Eggleston, 27 Mich. 324; Wilkinson v. Holiday, 33 Id. 386; Grant v. Merchants' and Manufacturers' Bank, 35 Id. 527; Carpenter v. Graham, 42 Id. 194; Brewer v. Michigan Salt Ass'n, 47 11 534; Whitcomb v. Whitney, 24 Id. 486; Byles v. Colier, 54 Id. 1; Scotten v. Sutter, 37 Id. 526, 532; Ducey Lumber Co. v. Lane, 58 Id. 520, 525; Jenkinson v. Monroe Bros. & Co., 61 Id. 454.

[576] It appears from the record that both parties supposed this cow was barren and would not breed, and she was sold by the pound for an insignificant sum as compared with her real value if a breeder. She was evidently sold and purchased on the relation of her value for beef, unless the plaintiff had learned of her true condition, and concealed such knowledge from the defendants. Before the plaintiff secured possession of the animal, the defendants learned that she was with calf, and therefore of great value, and undertook to rescind the sale by refusing to deliver her. The question arises whether they had a right to do so.

The circuit judge ruled that this fact did not avoid the sale, and it made no difference whether she was barren or not. I am of the opinion that the court erred in this holding. I know that this is a close question, and the dividing line between the adjudicated cases is not easily discerned. But it must be considered as well settled that a party who has given an apparent consent to a contract of sale may refuse to execute it, or he may avoid it after it has been completed, if the assent was founded, or the contract made, upon the mistake of a material fact,—such as the subject-matter of the sale, the price, or some collateral fact materially inducing the agreement; and this can be done when the mistake is mutual, 1 Benj. Sales, §§ 605, 606; Leake, Cont. 339; Story, Sales (4th ed.), §§ 148, 377. See, also, Cutts v. Guild, 57 H. Y. 229; Harvey v. Harris, 112 Mass. 32; Gardner v. Lane, 9 Allen, 492; S. C. 12 Allen, 44; Huthmacher v. Harris' Adm'rs, 38 Penn. St. 491; Byers v. Chapin, 28 Ohio St. 300; Gibson v. Pelkie, 37 Mich. 380, and cases cited; Allen v. Hammond, 11 Pet. 63, 71.

If there is a difference or misapprehension as to the substance of the thing bargained for, if the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold, then there is no contract; but if it be only a difference in some quality or acci [577] dent, even though the mistake may have been the actuating motive to the purchaser or seller, or both of them, yet the contract remains binding.

"The difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole contract, going, as it were, to the root of the matter, or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration."

Kennedy v. Panama, etc., Mail Co., L. E. 2 Q. B. 580, 588.

It has been held, in accordance with the principles above stated, that where a horse is bought under the belief that he is sound, and both vendor and vendee honestly believe him to be sound, the purchaser must stand by his bargain, and pay the full price, unless there was a warranty.

It seems to me, however, in the case made by this record, that the mistake or misapprehension of the parties went to the whole substance of the agreement. If the cow was a breeder, she was worth at least $750; if barren, she was worth not over $80. The parties would not have made the contract of sale except upon the understanding and belief that she was incapable of breeding, and of no use as a cow. It is true she is now the identical animal that they thought her to be when the contract was made; there is no- mistake as to the identity of the creature. Yet the mistake was not of the mere quality of the animal, but went to the very nature of the thing. A barren cow is substantially a different creature than a breeding one. There is as much difference between them for all purposes of use as there is between an ox and a cow that is capable of breeding and giving milk. If the mutual mistake had simply related to the fact whether she was with calf or not for one season, then it might have been a good sale; but the mistake affected the character of the animal for all time, and for her present and ultimate use. She was not in fact the animal, or the kind of animal, the defendants intended to sell or the plaintiff to buy. She was not a barren cow, and, if this fact had been known, there would have been no contract. The mistake affected the substance of the whole consideration, and it must be considered that there was no contract to sell or sale of the cow as she actually was. The thing sold and bought had in fact no existence. She was sold as a beef creature would be sold; she is in fact a breeding cow, and a valuable one.

The court should have instructed the jury that if they found that the cow was sold, or contracted to be sold, upon the understanding of both parties that she was barren, and useless for the purpose of breeding, and that in fact she was not barren, but capable of breeding, then the defendants had a right to rescind, and to refuse to deliver, and the verdict should be in their favor.

The judgment of the court below must be reversed, and a new trial granted, with costs of this Court to defendants.

CAMPBELL, C.J., and CHAMPLIN, J., concurred.

SHERWOOD, J. (dissenting). I do not concur in the opinion given by my brethren in this case. I think the judgments before the justice and at the circuit were right.

I agree with my Brother MORSE that the contract made was not within the statute of frauds, and that payment for the property was not a condition precedent to the passing of the title from the defendants to the plaintiff. And I further agree with him that the plaintiff was entitled to a delivery of the property to him when the suit was brought, unless there was a mistake made which would invalidate the contract; and I can find no such mistake.

There is no pretense that there was any fraud or concealment in the case, and an intimation or insinuation that such a thing might have existed on the part of either of the parties would undoubtedly be a greater surprise to them than anything else that has occurred in their dealings or in the case.

As has already been stated by my brethren, the record shows that the plaintiff is a banker, and farmer as well, carrying on a farm, and raising the best breeds of stock, and lived in Plymouth, in the county of Wayne, 23 miles from Detroit; that the defendants lived in Detroit, and were also dealers in stock of the higher grades; that they had a farm at Walkerville, in Canada, and also one in Greenfield, in said county of Wayne, and upon these farms the defendants kept their stock. The Greenfield farm was about 15 miles from the plaintiff's.

In the spring of 1886 the plaintiff, learning that the defendants had some "polled Angus cattle" for sale, was desirous of purchasing some of that breed, and, meeting the defendants, or some of them, at Walkerville, inquired about them, and was informed that they had none at Walkerville, "but had a few head left on their farm in Greenfield, and they asked the plaintiff to go and see them, stating that in all probability they were sterile and would not breed." In accordance with said request, the plaintiff, on the fifth day of May, went out and looked at the defendants' cattle at Greenfield, and found one called "Rose 2d," which he wished to purchase, and the terms were finally agreed upon at five and one-half cents per pound, live weight, 50 pounds to be deducted for shrinkage. The sale was in writing, and the defendants gave an order to the plaintiff directing the man in charge of the Greenfield farm to deliver the cow to plaintiff. This was done on the fifteenth of May. On the twenty-first of May plaintiff went to get his cow, and the defendants refused to let him have her; claiming at the time that the man in charge at the farm thought the cow was with calf, and, if such was the case, they would not sell her for the price agreed upon.

The record further shows that the defendants, when they sold the cow, believed the cow was not with calf, and barren; that from what the plaintiff had been told by defend [580] ants (for it does not appear he had any other knowledge or facts from which he could form an opinion) he believed the cow was farrow, but still thought she could be made to breed. The foregoing shows the entire interview and treaty between the parties as to the sterility and qualities of the cow sold to the plaintiff. The cow had a calf in the month of October.

There is no question but that the defendants sold the cow representing her of the breed and quality they believed the cow to be, and that the purchaser so understood it. And the buyer purchased her believing her to be of the breed represented by the sellers, and possessing all the qualities stated, and even more. He believed she would breed. There is no pretense that the plaintiff bought the cow for beef, and there is nothing in the record indicating that he would have bought her at all only that he thought she might be made to breed. Under the foregoing facts,—and these are all that are contained in the record material to the contract,—it is held that because it turned out that the plaintiff was more correct in his judgment as to one quality of the cow than the defendants, and a quality, too, which could not by any possibility be positively known at the time by either party to exist, the contract may be annulled by the defendants at their pleasure. I know of no law, and have not been referred to any, which will justify any such holding, and I think the circuit judge was right in his construction of the contract between the parties.

It is claimed that a mutual mistake of a material fact was made by the parties when the contract of sale was made. There was no warranty in the case of the quality of the animal. When a mistaken fact is relied upon as ground for rescinding, such fact must not only exist at the time the contract is made, but must have been known to one or both of the parties. Where there is no warranty, there can be no mistake of fact when no such fact exists, or, if in existence, [581] neither party knew of it, or could know of it; and that is precisely this case. If the owner of a Hambletonian horse had speeded him, and was only able to make him go a mile in three minutes, and should sell him to another, believing that was his greatest speed, for $300, when the purchaser believed he could go much faster, and made the purchase for that sum, and a few days thereafter, under more favorable circumstances, the horse was driven a mile in 2 min. 16 sec., and was found to be worth $20,000, I hardly think it would be held, either at law or in equity, by any one, that the seller in such case could rescind the contract. The same legal principles apply in each case.

In this case neither party knew the actual quality and condition of this cow at the time of the sale. The defendants say, or rather said, to the plaintiff, "they had a few head left on their farm in Greenfield, and asked plaintiff to go and see them, stating to plaintiff that in all probability they were sterile and would not breed." Plaintiff did go as requested, and found there three cows, including the one purchased, with a bull. The cow had been exposed, but neither knew she was with calf or whether she would breed. The defendants thought she would not, but the plaintiff says that he thought she could be made to breed, but believed she was not with calf. The defendants sold the cow for what they believed her to be, and the plaintiff bought her as he believed she was, after the statements made by the defendants. No conditions whatever were attached to the terms of sale by either party. It was in fact as absolute as it could well be made, and I know of no precedent as authority by which this Court can alter the contract thus made by these parties in writing, and interpolate in it a condition by which, if the defendants should be mistaken in their belief that the cow was barren, she should be returned to them, and their contract should be annulled.

[582] It is not the duty of courts to destroy contracts when called upon to enforce them, after they have been legally made. There was no mistake of any such material fact by either of the parties in the case as would license the vendors to rescind. There was no difference between the parties, nor misapprehension, as to the substance of the thing bargained for, which was a cow supposed to be barren by one party, and believed not to be by the other. As to the quality of the animal, subsequently developed, both parties were equally ignorant, and as to this each party took his chances. If this were not the law, there would be no safety in purchasing this kind of stock.

I entirely agree with my brethren that the right to rescind occurs whenever "the thing actually delivered or received is different in substance from the thing bargained for, and intended to be sold; but if it be only a difference in some quality or accident, even though the misapprehension may have been the actuating motive" of the parties in making the contract, yet it will remain binding. In this case the cow sold was the one delivered. What might or might not happen to her after the sale formed no element in the contract.

The case of Kennedy v. Panama, etc., Mail Co., L. R. 2 Q. B. 588, and the extract cited therefrom in the opinion of my brethren, clearly sustain the views I have taken. See, also, Smith v. Hughes, L. E. 6 Q. JB. 597; Carter v. Crick, 4 Hurl. & N. 416.

According to this record, whatever the mistake was, if any in this case, it was upon the part of the defendants, and while acting upon their own judgment. It is, however, elementary law, and very elementary, too, "that the mistaken party, acting entirely upon his own judgment, without any common understanding with the other party in the premises as to the quality of an animal, is remediless if he is injured [583] through his own mistake." Leake, Cont. 338; Torrance v. Bolton, L. K. 8 Ch. App. 118; Smith v. Hughes, L. K 6 Q. B. 597.

The case cited by my brethren from 37 Mich. (Gibson v. Pelkie) I do not think sustains the conclusion reached by them. In that case the subject-matter about which the contract was made had no existence, and in such case Mr. Justice GRAVES held there was no contract; and to the same effect are all the authorities cited in the opinion. That is certainly not this case. Here the defendants claim the subject-matter not only existed, but was worth about $800 more than the. plaintiff paid for it.

The case of Huthmacher v. Harris' Adm'rs, 38 Penn. St. 491, is this: A party purchased at an administrator's sale a drill-machine, which had hid away in it by the deceased a quantity of notes, to the amount of about $3,000, money to the amount of over $500, and two silver watches and a pocket compass of the value of $60.25. In an action of trover for the goods, it was held that nothing but the machine was sold or passed to the purchaser, neither party knowing that the machine contained any such articles.

In Cutts v. Gulid, 57 N. Y. 229, the defendant, as assignee, recovered a judgment against D. & H. He also recovered several judgments in his own name on behalf of the T. Co. The defendant made an assignment of and transferred the first judgment to an assignee of the plaintiff,—both parties supposing and intending to transfer one of the T. Co. judgments,—and it was held that such contract of assignment; was void, because the subject-matter contained in the assignment was not contracted for.

In the case of Byers v. Chapin, 28 Ohio St. 300, the defendant sold the plaintiffs 5,000 oil barrels. The plaintiffs paid $5,000 upon their purchase, and took some of the barrels. The barrels proved to be unfit for use, and the contract was rescinded by consent of the parties. The defendant, [584] instead of returning all the money paid to the purchasers, retained a portion and gave plaintiffs his note for the remainder. The plaintiffs brought suit upon this note. The defendant claimed that, under the contract of sale of the barrels, they were to be glued by the plaintiffs, which the plaintiffs properly failed to do, and this fact was not known to defendant when he agreed to rescind and gave the note, and therefore the note was given upon a mistaken state of facts, falsely represented to the defendant, and which were known to the plaintiffs. On the proofs, the jury found for the defendant, and the verdict was affirmed.

In Gardner v. Lane, 9 Allen, 492, it is decided that if, upon a sale of No. 1 mackerel, the vendor delivers No. 3 mackerel, and some barrels of salt, no title to the articles thus delivered passes.

Allen v. Hammond, 11 Pet. 63, decides that if a life-estate in land is sold, and at the time of the sale the estate is terminated by the death of the person in whom the right vested, a court of equity will rescind the purchase.

In Harvey v. Harris, 112 Mass. 32, at an auction two different grades of flour were sold, and a purchaser of the second claimed to have bought a quantity of the first grade, under a sale made of the second, and this he was not allowed to do, because of the mutual mistake; the purchaser had not in fact bought the flour he claimed. In this case, however, it is said it is true that, if there is a mutual agreement of the parties for the sale of particular articles of property, a mistake or misapprehension as to the quality of the articles will not enable the vendor to repudiate the sale.

The foregoing are all the authorities relied on as supporting the positions taken by my brethren in this case. I fail to discover any similarity between them and the present case; and I must say, further, in such examination as I have been able to make, I have found no adjudicated case going to the extent, either in law or equity, that has been held in this case. [585] In this case, if either party had superior knowledge as to the qualities of this animal to the other, certainly the defendants had such advantage.

I understand the law to be well settled that "there is no breach of any implied confidence that one party will not profit by his superior knowledge as to facts and circumstances" equally within the knowledge of both, because neither party reposes in any such confidence unless it be specially tendered or required, and that a general sale does not-imply warranty of any quality, or the absence of any; and if the seller represents to the purchaser what he himself believes as to the qualities of an animal, and the purchaser buys relying upon his own judgment as to such qualities, there is no warranty in the case, and neither has a cause of action against the other if he finds himself to have been mistaken in judgment.

The only pretense for avoiding this contract by the defend- ants is that they erred in judgment as to the qualities and value of the animal. I think the principles adopted by Chief Justice CHRISTIANCY in Williams v. Spurr, 24 Mich. 335, completely cover this case, and should have been allowed to control in its decision. See, also, Story, Sales, §§174, 175, 382, and Benj. Sales, § 430.

The judgment should be affirmed.

15 U.S. 178
4 L.Ed. 214
2 Wheat. 178

LAIDLAW et al.
v.
ORGAN.

March 15, 1817.

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.

Commonwealth, third-party defendant.
Supreme Judicial Court of Massachusetts, Worcester.
Argued Nov. 7, 1990.
Decided Feb. 20, 1991.

[604] David A. Talman, Worcester, for plaintiff.

John J. Spignesi, Boston, for John J. Paonessa Co., Inc.

Gerald K. Kelley, Asst. Atty. Gen., for Com.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and GREANEY, JJ.

LYNCH, Justice.

This appeal raises the question whether the doctrine of frustration of purpose may be a defense in a breach [409 Mass. 372] of contract action in Massachusetts, and, if so, whether it excuses the defendant John J. Paonessa Company, Inc. (Paonessa), from performance.

The claim of the plaintiff, Chase Precast Corporation (Chase), arises from the cancellation of its contracts with Paonessa to supply median barriers in a highway reconstruction project of the Commonwealth. Chase brought an action to recover its anticipated profit on the amount of median barriers called for by its supply contracts with Paonessa but not produced. Paonessa brought a cross action against the Commonwealth for indemnification in the event it should be held liable to Chase. After a jury-waived trial, a Superior Court judge ruled for Paonessa on the basis of impossibility of performance. ^[2] Chase and Paonessa cross appealed. The Appeals Court affirmed, noting that the doctrine of frustration of purpose more accurately described the basis of the trial judge's decision than [605] the doctrine of impossibility. Chase Pre cast Corp . v. John J . Paonessa Co ., 28 Mass.App.Ct. 639 , 554 N.E.2d 868 (1990) . We agree. We allowed Chase 's application for further appellate review, and we now affirm.

The pertinent facts are as follows. In 1982, the Commonwealth, through the Department of Public Works (department), entered into two contracts with Paonessa for resurfacing and improvements to two stretches of Route 128. Part of each contract called for replacing a grass median strip between the north and southbound lanes with concrete surfacing and precast concrete median barriers. Paonessa entered into two contracts with Chase under which Chase was to supply, in the aggregate, 25,800 linear feet of concrete median barriers according to the specifications of the department for highway construction. The quantity and type of barriers to be supplied were specified in two purchase orders prepared by Chase.

[409 Mass. 373] The highway reconstruction began in the spring of 1983. By late May, the department was receiving protests from angry residents who objected to use of the concrete median barriers and removal of the grass median strip. Paonessa and Chase became aware of the protest around June 1. On June 6, a group of about 100 citizens filed an action in the Superior Court to stop installation of the concrete median barriers and other aspects of the work. On June 7, anticipating modification by the department, Paonessa notified Chase by letter to stop producing concrete barriers for the projects. Chase did so upon receipt of the letter the following day. On June 17, the department and the citizens' group entered into a settlement which provided, in part, that no additional concrete median barriers would be installed. On June 23, the department deleted the permanent concrete median barriers item from its contracts with Paonessa.

Before stopping production on June 8, Chase had produced approximately one-half of the concrete median barriers called for by its contracts with Paonessa, and had delivered most of them to the construction sites. Paonessa paid Chase for all that it had produced, at the contract price. Chase suffered no out-of-pocket expense as a result of cancellation of the remaining portion of barriers.

This court has long recognized and applied the doctrine of impossibility as a defense to an action for breach of contract. See, e.g., Boston Plate & Window Glass Co. v. John Bowen Co., 335 Mass. 697, 141 N.E.2d 715 (1957); Baetjer v. New England Alcohol Co., 319 Mass. 592, 66 N.E.2d 798 (1946); Butterfield v. Byron, 153 Mass. 517, 27 N.E. 667 (1891). Under that doctrine, "where from the nature of the contract it appears that the parties must from the beginning have contemplated the continued existence of some particular specified thing as the foundation of what was to be done, then, in the absence of any warranty that the thing shall exist ... the parties shall be excused ... [when] performance becomes impossible from the accidental perishing of the thing without the fault of either party." Boston Plate & Window Glass Co., supra, 335 Mass. at 700, 141 N.E.2d 715, quoting Hawkes v. Kehoe, 193 Mass. 419, 423, 79 N.E. 766 (1907).

[409 Mass. 374] On the other hand, although we have referred to the doctrine of frustration of purpose in a few decisions, we have never clearly defined it. See Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 128-129, 310 N.E.2d 363 (1974); Essex-Lincoln Garage, Inc. v. Boston, 342 Mass. 719, 721-722, 175 N.E.2d 466 (1961); Baetjer v. New England Alcohol Co., supra, 319 Mass. at 602, 66 N.E.2d 798. Other jurisdictions have explained the doctrine as follows: when an event neither anticipated nor caused by either party, the risk of which was not allocated by the contract, destroys the object or purpose of the contract, thus destroying the value of performance, the parties are excused from further performance. See Howard v. Nicholson, 556 S.W.2d 477, 482 (Mo.Ct.App.1977); Perry v. Champlain Oil Co., 101 N.H. 97, 134 A.2d 65 (1957); Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47 (1944).

In Mishara Constr. Co., supra, 365 Mass. at 129, 310 N.E.2d 363, we called frustration of purpose a "companion rule" to the doctrine of impossibility. Both doctrines [606] concern the effect of supervening circumstances upon the rights and duties of the parties. The difference lies in the effect of the supervening event. Under frustration, "[p]erformance remains possible but the expected value of performance to the party seeking to be excused has been destroyed by [the] fortuitous event...." ^[3] Lloyd v. Murphy, supra, 25 Cal.2d at 53, 153 P.2d 47 . The principal question in both kinds of cases remains "whether an unanticipated circumstance, the risk of which should not fairly be thrown on the promisor, has made performance vitally different from what was reasonably to be expected." See Lloyd, supra at 54, 153 P.2d 47 (frustration); Mishara Constr. Co ., supra, 365 Mass. at 129, 310 N.E.2d 363 (impossibility).

Since the two doctrines differ only in the effect of the fortuitous supervening event, it is appropriate to look to our [409 Mass. 375] cases dealing with impossibility for guidance in treating the issues that are the same in a frustration of purpose case. ^[4] The trial judge's findings with regard to those issues are no less pertinent to application of the frustration defense because they were considered relevant to the defense of impossibility.

Another definition of frustration of purpose is found in the Restatement (Second) of Contracts § 265 (1981):

"Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary."

This definition is nearly identical to the defense of "commercial impracticability," found in the Uniform Commercial Code, G.L. c. 106, § 2-615 (1988 ed.), ^[5] which this court, in Mishara Constr. Co., supra at 127-128, 310 N.E.2d 363, held to be consistent with the common law of contracts regarding impossibility of performance. It follows, therefore, that the Restatement's formulation of the doctrine is consistent with this court's previous treatment of impossibility of performance and frustration of purpose.

Paonessa bore no responsibility for the department's elimination of the median barriers from the projects. Therefore, whether it can rely on the defense of frustration turns on [409 Mass. 376] whether elimination of the barriers was a risk allocated by the contracts to Paonessa. Mishara Constr. Co., supra, 365 Mass. at 129, 310 N.E.2d 363, articulates the relevant test:

"The question is, given the commercial circumstances in which the parties dealt: Was the contingency which developed one which the parties could reasonably be thought to have foreseen as a real possibility which could affect performance? Was it one of that variety of risks which the parties were tacitly assigning to the promisor by their failure to provide for it explicitly? If it was, performance will be required. If it could not be so considered, performance is excused."

This is a question for the trier of fact. Id. at 127, 130, 310 N.E.2d 363.

Paonessa's contracts with the department contained a standard provision allowing the department to eliminate items or

[607] portions of work found unnecessary. ^[6] The purchase order agreements between Chase and Paonessa do not contain a similar provision. This difference in the contracts does not mandate the conclusion that Paonessa assumed the risk of reduction in the quantity of the barriers. It is implicit in the judge's findings that Chase knew the barriers were for department projects. The record supports the conclusion that Chase was aware of the department's power to decrease quantities of contract items. The judge found that Chase had been a supplier of median barriers to the department in the [409 Mass. 377] past. The provision giving the department the power to eliminate items or portions thereof was standard in its contracts. See Standard Specifications for Highways and Bridges, Commonwealth of Massachusetts Department of Public Works § 4.06 (1973). The judge found that Chase had furnished materials under and was familiar with the so-called "Unit Price Philosophy" in the construction industry, whereby contract items are paid for at the contract unit price for the quantity of work actually accepted. Finally, the judge's finding that "[a]ll parties were well aware that lost profits were not an element of damage in either of the public works projects in issue" further supports the conclusion that Chase was aware of the department's power to decrease quantities, since the term prohibiting claims for anticipated profit is part of the same sentence in the standard provision as that allowing the engineer to eliminate items or portions of work.

In Mishara Constr. Co., supra at 130, 310 N.E.2d 363, we held that, although labor disputes in general cannot be considered extraordinary, whether the parties in a particular case intended performance to be carried out, even in the face of a labor difficulty, depends on the facts known to the parties at the time of contracting with respect to the history of and prospects for labor difficulties. In this case, even if the parties were aware generally of the department's power to eliminate contract items, the judge could reasonably have concluded that they did not contemplate the cancellation for a major portion of the project of such a widely used item as concrete median barriers, and did not allocate the risk of such cancellation. ^[7]

Our opinion in Chicopee Concrete Serv., Inc. v. Hart Eng'g Co., 398 Mass. 476, 498 N.E.2d 121 (1986), does not lead to a different conclusion. Although we held there that a provision of a [409 Mass. 378] prime contract requiring city approval of subcontractors was not incorporated by reference into the subcontract, id. at 478, 498 N.E.2d 121, we nevertheless stated that, if the record had supported the conclusion that the subcontractor knew, or at least had notice of, the approval clause, the result might have been different. Id. at 478-479, 498 N.E.2d 121. ^[8]

One additional matter requires comment. Chase argues that a decision of the Superior Court in an unrelated case, D. Cicconi, Inc. v. Metropolitan Dist. Comm'n, Civ. No. 73271 (Super.Ct. Suffolk Co., July 3, 1987), either "states the law of this Commonwealth, or became the law of this case," for the following reasons:

"At the trial, the [trial] court was provided a copy of the memorandum of decision

[608] in the Suffolk Superior Court action.... Counsel for the third-party defendant ... argued only that the D. Cicconi case did not apply to this case and by clear inference conceded that the law set forth in the case was correct law.... There was no objection to the presentation of the D. Cicconi case [409 Mass. 379] to the court nor to the principles of law stated in D. Cicconi...."

Chase claims that, because the D. Cicconi, Inc., decision has become the law of this case, the judge erred when he found that case not to affect his decision.

One of the definitions of the doctrine of "the law of the case" is set out, as follows, in Dalton v. Post Publishing Co., 328 Mass. 595, 599, 105 N.E.2d 385 (1952), which Chase cites in support of its argument:

"Where a party causes the judge to understand that certain facts are admitted or that certain issues are waived or abandoned he cannot object to the judge's conducting the trial on the basis of that understanding.... A statement of the judge during the trial as to the issues being tried or as to his understanding of those issues is binding on us where nothing is said by counsel to correct such understanding ... or where the record does not disclose that the judge was in error. It becomes the law of the trial." (Citations omitted.)

That the defendant did not object to the routine practice of a party's drawing the judge's attention to a decision of another judge does not amount to a waiver of any issues by the defendant, nor to a statement by the judge as to the issues being tried.

The other principal definition of "the law of the case" states: "Where there has been no change of circumstances, a court or judge is not bound to reconsider a case, an issue, or a question or fact of law [in the same case], once decided." Peterson v. Hopson, 306 Mass. 597, 599, 29 N.E.2d 140 (1940). However applied, the law of the case doctrine does not bind an appellate court to a ruling of law made in a lower court in another case, even though that case may have been considered by the lower court judge who decided the case being appealed.

Judgment affirmed.

---------------

Notes:

^[1] John J. Paonessa. We shall refer to a single defendant.

^[2] The judge also ruled that the Department of Public Works had the right to cancel the order for median barriers under its general contracts with Paonessa, particularly under subsection 4.06 of those contracts. See note 6, infra.

^[3] Clearly frustration of purpose is a more accurate label for the defense argued in this case than impossibility of performance, since, as the Appeals Court pointed out, "[p]erformance was not literally impossible. Nothing prevented Paonessa from honoring its contract to purchase the remaining sections of median barrier, whether or not the [department] would approve their use in the road construction." 28 Mass.App.Ct. 639, 644 n. 5, 554 N.E.2d 868 (1990).

^[4] Those issues include the foreseeability of the supervening event, allocation of the risk of occurrence of the event, and the degree of hardship to the promisor. Compare Mishara Constr. Co., supra, 365 Mass. at 128-130, 310 N.E.2d 363, and Boston Plate & Window Glass Co., supra, 335 Mass. at 700-701, 141 N.E.2d 715 with Howard, supra at 482-483, and Perry, supra, 101 N.H. at 98-100, 134 A.2d 65. See also 18 S. Williston, Contracts §§ 1935, 1954 (1978 & Supp.1990).

^[5] That section states that performance is excused when it has been made "impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made." G.L. c. 106, § 2-615.

^[6] The contracts contained the following provision:

"4.06 Increased or Decreased Contract Quantities.

"When the accepted quantities of work vary from the quantities in the bid schedule, the Contractor shall accept as payment in full, so far as contract items are concerned, payment at the original contract unit prices for the accepted quantities of work done.

"The Engineer may order omitted from the work any items or portions of work found unnecessary to the improvement and such omission shall not operate as a waiver of any condition of the Contract nor invalidate any of the provisions thereof, nor shall the Contractor have any claim for anticipated profit.

"No allowance will be made for any increased expenses, loss of expected reimbursement therefor or from any other cause."

^[7] The judge did not explicitly find that cancellation of the barriers was not contemplated and that the risk of their elimination was not allocated by the contracts. However, the judge's decision imports every finding essential to sustain it if there is evidence to support it. Mailer v. Mailer, 390 Mass. 371, 373, 455 N.E.2d 1211 (1983).

^[8] This court held in John Soley & Sons v. Jones, 208 Mass. 561, 566-567, 95 N.E. 94 (1911), that, where by its terms the prime contract could be cancelled if the defendant was not making sufficient progress on the work, and the plaintiff knew of the article of cancellation, nevertheless, even if it was mutually understood that the defendant did not intend to perform unless the prime contract remained in force, the defendant was not relieved from performance on the ground of impossibility where it failed to provide for the risk of cancellation in its contract with the plaintiff. To the extent that holding is contrary to our decision in this case, we decline to follow it, and refer to our adoption in Mishara Constr. Co., supra, 365 Mass. at 130, 310 N.E.2d 363, of the following statement: "Rather than mechanically apply any fixed rule of law, where the parties themselves have not allocated responsibility, justice is better served by appraising all of the circumstances, the part the various parties played, and thereon determining liability," quoting Badhwar v. Colorado Fuel & Iron Corp., 138 F.Supp. 595, 607 (S.D.N.Y.1955), aff'd, 245 F.2d 903 (2d Cir.1957). See West Los Angeles Inst. for Cancer Research v. Mayer, 366 F.2d 220, 225 (9th Cir.1966), cert. denied, 385 U.S. 1010, 87 S.Ct. 718, 17 L.Ed.2d 548 (1967) ("foreseeability of the frustrating event is not alone enough to bar rescission if it appears that the parties did not intend the promisor to assume the risk of its occurrence").

453 F.2d 939 (1972)

AMERICAN TRADING AND PRODUCTION CORPORATION, Plaintiff-Appellant,
v.
SHELL INTERNATIONAL MARINE LTD., Defendant-Appellee.

No. 306, Docket 71-1837.
United States Court of Appeals, Second Circuit.
Argued December 13, 1971.
Decided January 5, 1972.

[940] Herbert M. Lord, New York City (Burlingham, Underwood, Wright, White & Lord, New York City, Frederick M. Sevekow, Jr., New York City, of counsel), for plaintiff-appellant.

MacDonald Deming, New York City (Haight, Gardner, Poor & Havens, Thomas R. H. Howarth, New York City, of counsel), for defendant-appellee.

Before SMITH, KAUFMAN and MULLIGAN, Circuit Judges.

MULLIGAN, Circuit Judge:

This is an appeal by American Trading and Production Corporation (hereinafter "owner") from a judgment entered on July 29th, 1971, in the United States District Court for the Southern District of New York, dismissing its claim against Shell International Marine Ltd. (hereinafter "charterer") for additional compensation in the sum of $131,978.44 for the transportation of cargo from Texas to India via the Cape of Good Hope as a result of the closing of the Suez Canal in June, 1967. The charterer had asserted a counterclaim which was withdrawn and is not in issue. The action was tried on stipulated facts and without a jury before Hon. Harold R. Tyler, Jr. who dismissed the claim on the merits in an opinion dated July 22, 1971.

We affirm.

The owner is a Maryland corporation doing business in New York and the charterer is a United Kingdom corporation. On March 23, 1967 the parties entered into a contract of voyage charter in New York City which provided that the charterer would hire the owner's tank vessel, WASHINGTON TRADER, for a voyage with a full cargo of lube oil from Beaumont/Smiths Bluff, Texas to Bombay, India. The charter party provided that the freight rate would be in accordance with the then prevailing American Tanker Rate Schedule (ATRS), $14.25 per long ton of cargo, plus seventy-five percent (75%), and in addition there was a charge of $.85 per long ton for passage through the Suez Canal. On May 15, 1967 the WASHINGTON TRADER departed from Beaumont with a cargo of 16,183.32 long tons of lube oil. The charterer paid the freight at the invoiced sum of $417,327.36 on May 26, 1967. On May 29th, 1967 the owner advised the WASHINGTON TRADER by radio to take additional bunkers at Ceuta due to possible diversion because of the Suez Canal crisis. The vessel arrived at Ceuta, Spanish Morocco on May 30, bunkered and sailed on May 31st, 1967. On June 5th the owner cabled the ship's master advising him of various reports of trouble in the Canal and suggested delay in entering it pending clarification. On that very day, the Suez Canal was closed due to the state of war which had developed in the Middle East. The owner then communicated with the charterer on June 5th through the broker who had negotiated the charter party, requesting approval for the diversion of the WASHINGTON TRADER which then had proceeded to a point about 84 miles northwest of Port Said, the entrance to the Canal. On June 6th the charterer responded that under the circumstances it was "for owner to decide whether to continue to wait or make the alternative passage via the Cape since Charter Party Obliges them to deliver cargo without qualification." In response the owner replied on the same day that in view of the closing of the Suez, the WASHINGTON TRADER would proceed to Bombay via the Cape of Good Hope and "we are reserving all rights for extra compensation." The vessel proceeded westward, back through the Straits of Gibraltar and around the Cape and eventually arrived in Bombay on July 15th (some 30 days later than initially expected), traveling a total of 18,055 miles instead of the 9,709 miles which it would have sailed had the Canal been open. The owner billed $131,978.44 as extra compensation which the charterer has refused to pay.

On appeal and below the owner argues that transit of the Suez Canal was the agreed specific means of performance [941] of the voyage charter and that the supervening destruction of this means rendered the contract legally impossible to perform and therefore discharged the owner's unperformed obligation (Restatement of Contracts § 460 (1932)). Consequently, when the WASHINGTON TRADER eventually delivered the oil after journeying around the Cape of Good Hope, a benefit was conferred upon the charterer for which it should respond in quantum meruit. The validity of this proposition depends upon a finding that the parties contemplated or agreed that the Suez passage was to be the exclusive method of performance, and indeed it was so argued on appeal. We cannot construe the agreement in such a fashion. The parties contracted for the shipment of the cargo from Texas to India at an agreed rate and the charter party makes absolutely no reference to any fixed route. It is urged that the Suez passage was a condition of performance because the ATRS rate was based on a Suez Canal passage, the invoice contained a specific Suez Canal toll charge and the vessel actually did proceed to a point 84 miles northwest of Port Said. In our view all that this establishes is that both parties contemplated that the Canal would be the probable route. It was the cheapest and shortest, and therefore it was in the interest of both that it be utilized. However, this is not at all equivalent to an agreement that it be the exclusive method of performance. The charter party does not so provide and it seems to have been well understood in the shipping industry that the Cape route is an acceptable alternative in voyages of this character.

The District of Columbia Circuit decided a closely analogous case, Transatlantic Financing Corp. v. United States, 124 U.S. App. D.C. 183, 363 F.2d 312 (1966). There the plaintiff had entered into a voyage charter with defendant in which it agreed to transport a full cargo of wheat on the CHRISTOS from a United States port to Iran. The parties clearly contemplated a Suez passage, but on November 2, 1956 the vessel reduced speed when war blocked the Suez Canal. The vessel changed its course in the Atlantic and eventually delivered its cargo in Iran after proceeding by way of the Cape of Good Hope. In an exhaustive opinion Judge Skelly Wright reviewed the English cases which had considered the same problem and concluded that "the Cape route is generally regarded as an alternative means of performance. So the implied expectation that the route would be via Suez is hardly adequate proof of an allocation to the promisee of the risk of closure. In some cases, even an express expectation may not amount to a condition of performance." Transatlantic Financing Corp. v. United States, supra, 363 F.2d at 317 (footnote omitted).

Appellant argues that Transatlantic is distinguishable since there was an agreed upon flat rate in that case unlike the instant case where the rate was based on Suez passage. This does not distinguish the case in our view. It is stipulated by the parties here that the only ATRS rate published at the time of the agreement from Beaumont to Bombay was the one utilized as a basis for the negotiated rate ultimately agreed upon. This rate was escalated by 75% to reflect whatever existing market conditions the parties contemplated. These conditions are not stipulated. Had a Cape route rate been requested, which was not the case, it is agreed that the point from which the parties would have bargained would be $17.35 per long ton of cargo as against $14.25 per long ton.

Actually, in Transatlantic it was argued that certain provisions in the P. & I. Bunker Deviation Clause referring to the direct and/or customary route required, by implication, a voyage through the Suez Canal. The court responded "actually they prove only what we are willing to accept—that the parties expected the usual and customary route would be used. The provisions in no way condition performance upon non-occurrence of this contingency." Transatlantic Financing Corp. v. United States, [942] supra, 363 F.2d at 317 n. 8. We hold that all that the ATRS rate establishes is that the parties obviously expected a Suez passage but there is no indication at all in the instrument or dehors that it was a condition of performance.

This leaves us with the question as to whether the owner was excused from performance on the theory of commercial impracticability (Restatement of Contracts § 454 (1932)). Even though the owner is not excused because of strict impossibility, it is urged that American law recognizes that performance is rendered impossible if it can only be accomplished with extreme and unreasonable difficulty, expense, injury or loss.^[1] There is no extreme or unreasonable difficulty apparent here. The alternate route taken was well recognized, and there is no claim that the vessel or the crew or the nature of the cargo made the route actually taken unreasonably difficult, dangerous or onerous. The owner's case here essentially rests upon the element of the additional expense involved—$131,978.44. This represents an increase of less than one third over the agreed upon $417,327.36. We find that this increase in expense is not sufficient to constitute commercial impracticability under either American or English authority.

Mere increase in cost alone is not a sufficient excuse for non-performance (Restatement of Contracts § 467 (1932)). It must be an "extreme and unreasonable"^[2] expense (Restatement of Contracts § 454 (1932)).^[3] While in the Transatlantic case supra, the increased cost amounted to an increase of about 14% over the contract price, the court did cite with approval^[4] the two leading English cases Ocean Tramp Tankers Corp. v. V/O Sovfracht (The Eugenia), 1964 2 Q.B. 226, 233 (C.A.1963) (which expressly overruled Societe Franco Tunisienne D'Armement v. Sidermar S.P.A. (The Messalia), 1961 2 Q.B. 278 (1960), where the court had found frustration because the Cape route was highly circuitous and involved an increase in cost of approximately 50%), and Tsakiroglou & Co. Lt. v. Noblee Thorl  G.m.b.H., 1960 2 Q.B. 318, 348, aff'd, 1962 A.C., 93 (1961) where the House of Lords found no frustration though the freight costs were exactly doubled due to the Canal closure.^[5]

Appellant further seeks to distinguish Transatlantic because in that case the [943] change in course was in the mid-Atlantic and added some 300 miles to the voyage while in this case the WASHINGTON TRADER had traversed most of the Mediterranean and thus had added some 9000 miles to the contemplated voyage. It should be noted that although both the time and the length of the altered passage here exceeded those in the Transatlantic, the additional compensation sought here is just under one third of the contract price. Aside from this however, it is a fact that the master of the WASHINGTON TRADER was alerted by radio on May 29th, 1967 of a "possible diversion because of Suez Canal crisis," but nevertheless two days later he had left Ceuta (opposite Gibraltar) and proceeded across the Mediterranean. While we may not speculate about the foreseeability of a Suez crisis at the time the contract was entered, there does not seem to be any question but that the master here had been actually put on notice before traversing the Mediterranean that diversion was possible. Had the WASHINGTON TRADER then changed course, the time and cost of the Mediterranean trip could reasonably have been avoided, thereby reducing the amount now claimed. (Restatement of Contracts § 336, Comment d to subsection (1) (1932)).

In a case closely in point, Palmco Shipping Inc. v. Continental Ore Corp. (The "Captain George K"), 1970 2 Lloyd's L. Rep. 21 (Q.B. 1969), The Eugenia, supra, was followed, and no frustration was found where the vessel had sailed to a point three miles northwest of Port Said only to find the Canal blocked. The vessel then sailed back through the Mediterranean and around the Cape of Good Hope to its point of destination, Kandla. The distances involved, 9700 miles via the initially contemplated Canal route and 18,400 miles actually covered by way of the Cape of Good Hope, coincide almost exactly with those in this case. Moreover, in The "Captain George K" there was no indication that the master had at anytime after entering the Mediterranean been advised of the possibility of the Canal's closure.

Finally, owners urge that the language of the "Liberties Clause," Para. 28(a) of Part II of the charter party^[6] provides explicit authority for [944] extra compensation in the circumstances of this case. We do not so interpret the clause. We construe it to apply only where the master, by reason of dangerous conditions, deposits the cargo at some port or haven other than the designated place of discharge. Here the cargo did reach the designated port albeit by another route, and hence the clause is not applicable. No intermediate or other disposition of the oil was appropriate under the circumstances.

Appellant relies on C. H. Leavell & Co. v. Hellenic Lines, Ltd., 13 F.M.C., 76, 1969 A.M.C. 2177 (1969) for a contrary conclusion. That case involved a determination as to whether surcharges to compensate for extra expenses incurred when the Suez Canal was closed after the commencement of a voyage, were available to a carrier. The Federal Maritime Commission authorized the assessment since the applicable tariffs were on file as provided by section 18(b) of the Shipping Act (46 U.S.C. § 817(b)) and also on the basis of Clause 5 of the bill of lading which is comparable to the Liberties Clause in issue here, except for the language which authorized the carrier to "proceed by any route. . . ." (Leavell, supra, 13 F.M.C. at 81, 1969 A.M.C. at 2182). This is the very language relied upon by the Commission in finding the surcharge appropriate (Leavell, supra, 13 F.M.C. at 89, 1969 A.M.C. at 2191) where the carrier proceeded to the initially designated port of destination via the Cape of Good Hope. Utilization of an alternate route contemplates berthing at the contracted port of destination. There is no such language in the clause at issue. Its absence fortifies the contention that the Liberties Clause was not intended to be applicable to the facts in litigation here.

Matters involving impossibility or impracticability of performance of contract are concededly vexing and difficult. One is even urged on the allocation of such risks to pray for the "wisdom of Solomon.”  6 A. Corbin, Contracts § 1333, at 372 (1962). On the basis of all of the facts, the pertinent authority and a further belief in the efficacy of prayer, we affirm.

[1] This is the formula utilized in the Restatement of Contracts § 454 (1932).

[2] The Restatement gives some examples of what is "extreme and unreasonable"— Restatement of Contracts § 460, Illus. 2 (tenfold increase in costs) and Illus. 3 (costs multiplied fifty times) (1932); compare § 467, Illus. 3. See generally G. Grismore, Principles of the Law of Contracts § 179 (rev. ed. J. E. Murray 1965).

[3] Both parties take solace in the Uniform Commercial Code which in comment 4 to Section 2-615 states that the rise in cost must "alter the essential nature of the performance . . ." This is clearly not the case here. The owner relies on a further sentence in the comment which refers to a severe shortage of raw materials or of supplies due to "war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost. . . ." Since this is not a case involving the sale of goods but transportation of a cargo where there was an alternative which was a commercially reasonable substitute (see Uniform Commercial Code § 2-614 (1)) the owner's reliance is misplaced.

[4] Transatlantic Financing Corp. v. United States, supra, 363 F.2d at 319 n.14.

[5] While these are English cases and refer to the doctrine of "frustration" rather than "impossibility" as Judge Skelly Wright pointed out in Transatlantic, supra, 363 F.2d at 320 n. 16 the two are considered substantially identical, 6 A. Corbin, Contracts § 1322, at 327 n. 9 (rev. ed. 1962). While Tsakiroglou and The Eugenia are criticized in Schegal, Of Nuts, and Ships and Sealing Wax, Suez, and Frustrating Things—The Doctrine of Impossibility of Performance, 23 Rutgers L. Rev. 419, 448 (1969), apparently on the theory that the charterer is a better loss bearer, the overruled Sidermar case was previously condemned in Berman, Excuse for Nonperformance in the Light of Contract Practices in International Trade, 63 Colum. L. Rev. 1413, 1424-27 (1963).

[6] "28. Liberty Clauses. (a) In any situation whatsoever and wheresoever occurring and whether existing or anticipated before commencement of or during the voyage, which in the judgment of the Owner or Master is likely to give rise to risk of capture, seizure, detention, damage, delay or disadvantage to or loss of the Vessel or any part of her cargo, or to make it unsafe, imprudent, or unlawful for any reason to commence or proceed on or continue the voyage or to enter or discharge the cargo at the port of discharge, or to give rise to delay or difficulty in arriving, discharging at or leaving the port of discharge or the usual place of discharge in such port, the Owner may before loading or before the commencement of the voyage, require the shipper or other person entitled thereto to take delivery of the Cargo at port of shipment and upon their failure to do so, may warehouse the cargo at the risk and expense of the cargo; or the owner or Master, whether or not proceeding toward or entering or attempting to enter the port of discharge or reaching or attempting to reach the usual place of discharge therein or attempting to discharge the cargo there, may discharge the cargo into depot, lazaretto, craft or other place; or the Vessel may proceed or return, directly or indirectly, to or stop at any such port or place whatsoever as the Master or the Owner may consider safe or advisable under the circumstances, and discharge the cargo, or any part thereof, at any such port or place; or the Owner or the Master may retain the cargo on board until the return trip or until such time as the Owner or the Master thinks advisable and discharge the cargo at any place whatsoever as herein provided or the Owner or the Master may discharge and forward the cargo by any means at the risk and expense of the cargo. The Owner may, when practicable, have the Vessel call and discharge the cargo at another or substitute port declared or requested by the Charterer. The Owner or the Master is not required to give notice of discharge of the cargo, or the forwarding thereof as herein provided. When the cargo is discharged from the Vessel, as herein provided, it shall be at its own risk and expense; such discharge shall constitute complete delivery and performance under this contract and the Owner shall be freed from any further responsibility. For any service rendered to the cargo as herein provided the Owner shall be entitled to a reasonable extra compensation."

I. M. Singer, Corpus Christi, for appellant.

Chas. F. Guenther, Jr., San Antonio, R. G. Harris, San Antonio, W. Pat Camp, San Antonio, for appellee.

McGILL, Justice.

This is an appeal from a judgment of the 57th judicial District Court of Bexar County. Appellant was plaintiff and appellee was defendant in the trial court. The parties will be so designated.

Plaintiff sued defendant to recover $2,000 with interest at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a translation from the original, which is written in the Greek language:

'Peiraeus

April 2, 1942

'Mr. George Batsakis

Konstantinou Diadohou #7

Peiraeus

'Mr. Batsakis:

'I state by my present (letter) that I received today from you the amount of two thousand dollars ($2,000.00) of United States of America money, which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America.

'The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event that you might be able to find a way to collect them (dollars) from my representative in America to whom I shall write and give him an order relative to this You understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal.

'I thank you and I remain yours with respects.

'The recipient,

(Signed) Eugenia The. Demotsis.'

Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2, 1942 to the date of judgment, totaling $1163.83, with interest thereon at the rate of 8% per annum until paid. Plaintiff has perfected his appeal.

The court sustained certain special exceptions of plaintiff to defendant's first amended original answer on which the case was tried, and struck therefrom paragraphs II, III and V. Defendant excepted to such action of the court, but has not cross-assigned error here. The answer, stripped of such paragraphs, consisted of a general denial contained in paragraph I thereof, and of paragraph IV, which is as follows:

'IV. That under the circumstances alleged in Paragraph II of this answer, the consideration upon which said written instrument sued upon by plaintiff herein is founded, is wanting and has failed to the extent of $1975.00, and defendant pleads specially under the verification hereinafter made the want and failure of consideration stated, and now tenders, as defendant has heretofore tendered to plaintiff, $25.00 as the value of the loan of money received by defendant from plaintiff, together with interest thereon.

'Further, in connection with this plea of want and failure of consideration defendant alleges that she at no time received from plaintiff himself or from anyone for plaintiff any money or thing of value other than, as hereinbefore alleged, the original loan of 500,000 drachmae. That at the time of the loan by plaintiff to defendant of said 500,000 drachmae the value of 500,000 drachmae in the Kingdom of Greece in dollars of money of the United States of America, was $25.00, and also at said time the value of 500,000 drachmae of Greek money in the United States of America in dollars was $25.00 of money of the United States of America. The plea of want and failure of consideration is verified by defendant as follows.'

The allegations in paragraph II which were stricken, referred to in paragraph IV, were that the instrument sued on was signed and delivered in the Kingdom of Greece on or about April 2, 1942, at which time both plaintiff and defendant were residents of and residing in the Kingdom of Greece, and

'Plaintiff (emphasis ours) avers that on or about April 2, 1942 she owned money States of America, but was then and there States of America, but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500,000 drachmae, which at that time, on or about April 2, 1942, had the value of $25.00 in money of the United States of America. That the said plaintiff, knowing defendant's financial distress and desire to return to the United States of America, exacted of her the written instrument plaintiff sues upon, which was a promise by her to pay to him the sum of $2,000.00 of United States of America money.'

Plaintiff specially excepted to paragraph IV because the allegations thereof were insufficient to allege either want of consideration or failure of consideration, in that it affirmatively appears therefrom that defendant received what was agreed to be delivered to her, and that plaintiff breached no agreement. The court overruled this exception, and such action is assigned as error. Error is also assigned because of the court's failure to enter judgment for the whole unpaid balance of the principal of the instrument with interest as therein provided.

Defendant testified that she did receive 500,000 drachmas from plaintiff. It is not clear whether she received all the 500,000 drachmas or only a portion of them before she signed the instrument in question. Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500,000 drachmas if she would sign the instrument. She testified:

'Q. ..... who suggested the figure of $2,000.00?

A. That was how he asked me from the beginning. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00 American money.'

The transaction amounted to a sale by plaintiff of the 500,000 drachmas in consideration of the execution of the instrument sued on, by defendant. It is not contended that the drachmas had no value. Indeed, the judgment indicates that the trial court placed a value of $750.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff's testimony. Therefore the plea of want of consideration was unavailing. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place. National Bank of Commerce v. Williams, 125 Tex. 619, 84 S.W.2d 691.

Mere inadequacy of consideration will not void a contract. 10 Tex.Jur., Contracts, Sec. 89, p. 150; Chastain v. Texas Christian Missionary Society, Tex.Civ.App., 78 S.W.2d 728, loc. cit. 731(3), Wr. Ref.

Nor was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to her own testimony. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the instrument sued on, with interest as therein provided. We construe the provision relating to interest as providing for interest at the rate of 8% per annum. The judgment is reformed so as to award appellant a recovery against appellee of $2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942. Such judgment will bear interest at the rate of 8% per annum until paid on $2,000.00 thereof and on the balance interest at the rate of 6% per annum. As so reformed, the judgment is affirmed.

Reformed and affirmed.

324 N.Y.S.2d 22
29 N.Y.2d 124, 272 N.E.2d 533

AUSTIN INSTRUMENT, INC., Respondent,
v.
LORAL CORPORATION, Appellant.

Court of Appeals of New York.
July 6, 1971.

[324 N.Y.S.2d 23] [272 N.E.2d 534] [29 N.Y.2d 126] Alvin A. Simon, New York City, and Joseph Sachter, Scarsdale, for appellant.

[29 N.Y.2d 127] Herbert, L. Ortner, and Joel Salon, New York City, for respondent.

[324 N.Y.S.2d 24] [29 N.Y.2d 128] FULD, Chief Judge.

The defendant, Loral Corporation, seeks to recover payment for goods delivered under a contract which it had with the plaintiff Austin Instrument, Inc., on the ground that the evidence establishes, as a matter of law, that it was forced to agree to an increase in price on the items in question under circumstances amounting to economic duress.

In July of 1965, Loral was awarded a $6,000,000 contract by the Navy for the production of radar sets. The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral. The latter thereupon solicited bids for some [29 N.Y.2d 129] 40 precision gear components needed to produce the radar sets, and awarded Austin a subcontract to supply 23 such parts. That party commenced delivery in early 1966.

In May, 1966, Loral was awarded a second Navy contract for the production of more radar sets and again went about soliciting bids. Austin bid on all 40 gear components but, on July 15, a representative from Loral informed Austin's president, Mr. Krauss, that his company would be awarded the subcontract only for those items on which it was low bidder. The Austin officer refused to accept an order for less than all 40 of the gear parts and on the next day he told Loral that Austin would cease deliveries of the parts due under the existing subcontract unless Loral consented to substantial increases in the prices provided for by that agreement—both retroactively for parts already delivered and prospectively on those not yet shipped—and placed with Austin the order for all 40 parts needed under Loral's second Navy contract. Shortly thereafter, Austin did, indeed, stop delivery. After contacting 10 manufacturers of precision gears and finding none who could produce the parts in time to meet its commitments to the Navy,^[1] Loral acceded to Austin's demands; in a letter dated July 22, Loral wrote to Austin that

"We have feverishly surveyed other sources of supply and find that because of the prevailing military exigencies, were they to start from scratch as would have to be the case, they could not even remotely begin to deliver on time to [272 N.E.2d 535] meet the delivery requirements established by the Government. * * * Accordingly, we are left with no choice or alternative but to meet your conditions."

Loral thereupon consented to the price increases insisted upon by Austin under the first subcontract and the latter was awarded a second subcontract making it the supplier of all 40 gear parts for Loral's second contract with the Navy.^[2] Although Austin was granted [324 N.Y.S.2d 25] until September to resume deliveries, Loral did, in fact, receive parts in August and was able to produce the radar sets in time to meet its commitments to the Navy on both contracts. After Austin's last delivery under the second subcontract [29 N.Y.2d 130] in July, 1967, Loral notified it of its intention to seek recovery of the price increases.

On September 15, 1967, Austin instituted this action against Loral to recover an amount in excess of $17,750 which was still due on the second subcontract. On the same day, Loral commenced an action against Austin claiming damages of some $22,250—the aggregate of the price increases under the first subcontract—on the ground of economic duress. The two actions were consolidated and, following a trial, Austin was awarded the sum it requested and Loral's complaint against Austin was dismissed on the ground that it was not shown that "it could not have obtained the items in question from other sources in time to meet its commitment to the Navy under the first contract." A closely divided Appellate Division affirmed (35 A.D.2d 387, 316 N.Y.S.2d 528, 532). There was no material disagreement concerning the facts; as Justice Steuer stated in the course of his dissent below, "(t)he facts are virtually undisputed, nor is there any serious question of law. The difficulty lies in the application of the law to these facts." (35 A.D.2d 392, 316 N.Y.S.2d 534.)

The applicable law is clear and, indeed, is not disputed by the parties. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. (See Allstate Med. Labs., Inc. v. Blaivas, 20 N.Y.2d 654, 282 N.Y.S.2d 268, 229 N.E.2d 50; Kazaras v. Manufacturers Trust Co., 4 N.Y.2d 930, 175 N.Y.S.2d 172, 151 N.E.2d 356; Adams v. Irving Nat. Bank, 116 N.Y. 606, 611, 23 N.E. 7, 9; see, also, 13 Williston, Contracts (3d ed., 1970), § 1603, p. 658.) The existence of economic duress or business compulsion is demonstrated by proof that "immediate possession of needful goods is threatened" (Mercury Mach. Importing Corp. v. City of New York, 3 N.Y.2d 418, 425, 165 N.Y.S.2d 517, 520, 144 N.E.2d 400) or, more particularly, in cases such as the one before us, by proof that one party to a contract has threatened to breach the agreement by withholding goods unless the other party agrees to some further demand. (See, e.g., Du Pont de Nemours & Co. v. J. I. Hass Co., 303 N.Y. 785, 103 N.E.2d 896; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc.2d 225, 232 N.Y.S.2d 590; see, also, 13 Williston, Contracts (3d ed., 1970), § 1617, p. 705.) However, a mere threat by one party to breach the contract by not delivering the required items, though wrongful, does not in itself constitute economic duress. It must also appear that [29 N.Y.2d 131] the threatened party could not obtain the goods [324 N.Y.S.2d 26] from another source of supply^[3] and that the ordinary remedy of an action for breach of contract would not be adequate.^[4]

[272 N.E.2d 536] We find without any support in the record the conclusion reached by the courts below that Loral failed to establish that it was the victim of economic duress. On the contrary, the evidence makes out a classic case, as a matter of law, of such duress.^[5]

It is manifest that Austin's threat—to stop deliveries unless the prices were increased—deprived Loral of its free will. As bearing on this, Loral's relationship with the Government is most significant. As mentioned above, its contract called for staggered monthly deliveries of the radar sets, with clauses calling for liquidated damages and possible cancellation on default. Because of its production schedule, Loral was, in July, 1966, concerned with meeting its delivery requirements in September, October and November, and it was for the sets to be delivered in those months that the withheld gears were needed. Loral had to plan ahead, and the substantial liquidated damages for which it would be liable, plus the threat of default, were genuine possibilities. Moreover, Loral did a substantial portion of its business with the Government, and it feared that a failure to deliver as agreed upon would jeopardize its chances for future contracts. These genuine concerns do not merit the label "self-imposed, undisclosed and subjective" which the Appellate Division majority placed upon them. It was perfectly reasonable for Loral, or any other party similarly placed, to consider itself in an emergency, duress situation.

[29 N.Y.2d 132] Austin, however, claims that the fact that Loral extended its time to resume deliveries until September negates its alleged dire need for the parts. A Loral official testified on this point that Austin's president told him he could deliver some parts in August and that the extension of deliveries was a formality. In any event, the parts necessary for production of the radar sets to be delivered in September were delivered to Loral on September 1, and the parts needed for the October schedule were delivered in late August and early September. [324 N.Y.S.2d 27] Even so, Loral had to "work * * * around the clock" to meet its commitments. Considering that the best offer Loral received from the other vendors it contacted was commencement of delivery sometime in October, which, as the record shows, would have made it late in its deliveries to the Navy in both September and October, Loral's claim that it had no choice but to accede to Austin's demands is conclusively demonstrated.

We find unconvincing Austin's contention that Loral, in order to meet its burden, should have contacted the Government and asked for an extension of its delivery dates so as to enable it to purchase the parts from another vendor. Aside from the consideration that Loral was anxious to perform well in the Government's eyes, it could not be sure when it would obtain enough parts from a substitute vendor to meet its commitments. The only promise which it received from the companies it contacted was for Commencement of deliveries, not full supply, and, with vendor delay common in this field, it would have been nearly impossible to know the length of the extension it should request. It must be remembered that Loral was producing a needed item of military hardware. Moreover, there is authority for Loral's position that nonperformance by a subcontractor is not an excuse for default in the main contract. (See, e.g., McBride & Wachtel, [272 N.E.2d 537] Government Contracts, § 35.10, (11).) In light of all this, Loral's claim should not be held insufficiently supported because it did not request an extension from the Government.

Loral, as indicated above, also had the burden of demonstrating that it could not obtain the parts elsewhere within a reasonable time, and there can be no doubt that it met this burden. The 10 manufacturers whom Loral contacted comprised its entire list of "approved vendors" for precision gears, and none was [29 N.Y.2d 133] able to commence delivery soon enough.^[6] As Loral was producing a highly sophisticated item of military machinery requiring parts made to the strictest engineering standards, it would be unreasonable to hold that Loral should have gone to other vendors, with whom it was either unfamiliar or dissatisfied, to procure the needed parts. As Justice Steuer noted in his dissent, Loral "contacted all the manufacturers whom it believed capable of making these parts" (35 A.D.2d at p. 393, 316 N.Y.S.2d at p. 534), and this was all the law requires.

It is hardly necessary to add that Loral's normal legal remedy of accepting Austin's breach of the contract and then suing for damages would have been inadequate under the circumstances, as Loral would still have had to obtain the gears elsewhere with all the concomitant [324 N.Y.S.2d 28] consequences mentioned above. In other words, Loral actually had no choice, when the prices were raised by Austin, except to take the gears at the "coerced" prices and then sue to get the excess back.

Austin's final argument is that Loral, Even if it did enter into the contract under duress, lost any rights it had to a refund of money by waiting until July, 1967, long after the termination date of the contract, to disaffirm it. It is true that one who would recover moneys allegedly paid under duress must act promptly to make his claim known. (See Oregon Pacific R.R. Co. v. Forrest, 128 N.Y. 83, 93, 28 N.E. 137, 139; Port Chester Elec. Constr. Corp. v. Hastings Terraces, 284 App.Div. 966, 967, 134 N.Y.S.2d 656, 658.) In this case, Loral delayed making its demand for a refund until three days after Austin's last delivery on the second subcontract. Loral's reason—for waiting until that time—is that it feared another stoppage of deliveries which would again put it in an untenable situation. Considering Austin's conduct in the past, this was perfectly reasonable, as the possibility of an application by Austin of further business compulsion still existed until all of the parts were delivered.

In sum, the record before us demonstrates that Loral agreed to the price increases in consequence of the economic duress [29 N.Y.2d 134] employed by Austin. Accordingly, the matter should be remanded to the trial court for a computation of its damages.

The order appealed from should be modified, with costs, by reversing so much thereof as affirms the dismissal of defendant Loral Corporation's claim and, except as so modified, affirmed.

BERGAN, Judge (dissenting).

Whether acts charged as constituting economic duress produce or do not produce the damaging effect attributed to them is normally a routine type of factual issue.

Here the fact question was resolved against Loral both by the Special Term and by the affirmance at the Appellate Division. It should not be open for different resolution here.

In summarizing the Special Term's decision and its own, the Appellate Division decided that "the conclusion that Loral acted deliberately and voluntarily, without being under immediate pressure of incurring severe business reverses, precludes a [272 N.E.2d 538] recovery on the theory of economic duress" (35 A.D.2d 387, 391, 316 N.Y.S.2d 528, 532).

When the testimony of the witnesses who actually took part in the negotiations for the two disputing parties is examined, sharp conflicts of fact emerge. Under Austin's version the request for a renegotiation of the existing contract was based on Austin's contention that Loral had failed to carry out an understanding as to the items to be [324 N.Y.S.2d 29] furnished under that contract and this was the source of dissatisfaction which led both to a revision of the existing agreement and to entering into a new one.

This is not necessarily and as a matter of law to be held economic duress. On this appeal it is needful to look at the facts resolved in favor of Austin most favorably to that party. Austin's version of events was that a threat was not made but rather a request to accommodate the closing of its plant for a customary vacation period in accordance with the general understanding of the parties.

Moreover, critical to the issue of economic duress was the availability of alternative suppliers to the purchaser Loral. The demonstration is replete in the direct testimony of Austin's witnesses and on cross-examination of Loral's principal and purchasing agent that the availability of practical alternatives was a highly controverted issue of fact. On that issue of fact the [29 N.Y.2d 135] explicit findings made by the Special Referee were affirmed by the Appellate Division. Nor is the issue of fact made the less so by assertion that the facts are undisputed and that only the application of equally undisputed rules of law is involved.

Austin asserted and Loral admitted on cross-examination that there were many suppliers listed in a trade registry but that Loral chose to rely only on those who had in the past come to them for orders and with whom they were familiar. It was, therefore, at least a fair issue of fact whether under the circumstances such conduct was reasonable and made what might otherwise have been a commercially understandable renegotiation an exercise of duress.

The order should be affirmed.

BURKE, SCILEPPI and GIBSON, JJ., concur with FULD, C.J.

BERGAN, J., dissents and votes to affirm in a separate opinion in which BREITEL and JASEN, JJ., concur.

Ordered accordingly.

[1] The best reply Loral received was from a vendor who stated he could commence deliveries sometime in October.

[2] Loral makes no claim in this action on the second subcontract.

[3] See, e.g., Du Pont de Nemours & Co. v. J. I. Hass Co., 303 N.Y. 785, 103 N.E.2d 896, Supra; Gallagher Switchboard Corp. v. Heckler Elec. Co., 36 Misc.2d 225, 226, 232 N.Y.S.2d 590, 591, Supra; 30 East End v. World Steel Prods. Corp., Sup., 110 N.Y.S.2d 754, 757.

[4] See, e.g., Kohn v. Kenton Assoc., 27 A.D.2d 709, 280 N.Y.S.2d 520; Colonie Constr. Corp. v. De Lollo, 25 A.D.2d 464, 465, 266 N.Y.S.2d 283, 285; Halperin v. Wolosoff, 282 App.Div. 876, 124 N.Y.S.2d 572; J. R. Constr. Corp. v. Berkeley Apts., 259 App.Div. 830, 19 N.Y.S.2d 500; Boss v. Hutchinson, 182 App.Div. 88, 92, 169 N.Y.S. 513, 516.

[5] The suggestion advanced that we are precluded from reaching this determination because the trial court's findings of fact have been affirmed by the Appellate Division ignores the question to be decided. That question, undoubtedly one of law (see Cohen and Karger, Powers of the New York Court of Appeals (1952), § 115, p. 492), is, accepting the facts found, did the courts below properly apply the law to them.

[6] Loral, as do many manufacturers, maintains a list of "approved vendors," that is, vendors whose products, facilities, techniques and performance have been inspected and found satisfactory.

Appeal from the District Court of the United States for the Northern District of California.

Chickering & Gregory, for appellant.

Marshall B. Woodworth and Edward J. Banning, for appellees.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

ROSS, Circuit Judge.

The libel in this case was based upon a contract alleged to have been entered into between the libelants and the appellant corporation on the 22d day of May, 1900, at Pyramid Harbor, Alaska, by which it is claimed the appellant promised to pay each of the libelants, among other things, the sum of $100 for services rendered and to be rendered. In its answer the respondent denied the execution, on its part, of the contract sued upon, averred that it was without consideration, and for a third defense alleged that the work performed by the libelants for it was performed under other and different contracts than that sued on, and that, prior to the filing of the libel, each of the libelants was paid by the respondent the full amount due him thereunder, in consideration of which each of them executed a full release of all his claims and demands against the respondent.

The evidence shows without conflict that on March 26, 1900, at the city and county of San Francisco, the libelants entered into a written contract with the appellants, whereby they agreed to go from San Francisco to Pyramid Harbor, Alaska, and return, on board such vessel as might be designated by the appellant, and to work for the appellant during the fishing season of 1900, at Pyramid Harbor, as sailors and fishermen, agreeing to do "regular ship's duty, both up and down, discharging and loading; and to do any other work whatsoever when requested to do so by the captain or agent of the Alaska Packers' Association." By the terms of this agreement, the appellant was to pay each of the libelants $50 for the season, and two cents for each red salmon in the catching of which he took part.

On the 15th day of April, 1900, 21 of the libelants of the libelants signed shipping articles by which they shipped as seamen on the Two Brothers, a vessel chartered by the appellant for the voyage between San Francisco and Pyramid Harbor, and also bound themselves to perform the same work for the appellant provided for by the previous contract of March 26th; the appellant agreeing to pay them therefor the sum of $60 for the season, and two cents each for each red salmon in the catching of which they should respectively take part. Under these contracts, the libelants sailed on board the Two Brothers for Pyramid Harbor, where the appellants had about $150,000 invested in a salmon cannery. The libelants arrived there early in April of the year mentioned, and began to unload the vessel and fit up the cannery. A few days thereafter, to wit, May 19th, they stopped work in a body, and demanded of the company's superintendent there in charge $100 for services in operating the vessel to and from Pyramid Harbor, instead of the sums stipulated for in and by the contracts; stating that unless they were paid this additional wage they would stop work entirely, and return to San Francisco. The evidence showed, and the court below found, that it was impossible for the appellant to get other men to take the places of the libelants, the place being remote, the season short and just opening; so that, after endeavoring for several days without success to induce the libelants to proceed with their work in accordance with their contracts, the company's superintendent, on the 22d day of May, so far yielded to their demands as to instruct his clerk to copy the contracts executed in San Francisco, including the words "Alaska Packers' Association" at the end, substituting, for the $50 and $60 payments, respectively, of those contracts, the sum of $100, which document, so prepared, was signed by the libelants before a shipping commissioner whom they had requested to be brought from Northeast Point; the superintendent, however, testifying that he at the time told the libelants that he was without authority to enter into any such contract, or to in any way alter the contracts made between them and the company in San Francisco. Upon the return of the libelants to San Francisco at the close of the fishing season, they demanded pay in accordance with the terms of the alleged contract of May 22d, when the company denied its validity, and refused to pay other than as provided for by the contracts of March 26th and April 5th, respectively. Some of the libelants, at least, consulted counsel, and, after receiving his advice, those of them who had signed the shipping articles before the shipping commissioner at San Francisco went before that officer, and received the amount due them thereunder, executing in consideration thereof a release in full, and the others paid at the office of the company, also receipting in full for their demands.

On the trial in the court below, the libelants undertook to show that the fishing nets provided by the respondent were defective, and that it was on that account that they demanded increased wages. On that point, the evidence was substantially conflicting, and the finding of the court was against the libelants the court saying:

"The contention of libelants that the nets provided them were rotten and unserviceable is not sustained by the evidence. The defendants' interest required that libelants should be provided with every facility necessary to their success as fishermen, for on such success depended the profits defendant would be able to realize that season from its packing plant, and the large capital invested therein. In view of this self-evident fact, it is highly improbable that the defendant gave libelants rotten and unserviceable nets with which to fish. It follows from this finding that libelants were not justified in refusing performance of their original contract." 112 Fed. 554.

The evidence being sharply conflicting in respect to these facts, the conclusions of the court, who heard and saw the witnesses, will not be disturbed. The Alijandro, 6 C.C.A. 54, 56 Fed. 621; The Lucy, 20 C.C.A. 660, 74 Fed. 572; The Glendale, 26 C.C.A. 500, 81 Fed. 633. The Coquitlam, 23 C.C.A. 438, 77 Fed. 744; Gorham Mfg. Co. v. Emery-Bird-Thayer Dry Goods Co., 43 C.C.A. 511, 104 Fed. 243.

The real questions in the case as brought here are questions of law, and, in the view that we take of the case, it will be necessary to consider but one of those. Assuming that the appellant's superintendent at Pyramid Harbor was authorized to make the alleged contract of May 22d, and that he executed it on behalf of the appellant, was it supported by a sufficient consideration? From the foregoing statement of the case, it will have been seen that the libelants agreed in writing, for certain stated compensation, to render their services to the appellant in remote waters where the season for conducting fishing operations is extremely short, and in which enterprise the appellant had a large amount of money invested; and, after having entered upon the discharge of their contract, and at a time when it was impossible for the appellant to secure other men in their places, the libelants, without any valid cause, absolutely refused to continue the services they were under contract to perform unless the appellant would consent to pay them more money. Consent to such a demand, under such circumstances, if given, was, in our opinion, without consideration, for the reason that it was based solely upon the libelants' agreement to render the exact services, and none other, that they were already under contract to render. The case shows that they willfully and arbitrarily broke that obligation. As a matter of course, they were liable to the appellant in damages, and it is quite probable, as suggested by the court below in its opinion, that they may have been unable to respond in damages. But we are unable to agree with the conclusions there drawn, from these facts, in these words:

"Under such circumstances, it would be strange, indeed, if the law would not permit the defendant to waive the damages caused by the libelants' breach, and enter into the contract sued upon,- a contract mutually beneficial to all the parties thereto, in that it gave to the libelants reasonable compensation for their labor, and enabled the defendant to employ to advantage the large capital it had invested in its canning and fishing plant."

Certainly, it cannot be justly held, upon the record in this case, that there was any voluntary waiver on the part of the appellant of the breach of the original contract. The company itself knew nothing of such breach until the expedition returned to San Francisco, and the testimony is uncontradicted that its superintendent at Pyramid Harbor, who, it is claimed, made on its behalf the contract sued on, distinctly informed the libelants that he had no power to alter the original or to make a new contract, and it would, of course, follow that, if he had no power to change the original, he would have no authority to waive any rights thereunder. The circumstances of the present case bring it, we think, directly within the sound and just observations of the supreme court of Minnesota in the case of King v. Railway Co., 61 Minn. 482, 63 N.W. 1105:

"No astute reasoning can change the plain fact that the party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. Surely it would be a travesty on justice to hold that the party so making the promise for extra pay was estopped from asserting that the promise was without consideration. A party cannot lay the foundation of an estoppel by his own wrong, where the promise is simply a repetition of a subsisting legal promise. There can be no consideration for the promise of the other party, and there is no warrant for inferring that the parties have voluntarily rescinded or modified their contract. The promise cannot be legally enforced, although the other party has completed his contract in reliance upon it."

In Lingenfelder v. Brewing Co., 103 Mo. 578, 15 S.W. 844, the court, in holding void a contract by which the owner of a building agreed to pay its architect an additional sum because of his refusal to otherwise proceed with the contract, said:

"It is urged upon us by respondents that this was a new contract. New in what? Jungenfeld was bound by his contract to design and supervise this building. Under the new promise, he was not to do anything more or anything different. What benefit was to accrue to Wainwright? He was to receive the same service from Jungenfeld under the new, that Jungenfeld was bound to tender under the original, contract. What loss, trouble, or inconvenience could result to Jungenfeld that he had not already assumed? No amount of metaphysical reasoning can change the plain fact that Jungenfeld took advantage of Wainwright's necessities, and extorted the promise of five per cent. on the refrigerator plant as the condition of his complying with his contract already entered into. Nor had he even the flimsy pretext that Wainwright had violated any of the conditions of the contract on his part. Jungenfeld himself put it upon the simple proposition that 'if he, as an architect, put up the brewery, and another company put up the refrigerating machinery, it would be a detriment to the Empire Refrigerating Company,’ of which Jungenfeld was president. To permit plaintiff to recover under such circumstances would be to offer a premium upon bad faith, and invite men to violate their most sacred contracts that they may profit by their own wrong. That a promise to pay a man for doing that which he is already under contract to do is without consideration is conceded by respondents. The rule has been so long imbedded in the common law and decisions of the highest courts of the various states that nothing but the most cogent reasons ought to shake it. (Citing a long list of authorities.) But it is 'carrying coals to Newcastle' to add authorities on a proposition so universally accepted, and so inherently just and right in itself. The learned counsel for respondents do not controvert the general proposition. They contention is, and the circuit court agreed with them, that, when Jungenfeld declined to go further on his contract, the defendant then had the right to sue for damages, and not having elected to sue Jungenfeld, but having acceded to his demand for the additional compensation defendant cannot now be heard to say his promise is without consideration. While it is true Jungenfeld became liable in damages for the obvious breach of his contract, we do not think it follows that defendant is estopped from showing its promise was made without consideration. It is true that as eminent a jurist as Judge Cooley, in Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, held that an ice company which had agreed to furnish a brewery with all the ice they might need for their business from November 8, 1879, until January 1, 1881, at $1.75 per ton, and afterwards in May, 1880, declined to deliver any more ice unless the brewery would give it $3 per ton, could recover on a promissory note given for the increased price. Profound as is our respect for the distinguished judge who delivered the opinion, we are still of the opinion that his decision is not in accord with the almost universally accepted doctrine, and is not convincing; and certainly so much of the opinion as holds that the payment, by a debtor, of a part of his debt then due, would constitute a defense to a suit for the remainder, is not the law of this state, nor, do we think, of any other where the common law prevails. What we hold is that, when a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefor; and although, by taking advantage of the necessities of his adversary, he obtains a promise for more, the law will regard it as nudum pactum, and will not lend its process to aid in the wrong."

The case of Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, is one of the eight cases relied upon by the court below in support of its judgment in the present case, five of which are by the supreme court of Massachusetts, one by the supreme court of Vermont, and one other Michigan case,- that of Moore v. Locomotive Works, 14 Mich. 266. The Vermont case referred to is that of Lawrence v. Davey, 28 Vt. 264, which was one of the three cases cited by the court in Moore v. Locomotive Works, 14 Mich. 272, 273, as authority for its decision. In that case there was a contract to deliver coal at specified terms and rates. A portion of it was delivered, and plaintiff then informed the defendant that he could not deliver at those rates, and, if the latter intended to take advantage of it, he should not deliver any more; and that he should deliver no more unless the defendant would pay for the coal independent of the contract. The defendant agreed to do so, and the coal was delivered. On suit being brought for the price, the court said:

"Although the promise to waive the contract was after some portion of the coal sought to be recovered had been delivered, and so delivered that probably the plaintiff, if the defendant had insisted upon strict performance of the contract, could not have recovered anything for it, yet, nevertheless, the agreement to waive the contract, and the promise, and, above all, the delivery of coal after this agreement to waive the contract, and upon the faith of it, will be a sufficient consideration to bind the defendant to pay for the coal already received"

The doctrine of that case was impliedly overruled by the supreme court of Vermont in the subsequent case of Cobb v. Cowdery, 40 Vt. 25, 94 Am.Dec. 370, where it was held that:

"A promise by a party to do what he is bound in law to do is not an illegal consideration, but is the same as no consideration at all, and is merely void; in other words, it is insufficient, but not illegal. Thus, if the master of a ship promise his crew an addition to their fixed wages in consideration for and as an incitement to, their extraordinary exertions during a storm, or in any other emergency of the voyage, this promise is nudum pactum; the voluntary performance of an act which it was before legally incumbent on the party to perform being in law an insufficient consideration; and so it would be in any other case where the only consideration for the promise of one party was the promise of the other party to do, or his actual doing, something which he was previously bound in law to do. Chit. Cont. (10th Am.Ed.) 51; Smith, Cont. 87; 3 Kent, Com.. 185."

The Massachusetts cases cited by the court below in support of its judgment commence with the case of Munroe v. Perkins, 9 Pick. 305, 20 Am.Dec. 475, which really seems to be the foundation of all of the cases in support of that view. In that case, the plaintiff had agreed in writing to erect a building for the defendants. Finding his contract a losing one, he had concluded to abandon it, and resumed work on the oral contract of the defendants that, if he would do so, they would pay him what the work was worth without regard to the terms of the original contract. The court said that whether the oral contract was without consideration

—"Depends entirely on the question whether the first contract was waived. The plaintiff having refused to perform that contract, as he might do, subjecting himself to such damages as the other parties might show they were entitled to recover, he afterward went on, upon the faith of the new promise, and finished the work. This was a sufficient consideration. If Payne and Perkins were willing to accept his relinquishment of the old contract, and proceed on a new agreement, the law, we think, would not prevent it."

The case of Goebel v. Linn, 47 Mich. 489, 11 N.W. 284, 41 Am.Rep. 723, presented some unusual and extraordinary circumstances. But, taking it as establishing the precise rule adopted in the Massachusetts cases, we think it not only contrary to the weight of authority, but wrong on principle.

In addition to the Minnesota and Missouri cases above cited, the following are some of the numerous authorities holding the contrary doctrine: Vanderbilt v. Schreyer, 91 N.Y. 392; Ayres v. Railroad Co., 52 Iowa, 478, 3 N.W. 522; Harris v. Carter, 3 Ellis & B. 559; Frazer v. Hatton, 2 C.B.(N.S.) 512; Conover v. Stillwell, 34 N.J. Law, 54; Reynolds v. Nugent, 25 Ind. 328; Spencer v. McLean (Ind. App.) 50 N.E. 769, 67 Am.St.Rep. 271; Harris v. Harris (Colo. App.) 47 Pac. 841; Moran v. Peace, 72 Ill.App. 139; Carpenter v. Taylor (N.Y.) 58 N.E. 53; Westcott v. Mitchell (Me.) 50 Atl. 21; Robinson v. Jewett, 116 N.Y. 40, 22 N.E. 224; Sullivan v. Sullivan, 99 Cal. 187, 33 Pac. 862; Blyth v. Robinson, 104 Cal. 230, 37 Pac. 904; Skinner v. Mining Co. (C.C.) 96 Fed. 735; 1 Beach, Cont. § 166; Langd. Cont. § 54; 1 Pars.Cont. (5th Ed.) 457; Ferguson v. Harris (S.C.) 17 S.E. 782, 39 Am.St.Rep. 745.

It results from the views above expressed that the judgment must be reversed, and the cause remanded, with directions to the court below to enter judgment for the respondent, with costs. It is so ordered.

231 N.Y. 196

Louis SCHWARTZREICH, Respondent,
v.
BAUMAN-BASCH, INCORPORATED, Appellant.

Contract — trial — where record shows question of fact it is error for trial justice to set aside verdict and dismiss complaint — contract may be set aside by parties and new one made at one and the same time — charge.

1. Where, in an action to recover on a contract for services, defended on the ground that there was no consideration for the contract as the plaintiff was already bound under a prior agreement to do the same work for the same period for a lesser salary, the record shows that a [197] question of fact was presented and that the evidence most favorable for the plaintiff would sustain a finding that the first contract was destroyed, canceled or abrogated by the consent of both parties, it was error for the trial justice to set aside a verdict in favor of plaintiff and dismiss the complaint and a reversal of such ruling was proper.

2. A contract of employment may be set aside or terminated by the parties to it and a new one made or substituted in its place and it is competent to end the one and make the other at the same time.

3. A charge, by the trial justice, therefore, to the effect that if the jury find that the old contract was, prior to or at the time of the execution of the new contract, "cancelled and revoked by the parties by their mutual consent then it is your duty to find that there was a consideration for the making of the contract in suit" and "the test question is whether by word or by act, either prior to or at the time of the signing" of the new contract "these parties mutually agreed that the old contract from that instant should be null and void," is correct and a reinstatement of the verdict was proper.

Schwartzreich v. Bauman-Basch, Inc., 188 App. Div. 960, affirmed.

(Submitted April 27, 1921; decided May 10, 1921.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 28, 1919, affirming a determination of the Appellate Term, which reversed a judgment in favor of defendant entered upon an order of the trial justice in the City Court of the city of New York setting aside a verdict in favor of plaintiff and directing a dismissal of the complaint and reinstated said verdict.

Louis Boehm and Samuel Zeiger for appellant. Not only was there lacking evidence of a cancellation of the first contract for $90 before the second contract for $100 was agreed upon, but it affirmatively appears from plaintiff's own testimony that such cancellation was not even mentioned. (Disker v. Herten, 73 App. Div. 453; 175 N. Y. 480; Sanders v. Pottlitzer Bros. Fruit Co., 144 N. Y. 209; Pratt v. Hudson R. R. R. Co., 21 N. Y. 305; Belmar Contracting Co. v. State, 185 N. Y. Supp. 734.) A promise to do that which one is already legally obligated to do does not furnish a consideration sufficient to support a [198] contract. (Teele v. Mayer, 173 App. Div. 869; Weed v. Spears, 193 N. Y. 289; Carpenter v. Taylor, 164 N. Y. 171; Vanderbilt v. Schreyer, 91 N. Y. 392.) Both sides having offered all their proof, and both plaintiff and defendant having testified as to what took place when the second contract was signed, and the contract itself being plain and unambiguous, a question of law was presented for the decision of the trial court, and its dismissal of the complaint on the merits was proper. (Carpenter v. Taylor, 164 N. Y. 171.)

I. Maurice Wormser and I. Gainsburg for respondent. The trial court erred in dismissing the complaint on the merits. There was, at the very least, a clean-cut issue of fact for the jury, whether the $90 contract was canceled and rescinded by the parties, and a new $100 contract made. (Harris v. Carter, 3 El. & Bl. 559; Hart v. Lawman, 39 Barb. 410; Lattimore v. Harsen, 14 Johns. 330; Spier v. Hyde, 78 App. Div. 151, 159; Bailey v. Elm City Lumber Co., 167 App. Div. 42, 45; Stewart v. Keteltas, 36 N. Y. 338; Wood v. Knight, 35 App. Div. 21; International Cont. Co. v. Lamont, 15.5 U. S. 303; Am. Ex. Nat. Bank v. Smith, 61 Misc. Rep. 49; 113 N. Y. Supp. 236; Galway v. Prignano, 134 N. Y. Supp. 571.)

CRANE, J. On the 31st day of August, 1917, the plaintiff entered into the following employment agreement with the defendant:

"BAUMAN-BASCH, INC., 

"Coats & Wraps,

"31-33 East 32nd Street,

"New York

"Agreement entered into this 31st day of August, 1917, by and between Bauman-Basch, Inc., a domestic corporation, party of the first part, and Louis Schwartzreich, of the Borough of Bronx, City of New York, party of the second part, Witnesseth:

[199] "The party of the first part does hereby employ the party of the second part, and the party of the second part agrees to enter the services of the party of the first part as a designer of coats and wraps.

"The employment herein shall commence on the 22nd day of November, 1917, and shall continue for twelve months thereafter. The party of the second part shall receive a salary of Ninety ($90.00) per week, payable weekly.

"The party of the second part shall devote his entire time and attention to the business of the party of the first part, and shall use his best energies and endeavors in the furtherance of its business.

"In witness whereof, the party of the first part has caused its seal to be affixed hereto and these presents to be signed, and the party of the second part has here- unto set his hand and seal the day and year first above written.

"BAUMAN-BASCH, INC.

 S. BAUMAN

"LOUIS SCHWARTZREICH.

"In the presence of:"

In October the plaintiff was offered more money by another concern. Mr. Bauman, an officer of the Bauman-Basch, Inc., says that in that month he heard that the plaintiff was going to leave and thereupon had with him the following conversation.

"A. I called him in the office, and I asked him, 'Is that true that you want to leave us?' and he said 'Yes,' and I said, 'Mr. Schwartzreich, how can you do that; you are under contract with us?' He said, 'Somebody offered me more money.' * * * I said, 'How much do they offer you?' He said, 'They offered him $115 a week.' * * * I said, 'I cannot get a designer now, and, in view of the fact that I have to send my sample line out on the road, I will give you a hundred dollars a week rather than to let you go.' He said, 'If you will give me $100, I will stay.'"

[200] Thereupon Mr. Bauman dictated to his stenographer a new contract, dated October 17, 1917, in the exact words of the first contract and running for the same period, the salary being $100 a week, which contract was duly executed by the parties and witnessed. Duplicate originals were kept by the plaintiff and defendant.

Simultaneously with the signing of this new contract, the plaintiff's copy of the old contract was either given to or left with Mr. Bauman. He testifies that the plaintiff gave him the paper but that he did not take it from him. The signatures to the old contract plaintiff tore off at the time according to Mr. Bauman.

The plaintiff's version as to the execution of the new contract is as follows:

"A. I told Mr. Bauman that I have an offer from Scheer & Mayer of $110 a week, and I said to him, 'Do you advise me as a friendly matter — will you advise me as a friendly matter what to do; you see I have a contract with you, and I should not accept the offer of $110 a week, and I ask you, as a matter of friendship, do you advise me to take it or not.' At the minute he did not say anything, but the day afterwards he came to me in and he said, 'I will give you $100 a week, and I want you to stay with me.' I said, 'All right, I will accept it; it is very nice of you that you do that, and I appreciate it very much.'"

The plaintiff says that on the 17th of October when the new contract was signed, he gave his copy of the old contract back to Mr. Bauman, who said: "You do not want this contract any more because the new one takes its place."

The plaintiff remained in the defendant's employ until the following December when he was discharged. He brought this action under the contract of October 17th for his damages.

The defense, insisted upon through all the courts, is that there was no consideration for the new contract as [201] the plaintiff was already bound under his agreement of August 31, 1917, to do the same work for the same period at $90 a week.

The trial justice submitted to the jury the question whether there was a cancellation of the old contract and charged as follows:

"If you find that the $90 contract was prior to or at the time of the execution of the $100 contract cancelled and revoked by the parties by their mutual consent, then it is your duty to find that there was a consideration for the making of the contract in suit, viz., the $100 contract and, in that event, the plaintiff would be entitled to your verdict for such damages as you may find resulted proximately, naturally and necessarily in consequence of the plaintiff's discharge prior to the termination of the contract period of which I shall speak later on."

Defendant's counsel thereupon excepted to that portion of the charge in which the court permitted the jury to find that the prior contract may have been canceled simultaneously with the execution of the other agreement. Again the court said:

"The test question is whether by word or by act, either prior to or at the time of the signing of the $100 contract, these parties mutually agreed that the old contract from that instant should be null and void."

The jury having rendered a verdict for the plaintiff the trial justice set it aside and dismissed the complaint on the ground that there was not sufficient evidence that the first contract was canceled to warrant the jury's findings.

The above quotations from the record show that a question of fact was presented and that the evidence most favorable for the plaintiff would sustain a finding that the first contract was destroyed, canceled or abrogated by the consent of both parties.

The Appellate Term was right in reversing this ruling. Instead of granting a new trial, however, it reinstated [202] the verdict of the jury and the judgment for the plaintiff. The question remains, therefore, whether the charge of the court, as above given, was a correct statement of the law or whether on all the evidence in the plaintiff's favor a cause of action was made out.

Can a contract of employment be set aside or terminated by the parties to it and a new one made or substituted in its place? If so, is it competent to end the one and make the other at the same time?

It has been repeatedly held that a promise made to induce a party to do that which he is already bound by contract to perform is without consideration. But the cases in t'his state, while enforcing this rule, also recognize that a contract may be canceled by mutual consent and a new one made. Thus Vanderbilt v. Schreyer (91 N. Y. 392, 402) held that it was no consideration for a guaranty that a party promise to do only that which he was before legally bound to perform. This court stated, however:

"It would doubtless be competent for parties to cancel an existing contract and make a new one to complete the same work at a different rate of compensation, but it seems that it would be essential to its validity that there should be a valid cancellation of the original contract. Such was the case of Lattimore v. Harsen (14 Johns. 330)."

In Cosgray v. New England Piano Co. (10 App. Div. 351, 353) it was decided that where the plaintiff had bound himself to work for a year at $30 a week, there was no consideration for a promise thereafter made by the defendant that he should notwithstanding receive $1,800 a year. Here it will be noticed there was no termination of the first agreement which gave occasion for BARTLETT, J., to say in the opinion:

"The case might be different if the parties had, by word of mouth, agreed wholly to abrogate and do away with a pre-existing written contract in regard to service [203] and compensation, and had substituted for it another agreement."

Any change in an existing contract, such as a modification of the rate of compensation, or a supplemental agreement, must have a new consideration to support it. In such a case the contract is continued, not ended. Where, however, an existing contract is terminated by consent of both parties and a new one executed in its place and stead, we have a different situation and the mutual promises are again a consideration. Very little difference may appear in a mere change of compensation in an existing and continuing contract and a termination of one contract and the making of a new one for the same time and work, but at an increased compensation. There is, however, a marked difference in principle. Where the new contract gives any new privilege or advantage to the promisee, a consideration has been recognized, though in the main it is the same contract. (Triangle Waist Co., Inc., v. Todd, 223 N. Y. 27.)

If this which we are now holding were not the rule, parties having once made a contract would be prevented from changing it no malter how willing and desirous they might be to do so, unless the terms conferred an additional benefit to the promisee.

All concede that an agreement may be rescinded by mutual consent and a new agreement made thereafter on any terms to which the parties may assent. Prof. Williston in his work on Contracts says (Vol. 1, § 130a): "A rescission followed shortly afterwards by a new agreement in regard to the same subject-matter would create the legal obligations provided in the subsequent agreement."

The same effect follows in our judgment from a new contract entered into at the same time the old one is destroyed and rescinded by mutual consent. The determining factor is the rescission by consent. Provided this is the expressed and acted upon intention, the time [204] of the rescission, whether a moment before or at the same time as the making of the new contract, is unimportant. The decisions are numerous and divergent where one of the parties to a contract refuses to perform unless paid an additional amount. Some states hold the new promise to pay the demand binding though there be no rescission. It is said that the new promise is given to secure performance in place of an action for damages for not performing (Parrot v. Mexican Central Railway Co., 207 Mass. 184), or that the new contract is evidence of the rescission of the old one and it is the same as if no previous contract had been made (Coyner v. Lynde, 10 Ind. 282; Connelly v. Devoe, 37 Conn. 570; Goebel v. Linn, 47 Mich. 489), or that unforeseen difficulties and hardships modify the rule (King v. Duluth, M. & N. Ry. Co., 61 Minn. 482), or that the new contract is an attempt to mitigate the damages which may flow from the breach of the first. (Endriss v. Belle Isle Ice Co., 49 Mich. 279.) (See Anson's Law of Contract [Huffcut's Amer. Ed.], p. 114, sec. 138.) To like effect are Blodgett v. Foster (120 Mich. 392); Scanlon v. Northwood (147 Mich. 139); Evans v. Oregon & Washington R. R. Co. (58 Wash. 429); Main Street & A. P. R. R. Co. v. Los Angeles Traction Co. (129 Cal. 301).

The contrary has been held in such cases as Carpenter v. Taylor (164 N. Y. 171); Price v. Press Publishing Co. (117 App. Div. 854); Davis & Company v. Morgan (117 Ga. 504); Alaska Packers' Association v. Domenico (117 Fed. Rep. 99); Conover v. Stillwell (34 N. J. L. 54, 57); Erny v. Sauer (234 Penn. St. 330). In none of these cases, however, was there a full and complete rescission of the old contract and it is this with which we are dealing in this case. Rescission is not presumed; it is expressed; the old contract is not continued with modifications; it is ended and a new one made.

The efforts of the courts to give a legal reason for holding good a promise to pay an additional compensation [205] for the fulfillment of a pre-existing contract is commented upon in note upon Abbott v. Doane (163 Mass. 433) in 34 L. R. A. 33, 39, and the result reached is stated as follows: "The almost universal rule is that without any express rescission of the old contract, the promise is made simply for additional compensation, making the new promise a mere nudum pactum." As before stated, in this case we have an express rescission and a new contract.

There is no reason that we can see why the parties to a contract may not come together and agree to cancel and rescind an existing contract, making a new one in its place. We are also of the opinion that reason and authority support the conclusion that both transactions can take place at the same time.

For the reasons here stated, the charge of the trial court was correct, and the judgments of the Appellate Division and the Appellate Term should be affirmed, with costs.

HISCOCK, Ch. J., HOGAN, CARDOZO, MCLAUGHLIN and ANDREWS, JJ., concur; CHASE, J., dissents.

Judgments affirmed.

45 Mich. 569

CHAS. H. HACKLEY AND JAS. MCGORDON
v.
JOHN HEADLEY.

[569] Logging contract—Scale—Expense of sealing—Usage—Duress.

Where a lumberman, in contracting with his jobber for getting out logs, agrees to divide the expense of scaling them and the scaler stipulates that the jobber shall board him, the cost of boarding him is an item of the expense to be divided, and the lumberman is liable for half of it and cannot show that it is the custom of jobbers to board their scalers at their own expense. But if the scaler does not stipulate for his board the lumberman is not liable, and the transaction is between the jobber and scaler alone.

A contract for getting out logs to be scaled "in accordance with the standard rules or scales in general use" on the stream, is governed by the scale in use at the time of scaling.

Duress exists where one is induced, by another's unlawful act, to make a contract or perform some act under circumstances which prevent his [570] exercising free will. It is either of the person or the goods of the party constrained.

Duress of the person is by imprisonment, threats or an exhibition of apparently irresistible force.

Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them but refuses to surrender them unless the exaction is endured.

There is no duress where the act threatened is nothing which the party has not a legal right to perform.

Refusal, on demand, to pay a debt that is due, thereby forcing the creditor to receipt in full for only a partial payment, does not constitute duress if the debtor has done nothing unlawful to cause the financial embarassment which compelled him to submit to the extortion.

A receipt obtained by improper means and assuming to discharge any indebtedness not honestly in dispute between the parties and known by the debtor to be owing, is to that extent without consideration and ineffectual.

Error to Kent. Submitted Jan. 26. Decided April 13.

ASSUMPSIT. Defendant brings error. Reversed.

Smith, Nims, Hoyt & Erwin for plaintiffs in error.

Duress is that degree of constraint that is sufficient to overcome the mind and will of a person of ordinary firmness: Brown v. Pierce 7 Wal. 214; as a defense it must be made in good faith and seasonably: Lyon v. Waldo 36 Mich. 356, DeArmand v. Phillips Wal. Ch. 199; a payment is not compulsory unless made to emancipate the person or property from an actual and existing duress imposed upon it by the party to whom it is made: Radich v. Hutchins 95 U. S. 213; it is not ordinarily duress to refuse to pay without litigation: Mayhew v. Phoenix Ins. Co. 23 Mich. 105.

John C. FitzGerald for defendant in error. Procuring a settlement of a debt by taking advantage of the creditor's financial embarassments is duress of goods; Moses v. Macferlan 2 Burr. 1005; Irving v. Wilson 4 D. & E. 485; there is no consideration for a receipt obtained by taking such advantage, to the extent to which it releases the debt: Ryan [571] v. Ward 48 N. Y. 206; Harrison v. Close 2 Johns. 448; Seymour v. Minturn 17 Johns. 170; Mech. Bank v. Hazard 9 Johns. 393; Hendrickson v. Beers 6 Bosw. 639; contracts must be carried into effect according to the intention of the parties at the time of making them: Heald v. Cooper 8 Me. 32; a logging contract providing for scaling by the rule in general use means in use at the time: Williams v. Gilman 3 Me. 276; Homer v. Dorr 10 Mass. 26; Robinson v. Fiske 25 Me. 405; Dawson v. Kittle 4 Hill 108; Thomas v. Wiggers 41 Ill. 470; Karmuller v. Krotz 18 Ia. 352; Rindskoff v. Barrett 14 Ia. 101; 1 Chitty Cont. 135, n 3.

COOLEY, J. Headley sued Hackley & McGordon to recover compensation for cutting, hauling and delivering in the Muskegon river a quantity of logs. The performance of the labor was not disputed, but the parties were not agreed as to the construction of the contract in some important particulars, and the amount to which Headley was entitled depended largely upon the determination of these differences. The defendants also claimed to have had a full and complete settlement with Headley, and produced his receipt in evidence thereof. Headley admitted the receipt, but insisted that it was given by him under duress, and the verdict which he obtained in the circuit court was in accordance with this claim.

I.

The questions in dispute respecting the construction of the contract concerned the scaling of the logs. The contract was in writing, and bore date August 20, 1874. Headley agreed thereby to cut on specified lands and deliver in the main Muskegon river the next spring 8,000,000 feet of logs. The logs were to be measured or scaled by a competent person to be selected by Headley & McGordon, "and in accordance with the standard rules or scales in general use on Muskegon lake and river," and the expense of scaling was to be mutually borne by the parties.

The dispute respecting the expense of scaling related only to the board of the scaler. Headley boarded him and claimed to recover one-half what it was worth. Defendants offered [572] evidence that it was customary on the Muskegon river for jobbers to board the scalers, at their own expense, but we are of opinion that this was inadmissible. If under the contract with the scaler he was to be furnished his board, then the cost of the board was a part of the expense of scaling, and by the express terms of the contract was to be shared by the parties. If that was not the agreement with him, Headley could only look to the scaler himself for his pay.

This is a small matter; but the question what scale was to be the standard is one of considerable importance. The evidence tended to show that at the time the contract was entered into, scaling upon the river and lake was in accordance with the "Scribner rule," so-called; but that the "Doyle rule" was in general use when the logs were cut and delivered, and Hackley & McGordon had the logs scaled by that. By the new rule the quantity would be so much less than by the one in prior use that the amount Headley would be entitled to receive would be less by some $2000; and it was earnestly contended on behalf of Headley that the scale intended, as the one in general use, was the one in general use when the contract was entered into.

We are of opinion, however, that this is not the proper construction. The contract was for the performance of labor in the future, and as the scaling was to be done by third persons, and presumptively by those who were trained to the business, it would be expected they would perform their duties under such rules and according to such standards as were generally accepted at the time their services were called for. Indeed such contracts might contemplate performance at times when it would scarcely be expected that scalers would be familiar with scales in use when they were made. It is true the time that was to elapse between the making of this contract and its performance would be but short, but if it had been many years the question of construction would have been the same; and if we could not suppose under such circumstances that the parties contemplated the scalers should govern their measurements by obsolete and perhaps now unknown rules, neither can we here. It is fair to infer that [573] the existing scale was well known to the parties, and that if they intended to be governed by it at a time when it might have ceased to be used, they would have said so in explicit terms. In the absence of an agreement to that effect, we must suppose they intended their logs to be scaled as the logs of others would be at the place and time of scaling.

II.

The question of duress on the part of Hackley & McGordon, in obtaining the discharge, remains. The paper reads as follows:

                                                                                                                 "MUSKEGON, MICH., August 3, 1875.

Received from Hackley & McGordon their note for four thousand dollars, payable in thirty days, at First National Bank, Grand Rapids, which is in full for all claims of every kind and nature which I have against said Hackley & McGordon.

Witness: THOMAS HUME.                                                                                 JOHN HEADLEY."

Headley's account of the circumstances under which this receipt was given is in substance as follows: On August 3, 1875, he went to Muskegon, the place of business of Hackley & McGordon, from his home in Kent county, for the purpose of collecting the balance which he claimed was due him under the contract. The amount he claimed was upwards of $6200, estimating the logs by the Scribner scale. He had an interview with Hackley in the morning, who insisted that the estimate should be according to the Doyle scale, and who also claimed that he had made payments to others amounting to some $1400 which Headley should allow. Headley did not admit these payments, and denied his liability for them if they had been made. Hackley told Headley to come in again in the afternoon, and when he did so Hackley said to him: "My figures show there is 4260 and odd dollars in round numbers your due, and I will just give you $4000. I will give you our note for $4000." To this Headley replied: "I cannot take that; it is not right, and you know it. There is over $2000 besides that belongs to me, and you know it." Hackley replied: "That is the best I will do with you." Headley said: "I cannot take that, Mr. Hackley," and Hackley replied, "You do the next best thing you are a mind to. [574] You can sue me if you please." Headley then said: "I cannot afford to sue you, because I have got to have the money, and I cannot wait for it. If I fail to get the money to-day, I shall probably be ruined financially, because I have made no other arrangement to get the money only on this particular matter." Finally he took the note and gave the receipt, because at the time he could do nothing better, and in the belief that he would be financially ruined unless he had immediately the money that was offered him, or paper by means of which the money might be obtained.

If this statement is correct, the defendants not only took a most unjust advantage of Headley, but they obtained a receipt which, to the extent that it assumed to discharge anything not honestly in dispute between the parties, and known by them to be owing to Headley beyond the sum received, was without consideration and ineffectual. But was it a receipt obtained by duress? That is the question which the record presents. The circuit judge was of opinion that if the jury believed the statement of Headley they would be justified in finding that duress existed; basing his opinion largely upon the opinion of this Court in Vyne v. Glenn 41 Mich. 112.

Duress exists when one by the unlawful act of another is induced to make a contract or perform some act under circumstances which deprive him of the exercise of free will. It is commonly said to be of either the person or the goods of the party. Duress of the person is either by imprisonment, or by threats, or by an exhibition of force which apparently cannot be resisted. It is not pretended that duress of the person existed in this case; it is if anything duress of goods, or at least of that nature, and properly enough classed with duress of goods. Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them in possession but refuses to surrender them unless the exaction is submitted to.

The leading case involving duress of goods is Astley v. Reynolds 2 Strange, 915. The plaintiff had pledged goods for £20, and when he offered to redeem them, the pawnbroker [575] refused to surrender them unless he was paid £10 for interest. The plaintiff submitted to the exaction, but was held entitled to recover back all that had been unlawfully demanded and taken. This, say the court,

"is a payment by compulsion: the plaintiff might have such an immediate want of his goods that an action of trover would not do his business: where the rule volenti non fit injuria is applied, it must be when the party had his freedom of exercising his will, which this man had not: we must take it he paid the money relying on his legal remedy to get it back again."

The principle of this case was approved in Smith v. Bromley Doug. 696, and also in Ashmole v. Wainwright 2 Q. B. 837. The latter was a suit to recover back excessive charges paid to common carriers who refused until payment was made to deliver the goods for the carriage of which the charges were made. There has never been any doubt but recovery could be had under such circumstances. Harmony v. Bingham 12 N. Y. 99. The case is like it of one having securities in his hands which he refuses to surrender until illegal commissions are paid. Scholey v. Mumford 60 N. Y. 498. So if illegal tolls are demanded, for passing a raft of lumber, and the owner pays them to liberate his raft, he may recover back what he pays. Chase v. Dwinal 7 Me. 134. Other cases in support of the same principle are Sham v. Woodcock 7 B. & C. 73; Nelson v. Suddarth 1 H. & Munf. 350; White v. Heylman 34 Penn. St. 142; Sasportas v. Jennings 1 Bay, 470; Collins v. Westbury 2 Bay 211; Crawford v. Cato 22 Ga. 594. So one may recover back money which he pays to release his goods from an attachment which is sued out with knowledge on the part of the plaintiff that he has no cause of action. Chandler v. Sanger 114 Mass. 364. See Spaids v. Barrett 57 Ill. 289. Nor is the principle confined to payments made to recover goods: it applies equally well when money is extorted as a condition to the exercise by the party of any other legal right; for example when a corporation refuses to suffer a lawful transfer of stock till the exaction is submitted to: Bates v. Insurance Co. 3 Johns. Cas. 238; or [576] a creditor witholds his certificate from a bankrupt. Smith v. Bromley Doug. 696. And the mere threat to employ colorable legal authority to compel payment of an unfounded claim is such duress as will support an action to recover back what is paid under it. Beckwith v. Frisbie 32 Vt. 559; Adams v. Reeves 68 N. C. 134; Briggs v. Lewiston 29 Me. 472; Grim v. School District 57 Penn. St. 433; First Nat. Bank v. Watkins 21 Mich. 483.

But where the party threatens nothing which he has not a legal right to perform, there is no duress. Skeate v. Beale 11 Ad. & El. 983; Preston v. Boston 12 Pick. 14. When therefore a judgment creditor threatens to levy his execution on the debtor's goods, and under fear of the levy the debtor executes and delivers a note for the amount, with sureties, the note cannot be avoided for duress. Wilcox v. Howland 23 Pick. 167. Many other cases might be cited, but it is wholly unnecessary. We have examined all to which our attention has been directed, and none are more favorable to the plaintiff's case than those above referred to. Some of them are much less so; notably Atlee v. Backhouse 3 M. & W. 633; Hall v. Schultz 4 Johns. 240; Silliman v. United States 101 U.S. 465.

In what did the alleged duress consist in the present case? Merely in this: that the debtors refused to pay on demand a debt already due, though the plaintiff was in great need of the money and might be financially ruined in case he failed to obtain it. It is not pretended that Hackley & McGordon had done anything to bring Headley to the condition which made this money so important to him at this very time, or that they were in any manner responsible for his pecuniary embarrassment except as they failed to pay this demand. The duress, then, is to be found exclusively in their failure to meet promptly their pecuniary obligation. But this, according to the plaintiffs claim, would have constituted no duress whatever if he had not happened to be in pecuniary straits; and the validity of negotiations, according to this claim, must be determined, not by the defendants' conduct, [577] but by the plaintiff's necessities. The same contract which would be valid if made with a man easy in his circumstances, becomes invalid when the contracting party is pressed with the necessity of immediately meeting his bank paper. But this would be a most dangerous, as well as a most unequal doctrine; and if accepted, no one could well know when he would be safe in dealing on the ordinary terms of negotiation with a party who professed to be in great need.

The case of Vyne v. Glenn 41 Mich. 112, differs essentially from this. There was not a simple withholding of moneys in that case. The decision was made upon facts found by referees who reported that the settlement upon which the defendant relied was made at Chicago, which was a long distance from plaintiff's home and place of business; that the defendant forced the plaintiff into the settlement against his will, by taking advantage of his pecuniary necessities, by informing plaintiff that he had taken steps to stop the payment of money due to the plaintiff from other parties, and that he had stopped the payment of a part of such moneys; that defendant knew the necessities and financial embarrassments in which the plaintiff was involved, and knew that if he failed to get the money so due to him he would be ruined financially; that plaintiff consented to such settlement only in order to get the money due to him, as aforesaid, and the payment of which was stopped by defendant, and which he must have to save him from financial ruin. The report, therefore, showed the same financial embarrassment and the same great need of money which is claimed existed in this case, and the same withholding of moneys lawfully due, but it showed over and above all that an unlawful interference by defendant between the plaintiff and other debtors, by means of which he had stopped the payment to plaintiff of sums due to him from such other debtors. It was this keeping of other moneys from the plaintiff's hands, and not the refusal by defendant to pay his own debt, which was the ruling fact in that case, and which was equivalent, in our opinion, to duress of goods.

[578] These views render a reversal of the judgment necessary, and the case will be remanded for a new trial with costs to the plaintiffs in error.

The other Justices concurred.

[1010] For the plaintiff-appellant-petitioner there were briefs by David M. Erspamer and Erspamer Law Office, Amery and oral argument by David M. Erspamer.

For the defendant-respondent there was a brief by Mark E. Coe and Coe, Dalrymple, Heathman, Coe & Zabel, S.C., Rice Lake and oral argument by Mark E. Coe.

ABRAHAMSON, J.

This is a review of an unpublished decision of the court of appeals filed on January 20, 1993, affirming a judgment of the circuit court for Barron County, Edward R. Brunner, Circuit Judge. The circuit court granted summary judgment to Monkem Company, the defendant, dismissing the complaint with prejudice. It held that the form signed by Jerilyn Richards, the plaintiff, was an exculpatory contract that was not void or unenforceable as contrary to public policy. It further held that the plaintiff's claim for injuries suffered while riding as a passenger in a truck operated by Leo Richards, her husband, and owned by Monkem Company, her husband's employer, was clearly within the contemplation of the parties at the time the exculpatory contract was executed. The circuit court thus foreclosed the plaintiff's claim as a matter of law. The court of appeals affirmed the judgment of the circuit court. We reverse and remand for further proceedings.

[1,2]

The issue before this court is whether the form the plaintiff executed constitutes a valid exculpatory contract releasing the plaintiff's claims against Monkem Company, thereby barring this lawsuit. This issue arose in a motion for summary judgment, and this [1011] court is reviewing a decision affirming the summary judgment. Therefore the standard of review is the same as the standard used by the circuit court to determine whether to grant the motion for summary judgment. Dobratz v. Thomson, 161 Wis.2d 502, 513, 468 N.W.2d 654 (1991). If an exculpatory contract is found to be invalid on its face, the defendant's motion for summary judgment will be denied. Dobratz v. Thomson, 161 Wis.2d at 526. Thus, this court must determine whether, as a matter of law, the form was a valid exculpatory contract that bars the plaintiff's claim.

[3]

We conclude that the form at issue here is an exculpatory contract void as against public policy. As is often the case, neither a prior decision of the court nor the facts of a prior case is directly on point. An examination of the principles underlying the determination of the validity of exculpatory contracts leads us to the conclusion that the form is an unenforceable exculpatory contract due to a combination of three factors. None of these factors alone would necessarily invalidate the release; however, taken together they demand the conclusion that the contract is void as against public policy. First, the contract serves two purposes, not clearly identified or distinguished. Second, the release is extremely broad and all-inclusive. Third, the release is in a standardized agreement printed on the Company's form, offering little or no opportunity for negotiation or free and voluntary bargaining.

The facts relevant to our determination of the validity of the form as an exculpatory contract are not in dispute. In February of 1990, Leo Richards was hired by Monkem Company as an over-the-road truck driver. Shortly thereafter, the plaintiff and her husband discussed the possibility of her riding as a [1012] passenger with him. Before the plaintiff could accompany her husband, however, Monkem Company required that she sign a form entitled "Passenger Authorization," and she did so on or about May 22, 1990.

The "Passenger Authorization" form used by Monkem Company appears to have two purposes. First, it served as Monkem Company's authorization to the passenger to ride in a company truck. Second, it serves as a passenger's general release of all claims against the Company. The language of release attempts to transform the "Passenger Authorization" form into an exculpatory contract relieving Monkem Company and all of its affiliated companies, partnerships, individuals and corporations (as well as others) from any and all liability for harm to the person signing the form. See Merten v. Nathan, 108 Wis.2d 205, 210, 321 N.W.2d 173 (1982). The form reads as follows: [1013]

[1014] In addition, the form contains an insert asking for the passenger's height, weight, hair color, eye color, driver's license number, and social security number. The appropriate information about the plaintiff was inserted on the form. The release was signed by Leo Richards as driver, Jerilyn Richards as passenger, and C.L. McCarley, Director of Risk Management for Monkem Company.

On June 14, 1990, the plaintiff accompanied her husband on one of his scheduled trips. When the truck, negotiating a left curve, overturned, the plaintiff was pinned inside the vehicle. The injuries she sustained as a result of this accident are the basis for the current lawsuit.

The principles applicable to the determination of the validity of exculpatory contracts were recently set forth by the court in Dobratz v. Thomson, 161 Wis.2d 502, 514-20, 468 N.W.2d 654 (1991), which incorporated, explained, and elaborated on the principles set forth in several earlier cases. See, e.g., Discount Fabric House v. Wisconsin Telephone Co., 117 Wis.2d 587, 345 N.W.2d 417 (1984) (contract releasing liability of telephone company for negligent omission of and from yellow pages); Arnold v. Shawano Co. Agr. Socy, 111 Wis.2d 203, 330 N.W.2d 773 (1983) (contract releasing liability of race track to driver), overruled on other grounds, Green Spring Farms v. Kersten, 136 Wis.2d 304, 314, 401 N.W.2d 816 (1987); Merten v. Nathan, 108 Wis.2d 205, 321 N.W.2d 173 (1982) (contract releasing liability of horseback riding school to pupil); and College Mobile Home Park & Sales v. Hoffmann, 72 Wis.2d 514, 241 N.W.2d 174 (1976) (contract releasing liability of landlord to tenant).

[1015] [4]

We now reiterate several of the principles from these cases which are relevant to the case at bar. Exculpatory contracts are not favored by the law because they tend to allow conduct below the acceptable standard of care applicable to the activity. Exculpatory contracts are not, however, automatically void and unenforceable as contrary to public policy. Arnold v. Shawano Co. Agr. Socy, 111 Wis.2d 203, 209, 330 N.W.2d 773 (1983), overruled on other grounds, Green Spring Farms v. Kersten, 136 Wis.2d 304, 314, 401 N.W.2d 816 (1987); Dobratz v. Thomson, 161 Wis.2d 502, 514, 468 N.W.2d 654 (1991). Rather, a court closely examines whether such agreements violate public policy and construes them strictly against the party seeking to rely on them. Merten v. Nathan, 108 Wis.2d 205, 211, 321 N.W.2d 173 (1982).

[5]

In determining whether an exculpatory agreement violates public policy and is therefore void, courts recognize that public policy is not an easily defined concept. The concept embodies the common sense and common conscience of the community. Public policy is that principle of law under which "freedom of contract is restricted by law for the good of the community." Merten v. Nathan, 108 Wis.2d 205, 213, 321 N.W.2d 173 (1982) (quoting Higgins v. McFarland, 86 S.E.2d 168, 172 (Va. 1955). An exculpatory agreement will be held to contravene public policy if it is so broad "that it would absolve [the defendant] from any injury to the [plaintiff] for any reason." College Mobile Home Park & Sales v. Hoffmann, 72 Wis.2d 514, 521-22, 241 N.W.2d 174 (1976). See also Arnold v. Shawano Co.Agr.Socy, 111 Wis.2d 203, 210, 330 N.W.2d 773 (1983), citing College Mobile Home Park with approval. In Dobratz v. [1016] Thomson, 161 Wis.2d 502, 520, 468 N.W.2d 654 (1991), a unanimous court, striking down an overly broad release, stated that "this court will not favor an exculpatory contract that is broad and general in its terms."

In reviewing an exculpatory agreement for violation of public policy, a court attempts to accommodate the tension between the principles of contract and tort law that are inherent in such an agreement. The law of contract is based on the principle of freedom of contract; people should be able to manage their own affairs without government interference. Freedom of contract is premised on a bargain freely and voluntarily made through a bargaining process that has integrity. Contract law protects justifiable expectations and the security of transactions. The law of torts is directed toward compensation of individuals for injuries resulting from the unreasonable conduct of another. Tort law also serves the "prophylactic" purpose of preventing future harm; tort law seeks to deter certain conduct by imposing liability for conduct below the acceptable standard of care. Merten v. Nathan, 108 Wis.2d 205, 211-212, 214, 321 N.W.2d 173 (1982).

Applying these principles to this case we conclude that the exculpatory contract at issue is void as against public policy. In this case, the public policy "of imposing liability on persons whose conduct creates an unreasonable risk of harm" outweighs the public policy of "freedom of contract." Merten v. Nathan, 108 Wis.2d 205, 215, 321 N.W.2d 173 (1982). Accordingly we conclude that it would be contrary to public policy to enforce the exculpatory language in Monkem Company's "Passenger Authorization" form. A combination of three factors in this case leads us to this conclusion.

[1017] [6]

First, the contract serves two purposes, not clearly identified or distinguished. As we stated previously, those purposes appear to be: (1) the Company authorizes the passenger to ride in a Company truck, and (2) the passenger releases the Company and others from liability. This dual function, however, is not made clear in the title of the contract; the form is designated merely as a "Passenger Authorization." The written terms clearly state that the document is a release of liability. A person signing a document has a duty to read it and know the contents of the writing. State Farm Fire & Casualty Co. v. Home Ins. Co., 88 Wis.2d 124, 129, 276 N.W.2d 349 (Ct. App. 1979). Nevertheless it is not reasonably clear to the signer of a form entitled "Passenger Authorization" that the document would in reality be the passenger's agreement to release the Company (and others) from liability. Rather the title "Passenger Authorization" implies that only the Company is making the concessions and only the Company is bound. We conclude that in this case the release should have been conspicuously labelled as such to put the person signing the form on notice. Moreover, to prevent confusion under these circumstances, the passenger's release of the Company from liability should have been carefully identified and distinguished from the Company's authorization for a passenger to ride along. Identifying and distinguishing clearly between those two contractual arrangements could have provided important protection against a signatory's inadvertent agreement to the release.

[7]

Second, the release is extremely broad and allinclusive. It purports to excuse intentional, reckless, and negligent conduct not only by the Company but by [1018] another entity (Joplin Hiway, Inc.) and by all affiliated, associated, or subsidiary companies, partnerships, individuals, or corporations, and all other persons, firms or corporations. Further, although the passenger's release is combined with the Company's authorization to the plaintiff to ride in a specified Company vehicle during a specified period, the release does not refer to an injury the plaintiff may sustain while riding as a passenger in the specified Company vehicle during the specified time period. It purports to release the Company from liability for any and all injury to the plaintiff while the plaintiff is a passenger in any vehicle (not necessarily one owned by the Company) at any time and while the plaintiff is on any and all Company property at any time. The release, unlike the authorization, is not limited to a specified vehicle or to a specified time period. Had the Company intended that it be released from liability to the plaintiff while she was riding with her husband in the Company truck during the period the Company authorized, that is not what the release says. The very breadth of the release raises questions about its meaning and demonstrates its one-sidedness; it is unreasonably favorable to the Company, the drafter of the contract.

With respect to overly broad releases, three lines of cases have developed. In College Mobile Home Park & Sales v. Hoffmann, 72 Wis.2d 514, 241 N.W.2d 174 (1976), the court concluded that an exculpatory contract contravenes public policy when it would absolve the tortfeasor from any injury to the victim for any reason. In Arnold v. Shawano Co. Agr. Socy, 111 Wis.2d 203, 330 N.W.2d 773 (1983), the court remanded the summary judgment case to the circuit court to determine at trial whether the accident was within the contemplation of the parties to a release which the [1019] court characterized as broad and ambiguous. In contrast, in Dobratz v. Thomson, 161 Wis.2d 502, 468 N.W.2d 654 (1991), the court struck down on summary judgment a broad release on the ground that it was ambiguous and unclear, and that, as a matter of law, no contract was formed. The facts of the three cases are different and determined the outcomes. In regard to the issue of overly broad releases, however, the court's resolution of the effect of the overly broad releases in College Mobile Home Park & Sales and Dobratz is more pertinent to the very broad and inclusive release in the case at bar than is the court's treatment of the more limited release in the Arnold case.

[8]

Third, this contract is a standardized agreement on the Company's printed form which offers little or no opportunity for negotiation or free and voluntary bargaining. According to the record, when the Company forwarded the form to the plaintiff its cover letter did not advise her that the document was a release of all claims and did not advise her of the legal significance attached to her signing of the document. The employee handbook advised employees that Company authorization was needed for a passenger to ride along but did not advise employees that the passenger would have to release all claims against the Company.

The fact that a release is printed in a standardized form is not, by itself, enough to invalidate it. However, the plaintiff's lack of an opportunity for discussing and negotiating the contract is significant when considered with the breadth of the release. If her plans to ride with her husband were to go forward, the plaintiff simply had to adhere to the terms of the written form. While the Company had the time and resources to draft the provisions and plan their effect, the plaintiff did not. [1020] Had the plaintiff been afforded the opportunity to negotiate a release, she might have declined to release the Company from liability for intentional or reckless actions or the driver's negligence, or from liability for its defective equipment. Because the Company probably derives some benefit from allowing family members to join drivers on the road, such as improving employee morale, the Company might not necessarily have rejected such proposals out of hand.

As we have said, none of these factors alone would necessarily have warranted invalidation of the exculpatory contract. Under the circumstances in the case at bar, a combination of these factors demonstrate that adherence to the principle of freedom of contract is not heavily favored. The principle of tort law, to compensate persons for injuries resulting from unreasonable conduct of another, prevails. Accordingly, we conclude that the document contravenes public policy and is void and unenforceable. The decision of the court of appeals is reversed and the cause remanded for proceedings not inconsistent with this opinion.

By the Court.—The decision of the court of appeals is reversed and the cause remanded to the circuit court.

DAY, J. (dissenting).

Leo J. Richards (Mr. Richards) was a truck driver in the employ of Monkem Company, a trucking company. Jerilyn Richards (Mrs. Richards), his wife, wished to travel in the truck with Mr. Richards during one of his trips. The release at issue was signed by Mrs. Richards and her husband as a condition for allowing Mrs. Richards to travel with her husband while he drove a truck owned by Monkem Company. The release was broad, but it was clearly within the contemplation of the parties that the release [1021] would cover an injury to Mrs. Richards while riding as a passenger in the truck during an accident caused by her husband's negligence.

The majority opinion lists three reasons which purportedly require invalidation of the release as a matter of law. The reasons given are: (1) "the contract serves two purposes, not clearly identified or distinguished"; (2) "the release is extremely broad and allinclusive"; (3) "the release is in a standardized agreement printed on the Company's form, offering little or no opportunity for negotiation or free and voluntary bargaining." 181 Wis. 2d at 1011. I dissent as to each reason given by the majority opinion for invalidating this release, and I dissent as to their application in "combination."

I agree that exculpatory releases are not generally favored and, therefore, will be construed strictly. Arnold v. Shawano County Agr. Society, 111 Wis. 2d 203, 209, 330 N.W.2d 773 (1983); Dobratz v. Thomson, 161 Wis. 2d 502, 514, 468 N.W.2d 654 (1991). However, the fact that exculpatory releases are "not favored" does not mean that the majority should invent new "rules" without precedent or support. None of the reasons cited by the majority justifies summary invalidation of this release. This the majority admits. Nor is summary invalidation of this release justified by these "reasons" in some unspecified "combination." Whether in "combination" or not, reasons (1) and (3) are "rules" created in this opinion, and reason (2) does not lead to automatic invalidation. The whole is not more than the sum of the parts here. None of these rationales justifies invalidation of the release as a "matter of law," and the facts of this case neither warrant nor support the rules created by the majority, whether applied singly or in combination. I would hold [1022] that the release should be enforced to the extent it covers what was clearly contemplated by the parties when executing the release. The accident which occurred was clearly the kind of occurrence contemplated in the release.

The first reason given by the majority opinion for invalidating the release as against "public policy" is that the release "serves two purposes." 181 Wis. 2d at 1011. There is no such "rule," however. No legal authority is cited by anyone, neither the parties nor the majority opinion, to support such a rule. Quite simply, this "rule" appears for the first time in the majority opinion. Moreover, this new "rule" conflicts with legal precedent and serves no practical purpose.

The majority opinion disapproves the fact that the release serves not only to release claims against the company but that it also serves to document the company's authorization of a passenger. However, a release in the present circumstances is best viewed as condition that must be met before permission is granted. Since permission is not given until the condition is met, the release must necessarily serve two purposes. By definition, it serves both to release claims and to satisfy a condition for permission. The signed release merely documents that the condition has been met.

This practice is quite common. Many cases have enforced releases which serve both to release claims and to document that permission has been granted upon satisfaction of the condition. For instance, most jurisdictions routinely enforce releases which were the condition for granting permission to applicants and participants in races and other recreational activities. See, Hammer v. Road America, Inc., 614 F. Supp. 467, 470 (E.D.Wis. 1985), aff'd., 793 F.2d 1296 (7th Cir. [1023] 1986); Arnold, 111 Wis. 2d at 213 n.4. Both Arnold and Merten v. Nathan, 108 Wis. 2d 205, 321 N.W.2d 173 (1982), involved releases which then served as conditions for participation. Neither of those opinions indicates any problem with that fact. Quite simply, there is no rule that a release "serving two purposes" must be invalid. There is no rule that a release "serving two purposes" is even presumptively invalid.

The only way that "serving two purposes" could lead to invalidation of a release is if "serving" the second purpose made an otherwise clear release unclear. For instance, one can conceive of a situation in which the addition of information extraneous to the release is interwoven with the language of the release in such a way that the release itself is made unclear. The release would therefore be unenforceable to the extent it was rendered unclear. see Arnold, 111 Wis. 2d at 211. Problems would also arise if a phrase or two containing release language were buried within a document otherwise devoted to matters unrelated to the release, so that it became unclear that a release was even contained within the document. See, e.g. Restatement (Second) of Torts § 496B, Comment C. Neither of these situations is present here, however.

Mrs. Richards complained that the release was invalid as a matter of law because the release document also served to satisfy federal requirements for information about passengers authorized to accompany truck drivers. However, as discussed above, there is no rule of law which suggests that a signed release may not be used to serve any number of purposes. Nor is there any reason why a document containing a release may not solicit other information from the signatory so long as the release itself remains clear.

[1024] The majority opines that "to prevent confusion under these circumstances, the passenger's release of the Company from liability should have been carefully identified and distinguished from the Company's authorization for a passenger to ride along." 181 Wis. 2d at 1017. However, besides the fact that there was no evidence of confusion in the record, there is no basis in fact or in law to even claim confusion in this case.

First, the release itself was clearly a release by its terms, and its function as a release was not obscured by the addition of a separate section asking for identification information about the passenger.

The "PASSENGER AUTHORIZATION" is a one-page document consisting of two sections. The first section is entitled: "FULL AND FINAL RELEASE ..." followed by the body of the release. The body of the release occupies approximately § 23 of the page and is written in capital lettering. The word "RELEASE" appears no less than four times in the release. In fact, no other single word with more than four letters appears more often in the release than the word "RELEASE"; only the name "MONKEM COMPANY" appears as many times as the word "RELEASE" in the release. The title to the release uses the word "RELEASE"; the final sentence before the signature portion of the release uses the word "RELEASE"; and the word "RELEASE" appears prominently in both of the two intervening paragraphs of the release. The final sentence of the release, located just above the space where the passenger applicant and driver are to sign, states: "THIS PERMISSION IS GIVEN ONLY UPON FULL UNDERSTANDING OF THE ABOVE RELEASE AND IS ACCEPTED AND EXECUTED AND ACKNOWLEDGED BY SIGNATURE OF THE PERSON BELOW:". Both Mrs. Richards and her husband [1025] signed the release in the appropriate space immediately following that statement.

The second section of the document, entitled, "PASSENGER INFORMATION," is located in the lower right hand corner of the document. It consists of entry blanks for the height, weight, hair color, eye color, driver's license number and social security number of the passenger. It occupies less than two square inches of space on the document. This section is clearly neutral, if not innocuous.

Any claim that the presence of the passenger information section could confuse anyone into believing that the rest of the document ceased to be a release is completely untenable. It is especially untenable when alleged by someone such as Mrs. Richards who did not even read or fill-out the passenger information section. See, footnote number 1, infra.

The majority concedes that the facts relevant to the determination of the validity of the release are not in dispute. 181 Wis. 2d at 1011. Those undisputed facts include the following:

Mrs. Richards claims in her brief that it was "undisputed that despite reasonable diligence by the plaintiff to find out the purpose of this agreement, she did not know and was not advised that the agreement was an exculpatory contract." And she claims that she "went through efforts to find out the reason for the agreement." Her "efforts," however, evidently did not include reading the release itself. Mrs. Richards' deposition testimony indicates that she did not read much of the document and did not read carefully those parts she may have read.^[1] Her efforts did not include asking the company any questions or even indicating any dissatisfaction [1026] with the release. Her efforts did not [1027] include reading the memo from the company carefully, and her efforts did not include contacting the Director of Risk Management referred to in the employee [student] handbook. Thus, when the majority opinion argues that "it is not reasonably clear to the signer of a form entitled `Passenger Authorization' that the document would in reality be the passenger's agreement to release the Company (and others) from liability," 181 Wis. 2d at 1017 it refers to no more than Mrs. Richards herself remembers reading carefully, namely, the first two words at the top of the document.

[1028] I agree with the court of appeals when it concludes that, "Jerilyn's assertions that she did not understand the language of the exculpatory contract but signed it anyway are insufficient to invalidate its effect. Failure to read or understand a contract will generally not affect its validity because a court will not protect a person who fails to take reasonable steps for her own protection." Richards v. Richards, 173 Wis. 2d 908, 499 N.W.2d 301 (Table), 1993 WL 8053 (Wis. App.), p. 2, (Unpublished Opinion). There is no reason why this court should credit Mrs. Richards' claim that she was or even could have been somehow confused about this being a release.

Nor is it credible on the facts as alleged to suggest or imply that Mr. Richards was somehow confused. As his deposition indicates, he knew that the Passenger Authorization contained a release. He knew that the release was required because Monkem Company was worried about accidents involving passengers. He admits that he did not read the release before signing it, and he admits that he did not ask anyone at Monkem Company to clarify it for him. There is no clear evidence that he read the student handbook carefully as to this issue, much less that he was, or in any way could have been, confused that this was a release. Rather he admits that all drivers knew ahead of time about the requirements.^[2] Thus, clearly, if Mrs. Richards [1029] was confused because she relied upon Mr. Richards' explanations of the release without really reading the release and without asking the company for clarification, that is her fault, and not any confusion caused by Monkem or the structure or wording of the document, as a matter of law.

The second reason given for invalidation of the release by the majority opinion is that the release is "extremely broad and all-inclusive." 181 Wis. 2d at 1011. I agree that the release is very broad. However, it is not the law in Wisconsin that just because a release is "extremely broad and all-inclusive" that it is automatically [1030] void as against public policy. This court held in Arnold, 111 Wis. 2d at 211, that the rule on broad and general exculpatory releases is as follows: "Exculpatory agreements that are broad and general in terms will bar only those claims that are within the contemplation of the parties when the contract was executed."^[3]

It must be emphasized that Mrs. Richards does not argue that the release was so obtuse that it could not be understood. Rather, Mrs. Richards argues that the release should be invalid because it is overbroad. Mrs. Richards complains that, "[i]t was simply impossible for the parties to contemplate the scope and breadth of the purported damages and actions that they were releasing." That may be true, but this case does not involve any bizarre hypotheticals, and the rule is that the parties will be held to what was clearly contemplated in the situation.

[1031] Thus the proper question in this context is what was clearly contemplated by the parties. Was it clearly contemplated that the release would cover Monkem? Was it clearly contemplated that the release would cover an accident in which Mrs. Richards was injured while riding as a passenger in the truck? And was it clearly contemplated that this release would prevent Mrs. Richards from recovering against the company for acts of negligence caused by her husband while driving Monkem's truck? The answer to each of these questions is "yes."

These questions may be determined as a matter of law. In Plummer v. Leonhard, 44 Wis. 2d 686, 692, 172 N.W.2d 1 (1969), citing 76 C.J.S. Release § 72 (1952), this court noted that normally the determination of the intent of the parties to a release, and the scope of a release, are questions of fact for the jury. However, the meaning, construction, and legal effect of a release are questions for determination by the court, where there is no ambiguity in the instrument, or where the evidence in connection with the release is undisputed. Specifically, the construction of a written release as operating to discharge particular claims is a determination made by the court. See, 76 C.J.S. Release § 72 (1952); and Arnold, 111 Wis. 2d at 212.

As to the first question, Mrs. Richards admits that the release is clear in its intent to release liability as to Monkem. "Obviously," Mrs. Richards writes in her brief, "the release itself purports to excuse negligence not only on behalf of Leo Richards' employer, Monkem Company, but in addition purports to release liability on behalf of some separate entity known as `Joplin Hiway, Inc.'" Her complaint at that point is that the identity of Joplin Hiway, Inc., etc., is not given, and therefore the scope of the release is overbroad. I might [1032] agree that the enforcement of the release as to unknown or undefined entities may or may not be permissible under the terms of this release. That is an open question. However, the fact that the release "obviously" covered Monkem means that was clearly contemplated by the parties and should therefore be enforced to that extent.

As to the second question, Mrs. Richards argued that the broad language of the release could cover an almost unlimited number of bizarre hypothetical situations and is therefore invalid. However, again, while the release will not be extended beyond those situations clearly contemplated by the parties, the rule of Arnold is that it will be applied to those situations clearly contemplated. The release clearly covers the situation in which the passenger is injured while riding in the truck, and this is precisely what happened to Mrs. Richards.

As to the third question, I agree with the court of appeals and conclude that it was clearly contemplated that the release obviously covered claims against the company based upon the spouse's negligent driving. Richards v. Richards, 173 Wis. 2d at 908, 1993 WL 8053 (Wis. App.), p. 2, (Unpublished Opinion).

Applying the rule of Arnold, the release should be enforced to the extent it covers situations clearly contemplated by the parties. I agree with the circuit court and court of appeals that Mrs. Richards clearly contemplated that the release would cover an injury sustained while Mrs. Richards was riding in the truck as a passenger during an accident caused by her husband's negligence, and that Monkem, at least, would be covered.

How and why the majority avoids the rule of Arnold is unclear. Arnold establishes that exculpatory [1033] clauses, while not favored, will be enforced to the extent they cover situations clearly contemplated by the parties executing the release. Accordingly, the fact that the release in Arnold was broad and ambiguous did not result in invalidation of the release. Instead, the court in Arnold remanded the summary judgment case to the circuit court to determine whether the specific accident which occurred was within the contemplation of the parties to the release.

The court in Arnold did not say that all questions of what was clearly contemplated must be returned to the circuit court when a release is broad in its terms. Quite to the contrary, the court explicitly noted that certain types of situations may reasonably be concluded were contemplated by the parties. The release in Arnold concerned the activity of racing. The court noted that "it would be reasonable to assume that this exculpatory contract was intended to preclude liability for such things as negligent maintenance of the track or the negligent driving of another driver participant ...." Arnold, 111 Wis. 2d at 212. The court's only concern was that it was unclear whether "rescue operations" were to be covered. Nor did the court say that rescue operations could not be covered by a broad release; rather it held only that it was not clear whether that particular type of situation had been contemplated and remanded for a factual determination on that question.

Precisely the same analysis should be applied to the present case. Clearly the parties here must be held to have contemplated that the release would cover injuries sustained by Mrs. Richards while riding as a passenger during an accident caused by her husband's negligence. That much was clearly contemplated and should be enforced to that extent. Had Mrs. Richards [1034] been injured in some other way, then we would have to confront whether that situation was clearly contemplated or not. But that is not our case. Thus regardless of how many hypotheticals are engaged to avoid Arnold, that case and the cases subsequent to Arnold still stand for the rule that exculpatory contracts will be enforced to the extent they cover situations clearly contemplated by the parties. Neither Dobratz nor any other decision has repealed that basic rule.

The majority cites Dobratz for the statement that "this court will not favor an exculpatory contract that is broad and general in its terms." I agree. However, Dobratz does not say that broad and general releases are invalid. Quite to the contrary, Dobratz, 161 Wis. 2d at 521, cites to Arnold and explicitly endorses the analysis and conclusion of Arnold.

Nor does College Mobile Home Park & Sales provide a legitimate basis to avoid the rule of Arnold. The majority claims that College Mobile Home Park & Sales is "more pertinent" to the present situation than is Arnold. 181 Wis. 2d at 1011. However, the majority does not explain how or why. College Mobile Home Park & Sales cannot be more "pertinent" than Arnold, neither in fact nor in law. On the facts, College Mobile Home Park & Sales concerns the specialized area of landlord-tenant law, an area now covered by statute. The release in Arnold, which is a condition of permission for a discretionary activity and which concerns injuries occurring while riding in a vehicle, is clearly more analogous to the present situation. Likewise, in the law, Arnold supersedes College Mobile Home Park & Sales. Arnold establishes the rule that broad exculpatory releases will be enforced to the extent they cover situations clearly contemplated by the parties. It refers to College Mobile Home Park & Sales as an example of [1035] landlord-tenant law and cites that case and others as consistent with the rule promulgated in Arnold. Accordingly, College Mobile Home Park & Sales does not overrule or displace the rule established in Arnold.

The third reason given for invalidation of this release by law is that "the release is in a standardized agreement printed on the Company's form, offering little or no opportunity for negotiation or free and voluntary bargaining." 181 Wis. 2d at 1011. This "reason" is, of course, actually a combination of several factors, none of which supports a "rule" for invalidation by law.

First, the suggestion that there is something inherently or presumptively wrong with releases written in standardized forms is without foundation. There is plenty of authority that standardized contracts will be read strictly and will be construed against the drafter, etc. see e.g. Restatement (Second) of Torts § 496B, Comments C and D; Restatement (Second) of Contracts § 195, Comment B. However, there is no authority cited that a standardized form is inherently or even presumptively invalid in this context or any other. Again, this "rule," if it is to be that, appears for the first time in the majority opinion.

Such a rule, which would effectively ban standardized releases, also conflicts with prior case law. Many, if not all, of the cases in which releases have been enforced involve pre-printed and standardized forms. For instance, in Arnold, 111 Wis. 2d at 211, this court specifically commented on the standardized nature of the exculpatory contract in that case. Significantly, the court did not take issue with the fact that the form was standardized. The problem in Arnold was lack of clarity in the terms of the clause, not the fact that the form was standardized. There is nothing in Arnold to suggest [1036] that the standardized nature of the release was itself the source of reservations, much less that standardized agreements are somehow presumptively invalid.

Nor does the proposed rule against standardized forms have a practical purpose. The majority opinion explains that "[w]hile the Company had the time and resources to draft the provisions and plan their effect, the plaintiff did not." 181 Wis. 2d at 1007. I find no legal or practical reason why the company should not take the "time and resources to draft the provisions and plan their effect." We should hope that all drafters would use such circumspection. Is it seriously suggested that the release would be more acceptable had it been improvised hurriedly on a piece of blank paper? Would public policy be favored if the company could prove it gave no thought to the effect of the provisions or if it could prove it had incorrectly planned the effect of the provisions? Again, assuming that public policy is not otherwise violated, all that is required is that the release be clear. It will be enforced to the extent it covers what was clearly contemplated by the parties.

Second, the imposition of a "bargaining" requirement has no legal foundation in this context and makes little practical sense. It is true that the courts will sometimes compensate for the weaker bargaining power of certain actors in contract cases. However, these cases are typically limited to special situations and special areas of the law. For instance, as this court explains in Arnold, 111 Wis. 2d at 210:

"There are a variety of other situations in which courts have refused to enforce exculpatory contracts on grounds of public policy. They include: excusing a party from tort liability for harm caused intentionally or recklessly; excusing an employer [1037] from liability to an employee for injury in the course of his employment; relieving a party charged with performing a service of great importance to the public; and excusing a party invoking exculpation who possesses a decisive advantage in bargaining strength."

Arnold does include unequal bargaining strength as a factor. However, the source for this analysis is § 195 of the Restatement (Second) of Contracts which does not list unequal bargaining strength as an independent factor. Similarly, the Restatement (Second) of Torts § 496B, Comment J, also mentions the "disparity of bargaining power," but limits this factor to special contexts in which there are other factors involved, for instance, when there is no "free choice" on the part of the plaintiff owing to the "necessities" and "exigencies" of the situation.

No cases are cited—from any jurisdiction—which suggest that the mere fact that the parties to a contract possess unequal bargaining strength means that no exculpatory clauses or releases are permissible. When this court has applied the unequal bargaining strength rationale, as in Discount Fabric House v. Wis. Tel. Co., 117 Wis. 2d 587, 345 N.W.2d 417 (1984), it rejected that view. In Discount Fabric House, the unequal bargaining factor was explicitly linked to (and limited to) the public service context of the situation:

This exculpatory clause in this private contract is against public policy in that the parties are not on equal bargaining terms and the telephone company has created a public interest in the publication of the yellow pages which requires that the telephone company perform its private duty to the ad subscriber without negligence or be held for damages. (emphasis supplied). Id. 117 Wis. 2d at 600.

[1038] The court in Discount Fabric House emphasized the "indispensable" nature of the service:

In publishing the yellow pages the telephone company is engaged in performing a service of great, if not essential, importance to the public and it holds itself out as willing to give reasonable public service to all who apply to place ads in the yellow pages. The telephone company possesses a decisive advantage of bargaining strength. Id. 117 Wis. 2d at 596.

Finally, the court in Discount Fabric House, 117 Wis. 2d at 600-601, cited with approval a case which expressed the rule as follows:

There are then two inquiries in a case [involving unequal bargaining strength]: (1) What is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply, in a word what are their options?; (2) Is the challenged term substantively reasonable? ... Thus merely because the parties have different options or bargaining power, unequal or wholly out of proportion to each other, does not mean that the agreement of one of the parties to a term of a contract will not be enforced against him; if the term is substantively reasonable it will be enforced. By like token, if the provision is substantively unreasonable, it may not be enforced without regard to the relative bargaining power of the contracting parties. (emphasis supplied).

Accordingly, then, none of these rationales applies to the present context. Monkem is not providing a public service or fulfilling a public duty in permitting Mrs. Richards to ride with her husband. Monkem is not entering a market transaction. Nor is this in any sense a "necessity" for Mrs. Richards. The majority opinion [1039] laments that, "[i]f her plans to ride with her husband were to go forward, the plaintiff simply had to adhere to the terms of the written form." 181 Wis. 2d at 1019. However, the mere fact that she made "plans" to do something which was not authorized cannot by itself inject any requirement for "bargaining." Nor can the mere fact that one party sets a condition mean that unequal bargaining power has been employed. The company is under no obligation to allow any passengers. It is willing to entertain applications upon request, but only if the spouse-passengers sign releases of claims against the company for injuries they might sustain while being a passenger. Such a requirement is neither unfair nor surprising.

As such, this newly created "bargaining" requirement, if it be that, is issued without any ascertainable standards. The majority has failed to explain when or why the newly created bargaining requirement is to be applied and the opinion does not begin to explain how it is to be applied. Is it applied because of something Monkem has done? At one point the majority implies that the bargaining requirement is to be applied because the company "probably derives some benefit" from a situation. However, besides the fact that this is pure speculation (Mrs. Richards never claims this), is there any situation in which one could not speculate that one party or another "probably derives some benefit"? Clearly such a rule would know no boundaries. And, again, there is no law cited from any jurisdiction or source suggesting anything even close to a "rule" that just because someone "probably derives some benefit" that that party must "afford" the other party an "equal opportunity to negotiate."

Perhaps the newly created bargaining requirement is applied because of something Mrs. Richards [1040] might have done—assuming she had read the release, of course. At one point the majority suggests that, "[h]ad the plaintiff been afforded the opportunity to negotiate a release, she might have declined to release the Company from liability for intentional or reckless actions ..." 181 Wis. 2d at 1020. Ironically, however, such claims would not need to be "declined" because they are unenforceable anyway. There is already a rule against releasing claims for intentional or reckless actions. That rule is to decline enforcement in those instances, not to invalidate the release as a whole. If Mrs. Richards had been injured by defective equipment, then, we would have to address the question of whether that type of risk was clearly contemplated by the parties or not. However, the mere fact that one can think of some hypothetical which might not be covered does not mean that the release as a whole is invalid. Were that so, the rule in Arnold would have no meaning.

Both practitioner and court are left without a clue as to what it means to "afford" Mrs. Richards "the equal opportunity to negotiate a release." First, it is unclear when, why or how this "opportunity to negotiate" should be "afforded." Is the company to ask all spouse-applicants if they wish to negotiate? On the facts of the present case it makes little sense to say that Mrs. Richards was not "afforded" an "opportunity" when she failed to really read the release and never asked anyone at the company any questions about the release and did not even indicate any dissatisfaction with the release to the company. How and why can the majority imply that the company somehow failed to "afford" Mrs. Richards "opportunity" when she never requested any such "opportunity"?

[1041] Second, what does it mean to "negotiate" in this context, and how would the company ensure that the negotiations were "equal"? Are we to assess the competency of Mrs. Richards to negotiate and assume that any deficiencies must somehow be compensated for in substance by the company? What if Mrs. Richards is offered an entire brochure on negotiation skills but fails to read it, just as she failed to really read the one page release? Or is it suggested that the company appoint someone to help Mrs. Richards draft a counter-proposal? Must the company then negotiate—in good faith, of course—about which terms of its own release it might be willing to drop in "negotiations"? And what if, despite very skilled and fair negotiations on both sides, Mrs. Richards nevertheless agrees to accept the full release. The majority opinion implies that this result would be presumptively suspect.... The questions and problems these new "rules" raise are without visible end or solution.

Third, I disagree with majority's comments about the cover letter and the employee handbook. The majority opinion does not claim that the cover letter or the employee (student) handbook were in any way affirmatively misleading. However, the majority opinion does suggest that one or both of these materials extraneous to the release should have explained the release to Mrs. Richards by law. The majority opinion states that the "cover letter did not advise [Mrs. Richards] that the document was a release of all claims and did not advise her of the legal significance attached to her signing of the document." 181 Wis. 2d at 1019. Likewise, the majority opinion complains that the "employee handbook advised employees that Company authorization was needed for a passenger to ride along but did not advise employees that the passenger would [1042] have to release all claims against the Company." 181 Wis. 2d at 1019.

Thus, as written, the majority opinion implies that an otherwise clear standardized clause would require non-standardized extraneous matter to explain the contents and effect of the clause. That is not the law. The cover letter and employee handbook are extraneous to the release. As such, they are relevant only to the extent they could either clarify or confuse the original release. If the release is itself clear, then, there might be a question of whether the cover letter or employee handbook, when read together with the clause, made the release unclear. However, on the facts of this case, both the cover letter and the handbook were neutral and factually accurate.^[4] There is no law that a cover letter which accompanies a release must reemphasize that the document it accompanies is a release when the document itself makes that clear. Nor is there any requirement that a cover letter explain the "legal significance" of the document it accompanies when the document itself is clear. Finally, there is no reason that the employee handbook must assume this responsibility, especially since it was not presented to Mrs. Richards, and she did not read it carefully, if at all. Thus, so long as these extraneous materials do not [1043] detract from the release, then the release stands on its own.

Finally, the majority opinion attempts to characterize this result as necessary to "accommodate" the "tension between the principles of contract and tort law" which is inherent in exculpatory agreements. 181 Wis. 2d at 1016. The principle of tort law "prevails" in this instance, the majority opinion explains, because we should "impos[e] liability on persons whose conduct creates an unreasonable risk of harm." (emphasis supplied) 181 Wis. 2d at 1015. However, in the present context, it is not Monkem who "creates" an unreasonable risk of harm, but rather it is Mrs. Richards who brought the risk into being by requesting authorization to be a passenger in the truck, and it was Mrs. Richards' husband who caused the accident through his own negligence.^[5] Monkem company was only attempting to protect itself from claims in which a passengerspouse sues the employer-owner on the basis of the spouse-driver's negligence. Since allowing passengers is entirely within the discretion of the company and is not favored generally by Federal law (hence the authorization requirement), it surely is not against public policy for a company in Monkem's position to demand a release of claims related to being a passenger before it gives authorization for the spouse-passenger to accompany the spouse-driver. Afterall, Monkem was [1044] doing Mr. & Mrs. Richards a favor by granting permission for Mrs. Richards to accompany her husband in the truck.

The sweeping condemnation of this release by the majority opinion, however, coupled with the refusal to enforce even those aspects of the release which were "obvious" to even Mrs. Richards, leaves companies such as Monkem clueless as to how one might craft a valid release. After reading the majority opinion, one might conclude that a valid release may be executed only if the document is not standardized, only if the company has not planned the effect of the document, only if the document says "RELEASE" more than once in each paragraph, only if a copy of the release and an explanation of the release are included in all correspondence to the prospective signatory and in all other materials such as student handbooks which might fall into the hands of a prospective spouse-passenger applicant, and, finally, only if the company provides for real and effective "bargaining" for spouse-passenger applicants.

Because the majority opinion ignores our past precedents and creates new "rules" that are in my opinion unnecessary and unwise, I dissent.

I am authorized to state that JUSTICES STEINMETZ and WILCOX join in this dissenting opinion.

[1]The following are excerpts from Mrs. Richards' deposition. (Record, 12:26-27, 29-30).

Q: And you read the complete document from top to bottom?

A: No.

Q: You didn't read the complete document. What did you read and what did you not read?

A: That it was basically it. From the top you can tell and from the memo it was a Passenger Authorization and down here that I needed to make a signature where my name was typed.

Q: Did you read the first paragraph commencing with `Full and final release' ending with the word `future'?

A: I may have.

Q: And did you read the second paragraph commencing with `I/we' ending with `property'?

A: I didn't understand it enough to read it.

Q: Well, did you read it?

A: I can't recall for sure if I read it or not, the whole thing.

Q: Did you read the third paragraph commencing with the words `It is expressly' ending with the words `consequences thereof?

A: I don't recall if I read what exact parts for sure of all or any of the document.

Q: All right. Likewise, Paragraph 4 commencing with the words `Permission is granted' ending with the words `person below:'?

[Mrs. Richards' attorney]: Okay. Same answer as previously, that you don't know if you read it or not?

A: Yes. I don't know....

Q: Do you know who inserted the information concerning the passenger that's on the right-hand portion of the lower third of the document?

A: No, I don't.

Q: Is that your handwriting?

A: I do not believe that it is....

Q: Did you read that it was a release of all claims that you may have against Monkem Company for riding as a passenger?

A: I'm not sure.

Q: Did you understand that this authorization was also a release of future causes of action or future claims that you may have against Monkem Company for riding as a passenger or being injured while riding as a passenger with Monkem?

A: I didn't understand it to mean that.

Q: Did you seek any assistance prior to signing this with regard to the portions that you've indicated that you did not understand?

A: No, I did not.

Q: So even though you didn't understand some of the contents of this authorization, you went ahead and signed it anyway?

A: Yes....

Q: Did you discuss with Mr. Richards, your husband, the fact that [the Passenger Authorization] not only released or authorized you to ride as a passenger but released claims that you may have for being injured while riding as a passenger with Mr. Richards in a Monkem vehicle?

A: I did mention to him that I didn't understand it, and he had talked to someone, a secretary or someone at Monkem, and she just said that it just needed to be signed before I could go with him was what I understood from what he had told me from the conversation with her.

Q: Did you talk to the secretary?

A: No, I did not.

[2]The following are excerpts from Mr. Leo J. Richards' deposition. (Record, 11:23-24, 26-27).

Q: Was reference made to [the passenger] authorization [form]?

A: Well, we knew by federal law that you had to have a rider's permit for any passenger, and they mentioned that we would have to get one and that the only passengers they would authorize was immediate family.

Q: And did [Monkem Company] indicate a purpose for that authorization?

A: Yeah.

Q: What was that purpose that was communicated to you?

A: Well because they have a high percentage of accidents of passengers getting in and out of the vehicle, and they had to sign the release, and they also had to have a doctor's statement that they're physically able to climb in and out of the vehicle....

Q: Did the secretary in the Safety Office [at Monkem Company] explain the purpose that they—or the reason that they required [the passenger authorization] to be executed?

A: No. No. All drivers know that you have to have a Passenger Authorization. Even if you own the vehicle yourself, you still have to make one out.

Q: Prior to signing that agreement or that authorization did you have an opportunity to read it?

A: I glanced at it, but it's all legal mumbo jumbo, you know....

Q: Okay. Did you question anybody concerning its contents prior to signing it?

A: No.

Q: So you signed the agreement even though you didn't understand what it said?

A: Well, the only thing I looked at was to see that my truck number and stuff was right, and that's about all....

[3] Arnold was overruled on other grounds, Green Springs Farms v. Kersten, 136 Wis. 2d 304, 317, 401 N.W.2d 816 (1987). The rule as concerns overbroad exculpatory clauses in Arnold was reaffirmed in Dobratz, 161 Wis. 2d at 523, 525. Dobratz, at 523, holds that no contract was formed in that case owing to the uncertainty and ambiguity of the document. It distinguishes that situation from cases involving overbroad exculpatory clauses. Dobratz, at 525, explicitly approves of Arnold and Trainor v. Aztalan Cycle Club, Inc., 147 Wis. 2d 107, 432 N.W.2d 626 (Ct. App. 1988) in how they handle overbroad release analysis. Nor does College Mobile Home Park & Sales v. Hoffmann, 72 Wis. 2d 514, 241 N.W.2d 174 (1976) stand for the proposition that broad leases in any or all subject areas may be held invalid just because they are broad. It specifically sets its holding in the framework of the public policy in landlord-tenant law, and has been interpreted by subsequent cases as an example of landlord-tenant law. see Arnold, 111 Wis. 2d at 210.

[4] The cover letter was addressed to Mrs. Jerilyn Richards and read as follows: "Both of you should sign where indicated on the attached form. Please return the yellow copy in the enclosed envelope to this office and keep the original on the truck with you at all times. If you have any questions, please contact us." The entry in the employee handbook was merely stating that a passenger authorization was possible. It described the eligibility requirements and made clear that the process of applying would be handled through the Director of Risk Management of the company.

[5] It was noted in Discount Fabric House, 117 Wis. 2d at 600, that exculpatory clauses are not favored because "such provisions tend to induce a want of care ..." However, in this instance, there is no hint, no allegation, and certainly no showing, that Monkem Company's level of care diminished in connection with the release or otherwise. Nor would there be any incentive to reduce the level of care because the company would still be liable to all others, and to the driver, in particular.

Present: LIACOS, C.J., WILKINS, ABRAMS, NOLAN, & LYNCH, JJ.

James J. McNulty for the defendants.

Nicholas J. Decoulos for the plaintiff.

LYNCH. J.

This case arises from a contract between Gail A. Waters (plaintiff) and "the DeVito defendants"^[2] (defendants), whereby the plaintiff was to assign her annuity policy having a cash value of $189,000 to the defendants in exchange [65] change for $50,000. The plaintiff brought suit to rescind the contract on the ground of unconscionability. Defendant Min Ltd. counterclaimed seeking declaratory relief and specific enforcement of the contract. A Superior Court judge, sitting without a jury, found for the plaintiff, ordered that the annuity be returned to the plaintiff on repayment of $18,000 with interest, and dismissed the counterclaim of Min Ltd. The defendants appealed and we took the matter on our own motion. We now affirm the judgment.

We summarize the relevant facts from the judge's findings. The plaintiff was injured in an accident when she was twelve years old. At the age of eighteen, she settled her claim and, with the proceeds, purchased the annuity contract in question from the defendant Commercial Union Insurance Company. When the plaintiff was twenty-one, she became romantically involved with the defendant Thomas Beauchemin, an ex-convict, who introduced her to drugs. Beauchemin suggested that she sell her annuity contract, introduced her to one of the defendants, and represented her in the contract negotiations. She was naive, insecure, vulnerable in contract matters, and unduly influenced by Beauchemin. The defendants drafted the contract documents with the assistance of legal counsel, but the plaintiff had no such representation. At least some portions of the contract were executed in unusual circumstances: i.e., part of the contract was signed on the hood of an automobile in a parking lot, part was signed in a restaurant. The defendants agreed to pay $50,000 for the annuity policy which would return to them as owners of the policy $694,000 over its guaranteed term of twenty-five years, and which had a cash value at the time the contract was executed of $189,000.

Beauchemin acted for himself and as agent of the defendants. For example, the defendants forgave a $100 debt of Beauchemin as deposit for the purchase of the annuity policy. From a subsequent $25,000 payment, the defendants deducted $7,000 that Beauchemin owed them.

Based on the foregoing, the judge found the contract unconscionable.

[66] The defendants contend that the judge erred by (1) finding the contract unconscionable (and by concluding the defendants assumed no risks and therefore finding the contract oppressive); (2) refusing them specific performance; and (3) failing to require the plaintiff to return all the funds received from them.

1. Unconscionability. The defendants argue that the evidence does not support the finding that the contract was unconscionable or that they assumed no risks and therefore that the contract was oppressive. "[W]e may not set aside findings of fact `unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.' Mass. R. Civ. P. 52 (a), 365 Mass. 816 (1974)." First Pa. Mortgage Trust v. Dorchester Sav. Bank, 395 Mass. 614, 621 (1985). Also, we may not reverse the judge's findings or conclusions if they are not tainted by an error of law. See Blackwell v. E.M. Helides, Jr., Inc., 368 Mass. 225, 226 (1975).

The doctrine of unconscionability has long been recognized by common law courts in this country and in England. See Banaghan v. Malaney, 200 Mass. 46 (1908); Boynton v. Hubbard, 7 Mass. 112 (1810); Kleinberg v. Ratett, 252 N.Y. 236 (1929); Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir.1948); 14 S. Williston, Contracts § 1632 (3d ed. 1972), and cases cited; Leff, Unconscionability and the Code — The Emperor's New Clause, 115 U. Pa. L. Rev. 485, 531-533 nn. 184-202 (1967). "Historically, a [contract] was considered unconscionable if it was `such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.' Hume v. United States, 132 U.S. 406[, 411] (1889), quoting Earl of Chesterfield v. Janssen, 38 Eng. Rep. 82, 100 (Ch. 1750). Later, a contract was determined unenforceable because unconscionable when `the sum total of its provisions drives too hard a bargain for a court of conscience to assist.' Campbell Soup Co. v. Wentz, 172 F.2d 80, 84 (3d Cir.1948)." Covich v. Chambers, 8 Mass. App. Ct. 740, 750 n. 13 (1979).

[67] The doctrine of unconscionability has also been codified in the Uniform Commercial Code (code), G.L.c. 106, § 2-302 (1990 ed.),^[3] and, by analogy, it has been applied in situations outside the ambit of the code. See, e.g., Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980) (termination clause in franchise agreement not considered unconscionable); Commonwealth v. DeCotis, 366 Mass. 234, 242 (1974) (extraction of resale fees for no rendered services deemed unfair act or practice under G.L.c. 93A, § 2 [a]). See also Meehan v. New England School of Law, 522 F. Supp. 484, 494 (D. Mass. 1981) (applying Zapatha and concluding contract clause waiving tenure rights not unconscionable because plaintiff attorney carefully negotiated clear, easily identifiable language in clause); Scheele v. Mobil Oil Corp., 510 F. Supp. 633, 637 (D. Mass. 1981) (relying on Zapatha to deny defendant's motion to dismiss where motion claimed code related only to sale of goods and not mutual termination agreements). As explained in Bronstein v. Prudential Ins. Co., 390 Mass. 701, 708 (1984), "[in Zapatha] the court applied statutory policy to common law contract issues, which, for centuries have been within the province of this court." Accordingly, although we are not here concerned with a sale of goods or a commercial transaction, Zapatha is instructive on [68] the principles to be applied in testing this transaction for unconscionability.

Unconscionability must be determined on a case-by-case basis, with particular attention to whether the challenged provision could result in oppression and unfair surprise to the disadvantaged party and not to allocation of risk because of "superior bargaining power." Zapatha, supra at 292-293. Courts have identified other elements of the unconscionable contract. For example, gross disparity in the consideration alone "may be sufficient to sustain [a finding that the contract is unconscionable]," since the disparity "itself leads inevitably to the felt conclusion that knowing advantage was taken of [one party]." Jones v. Star Credit Corp., 59 Misc.2d 189, 192 (N.Y. Sup. Ct. 1969). See, e.g., Matter of Friedman, 64 A.D.2d 70, 85 (N.Y. 1978) (contract unconscionable because art dealer's "consideration" inadequate where widow conveyed more than 300 works of art to dealer and received neither the payment of purchase price nor right to receive a fixed price within a definite time, only dealer's promise of payment if and when sales made); Nelson v. Nelson, 57 Wash.2d 321, 323-324 (1960) (contract found unconscionable where defendant agreed to exchange equity in her property — worth more than $4,750 — for equity in the plaintiff's property valued at $2,750). High pressure sales tactics and misrepresentation have been recognized as factors rendering a contract unconscionable. Industralease Automated & Scientific Equip. Corp. v. R.M.E. Enters., Inc., 58 A.D.2d 482, 488-490 (N.Y. 1977). If the sum total of the provisions of a contract drive too hard a bargain, a court of conscience will not assist its enforcement. Campbell Soup Co., supra at 84.

The judge found that Beauchemin introduced the plaintiff to drugs, exhausted her credit card accounts to the sum of $6,000, unduly influenced her, suggested that the plaintiff sell her annuity contract, initiated the contract negotiations, was the agent of the defendants, and benefited from the contract [69] between the plaintiff and the defendants.^[4] The defendants were represented by legal counsel; the plaintiff was not. See Zapatha, supra at 294. The cash value of the annuity policy at the time the contract was executed was approximately four times greater than the price to be paid by the defendants. For payment of not more than $50,000 the defendants were to receive an asset that could be immediately exchanged for $189,000, or they could elect to hold it for its guaranteed term and receive $694,000. In these circumstances the judge could correctly conclude the contract was unconscionable.

The defendants assumed no risk and the plaintiff gained no advantage. Gross disparity in the values exchanged is an important factor to be considered in determining whether a contract is unconscionable. "[C]ourts [may] avoid enforcement of a bargain that is shown to be unconscionable by reason of gross inadequacy of consideration accompanied by other relevant factors." 1 A. Corbin, Contracts § 128, at 551 (1963 & Supp. 1991). Moreover, an unconscionable contract is "such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other." Hume v. United States, 132 U.S. 406, 411 (1889), quoting Earl of Chesterfield v. Janssen, supra. See In re Estate of Vought, 76 Misc.2d 755 (N.Y. Sur. Ct. 1973) (assignment of interest in spendthrift trust for $66,000 under provisions which guaranteed assignees ultimate return of $1,100,000).

We are satisfied that the disparity of interests in this contract is "so gross that the court cannot resist the inference that it was improperly obtained and is unconscionable." In re Estate of Vought, supra at 760.

[70] 2. Amount of repayment order. The defendants also argue that the judge erred in failing to require the plaintiff to return the full amount paid by them for the annuity.^[5]

The judge's order was consistent with his findings that Beauchemin was the agent of the defendants, and that the plaintiff only received $18,000 for her interest in the annuity.

Judgment affirmed.

[1] Cube Ltd., Robert A. DeVito, David A. DeVito, and Michael D. Steamer. The defendants Commercial Union Insurance Company and Thomas Beauchemin did not appeal from the judgment.

[2] The judge referred to the defendants Min Ltd., Cube Ltd., David A. DeVito, Robert A. DeVito, and Michael D. Steamer, collectively as "the DeVito defendants" because their identities and roles were not made clear at trial. The plaintiff originally agreed to assign her rights and interest in a certain annuity policy to Cube Ltd., which later transferred all its interest in the annuity to Min Ltd. David A. DeVito is president of Cube Ltd. Michael D. Steamer is business manager of Min Ltd. Robert A. DeVito conducted negotiations with the plaintiff regarding the annuity policy.

[3]General Laws c. 106, § 2-302 (1990 ed.), reads as follows:

"§ 2-302. Unconscionable Contract or Clause.

"(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

"(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination."

The standards of determining a contract unconscionable set forth in G.L.c. 106, § 2-302, are the same standards expressed in Restatement (Second) of Contracts § 208 (1981). "The issue is one of law for the court, and the test is to be made as of the time the contract was made." Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291 (1980).

[4] These latter two findings were grounds enough for the judge to rescind the contract. See 1 H.C. Black, Rescission of Contracts § 32 (2d ed. 1929), and cases cited. The plaintiff relied on Beauchemin to represent her in the contract negotiations. Accordingly, he was obligated to act on her behalf and in her interest. Id. Instead, he acted in his own self-interest and caused benefits to inure to himself by having his debts forgiven and requiring he be named beneficiary of the annuity policy.

[5] The defendants paid $18,000 cash after deducting $7,000 for a debt which was owed to them by Beauchemin. The remaining $25,000 due on the contract was never paid.

350 F.2d 445

Ora Lee WILLIAMS, Appellant, v. WALKER-THOMAS FURNITURE COMPANY, Appellee. William THORNE et al., Appellants, v. WALKER-THOMAS FURNITURE COMPANY, Appellee.

Nos. 18604, 18605.

United States Court of Appeals District of Columbia Circuit

Argued April 9, 1965.

Decided Aug. 11, 1965.

Mr. Pierre E. Dostert, Washington, D. C., counsel for appellants in No. 18,605, argued for all appellants.

Mr. R. R. Curry, Washington, D. C., for appellant in No. 18,604.

Mr. Harry Protas, Washington, D. C., for appellee.

Mr. Gerhard P. Van Arkel (appointed by this court), Washington, D. C., as amicus curiae.

Before Bazelon, Chief Judge, and Danaher and Wright, Circuit Judges.

J. SKELLY WRIGHT, Circuit Judge:

Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia. During the period from 1957 to 1962 each appellant in these cases purchased a number of household items from Walker-Thomas, for which payment was to be made in installments. The terms of each purchase were contained in a printed form contract which set forth the value of the purchased item and purported to lease the item to appellant for a stipulated monthly rent payment. The contract then provided, in substance, that title would remain in Walker-Thomas until the total of all the monthly payments made equaled the stated value of the item, at which time appellants could take title. In the event of a default in the payment of any monthly installment, Walker-Thomas could repossess the item.

The contract further provided that “the amount of each periodical installment payment to be made by [purchaser] to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment payment to be made by [purchaser] under such prior leases, bills or accounts; and all payments now and hereafter made by [:purchaser] shall be credited pro rata on all outstanding leases, bills and accounts due the Company by [purchaser] at the time each such payment is made.” Emphasis added.) The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings.

On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps, having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 17, 1962, appellant Williams bought a stereo set of stated value of $514.95.1 She too defaulted shortly thereafter, and appellee sought to replevy all the items purchased since December, 1957. The Court of General Sessions granted judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants’ motion for leave to appeal to this court.

Appellants’ principal contention, rejected by both the trial and the appellate courts below, is that these contracts, or at least some of them, are unconscionable and, hence, not enforceable. In its opinion in Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), the District of Columbia Court of Appeals explained its rejection of this contention as follows:

“Appellant’s second argument presents a more serious question. The record reveals that prior to the last purchase appellant had reduced the balance in her account to $164. The last purchase, a stereo set, raised the balance due to $678. Significantly, at the time of this and the preceding purchases, appellee was aware of appellant’s financial position. The reverse side of the stereo contract listed the name of appellant’s social worker and her $218 monthly stipend from the government. Nevertheless, with full knowledge that appellant had to feed, clothe and support both herself and seven children on this amount, appellee sold her a $514 stereo set.

“We cannot condemn too strongly appellee’s conduct. It raises serious questions of sharp practice and irresponsible business dealings. A review of the legislation in the District of Columbia affecting retail sales and the pertinent decisions of the highest court in this jurisdiction disclose, however, no ground upon which this court can declare the contracts in question contrary to public policy. We note that were the Maryland Retail Installment Sales Act, Art. 83 §§ 128-153, or its equivalent, in force in the District of Columbia, we could grant appellant appropriate relief. We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar.”

We do not agree that the court lacked the power to refuse enforcement to contracts found to be unconscionable. In other jurisdictions, it has been held as a matter of common law that unconscionable contracts are not enforceable.2 While no decision of this court so holding has been found, the notion that an unconscionable bargain should not be given full enforcement is by no means novel. In Scott v. United States, 79 U.S. (12 Wall.) 443, 445, 20 L.Ed. 438 (1870), the Supreme Court stated:

“ ■>:■ -x- * j£ a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to. * * * ” 3

Since we have never adopted or rejected such a rule,4 the question here presented is actually one of first impression.

Congress has recently enacted the Uniform Commercial Code, which specifically provides that the court may refuse - to enforce a contract which it finds to be unconscionable at the time it was made. 28 D.C.Code § 2-302 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that the common law of the District of Columbia was otherwise at the time of enactment, nor does it preclude the court from adopting a similar rule in the exercise of its powers to develop the common law for the District of Columbia. In fact, in view of the absence of prior authority-on the point, we consider the congressional adoption of § 2-302 persuasive authority for following the rationale of the cases from which the section is explicitly derived.5 Accordingly, we hold that where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.6 Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power.7 The manner in which the contract was entered is also relevant to this consideration. Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain.8 But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule that the terms of the agreement are not to be questioned9 should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.10

In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered “in the light of the general commercial background and the commercial needs of the particular trade or case.”11 Corbin suggests the test as being whether the terms are “so extreme as to appear unconscionable according to the mores and business practices of the time and place.” 1 CORBIN, op. cit. supra Note 2.12 We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract.

Because the trial court and the appellate court did not feel that enforcement could be refused, no findings were made on the possible unconscionability of the contracts in these cases. Since the record is not sufficient for our deciding the issue as a matter of law, the cases must be remanded to the trial court for further proceedings.

So ordered.

1

. At the time of this purchase her account showed a balance of $164 still owing from her prior purchases. The total of all the purchases made over the years in Question came to $1,800. The total payments amounted to $1,400.

2

. Campbell Soup Co. v. Wentz, 3 Cir., 172 F.2d 80 (1948); Indianapolis Morris Plan Corporation v. Sparks, 132 Ind.App. 145, 172 N.E.2d 899 (1961); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69, 84-96, 75 A.L.R.2d 1 (1960). Cf. 1 Corbin, Contracts § 128 (1963).

3

. See Luing v. Peterson, 143 Minn. 6, 172 N.W. 692 (1919); Greer v. Tweed, N.Y. C.P., 13 Abb.Pr., N.S., 427 (1872); Schnell v. Nell, 17 Ind. 29 (1861); and see generally the discussion of the English authorities in Hume v. United States, 132 U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889).

4

.Wliile some of tbe statements in the court’s opinion in District of Columbia v. Harlan & Hollingsworth Co., 30 App.D.C. 270 (1908), may appear to reject the rule, in reaching its decision upholding the liquidated damages clause in that ease the court considered the circumstances existing at the time the contract was made, see 30 App.D.C. at 279, and applied the usual rule on liquidated damages. See 5 Corbin, Contracts §§ 1054-075 (1964); Note, 72 Yale L.J. 723, 746-755 (1963). Compare Jaeger v. O’Donoghue, 57 App.D.C. 191, 18 F.2d 1013 (1927).

5

. See Comment, § 2-302, Uniform Commercial Code (1962). Compare Note, 45 Ya.L.Rev. 583, 590 (1959), where it is predicted that the rule of § 2-302 will be followed by analogy in cases which involve contracts not specifically covered by the section. Gf. 1 State of New York Law Revision Commission, Report and Record of Hearings on the Uniform Commercial Code 108-110 (1954) (remarks of Professor Llewellyn).

6

. See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Campbell Soup Co. v. Wentz, supra Note 2.

7

. See Henningsen v. Bloomfield Motors, Inc., supra Note 2, 161 A.2d at 86, and authorities there cited. Inquiry into the relative bargaining power of the two parties is not an inquiry wholly divorced from the general question of uneonscionability, since a one-sided bargain is itself evidence of the inequality of the bargaining parties. This fact was vaguely recognized in the common law doctrine of intrinsic fraud, that is, fraud which can be presumed from the grossly unfair nature of the terms of the contract. See the oft-quoted statement of Lord Hardwicke in Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100 (1751) :

11 * * * [Fraud] may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make * *

And of. Hume v. United States, supra Note 3, 132 U.S. at 413, 10 S.Ct. at 137, where the Court characterized the English cases as “eases in which one party took advantage of the other’s ignorance of arithmetic to impose upon him, and the fraud was apparent from the face of the contracts.” See also Greer v. Tweed, supra Note 3.

8

. See Restatement, Contracts § 70 (1932); Note, 63 Harv.L.Rev. 494 (1950). See also Daley v. People’s Building, Loan & Savings Ass’n, 178 Mass. 13, 59 N.E. 452, 453 (1901), in which Mr. Justice Holmes, while sitting on the Supreme Judicial Court of Massachusetts, made this observation:

“ * * * Courts are less and loss disposed to interfere with parties making such contracts as they choose, so long as they interfere with no one’s welfare but their own. * * * It will be understood that we are speaking of parties standing in an equal position where neither has any oppressive advantage or power * *

9

. Tliis rule has never been without exception. In eases involving merely the transfer of unequal amounts of the same commodity, the courts have held the bargain unenforceable for the reason that “in such a case, it is clear, that the law cannot indulge in the presumption of equivalence between the consideration and the promise.” 1 Williston, Contracts § 115 (3d cd. 1957).

10

. See the general discussion of “BoilerPlate Agreements” in Llewellyn, Tiie Common Law Tradition 362-371 (1960).

11

. Comment, Uniform Commercial Code § 2-307.

12

. See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Mandel v. Liebman, 303 N.Y. 88, 100 N.E.2d 149 (1951). The traditional test as stated in Greer v. Tweed, supra Note 3, 13 Abb.Pr.,N.S., at 429, is “such as no man in his senses and not under delusion would make on the one hand, and as no honest or fair man would accept, on the other.”

DANAHER, Circuit Judge

(dissenting) :

The District of Columbia Court of Appeals obviously was as unhappy about the situation here presented as any of us can possibly be. Its opinion in the Williams case, quoted in the majority text, concludes: “We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar.”

My view is thus summed up by an able court which made no finding that there had actually been sharp practice. Rather the appellant seems to have known precisely where she stood.

There are many aspects of public policy here involved. What is a luxury to some may seem an outright necessity to others. Is public oversight to be required of the expenditures of relief funds? A washing machine, e. g., in the hands of a relief client might become a fruitful source of income. Many relief clients may well need credit, and certain business establishments will take long chances on the sale of items, expecting their pricing policies will afford a degree of protection commensurate with the risk. Perhaps a remedy when necessary will be found within the provisions of the “Loan Shark” law, D.C.Code §§ 26-601 et seq. (1961).

I mention such matters only to emphasize the desirability of a cautious approach to any such problem, particularly since the law for so long has allowed parties such great latitude in making their own contracts. I dare say there must annually be thousands upon thousands of installment credit transactions in this jurisdiction, and one can only speculate as to the effect the decision in these cases will have.1

I join the District of Columbia Court of Appeals in its disposition of the issues.

1

. However the provision ultimately may be applied or in what circumstances, D.C. Code § 28-2-301 (Supp. IV, 1965) did not become effective until January 1, 1965.