141 Ky. 718, 133 S.W. 784 (1911)

Acme Mills & Elevator Co
v.
J. C. Johnson.

Appeal from Circuit Court of Christian County, Kentucky.
(Decided January 24, 1911.)

[141 Ky. 718] [133 S.W. 784] Personal Property—Contract for Sale—Breach—Measure of Damages.—Where the vendor of personal property fails to comply with his contract the measure of damages in an action for breach of the contract is the difference between the contract price and the market price at the time and place of delivery. The fact that the vendor disposes of the property before the time fixed for delivery does not alter the rule.

DOWNER & RUSSELL, and JOE McCARROLL, fox appellant.  

C. H. BUSH, for appellee. 

OPINION OF THE COURT BY WM. ROGERS CLAY, COMMISSIONER—Affirming.

[141 Ky. 719] On April 26th, 1909, appellee J. C. Johnson executed and delivered to appellant Acme Mills & Elevator Company the following contract:

April 26th, 1909.

"I have this day sold to Ernest W. Steger, for Acme Mills & Elevator Company, 2,000 bushels No. 2 merchantable wheat, mill scale to apply, sacks to be furnished, to be paid for on delivery at Hopkinsville, Kentucky, at $1.03 per bushel, to be delivered from thresher 1909."

Appellee failed to deliver the wheat at the time agreed upon, and appellant brought this action to recover damages in the sum of $240 [133 S.W. 785] and for the further sum of $80, being the value of 1,000 sacks which appellant had furnished to appellee for his use in delivering the wheat. Appellee admitted the execution and breach of the contract, but denied that appellant was damaged. He further pleaded that he threshed his wheat after the 25th of July; that this was the time fixed for delivery, and wheat was then worth only about 97% cents per bushel. He also pleaded that, at the time fixed for the delivery of the wheat, appellant had suspended business, was unable to comply with its contract, and had no money to pay for the wheat. In another paragraph he admitted his indebtedness for the item of $80 covering the sacks furnished him by appellant, and offered to confess judgment for that amount. The allegations of the answer were denied by reply. Subsequently appellant tendered and offered to file an amended reply, wherein it pleaded that on the 13th day of July, 1909, appellee, of his own wrong and without right or legal authority or the consent of appellant, sold his wheat to the Liberty Mills at Nashville, Tennessee, at the price of $1.16 per bushel, and that by reason of this fact he was estopped to plead in his answer that his wheat was not threshed until after the 25th of July, 1909, or that the market price for said wheat at the date of said threshing did not exceed $1 per bushel. The court declined to permit this amended reply to be filed, but entered an order making it a part of the record. The trial resulted in a verdict for appellant in the sum of $80 for the sacks, whereupon judgment was entered against appellee for $80 and costs. From that judgment this appeal is prosecuted.

The evidence for appellee is to the effect that he did not begin threshing his wheat until after the 25th of July, 1909; he completed his threshing about the 29th of the same month. This fact is established by [141 Ky. 720] appellee and his brother and the testimony of two or three other witnesses who passed appellee's field while he was engaged in the work of threshing. There is no evidence to the contrary. At the time he finished threshing, wheat of the kind which he had contracted to sell appellant was not worth over $1 per bushel. This fact is established by the evidence of several witnesses, and there is practically no evidence to the contrary. Appellee attempted to justify his conduct in breaching the contract by certain rumors to the effect that appellant had suspended business and was unable to pay for the wheat. While there may have been rumors to this effect, the evidence fails to establish the fact that appellant had suspended business. About the 14th or 15th of July, appellee sold his wheat to the Liberty Mills at Nashville for $1.16 per bushel. On the 24th of July the price of wheat began to fall, until it reached about $1 per bushel on the 29th.

The evidence of appellant and its witnesses is devoted, chiefly, to establishing the fact that appellant did not suspend business and was fully able to pay for the wheat contracted for. While their evidence tends to show that the price of wheat, from the 14th or 15th of July to the 24th, was far in excess of the contract price, they practically admit that wheat was not worth more than a dollar per bushel at the time appellee claims he finished threshing.

One of the errors relied upon is the failure of the court to permit appellant's amended reply to be filed, wherein it attempted to plead that appellee was estopped by his conduct, in selling the wheat, from claiming that he threshed it at a later date, or that appellant was not damaged by reason of the breach of the contract. In this connection it is insisted that appellee had no right to violate his contract by selling the wheat to another at a price far in excess of the contract price, using for that purpose the sacks appellant had furnished, and then claim that as a matter of fact he had not threshed the wheat until a later date, and at that time the market price of wheat was below the contract price.

In contracts for the delivery of personal property at a fixed time and at a designated place, the vendee is entitled to damages against the vendor for a failure to comply, and the measure of damages is the difference between the contract price and the market price of the property at the place and time of delivery. (Miles v. Miller, 12 Bush, 134). This principle of law is so well [141 Ky. 721] settled, not only in this State, but in all the courts of this country, that it is no longer open to discussion. There is no reason why this rule should not apply to the facts of this case. The evidence clearly established the fact that the threshing was not completed until about the 29th of July. There is nothing in the evidence tending to show that appellee fraudulently delayed the threshing of the wheat for the purpose of permitting the market price of the wheat to go down. Indeed, all the circumstances pointed to an advance rather than a decline in the price, and appellee had no reason to anticipate that the market would decline. As he finished threshing on the 29th of July, and the wheat was to be delivered from the thresher, and appellant was not to accept and pay for the wheat until the time fixed for the delivery, that is the time which determines whether or not appellant was damaged. If appellee had sold his wheat on July 14th or 15th, at $1.16, and the price on July 29th was $1.50 per bushel, appellant would not be contending that the measure of his damages was the difference between the contract price and the price appellee received for it on July 14th or 15th, but would insist that he was entitled to the difference between the contract price and $1.50 per bushel. Besides, appellee was not required by his contract, to deliver to appellant any particular wheat. Had he delivered other wheat of like quantity and quality [133 S.W. 786] he would have complied with the contract. When he sold his wheat on July 14th or 15th, for a price in excess of the contract price, and, therefore, failed to deliver to appellant wheat of the quantity and quality contracted for, he took the chances of being mulcted in damages for the breach of the contract. Estoppel can only be invoked where a party by his conduct has led another to act to his prejudice. There is nothing in the facts of this case to justify the application of that doctrine.

But it is insisted that the court improperly placed the burden of proof upon the appellee, and thereby gave him the closing argument, and improperly admitted and rejected certain evidence. The ruling of the court with reference to the burden of proof was improper, for, notwithstanding the fact that appellee admitted the execution and breach of the contract, yet it was still incumbent upon appellant to prove that it had been damaged. But the question still remains: Was the action of the court prejudicial? As stated before, the evidence overwhelmingly established the fact—indeed, it is practically admitted—that the market price of wheat of the kind and [141 Ky. 722] quality contracted to be delivered at the time and place designated in the contract did not exceed $1 per bushel. That being true, appellant, instead of being damaged by the breach of the contract, was actually benefited to the extent of about three cents per bushel. Had the jury upon this state of facts found anything for the appellant, it would have been the duty of this court to reverse the judgment because the verdict was flagrantly against the evidence.

The evidence which it is claimed was improperly admitted and rejected concerned only certain immaterial issues; it had no bearing upon the market price of wheat at the time and place fixed for delivery. We deem it unnecessary to pass upon the propriety of the court's action in regard to such evidence, for the reason that if he erred in the respects complained of, such error could not have prejudiced the substantial rights of appellant.

Judgment affirmed.

1 DeG., M & G. 604, 42 Eng. Rep. 687 (Ch. 1852)
BENJAMIN LUMLEY
v.
JOHANNA WAGNER, ALBERT WAGNER and FREDERICK GYE
Before the Lord Chancellor Lord St. Leonards.
May 22, 26, 1852.

[604] [S. C. 5 De G. & Sm. 485; 21 L. J. Ch. 898; 16 Jur. 871. See Adamson v. Gill, 1868, 17 L. T. 466 ; Catt v. Tourle, 1868, L. R. 4 Ch. 660 ; Merchants’' Trading Co. v. Banner, 1871, L. R. 12 Eg. 23. Observed upon, Montague v. Flockon, 1873, L. R. 16 Eq. 189. Considered, Wolverhampton and Walsal Railway v. London and Northwestern Railway, 1873, L. R. 16 Eq. 433. See Fothergill v. Rowland, 1873, L. R. 17 Eq. 141; Warne v. Routledge, 1873, L. R. 18 Eq. 499 ; Leech v. Schweder, L. R. 9 Ch. 468 (n.);j Bowen v. Hall, 1881, 6 Q. B. D. 341 ; Alderson v. Maddison, 1881, 7 Q. B. D. 181 ; 8 App. Cas. 467; Donnell v. Bennett, 1883, 22 Ch. D. 838. Discussed, Whitwood Chemical Co. v. Hardman [1891], 2 Ch. 416. See Ryan v. Mutual tontine, &c., Association [1893], 1 Ch. 127. Distinguished, Davis v. Foreman [1894], 3 Ch. 654. See Robinson V. Heuer [1898], 2 Ch. 458; Manchester Ship Canal Co. v. Manchester Racecourse Go. [1901], 2 Ch. 37;  Formby v. Baker [1903], 2 Ch. 553.]

J. W. agreed with B. L. that she, J. W., would sing at B. L.'s theatre during certain period of time, and would not sing elsewhere without his written authority. Held, on a bill filed to restrain J. W. from singing for a third party, and granting an injunction for that purpose, that the positive and negative stipulations of the agreement formed but one contract, and that the Court would interfere to prevent the violation of the negative stipulation, although it could not enforce the specific performance of the entire contract.

Kemble v. Kean, 6 Sim. 333, and Kimberley v. Jennings, 6 Sim. 340, overruled.

The Plaintiff relied on the Defendants' knowledge of a fact said to be communicated to them in a letter, of which no copy was kept, but the receipt of which the Defendants admitted. The Defendants denied that it contained the statement alleged, but did not produce the letter, or satisfactorily account for its nonproduction. Held, under these circumstances, that the Plaintiff's representation must be taken to be true.

The bill in this suit was filed on the 22d April 1852, by Benjamin Lumley, the lessee of Her Majesty's Theatre, against Johanna Wagner, Albert Wagner, her father, and Frederick Gye, the lessee of Covent Garden Theatre: it stated that in November 1851 Joseph Bacher, as the agent of the Defendants Albert Wagner and Johanna Wagner, came to and concluded at Berlin an agreement in writing in the French language, bearing date the 9th November 1851, and which agreement, being translated into English, was as follows :—

" The undersigned Mr. Benjamin Lumley, possessor of Her Majesty's Theatre at London, and of the Italian Opera at Paris, of the one part, and Mademoiselle Johanna [688 Wagner, cantatrice of the Court of His Majesty the King of Prussia, with the consent of her father, Mr. A. Wagner, residing at Berlin, of the other part, have concerted and concluded the following contract :—First, Mademoiselle Johanna Wagner binds herself to sing three months at the theatre of Mr. Lumley, Her Majesty's, at London, to date from the 1st of April 1852 (the [605] time necessary for the journey comprised therein), and to give the parts following:  1st, Romeo, Montecchi; 2d, Fides, Prophete ; 3d, Valentine, Huguenots ; 4th, Anna, Don Juan; 5th, Alice, Robert le Diable; 6th, an opera chosen by common accord.—Second, The three first parts must necessarily be, 1st, Romeo, 2d, Fides, 3d, Valentine; these parts once sung, and then only she will appear, if Mr. Lumley desires it, in the three other operas mentioned aforesaid.—Third, These six parts belong exclusively to Mademoiselle Wagner, and any other cantatrice shall not presume to sing them during the three months of her engagement. If Mr. Lumley happens to be prevented by any cause soever from giving these operas, he is, nevertheless, held to pay Mademoiselle Johanna Wagner the salary stipulated lower down for the number of her parts as if she had sung them.-—Fourth, In the case where Mademoiselle Wagner should be prevented by reason of illness from singing in the course of a month as often as it has been stipulated, Mr. Lumley is bound to pay the salary only for the parts sung.—Fifth, Mademoiselle Johanna Wagner binds herself to sing twice a week during the run of the three months; however, if she herself was hindered from singing twice in any week whatever, she will have the right to give at a later period the omitted representation.—Sixth, If Mademoiselle Wagner, fulfilling the wishes of the direction, consent to sing more than twice a week in the course of three months, this last will give to Mademoiselle Wagner £50 sterling for each representation extra. —-Seventh, Mr. Lumley engages to pay Mademoiselle Wagner a salary of £400 sterling per month, and payment will take place in such manner that she will receive £100 sterling each week.—Eighth, Mr. Lumley will pay, by letters of exchange, to Mademoiselle Wagner at Berlin, the 15th of March 1852, the sum of £300 sterling, a sum which will be deducted from her engagement in his [606] retaining £100 each month.—Ninth, In all cases except that where a verified illness would place upon her a hindrance, if Mademoiselle Wagner shall not arrive in London eight days after that from whence dates her engagement, Mr. Lumley will have the right to regard the non-appearance as a rupture of the contract, and will be able to demand an indemnification.— Tenth, In the case where Mr. Lumley should cede his enterprise to another, he has the right to transfer this contract to his successor, and in that case Mademoiselle Wagner has the same obligations and the same rights towards the last as towards Mr. Lumley.

" JOHANNA WAGNER.
"ALBERT WAGNER."

"Berlin, the 9th November 1851."

The bill then stated that in November 1851 Joseph Bacher met the Plaintiff in Paris, when the Plaintiff objected to the agreement as not containing an usual and necessary clause, preventing the Defendant Johanna Wagner from exercising her professional abilities in England without the consent of the Plaintiff, whereupon Joseph Bacher, as the agent of the Defendants Johanna Wagner and Albert Wagner, and being fully authorized by them for the purpose, added an article in writing in the French language to the agreement, and which, being translated into English, was as follows:—

"Mademoiselle Wagner engages herself not to use her talents at any other theatre, nor in any concert or reunion, public or private, without the written authorization of Mr. Lumley.

"Dr. JOSEPH BACHER,
"For Mademoiselle Johanna Wagner,
and authorized by her."

The bill then stated that J. and A. Wagner subsequently made another engagement with the [607] Defendant F. Gye, by which it was agreed that the Defendant J. Wagner should, for a larger sum than that stipulated by the agreement with the Plaintiff, sing at the Royal Italian Opera, Covent Garden, and abandon the agreement with the Plaintiff. The bill then stated that the Defendant F. Gye had full knowledge of the previous agreement with the Plaintiff, and that the Plaintiff had received a protest from the Defendants J. and A. Wagner, repudiating the agreement on the allegation that the Plaintiff had failed to fulfil the pecuniary portion of the agreement.

The bill prayed that the Defendants Johanna Wagner and Albert Wagner might restrained from violating or committing any breach of the last article of the agreement; that the Defendant Johanna Wagner might be restrained from singing and performing or singing at the Royal Italian Opera, Covent Garden, or at any other theatre or place without the sanction or permission in writing of the Plaintiff during the existence of the agreement with the Plaintiff; and that the Defendant Albert 'Wagner might be restrained from permitting or sanctioning the Defendant Johanna "Wagner singing and performing or singing as aforesaid; that the Defendant Frederick Gye might be restrained from accepting the professional services of the Defendant Johanna Wagner as a singer and performer or singer at the said Royal Italian Opera, Covent Garden, or at any other theatre or place, and from permitting her to sing and perform or to sing at the Royal Italian Opera, Covent Garden, during the existence of the agreement with the Plaintiff, without the permission or sanction of the Plaintiff.

The answer of the Defendants A. and J. Wagner attempted to show that Joseph Bacher was not their authorized agent, at least for the purpose of adding the restrictive clause, and that the Plaintiff had failed to make the stipu-[608]-lated payment by the time mentioned in the agreement. The Plaintiff having obtained an injunction from the Vice-Chancellor, Sir James Parker, on the 9th May 1852, the Defendants now moved by way of appeal before the Vice-Chancellor (1) to discharge His Honour's order.

Mr. Bethell, Mr. Malins and Mr. Martindale, in support of the appeal motion. We submit that the agreement in the present case being one of which the Court cannot decree specific performance, the jurisdiction by injunction does not attach. The Vice-Chancellor has rested his decision mainly on the authority of Dietrichsen v. Cabburn (2 Phil. 52), but there the decision was founded on the special circumstances of the case tending to establish a partnership, which clearly does not exist here, nor does it warrant such an extension of the principle as has been assumed to be there established ; this is shewn by the observations of Lord Cottenham himself in the subsequent case of Heathcote v. The North Staffordshire Railway Company (2 Mac. & G. 100). In that case, on dissolving an injunction which had been granted by the Vice-Chancellor of England, restraining the company from applying to Parliament for powers to relieve them from the performance of their contract, his Lordship said, "The covenant is a mere legal contract which the Act asked for may prevent the Defendant from performing, but that is all: if A. contract with B. to deliver goods at a certain time and place, will equity interfere to prevent A. from doing anything which may or can prevent him from so delivering the goods?  If, indeed, A. had agreed to sell an estate to B. and then proposed to deal [609] with the estate so as to prevent him from performing his contract, equity would interfere; because in that case B. would, by the contract, have obtained an interest in the estate itself, which, in the case of the goods, he would not." We contend that the agreement is a purely personal contract, for the infraction of which damages are a complete and ample remedy: the agreement is, in fact, nothing more than a contract of hiring and service, and whatever the relation between the employer and employed may be, whether master or 'servant, or principal and agent, or manager and actor, this Court will, in all such cases, abstain from interfering, either directly or indirectly; Kemble v. Kean (6 Sim. 333), Kimberley v. Jennings (6 Sim. 340), Stocker• v. Brockelbank (3 Mac. & G. 250).

[THE LORD CHANOELLOR. In the case of Stocker v. Brockelbank there was no negative covenant.]

The general principle upon which we rely is, that this Court never interferes to restrain the breach of the negative part of a contract in any case where it cannot specifically enforce the performance of the positive part of the contract ; Baldwin v. The Society for the Diffusion of Useful Knowledge (9 Sim. 393), Hooper v. Brodrick (11 Sim. 47), Hills v. Croll (2 Phil. 60). The earlier authorities cited by the Plaintiff in the Court below, namely, Martin v. Nutkin (2 P. W. 266), Barret v. Blagrave (5 Ves. 555), Martin v. Colman (18 Ves. 437), are all distinguishable. In the case of Martin v . .Nutkin (2 P. W. 266) the ringing of the bells was restrained, because not only was there no adequate remedy at law, but the contract was one clearly falling within the ordinary jurisdiction of the Court for specific performance. The same remark applies also to the case of Barrett v. Bla-[610]-grave (5 Ves. 555), which involved the doctrine of part performance, the tenant having enjoyed the benefits of the lease. In Morris v. Colman (18 Ves. 437), the injunction was granted upon the ground of partnership, as shewn by Lord Eldon in the case of Clarke v. Price (2 Wils. 157); and, applying'the language of his Lordship in that case to the present, we say that if the agreement is one which the Court will not carry into execution (and this must be admitted) the Court cannot indirectly enforce it.

[THE LORD CHANOELLOR observed that in the case of Blakemore v. The Glamorganshire Canal Navigation (1 Myl. & K. 154) Lord Eldon had got over his scruples ; for he there granted an injunction, the effect of which was indirectly to compel the company to restore certain works to the state in which they originally stood, His. Lordship added that he had always felt some difficulty in acquiescing in the propriety of that decision.]

The utmost extent to which the Court ought to go in granting such prohibitory injunctions, when a proper case is shewn for its interference, is in the form adopted in the case of Robinson v. Lord Byron (1 Bro. C. C. 588), where the Defendant was restrained from preventing the flow of water in the usual quantities; but it is to be observed that, wherever there is a clear legal remedy, as exists in the present instance, this Court will decline to interfere in cases arising out of the doctrine of specific performance, Collins v. Plumb ( 16 Ves. 454).

[THE LORD CHANCELLOR. This Court interferes by injunction in the case of articled clerks, surgeons' apprentices, &c., who have covenanted, after they leave their masters not to practise within certain limits, although no question of specific performance is involved.]

The utmost extent to which the Court ought to go in granting such prohibitory injunctions, when a proper case is shewn for its interference, is in the form adopted in the case of Robinson v. Lord Byron (1 Bro. C. C. 588), where the Defendant was restrained from preventing the flow of water in the usual quantities; but it is to be observed that, wherever there is a clear legal remedy, as exists in the present instance, this Court will decline to interfere in cases arising out of the doctrine of specific performance, Collins v. Plumb ( 16 Ves. 454).

[THE LORD CHANCELLOR. This Court interferes by injunction in the case of articled clerks, surgeons' apprentices, &c., who have covenanted, after they leave their masters not to practise within certain limits, although no question of specific performance is involved.]

[611] Those cases, of which Swallow v. Wallingfond (12 Jur. 403) is an example, are in the nature of concluded contracts, and where the jurisdiction of this Court is only exercised with the view of effectuating the whole contract by preventing the party, who has received a valuable consideration for his covenant, from infringing that covenant. On the same principle, as well as to prevent the commission of irreparable damage, a tenant was restrained from violating a covenant he had entered into with his landlord not to burn the demised lands, Gervais v. Edwands (2 Dru. & War. 80).

Mr. Bacon and Mr. H. Clarke, contra, in support of the injunction. The prayer of the bill in the present case is not for specific performance and for an injunction as ancillary to that relief, but for an injunction simply, to prevent the violation of the negative stipulation in the Defendants' agreement. With respect to the alleged distinction in the case of Morris v. Colman (18 Ves. 437), on the ground of a partnership, that was in fact no distinction, nor did it form an element in the decision of the case, which was based solely on the existence of the negative stipulation; and the case of Clarke v. Price (2 Wils. 157), which was relied upon by the Appellants, serves clearly to illustrate this position, for in that case not only was there a prayer for specific performance, but the agreement contained no negative stipulation. The cases of Kemble v. Kean (6 Sim. 333) and Kimberley v. Jennings (6 Sim. 340) are the only two cases which are at all opposed to the uniform current of authority, which establishes the Plaintiff's right to the injunction; but it is to be observed that Sir L. Shadwell, who decided these [612] two cases, was himself the Judge who, in the subsequent case of Rolfe v. Rolfe (15 Sim 88), recognized and acted upon the distinction for which we contend, thereby virtually if not actually overruling his previous decisions. We rely upon the decision of Lord Cottenham in Dietrichsen v .. Cabburn (2 Phil. 52; see p. 58); he there says, "If the bill states a right or title in the Plaintiff to the benefit of the negative agreement of the Defendant, or of his abstaining from the contemplated act, it is not as I conceive material whether the right be at law or under an agreement which cannot be otherwise brought under the jurisdiction of a Court of Equity." On this principle the Court acts in restraining the violation of covenants in a lease, by a tenant, French v. Macale (2 Dru. & War. 269). The same doctrine was also recognised by Lord Langdale, in the case of Whittaker v. Howe (3 Beav. 383;  see p. 395), where he says :—" I do not think that this Court can refuse to grant an injunction to restrain the violation of a contract or covenant, because there may be some part of the agreement which the Court could not compel the Defendant specifically to perform." It was said that this Court would, at all events, only interfere in cases where there had been part performance, but such a construction would exclude all executory contracts. In' the present case, however, there has been a part performance, inasmuch as the Plaintiff has incurred considerable expense in preparing operas in which the Defendant J. Wagner was to sing. It was further said that the Court never interferes in cases like the present, which was alleged to be one of personal service; but in the case of articled clerks, &c., the Court has continually restrained them from practising within certain limits, in violation of their agreements.

Mr. Bethell, in reply, [613] The jurisdiction of the Court in granting injunctions may be said to be limited to four classes of cases. The first class includes those where its aid is sought to obtain preventive relief, and where, if not granted, irreparable mischief would ensue, as in the cases of nuisances and infringement of patents. The second class includes those in which the injunction is ancillary to the relief prayed, as in Whittaker v. Howe (3 Beav. 383), which being a case of partnership the injunction was auxiliary for the purpose of preserving the status quo: in the present instance, however, the injunction, so far from being in the nature of ancillary relief, prejudges the whole case. The third class of cases embraces those where the Court, being able to give direct and full relief, has restrained the breach of unilateral agreements when only one part remains to be performed, and the effect of the injunction is to afford a complete remedy, and to leave no part of the agreement unperformed: thus, for example, in the case of restraining a tenant from committing a breach of his covenant, the whole contract is directly and positively performed; and the same remark is applicable to the decision in Rolfe v. Rolfe (15 Sim. 88), where the whole of the agreement had been completed, with the exception of the part which remained to be performed by the operation of the injunction; besides the question there resulted out of a partnership transaction: Where, however, the Court by its interference cannot do the complete act which was the subject of the agreement between the parties, it has declined to interfere, Smith v. Fromont (2 Swanst. 330). In the case now under discussion, the Court is called upon to deal indirectly with part of an agreement, in which the negative portion is so involved with the positive as to be only subservient to the whole agreement. There is also a fourth class of cases, namely, bills of peace, in which the Court is in the [614] habit of granting a perpetual injunction to quiet the possession of the Plaintiff, but those are inapplicable to the present.

THE LORD CHANCELLOR. The question which I have to decide in the present case arises out of a very simple contract, the effect of which is, that the Defendant Johanna Wagner should sing at Her Majesty's Theatre for a certain number of nights, and that she should not sing elsewhere (for that is the true construction) during that period. As I understand the points taken by the Defendants' counsel in support of this appeal they in effect come to this, namely, that a Court of Equity ought not to grant an injunction except in cases connected with specific performance, or where the injunction being to compel a party to forbear from committing an act (and not to perform an act), that injunction will complete the whole of the agreement remaining unexecuted.

I have then to consider how the question stands on principle and on authority, and in so doing I shall observe upon some of the cases which have been referred to and commented upon by the Defendants in support of their contention. The first was that of Martin v. Nutkin (2 P. W. 266), in which the Court issued an injunction restraining an act from being done where it clearly could not have granted any specific performance; but then it was said that that case fell within one of the exceptions which the Defendants admit are proper cases for the interference of the Court, because there the ringing of the bells, sought to be restrained, had been agreed to be suspended by the Defendant in consideration of the erection by the Plaintiffs of a cupola and clock, the agreement being in effect the price stipulated for the Defendant's relinquishing bell-ringing at stated periods; the Defendant having accepted the [615] benefit, but rejected the corresponding obligation, Lord Macclesfield first granted the injunction which the Lords Commissioners, at the hearing of the cause, continued for the lives of the Plaintiffs. That case therefore, however it may be explained as one of the exceptional cases, is nevertheless a clear authority shewing that this Court has granted an injunction prohibiting the commission of an act in respect of which the Court could never have interfered by way of specific performance.

The next case referred to was that of Barrett v. Blagrave (5 Ves. 555), which came first before Lord Loughborough, and afterwards before Lord Eldon (6 Ves. 104). There, a lease had originally been granted by the Plaintiffs, the proprietors of Vauxhall Gardens, of an adjoining house, under an express covenant that the lessee would not carryon the trade of a victualler or retailer of wines, or generally any employment that would be to the damage of the proprietors of Vauxhall Gardens ; an underlease having been made to the Defendants, who were violating the covenant by the sale of liquors, the proprietors of Vauxhall Gardens filed a bill for an injunction, which was granted by Lord Loughborough. It has been observed in the argument here, that in granting the injunction Lord Loughborough said :—" It is in the nature of specific performance," and that, therefore, that case also falls under one of the exceptional cases. When that case came before Lord Eldon, he dissolved the injunction, but upon a different ground, namely, on that of acquiescence for many years, and in a sense he treated it as a case of specific performance. As far as the words go, the observations of those two eminent Judges would seem to justify the argument which has been addressed to me; in effect, however, it was only specific performance, because a prohibition, pre-[616]-venting the commission of an act may as effectually perform an agreement as an order for the performance of the act agreed to be done. The agreement in that case being, that the house should not be opened for the purposes of entertainment to the detriment of Vauxhall Gardens, the Court granted the injunction; that was the performance of the agreement in substance, and the term “ specific performance" is aptly applied in such a case, but not in the sense in which it has been used before me.

It was also contended that the Plaintiff's remedy, if any, was at law; but it is no objection to the exercise of the jurisdiction by injunction that the Plaintiff may have a legal remedy. The case of Robinson v. Lord Byron (I Bro. C. C. 588), before Lord Thurlow, so very often commented upon by succeeding Judges, is a clear illustration of that proposition, because in that case the Defendant, Lord Byron, who had large pieces of water in his park which supplied the Plaintiff's mills, was abusing his right by preventing a regular supply to the Plaintiff's mill, and, although the Plaintiff had a remedy at law, yet this Court felt no difficulty in restraining Lord Byron by injunction from preventing the regular flow of the water. Undoubtedly, there are cases such as that cited for the Defendants, of Collins v. Plumb (16 Ves. 454), before Lord Eldon, in which this Court has declined to exercise the power (which in that instance it was assumed to have had) of preventing the commission of an Act, because such power could not be properly and beneficially exercised. In that case the negative covenant, not to sell water to the prejudice of the Plaintiffs, was not enforced by Lord Eldon, not because he had any doubt about the jurisdiction of the Court (for upon that point he had no doubt), but because it was impossible to ascertain every time the water was supplied by the Defendants whether it was or not [617] to the damage of the Plaintiffs; but whether right or wrong, that learned Judge, in refusing to exercise the jurisdiction on very sufficient grounds, meant in no respect to break in on the general rules deducible from the previous authorities.

At an early stage of the argument I adverted to the familiar cases of attorneys' clerks, and surgeons' and apothecaries' apprentices, and the like, in which this Court has constantly interfered, simply to prevent the violation of negative covenants; but it was said that in such cases the Court only acted on the principle that the clerk or apprentice had received all the benefit, and that the prohibition operated upon a concluded contract, and that, therefore, the injunction fell within one of the exceptional cases. I do not, however, apprehend that the jurisdiction of the Court depends upon any such principle : it is obvious that in those cases the negative covenant does not come into operation until the servitude is ended, and, therefore, that the injunction cannot be required or applied for before that period.

The familiar case of a tenant covenanting not to do a particular act was also put during the argument; but it was said that in such a case the jurisdiction springs out of the relation of landlord and tenant, and that the tenant having received the benefit of an executed lease, the injunction operates only so as to give effect to the whole contract; that, however, cannot be the principle on which this Court interferes, for, beyond all doubt, where a lease is executed containing affirmative and negative covenants, this Court will not attempt to enforce the execution of the affirmative covenants either on the part of the landlord or the tenant, but will leave it entirely to a Court of law to measure the damages ; though with respect to the negative covenants, if the tenant, for example, has sti-[618]-pulated not to cut or lop timber, or any other given act of forbearance, the Court does not ask how many of the affirmative covenants on either side remain to be performed under the lease, but acts. at once by giving effect to the negative covenant, specifically executing it by prohibiting the commission of acts which have been stipulated not to be done. So far, then, each of the cases to which I have referred appears to me to be in direct contravention of the rules which have been so elaborately pressed upon me by the Defendants' counsel.

The present is a mixed case, consisting not of two correlative acts to be done—one by the Plaintiff, and the other by the Defendants, which state of facts may have and in some cases has introduced a very important difference—but of an act to be done by J. Wagner alone, to which is superadded a negative stipulation on her part to abstain from the commission of any act which will break in upon her affirmative covenant ; the one being ancillary to, concurrent and operating together with, the, other. The agreement to sing for the Plaintiff during three months at his theatre, and during that time not to sing for anybody else, is not a correlative contract, it is. in effect one contract; and though beyond all doubt this Court could not interfere. to enforce the specific performance of the whole of this contract, yet in all sound. construction, and according to the true spirit of the agreement, the engagement to perform for three months at one theatre must necessarily exclude the right to perform at the same time at another theatre. It was clearly intended that J. Wagner was to exert her vocal abilities to the utmost to aid the theatre to which she agreed to attach herself. I am of opinion that if she had attempted, even in the absence of any negative stipulation, to perform at another theatre, she would have broken the spirit and [619] true meaning of the contract as much as she would now do with reference to the contract into which she has actually entered.

Wherever this Court has not proper jurisdiction to enforce specific performance, it operates to bind men's consciences, as far as they can be bound, to a true and literal performance of their agreements ; and it will not suffer them to depart from their contracts at their pleasure, leaving the party with whom they have contracted to the mere chance of any damages which a jury may give. The exercise of this: jurisdiction has, I believe, had a wholesome tendency towards the maintenance of that good faith which exists in this country to a much greater degree perhaps than in any other; and although the jurisdiction is not to be extended, yet a Judge would desert his duty who did not act up to what his predecessors have handed down as the rule for his guidance in the administration of such an equity.

It was objected that the operation of the injunction in the present case was mischievous, excluding the Defendant J. Wagner from performing at any other theatre while this Court had no power to compel her to perform at Her Majesty's Theatre .. It is true that I have not the means of compelling her to sing, but she has no cause of complaint if I compel her to abstain from the commission of an act which she has, bound herself not to do, and thus possibly cause her to fulfill her engagement. The jurisdiction which I now exercise is wholly within the power of the Court, and being of opinion that it is a proper case for interfering, I shall leave nothing unsatisfied by the judgment I pronounce. The effect, too, of the injunction in restraining J. Wagner from singing elsewhere may, in the event of an action being brought against. her by the Plaintiff, prevent any such amount of vindictive damages being given against her as a jury might probably be [620] inclined to give if she had carried her talents and exercised them at the rival theatre: the injunction may also; as I have. said, tend to the fulfillment of her engagement; though, in continuing the injunction, I disclaim doing indirectly what I cannot do directly.

Referring again to the authorities, I am well aware that they have not been uniform, and that there undoubtedly has been a difference of decision on the question now revived before me; but, after the best consideration which I have been enabled to give to the subject, the conclusion at which I have arrived is, I conceive, supported by the greatest weight of authority. The earliest case most directly bearing on the point is that Morris v. Colman (18 Ves. 437): there Mr. Colman was a part proprietor with Mr. Morris of the Haymarket Theatre, and they were partners in that concern, and by the deed of partnership Mr. Colman agreed that he would not exercise his dramatic abilities for any other theatre than the Haymarket; he did not, however, covenant that he would write for the Haymarket, but it was merely a negative Covenant that he would not write for any other theatre than the Haymarket. Lord Eldon granted an injunction against Mr. Colman writing for any other theatre than the Haymarket; and the ground on which Lord Eldon assumed that jurisdiction was the subject of some discussion at the Bar. It was truly said for the Defendants that that was a case of partnership; and it was said, moreover, that Lord Cottenham was mistaken in the case of Dickersen v. Cabburn (2 Phil. 52), when he said that Lord Eldon had not decided Morris v. Colman on the ground of there being a partnership. I agree that the observations which fell from Lord Eldon in the subsequent case of Clarke v. Price (2 Wils. 157) shew that he did mainly decide it on the ground of partnership; [621] but he did not decide it exclusively on that ground. In the argument of Morris v. Colman (18 Ves. 437) Sir Samuel Romily suggested a case almost identical with the present: he contended that the clause restraining Mr. Colman from writing for any other theatre was no more against public policy than a stipulation that Mr. Garrick should not perform at any other theatre than that at which he was engaged would have been. Lord Eldon, adverting in his judgment to the case put at the Bar, said—" If Mr. Garrick was now living would it be unreasonable that he should contract with Mr. Colman to perform only at the Haymarket Theatre, and Mr. Colman with him to write for the theatre alone? Why should they not thus engage for the talents of each other ? " He gives the clearest enunciation of his opinion that that would be an agreement which this Court would enforce by way of injunction.

The late Vice-Chancellor Shadwell, of whom I always wish to be understood to speak with the greatest respect, decided in a different way in the cases of Kemble v. Kean (6 Sim. 333) and Kimberley v. Jennings (6 Sim. 340), on which I shall presently make a few observations. In the former case he observed that Lord Eldon must be understood, in the case of Morris v. Colman (18 Ves. 437), to have spoken according to the subject-matter before him, and must there be considered to be addressing himself to a case in which Colman and Garrick would both have bad a partnership interest in the theatre. I must however, entirely dissent from that interpretation. Lord Eldon's words are perfectly plain, they want no comment upon them, they speak for themselves. He was alluding to a case in which Garrick, as a performer, would have had nothing to do with the theatre beyond the implied engagement that he would not perform anywhere else; and I have [622] come to a very clear conclusion that Lord Eldon would have granted the injunction in that case although there had been no partnership.

The authority of Clarke v. Price (2 Wils. 157) was much pressed upon me by the learned counsel for the Defendants; but that is a case which does not properly belong to their argument, because there there was no negative stipulation, and I quite admit that this Court cannot enforce the performance of such an affirmative stipulation as is to be found in that case; there the Defendant having agreed to take notes of cases in the Court of Exchequer, and compose reports for the Plaintiff, and having failed to do so, the Plaintiff, Mr. Clarke, filed a bill for an injunction, and Lord Eldon, when refusing the injunction, in effect, said, I cannot compel Mr. Price to sit in the Court of Exchequer and take notes and compose reports; and the whole of his judgment shews that he proceeded (and so it has been considered in later cases) on the ground that there was no covenant, on the part of the Defendant, that he would not compose reports for any other person. The expressions in the judgment are :—" I cannot, as in the other case" (referring to Morris v. Colman (18 Ves. 437)), " say that I will induce him to write for the Plaintiff by preventing him from writing for any other person;" and then come these important words" for that is not the nature of the agreement." Lord Eldon, therefore, was of opinion, upon the construction of that agreement, that it would be against its meaning to affix to it a negative quality and import a covenant into it by implication, and he, therefore, very properly, as I conceive, refused that injunction; that case, therefore, in no respect touches the question now before me, and I may at once declare that if I had only to deal with the affirmative covenant of the Defendant J. Wagner that she would perform at Her Majesty's Theatre, I should not have granted any injunction.

[623] Thus far, I think, the authorities are very strong against the Defendants' contention ; but the case of Kemble v. Kean (6 Sim. 333), to which I have already alluded, is the first case which has in point of fact introduced all the difficulties on this part of the law. There Mr. Kean entered into an agreement precisely similar to the present: he agreed that he would perform for Mr. Kemble at Drury Lane, and that he would not perform anywhere else during the time that he had stipulated to perform for Mr. Kemble. Mr. Kean broke his engagement, a bill was filed, and the Vice-Chancellor Shadwell was of opinion that he could not grant an injunction to restrain Mr. Kean from performing elsewhere, which he was either about to do or actually doing, because the Court could not enforce the performance of the affirmative covenant that he would perform at Drury Lane for Mr. Kemble. Being pressed by that passage which I have read from in the Lord Chancellor's judgment in Morris v. Colman (18 Ves. 437), he put that paraphrase or commentary upon it which I have referred to :  that is, he says: "Lord Eldon is speaking of a case where the parties are in partnership together." I have come to a different conclusion : and I am bound to say that, in my apprehension, the case of Kemble v. Kean was wrongly decided and cannot be maintained.

The same learned Judge followed up his decision in that case in the subsequent one of Kimberly v. Jennings (6 Sim. 340) ; that was a case of hiring and service, and the Vice-Chancellor there virtually admitted that a negative covenant might be enforced in this Court, and quoted an instance to that effect within his own knowledge. He said: "I remember a case in which a nephew wished to go on the stage, and his uncle gave him a large sum of money in consideration of his covenanting not to [624] perform within a particular district ; the Court would execute such a covenant, on the ground that a valuable consideration had been given for it." He admits, therefore, the jurisdiction of the Court, if nothing but that covenant remained to be executed. The learned Judge, however, adds, "but here the negative covenant does not stand by itself: it is coupled with the agreement for service for a certain number of years, and then for taking the Defendant into partnership: . . . this agreement cannot be performed in the whole, and, therefore, this Court cannot perform any part of it." Whatever may have been the mutual obligations in that case, which prevented the Court from giving effect to the negative covenant, I am not embarrassed with any such difficulties here, because, as I have already shewn, both the covenants are on the part of the Defendants.

The case of Hooper v. Brodrick (11 Sim. 47) was cited, as an instance in which the Court had refused an injunction under circumstances like the present; but, in that case, the lessee of an inn had covenanted to use and keep it open as an inn during a certain time, and not to do any act whereby the licence might become forfeited. In point of fact, the application was that he might be compelled to keep it open, and the Vice-Chancellor makes this observation: "The Court ought not to have restrained the Defendant from discontinuing to use and keep open the demised premises as an inn, which is the same in effect as ordering him to carryon the business of an innkeeper; but it might have restrained him from doing, or causing or permitting to be done, any act which would have put it out of his power, or the power of any other person, to carryon that business on the premises. It is not, however, shewn that the Defendant has threatened, or intends to do, or to cause or permit to be done, any act whereby the [625] licences may become forfeited or be refused; and, therefore, the injunction must be dissolved." That, therefore, is an authority directly against the Defendants, because it shews that if there had been an intention to break the negative covenant, this Court would have granted the injunction.

The case of Smith v. Fromont (2 Swanst. 330) was also relied upon by the Defendants, as an instance where the injunction had been refused, but there there was no negative covenant; it was an attempt to restrain, by injunction, a man from supplying horses to a coach for a part of a road, when the party who was applying for the injunction was himself incapable of performing his obligation to horse his part of the road. Lord Eldon, in refusing the injunction and deprecating the interference of the Court in such cases, there said: "The only instance I recollect of an application to this Court to restrain the driving of coaches occurred in the case of a person who, having sold the business of a coach proprietor from Reading to London, and undertaking to drive no coach on that road, afterwards established one. 'With some doubt, whether I was not degrading the dignity of this Court by interfering, I saw my way in that case; because one party had there covenanted absolutely against interfering with the business which he had sold to the other." That again is a direct authority, therefore, against the Defendants, as Lord Eldon expressly says he had interfered in the case of a negative covenant, although he could not interfere on that, occasion because there was no such covenant.

Some observations have been made upon a decision of my own in Ireland, in the, case of Gevais v. Edwarcls (2 Dru. & War. 80); [626] that decision I believe to be, right, but it is quoted to shew that I was of opinion that this Court cannot interfere to enforce specific performance, unless it can execute the whole of an agreement. I abide by the opinion I there expressed, and I mean to do nothing in this case which shall in any manner interfere with that opinion. That was properly a case for specific performance, but from the nature of the contract itself there was a portion of it which could not be executed. I said, in effect: I cannot execute this contract which is intended to be binding on both parties; I cannot execute a portion of this contract for one, and leave the other portion of the contract unexecuted for the other; and, therefore, as I cannot execute the whole of the contract, I am bound to execute no part of it: that, however, has no bearing on the present case, for here I leave nothing unperformed which the Court can ever be called upon to perform.

In Hills v. Croll (2 Phil. 60), Lord Lyndhurst refused to enforce an injunction to restrain the violation of a negative covenant. It was a case in which A. had given to B. a sum of money, and B. covenanted that he would buy all the acids he wanted from the manufactory of A., who covenanted that he would supply the acids, and B. also covenanted that he would buy his acids from no other person. Lord Lyndhurst refused to prohibit B. from obtaining acids from any other quarter, both because the covenants were correlative, and because he could not compel A. to supply B. with acids; and if, therefore, he had restrained B. from taking acids from any other quarter, he might have ruined him in the event of A. breaking his affirmative covenant to supply the acids. That case has never been rightly understood. [627] It is supposed that Lord Lyndhurst's decision was based upon a. wrong principle; that he followed the authority of Gervais v. Edwards and such cases, and that he improperly applied the' rule which was in that class of cases properly applied, but under the circumstances of the case before him, I think the rule was not improperly applied.(2)

[628] The next case which has been so much observed upon was that before Lord Cottenham, of Dietrichsen v. Gabburn (2 Phil. 52). That was a very simple case, and the [629] question upon what principle it was decided formed the subject of discussion before me. A man, in order to obtain a great circulation of his patent medicine, entered [630] into a contract with a vendor of such articles, giving him a general agency for the sale of the medicine, with 40 per cent discount, and stipulating that he would not supply anybody else at a larger discount than 25 per cent. ; he violated his contract, and was proceeding to employ other agents with a larger discount than 25 per cent ; an injunction was applied for and was granted: it was. said that it was properly granted, because it was a case of partnership. This, however, was not the fact; it was not a case of partnership, but was strictly one of principal and agent; and it was only because there was the negative covenant that the Court gave effect to it. It is impossible to read Lord Cottenham's judgment, without being satisfied that he did not consider it to be a part-[631]-nership, though he said it was in the nature of a partnership; and in a popular sense it might. be so called, because the parties were there both dealing with respect to the same subject, from which each was to have a benefit, but in no legal sense was it a partnership.

Up to the period when Dietrichsen v. Cabburn (2 Phil. 52) was decided, I apprehend that there could have been no doubt on the law as applicable to this case, except for the authority of Vice-Chancellor Shadwell; but with great submission it appears to me that the whole of that learned Judge's authority is removed by himself by his decision in the later case of Rolfe v. Rolfe (15 Sim. 88). In that case A. B. and C. were partners as tailors. A. and B. went out of the trade on consideration of receiving £1000 each, and C. was to continue the business on his own account. A. entered into a covenant that he would not carryon the trade of a tailor which he had just sold, within certain limits, and C. entered into a covenant that he would employ A . as cutter at a certain allowance. The bill was filed simply for an injunction to prevent A. from setting up as a tailor within the prescribed limits, and the Vice-Chancellor granted that injunction. It was objected that this Court could not grant the injunction when there was something remaining to be performed, for that A. had a right to be employed as a cutter, which right this Court would not even attempt to deal with or enforce as against C. That case, therefore, was open to a difficulty which does not occur here; in fact, the same difficulty which might have arisen in Hills v. Croll (2 Phil. 60) before Lord Lyndhurst. But the Vice-Chancellor held that to be no difficulty at all; observing that the bill simply asked for an injunction which he would grant; although he could not give effect to the [632] affirmative covenant to do the act in respect of which no specific performance was asked: his own decisions in Kemble v Kean (6 Sim. 333), and in Kimberley v. Jennings (6 Sim. 340), were pressed upon him; but he observed "that the bills in the cases cited asked for specific performance of the agreement, and that the injunctions were sought as only ancillary to that relief ; but the bill in the present case asked merely for an injunction." He no longer put it on the inability of the Court to enforce a negative covenant, but he put it on the form of the pleadings. Whether that form was sufficient to justify his opinion is a question with which I need not deal; but I am very clearly of opinion that the case of Rolfe v. Rolfe (15 Sim. 88) does remove the whole weight of that learned Judge's authority on this subject.

It was said in argument that the injunction prayed in Rolfe v. Rolfe (15 Sim. 88) was merely ancillary to the relief; but it will be seen that that was not so, and that the prayer extended only to the injunction, and had nothing to do with relief in the shape of specific performance; and the learned Judge himself stated that, if it had gone to that extent, he, following his former decisions, would not have granted the injunction.

From a careful examination of all these authorities I am of opinion that the principles and rules deducible from them are in direct contravention of those principles and rules which were so elaborately pressed upon me during the argument; and I wish it to be distinctly understood that I entertain no doubt whatever that the point of law has been properly decided in the Court below. It was, nevertheless, and with some reason, said that although the point of law should be decided in the [633] Plaintiff's favour, still he might be excluded from having the benefit of it on the merits of the case.

His Lordship here entered into a minute examination of the statements in the answers and affidavits as to the unauthorized addition of the restrictive clause, and as to the non-fulfillment by the Plaintiff of his portion of the agreement. In reference to those points he observed that, whether the clause was originally added with or without authority, the evidence shewed a clear acquiescence on the part of the Defendants to its remaining in the agreement ; that the operation of the agreement had been in the first instance postponed to suit the convenience of the Defendants; and that as to the payment of the £300, although the Plaintiff could not have come into a Court of Equity to enforce the contract without having tendered the amount stipulated to be paid, yet it was distinctly proved that it had in fact been paid to the common agent of both parties for the purpose of being handed to the Defendants. His Lordship concluded by saying that, looking at the merits and circumstances of the case, as well as at the point of law raised, he must refuse this motion, with costs. In the course of the argument, and in order to prove the Plaintiff's readiness to perform his part of the contract, an affidavit made by Dr. Bacher was read, which was to the effect that he had written and sent a letter to the Defendant J. Wagner, informing her of his having received from the Plaintiff the £300, and offering to pay that sum according to her instructions. A letter of the same date as that referred to in the affidavit was admitted to have been received by the Defendant J. Wag-[634]ner, but it was positively denied that it contained any such offer. The letter itself was not forthcoming, and its non-production was not accounted for. No copy was kept by Dr. Bacher.

THE LORD CHANCELLOR observed that, when the affidavit, as to the contents of the letter, was made, Dr. Bacher could not have known that the letter would not be produced; that the affidavit, therefore, if untrue, was at the imminent peril of exposure by the production of the letter; and that under such circumstances the representation in the affidavit must be taken to be true.

NOTES

[1] The case was heard by the Lord Chancellor on a representation that it was intended to confine the argument to the legal :question alone, which, it was said, involved an important point of equity jurisdiction, on which the authorities were conflicting.

[2] The following, containing all the material portions of Lord Lyndhurst's judgment in Hills y. Croll, is taken from the shorthand writer's notes, and has been kindly furnished to the reporters by one of the counsel who was engaged in that cause, and by whom a very full report of the case will be found published in "Reports of Cases in the Law of Real Property and Conveyancing," Vol. i. p. 541 :—

" THE LORD CHANCELLOR. In this case of Hills v. Croll, Croll had obtained two patents for the purpose of purifying gas, and the result of the purification of gas was the manufacture of muriate of ammonia and sulphate of ammonia. He entered into a contract with Hills, who is the Plaintiff in this suit, and the contract was to this effect: Mr. Croll was to purchase all the acids that he was to use in his process, under his patent, from Mr. Hills: Mr. Hills, on his side, was to have the right of purchasing all the ammonia that should be produced as the result of those processes, at certain prices as to the one and as to the other. In addition to this, there was a. stipulation that, in all the licences that were granted for using those patents, the parties to whom those licences were to be granted should be bound to purchase all the acids which were used in the processes from Mr. Hills, and that Mr. Hills should have the same option that he had in the case of Croll, of purchasing from them all the ammonia that should be produced in the course of the processes. It was also stipulated that Mr. Hills should have the option to supply either muriatic acid or sulphuric acid, as he should think proper, regulating his option by the market prices of the muriate of ammonia and the sulphate of ammonia. I think this is the substance of the original agreement between these parties. The agreement was entered into in the month of March 1841. It was found, on the part of Mr. Croll, that the mode of payment and other arrangements, with respect to this agreement, were inconvenient, in consequence of which a correspondence takes place between him and Mr. Hills, in the month of September 1842, and the agreement was modified according to the terms of a letter, dated, I think, in September, written by him. One of the stipulations in the original agreement was, that Mr. Hills should be a signing party in all the licences that were granted by Mr. Croll for the use of the patent. The first stipulation, in the letter of September, was that he should not be required to be a signing party; but it provided that there should be a covenant in all those agreements, a covenant to the effect stated in the original agreement, namely, that the parties to whom the licences were granted should purchase their acids from Hills, and give Hills the right to purchase the ammonia. Regulations were also made altering the terms on which the acids were to be purchased and the ammonia to be sold. There were some other subordinate stipulations to which it is not necessary at present to advert. The letter, however, concluded with a stipulation to this effect, that if Mr. Croll was in any particular to depart from the agreement so modified, the original agreement was to be enforced, I think those two documents, the original agreement and the letter, formed the substance of the contract between the parties as it existed after September 1842.

"Some doubt was expressed as to whether or not the contract so modified has been acted upon in that shape. It appears beyond all doubt that it was so acted upon, because the accounts were, from time to time, rendered on the 'footing of the Modified agreement, and it is also clear from the letter of Mr. Hills of the 8th of December, in which he refers expressly to the prices that were regulated by the letter of September 1842."

His Lordship here referred to another question raised in the course of the discussion, namely, whether the second or modified agreement had been put an end to by the operation of the clause providing for the enforcement of the first or original agreement; and, after remarking that it was unnecessary for him, for the purpose of the present question, to come to any conclusive decision on that point, proceeded as follows :—

"Those are the facts of the case for the purpose of raising the narrow question, as it appears to me, which the Court has to decide. The bill was filed for the purpose of calling on' the Court to declare that that agreement should be specifically performed.

"Now, there is no principle of the Court which I understand to be more dearly established than this, that the Court will not decree an agreement to be specifically performed, unless it can execute the whole of the agreement. The question, therefore, in this case will be whether the Court has power, from the nature of this agreement, to execute the whole of it, every part of it. Part of the prayer which is consequent upon a specific performance is, that' the Defendant should be restrained from purchasing acids from anybody but Mr. Hills, and also, that he should be restrained from granting licences, except according to the agreement that was in force between the parties.

"Now, then, with respect to the first of these points, there is a stipulation on the part of Hills that he will supply the acids; there is a stipulation on the part of Mr. Croll that he will purchase acids from Hills, and from no other person. Has the Court any power whatever to compel Mr. Hills to comply with that? Can the Court order Mr. Hills to continue the manufacture of acids for the purpose of supplying Mr. Croll? Can the Court call upon him, if he should not manufacture acids, and require him to purchase acids for the purpose of supplying Mr. Cron ? It is clear, I apprehend, that the Court has no such power. There are cases in which the Court, will do indirectly what it cannot do directly. A case commonly cited for that purpose is the case of a nuisance. The Court would not compel a party who had erected a wall to the nuisance of another–would not compel the party by any direct order to pull down that wall; but the Court can make an order requiring him not to continue the nuisance, which would have the effect of compelling him to pull down the wall. In the case of Morris v. Colman, the Court restrained Mr. Colman from writing for any other theatre, inferring from that that the order would compel Mr. Colman, or have the tendency to compel Mr. Colman, to write for the Haymarket Theatre; but in this case the Court has no power to compel Mr. Hills to supply acids by ordering him not to supply acids to any other person; that is not the agreement, nor was it ever intended that it should be the agreement. Therefore, unless the Court can compel him, by a direct order, to supply Mr. Croll, from time to time, with the acids that Mr. Croll requires, it is quite clear that this Court cannot execute all the parts of this contract; the Court cannot, therefore, compel the party specifically to perform the contract.

"It was thrown out, in the course of the argument, that this Court might compel one party to perform his part of the contract, and leave the other party to his remedy at law. No such principle has ever been acted on in this Court; it has been so laid down over and over again, and in a recent case that was cited at the Bar (Gervais v. Edwards, 2 Dru. & War. 80), Sir Edward Sugden held that, unless this Court can execute every part of the contract, this Court will not compel a specific performance, of a part. When 'this cause, therefore, comes to a hearing, I am of opinion that, according to the facts as they at present stand, and according to the statement of the principle I have mentioned, this Court cannot restrain Mr. Croll from purchasing acids elsewhere, because it cannot compel Mr. Hills, on his side, to furnish all the acids that may be necessary for the manufacture carried on by Mr. Croll. If the Court cannot do this, it cannot restrain the parties at the hearing. It is quite clear that, upon this interlocutory application, the Court cannot restrain Mr. Croll from purchasing acids elsewhere. I apprehend, therefore, that the decision of the Vice-Chancellor, which proceeded on the principle I have stated, and rightly, on the grounds I have stated, and which I believe is the principle of this Court, and the principle on which the Vice-Chancellor acted as to that part of the case, is correct ; and equally applies, as it appears to me it does, to that part of the notice of motion with respect to the licences, because that forms a part of the contract, the generaI contract. If the Court cannot execute the whole of the contract, it cannot execute the contract in part; therefore I am of opinion that, in this case, the motion must be refused, and refused with costs."

77 So.2d 331
262 Ala. 59
H. E. STOKES
v.
Virgil C. MOORE et al.
1 Div. 623.
Supreme Court of Alabama.
Jan. 13, 1955.

[262 Ala. 60] [77 So.2d 332] Inge, Twitty, Armbrecht & Jackson, Mobile, for appellant.

Johnston, McCall & Johnston, Mobile, for appellees.

PER CURIAM.

This is an appeal by the respondent from a decree overruling his demurrer to a bill in equity authorized by section 755, Title 7, Code, and a decree ordering the issuance of a temporary injunction after a hearing as authorized by section 1057, Title 7, Code.

The complainants are partners and conduct a small loan business under the firm name of Reliance Finance Company in Mobile.

The bill alleges that on March 20, 1950 complainants entered into a contract with the respondent, H. E. Stokes, which provided for his employment by them as manager of their business. The purpose of the bill is to enjoin Stokes from violating the covenant of said agreement to the effect that in the event his employment is terminated for any reason he would not engage in the same or a similar line of business in Mobile either for himself or for another for a period of one year immediately following the termination of his employment. A copy of the contract is attached to the bill and made an exhibit. It provides for the employment of respondent by complainants without specification as to the length of time such employment shall continue, and provides for a monthly salary payable semimonthly. It authorizes the respondent, in the event he desired to terminate the contract of employment, to tender his written resignation effective not earlier than two weeks from the date of said resignation.

Another provision in the contract is to the effect that on account of the special nature of respondent's employment, in the event of a violation of any of its terms or pledges stated in that paragraph, a restraining order or injunction may be issued against him in any court of equity and that said court may assess and enter judgment against him in favor of complainants in the sum of $500 as liquidated damages for each such violation unless upon investigation it is proven that the loss resulting from each such violation is in excess of that amount, in which case such judgment may be assessed and entered against him for the full loss of same. Among the pledges stated in said paragraph is the covenant not to engage in a similar line of business in Mobile for one year immediately following the termination of his employment with complainants.

The bill also alleges that the respondent began his employment under such contract with complainants on March 20, 1950, which is the date of its execution, as the manager of said finance company and served in that [77 So.2d 333] capacity until the 24th day of August 1954, at which time he voluntarily quit said employment; and that on the next day thereafter he took a job of managing the Globe Finance Company, which was then set up by him and another as partners, and proceeded[262 Ala. 62] to engage in the same line of business in Mobile and was located only a short distance from the place of business of the Reliance Finance Company; and, further, that he breached said contract of employment by soliciting business from the former customers of complainants and communicated with them by mail, a sample copy of such communication being attached as an exhibit to the bill.

The prayer of the bill was that a temporary injunction issue enjoining the respondent from working for or engaging in the loan business in the city of Mobile for a period of one year in competition with the complainants; and further that a decree be rendered against the respondent in favor of the complainants in the sum of $500 as liquidated damages for a breach of said contract according to its stipulations.

The demurrer to the bill raised several questions with respect to its sufficiency, and on the hearing of the application for a temporary injunction an answer to the bill and affidavits were submitted for both complainants and respondent. These affidavits were principally devoted to the questions of whether such covenants are usual in contracts of that kind in Mobile, and whether it is customary to enforce them when they are set up in the contract and are violated; whether any actual damage has been sustained by the complainants on account of the breach of such covenants by the respondent, and whether the equities of the respective parties to the contract demand the issuance of a temporary injunction as prayed for.

As stated above, upon a consideration of the demurrer to the bill and of the application for a temporary injunction, the trial judge overruled the demurrer and ordered the issuance of an injunction enjoining and restraining the respondent from engaging in such competition in the city of Mobile for a period of one year from August 24, 1954 to August 24, 1955, upon complainants giving bond with good and sufficient sureties in the amount of $2,000 conditioned to pay all damages and costs which the respondent may sustain by the suing out of such injunction if the same is dissolved as having been improvidently issued. That is not exactly the condition of the bond required by section 1043, Title 7, Code.

It is evident that the decree ordering the injunction was intended to order a temporary injunction, whereas its effect is to make it operative during the entire period of one year from the date of the termination of employment as provided in the agreement. That means that such order for a temporary injunction grants the entire injunctive relief sought by the bill and available only in the final decree. The order here made for the injunction is not in the form of a final decree and evidently not so intended by the parties and the court, yet it has the injunctive effect of a final decree. Attention is called to the requirement of a bond as a condition to the issuance of a writ, although neither a bond nor a writ of injunction is necessary in a final decree. The order as made is permanent for the period specified in the contract and the prayer for relief. If a temporary injunction is intended, the order should be for the issuance of the writ as prayed for to be effective until further orders of the court but not beyond August 24, 1955, conditioned upon the execution of a bond as provided in section 1043, Title 7, Code. See, 43 C.J.S., Injunctions, § 207, page 936.

On the merits to be considered on this appeal appellant cites Hill v. Rice, 259 Ala. 587, 67 So.2d 789, which discusses principles here applicable. In the consideration of those principles it must be kept clearly in mind that the bill may not be subject to demurrer, but on the facts presented by the answer and affidavits a temporary injunction should not issue. We will therefore first consider that question.

Section 23, Title 9, Code, has withdrawn from consideration some matters otherwise important. Rush v. Newsom Exterminators, Inc., Ala., 75 So.2d 112. To [77 So.2d 334] enjoin one from breaching a covenant not to be employed in competition with another, and therefore in effect for a specific performance[262 Ala. 63] of his contract was, without the statute, encumbered with important principles not applicable since the enactment of the statute. 43 C.J.S., Injunctions, § 84, page 571 et seq. The statute has fixed the public policy of this State in respect to employment contracts. To be enforceable under it there must be an employment contract mutually binding or executed by the employer in such manner as to provide valuable and reasonably adequate consideration for the contract of the employee, Hill v. Rice, supra [259 Ala. 587, 67 So.2d 793], whereby the employee agrees "to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof, so long as * * * such employer carries on a like business therein."

The contract here involved complies with those requirements when considered in connection with the facts alleged in the bill and affidavits. The contract does not in terms bind the employer for any definite time, but it is shown that the parties acted upon it from March 20, 1950 to August 24, 1954 when the employee voluntarily terminated the employment without alleging any fault on the part of the employer inducing it, and immediately began to operate a competitive business in the city of Mobile in direct conflict with his covenant. The compliance with the contract by the employer by giving respondent employment from March 20, 1950 to August 24, 1954 with apparent willingness to continue to do so for an indefinite period in the future provided a valuable and adequate consideration for the covenant of the employee to continue as expressed in the contract, although it was unilateral at its inception. It results that we find a valid contract supported by a sufficient consideration with covenants to be operative only in the city of Mobile and to extend for only one year. But a contract of that sort does not always justify the issuance of an injunction against its breach. In our case of Shelton v. Shelton, 238 Ala. 489, 192 So. 55, this Court carefully considered and declared the circumstances which would give rise to an injunction. It was held that an injunction is largely a discretionary remedy to prevent substantial injury where no adequate remedy at law obtains. It must not only be violative of the contract, but must be carried on in competition with the former employer, and inadequacy of legal remedy may arise from inability to prove with certainty the extent of the injury required for a recovery of damages at law, or from the insolvency of the employee violating his contract. Ordinarily an injunction will not be granted where the contract is inequitable and unfair so as not to appeal to the conscience of a court of equity. It was further emphasized that an injunction should issue when the contract is not per se illegal or oppressive; between persons dealing at arms' length; with the presence of freedom in making it, and not arbitrarily enforced by the employer so as to work an unnecessary hardship on the employee. It was held that the injunction was properly issued in that case. See, also, Slay v. Hess, 252 Ala. 455, 41 So.2d 582.

There is here no allegation of insolvency by the employee. The contract contained a provision for liquidated damages in the sum of $500 for each violation. There was only one breach of that covenant in the contract, which breach was continuous in its nature. Damages could not be recovered, though liquidated by the contract, and at the same time an injunction issue. The amount stipulated for liquidated damages covers the period of its breach for one year and if there is an injunction effective during the year or any part of it, liquidated damages would not be recoverable. But that status is not a defect in the bill subjecting it to demurrer on that ground. While the prayer is not in the alternative for an injunction or liquidated damages, that is not a defect.

Complainants have seen fir to press for an injunction. Their claim for liquidated damages is not a matter for present determination except as it may affect the right to a temporary injunction. The provision [77 So.2d 335] in the contract for liquidated damages will not operate to prevent an injunction even though the employee is not insolvent, unless it appears from the contract [262 Ala. 64] that the provision for liquidated damages was intended to be the exclusive remedy for its breach. 43 C.J.S., Injunctions, §§ 80(6), 84, pages 556, 574. Here it is apparent from the contract that liquidated damages were not intended to be the exclusive remedy for a breach of that covenant, for the contract provides that if this covenant is breached 'a restraining order or injunction may be issued and entered against me (employee) in any court of equity jurisdiction, and that such court may assess and enter judgment against me in favor of your company for the sum of five hundred dollars ($500.00) as liquidated damages for each such violation'.

We do not wish to express the view that an agreement for the issuance of an injunction, if and when a stipulated state of facts arises in the future, is binding on the court to that extent. Such an agreement would serve to oust the inherent jurisdiction of the court to determine whether an injunction is appropriate when applied for and to require its issuance even though to do so would be contrary to the opinion of the court. The following authorities are pertinent in that respect: Sections 16 and 17, Title 20, Code; 17 C.J.S., Contracts, § 229, page 603; Headley v. Aetna Ins. Co., 202 Ala. 384, 80 So. 466; Merchants' Grocery Co. v. Talladega Grocery Co., 217 Ala. 334, 116 So. 356; John Hancock Mutual Life Ins. Co. v. Large, 230 Ala. 621, 162 So. 277.

But the provision in the contract for the issuance of an injunction is expressive of the intention of the parties that the provision for liquidated damages was not to be the exclusive remedy. The result is that the right to an injunction is not foreclosed by the provision for liquidated damages. We also think the provision for an injunction is important in its influence upon an exercise of the discretionary power of the court to grant a temporary injunction.

The evidence shows that respondent set up a competitive business in close proximity to that of complainants. We infer from the evidence that the amount of business done by a small loan enterprise is largely the result of the activity of the manager and affected by personal influences which are not measurable in their effect. It was shown that as manager of a rival business respondent did contact former customers of complainants. His stationery and communications show that he has been making personal appeals contrary to the terms of his covenant, although there was no fault on complainants' part, but because he was able to obtain a better contract. He stipulated against such contingency, with full knowledge of its possible effect. The terms of his covenant and attendant circumstances do not show an unusual hardship resulting from an injunction of its breach. There is a reasonable limitation on the area and time in which the covenant is to extend.

We find no defect in the bill pointed out in the demurrer and insisted on by appellant. There was therefore no reversible error in overruling it. The order for a temporary injunction should be here modified to be effective from its date, December 1, 1954, until the further orders of the court, but not extending beyond August 24, 1955, upon complainants entering into bond payable and conditioned and with surety to be approved, all as provided in section 1043, Title 7, Code, and in the penal sum of $2,000 as prescribed by the trial judge. As thus modified, the order for a temporary injunction and decree overruling the demurrer to the bill should be affirmed.

The foregoing opinion was prepared by FOSTER, Supernumerary Justice of this Court, while serving on it at the request of the Chief Justice under authority of Title 13, section 32, Code, and was adopted by the Court as its opinion.

Affirmed as modified

LIVINGSTON, C. J., and LAWSON, STAKELY and MERRILL, JJ., concur.

172 F.2d 80 (1948)
CAMPBELL SOUP CO.
v.
WENTZ et al.
CAMPBELL SOUP CO.
v.
LOJESKI.
Nos. 9648, 9649.
United States Court of Appeals Third Circuit.
Argued November 16, 1948.
Decided December 23, 1948.
Rehearing Denied January 14, 1949.

[81] Charles A. Wolfe, of Philadelphia, Pa. (Sidney L. Wickenhaver and Montgomery, McCracken, Walker & Rhoads, all of Philadelphia Pa., on the brief), for appellant.

Richardson Dilworth, of Philadelphia, Pa. (David B. Zoob, William L. Matz, Zoob & Matz, Harold E. Kohn, James A. Sutton and Paxson, Kalish, Dilworth & Green all of Philadelphia, Pa., on the brief), for appellees.

Before BIGGS, Chief Judge, and GOODRICH and O'CONNELL, Circuit Judges.

These are appeals from judgments of the District Court denying equitable relief to the buyer under a contract for the sale of carrots. The defendants in No. 9648 are the contract sellers. The defendant in No. 9649 is the second purchaser of part of the carrots which are the subject matter of the contract.

The transactions which raise the issues may be briefly summarized. On June 21, 1947, Campbell Soup Company (Campbell), a New Jersey corporation, entered into a written contract with George B. Wentz and Harry T. Wentz, who are Pennsylvania farmers, for delivery by the Wentzes to Campbell of all the Chantenay red cored carrots to be grown on fifteen acres of the Wentz farm during the 1947 season. Where the contract was entered into does not appear. The contract provides, however, for delivery of the carrots at the Campbell plant in Camden, New Jersey. The prices specified in the contract ranged from $23 to $30 per ton according to the time of delivery. The contract price for January, 1948 was $30 a ton.

The Wentzes harvested approximately 100 tons of carrots from the fifteen acres covered by the contract. Early in January, 1948, they told a Campbell representative that they would not deliver their carrots at the contract price. The market price at that time was at least $90 per ton, and Chantenay red cored carrots were virtually unobtainable. The Wentzes then sold approximately 62 tons of their carrots to the defendant Lojeski, a neighboring farmer. Lojeski resold about 58 tons on the open market, approximately half to Campbell and the balance to other purchasers.

On January 9, 1948, Campbell, suspecting that Lojeski was selling it "contract carrots," refused to purchase any more, and instituted these suits against the Wentz brothers and Lojeski to enjoin further sale of the contract carrots to others, and to compel specific performance of the contract. The trial court denied equitable relief.^[1] We agree with the result reached, but on a different ground from that relied upon by the District Court.

The case has been presented by both sides as though Erie Railroad v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 1941, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477, had never been decided. We are not advised as to the place of the contract, although as we have pointed out in other cases, the Pennsylvania conflict of laws rule, which binds us here, refers matters concerning the validity and extent of obligation of the contract to the place of making.^[2] In this instance, however, the absence of data on which to base a rule of reference does not preclude the decision of the case. We have said several times in this Circuit that the question of the form of relief is a matter for [172 F.2d 82] a federal court to decide.^[3] But neither federal decisions^[4] nor the law of New Jersey or Pennsylvania as expressed in the Uniform Sales Act^[5] differ upon this point. A party may have specific performance of a contract for the sale of chattels if the legal remedy is inadequate. Inadequacy of the legal remedy is necessarily a matter to be determined by an examination of the facts in each particular instance.

We think that on the question of adequacy of the legal remedy the case is one appropriate for specific performance. It was expressly found that at the time of the trial it was "virtually impossible to obtain Chantenay carrots in the open market." This Chantenay carrot is one which the plaintiff uses in large quantities, furnishing the seed to the growers with whom it makes contracts. It was not claimed that in nutritive value it is any better than other types of carrots. Its blunt shape makes it easier to handle in processing. And its color and texture differ from other varieties. The color is brighter than other carrots. The trial court found that the plaintiff failed to establish what proportion of its carrots is used for the production of soup stock and what proportion is used as identifiable physical ingredients in its soups. We do not think lack of proof on that point is material. It did appear that the plaintiff uses carrots in fifteen of its twenty-one soups. It also appeared that it uses these Chantenay carrots diced in some of them and that the appearance is uniform. The preservation of uniformity in appearance in a food article marketed throughout the country and sold under the manufacturer's name is a matter of considerable commercial significance and one which is properly considered in determining whether a substitute ingredient is just as good as the original.

The trial court concluded that the plaintiff had failed to establish that the carrots, "judged by objective standards," are unique goods. This we think is not a pure fact conclusion like a finding that Chantenay carrots are of uniform color. It is either a conclusion of law or of mixed fact and law and we are bound to exercise our independent judgment upon it. That the test for specific performance is not necessarily "objective" is shown by the many cases in which equity has given it to enforce contracts for articles — family heirlooms and the like — the value of which was personal to the plaintiff.^[6]

Judged by the general standards applicable to determining the adequacy of the legal remedy^[7] we think that on this point the case is a proper one for equitable relief. There is considerable authority, old and new, showing liberality in the granting of an equitable remedy.^[8] We see no reason why a court should be reluctant to grant specific relief when it can be given without supervision of the court or other time-consuming processes against one who has deliberately broken his agreement. Here the goods of the special type contracted for were unavailable on the open market, [83] the plaintiff had contracted for them long ahead in anticipation of its needs, and had built up a general reputation for its products as part of which reputation uniform appearance was important. We think if this were all that was involved in the case specific performance should have been granted.

The reason that we shall affirm instead of reversing with an order for specific performance is found in the contract itself. We think it is too hard a bargain and too one-sided an agreement to entitle the plaintiff to relief in a court of conscience. For each individual grower the agreement is made by filling in names and quantity and price on a printed form furnished by the buyer. This form has quite obviously been drawn by skilful draftsmen with the buyer's interests in mind.

Paragraph 2 provides for the manner of delivery. Carrots are to have their stalks cut off and be in clean sanitary bags or other containers approved by Campbell. This paragraph concludes with a statement that Campbell's determination of conformance with specifications shall be conclusive.

The defendants attack this provision as unconscionable. We do not think that it is, standing by itself. We think that the provision is comparable to the promise to perform to the satisfaction of another^[9] and that Campbell would be held liable if it refused carrots which did in fact conform to the specifications.^[10]

The next paragraph allows Campbell to refuse carrots in excess of twelve tons to the acre. The next contains a covenant by the grower that he will not sell carrots to anyone else except the carrots rejected by Campbell nor will he permit anyone else to grow carrots on his land. Paragraph 10 provides liquidated damages to the extent of $50 per acre for any breach by the grower. There is no provision for liquidated or any other damages for breach of contract by Campbell.

The provision of the contract which we think is the hardest is paragraph 9, set out in the margin.^[11] It will be noted that Campbell is excused from accepting carrots under certain circumstances. But even under such circumstances the grower, while he cannot say Campbell is liable for failure to take the carrots, is not permitted to sell them elsewhere unless Campbell agrees. This is the kind of provision which the late Francis H. Bohlen would call "carrying a good joke too far." What the grower may do with his product under the circumstances set out is not clear. He has covenanted not to store it anywhere except on his own farm and also not to sell to anybody else.

We are not suggesting that the contract is illegal. Nor are we suggesting any excuse for the grower in this case who has deliberately broken an agreement entered into with Campbell. We do think, however, that a party who has offered and succeeded in getting an agreement as tough as this one is, should not come to a chancellor and ask court help in the enforcement of its terms. That equity does not enforce unconscionable bargains is too well established to require elaborate citation.^[12]

[84] The plaintiff argues that the provisions of the contract are separable. We agree that they are, but do not think that decisions separating out certain provisions from illegal contracts are in point here. As already said, we do not suggest that this contract is illegal. All we say is that the sum total of its provisions drives too hard a bargain for a court of conscience to assist.

This disposition of the problem makes unnecessary further discussion of the separate liability of Lojeski, who was not a party to the contract, but who purchased some of the carrots from the Wentzes.

The judgments will be affirmed.

[1] The issue is preserved on appeal by an arrangement under which Campbell received all the carrots held by the Wentzes and Lojeski, paying a stipulated market price of $90 per ton, $30 to the defendants, and the balance into the registry of the District Court pending the outcome of these appeals.

[2] A. M. Webb & Co. v. Robert P. Miller Co., 3 Cir., 1946, 157 F.2d 865; Griffin v. Metal Products Co., 1919, 264 Pa. 254, 107 A. 713; Restatement, Conflict of Laws § 332 (1934). Cf. Texas Motorcoaches v. A. C. F. Motors Co., 3 Cir., 1946, 154 F.2d 91; Restatement, Conflict of Laws § 358 (1934).

[3] Orth v. Transit Investment Corp., 3 Cir., 1942, 132 F.2d 938; Black & Yates v. Mahogany Assn., 3 Cir., 1941, 129 F.2d 227, 148 A.L.R. 841, certiorari denied, 1942, 317 U.S. 672, 63 S.Ct. 76, 87 L.Ed. 539. Cf. Note, 55 Yale L.J. 401 (1946).

[4] Gray v. Premier Investment Co., D.C. W.D.La., 1943, 51 F.Supp. 944; Texas Co. v. Central Fuel Oil Co., 8 Cir., 1912, 194 Fed. 1.

[5] Uniform Sales Act, § 68, N.J.S.A. 46:30-74; 69 P.S. § 313.

[6] Burr v. Bloomsburg, 1927, 101 N.J. Eq. 615, 138 A. 876; Sloane v. Clauss, 1901, 64 Ohio St. 125, 59 N.E. 884; 5 Williston, Contracts § 1419 n. 6 (Rev. ed. 1937).

[7] Restatement, Contracts § 361 (1932); 5 Williston, Contracts § 1419 (Rev. ed. 1937); 1 Pomeroy, Equity Jurisprudence § 221b (5th ed. 1941).

[8] Oreland Equipment Co. v. Copco Steel and Engineering Corp., 1944, 310 Mich. 6, 16 N.W.2d 646; Kann v. Wausau Abrasives Co., 1925, 81 N.H. 535, 129 A. 374; Mantell v. International Plastic Harmonica Corp., 1946, 138 N.J.Eq. 562, 49 A.2d 290; DeMoss v. Conart Motor Sales, Inc., Ohio Com.Pl., 1947, 72 N.E. 2d 158, noted in 26 Tex.L.Rev. 351 (1948); Cochrane v. Szpakowski, 1946, 355 Pa. 357, 49 A.2d 692; Note, 152 A.L. R. 4 (1944). Professor Williston has consistently advocated a more liberal use of equitable remedies, especially under the specific performance provision of the Uniform Sales Act. 3 Williston, Sales § 601 (Rev. ed. 1948); 5 Williston, Contracts § 1419 (Rev. ed. 1937).

[9] Restatement, Contracts § 265 (1932); 3 Williston, Contracts § 675A (Rev. ed. 1937).

[10] Griffin Mfg. Co. v. Boom Boiler & Welding Co., 6 Cir., 1937, 90 F.2d 209, certiorari denied 1937, 302 U.S. 741, 58 S.Ct. 143, 82 L.Ed. 573; Lord Co. v. Industrial Dying & Finishing Works, 1916, 252 Pa. 421, 97 A. 573; 3 Williston, Contracts § 675A, n. 11 (Rev. ed. 1937).

[11] "Grower shall not be obligated to deliver any Carrots which he is unable to harvest or deliver, nor shall Campbell be obligated to receive or pay for any Carrots which it is unable to inspect, grade, receive, handle, use or pack at or ship in processed form from its plants in Camden (1) because of any circumstance beyond the control of Grower or Campbell, as the case may be, or (2) because of any labor disturbance, work stoppage, slow-down, or strike involving any of Campbell's employees. Campbell shall not be liable for any delay in receiving Carrots due to any of the above contingencies. During periods when Campbell is unable to receive Grower's Carrots, Grower may with Campbell's written consent, dispose of his Carrots elsewhere. Grower may not, however, sell or otherwise dispose of any Carrots which he is unable to deliver to Campbell."

[12] 4 Pomeroy, Equity Jurisprudence § 1405a (5th ed. 1941); 5 Williston, Contracts § 1425 (Rev. ed. 1937).

[857]

357 N.Y.S.2d 857
34 N.Y.2d 379, 314 N.E.2d 419
Philip FREUND, Respondent,
v.
WASHINGTON SQUARE PRESS, INC., Appellant.
Court of Appeals of New York.
June 13, 1974. [858]

Joel T. Camche and Selig J. Levitan, New York City, for appellant.

[34 N.Y.2d 380] Janet Fine Cotton, New York City, for respondent.

SAMUEL RABIN, Judge.

In this action for breach of a publishing contract, we must decide what damages are recoverable for defendant's failure to publish plaintiff's manuscript. In 1965, plaintiff, an author and a college teacher, and defendant, Washington Square Press, Inc., entered into a written agreement which, in relevant part, provided as follows. Plaintiff ('author') granted defendant ('publisher') exclusive rights to publish and sell in book form plaintiff's work on modern drama. Upon plaintiff's delivery of the manuscript, defendant agreed to complete payment of a nonreturnable $2,000 'advance'. Thereafter, if defendant deemed the manuscript not 'suitable for publication', it had the right to terminate the agreement by written notice within 60 days of delivery. Unless so terminated, defendant agreed to publish the work in hardbound[314 N.E.2d 420] edition within 18 [34 N.Y.2d 381] months and afterwards in paperbound edition. The contract further provided that defendant would pay royalties to plaintiff, based upon specified percentages of sales. (For example, plaintiff was to receive 10% Of the retail price of the first 10,000 copies sold in the continental United States.) If defendant failed to publish within 18 months, the contract provided that 'this agreement shall terminate and the rights herein granted to [859] the Publisher shall revert to the Author. In such event all payments therefore made to the Author shall belong to the Author without prejudice to any other remedies which the Author may have.' The contract also provided that controversies were to be determined pursuant to the New York simplified procedure for court determination of disputes (CPLR 3031--3037, Consol.Laws, c. 8).

Plaintiff performed by delivering his manuscript to defendant and was paid his $2,000 advance. Defendant thereafter merged with another publisher and ceased publishing in hardbound. Although defendant did not exercise its 60-day right to terminate, it has refused to publish the manuscript in any form.

Plaintiff commenced the instant action pursuant to the simplified procedure practice and initially sought specific performance of the contract. The Trial Term Justice denied specific performance but, finding a valid contract and a breach by defendant, set the matter down for trial on the issue of monetary damages, if any, sustained by the plaintiff. At trial, plaintiff sought to prove: (1) delay of his academic promotion; (2) loss of royalties which would have been earned; and (3) the cost of publication if plaintiff had made his own arrangements to publish. The trial court found that plaintiff had been promoted despite defendant's failure to publish, and that there was no evidence that the breach had caused any delay. Recovery of lost royalties was denied without discussion. The court found, however, that the lost of hardcover publication to plaintiff was the natural and probable consequence of the breach and, based upon expert testimony, awarded $10,000 to cover this cost. It denied recovery of the expenses of paperbound publication on the ground that plaintiff's proof was conjectural.

The Appellate Division, (3 to 2) affirmed, finding that the cost of publication was the proper measure of damages. In support of its conclusion, the majority analogized to the construction [34 N.Y.2d 382] contract situation where the cost of completion may be the proper measure of damages for a builder's failure to complete a house or for use of wrong materials. The dissent concluded that the cost of publication is not an appropriate measure of damages and consequently, that plaintiff may recover nominal damages only.^[1] We agree with the dissent. In so concluding, we look to the basic purpose of damage recovery and the nature and effect of the parties' contract.

It is axiomatic that, except where punitive damages are allowable, the law awards damages for breach of contract to compensate for injury caused by the breach--injury which was foreseeable, i.e., reasonably within the contemplation of the parties, at the time the [860] contract was entered into. (Swain v. Schieffelin, 134 N.Y. 471, 473, 31 N.E. 1025, 1026.) Money damages are substitutional relief designed in theory 'to put the injured party in as good a position as he would have been put by full performance of the contract, at the least cost to the defendant and without charging him with harms that he had no sufficient reason to foresee when he made the contract.' (5 Corbin, Contracts, § 1002, pp. 31--32; 11 Williston, Contracts (3d ed.), § 1338, p. 198.) In other words, so far as possible, the law attempts to secure to the injured party the benefit of his bargain, subject to the limitations that the injury--whether it be losses suffered or gains prevented--was [314 N.E.2d 421] foreseeable, and that the amount of damages claimed be measurable with a reasonable degree of certainty and, of course, adequately proven. (See, generally, Dobbs, Law of Remedies, p. 148; see, also, Farnsworth, Legal Remedies for Breach of Contract, 70 Col.L.Rev. 1145, 1159.) But it is equally fundamental that the injured party should not recover more from the breach than he would have gained had the contract been fully performed. (Baker v. Drake, 53 N.Y. 211, 217; see, generally, Dobbs, Law of Remedies, p. 810.)

Measurement of damages in this case according to the cost of publication to the plaintiff would confer greater advantage than performance of the contract would have entailed to plaintiff and would place him in a far better position than he would have occupied had the defendant fully performed. Such measurement[34 N.Y.2d 383] bears no relation to compensation for plaintiff's actual loss or anticipated profit. Far beyond compensating plaintiff for the interests he had in the defendant's performance of the contract--whether restitution, reliance or expectation (see Fuller & Perdue, Reliance Interest in Contract Damages, 46 Yale L.J. 52, 53--56) an award of the cost of publication would enrich plaintiff at defendant's expense.

Pursuant to the contract, plaintiff delivered his manuscript to the defendant. In doing so, he conferred a value on the defendant which, upon defendant's breach, was required to be restored to him. Special Term, in addition to ordering a trial on the issue of damages, ordered defendant to return the manuscript to plaintiff and plaintiff's restitution interest in the contract was thereby protected. (Cf. 5 Corbin, Contracts, § 996, p. 15.)

At the trial on the issue of damages, plaintiff alleged no reliance losses suffered in performing the contract or in making necessary preparations to perform. Had such losses, if foreseeable and ascertainable, been incurred, plaintiff would have been entitled to compensation for them. (Cf. Bernstein v. Meech, 130 N.Y. 354, 359, 29 N.E. 255, 257.)

As for plaintiff's expectation interest in the contract, it was basically two-fold--the 'advance' and the royalties. (To be sure, [861] plaintiff may have expected to enjoy whatever notoriety, prestige or other benefits that might have attended publication, but even if these expectations were compensable, plaintiff did not attempt at trial to place a monetary value on them.) There is no dispute that plaintiff's expectancy in the 'advance' was fulfilled--he has received his $2,000. His expectancy interest in the royalities--the profit he stood to gain from sale of the published book--while theoretically compensable, was speculative. Although this work is not plaintiff's first, at trial he provided no stable foundation for a reasonable estimate of royalties he would have earned had defendant not breached its promise to publish. In these circumstances, his claim for royalties falls for uncertainty. (Cf. Broadway Photoplay Co. v. World Film Corp., 225 N.Y. 104, 121 N.E. 756; Hewlett v. Caplin, 275 App.Div. 797, 88 N.Y.S.2d 428.)

Since the damages which would have compensated plaintiff for anticipated royalties were not proved with the required certainty,[34 N.Y.2d 384] we agree with the dissent in the Appellate Division that nominal damages alone are recoverable. (Cf. Manhattan Sav. Inst. v. Gottfried Baking Co., 286 N.Y. 398, 36 N.E.2d 637.) Though these are damages in name only and not at all compensatory, they are nevertheless awarded as a formal vindication of plaintiff's legal right to compensation which has not been given a sufficiently certain monetary valuation. (Cf. Baker v. Hart, 123 N.Y. 470, 474, 25 N.E. 948, 949; see, generally, Dobbs, Law of Remedies, p. 191; 11 Williston, Contracts (3d ed.), § 1339A, pp. 206--208.)

In our view, the analogy by the majority in the Appellate Division to the construction contract situation was inapposite. In [314 N.E.2d 422] the typical construction contract, the owner agrees to pay money or other consideration to a builder and expects, under the contract, to receive a completed building in return. The value of the promised performance to the owner is the properly constructed building. In this case, unlike the typical construction contract, the value to plaintiff of the promised performance--publication--was a percentage of sales of the books published and not the books themselves. Had the plaintiff contracted for the printing, binding and delivery of a number of hardbound copies of his manuscript, to be sold or disposed of as he wished, then perhaps the construction analogy, and measurement of damages by the cost of replacement or completion, would have some application.

Here, however, the specific value to plaintiff of the promised publication was the royalties he stood to receive from defendant's sales of the published book. Essentially, publication represented what it would have cost the defendant to confer that value upon the plaintiff, and, by its breach, defendant saved that cost. The error by the courts below was in measuring damages not by the value to plaintiff of the promised performance but by the cost of that performance [862] to defendant. Damages are not measured, however, by what the defaulting party saved by the breach, but by the natural and probable consequences of the breach To the plaintiff. In this case, the consequence to plaintiff of defendant's failure to publish is that he is prevented from realizing the gains promised by the contract--the royalties. But, as we have stated, the amount of royalties plaintiff would have realized was not ascertained with adequate certainty[34 N.Y.2d 385] and, as a consequence, plaintiff may recover nominal damages only.

Accordingly, the order of the Appellate Division should be modified to the extent of reducing the damage award of $10,000 for the cost of publication to six cents, but with costs and disbursements to the plaintiff.

BREITEL, C.J., and JASEN, GABRIELLI, JONES and WACHTLER, JJ., concur.

STEVENS, J., taking no part.

Order modified, with costs and disbursements to plaintiff-respondent, in accordance with opinion herein and, as so modified, affirmed.

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

[1] Plaintiff does not challenge the trial court's denial of damages for delay in promotion or for anticipated royalties.

382 P.2d 109 (1962)
Willie PEEVYHOUSE and Lucille Peevyhouse, Plaintiffs in Error,
v.
GARLAND COAL & MINING COMPANY, Defendant in Error.
No. 39588.
Supreme Court of Oklahoma.
December 11, 1962.
Modified and Rehearing Denied March 26, 1963.
Second Rehearing Denied May 28, 1963.

McConnell & Hanson, W.H. McConnell, Oklahoma City, for plaintiffs in error.

Looney, Watts, Looney, Nichols & Johnson, Tom D. Capshaw, Oklahoma City, for defendant in error.

[110] JACKSON, Justice.

In the trial court, plaintiffs Willie and Lucille Peevyhouse sued the defendant, Garland Coal and Mining Company, for damages for breach of contract. Judgment was for plaintiffs in an amount considerably less than was sued for. Plaintiffs appeal and defendant cross-appeals.

In the briefs on appeal, the parties present their argument and contentions under several propositions; however, they all [111] stem from the basic question of whether the trial court properly instructed the jury on the measure of damages.

Briefly stated, the facts are as follows: plaintiffs owned a farm containing coal deposits, and in November, 1954, leased the premises to defendant for a period of five years for coal mining purposes. A "strip-mining" operation was contemplated in which the coal would be taken from pits on the surface of the ground, instead of from underground mine shafts. In addition to the usual covenants found in a coal mining lease, defendant specifically agreed to perform certain restorative and remedial work at the end of the lease period. It is unnecessary to set out the details of the work to be done, other than to say that it would involve the moving of many thousands of cubic yards of dirt, at a cost estimated by expert witnesses at about $29,000.00. However, plaintiffs sued for only $25,000.00.

During the trial, it was stipulated that all covenants and agreements in the lease contract had been fully carried out by both parties, except the remedial work mentioned above; defendant conceded that this work had not been done.

Plaintiffs introduced expert testimony as to the amount and nature of the work to be done, and its estimated cost. Over plaintiffs' objections, defendant thereafter introduced expert testimony as to the "diminution in value" of plaintiffs' farm resulting from the failure of defendant to render performance as agreed in the contract — that is, the difference between the present value of the farm, and what its value would have been if defendant had done what it agreed to do.

At the conclusion of the trial, the court instructed the jury that it must return a verdict for plaintiffs, and left the amount of damages for jury determination. On the measure of damages, the court instructed the jury that it might consider the cost of performance of the work defendant agreed to do, "together with all of the evidence offered on behalf of either party."

It thus appears that the jury was at liberty to consider the "diminution in value" of plaintiffs' farm as well as the cost of "repair work" in determining the amount of damages.

It returned a verdict for plaintiffs for $5000.00 — only a fraction of the "cost of performance," but more than the total value of the farm even after the remedial work is done.

On appeal, the issue is sharply drawn. Plaintiffs contend that the true measure of damages in this case is what it will cost plaintiffs to obtain performance of the work that was not done because of defendant's default. Defendant argues that the measure of damages is the cost of performance "limited, however, to the total difference in the market value before and after the work was performed."

It appears that this precise question has not heretofore been presented to this court. In Ardizonne v. Archer, 72 Okl. 70, 178 P. 263, this court held that the measure of damages for breach of a contract to drill an oil well was the reasonable cost of drilling the well, but here a slightly different factual situation exists. The drilling of an oil well will yield valuable geological information, even if no oil or gas is found, and of course if the well is a producer, the value of the premises increases. In the case before us, it is argued by defendant with some force that the performance of the remedial work defendant agreed to do will add at the most only a few hundred dollars to the value of plaintiffs' farm, and that the damages should be limited to that amount because that is all plaintiffs have lost.

Plaintiffs rely on Groves v. John Wunder Co., 205 Minn. 163, 286 N.W. 235, 123 A.L.R. 502. In that case, the Minnesota court, in a substantially similar situation, adopted the "cost of performance" rule as-opposed to the "value" rule. The result was to authorize a jury to give plaintiff damages in the amount of $60,000, where the real estate concerned would have been worth only $12,160, even if the work contracted for had been done.

[112] It may be observed that Groves v. John Wunder Co., supra, is the only case which has come to our attention in which the cost of performance rule has been followed under circumstances where the cost of performance greatly exceeded the diminution in value resulting from the breach of contract. Incidentally, it appears that this case was decided by a plurality rather than a majority of the members of the court.

Defendant relies principally upon Sandy Valley & E.R. Co., v. Hughes, 175 Ky. 320, 194 S.W. 344; Bigham v. Wabash-Pittsburg Terminal Ry. Co., 223 Pa. 106, 72 A. 318; and Sweeney v. Lewis Const. Co., 66 Wash. 490, 119 P. 1108. These were all cases in which, under similar circumstances, the appellate courts followed the "value" rule instead of the "cost of performance" rule. Plaintiff points out that in the earliest of these cases (Bigham) the court cites as authority on the measure of damages an earlier Pennsylvania tort case, and that the other two cases follow the first, with no explanation as to why a measure of damages ordinarily followed in cases sounding in tort should be used in contract cases. Nevertheless, it is of some significance that three out of four appellate courts have followed the diminution in value rule under circumstances where, as here, the cost of performance greatly exceeds the diminution in value.

The explanation may be found in the fact that the situations presented are artificial ones. It is highly unlikely that the ordinary property owner would agree to pay $29,000 (or its equivalent) for the construction of "improvements" upon his property that would increase its value only about ($300) three hundred dollars. The result is that we are called upon to apply principles of law theoretically based upon reason and reality to a situation which is basically unreasonable and unrealistic.

In Groves v. John Wunder Co., supra, in arriving at its conclusions, the Minnesota court apparently considered the contract involved to be analogous to a building and construction contract, and cited authority for the proposition that the cost of performance or completion of the building as contracted is ordinarily the measure of damages in actions for damages for the breach of such a contract.

In an annotation following the Minnesota case beginning at 123 A.L.R. 515, the annotator places the three cases relied on by defendant (Sandy Valley, Bigham and Sweeney) under the classification of cases involving "grading and excavation contracts."

We do not think either analogy is strictly applicable to the case now before us. The primary purpose of the lease contract between plaintiffs and defendant was neither "building and construction" nor "grading and excavation." It was merely to accomplish the economical recovery and marketing of coal from the premises, to the profit of all parties. The special provisions of the lease contract pertaining to remedial work were incidental to the main object involved.

Even in the case of contracts that are unquestionably building and construction contracts, the authorities are not in agreement as to the factors to be considered in determining whether the cost of performance rule or the value rule should be applied. The American Law Institute's Restatement of the Law, Contracts, Volume 1, Sections 346(1) (a)(i) and (ii) submits the proposition that the cost of performance is the proper measure of damages "if this is possible and does not involve unreasonable economic waste"; and that the diminution in value caused by the breach is the proper measure "if construction and completion in accordance with the contract would involve unreasonable economic waste." (Emphasis supplied.) In an explanatory comment immediately following the text, the Restatement makes it clear that the "economic waste" referred to consists of the destruction of a substantially completed building or other structure. Of course no such destruction is involved in the case now before us.

[113] On the other hand, in McCormick, Damages, Section 168, it is said with regard to building and construction contracts that ". . . in cases where the defect is one that can be repaired or cured without undue expense" the cost of performance is the proper measure of damages, but where ". . . the defect in material or construction is one that cannot be remedied without an expenditure for reconstruction disproportionate to the end to be attained" (emphasis supplied) the value rule should be followed. The same idea was expressed in Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 129 N.E. 889, 23 A.L.R. 1429, as follows:

"The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value."

It thus appears that the prime consideration in the Restatement was "economic waste"; and that the prime consideration in McCormick, Damages, and in Jacob & Youngs, Inc. v. Kent, supra, was the relationship between the expense involved and the "end to be attained" — in other words, the "relative economic benefit."

In view of the unrealistic fact situation in the instant case, and certain Oklahoma statutes to be hereinafter noted, we are of the opinion that the "relative economic benefit" is a proper consideration here. This is in accord with the recent case of Mann v. Clowser, 190 Va. 887, 59 S.E.2d 78, where, in applying the cost rule, the Virginia court specifically noted that ". . . the defects are remediable from a practical standpoint and the costs are not grossly disproportionate to the results to be obtained" (Emphasis supplied).

23 O.S. 1961 §§ 96 and 97 provide as follows:

"§ 96. . . . Notwithstanding the provisions of this chapter, no person can recover a greater amount in damages for the breach of an obligation, than he would have gained by the full performance thereof on both sides. . . .
"§ 97. . . . Damages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice no more than reasonable damages can be recovered."

Although it is true that the above sections of the statute are applied most often in tort cases, they are by their own terms, and the decisions of this court, also applicable in actions for damages for breach of contract. It would seem that they are peculiarly applicable here where, under the "cost of performance" rule, plaintiffs might recover an amount about nine times the total value of their farm. Such would seem to be "unconscionable and grossly oppressive damages, contrary to substantial justice" within the meaning of the statute. Also, it can hardly be denied that if plaintiffs here are permitted to recover under the "cost of performance" rule, they will receive a greater benefit from the breach than could be gained from full performance, contrary to the provisions of Sec. 96.

An analogy may be drawn between the cited sections, and the provisions of 15 O.S. 1961 §§ 214 and 215. These sections tend to render void any provisions of a contract which attempt to fix the amount of stipulated damages to be paid in case of a breach, except where it is impracticable or extremely difficult to determine the actual damages. This results in spite of the agreement of the parties, and the obvious and well known rationale is that insofar as they exceed the actual damages suffered, the stipulated damages amount to a penalty or forfeiture which the law does not favor.

23 O.S. 1961 §§ 96 and 97 have the same effect in the case now before us. In spite of the agreement of the parties, these sections limit the damages recoverable to a reasonable amount not "contrary to substantial justice"; they prevent plaintiffs from recovering a "greater amount in damages for the breach of an obligation" than [114] they would have "gained by the full performance thereof."

We therefore hold that where, in a coal mining lease, lessee agrees to perform certain remedial work on the premises concerned at the end of the lease period, and thereafter the contract is fully performed by both parties except that the remedial work is not done, the measure of damages in an action by lessor against lessee for damages for breach of contract is ordinarily the reasonable cost of performance of the work; however, where the contract provision breached was merely incidental to the main purpose in view, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.

We believe the above holding is in conformity with the intention of the Legislature as expressed in the statutes mentioned, and in harmony with the better-reasoned cases from the other jurisdictions where analogous fact situations have been considered. It should be noted that the rule as stated does not interfere with the property owner's right to "do what he will with his own" Chamberlain v. Parker, 45 N.Y. 569), or his right, if he chooses, to contract for "improvements" which will actually have the effect of reducing his property's value. Where such result is in fact contemplated by the parties, and is a main or principal purpose of those contracting, it would seem that the measure of damages for breach would ordinarily be the cost of performance.

The above holding disposes of all of the arguments raised by the parties on appeal.

Under the most liberal view of the evidence herein, the diminution in value resulting to the premises because of non-performance of the remedial work was $300.00. After a careful search of the record, we have found no evidence of a higher figure, and plaintiffs do not argue in their briefs that a greater diminution in value was sustained. It thus appears that the judgment was clearly excessive, and that the amount for which judgment should have been rendered is definitely and satisfactorily shown by the record.

We are asked by each party to modify the judgment in accordance with the respective theories advanced, and it is conceded that we have authority to do so. 12 O.S. 1961 § 952; Busboom v. Smith, 199 Okl. 688, 191 P.2d 198; Stumpf v. Stumpf, 173 Okl. 1, 46 P.2d 315.

We are of the opinion that the judgment of the trial court for plaintiffs should be, and it is hereby, modified and reduced to the sum of $300.00, and as so modified it is affirmed.

WELCH, DAVISON, HALLEY, and JOHNSON, JJ., concur.

WILLIAMS, C.J., BLACKBIRD, V.C.J., and IRWIN and BERRY, JJ., dissent.

IRWIN, Justice (dissenting).

By the specific provisions in the coal mining lease under consideration, the defendant agreed as follows:

". . .7b Lessee agrees to make fills in the pits dug on said premises on the property line in such manner that fences can be placed thereon and access had to opposite sides of the pits.
"7c Lessee agrees to smooth off the top of the spoil banks on the above premises.
"7d Lessee agrees to leave the creek crossing the above premises in such a condition that it will not interfere with the crossings to be made in pits as set out in 7b.
"7f Lessee further agrees to leave no shale or dirt on the high wall of said pits. . . ."

[115] Following the expiration of the lease, plaintiffs made demand upon defendant that it carry out the provisions of the contract and to perform those covenants contained therein.

Defendant admits that it failed to perform its obligations that it agreed and contract to perform under the lease contract and there is nothing in the record which indicates that defendant could not perform its obligations. Therefore, in my opinion defendant's breach of the contract was wilful and not in good faith.

Although the contract speaks for itself, there were several negotiations between the plaintiffs and defendant before the contract was executed. Defendant admitted in the trial of the action, that plaintiffs insisted that the above provisions be included in the contract and that they would not agree to the coal mining lease unless the above provisions were included.

In consideration for the lease contract, plaintiffs were to receive a certain amount as royalty for the coal produced and marketed and in addition thereto their land was to be restored as provided in the contract.

Defendant received as consideration for the contract, its proportionate share of the coal produced and marketed and in addition thereto, the right to use plaintiffs' land in the furtherance of its mining operations.

The cost for performing the contract in question could have been reasonably approximated when the contract was negotiated and executed and there are no conditions now existing which could not have been reasonably anticipated by the parties. Therefore, defendant had knowledge, when it prevailed upon the plaintiffs to execute the lease, that the cost of performance might be disproportionate to the value or benefits received by plaintiff for the performance.

Defendant has received its benefits under the contract and now urges, in substance, that plaintiffs' measure of damages for its failure to perform should be the economic value of performance to the plaintiffs and not the cost of performance.

If a peculiar set of facts should exist where the above rule should be applied as the proper measure of damages, (and in my judgment those facts do not exist in the instant case) before such rule should be applied, consideration should be given to the benefits received or contracted for by the party who asserts the application of the rule.

Defendant did not have the right to mine plaintiffs' coal or to use plaintiffs' property for its mining operations without the consent of plaintiffs. Defendant had knowledge of the benefits that it would receive under the contract and the approximate cost of performing the contract. With this knowledge, it must be presumed that defendant thought that it would be to its economic advantage to enter into the contract with plaintiffs and that it would reap benefits from the contract, or it would have not entered into the contract.

Therefore, if the value of the performance of a contract should be considered in determining the measure of damages for breach of a contract, the value of the benefits received under the contract by a party who breaches a contract should also be considered. However, in my judgment, to give consideration to either in the instant action, completely rescinds and holds for naught the solemnity of the contract before us and makes an entirely new contract for the parties.

In Goble v. Bell Oil & Gas Co., 97 Okl. 261, 223 P. 371, we held:

"Even though the contract contains harsh and burdensome terms which the court does not in all respects approve, it is the province of the parties in relation to lawful subject matter to fix their rights and obligations, and the court will give the contract effect according to its expressed provisions, unless it be shown by competent evidence proof that the written agreement as executed is the result of fraud, mistake, or accident."

[116] In Cities Services Oil Co. v. Geolograph Co. Inc., 208 Okl. 179, 254 P.2d 775, we said:

"While we do not agree that the contract as presently written is an onerous one, we think the short answer is that the folly or wisdom of a contract is not for the court to pass on."

In Great Western Oil & Gas Company v. Mitchell, Okl., 326 P.2d 794, we held:

"The law will not make a better contract for parties than they themselves have seen fit to enter into, or alter it for the benefit of one party and to the detriment of the others; the judicial function of a court of law is to enforce a contract as it is written."

I am mindful of Title 23 O.S. 1961 § 96, which provides that no person can recover a greater amount in damages for the breach of an obligation than he could have gained by the full performance thereof on both sides, except in cases not applicable herein. However, in my judgment, the above statutory provision is not applicable here.

In my judgment, we should follow the case of Groves v. John Wunder Company, 205 Minn. 163, 286 N.W. 235, 123 A.L.R. 502, which defendant agrees "that the fact situation is apparently similar to the one in the case at bar", and where the Supreme Court of Minnesota held:

"The owner's or employer's damages for such a breach (i.e. breach hypothesized in 2d syllabus) are to be measured, not in respect to the value of the land to be improved, but by the reasonable cost of doing that which the contractor promised to do and which he left undone."

The hypothesized breach referred to states that where the contractor's breach of a contract is wilful, that is, in bad faith, he is not entitled to any benefit of the equitable doctrine of substantial performance.

In the instant action defendant has made no attempt to even substantially perform. The contract in question is not immoral, is not tainted with fraud, and was not entered into through mistake or accident and is not contrary to public policy. It is clear and unambiguous and the parties understood the terms thereof, and the approximate cost of fulfilling the obligations could have been approximately ascertained. There are no conditions existing now which could not have been reasonably anticipated when the contract was negotiated and executed. The defendant could have performed the contract if it desired. It has accepted and reaped the benefits of its contract and now urges that plaintiff's benefits under the contract be denied. If plaintiffs' benefits are denied, such benefits would inure to the direct benefit of the defendant.

Therefore, in my opinion, the plaintiffs were entitled to specific performance of the contract and since defendant has failed to perform, the proper measure of damages should be the cost of performance. Any other measure of damage would be holding for naught the express provisions of the contract; would be taking from the plaintiff the benefits of the contract and placing those benefits in defendant which has failed to perform its obligations; would be granting benefits to defendant without a resulting obligation; and would be completely rescinding the solemn obligation of the contract for the benefit of the defendant to the detriment of the plaintiffs by making an entirely new contract for the parties.

I therefore respectfully dissent to the opinion promulgated by a majority of my associates.

SUPPLEMENTAL OPINION ON REHEARING

JACKSON, Justice.

In a Petition for Rehearing, plaintiffs Peevyhouse have raised certain questions not presented in the original briefs on appeal.

[117] They insist that the trial court excluded evidence as to the total value of the premises concerned, and, in effect, that they have not had their "day in court." This argument arises by reason of the fact that their farm consists not merely of the 60 acres covered by the coal mining lease, but includes other lands as well.

Plaintiffs originally pleaded two causes of action against the defendant mining company. The first one was for damages for breach of contract; the second one was for damages to the water well and home of plaintiffs, because of the use of excessively large charges of dynamite or blasting powder in close proximity to the home and well.

Numbered paragraph 2 of plaintiffs' petition alleges that they own and live upon 60 acres of land which are specifically described. This is the only land described in the petition, and there is no allegation as to the ownership or leasing of any other lands.

Page 4 of the transcript of evidence reveals that near the beginning of the trial, plaintiff Peevyhouse was asked a question concerning improvements he had made to his property. His answer was "For one thing I built a new home on the place in 1951, and along about that time I was building a pasture. And I would say ninety percent of this 120 acres is in good grass." (Emphasis supplied.) Mr. Watts, defense counsel, then objected "to any testimony about the property, other than the 160 acres." (It is obvious that he means "60" instead of "160".) Further proceedings were as follows:

"The Court: The objection will be sustained as to any other part. Go ahead.
"Mr. McCornell (attorney for plaintiffs): Comes now the plaintiff and dismisses the second cause of action without prejudice."

It thus appears that plaintiffs made no complaint as to the court's exclusion of evidence concerning lands other than the 60 acres described in their petition.

Pages 7 and 8 of the transcript show that later during direct examination of Mr. Peevyhouse, the following occurred:

"Q. (By Mr. McConnell) Now, Mr. Peevyhouse, I ask you to step down here and I ask you if you are familiar with this sketch or drawing?
"A. Yes. I've got about 40 acres here, and here would be 20, and there would be 20 on this sketch. And I've got leased land lying in here, 80 acres.
"Mr. Watts: If your Honor please, I object to anything except the 60 acres involved in this lawsuit.
"The Court: Sustained.
"Q. (By Mr. McConnell) Will you point out to the jury, the boundary line shown of your property?
"A. That blue is where the water is actually standing at the present time. Up until a short time ago this area here came over that far. And this spring all of it would run, come in here out this way and through here, spreading over this land and all below it. And at the present time this is washed out here.
"Mr. Watts: If your Honor please, I object to that as not the proper measure of damages.
"The Court: The objection will be sustained."

This testimony of Mr. Peevyhouse is difficult for us to follow, even with the exhibits in the case before us. However, no complaint was made by plaintiffs, or any suggestion that the court was in error in excluding this testimony.

The defendant offered the testimony of five witnesses in the trial court; four of them testified as to "diminution in value". They were not cross examined by plaintiffs.

In their motion for new trial, plaintiffs did not complain that they had been prevented from offering evidence as to the diminution in value of their lands; on the [118] contrary, they affirmatively complained of the trial court's action in admitting evidence of the defendant on that point.

In the original brief of plaintiffs in error (Peevyhouse) filed in this court there appears the following language at page 4:

". . . Near the outset of the trial plaintiffs dismissed their second cause of action without prejudice: further, it was stipulated. . . . It was further stipulated that the only issue remaining in the lawsuit was the proof and measure of damages to which plaintiffs were entitled . . . ." (Emphasis supplied.)

In the answer brief of Garland Coal & Mining Co., at page 3, there appears the following language:

"Defendant offered evidence that the total value of the property involved before the mining operation would be $60.00 per acre, and $11.00 per acre after the mining operation (60 acres at $49.00 per acre is $2940.00). Other evidence was that the property was worth $5.00 to $15.00 per acre after the mining, but before the repairs; and would be worth an increase of $2.00 to $5.00 per acre after the repairs had been made (60 acres at $5.00 per acre is $300.00) (Tr. 96-97, 135, 137-138, 138-141, 143-145, 156, 158)."

At page 18 of the same brief there is another statement to the effect that the "amount of diminution in value of the land" was $300.00.

About two months after the answer brief was filed in this court, plaintiffs filed a reply brief. The reply brief makes no reference at all to the language of the answer brief above quoted and does not deny that the diminution in value shown by the record amounts to $300.00. On the contrary, it contains the following language at page 5:

"Plaintiffs in error pointed out in their initial brief that this evidence concerning land values was objectionable as being incompetent and refused to cross-examine or offer rebuttal for the reason that they did not choose to waive their objections to the competency of the evidence by disproving defendant in error's allegations as to land values. We strongly urged at the trial below, and still do, that market value of the land has no application. . . ."

Our extended reference to the pleadings, testimony and prior briefs in this case has not been solely for the purpose of showing that plaintiffs failed to complain of the court's rulings. Our purpose, rather, has been to demonstrate the plan and theory upon which plaintiffs tried their case below, and upon which they argued it in the prior briefs on appeal.

The whole record in this case justifies the conclusion that plaintiffs tried their case upon the theory that the "cost of performance" would be the sole measure of damages and that they would recognize no other. In view of the whole record in this case and the original briefs on appeal, we conclude that they so tried it with notice that defendant would contend for the "diminution [119] in value" rule. The testimony to which they specifically refer in the petition for rehearing shows that the trial court properly excluded defendant's evidence concerning lands other than the 60 acres described in the petition because such evidence was not within the scope of the pleadings. At no time did plaintiffs ask permission to amend their petition, either with or without prejudice to trial, so as to describe all of the lands they own or lease, and no evidence was admitted which could broaden the scope of the petition.

Plaintiffs' petition described 60 acres of land only; plaintiffs offered no evidence on the question of "diminution in value" and objected to similar evidence offered by the defendant; their motion for new trial contained no allegation that they had been prevented from offering evidence on this question; in their reply brief they did not controvert the allegation in defendant's answer brief that the record showed a "diminution in value" of only $300.00; and in view of the stipulation they admittedly made in the trial court, their statement in petition for rehearing that the court's instructions on the measure of damages came as a "complete surprise" and "did not afford them the opportunity to prepare and introduce evidence under the ‘diminution in value’ rule" is not supported by the record.

We think plaintiffs' present position is that of a plaintiff in any damage suit who has failed to prove his damages — opposed by a defendant who has proved plaintiff's damages; and that plaintiffs' complaint that the record does not show the total "diminution in value" to their lands comes too late. It is well settled that a party will not be permitted to change his theory of the case upon appeal. Knox v. Eason Oil Co., 190 Okl. 627, 126 P.2d 247.

Also, plaintiffs' expressed fear that by introducing evidence on the question of "diminution in value" they would have waived their objection to similar evidence by defendant was not justified. Vogel v. Fisher et al., 203 Okl. 657, 225 P.2d 346; 53 Am.Jur. Trial, Sec. 144.

It is suggested in a brief of amici curiae that our decision in this case has resulted in an impairment of the obligation of the contract of the parties, in violation of Article 1, Section 10, of the Constitution of the United States, and in that connection the only case cited is Sturges v. Crowninshield, 4 Wheat 122, 17 U.S. 1229, 4 L.Ed. 529 (1819). In their brief, amici curiae quote language from the Lawyer's Edition notes of Mr. Stephen K. Williams, in which he summarized the "points and authorities" of one of the counsel appearing before the U.S. Supreme Court.

Sturges v. Crowninshield was an early case in which the Supreme Court considered the power of a statute to enact bankruptcy laws, and the extent, if any, to which such power is limited by Article 1, Section 10 of the Constitution. The contracts concerned consisted of promissory notes executed in March, 1811, and the bankruptcy law under which the promisor claimed a discharge was not enacted until April 3, 1811. In a memorable opinion written by Chief Justice Marshall, the court held that insofar as the bankruptcy law purported to discharge the obligations of contracts executed before its enactment, it was unconstitutional and void.

The same situation does not exist here. 23 O.S. 1961 §§ 96 and 97, cited in our original opinion, were a part of the Revised Laws of 1910 (R.L. 1910) Sections 2889 and 2890) and have been in force in this state, in unchanged form, since that codification was adopted by the legislature in 1911. The lease contract concerned in the case now before us was not executed until 1954.

Nor do we agree that our decision itself (as opposed to the statutes cited therein as controlling) impairs the obligations of the contract concerned. It may be conceded that at one time there was respectable authority for the proposition that the "contract" clause was violated by a judicial decision which overruled prior decisions, upon the strength of which contract rights had been acquired. In this connection, it should be noted that our decision overrules no prior holdings of this court upon which the contracting parties could be said to have relied. Even if it did,

". . . it is now definitely and authoritatively settled that such prohibition in federal and state constitutions relate to legislative action and not to judicial decisions. Thus, they do not apply to the decision of a state court, where such decision does not expressly, or by necessary implication, give effect to a subsequent law of the state whereby the obligation of the contract is impaired. . . ." 16 C.J.S. Constitutional Law § 280.

To the same effect, see 12 Am.Jur. Constitutional Law, Sec. 398.

Our decision herein overrules no prior holdings of this court, and it does not give effect to a subsequent law of this state. It therefore cannot be said to impair the [120] obligations of the contract of the parties here concerned.

The petition for rehearing is denied.

HALLEY, V.C.J., and WELCH, DAVISON and JOHNSON, JJ., concur.

BLACKBIRD, C.J., and WILLIAMS, IRWIN and BERRY, JJ., dissent.

2 B. & C. 624
107 Eng. Rep. 516

GAINSFORD
v.
CARROLL.

[624] GAINSFORD against CARROLL AND OTHERS. Thursday, February 12th, 1824,

In assumpsit for not delivering goods upon a given day, the true measure of damages is the difference between the contract price and that which goods of a similar quality and description bore, on or about the day when the goods ought to have been delivered.

[S. C. 4 D. & R. 161; 2 L. J. K. B. O. S. 112.]

Assumpsit for the non-performance of three contracts entered into by the defendants with the plaintiff for the sale of fifty bales of bacon, to be shipped by them from Waterford, in the months of January, February, and March 1823 respectively. The defendant suffered judgment by default, and, upon the execution of the writ of enquiry in London, the secondary told the jury that they were at liberty to calculate the damages according to the price of bacon on the day when the enquiry was executed, and that the difference between that and the contract price ought to be the measure of damages. Parke had obtained a rule nisi for setting aside the enquiry on the ground that the plaintiff was only entitled to recover the difference between the contract price and the price which the article bore at or about the time when, by the terms of the contract, it ought to have been delivered. He cited Leigh v. Paterson (8 Taunt. 540), in which the Court of C. P. intimated an opinion that the damages should be calculated according to the price of the day on which the contract ought to have been performed. This is different from the case of a loan of stock; there the lender, by the transfer deprives himself of the means of replacing the stock, he has not the money to go to market with, but in the case of a purchase of goods, the vendee is in possession of his money, and be has it in his power, as soon as the [625] vendor has failed in the performance of the contract, to purchase other goods of the like quality and description, and it is his own fault if he does not do so.

Wilde contra contended that the rule which had been laid down, as to the measure of damages, for not replacing stock, applied to the present, and he cited Stevens v. Johnson (2 East, 211), and M'Arthur v. Lord Seaforth (2 Taunt. 257).

Per Curiam. Those cases do not apply to the present. In the case of a loan of stock the borrower holds in his hands the money of the lender, and thereby prevents him from using it altogether. Here the plaintiff bad his money in his possession and he might have purchased other bacon of the like quality the very day after the contract was broken, and if he has sustained any loss, by neglecting to do so, it is his own fault. We think that the under sheriff ought to have told the jury that the damages should be calculated according to the price of the bacon at or about the day when the goods ought to have been delivered.

Rule absolute.

231 Kan. 291 (1982)
644 P.2d 413
PANHANDLE AGRI-SERVICE, INC., A TEXAS CORPORATION, Appellee/Cross-Appellant,
v.
NORMAN BECKER, Appellant/Cross-Appellee.
No. 53,134.
Supreme Court of Kansas.
Opinion filed May 8, 1982.

John M. Lindner, of John M. Lindner, Chartered, of Garden City, argued the cause and was on the brief for the appellant and cross-appellee.

Lelyn J. Braun, of Lelyn J. Braun, Chartered, of Garden City, argued the cause and was on the brief for the appellee and cross-appellant.

The opinion of the court was delivered by

FROMME, J.:

Panhandle Agri-Service, Inc., is a Texas corporation engaged in the purchase and sale of hay, feed yard chemicals, conditioners, and preservatives. It entered into a contract with Norman Becker, a farmer at Garden City, Kansas, to purchase 10,000 tons of alfalfa at $45.00 a ton to be delivered at the Becker farm near Garden City during the 1978 hay season. Becker was short of hay at the end of the 1978 season. The president of Panhandle, Jake Holster, and Becker then agreed that the balance of the hay due under the contract, 912 tons and 256 pounds, would be supplied from the 1979 hay crop.

Difficulties arose in 1979. It was alleged that Becker failed or refused to supply the balance of hay, and Panhandle brought suit to recover damages for breach of the contract.

Some of the difficulties which brought about the breach included certain financial difficulties of Panhandle. Although Panhandle had paid Becker for all hay delivered in 1978, it had incurred considerable outside indebtedness. In attempting to satisfy its creditors it sold its fleet of trucks which had been used to haul the hay from Kansas to Texas. Panhandle also had become involved in a lawsuit with LeRoy Nichols, a resident of Kansas, over payment of commissions. Nichols obtained a $3,000.00 judgment against Panhandle. The president of Panhandle, Jake Holster, quit the company and a Walter Nelson moved into the presidency.

In May, 1979, Nelson called Becker by telephone to verify that they still had a contract. Becker later called Nelson and told him he could pick up the hay. However, because of Panhandle's financial troubles, of which Becker was aware, it was stipulated that the hay must be paid for before loading. Panhandle agreed. Panhandle arranged with a Gale McCoy to haul the hay and he was given a check for the first load. Then McCoy learned of the [293] judgment which Nichols held against Panhandle. Nichols threatened to attach the trucks by legal process if the hay was picked up. McCoy refused to get involved and returned the check for hay to Panhandle sometime later.

By this time in 1979, the market price of hay at Garden City had risen by $62.00 per ton. Nelson then contacted Becker. Nelson testified at trial that Becker told him he would not deliver anymore hay. No reason was given. Suit was filed and the trial court awarded Panhandle damages for breach of contract in the sum of $12,698.63. There was testimony by Nelson that he had contracted to sell the hay in Texas for $67.00 per ton or at a profit of $22.00 per ton, and the cost of hauling the hay from Kansas to the Texas market was figured at $7,371.00. The trial court arrived at the $12,698.63 by multiplying 912.256 tons by $22.00 per ton to arrive at a figure of $20,069.63; then it subtracted the $7,371.00 cost of hauling to arrive at the amount of judgment.

Both parties have appealed. At the outset it must be pointed out the trial court improperly used 912.256 tons instead of 912 tons 256 pounds.

The plaintiff/cross-appellant argues that the cost of hauling should not have been deducted from the lost profits and that judgment should have been for $20,069.63. Defendant/appellant argues the plaintiff had no standing to bring the action because it was a foreign corporation not registered to do business within the state, but in any event, if this court determines otherwise, the proper damages should not exceed $4,560.64. He arrives at this figure by deducting McCoy's trucking rate, $17.00 per ton, from the anticipated profit claimed by Panhandle of $22.00 per ton to arrive at a net figure of $5.00 per ton on 912 tons and 256 pounds or $4,560.64.

We will first examine the appellant's contention that Panhandle was a foreign corporation, not authorized to do business within the state, and therefore, without authority to maintain this action.

K.S.A. 17-7307(a) provides:

"A foreign corporation which is required to comply with the provisions of K.S.A. 17-7301 and 17-7302 and which has done business in this state without authority shall not maintain any action or special proceeding in this state, unless and until such corporation has been authorized to do business in this state and has paid to the state all taxes, fees and penalties which would have been due for the years or parts thereof during which it did business in this state without authority. This prohibition shall not apply to any successor in interest of any such foreign corporation."

[294] K.S.A. 17-7303 states:

"Every foreign corporation that has an office or place of business within this state, or a distributing point herein, or that delivers its wares or products to resident agents in this state for sale, delivery or distribution, shall be held to be doing business in this state within the meaning of this act." Emphasis supplied.

K.S.A. 17-7301 and 17-7302 require all foreign corporations, before doing business in this state, to file an application in the office of the Secretary of State for authority to engage in business in this state as a foreign corporation. Annually, after registration, each foreign corporation doing business within the state must file a certificate of good standing.

A foreign corporation is required to comply with the provisions of K.S.A. 17-7301 and 17-7302 before doing business in this state, and if it fails to comply and has done business in this state without authority it may not maintain any action in this state. K.S.A. 17-7307(a).

Plaintiff argues it was not doing business in Kansas. This brings up the question of what constitutes doing business in this state so as to require registration. The phrase "doing business in this state" so as to require registration before maintaining an action is defined by K.S.A. 17-7303 and requires the establishment of an office or place of business within this state, or a distributing point herein, or delivery of its wares or products to resident agents in this state for sale, delivery or distribution. In the present case plaintiff had none of these. It merely sent its agents and trucks into this state to purchase and pick up the hay which was to be sold in Texas. It had no office, place of business or distributing point in Kansas. It did not deliver any wares or products to resident agents in this state for sale, delivery, or distribution. Panhandle was not doing business as that term is defined by K.S.A. 17-7303, was not required to register as a foreign corporation, and was not prohibited by K.S.A. 17-7307(a) from bringing the present action.

Defendant Becker next contends the trial court erred in failing to enter summary judgment in his favor based on K.S.A. 84-2-309, which provides:

"(1) The time for shipment or delivery or any other action under a contract if not provided in this article or agreed upon shall be a reasonable time.

"(2) Where the contract provides for successive performances but is indefinite [295] in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.

"(3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable."

Becker contends the contract provided for successive deliveries of hay and the petition does not allege an agreed extension of the 1978 contract. Therefore, he insists the contract could be terminated at anytime because it was indefinite in duration.

This statute does not apply under the facts of the present case. The contract was for the sale of a definite amount of hay, 10,000 tons. It was originally to be completed during the 1978 crop year but because of the 1978 crop shortage the contract was extended so that the balance of 912 tons 256 pounds could be furnished from the 1979 crop. The contract was not indefinite in duration. In the official UCC Comment following the statute it is pointed out:

"7. Subsection (2) applies a commercially reasonable view to resolve the conflict which has arisen in the cases as to contracts of indefinite duration. The 'reasonable time' of duration appropriate to a given arrangement is limited by the circumstances. When the arrangement has been carried on by the parties over the years, the 'reasonable time' can continue indefinitely and the contract will not terminate until notice.

"8. Subsection (3) recognizes that the application of principles of good faith and sound commercial practice normally call for such notification of the termination of a going contract relationship as will give the other party reasonable time to seek a substitute arrangement. An agreement dispensing with notification or limiting the time for the seeking of a substitute arrangement is, of course, valid under this subsection unless the results of putting it into operation would be the creation of an unconscionable state of affairs." K.S.A. 84-2-309, Official UCC Comment.

The contract was not terminable at will. Summary judgment is proper only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. K.S.A. 60-256(c). In this case every material fact was contested and in issue and entry of a summary judgment would not have been proper.

We next consider the question of whether the trial court found a breach of contract. It is true the journal entry does not contain the [296] statement that defendant breached the contract. However, the allowance of damages can only imply that a breach of contract was found. In all actions tried upon the facts without a jury, the judge should find the controlling facts. K.S.A. 60-252(a). However, his failure to do so in this case did not prejudice the defendant. Defendant did not request this finding or conclusion and at most it would constitute harmless error. K.S.A. 60-261.

It appears that although Panhandle was willing to pay for the hay before taking delivery, no one ever showed up with a check to take delivery of the hay. The president of Panhandle testified that he called and was advised by Becker that he was not going to deliver the hay. It is a basic rule of law that a party should not be required to perform a useless act to perfect a cause of action. The trial judge believed Nelson, the president of Panhandle, when he testified that Becker refused to deliver the hay and thus failed to complete the contract. Becker himself testified he was not ready to deliver the hay at the time of trial. There was competent evidence to support a finding of breach of contract and this court on appeal will not reweigh the evidence. International Petroleum Services, Inc. v. S & N Well Service, Inc., 230 Kan. 452, Syl. ¶ 8, 639 P.2d 29 (1982).

We now turn to the question of what was the proper method of arriving at the amount of damages. As previously stated Panhandle argues on appeal it should be entitled to loss of profits of $20,069.63. Becker argues the entire judgment should be set aside but, if not, the judgment should be reduced to $4,560.64, which would show a deduction from the loss of profits claimed by plaintiff of the costs of trucking from Kansas to Texas. McCoy was going to charge $17.00 per ton.

Under the facts of this case we believe both contentions are in error. The Uniform Commercial Code concerning sales provides:

"(1) Subject to the provisions of this article with respect to proof of market price (section 84-2-723), the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this article (section 84-2-715), but less expenses saved in consequence of the seller's breach.

"(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival."

K.S.A. 84-2-713.

[297] The trial court determined that the market price of alfalfa hay at Garden City, Kansas, in 1979, was $62.00 per ton. The contract price agreed on by the parties was $45.00. So the measure of damages for nondelivery or repudiation by the seller would be $62.00 less $45.00 or $17.00 per ton, provided no incidental or consequential damages are recoverable in this case, and provided there was no evidence that "cover" was not possible.

The meaning of the word "cover" as used in the Uniform Commercial Code relating to sales is explained in K.S.A. 84-2-712 and refers roughly to the buyer's procurement of substitute goods when the seller nondelivers or repudiates. The philosophy underlying this "cover option" appears to be that an aggrieved buyer can obtain substituted goods without having to suffer any great loss. See the Official UCC Comment following K.S.A. 84-2-712.

Trucking or transportation expense was not deductible from the above figure. Under the Code it is assumed the buyer will attempt to "cover" the merchandise lost by seller's nondelivery at the seller's shipping point. If the buyer seeks a replacement of the merchandise at the shipping point, he would incur replacement shipping costs roughly equivalent to those on the original contract. Thus, by comparison with such a replacement contract there would be no expenses saved in consequence of the seller's breach because we assume the buyer must pay the expenses for shipment under the new contract as well. White & Summers, Uniform Commercial Code § 6-4, pp. 231-232 (2nd ed. 1980).

The Official UCC Comment, appearing after the text of K.S.A. 84-2-713, at paragraphs one and two states:

"1. The general baseline adopted in this section uses as a yardstick the market in which the buyer would have obtained cover had he sought that relief. So the place for measuring damages is the place of tender (or the place of arrival if the goods are rejected or their acceptance is revoked after reaching their destination) and the crucial time is the time at which the buyer learns of the breach.

"2. The market or current price to be used in comparison with the contract price under this section is the price for goods of the same kind and in the same branch of trade."

As to incidental damages resulting from the seller's breach there was no evidence to support any of the items listed in K.S.A. 84-2-715(1). Incidental damages concern expenses when goods are tendered and rejected or have to be transported and cared for, or which concern charges in connection with effecting cover.

[298] As to consequential damages K.S.A. 84-2-715(2)(a) provides:

"(2) Consequential damages resulting from the seller's breach include

"(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise."

Failure of the buyer to utilize the remedy of cover when such is reasonably available will preclude recovery of consequential damages, such as loss of profits. White & Summers § 6-6, 234 n. 103, § 6-7, 250, § 10-4, 396. However, K.S.A. 84-2-712, which provides for cover, i.e., the buyer's procurement of substitute goods, states:

"(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy."

Therefore, cover is not a mandatory remedy for the buyer. The buyer is free to choose between cover and damages for nondelivery. In the present record we find no evidence which would support a finding that cover was attempted but found unavailable. We find nothing which would justify the trial court in arriving at damages using loss of business profits which are consequential damages. Consequential damages are limited under K.S.A. 84-2-715(2)(a) to those instances where it is established that the loss could not reasonably be prevented by cover or otherwise. A buyer does not have to cover under K.S.A. 84-2-715(3); however, on failure to attempt cover, consequential damages, including loss of profits, cannot be recovered. K.S.A. 84-2-715(2)(a). International Petroleum Services, Inc. v. S & N Well Service, Inc., 230 Kan. 452, Syl. ¶ 7.

In view of our ultimate decision that loss of profits are not a proper basis for damages in this case it will not be necessary to address appellant's claim that it was error to disallow the testimony of Jake Holster as to the amount of profit ordinarily realized on a ton of hay bought and sold by Panhandle.

The proper measure of damages under K.S.A. 84-2-713 based on the evidence before the trial court in this case is the difference between the contract price of $45.00 per ton and the market price of $62.00 at the place of delivery and at the time the buyer learned of nondelivery and repudiation. There was no evidence to indicate the buyer attempted and was unable to obtain cover. The proper award in this case is to be arrived at by subtracting $45.00 from $62.00 to make $17.00 per ton, the basis for arriving at [299] damages. Multiplying 912 tons 256 pounds by $17.00 equals $15,506.18, which is the correct amount of the judgment to be entered in favor of plaintiff, plus interest and costs. Accordingly, the judgment of the district court is affirmed as modified herein.

190 U.S. 540
23 S.Ct. 754
47 L.Ed. 1171
GLOBE REFINING COMPANY, Plff. in Err.,
v.
LANDA COTTON OIL COMPANY.
No. 241.
Submitted April 16, 1903.
Decided June 1, 1903.

Messrs. C. W. Ogden and J. D. Guinn for plaintiff in error.

No counsel for defendant in error.

Mr. Justice Holmes delivered the opinion of the court:

This is an action of contract brought by the plaintiff in error, [541] a Kentucky corporation, against the defendant in error, a Texas corporation, for breach of a contract to sell and deliver crude oil. The defendant excepted to certain allegations of damage, and pleaded that the damages had been claimed and magnified fraudulently for the purpose of giving the United States circuit court jurisdiction, when in truth they were less than $2,000. The judge sustained the exceptions. He also tried the question of jurisdiction before hearing the merits, refused the plaintiff a jury, found that the plea was sustained, and dismissed the cause. The plaintiff excepted to all the rulings and action of the court, and brings the case here by writ of error. If the rulings and findings were right, there is no question that the judge was right in dismissing the suit (North American Transp. & Trading Co. v. Morrison, 178 U. S. 262, 267, 44 L. ed. 1061, 1064, 20 Sup. Ct. Rep. 869); but the grounds upon which he went are re-examinable here. Wetmore v. Rymer, 169 U. S. 115, 42 L. ed. 682, 18 Sup. Ct. Rep. 293.

The contract was made through a broker, it would seem by writing, and, at all events, was admitted to be correctly stated in the following letter:

Dallas, Texas, 7/30/97.

Landa Oil Company,
New Braunfels, Texas.

Gentlemen:——

Referring to the exchange of our telegrams to-day, we have sold for your account to the Globe Refining Company, Louisville Kentucky, ten (10) tanks prime crude C/S oil at the price of 15 3/4 cents per gallon of 7 1/2 pounds, f. o. b. buyers' tank at your mill. Weights and quality guaranteed.

Terms: Sight draft without exchange b/ldg. attached. Sellers paying commission.

Shipment: Part last half August and balance first half September. Shipping instructions to be furnished by the Globe Refining Company.

Yours truly,
Thomas & Green, as Broker.

Having this contract before us, we proceed to consider the allegations of special damage over and above the difference between the contract price of the oil and the price at the time of the breach, which was the measure adopted by the judge. These [542] allegations must be read with care, for it is obvious that the pleader has gone as far as he dared to go, and to the verge of anything that could be justified under the contract, if not beyond.

It is alleged that it was agreed and understood that the plaintiff would send its tank cars to the defendant's mills, and that the defendant promptly would fill them with oil (so far, simply following the contract), and that the plaintiff sent tanks. 'In order to do this, the plaintiff was under the necessity of obligating itself unconditionally to the railroad company (and of which the defendant had notice) to pay to it for the transportation of the cars from said Louisville to said New Braunfels in the sum of $900,' which sum plaintiff had to pay, 'and was incurred as an advancement on said oil contract.' This is the first item. The last words quoted mean only that the sum paid would have been allowed by the railroad as part payment of the return charges had the tanks been filled and sent back over the same road.

Next it is alleged that the defendant, contemplating a breach of the contract, caused the plaintiff to send its cars a thousand miles, at a cost of $1,000; that defendant canceled its contract on the 2d of September, but did not notify the plaintiff until the 14th, when, if the plaintiff had known of the cancelation, it would have been supplying itself from other sources; that plaintiff (no doubt defendant is meant) did so wilfully and maliciously, causing an unnecessary loss of $2,000.

Next it is alleged that, by reason of the breach of contract and want of notice, plaintiff lost the use of its tanks for thirty days,—a loss estimated at $700 more. Next it is alleged that the plaintiff had arranged with its own customers to furnish the oil in question within a certain time, which contemplated sharp compliance with the contract by the defendant; 'all of which facts, as above stated, were well known to the defendant, and defendant had contracted to that end with the plaintiff.' This item is put at $740, with $1,000 more for loss of customers, credit, and reputation. Finally, at the end of the petition, it is alleged generally that it was known to defendant, and in contemplation of the con-[543]-tract, that plaintiff would have to send tanks at great expense from distant points, and that plaintiff 'was required to pay additional freight in order to rearrange the destination of the various tanks and other points.' Then it is alleged that by reason of the defendant's breach, the plaintiff had to pay $350 additional freight.

Whatever may be the scope of the allegations which we have quoted, it will be seen that none of the items was contemplated expressly by the words of the bargain. Those words are before us in writing, and go no further than to contemplate that when the deliveries were to take place the buyer's tanks should be at the defendant's mill. Under such circumstances the question is suggested how far the express terms of a writing, admitted to be complete, can be enlarged by averment and oral evidence; and, if they can be enlarged in that way, what averments are sufficient. When a man commits a tort, he incurs, by force of the law, a liability to damages, measured by certain rules. When a man makes a contract, he incurs, by force of the law, a liability to damages, unless a certain promised event comes to pass. But, unlike the case of torts, as the contract is by mutual consent, the parties themselves, expressly or by implication, fix the rule by which the damages are to be measured. The old law seems to have regarded it as technically in the election of the promisor to perform or to pay damages. Bromage v. Genning, 1 Rolle, 368; Hulbert v. Hart, 1 Vern. 133. It is true that, as people when contracting contemplate performance, not breach, they commonly say little or nothing as to what shall happen in the latter event, and the common rules have been worked out by common sense, which has established what the parties probably would have said if they had spoken about the matter. But a man never can be absolutely certain of performing any contract when the time of performance arrives, and, in many cases, he obviously is taking the risk of an event which is wholly, or to an appreciable extent, beyond his control. The extent of liability in such cases is likely to be within his contemplation, and, whether it is or not, should be worked out on terms which it fairly may be presumed he would have assented to if they had been presented to his mind. For instance, [544] in the present case, the defendant's mill and all its oil might have been burned before the time came for delivery. Such a misfortune would not have been an excuse, although probably it would have prevented performance of the contract. If a contract is broken, the measure of damages generally is the same, whatever the cause of the breach. We have to consider, therefore, what the plaintiff would have been entitled to recover in that case, and that depends on what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made.

This point of view is taken by implication in the rule that 'a person can only be held to be responsible for such consequences as may be reasonably supposed to be in the contemplation of the parties at the time of making the contract.' Grebert-Borgnis v. Nugent, L. R. 15 Q. B. Div. 85, 92; Horne v. Midland R. Co. L. R. 7 C. P. 583, 591; Hadley v. Baxendale, 9 Exch. 341, 354; Western U. Teleg. Co. v. Hall, 124 U. S. 444, 456, 31 L. ed. 479, 483, 8 Sup. Ct. Rep. 577; Howard v. Stillwell & B. Mfg. Co. 139 U. S. 199, 206, 35 L. ed. 147, 150, 11 Sup. Ct. Rep. 500; Primrose v. Western U. Teleg. Co. 154 U. S. 1, 32, 38 L. ed. 883, 895, 14 Sup. Ct. Rep. 1098. The suggestion thrown out by Bramwell, B., in Gee v. Lancashire & Y. R. Co. 6 Hurlst. & N. 211, 218, that perhaps notice after the contract was made and before breach would be enough, is not accepted by the later decisions. See further, Hydraulic Engineering Co. v. McHaffie, L. R. 4 Q. B. Div. 670, 674, 676. The consequences must be contemplated at the time of the making of the contract.

The question arises, then, What is sufficient to show that the consequences were in contemplation of the parties, in the sense of the vendor taking the risk? It has been held that it may be proved by oral evidence when the contract is in writing. Messmore v. New York Shot & Lead Co. 40 N. Y. 422. See Sawdon v. Andrew, 30 L. T. N. S. 23. But, in the language quoted, with seeming approbation, by Blackburn, J., from Mayne on Damages, 2d ed. 10, in Elbinger Actien-Gesellschafft v. Armstrong, L. R. 9 Q. B. 473, 478, 'it may be asked, with great deference, whether the mere fact of such consequences being communicated to the other party will be sufficient, with-[545]-out going on to show that he was told that he would be answerable for them, and consented to undertake such a liability.' Mr. Justice Willes answered this question, so far as it was in his power, in British Columbia & V. I. Spar, Lumber, & Saw-Mill Co. v. Nettleship, L. R. 3 C. P. 499, 500:

I am disposed to take the narrow view that one of two contracting parties ought not to be allowed to obtain an advantage which he has not paid for. . . . If that [a liability for the full profits that might be made by machinery which the defendant was transporting, if the plaintiff's trade should prove successful and without a rival] had been presented to the mind of the ship owner at the time of making the contract, as the basis upon which he was contracting, he would at once have rejected it. And though he knew, from the shippers, the use they intended to make of the articles, it could not be contended that the mere fact of knowledge, without more, would be a reason for imposing upon him a greater degree of liability than would otherwise have been cast upon him. To my mind, that leads to the inevitable conclusion that the mere fact of knowledge cannot increase the liability. The knowledge must be brought home to the party sought to be charged, under such circumstances that he must know that the person he contracts with reasonably believes that he accepts the contract with the special condition attached to it.

The last words are quoted and reaffirmed by the same judge in Horne v. Midland R. Co. L. R. 7 C. P. 583, 591; S. C., L. R. 8 C. P. 131. See also Benjamin, Sales, 6th Am. ed. § 872.

It may be said with safety that mere notice to a seller of some interest or probable action of the buyer is not enough necessarily and as matter of law to charge the seller with special damage on that account if he fails to deliver the goods. With that established, we recur to the allegations. With regard to the first, it is obvious that the plaintiff was free to bring its tanks from where it liked,—a thousand miles away or an adjoining yard,—so far as the contract was concerned. The allegation hardly amounts to saying that the defendant had notice that the plaintiff was likely to send its cars from a distance. It is not alleged that the defendant had notice that the plaintiff had to bind itself to pay $900, at the time when the [546] contract was made, and it nowhere is alleged that the defendant assumed any liability in respect of this uncertain element of charge. The same observations may be made with regard to the claim for loss of use of the tanks and to the final allegations as to sending the tanks from distant points. It is true that this last was alleged to have been in contemplation of the contract, if we give the plaintiff the benefit of the doubt in construing a somewhat confused sentence. But, having the contract before us, we can see that this ambiguous expression cannot be taken to mean more than notice, and notice of a fact which would depend upon the accidents of the future.

It is to be said further, with regard to the foregoing items, that they were the expenses which the plaintiff was willing to incur for performance. If it had received the oil, these were deductions from any profit which the plaintiff would have made. But, if it gets the difference between the contract price and the market price, it gets what represents the value of the oil in its hands, and to allow these items in addition would be making the defendant pay twice for the same thing.

It must not be forgotten that we are dealing with pleadings, not evidence, and with pleadings which, as we have said, evidently put the plaintiff's case as high as it possibly can be put. There are no inferences to be drawn, and therefore cases like Hammond v. Bussey, L. R. 20 Q. B. Div. 79, do not apply. It is a simple question of allegations which, by declining to amend, the plaintiff has admitted that it cannot reinforce. This consideration applies with special force to the attempt to hold the defendant liable for the breach of the plaintiff's contract with third persons. The allegation is that the fact that the plaintiff had contracts over was well known to the defendant, and that 'defendant had contracted to that end with the plaintiff.' Whether, if we were sitting as a jury, this would warrant an inference that the defendant assumed an additional liability, we need not consider. It is enough to say that it does not allege the conclusion of fact so definitely that it must be assumed to be true. With the contract before us it is in a high degree improbable that any such conclusion could have been made good.

The only other allegation needing to be dealt with is that [547] the defendant maliciously caused the plaintiff to send the tanks a thousand miles, contemplating a breach of its contract. So far as this item has not been answered by what has been said, it is necessary only to add a few words. The fact alleged has no relation to the time of the contract. Therefore it cannot affect the damages, the measure of which was fixed at that time. The motive for the breach commonly is immaterial in an action on the contract. Grand Tower Min. Mfg. & Transp. Co. v. Phillips, 23 Wall. 471, 480, 23 L. ed. 71, 75; Wood's Mayne, Damages, § 45; 2 Sedgw. Damages, 8th ed. § 603. It is in this case. Whether, under any circumstances, it might give rise to an action of tort, is not material here. See Emmons v. Alvord, 177 Mass. 466, 470, 59 N. E. 126.

The allowance of the exceptions made the trial of the plea superfluous. If the question of fact was to be tried as to whether the amount of damages that fairly could be claimed was sufficient to give the court jurisdiction, the court had authority to try it. Wetmore v. Rymer, 169 U. S. 115, 121, 42 L. ed. 682, 18 Sup. Ct. Rep. 293; Act of March 3, 1875, 18 Stat. at L. 472, chap. 137, § 5, U. S. Comp. Stat. 1901, p. 511. In coming to his conclusion, apart from what was apparent on the face of the pleadings, the judge no doubt was influenced largely by a letter from the plaintiff to the defendant, inclosing an itemized bill for $1,021.28. This letter suggested no further claim except for 'any additional mileage we may have to pay.' Of course, if the judge accepted the plaintiff's own view of its case as expressed here, the pretence of jurisdiction was at an end. Some attempt was made to make out this was an offer of compromise, and inadmissible. But the letter did not purport to be anything of the sort; it was an out and out adverse demand.

Judgment affirmed.

245 N.Y. 284, 157 N.E. 140 (1927)
KERR STEAMSHIP CO., INC., Respondent,
v.
RADIO CORPORATION OF AMERICA, Appellant.

Transportation corporations — telegrams — negligence — damages — liability of radio company for neglect to transmit cipher message — measure of damages amount of tolls paid — notice of risk must be given to lay basis for special damages — damages recoverable for breach of the contract the measure of amount recoverable for the breach of duty.

1. Where the terms of a telegram disclose the general nature of the transaction which is the subject of the message, the company is answerable for the natural consequences of its neglect in relation to the transaction thus known or foreseen. On the other hand, where the terms of the message give no hint of the nature of the transaction, the liability is for nominal damages or for the cost of carriage if the tolls have been prepaid. In an action, therefore, to recover damages sustained through the failure to transmit and deliver in a foreign country a cipher message unintelligible on its face. The limit, of recovery is the amount of the tolls paid. (Hadley v. Baxendale, 9 Exch. 341, followed.)

2. A contention that the transaction has been revealed within the meaning of the rule if the length and costs of the telegram or the names of the parties would fairly suggest to a reasonable man that business of moment is the subject of the message, cannot be sustained. Notice of the business, if it is to lay the basis for special damages, must be sufficiently informing to be notice of the risk.

[285] 3. Nor may an argument be upheld, that the action is one in tort for the breach of a duty owing from a public service corporation, and that the rule does not protect the carrier unless sued upon the contract. Though the duty to serve may be antecedent to the contract, yet the contract when made defines and circumscribes the duty, and the damages recoverable for non-performance of the contract are the damages recoverable for non-performance of the duty. Kerr Steamship Co. v. Radio Corporation, 216 App. Div. 839, reversed.

(Argued May 10, 1927; decided May 31, 1927.)

APPEAL, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 7, 1926, unanimously affirming a judgment in favor of plaintiff entered upon a verdict.

Peter F. McAllister and Vincent R. Impellitteri for appellant. The message in question being in code and defendant having no knowledge or notice that failure to deliver would result in special damage to plaintiff, defendant would not be liable in any event for more than nominal damages. (Hadley v. Baxendale, 9 Exch. 341; Baldwin v. 17. S. Telegraph Co., 45 N. Y. 744; Hart v. Direct United States Cable Co., 86 N. Y. 633; Bertuch v. U. S. & Haiti Tel. & Cable Co., 79 Misc. Rep. 10; McColl v. Western Union Tel. Co., 44 N. Y. Super. Ct. 487; Taggart v. Western Union Tel. Co., 198 App. Div. 368; Primrose v. Western Union Tel. Co., 154 U. S. 1; Wheelock v. Postal Tel. Cable Co., 197 Mass. 119; Western Union Tel. Co. v. Coggin, 68 Fed. Rep. 137.) The trial court erred in refusing to recognize any distinction between gross and simple negligence, since the unrepeated message stipulation is binding on the sender of a message in the absence of gross negligence. (Halstead v. Postal Tel. Cable Co., 193 N. Y. 293; Weld v. Postal Tel. Cable Co., 210 N. Y. 59; Dalton v. Hamilton Hotel Operating Co., 242 N. Y. 481.)

Elkan Turk, Benjamin Wiener and Herman Goldman for respondent. Appellant is not relieved from full [286] Liability for respondent's loss by reason of the circumstance that the message was sent in part as a code message and as an unrepeated message even disregarding the element of gross negligence. (Landsberger v. Magnetic Tel. Co., 32 Barb. 530; Taggart v. Western Union, 198 App. Div. 360.) Appellant had ample notice of the purport and importance of the message. (Rittenhouse v. Independent Line of Telegraph, 44 N. Y. 263; Leonard v. New York, etc., Tel. Co., 44 N. Y. 544; Hoye v. Pennsylvania R. R. Co., 114 App. Div. 821; Pearsall v. Western Union Tel. Co., 124 N. Y. 256; U. S. Tel. Co. v. Wenger, 55 Penn. St. 266; Parks v. Alta, etc., Tel. Co., 13 Cal. 422; Mowry v. Western Union Tel. Co., 51 Hun, 126; Jones on Telegraph & Telephone Companies [2d ed.], § 542; Bryant v. American Tel. Co., 1 Daly, 576; Sprague v. Western Union, 6 Daly, 200; Western Union v. Blackwell, 24 Okla. 535; Marriott v. Western Union, 84 Neb. 443; Postal Tel. Co. v. Louisville, 136 Ky. 843.) The action in the case at bar sounding in tort, the rule of Hadley v. Baxendale cannot in any event have application. (Western Union Tel. Co. v. Lawson, 182 Fed. Rep. 369; Ehrgott v. The Mayor, 96 N. Y. 264; Putnam v. Broadway, etc., R. R. Co., 55 N. Y. 108; Tice v. Munn, 94 N. Y. 621; Coy v. Indianapolis Gas Co., 146 Ind. 655; Hill v. Winsor, 118 Mass. 251; Stewart v. City of Ripon, 38 Wis. 584; Baltimore, etc., R. W. Co. v. Kemp, 61 Md. 74

CARDOZO, Ch. J. On May 15, 1922, the plaintiff, Kerr Steamship Company, Inc., delivered to defendant, the Radio Corporation of America, a telegram consisting of twenty-nine words in cipher to be transmitted to Manila, Philippine Islands.

The telegram was written on one of the defendant's blanks, and is prefaced by the printed words: " Send the following radiogram via R. C. A., subject to terms on back hereof which are hereby agreed to."

The defendant had no direct circuit for the transmission of radiograms to the Philippine Islands. A radiogram [287] could have been sent to London, where by transfer to other companies it might have reached its destination. This was expensive for the customer. To reduce the expense and follow a more direct route, the defendant forwarded its Philippine messages over the line of the Commercial Cable Company, which transmitted them by cable. When messages were thus forwarded, the practice was to send them upstairs to be copied. One copy was then handed to the cable company, and one kept for the defendant's files. That practice was followed in this instance except that the copy intended for the cable company was mislaid and not delivered. As a consequence the telegram was never sent.  

The telegram on its face is an unintelligible cipher. It is written in Scott's code. Translated into English, it remains at best obscure, though some inkling of the transaction may be conveyed to an ingenious mind. Untranslated, it is jargon. The fact is that one Macondray, to whom the telegram was addressed, had cabled the plaintiff for instructions as to the loading of a ship, The Blossom. The instructions were contained in the undelivered message. As a result of the failure to transmit them, the cargo was not laden and the freight was lost. The trial judge directed a verdict for $6,675.29, the freight that would have been earned if the message had been carried. He held that the cipher, though the defendant could not read it, must have been understood as having relation to some transaction of a business nature and that from this understanding without more there ensued a liability for the damages that would have been recognized as natural if the transaction had been known. The defendant insists that the tolls which the plaintiff was to pay, $26.78, must be the limit of recovery.

The settled doctrine of this court confines the liability of a telegraph company for failure to transmit a message within the limits of the rule in Hadley v. Baxendale (9 Exch. 341). Where the terms of the telegram disclose [288] the general nature of the transaction which is the subject of the message, the company is answerable for the natural consequences of its neglect in relation to the transaction thus known or foreseen (Leonard v. N. Y. Tel. Co., 41 N. Y. 544; Rittenhouse v. Ind. Line of Telegraph, 44 N. Y. 263). On the other hand, where the terms of the message give no hint of the nature of the transaction, the liability is for nominal damages or for the cost of carriage if the tolls have been prepaid (Baldwin v. U. S. Tel Co., 45 N. Y. 744). This is in accord with authority elsewhere (Primrose v. W. U. Tel. Co., 154 U. S. 1, 29; Wheelock v. Postal Tel. Cable Co., 197 Mass. 119; Sanders v. Stuart L. R. 1. C. P. 326; 3 Sutherland on Damages, § 959).

We are now asked to hold that the transaction has been revealed within the meaning of the rule if the length and cost of the telegram or the names of the parties would fairly suggest to a reasonable man that business of moment is the subject of the message. This is very nearly to annihilate the rule in the guise of an exception. The defendant upon receiving from a steamship company a long telegram in cipher to be transmitted to Manila would naturally infer that the message had relation to business of some sort. Beyond that, it could infer nothing. The message might relate to the loading of a cargo, but equally it might relate to the sale of a vessel or to the employment of an agent or to any one of myriad transactions as divergent as the poles. Notice of the business, if it is to lay the basis for special damages must be sufficiently informing to be notice of the risk (Primrose v. W. U. Tel. Co., supra; Tel. Co. v. Sullivan, 82 Ohio St. 14; 3 Sutherland on Damages, §§ 959, 970)

At the root of the problem is the distinction between general and special damage as it has been developed in our law. There is need to keep in mind that the distinction is not absolute, but relative. To put it in other words, damage which is general in relation to a contract of one kind may be classified as special in relation to [289] another. If A and B contract for the sale of staple goods, the general damage upon a breach is the difference between the market value and the price. Bui if A delivers to X a telegram to B in cipher with reference to the same sale, or a letter in a sealed envelope, the general damage upon the default of X is the cost of carriage and no more. As to him the difference between price and value is damage to be ranked as special, and, therefore, not recoverable unless the message is disclosed. The argument for a larger liability loses sight of this distinction. It misses a sure foothold in that it shifts from general damage in one relation to general damage in another. The bearer of a message who infers from the surrounding circumstances that what he bears has relation to business of some kind, is liable, Ave are told, for any damages that are natural with reference to the character of the business as to which knowledge is imputed. When we ask, however, to what extent the character of the business will be the subject of imputed knowledge, we are told that it is so much of the business only as will make the damage natural (cf. W. U. Tel. Co. v. Way, 83 Ala. 542, 557, 558; Daugherty v. Am. Union Tel. Co., 75 Ala. 168). Thus we travel in a circle, what is natural or general being adapted to so much of a putative business as is constructively known, and what is constructively known being adapted to what is general and natural. One cannot build conclusions upon foundations so unstable. The loss of a cipher message to load a vessel in the Philippines may mean to one the loss of freight, to another an idle factory, to another a frustrated bargain for the sale or leasing of the cargo. We cannot say what ventures are collateral till Ave know the ventures that are primary. Not till we learn the profits that are direct can we know which ones are secondary. There is a contradictio in adjecto when we speak of the general damages appropriate to an indeterminate transaction.  

[290] The key to Hadley v. Baxeudale is lost if we fail to keep in mind the relativity of causation as a concept of the law (McLaughlin, Proximate Cause, 39 Harv. L. R. 149; Edgerton, Legal Cause, 72 U. of Pa. L. R. 211, 343; Bohlen, Studies in the Law of Torts, p. 503; Haldane, The Reign of Relativity, pp. 125, 126). The argument for the plaintiff mistakenly assumes that the test of 'What is general damage in a controversy between the sender of a message and the receiver is also the test between the sender and the carrier. To unify the two relations is to abandon Hadley v. Baxendale in its application to contracts for the transmission of a message. If knowledge that a message is concerned with business of some kind is by imputation knowledge of those forms of business, and those only, that are typical or normal, there must be search for a definition of the normal and the typical. The quest is obviously futile. Every effect is natural when there is complete knowledge of the cause (Haldane, supra). Every damage becomes natural when the transaction out of which it arises has been fully comprehended. Imputed knowledge cannot stop with imputed notice of transactions that are standardized by usage. In the complexities of modern life, one does not know where the ordinary ends and the extraordinary begins. Imputed knowledge, if it exists, must rest upon an assumption less timid and uncertain. The assumption cannot be less than this, that whatever a carrier could ascertain by diligent inquiry as to the nature of the undisclosed transaction, this he should be deemed to have ascertained, and charged with damages accordingly. We do not need to consider whether such a rule might wisely have been applied in the beginning, when the law as to carriers of messages was yet in its infancy. Most certainly it is not the rule announced in our decisions. We cannot accept it now without throwing overboard the doctrine that notice is essential. Notice may indeed be adequate though the transaction is indicated in outline only [291](3 Sutherland on Damages, § 970, and cases cited; cf. Bailey & Co. v. W. U. Tel. Co., 227 Penn. St. 522; Milling Co. v. Postal Tel. Co., 101 Kan. 307; Leonard v. N. Y. Tel. Co., 41 N. Y. 544). The carrier must draw such reasonable inferences in respect of the character of the business as would be drawn by men of affairs from condensed or abbreviated dispatches. Something, however, there must be to give warning that the subject of the message is not merely business in general, but business of a known order (Sutherland on Damages, § 959).

We are not unmindful of the force of the plaintiff's assault upon the rule in Hadley v. Baxendale in its application to the relation between telegraph carrier and customer. The truth seems to be that neither the clerk who receives the message over the counter nor the operator who transmits it nor any other employee gives or is expected to give any thought to the sense of what he is receiving or transmitting. This imparts to the whole doctrine as to the need for notice an air of unreality. The doctrine, however, has prevailed for years so many that it is tantamount to a rule of property. The companies have regulated their rates upon the basis of its continuance. They have omitted precautions that they might have thought it necessary to adopt if the hazard of the business was to be indefinitely increased. Nor is the doctrine without other foundation in utility and justice. Much may be said in favor of the social policy of a rule whereby the companies have been relieved of liabilities that might otherwise be crushing. The sender can protect himself by insurance in one form or another if the risk of nondelivery or error appears to be too great. The total burden is not heavy since it is distributed among many, and can be proportioned in any instance to the loss likely to ensue. The company, if it takes out insurance for itself, can do no more than guess at the loss to be avoided. To pay for this unknown risk, it will be driven to increase [292] the rates payable by all, though the increase is likely to result in the protection of a few. We are not concerned to balance the considerations of policy that give support to the existing rule against others that weigh against it. Enough for present purposes that there are weights in either scale. Telegraph companies in interstate and foreign commerce are subject to the power of Congress (36 Stat. 539, 544). If the rule of damages long recognized by State and Federal decision is to give way to another, the change should come through legislation.

The plaintiff makes the point that the action is one in tort for the breach of a duty owing from a public service corporation, and that the rule of Hadley v. Baxendale does not protect the carrier unless sued upon the contract. There is much authority the other way (Primrose v. W. V. Tel. Co., 154 U. S. 1; W. U. Tel. Co. v. Hall, 287 Fed Rep. 297; Berluch v. U. S. & Hayti Tel. Co., 79 Misc. Rep. 10, 15; Fitch v. Tel. Co., 150 Mo. App. 149; W. U. Tel. Co. v. Hogue, 79 Ark. 33; Newsome v. W. U. Tel. Co., 153 N. C. 153; cf. 3 Hutchinson on Carriers, §§ 1360, 1367, 1368, 1370). Though the duty to serve maybe antecedent to the contract, yet the contract when made defines and circumscribes the duty (Gardner v. W. V. Tel. Co., 231 Fed. Rep. 405; 243 U. S. 644; W. V. Tel. Co. v. Czizek, 264 U. S. 281, 284). Possibly the existing rule of damage would have been rejected at the beginning if the carrier's default had been dissociated from the law of contracts, and considered as a tort (cf. Bohlen, Studies in the Law of Torts, p. 87; Ehrgott v. Mayor, 96 N. Y. 264, 281; Bird v. St. Paul F. & M. Ins. Co., 224 N. Y. 47, 54; W. U. Tel. Co. v. Lawson, 182 Fed. Rep. 369). As it is, there is little trace of a disposition to make the measure of the liability dependent on the form of action. A different question would be here if the plaintiff were seeking reparation for a wrong unrelated to the contract, as c. g., for a refusal to accept a measure or for an insistence upon the payment of [293] discriminatory rates. The plaintiff alleges in the complaint that the defendant did accept the message and " promised and agreed " to transmit it, and that the plaintiff has " duly performed each and every condition of the agreement " on its part to be performed, and is willing to pay the charges. We do not stop to inquire whether such a complaint is turned into one in tort by the later allegation that the defendant was negligent in the performance of its promise (W. U. Tel. Co. v. Rowell, 153 Ala. 295, 310; Austin v. Rawdon, 44 N. Y. 63; Vilmar v. Schall, 61 N. Y. 564, 568). Upon the acceptance of the message the defendant's duty was to deliver it in accordance with the contract, and the damages recoverable for non-performance of the contract are the damages recoverable for non-performance of the duty (cf. Webber v. Herkimer R. R. Co., 109 N. Y. 311; Carroll v. Staten Island R. R. Co., 58 N. Y. 126, 134, 135).

The conclusion thus reached makes it unnecessary to consider whether a limitation of liability has been effected by agreement. On the back of the message is the warning, " to guard against mistakes, the sender of every message should order it repeated," followed by these words: " It is agreed between the sender of the message on the face hereof and this company, that said company shall not be liable for mistakes or delays in transmission or delivery, nor for non-delivery to the next connecting telegraph company or to the addressee, of any unrepeated message, beyond the amount of that portion of the tolls which shall accrue to this company; and that this company shall not be liable for mistakes or delays in the transmission or delivery, nor for delay or nondelivery to the next connecting telegraph company, or to the addressee, of any repeated message beyond the usual tolls and extra sum received by this company from the sender for transmitting and repeating such message; and that this company shall not be liable in any case for delays arising from interruption in the [294] working of its system, nor for errors in cipher or obscure messages."

The plaintiff argues that this provision is inapplicable where the telegraph company has omitted to transmit the telegram at all, and moreover that it is unreasonable and oppressive in the limitation affixed to liability where the message is repeated. We leave these questions open (cf. Sprague v. W. U. Tel. Co., 6 Daly, 200; affd., on opinion below, 67 N. Y. 590; W. U. Tel. Co. v. Czizek, 264 U. S. 281; Postal Tel. Co. v. Dickcerson, 254 U. S. 609, reversing 114 Miss. 115; Killhau v. Int. Merc. Marine Co., 245 N. Y. 361; W. U. Tel. Co. v. Esteve Bros. & Co., 256 U. S. 566, 574, 575). The judgment of the Appellate Division and that of the Trial Term should be reversed, and judgment directed in favor of plaintiff for $26.78, to be offset against costs in all courts, which are awarded to defendant.

POUND, CRANE, ANDREWS, LEHMAN, KELLOGG and O'BRIEN, JJ., concur.

Judgment accordingly.

[1967] 3 All. E.R. 686

THE HERON II.
KOUFOS
v.
C. CZARNIKOW, LTD.

[HOUSE OF LORDS (Lord Reid, Lord Morris of Borth-y-Gest, Lord Hodson, Lord Pearce and Lord Upjohn), June 12, 13, 14, 19, 20, 21, 22, October 17, 1967.]

In determining whether a particular type of loss or damage, such as consequential loss of profit, is recoverable as damages for breach of a contract of carriage of goods, the crucial question is whether, on the information available to the defendant carrier when the contract was made, the loss or damage was sufficiently likely to result from the breach of contract to make it proper to hold that the loss or damage flowed naturally from the breach or that loss or damage of that kind should have been within his contemplation (see p. 691, letter I, post).

The respondents chartered the appellant shipowner's vessel, the Heron II, for the carriage of three thousand tons of sugar by sea with the intention of selling the sugar on arrival at Basrah, the port of destination. The time that the voyage would take could be predicted with reasonable certainty to be twenty days. The vessel made deviations in breach of contract, which resulted in a delay of nine days. If there had not been this delay, the sugar would have fetched £32 10s. per ton instead of the £31 2s. 9d. per ton that was realised. The shipowner did not know of the charterers' intention, but he knew that there was a market for sugar at Basrah. If the shipowner had thought about the matter, he must have realised that it was not unlikely that the sugar would be sold on arrival at the then market price, and that prices were apt to fluctuate daily. He had no reason to suppose that the fluctuation would be downwards rather than upwards. The charterers sought to recover the difference between the amount that would have been realized on sale at £32 10s. per ton and the amount realised in fact, as damages for breach of the contract of carriage by delay due to deviation.

Held: the loss of profit was recoverable as damages for breach of the contract of carriage by deviation involving delay because, on the knowledge available to the shipowner when the contract was made, the sale of the sugar in Basrah market on the ship's arrival was something of which there was such probability that it should be regarded by the court as arising in the usual course of things and as being within the contemplation of the parties at the time of the contract (see p. 696, letter A, p. 701, letter I, p. 705, letter D, p. 709, letter F, p. 712, letter I, p. 714, letter B, and p. 719, letter G, post).

Hadley v. Baxendale ([1843-60] All E.R. Rep. 461) and Dunn v. Bucknall Brothers ([1900-03] All E.R. Rep. 131) applied.

Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd. ([1949] 1 All E.R. 997), considered.

The Parana ((1877), 2 P.D. 118) not applied; The Notting Hill ((1884), 9 P.D. 105) criticised (see p. 714, letter E, post).

Per LORD REID, LORD HODSON, LORD PEARCE and LORD UPJOHN: the measure of damages in contract and the measure of damages in tort are not the same, for in contract there is opportunity for the injured party to protect himself against a particular risk by directing the other party's attention to it before the contract is made, but in tort there is no such opportunity and a tortfeasor cannot reasonably complain if he has to pay for unusual but foreseeable damage resulting from his wrongdoing (see p. 692, letters A, B and G, p. 708, letter E, p. 709, letter I, and p. 715, letter I, post).

[687] Decision of the COURT OF APPEAL in The Heron II ([1966] 2 All E.R. 593) affirmed.

[Editorial Note. Three matters may be noted—(a) the question, which was not pursued in the Wagon Mound (No. 2) (see [1966] 2 All E.R. at p. 716, letters A, B), whether the measure of damages in contract and the measure of damages in tort are the same, is now answered in the negative (see p. 686, letter I, ante); (b) It is stated that The Parana ((1877), 2 P.D. 118) establishes no rule as to damages for breach of contracts of carriage of goods by sea inconsistent with the general rule as to damages for breach of contract (see p. 696, letter F, p. 703, letter B, p. 709, letters D and F, p. 714, letter E, and p. 720, letter C, post), and (c) the present case fell within the first branch of the rule in Hadley v. Baxendale, ante (see p. 718, letter E, post).

As to the measure of damages in contract, see 11 HALSBURY'S LAWS (3rd Edn.) 241-243, paras. 409, 410, and for cases on the subject, see 17 DIGEST (Repl.) 91-99, 99-154; as to the measure of damages for delay in delivery of goods by a carrier, see 4 HALSBURY'S LAWS (3rd Edn.) 151-154, paras. 400-406; and for cases on the subject, see 8 DIGEST (Repl.) 150-158, 947-1012.

As to the measure of damages for delay on voyage of goods carried by sea, see 35 HALISBURY'S LAWS (3rd Edn.) 475, 476, para. 677; and for cases on the subject, see 41 DIGEST (Repl.) 459-461, 2384-2399.]

Cases referred to:

Ardennes (Owner of cargo), The v. The Ardennes (Owners), [1950] 2 All E.R. 517; [1951] 1 KB. 55; 41 Digest (Repl.) 241, 

623.

Arpad, The, [1934] All E.R. Rep. 326; [1934] P. 189; 103 L.J.P. 129; 152 L.T. 521; 18 Asp. M.L.C. 510; 41 Digest

(Repl.) 461, 2395.

Banco de Portugal v. Waterlow & Sons, Ltd., Waterlow & Sons, Ltd. v. Banco de Portugal, [1932] All E.R. Rep. 181; [1932]

A.C. 452; 101 L.J.B.K 417; 147 L.T. 101; 17 Digest (Repl.) 98, 147.

British Columbia & Vancouver Island Spar, Lumber and Saw Mill Co., Ltd. v. Nettleship, [1861-73]. All E.R. Rep. 339;

(1868), L.R. 3 C.P. 499; 37 L.J.C.P. 235; 18 L.T. 604; 8 Digest (Repl.) 151, 951.

Collard v. South Eastern Ry. Co., [1861-73] All E.R. Rep. 851: (1861), 7 H. & N. 79; 30 L.J.Ex. 393, 4 L.T. 410; 158

E.R. 400; 17 Digest (Repl.) 60, 674.

Connolly Shaw, Ltd. v. Nordenfjeldske Steamship Co., (1934), 49 Lloyd L.R. 183; 41 Digest (Repl.) 382, 1719.

Cory v. Thames Ironworks Co., [1861-73] All E.R. Rep. 597; (1868), L.R. 3 Q.B. 181; 37 L.J.Q.B. 68; 17 L.T. 495; 17

Digest (Repl.) 117, 287.

Dunn v. Bucknall Brothers, [1900-03] All E.R. Rep. 131; [1902] 2 K.B. 614; 71 L.J.K.B. 963; 87 L.T. 497; 9 Asp. M.L.C.

336; 8 Digest (Repl.) 26, 160.

Elbinger Actien-Gesellschaft v. Armstrong, (1874), L.R. 9 Q.B. 473; 43 L.J.Q.B. 211; 30 L.T. 871; 38 J.P. 734; 17

Digest (Repl.) 132, 388.

Hadley v. Baxendale, [1843-60] All E.R. Rep. 461; (1854), 9 Exch. 341; 23 L.J.Ex. 179; 23 L.T.O.S. 69; 156 E.R. 145;

8 Digest (Repl.) 151, 956.

Hall (R. & H.), Ltd., and Pim (W. H.) (Junior) & Co.'s Arbitration, Re, (1927), 137 L.T. 585; revsd. H.L. [1928] All E.R.

Rep. 763; 139 L.T. 50; 33 Com. Cas. 324; 30 Lloyds Rep. 159; 39 Digest (Repl.) 818, 2803.

Hall v. Ross, (1813), 1 Dow. 201; 3 E.R. 672; 17 Digest (Repl.) 89, 95.

Hammond & Co. v. Bussey, (1887), 20 Q.B.D. 79; 57 L.J.Q.B. 58; 17 Digest (Repl.) 137, 411.

Hobbs v. London & South Western Ry., Co., (1875), L.R. 10 Q.B. 111; 44 L.J.Q.B. 49; 32 L.T. 252; 17 Digest (Repl.)

115, 274.

Home v. Midland Ry. Co., (1872), 7 C.P. 583; affd., (1873), L.R. 8 C.P. 131; 42 L.J.C.P. 59; 28 L.T. 312; 8 Digest

(Repl.) 153, 964.

Iossifoglu, The, (1929), 32 Fed. Rep. (2nd) 928.

[688] Jensen v. Hollis Brothers & Co., Ltd., [1936] 1 All E.R. 140; 54 Lloyd L.R. 133; 41 Digest (Repl.) 333, 1306.

Livingstone v. Rawyards Coal Co., (1880), 5 App. Cas. 25; 42 L.T. 334; 44 J.P. 392; 17 Digest (Repl.) 80, 30.

Monarch Steamship Co., Ltd. v. A.B. Karlshamns Oljefabriker, [1949] 1 All E.R. 1; [1949] A.C. 196; 82 Lloyd L.R. 137;

41 Digest (Repl.) 362, 1549.

Notting Hill, The, (1884), 9 P.D. 105; 53 L.J.P. 56; 51 L.T. 66; 5 Asp. M.L.C. 241; 41 Digest (Repl.) 388, 1753.

Overseas Tankship (U.K.), Ltd. v. Morts Dock & Engineering Co., Ltd., (The Wagon Mound (No.1)), [1961] 1 All E.R.

404; [1961] A.C. 388; [1961] 2 W.L.R.126; [1961] 1 Lloyd's Rep. 1; Digest (Cont. Vol. A) 1148, 185a.

Overseas Tankship (U.K.), Ltd. v. Miller Steamship Co. Pty., Ltd. (The Wagon Mound (No.2)), [1966] 2 All E.R. 709;

[1967] 1 A.C. 617; [1966] 3 W.L.R. 498; sub nom. Miller Steamship Co. Pty., Ltd. v. Overseas Tankship (U.K.), Ltd.,

R. W. Miller & Co., Ltd. v. Same, The Wagon Mound (No. 2), [1966] 1 Lloyd's Rep. 657; Digest (Cont. Vol. B) 555,

185b.

Parana, The, (1876), 1 P.D. 452; on appeal C.A., (1877), 2 P.D. 118; 36 L.T. 388; 5 Asp. M.L.C. 399; 8 Digest (Repl.)

154, 970.

Robinson v. Harman, [1843-60] All E.R. Rep. 383; (1848), 1 Exch. 850; 18 L.J.Ex. 202; 13 L.T.O.S. 151; 154 E.R. 363;

17 Digest (Repl.) 81, 33.

Rodocanachi v. Milburn, (1886), 18 Q.B.D. 67; 56 L.J.O.B. 202; 56 L.T. 594; 6 Asp. M.L.C. 100; 39 Digest (Repl.) 811,

2760.

Simpson v. London & North Western Ry. Co., (1876), 1 Q.B.D. 274; 45 L.J.Q.B. 182; 33 L.T. 805; 8 Digest (Repl.)

153, 967.

Slater v. Hoyle & Smith, Ltd., [1918-19] All E.R. Rep. 654; [1920] 2 K.B. 11; 89 L.J.K.B. 401; 122 L.T. 611; 39 Digest

(Repl.) 592, 1120.

Smeed v. Foord, (1859), 1 E. & E. 602; 28 L.J.Q.B. 178; 32 L.T.O.S. 314; 120 E.R. 1035; 17 Digest (Repl.) 128, 360.

United States v. Middleton, (1924), 3 Fed. R. (2nd) 384.

Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd., [1949] 1 All E.R. 997; [1949] 2 K.B. 528; 17 Digest

(Repl.) 92, 100.

Watts, Watts & Co., Ltd. v. Mitsui & Co., Ltd., [1916-17] All E.R. Rep. 501; [1917] A.C. 227; 86 L.J.K.B. 873; 116 L.T.

353; 13 Asp. M.L.C. 580; revsg. sub nom. Mitsui & Co., Ltd. v. Watts, Watts & Co., Ltd., [1916] 2 K.B. 826; 17

Digest (Repl.) 165, 619.

Wertheim v. Chicoutimi Pulp Co., [1908-10] All E.R. Rep. 707; [1911] A.C. 301; 80 L.J.P.C. 91; 104 L.T. 226; 39

Digest (Repl.) 814, 2778.

William Brothers v. Ed. T. Aguis, Ltd., [1914-15] All E.R. Rep. 97; [1914] A.C. 510; 83 L.J.K.B. 715; 110 L.T. 865; 39

Digest (Repl.) 812, 2761.

Wilson v. Lancashire & Yorkshire Ry. Co., (1861), 9 C.B.N.S. 632; 30 L.J.C.P. 232; 3 L.T. 859; 142 E.R. 248; 17 Digest

(Repl.) 181, 767.

Appeal.

This was an appeal from an order of the Court of Appeal (DIPLOCK and SALMON, L.JJ., SELLERS, L.J., dissenting), dated Apr. 5, 1966 and reported [1966] 2 All E.R. 593, allowing an appeal by the respondents, C. Czarnikow, Ltd., the charterers of the Heron II, from an order of MCNAIR, J., dated Dec. 2, 1965, on a Special Case stated by the umpire on a claim by the respondents against the appellant Nicolas Demetrius Koufos, the owner of the ship, for damages for breach of the charterparty causing late arrival of the ship at Basrah, the port of destination. The umpire had awarded the charterers £4,183 16s. 8d. the amount by which the market value of the cargo at Basrah had fallen between the date the ship should have arrived and the date when she arrived, but MCNAIR, J., held that the charterers were only entitled to interest on the value of the cargo for the period between those dates. The Court of Appeal reversed the order of MCNAIR, J., and restored the award of the umpire. The facts are set out in the opinion of LORD REID.

[689] M. R. E. Kerr, Q.C. and M. J. Mustill for the appellant.

A. J. L. Lloyd, Q.C. and J. H. S. Cooke for the respondents.

Their lordships took time for consideration.

Oct. 17. The following opinions were delivered.

LORD REID: My Lords, by charterparty of Oct. 15, 1960, the respondents chartered the appellant's vessel, Heron II, to proceed to Constanza, there to load a cargo of three thousand tons of sugar; and to carry it to Basrah, or, in the charterers' option, to Jeddah. The vessel left Constanza on Nov. 1. The option was not exercised and the vessel arrived at Basrah on Dec. 2. The umpire has found that "a reasonably accurate prediction of the length of the voyage was twenty days". But the vessel had in breach of contract made deviations which caused a delay of nine days.

It was the intention of the respondent charterers to sell the sugar "promptly after arrival at Basrah and after inspection by merchants". The appellant shipowner did not know this, but he was aware of the fact that there was a market for sugar at Basrah. The sugar was in fact sold at Basrah in lots between Dec. 12 and 22 but shortly before that time the market price had fallen partly by reason of the arrival of another cargo of sugar. It was found by the umpire that if there had not been this delay of nine days the sugar would have fetched £32 10s. per ton. The actual price realised was only £31 2s. 9d. per ton. The charterers claim that they are entitled to recover the difference as damage for breach of contract. The shipowner admits that he is liable to pay interest for nine days on the value of the sugar and certain minor expenses but denies that fall in market value can be taken into account in assessing damages in this case.

MCNAIR, J., following the decision in The Parana^[1], decided this question in favour of the appellant. He said:

"In those circumstances it seems to me almost impossible to say that the shipowner must have known that the delay in prosecuting the voyage would probably result, or be likely to result, in this kind of loss."

The Court of Appeal^[2] by a majority (DIPLOCK and SALMON, L.JJ., SELLERS, L.J., dissenting) reversed the decision of the trial judge. The majority held that The Parana^[1], laid down no general rule, and, applying the rule (or rules) in Hadley v. Baxendale^[3], as explained in Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[4], they held that the loss due to fall in market price was not too remote to be recoverable as damages.

It may be well first to set out the knowledge and intention of the parties at the time of making the contract so far as relevant or argued to be relevant. The charterers intended to sell the sugar in the market at Basrah on arrival of the vessel. They could have changed their mind and exercised their option to have the sugar delivered at Jeddah, but they did not do so. There is no finding that they had in mind any particular date as the likely date of arrival at Basrah or that they had any knowledge or expectation that in late November or December there would be a rising or a falling market. The shipowner was given no information about these matters by the charterers. He did not know what the charterers intended to do with the sugar. But he knew there was a market in sugar at Basrah, and it, appears to me that, if he had thought about I the matter, he must have realised that at least it was not unlikely that the sugar would be sold in the market at market price on arrival. He must also be held to have known that in any ordinary market prices are apt to fluctuate from day to day: but he had no reason to suppose it more probable that during the relevant period such fluctuation would be downwards rather than upwards—it was an even chance that the fluctuation would be downwards.

[690] So the question for decision is whether a plaintiff can recover as damages for breach of contract a loss of a kind which the defendant, when he made the contract, ought to have realised was not unlikely to result from a breach of contract causing delay in delivery. I use the words "not unlikely" as denoting a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable.

For over a century everyone has agreed that remoteness of damage in contract must be determined by applying the rule (or rules) laid down by a court including PARKE, MARTIN and ALDERSON, BB., in Hadley v. Baxendale^[3]; but many different interpretations of that rule have been adopted by judges at different times. So I think that one ought first to see just what was decided in that case, because it would seem wrong to attribute to that rule a meaning which, if it had been adopted in that case, would have resulted in a contrary decision of that case.

In Hadley v. Baxendale^[3] the owners of a flour mill at Gloucester, which was driven by a steam engine, delivered to common carriers, Pickford & Co., a broken crank shaft to be sent to engineers in Greenwich. A delay of five days in delivery there was held to be in breach of contract, and the question at issue was the proper measure of damages. In fact the shaft was sent as a pattern for a new shaft and until it arrived the mill could not operate. So the owners claimed £300 as loss of profit for the five days by which resumption of work was delayed by this breach of contract; but the carriers did not know that delay would cause loss of this kind. ALDERSON, B., delivering the judgment of the court said^[5]:

". . . we find that the only circumstances here communicated by the plaintiffs to the defendants at the time the contract was made were that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill. But how do these circumstances show reasonably that the profits of the mill must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person? Suppose the plaintiffs had another shaft in their possession put up or putting up at the time, and that they only wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits of the mill. Or, again, suppose that at the time of the delivery to the carrier the machinery of the mill had been in other respects defective, then, also the same results would follow."

Then, having said that in fact the loss of profit was caused by the delay, he continued^[6]:

"But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred . . ."

ALDERSON, B., clearly did not and could not mean that it was not reasonably foreseeable that delay might stop the resumption of work in the mill. He merely said that in the great multitude—which I take to mean the great majority of cases this would not happen. He was not distinguishing between results which were foreseeable or unforeseeable, but between results which were likely because they would happen in the great majority of cases, and results which were unlikely because they would only happen in a small minority of cases. He continued^[6]:

"It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have [691] been fairly and reasonably contemplated by both the parties when they made this contract."

He clearly meant that a result which will happen in the great majority of cases should fairly and reasonably be regarded as having been in the contemplation of the parties, but that a result which, though foreseeable as a substantial possibility, would happen only in a small minority of cases should not be regarded as having been in their contemplation. He was referring to such a result when he continued^[6]:

"For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants."

I have dealt with the latter part of the judgment before coming to the well known rule, because the court were there applying the rule and the language which was used in the latter part appears to me to throw considerable light on the meaning which they must have attached to the rather vague expressions used in the rule itself. The rule is that the damages^[7]

". . . should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it."

I do not think that it was intended that there were to be two rules or that two different standards or tests were to be applied. The last two passages which I quoted^[6] from the end of the judgment applied to the facts before the court, which did not include any special circumstances communicated to the defendants; and the line of reasoning there is that, because in the great majority of cases loss of profit would not in all probability have occurred, it followed that this could not reasonably be considered as having been fairly and reasonably contemplated by both the parties, for it would not have flowed naturally from the breach in the great majority of cases.

I am satisfied that the court did not intend that every type of damage which was reasonably foreseeable by the parties when the contract was made should either be considered as arising naturally, i.e., in the usual course of things, or be supposed to have been in the contemplation of the parties. Indeed the decision makes it clear that a type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the parties: the parties are not supposed to contemplate as grounds for the recovery of damage any type of loss or damage which, on the knowledge available to the defendant, would appear to him as only likely to occur in a small minority of cases.

In cases like Hadley v. Baxendale^[3] or the present case it is not enough that in fact the plaintiff's loss was directly caused by the defendant's breach of contract. It clearly was so caused in both. The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the, breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.

The modern rule in tort is quite different and it imposes a much wider liability. [692] The defendant will be liable for any type of damage which is reasonably foreseeable as liable to happen even in the most unusual case, unless the risk is so small that a reasonable man would in the whole circumstances feel justified in neglecting it; and there is good reason for the difference. In contract, if one party wishes to protect himself against a risk which to the other party would appear unusual, he can direct the other party's attention to it before the contract is made, and I need not stop to consider in what circumstances the other party will then be held to have accepted responsibility in that event. In tort, however, there is no opportunity for the injured party to protect himself in that way, and the tortfeasor cannot reasonably complain if he has to pay for some very unusual but nevertheless foreseeable damage which results from his wrong-doing. I have no doubt that today a tortfeasor would be held liable for a type Of damage as unlikely as was the stoppage of Hadley's Mill for lack of a crank shaft: to anyone with the knowledge the carrier had that may have seemed unlikely, but the chance of it happening would have been seen to be far from negligible. But it does not at all follow that Hadley v. Baxendale^[3] would today be differently decided.

As long ago as 1872 WILLES, J., said in Horne v. Midland Ry. Co.^[8]:

"The cases as to the measure of damages for a tort do not apply to a case of contract. That was suggested in a case in BULSTRODE but the notion was corrected in Hadley v. Baxendale^[3]. The damages are to be limited to those that are the natural and ordinary consequences which may be supposed to have been in the contemplation of the parties at the time of making the contract."

In Cory v. Thames Ironworks Co.^[9], BLACKBURN, J., said:

"I think it all comes to this. The measure of damages when a party has not fulfilled his contract is what might be reasonably expected in the ordinary course of things to flow from the non-fulfilment of the contract, not more than that, but what might be reasonably expected to flow from the non-fulfilment of the contract in the ordinary state of things, and to be the natural consequences of it. The reason why the damages are confined to that is, I think, pretty obvious, viz., that if the damage were exceptional and unnatural damage, to be made liable for that would be hard upon the seller, because if he had known what the consequences would be he would probably have stipulated for more time or, at all events, have used greater exertions if he knew that that extreme mischief would follow from the non-fulfilment of his contract."

It is true that in some later cases opinions were expressed that the measure of damages is the same in tort as it is in contract, but those were generally cases where it was sought to limit damages due for a tort and not cases where it was sought to extend damages due for breach of contract, and I do not recollect any case in which such opinions were based on a full consideration of the matter. In my view these opinions must now be regarded as erroneous.

For a considerable time there was a tendency to set narrow limits to awards of damages. Such phrases were used as that the damage was not "the immediate and necessary effect of the breach of contract" (per SIR ALEXANDER COCKBURN, C.J., in Hobbs v. London & South Western Ry. Co.^[10]. The Parana^[1] was decided during that period; but later a more liberal tendency can be seen. I do not think it useful to review the authorities in detail, but I do attach importance to what was said in this House in Re R. & H. Hall, Ltd. and W. H. Pim (Junior) & Co.'s Arbitration^[11]. In that case Pim sold a cargo [693] of wheat to Hall but failed to deliver it. Hall had resold the wheat but as a result of Pim's breach of contract lost the profit which they would have made on their sub-sale. Three of their lordships dealt with the case on the basis that the relevant question was whether it ought to have been in the contemplation of the parties that a resale was probable. The finding of the arbitrators was^[12]:

"The arbitrators are unable to find that it was in the contemplation of the parties or ought to have been in the contemplation of [the seller] at that time that the cargo would be resold or was likely to be resold before delivery: in fact, the chances of its being resold as a cargo and of its being taken delivery of by [the buyer] were about equal."

On that finding the Court of Appeal^[13] had decided in favour of Pim, saying that, as the arbitrators had stated as a fact that the chances of the cargo being resold or not being resold were equal, it was therefore^[14] "idle to speak of a likelihood or of a probability of a resale".

VISCOUNT DUNEDIN pointed out that it was for the court to decide what was to be supposed to have been in the contemplation of the parties, and then said^[15]:

"I do not think that 'probability' . . . means that the chances are all in favour of the event happening. To make a thing probable, it is enough, in my view, that there is an even chance of its happening. That is the criterion I apply, and in view of the facts, as I have said above, I think there was here in the contemplation of parties the probability of a re-sale."

He did not have to consider how much less than a fifty per cent chance would amount to a probability in this sense. LORD SHAW OF DUNFERMLINE went rather farther. He said^[16]:

"To what extent in a contract of goods for future delivery the extent of damages is in contemplation of parties is always extremely doubtful. The main business fact is that they are thinking of the contract being performed, and not of its being not performed. But with regard to the latter, if their contract shows that there were instances or stages which made ensuing losses or damage a not unlikely result of the breach of the contract, then all such results must be reckoned to be within not only the scope of the contract, but the contemplation of parties as to its breach."

LORD PHILLIMORE was less definite and perhaps went even farther. He said that the sellers of the wheat knew that the buyers^[17] "might well sell it over again and make a profit on the re-sale"; and that being so they "must be taken to have consented to this state of things and thereby to have made themselves liable to pay" the profit on a re-sale. It may be that there was nothing very new in this, but I think that Hall's case^[11] must be taken to have established that damages are not to be regarded as too remote merely because, on the knowledge available to the defendant when the contract was made, the chance of the occurrence of the event which caused the damage would have appeared to him to be rather less than an even chance. I would agree with LORD SHAW^[18] that it is generally sufficient that that event would have appeared to the defendant as not unlikely to occur. It is hardly ever possible in this matter to assess probabilities with any degree of mathematical accuracy. But I do not find in that case, or in cases which preceded it, any warrant for regarding as within the contemplation of the parties any event which would not have appeared to the defendant, had he thought about it, to have a very substantial degree of probability.

[694] Then it has been said that the liability of defendants has been further extended by Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[4]. I do not think so. The plaintiffs bought a large boiler from the defendants and the defendants were aware of the general nature of the plaintiffs' business and the plaintiffs' intention to put the boiler into use as soon as possible. Delivery of the boiler was delayed in breach of contract and the plaintiffs claimed as damages loss of profit caused by the delay. A large part of the profits claimed would have resulted from some specially lucrative contracts which the plaintiffs could have completed if they had had the boiler: that was rightly disallowed because the defendants had no knowledge of these contracts; ASQUITH, L.J., said^[19]:

"It does not, however, follow that the plaintiffs are precluded from recovering some general (and perhaps conjectural) sum for loss of business in respect of dyeing contracts to be reasonably expected, any more than in respect of laundering contracts to be reasonably expected."

It appears to me that this was well justified on the earlier authorities. It was certainly not unlikely on the information which the defendants had when making the contract that delay in delivering the boiler would result in loss of business: indeed it would seem that that was more than an even chance. And there was nothing new in holding that damages should be estimated on a conjectural basis. This House had approved of that as early as 1813 in Hall v. Ross^[20].

What is said to create a "landmark", however, is the statement of principles by ASQUITH, L.J.,^[21]. This does to some extent go beyond the older authorities and in so far as it does so, I do not agree with it. In para. (2) it is said that the plaintiff is entitled to recover^[22] "such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach". To bring in reasonable foreseeability appears to me to be confusing measure of damages in contract with measure of damages in tort. A great many extremely unlikely results are reasonably foreseeable: it is true that ASQUITH, L.J., may have meant foreseeable as a likely result, and if that is all he meant I would not object farther than to say that I think that the phrase is liable to be misunderstood. For the same reason I would take exception to the phrase^[23] "liable to result" in para. (5). Liable is a very vague word, but I think that one would usually say that when a person foresees a very improbable result he foresees that it is liable to happen.

I agree with the first half of para. (6)^[24]. For the best part of a century it has not been required that the defendant could have foreseen that a breach of contract must necessarily result in the loss which has occurred; but I cannot agree with the second half of para. (6). It has never been held to be sufficient in contract that the loss was foreseeable as "a serious possibility" or "a real danger" or as being "on the cards". It is on the cards that one can win £100,000 or more for a stake of a few pence-several people have done that; and anyone who backs a hundred to one chance regards a win as a serious possibility-many people have won on such a chance. Moreover The Wagon Mound (No.2.) Overseas Tankship (U.K), Ltd. v. Miller Steamship Co. Pty., Ltd.^[25] could not have been decided as it was unless the extremely unlikely fire should have been foreseen by the ship's officer as a real danger. It appears to me that in the ordinary use of language there is a wide gulf between saying that some event is not unlikely or quite likely to happen and saying merely that it is a serious possibility, a real danger, or on the cards. Suppose one takes a well-shuffled pack of cards, it is quite likely [695] or not unlikely that the top card will prove to be a diamond: the odds are only three to one against; but most people would not say that it is quite likely to be the nine of diamonds for the odds are then fifty-one to one against. On the other hand I think that most people would say that there is a serious possibility or a real danger of its being turned up first and, of course, it is on the cards. If the tests of "real danger" or "serious possibility" are in future to be authoritative, ill then the Victoria Laundry case^[4] would indeed be a landmark because it would mean that Hadley v. Baxendale^[3] would be differently decided today. I certainly could not understand any court deciding that, on the information available to the carrier in that case, the stoppage of the mill was neither a serious possibility nor a real danger. If those tests are to prevail in future, then let us cease to pay lip service to the rule in Hadley v. Baxendale^[3]. But in my judgment to adopt these tests would extend liability for breach of contract beyond what is reasonable or desirable. From the limited knowledge which I have of commercial affairs I would not expect such an extension to be welcomed by the business community, and from the legal point of view I can find little or nothing to recommend it.

ASQUITH, L.J.,^[26] took the phrases "real danger" and "serious possibility" from the speech of LORD DU PARCQ in Monarch Steamship Co., Ltd. v. A.B. Karlshamns Oljefabriken^[27] so I must examine that case. The facts were complicated but it is sufficient to say that a voyage was prolonged by breach of contract so that war broke out before it was completed, and by reason of an embargo imposed on the outbreak of war the cargo owner had to incur great expense in transshipping his goods and having them carried to the contract destination. The contract was made in April, 1939. The question was whether he was entitled to recover this expense as damages for the breach of contract and that depended on whether the outbreak of war and consequent embargo were or ought to have been within the contemplation of the contracting parties in April, 1939. By that time war was much more than merely a serious possibility. LORD PORTER said^[28]: "Accepting, then, the view that the appellants ought to have foreseen the likelihood of war occurring . . ." LORD WRIGHT said^[29]: "There was, indeed, in 1939 the general fear that there might be a war . . . The possibility must have been in the minds of both parties . . ." LORD UTHWATT said^[30] that a reasonable shipowner

"would regard the chance of war, not as a possibility of academic interest to the venture, but as furnishing matter which commercially ought to be taken into account."

Finally LORD MORTON OF HENRYTON said^[31] that the shipowner "would feel that there was a grave risk of war breaking out in Europe . . ." On those assessments of the situation holding that the damage which flowed from the outbreak of war was not too remote to be recoverable was well within the existing law. I do not think that LORD DU PARCQ intended to say that his view was materially different. Indeed he quoted^[32] from SIR WINSTON CHURCHILL^[33]: "No one who understood the situation could doubt that it meant in all human probability a major war in which we should be involved." So there was no need for him to go farther than the existing law and. I do not think that he intended to do so. It is only by taking these two phrases out of their context that any such intention could be inferred.

[696] It appears to me that, without relying in any way on the Victoria Laundry case^[4], and taking the principle that had already been established, the loss of profit claimed in this case was not too remote to be recoverable as damages. So it remains to consider whether the decision in The Parana^[1] established a rule which, though now anomalous, should nevertheless still be followed. In that case owing to the defective state of the ship's engines a voyage which ought to have taken sixty-five to seventy days took 127 days, and as a result a cargo of hemp fetched a much smaller price than it would have done if there had been no breach of contract. The Court of Appeal held, however, that the plaintiffs could not recover this loss as damages. The vital part of their judgment was as follows^[34]:

"In order that damages may be recovered, we must come to two conclusions—first, that it was reasonably certain that the goods would not be sold until they did arrive; and secondly, that it was reasonably certain that they would be sold immediately after they arrived, and that that was known to the carrier at the time when the bills of lading were signed."

If that was the right test then the decision was right, and I think that that test was in line with a number of cases decided before or about that time (1877); but, as I have already said, so strict a test has long been obsolete; and, if one substitutes for "reasonably certain" the words "not unlikely" or some similar words denoting a much smaller degree of probability, then the whole argument in the judgment collapses. I need not consider whether there were other facts which might be held to justify the decision, but I must say that I do not see why the mere duration of the voyage should make much difference.

If The Parana^[1] had always been regarded as laying down a rule so that carriage by sea was to be treated as different from carriage by land, one would have to consider whether it would be proper to alter a rule which had stood for nearly a century. In Dunn v. Bucknall Brothers^[35], however, it was held that there was no general rule that damages could not be recovered by loss of market on a voyage by sea, and for special reasons such damages have been awarded in a number of later cases. So, whether The Parana^[1] is formally overruled or not, it cannot be relied on as establishing a rule so as to require the present case to be decided in a way-inconsistent with the general law as it exists today.

Some importance was attached in argument to Slater v. Hoyle & Smith, Ltd.^[36] and the earlier cases there cited. Those cases deal with sale of goods, and I do not think it necessary or desirable in the present case to consider what the rule there is, whether it conflicts with the general principles now established as to measure of damages, or whether, if it does, it ought or ought not to stand. Those are much too important questions to be decided obiter in the present case, and I refrain from expressing any opinion about them.

For the reasons which I have given I would dismiss this appeal.

LORD MORRIS OF BORTH-Y-GEST: My Lords, the appellant (a shipowner) made a contract with the respondents (as charterers) for the carriage of goods by sea. As a result of an admitted breach of contract on the part of the shipowner the goods were delivered at the port of destination several days later than they should have been delivered. The charterers as a result undoubtedly suffered financial loss. They had intended to sell the goods as soon as the ship arrived at its destination. They did sell the goods after the ship arrived but in the period of the delay in arrival there was a fall in the market price. In consequence they suffered loss in that they received less than they would have received if the shipowner had not been ill breach. They claimed to recover their loss as damages for breach of contract.

[697] The classic judgment in Hadley v. Baxendale^[3] has continuously been as enshrining and formulating the guiding rules which are to be in deciding whether damage which has been the result of a breach of contract should be paid for by the contract breaker. The numerous reported decisions in the years since Hadley v. Baxendale^[3] was decided show that sometimes there have been problems relating to the meaning and intention of the words used in the judgment in that case and that sometimes the problems have been those of ascertaining facts and then of relating accepted principle to the facts as found. When consideration has been given to the meaning and intention of the words used in the judgment in Hadley v. Baxendale^[3] it has so often been manifest that words which are but servants to convey and express meanings—cannot always be servants of precision and may sometimes be given a dominance in which is above their status. If "language is the dress of thought", it is the thought that must be understood.

In the present case the problem is that of relating principle to ascertained facts. The facts are carefully set out in the stated special case the clarity of which earned the commendation of the learned judge. It is not necessary to summarise them here. It will suffice to state that the umpire found that the charterers were the shippers and were the owners of the cargo of Hungarian sugar at shipment and at and after discharge. Had there been no breach of contract the vessel would have arrived at Basrah some nine days or so earlier than she did arrive. The time that would be taken in the voyage from Constanza to Basrah could with reasonable accuracy be predicted to be twenty days. At the date of the charterparty and at all times thereafter it was the intention of the charterers to sell the sugar cash against delivery order promptly after arrival at Basrah and after inspection by merchants. They did in fact do so. Immediately after discharge the charterers proceeded to permit inspection and to negotiate sales. Had there been no deviation, and consequently no breach of contract, the selling price of the sugar would have been one of £32 10s. per ton. The average price realized after the late arrival of the sugar was £31 2s. 9d. per ton. The fall in the market price was caused inter alia by the arrival on schedule (between the date, i.e., Nov. 22, when the appellant's ship should have arrived had it not deviated and the date, i.e., Dec. 2, when it did arrive) of a ship carrying eight thousand tons of Formosan sugar. The London price fell during November and the first half of December. The Basrah prices do not conform to a set pattern, but they tend to decline during October and November to a low point in about December. There was however no evidence that the decline in the London and Basrah prices in November and the first half of December was caused by any unusual or unpredictable factor. To these facts it may be added that there was at all material times a market for sugar in Basrah. Sugar was regularly bought and sold there in large quantities at prices which were published. Some two hundred thousand tons were sold on the Basrah market in a year. Prices would fluctuate considerably. The arrival of a steamer with a cargo of sugar would affect the prices. The existence of the Basrah sugar market was known to the appellant shipowner at and before and after the date of the charterparty, but he did not have detailed knowledge of the markets in Basrah nor of those in London: the London daily price influences the Basrah price, though the latter is not directly related to the London price. The carriage of sugar from the Black Sea to Iraqi ports, including Basrah, is a I recognised trade, but a shipowner would ordinarily have no knowledge whether a particular cargo has been or is to be sold prior to its arrival in Iraq, or whether the sugar is being shipped in order that it should be sold in the market on arrival. The appellant shipowner had no actual knowledge (nor had his brokers) that the charterers intended to sell the sugar promptly after its arrival at Basrah.

The famous rule in Hadley v. Baxendale^[37] postulates a contract which one [698] party has broken and relates to the "damages which the other party ought to receive". They are

"such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

The judgment proceeds to give illustrative guidance. Thus a contract may be one actually made under special circumstances. If they were

"communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated."

If however such special circumstances were wholly unknown to the contract breaker then he

"at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract."

The judgment proceeds to point out that if special circumstances have been known, then the parties could have been provided by special terms as to the damages to be payable in the event of a breach: it would be unjust to deprive them of the advantage of so providing.

In the present case there was no special communication of special circumstances by reference to which the contract of carriage was made. The problem presented was therefore whether with the knowledge possessed by the parties at the time when the contract was made the loss in fact suffered by the charterers due to the delayed arrival (in breach of contract) of the sugar could fairly and reasonably be considered as arising naturally (i.e., according to the usual course of things) from such breach. When parties enter into a contract, they do not ordinarily at such time seek to work out or to calculate the exact consequences of a breach of their contract. On the facts of the present case it is, however, pertinent to pose the enquiry what the natural ordinary and sensible answer of the shipowner would have been if he had asked himself what the result for the charterers would be if he (the shipowner) in breach of contract and therefore unjustifiably caused his ship to arrive at Basrah some nine or ten days later than it could and should have arrived. While the shipowner did not know precisely what plans the charterers had made he could be reasonably sure of one thing, namely that they had contracted for the shipowner's ship to proceed at all convenient speed to its destination, because they wanted to have their cargo delivered at its destination at such time as the ship could be expected to arrive. The shipowner knew when the charterparty was made (on Oct. 15, 1960) that if the vessel arrived for loading at Constanza (it had been confidently expected that she would arrive, as she in fact did, on Oct. 27) and if the charterers did not (not later than five days prior to the commencement of loading) declare that they exercised the option of discharging the cargo at Jeddah then there was the obligation after loading the cargo to proceed with all convenient speed to Basrah. The shipowner could and should at the very least have contemplated that, if his ship was nine days later in arriving than it could and should have arrived, some financial loss to the charterers or to an endorsee of the bill of lading might result. I use the words "at the very least" and the word "might" at this stage so as to point to the problem which is highlighted in this case. It is here that words and phrases begin to crowd in and to compete. Must the loss of the charterers be such that the shipowner could see that it was certain to result? Or would it suffice if the loss was probable or was [699] likely to result or was liable to result? In the present context what do these words denote? If there must be selection as between them which one is to be employed the intended meaning?

I think that it is clear that the loss need not be such that the contract breaker could see that it was certain to result. The question that arises concerns the measure of prevision which should fairly and reasonably be ascribed to him.

My lords, in applying the guidance given in Hadley v. Baxendale^[38] I would hope that no undue emphasis would be placed on anyone word or phrase. If a party has suffered some special and peculiar loss in reference to some particular arrangements of his which were unknown to the other party and were not communicated to the other party and were not therefore in the contemplation of the parties at the time when they made their contract, then it would be unfair and unreasonable to charge the contract-breaker with such special and peculiar loss. If, however, there are no "special and extraordinary circumstances beyond the reasonable prevision of the parties" (see the speech of LORD WRIGHT in Monarch Steamship Co., Ltd. v. A. B. Karlshamns Oljefabriker^[39]), then it becomes very largely a question of fact whether in any particular case a loss can "fairly and reasonably" be considered as arising in the normal course of things. Though in these days commercial cases are not tried with juries, in his speech in the Monarch Steamship case^[40] LORD DU PARCQ pointed out that in the end what has to be decided is a question of fact and therefore a question proper for a jury, he added:

"Circumstances are so infinitely various that, however carefully general rules are framed, they must be construed with some liberality and not too rigidly applied. It was necessary to lay down principles lest juries should be persuaded to do injustice by imposing an undue, or perhaps an inadequate, liability on a defendant. The court must be careful, however, to see that the principles laid down are never so narrowly interpreted as to prevent a jury, or judge of fact, from doing justice between the parties. So to use them would be to misuse them."

If this approach is followed, then I doubt whether the necessity arises to express a preference or any definite preference as between words and phrases that were submitted for your lordships' consideration. The result in any particular case need not depend on giving pride of place to anyone of such phrases as "liable to result" or “likely to result" or "not unlikely to result". Each one of these phrases may be of help, but so may many others.

In Smeed v. Foord^[41], COMPTON, J., referred in his judgment to the doctrine of Hadley v. Baxendale^[38] and said:

"The second branch of the rule there laid down appears to me to come to much the same thing as the first: for damages which may reasonably be supposed to have been contemplated by the contracting parties, are damages which naturally arise from a breach of the contract. I doubt whether, in these cases, it is the duty of a judge to lay down more to the jury than that the plaintiff is entitled to such damages as are the natural consequences of the breach of contract. The question, what are such natural consequences is, I think, in each case, rather for the jury than for the judge; just as it is for them, not for him, to assess the amount of damages."

Somewhat comparable language was used in 1868 by BOVILL, C.J., in his judgment in British Colombia & Vancouver Island Spa, Lumber and Saw-Mill Co., Ltd. v. Nettleship^[42], when he said^[43]:

[700] "The extent of the carrier's liability is to be governed by the contract he has entered into, and the obligations which the law imposes upon him. He is not to be made liable for damages beyond what may fairly be presumed to have been contemplated by the parties at the time of entering into the contract. It must be something which could have been foreseen and reasonably expected, and to which he has assented expressly or impliedly by entering into the contract."

In his speech in the Monarch Steamship case^[44] LORD PORTER referred to what "could reasonably have been foreseen" and to what "a shipowner ought to have foreseen" as" likely to occur". He spoke of what a shipowner^[45] "ought reasonably to have contemplated". LORD WRIGHT in the same case^[46] referred to cases where

". . . it would not be fair or reasonable to hold the defendant responsible for losses which he could not be taken to contemplate as likely to result from his breach of contract."

LORD WRIGHT pointed out that the court would assume that the parties, as business men, would have all reasonable acquaintance with the ordinary course of business, and he spoke^[47] of what "reasonable business men must be taken to have contemplated as the natural or probable result if the contract was broken". LORD UTHWATT in his speech referred to what a reasonable shipowner ought reasonably to have foreseen^[48]: he would in the circumstances of that case have regarded the chance of war "not as a possibility of academic interest to the venture, but as furnishing matter which commercially ought to be taken into account". LORD DU PARCQ said^[49]:

"Damage arises 'according to the usual course of things' if, in the circumstances existing at the date of the contract, both parties to it, supposing them to have considered the probable effects of a breach of the contract with due regard to events which might reasonably be expected to occur, must be assumed as reasonable men to have foreseen such damage as at least a serious possibility."

Furthermore, in reference to the facts in that case, LORD DU PARCQ said^[49]:

"In order that the respondents might succeed in establishing their case, it was not necessary, in my opinion, that the parties to the contract should be shown to have contemplated the outbreak of war as something certain and unavoidable. They are not to be supposed to have had the gift of prophecy. It is enough if they may reasonably be assumed to have contemplated a war, and the likelihood that it would lead to such an embargo as was in fact imposed, as a real danger which must be taken into account."

My lords, the words phrases and passages to which I have referred are useful and helpful indications of the application of the rule in Hadley v. Baxendale^[3]; but they neither add to the rule nor do they modify it. I regard the illuminating judgment of the Court of Appeal in Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[4] as a most valuable analysis of the rule. It was there pointed out^[23] that, in order to make a contract-breaker liable under what was called "either rule" in Hadley v. Baxendale^[3], it is not necessary that he should actually have asked himself what loss is liable to result from a breach but that it [701] suffices that if he had considered the question he would as a reasonable man have concluded that the loss in question was liable to result. Nor need it be proved, in order to recover a particular loss, that on a given state of knowledge he could, as a reasonable man, foresee that a breach must necessarily result in that loss. Certain illustrative phrases are employed in that case. They are valuable by way of exposition, but for my part I doubt whether the phrase "on the cards" has a sufficiently clear, meaning or possesses such a comparable shade of meaning as to qualify it to take its place with the various other phrases which line up as expositions of the rule.

If the problem in the present case is that of relating accepted principle to the facts which have been found, I entertain no doubt that if, at the time of their contract, the parties had considered what the consequence would be if the arrival of the ship at Basrah was delayed, they would have contemplated that some loss to the charterers was likely or was liable to result. The shipowner at the time that he made his contract must have known that if in breach of contract his ship did not arrive at Basrah when it ought to arrive he would be liable to pay damages. He would not know that a loss to the charterers was certain or inevitable but he must, as a reasonable business man, have contemplated that the charterers would very likely suffer loss, and that it would be or would be likely to be a loss referable to market price fluctuations at Basrah. I cannot think that he should escape liability by saying that he would only be aware of a possibility of loss but not of a probability or certainty of it. He might have used anyone of many phrases. He might have said that a loss would be likely: or that a loss would not be unlikely: or that a loss was liable to result: or that the risk that delay would cause loss to the charterers was a serious possibility: or that there would be a real danger of a loss: or that the risk of his being liable to have to pay for the loss was one that he ought commercially to take into account. As a practical business man he would not have paused to reflect on the possible nuances of meaning of anyone of these phrases. Nor would he have sent for a dictionary.

The carriage of sugar from the Black Sea to Iraqui ports (including Basrah) is a recognised trade. The appellant shipowner knew that there was a sugar market at Basrah. When he contracted with the charterers to carry their sugar to Basrah, though he did not know what were their actual plans, he had all the information to enable him to appreciate that a delay in arrival might in the ordinary course of things result in their suffering some loss. He must have known that the price in a market may fluctuate. He must have known that if a price goes down someone whose goods are late in arrival may be caused loss.

Since in awarding damages the aim is to award a sum which as nearly as possible will put the injured party into the position in which he would have been if the breach of contract had not caused him loss and if in all the circumstances he had acted reasonably in an effort to mitigate his loss, I think that it must follow that where there is delay in arrival, in many cases the actual loss suffered (above the amount of which there ought not to be recovery) can be measured by comparing the market price of the goods at the date when they should have arrived and the market price when they did arrive. That prima facie is the measure of the damages.

I can see no fault, therefore, in the assessment of the damages in the present case, unless there is some rule of law that in the case of carriage of goods by sea damages for delay in arrival will ordinarily be limited to interest on the value of goods over the period of their delay. It is said that such a rule underlies the decision in The Parana^[1]. In reference to the suggestion that there is a special rule limiting damages for delay in delivery in the case of carriage of goods by sea LORD PORTER in his speech in the Monarch Steamship case^[50] said:

"No doubt, expressions of opinions to that effect are to be found, perhaps [702] more frequently in the days of sailing ships when prolonged delay was to be expected, but it never was a rule of law—merely a working practice answering to the circumstances of the time and subject to the consideration that the contract must be reasonably performed."

The Parana^[1] was a case in which, owing to the weakness and defective state of her engines, a ship took 127 days on a voyage from Manilla and Ilo-Ilo to London for which a period of sixty-five or seventy days was said to be a fair average time. As a result an assignee of bills of lading of certain goods on the ship claimed to recover damages resulting from unreasonable delay in the carriage of goods. The owner of the ship admitted liability and what was in issue was the amount of the damages. As to one portion of the cargo damages were given for a deterioration in quality due to delay. As to another portion of the cargo the claim was for the difference between the market price at the time when the goods arrived and at the time when they ought to have arrived. As to that part of the claim the registrar, who was directed to report on the amount of damages, considered that the court should refuse to entertain any claim for loss of market in such cases. In his report (see The Parana^[51]) he said that the practice of the Court of Admiralty should be followed, which was merely to allow a sum representing loss of interest for the period of delay on the capital value of the cargo. One reason given was that the loss of market "could not by any possibility have been within the contemplation of the parties" when the cargo was put on board at Manilla. He appeared to think that a fall in the price of the goods could not have been in the contemplation of the parties when the contract was made because, for aught they knew, the price might have risen.

On appeal, in objection to the report of the registrar, it was held by SIR ROBERT PHILLIMORE that the registrar ought to have included in the damages the difference between the market price of the cargo at the time when it was delivered and at the tune when it ought to have been delivered. He said^[52]:

"Why should not the ascertained difference between the market price, when the goods might have been sold, had there been no delay, and the market price which they would fetch after the delay, be a reasonable measure of the loss of the merchant's profits? The depreciation is the direct consequence of the carrier's default; in other words, he must be taken to have known or contemplated that the merchant desired a safe and a quick transport of his marketable goods to their intended market."

On appeal to the Court of Appeal^[1] the judgment was reversed, though the principle was accepted that, if circumstances are known to the carrier from which the object of the sender ought in reason to be inferred so that the object may be taken to have been within the contemplation of both parties, damages may be recovered for the natural consequences of the failure of that object. MELLISH, L.J., in his judgment pointed^[53] to differences between cases where there was delay by carriers on land and cases of "carriage of goods for a long distance by sea". My lords, I confess that the differences do not seem to me to be differences in principle. MELLISH, L.J., considered^[54] that there was an uncertainty whether the plaintiff was affected by the delay in arrival of the goods. Pointing to the circumstance that the plaintiff did not sell the goods on arrival MELLISH, L.J., considered^[54] that he might have acted in the same way if the goods had arrived in time—with the result that the delay did not affect the plaintiff and to give him damages would be to give him speculative damages. So far as principle is concerned I prefer the judgment of SIR ROBERT PHILLIMORE^[51]. It is to be remembered however that MELLISH, L.J., accepted^[55] as applicable to carriage of goods by sea both the language used in Simpson v. London & North Western Ry. Co.^[56] (as cited by SIR ROBERT PHILLIMORE^[57]) and also the language [703] of KELLY, C.B., in Horne v. Midland Ry. Co.^[58]. The language used by KELLY, C.B., in Horne's case^[58] was the language of Hadley v. Baxendale^[3]. In principle it seems to me that the rule in Hadley v. Baxendale^[3] must in these days be applied in cases of carriage of goods by sea. If the parties for some particular reason have contracted on the basis that there is no obligation to proceed normally to a destination, then delay would not constitute a breach. If, however, there is delay which amounts to a breach of contract, I see no reason for adopting some special formula in the assessment of damages (such as giving interest on the capital value of the goods carried) or for any artificial divergence from the principles that govern the assessment of damages.

In Notting Hill^[59], which was decided in 1884, SIR JAMES HANNEN, P., expressed disagreement with the decision in The Parana^[1] but reluctantly felt that was bound by it. The Court of Appeal^[60] agreed that it was an authority binding on them. SIR BALIOL BRETT, M.R.,^[61] did not wish to say that, had it been for him to decide the case, he would have decided it differently.

In Dunn v. Bucknall Brothers^[35] it was known to the defendants that the why the plaintiffs had shipped goods (on the ship of which the defendants were charterers) for carriage to Algoa Bay was so that the goods should be supplied to British troops in South Africa, and the defendants knew that the goods would much higher price if delivered in due course than if delivered at a later a large importation of similar goods would force prices down. For a breach of duty which resulted in the delayed arrival of the goods the defendants were held liable in damages. It was contended in the Court of Appeal that damages for loss of market were not recoverable in the case of delay in carriage by sea and that a shipper was entitled only to interest on the value of the goods from the date when they should have been delivered down to the date of actual delivery. The contention was held to be ill-founded and SIR RICHARD HENN COLLINS, M.R., giving the judgment of the court consisting of himself, STIRLING and COZENS-HARDY, L.JJ., said that they did not understand The Parana^[1] as establishing any such general proposition as that damages could not be recovered for loss of market on a voyage by sea. He said^[62]:

“There can be no absolute peremptory rule taking voyages by sea out of the principles which regulate the measure of damages on breach of other contracts. It is only because the possible length of voyages and the consequent uncertainty as to the times of arrival may in many cases eliminate the supposition of any reasonable expectation as to the state of the market at the time of arrival that, as a general rule, damages for loss of market by late delivery are not recoverable from the carrier by sea. It is certainly not a rule of law; it is only an inference of fact, that from the circumstances of the case no reasonable assumption as to the state of the market at the time of arrival could have been a factor in the contract between the parties."

He proceeded to point out^[63] that as the means of sea transit improved then voyages of three or four weeks' duration could be accomplished with almost absolute certainty and furthermore that the state of the market at such reasonably calculated date of arrival could well be "a vital factor present to the minds of both parties at the time of making the contract". He then added^[63]:

"Wherever the circumstances admit of calculations as to the time of I arrival and the probable fluctuations of the market being made with the same degree of reasonable certainty in the case of a sea, as of a land, transit, there [704] can be no reason why damages for late delivery should not be calculated according to the same principles in both cases."

On the facts of that case it was known to the defendants that the goods would sell at a much higher price if duly delivered than if tardily delivered and the words I have quoted were uttered in that context. I do not consider, however, that where in breach of contract there is delay in delivery, damages will only be recoverable if there can be a calculation in advance of the precise financial consequences that delay will cause. If there can be such a calculation, then the carrier would know at the time of his contract of carriage exactly what the effect would be if by delaying delivery he broke his contract. I cannot think, however, that he should be partially exonerated merely by the circumstance that he could not calculate in advance the extent of the damage that he would cause if he broke his contract. With the knowledge possessed by the shipowner in the present case, if, at the time of the contract, he had considered what the consequences would be if, in breach of contract, he delayed the delivery of the goods that he was carrying, he must at least have contemplated that there might well be market fluctuations as between the due date of delivery and the actual date of delivery. If by the actual date of delivery the market price had advanced, he might be freed of any serious liability; but he must have contemplated that, if the market went the other way, he would be causing loss. In running the risk of causing that loss it would not be reasonable to exonerate him merely because in advance the measure of the loss could not be calculated.

In Re R. H. Hall, Ltd. and W. H. Pim (Junior) & Co.'s Arbitration^[11] there was a failure by sellers to deliver goods to buyers: there had been a sub-sale by the buyers and then a further sub-sale. The buyers were held entitled to recover both their loss of profit and also to recover the damages that they would have to pay to their sub-purchaser. It was a case where the parties had actually provided for the very case of sub-sales. Non-performance of the contract would therefore be known beforehand by both parties to be non-performance of a contract in which intermediate sales might take place. A question was raised whether the parties would have considered all the damage to be probable. LORD SHAW OF DUNFERMLINE said^[16]:

"To what extent in a contract of goods for future delivery the extent of damages is in contemplation of parties is always extremely doubtful. The main business fact is that they are thinking of the contract being performed, and not of its being not performed. But with regard to the latter, if their contract shows that there were instances or stages which made ensuing losses or damage a not unlikely result of the breach of the contract, then all such results must be reckoned to be within not only the scope of the contract, but the contemplation of parties as to its breach."

Further LORD SHAW said that he did not think^[64] —

". . . that in such a contract people come to contemplate with any exactitude the particular probable results which would follow from a breach; say, that there would be a probable chance of re-selling at a profit or that the chance of that would be even with their not selling at a profit. What the parties to a contract such as this do is not to estimate that the chances will be one way or the other or will have this amount of probability or the other, but simply to contemplate that trade chances are" not unlikely to occur, and to make a contract to cover such chances if any."

In the same case LORD PHILLIMORE referred^[65] to damages "which naturally flow" from a breach of contract and to damages which "the law super-adds in appropriate cases" being

[705] "those damages which, though they do not always or even usually flow from the breach of contract, are, at the time of making the contract, recognised by the parties as those which in a particular case may result from a failure. These are called damages in the contemplation of the parties, not because the parties contemplate a breach of contract, but because they recognise that a breach or failure is possible, and they reckon that these damages may flow from that breach. I designedly use the word 'may'. There may be cases where the word to be used might be 'will', but there are also cases, and more common cases where the word to use is 'may'."

Though that case was one in which the parties had made express provisions in regard to sub-sales with the result that they must have "recognised" that a purchaser might have to pay damages to his sub-purchaser if the vendor failed to deliver, the expressions used in the speeches illustrate that damages could be recoverable in respect of a loss which might occur or which the parties could contemplate as not unlikely to occur. The present case is one in which no special information was given to the carrier as to what the charterers intended to do with the goods after they arrived at Basrah. In those circumstances in deciding what damages would fairly and reasonably be regarded as arising, if the delivery of the goods was delayed, I think that the reasonable contemplation of a reasonable shipowner at the time of the making of the charterparty must be considered. I think that such a shipowner must reasonably have contemplated that, if he delivered the sugar at Basrah some nine or ten days later than he could and should have delivered it, then a loss by reason of a fall in the market price of sugar at Basrah was one that was liable to result or at least was not unlikely to result. This results from the facts of this case. It is a question of what the parties contemplated. Even without notice of special circumstances or special considerations there may be situations where it is plain that there was a common contemplation. In his dissenting judgment in The Arpad^[66] SCRUTTON, L.J., said:

"I am inclined to think that in contracts of carriage" from wheat-producing districts, it is always so probable that the shipper is sending for re-sale, or for sale to a person who will re-sell, that the carrier will be liable if there is no market, for the effect on a contract of sale of his conversion or unjustifiable failure to deliver."

Whether this be so or not the shipowner in the present case must at least have appreciated that the charterers wanted to have the goods at Basrah at the date when they should have been delivered there. What could clearly be foreseen was that the charterers would be without their goods at the place where, and on the date when, they were entitled to expect to have them. Had there not been delivery at all, the damages would have been measured by relation to the market price of the goods at the date when they should have been delivered. In such an eventuality the charterers would have been entitled to acquire goods to replace those which, either by reason of their having been lost or for some other reason, were not delivered. By a parity of reasoning since the parties had not contracted on the basis that the shipowner could deliver as and when he liked but on the basis that he should proceed at all convenient speed and so should deliver on the date that could with reasonable accuracy be predicted, the charterers would be entitled, if it were necessary, to acquire goods to replace those which had not arrived. If when the goods later arrived the market price had advanced, the charterers would suffer no loss: if the market price had declined, they would suffer loss. If they actually suffered loss, it would prima facie be measured as the difference between the market price at the date when the goods should have been delivered and the market price at the date when they were delivered.

I would dismiss the appeal.

[706] LORD HODSON: My Lords, the broad question which arises on the appeal is what is the correct measure of damages for wrongful delay by a shipowner in the performance of a contract for the carriage of goods by sea.

The respondent charterers contend that the ordinary measure of damages for delay in delivery of goods for which there is a market is the difference between the market value of the goods at their destination on the date when they arrive, and the value at the date when they should have arrived if there had been no breach of contract. The loss so measured is one which arises naturally according to the usual course of things. This right to recover does not depend on any special knowledge of the party in breach. It applies to contracts of carriage by sea and by land in all ordinary cases.

The appellant shipowner contends, on the other hand, that except in special circumstances, which are not to be found in this case, the measure of damages is limited to the interest on the value of the goods during the period of delay.

In these circumstances the shipowner admitted liability for £172 consisting of £12 10s. (cable expenses) and £159 9s. 6d. (interest at six per cent. per annum on the full value of the cargo during the period of the delay) on the facts found and stated in the special case. The umpire awarded the charterers, in addition to the above sum of £172, £4,010 16s. Sd. in respect of the fall in value of the goods during the delay. MCNAIR, J., on questions of law being submitted for the decision of the court as to (inter alia) the correct measure of damages held that the umpire was wrong in law and that the charterers were entitled only to the admitted sum of £172, made up in the main of interest charges. The Court of Appeal^[2], DIPLOCK and SALMON, L.JJ. (SELLERS, L.J., dissenting) restored the umpire's award.]

The ultimate question for decision is whether, as a matter of law, contracts for the carriage of goods by sea are in a special class, having regard to the intrinsic differences there are between such contracts and contracts for the carriage of goods by land. For example, in the former class, it is pointed out that goods may be sold before shipment or during the voyage or intended for the purposes of stocking or consumption at the port of destination and that the contemplation of the parties that the goods may be resold by the charterer at the port of destination is not necessarily to be inferred. In addition it is urged that ocean voyages are liable to be affected by weather, by congestion at loading and discharging ports and similar factors, which account for a different treatment being given to cases of carriage of goods by sea. There is on the face of it no reason why the charterer should not be entitled to the value of that of which he has been deprived by the breach of contract independently of his intention to sell again, and sale during the voyage or before the shipment is in any case irrelevant since the purchaser would stand in the charterer's shoes. There is nothing speculative about the claim and what the charterer does with the goods should not make any difference. This should apply to contracts of carriage by land or sea.

Consideration of sea and weather conditions has been thought to be the basis of the decision in The Parana^[1]. This appears from the judgment of SIR RICHARD HENN COLLINS, M.R., in Dunn v. Bucknall Brothers^[67]. The uncertainties of the Parana's voyage were so great, he said in Dunn v. Bucknall^[67], that the parties could not be said to have contracted on the footing that the goods would arrive at any particular moment. The headnote to Dunn v. Bucknall ^[68], however, concisely states as a summary of the judgment that there is no rule of law that damages cannot be recovered for loss of market on a contract of carriage by sea. This, I think, was really accepted by the appellant shipowner and also in the main by MCNAIR, J., although SELLERS, L.J., went so far as to say^[69] [707] that it was desirable, in establishing a basis for damages, to avoid fortuitous elements, unless the parties had already contracted that the chance change of market price should fall on the shipowner if it happened to be less and not equal to or more than the price which could have been obtained without a breach of contract.

That was in substance the position taken up by the shipowner before your lordships. He accepted the established authority of the judgment in Hadley v. Baxendale^[3]. The case concerned a broken crank shaft delivered to common carriers to be sent to engineers for repair. There was a delay of five days in delivery and the issue was as to the measure of damages for breach of contract. In the judgment of the court, which consisted of PARKE: MARTIN and ALDERSON, BB.^[7], it was said:

"We think the proper rule in such a case as the present is this. Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both, parties, at the time they made the contract, as the probable result of the breach of it."

The phrases beginning "either" and "or" are commonly said to divide the rule laid down by the court into two parts, the one arising "according to the usual course of things" and the other relating to special circumstances in which the contract was made.

The shipowner argued that the fluctuations of market due to unforeseen and unpredictable causes during the period of delay are not of themselves "according to the usual course of things". He argued that there were no facts hereto bring the second part of the rule into operation, and in this I agree with him, for no special notice was given. Hence he said that damages for loss of market were not recoverable, and that these damages could only be recovered in special cases covered by the second part of the rule.

The word "probable" in Hadley v. Baxendale^[3] covers both parts of the rule, and it is of vital importance in applying the rule to consider what the court meant by using this word in its context. The common use of this word is no doubt to imply that something is more likely to happen than not. In conversation, if one says to another "If you go out in this weather you will probably catch a cold" this is, I think, equivalent to saying that one believes there is an odds on chance that the other will catch a cold. The word "probable" need not, however, bear this narrow meaning. In Re R. & H. Hall, Ltd. and W. H. Pim (Junior) & Co.'s Arbitration^[11], VISCOUNT DUNEDIN^[70], after stating his belief in a general agreement that the law as to calculation of damages, due under breach of a contract, was settled by the case of Hadley v. Baxendale^[3], said that the difficulty lay in the application to the facts of each case.

The instant case furnishes an example of this difficulty. Assistance is to be gained from some of the expressions used in Hall and Pim's case^[11] which concerned a loss of profit on resale. On failure by sellers to deliver goods to buyers, the buyers were held entitled to recover the damages which they would have to pay to a sub-purchaser. LORD DUNEDIN thought^[71] that it was enough that there was an even chance of a resale happening. LORD SHAW OF DUNFERMLINE thought^[72] it not unlikely that a resale would take place, and LORD PHILLIMORE^[73] that the parties contemplated that a resale might take place.

[708] In Monarch Steamship Co., Ltd. v. Karlshamns Oljefabriker^[74] LORD DU PARCQ used in applying the first part of the rule in Hadley v. Baxendale^[3] the words "serious possibility" and "real danger" while LORD MORTON OF HENRYTON spoke^[74] of "grave risk".

A close study of the rule was made by the Court of Appeal in the case of Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[3]. The judgment of the court, consisting of TUCKER, ASQUITH and SINGLETON, L . JJ., was delivered by ASQUITH, L .J., who referred to the Monarch Steamship case^[75] and suggested the phrase^[24] "liable to result" as appropriate to describe the degree of probability required. This may be a colourless expression, but I do not find it possible to improve on it. If the word "likelihood" is used, it may convey the impression that the chances are all in favour of the thing happening, an idea which I would reject.

I find guidance in the use of the expression "in the great multitude of cases", which is to be found in more than one place in the judgment in Hadley v. Baxendale^[3], indicates that the damages recoverable for breach of contract are such as flow naturally in most cases from the breach, whether under ordinary circumstances or from special circumstances due to the knowledge either in the possession of or communicated to the defendants. This expression throws light on the whole field of damages for breach of contract, and points to a different approach from that taken in tort cases. True that where the facts are the same in two cases the damages will no doubt be the same whether the claim is made in contract or in tort; compare The Notting Hill^[61] where, although the claim was in tort, the Court of Appeal in a case like The Parana^[1] followed the later decision.

The approach in tort will, however, normally be different simply because the relationship of the parties is different. The claim against the tortfeasor who has inflicted tortious damage is not the same as the claim against an opposite party for breach of contract, for the latter claim depends on the contemplation of the parties to the contract and questions of remoteness as such do not arise. Consequently liability in tort may often be of a wider kind. The observations of WILLES, J., in Horne v. Midland Ry. Co.^[76] state the distinction in clear language in the passage cited by my noble and learned friend LORD REID, and I agree that this passage is to be preferred to the opinion sometimes expressed that the measure of damages is the same in tort as it is in contract.

It seems that MELLISH, L.J., in The Parana^[51] took a different view of the rule in Hadley v. Baxendale^[3] when he said:

"In order that damages may be recovered, we must come to two conclusions—first, that it was reasonably certain that the goods would not be sold until they did arrive; and, secondly, that it was reasonably certain that they would be sold immediately after they arrived, and that that was known to the carrier at the time when the bills of lading were signed."

With respect to MELLISH, L.J., this is putting the test too high. The conclusion reached on the facts of the case in The Parana^[1] need not however be criticised, because the voyage took about twice as long as might have been expected and no reasonably accurate prediction of the length of the voyage could be expected. He did, however, make use of the general observations which have no doubt been treated as laying down a practice to be followed. In reaching the conclusion that the registrar and merchants were right in their report MELLISH, L.J., stated^[77]:

[709] "They said that it had never been the practice in the Court of Admiralty to give such damages, and though it constantly happened that by accidents such as collisions goods were delayed in their arrival, it never had been the custom to include in the damages the loss of market; and we are of opinion that the conclusion which the registrar and merchants came to was right."

This decision has been treated as authoritative by text writers in this country and m has never been over-ruled, but the rule of practice which it purports to lay down is not followed universally and is insecurely based.

In the United States of America it seems that the courts have never followed the principle of assignment of damages laid down in The Parana^[1]. SALMON, L.J., has pointed out^[78] that in the CORPUS JURIS SECUNDUM^[79], it is stated that

"In the ordinary case of deviation or delay by a common carrier in delivering goods, the measure of damages is the difference in the market value at the time when actually delivered and when they should have been delivered. . .".

In the case of United States v. Middleton^[80] and in other cases in the United States of America this position has been accepted. It would, I think, be unfortunate if the law as to the measure of damages based on the decision in Hadley v. Baxendale^[3] in the two countries should be held to have developed on different lines, and I am glad that in my opinion it has not in truth done so.

I have not dealt in detail with the facts of the instant case. These have been sufficiently set out in the opinion of my noble and learned friend LORD REID. I need only say that I agree with the majority of the Court of Appeal^[2] that, on the correct application of the decision in Hadley v. Baxendale^[3] to the facts stated in the Special Case, although no special circumstances bring the second rule in Hadley v. Baxendale^[3] into operation, the shipowner is liable in damages for breach of contract in the larger sum awarded, viz., £4,188 10s. 8d., a sum which includes damages for loss of market which in his case arise "according to the ordinary course of things".

I do not find it necessary to say that the decision in The Parana^[1] was wrong on the facts. Somehow or other from the language used in the judgment it appears to have been elevated to a pronouncement on legal principle which is not sustainable.

Lastly there is, in my opinion, no need to enter into the difficult question whether there may be differences between cases of non-delivery by carriers and cases of delay by them. Certain decisions on this topic have been criticised and I express no opinion about them.

I would dismiss the appeal.

LORD PEARCE: My Lords, in Hadley v. Baxendale^[3] the court attempted to clarify and define the boundaries of damages in contract. In The Wagon Mound (No.1), Overseas Tankship (U.K.), Ltd. v. Morts Dock & Engineering Co., Ltd.^[81] the Privy Council attempted a similar task with regard to damages in tort. In the present case (as in The Wagon Mound (No.2), Overseas Tankship (U.K.), Ltd. v. Miller Steamship Co. Pty., Ltd.^[82]) it was suggested in argument that there was or should be one principle of damages for both contract and tort and that guidance for one could be obtained from the other. I do not find such a comparison helpful. In the case of contract two parties, usually [710] with some knowledge of one another, deliberately undertake mutual duties. They have the opportunity to define clearly in respect of what they shall and shall not be liable. The law has to say what shall be the boundaries of their liability where this is not expressed, defining that boundary in relation to what has been expressed and implied. In tort two persons, usually unknown to one another, find that the acts or utterances of one have collided with the rights of the other, and the court has to define what is the liability for the ensuing damage, whether it shall be shared, and how far it extends. If one tries to find a concept of damages which will fit both these different problems there is a danger of distorting the rules to accommodate one or the other and of producing a rule that is satisfactory for neither. The problems certainly have one thing in common. In both the use of words with differing shades of meaning in the various cases makes it hard to discern with exactitude where the boundaries lie. See The Wagon Mound (No. 2)^[83].

The underlying rule of the common law is that

". . . where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with regard to damages as if the contract had been performed"

(PARKE, B., in Robinson v. Harman^[84]). Since, however, so wide a principle might be too harsh on a contract-breaker in making him liable for a chain of unforeseen and fortuitous circumstances, the law limited the liability in ways which crystallised in the rule in Hadley v. Baxendale^[3]. This was designed as a direction to juries, but it has become an integral part of the law.

Since an Olympian cloud shrouded any doubts, difficulties and border-line troubles that might arise in the jury room and the jury could use a common sense liberality in applying the rule to the facts, the rule worked admirably as a general guidance for deciding facts. But when the lucubrations of judges, who have to give reasons, superseded the reticence of juries, there were certain matters which needed clarification. That service was well performed by the judgment of the Court of Appeal in the case of Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[4]. I do not think that there was anything startling or novel about it. In my opinion it represented (in felicitous language) the approximate view of Hadley v. Baxendale^[3] taken by many judges in trying ordinary cases of breach of contract.

It is argued that it was an erroneous departure from Hadley v. Baxendale^[3] in that it allowed damages where the loss was "a serious possibility" or "a real danger" instead of maintaining that the loss must be "probable", in the sense that it was more likely to result than not. Over twenty years before, however, in Re R. & H. Hall, Ltd. and W. H. Pim (Junior) & Co.'s Arbitration^[71], VISCOUNT DUNEDIN had said that it was enough if there was an even chance of the loss happening. LORD SHAW OF DUNFERMLINE said^[85] that the two parts of the rule need not be antithetically treated but might run into each other and be one; and he read^[86] probable as meaning a "not unlikely" result. LORD PHILLIMORE said^[87]:

"[These] are called damages in contemplation of the parties, not because the parties contemplate a breach of contract, but because they recognise that a breach or failure is possible, and they reckon that these damages may flow from that breach. I designedly use the word 'may'. There may be [711] cases where the word to be used might be ‘will’ but there are also cases, and more common cases, where the word to use is 'may'."

LORD BLANESBURGH expressed agreement^[88] with the others, and presumably not dissent from the views set out above. VISCOUNT HALDANE^[89] dealt with the matter as one of construction: — "Whether such a re-sale was likely or not does not matter, if, as I think, the buyers stipulated for power to make it being provided."

I believe that even at that date those observations would not be regarded as novel; and the fact that the case was not included in the Law Reports may be some slight confirmation of this belief. Inevitably there is some evolution of thought in such matters, and such as there was tended in the direction of taking a wider view of probability. In 1948 in Monarch Steamship Co., Ltd. v. A.B. Karlshamns Oljefabriken^[90], a case of damages for delay in carriage by sea, LORD DU PARCQ used the words "at least a serious possibility" and "a real danger which must be taken into account". LORD UTHWATT spoke^[91] of "the chance of war, not as a possibility of academic interest . . . but as furnishing matter which commercially ought to be taken into account". And LORD MORTON OF HENRYTON spoke of "a grave risk"^[92].

Accordingly in my opinion the expressions used in the Victoria Laundry case^[4] were right. I do not however accept the colloquialism^[26] "on the cards" as being a useful test, because I am not sure just what nuance it has either in my own personal vocabulary or in that of others. I suspect that it owes its attraction, like many other colloquialisms, to the fact that one may utter it without having the trouble of really thinking out with precision what one means oneself or what others will understand by it, a spurious attraction which in general makes colloquialism unsuitable for definition, though it is often useful as shorthand for a collection of definable ideas. It was in this latter convenient sense that the judgment uses the ambiguous words "liable to result". They were not intended as a further or different test from "serious possibility" or "real danger".

The whole rule in Hadley v. Baxendale^[3] limits damages to that which may be regarded as being within the contemplation of the parties. The first part deals with those things that^[7] "may fairly and reasonably be considered as arising . . . naturally, i.e., according to the usual course of things". Those are presumed to be within the contemplation of the parties. As LORD WRIGHT said in the Monarch Steamship case^[47]:

"As reasonable business men each must be taken to understand the ordinary practices and exigencies of the other's trade or business. That need not generally be the subject of special discussion or communication."

After referring to Banco de Portugal v. Waterlow & Sons, Ltd.^[93] be continued^[94]:

"Both parties were tacitly taken to be acquainted sufficiently with the general business position. The same is true in many cases of complicated consequences flowing from an unanticipated breach of contract, but the damages are not treated either as special or remote if they flow from the [712] normal business position of the parties which the court assumes must be reasonably known to them. It would not be helpful to cite the familiar authorities which are numerous but depend primarily upon the facts of each case."

Even the first part of the rule however contains the necessity for the knowledge of certain basic facts, e.g., in Hadley v. Baxendale^[3] the fact that it was a mill shaft to be carried. On this limited basis of knowledge the horizon of contemplation is confined to things "arising naturally, i.e., according to the usual course of things".

Additional or "special" knowledge, however, may extend the horizon to include losses that are outside the natural course of events; and of course the extension of the horizon need not always increase the damages; it might introduce a knowledge of particular circumstances, e.g., a subcontract, which show that the plaintiff would in fact suffer less damage than a more limited view of the circumstances might lead one to expect. According to whether one categorises a fact as basic knowledge or special knowledge the case may come under the first part of the rule or the second. For that reason there is sometimes difference of opinion as to which is the part which governs a particular case, and it may be that both parts govern it.

I do not think that ALDERSON, B.^[95], was directing his mind to whether something resulting in the natural course of events was an odds-on chance or not. A thing may be a natural (or even an obvious) result even though the odds are against it. Suppose a contractor was employed to repair the ceiling of one of the law courts and did it so negligently that it collapsed on the heads of those in court. I should be inclined to think that any tribunal (including ALDERSON, B., himself) would have found as a fact that the damage arose "naturally, i.e., according to the usual course of things". Yet if one takes into account the nights, week ends, and vacations, when the ceiling might have collapsed, the odds against it collapsing on top of anybody's head are nearly ten to one. I do not believe that this aspect of the matter was fully considered and worked out in the judgment. He was thinking of causation and type of consequence rather than of odds. The language of the judgment in the Victoria Laundry case^[4] was a justifiable and valuable clarification of the principles which Hadley v. Baxendale^[3] was intending to express. Even if it went further than that, it was in my opinion right.

Nor do I consider that the Victoria Laundry case^[4] is inconsistent with the actual decision on the facts in Hadley v. Baxendale^[3]. The carriers were asked (without special directions, as the court found) to transport a broken shaft away from a mill. "In the great multitude of cases" (to quote ALDERSON, B.'s own phrase^[96]) one would not expect the whole working of a mill to be stopped by a delay in transportation. The mere absence of urgent instructions spoke strongly against such a contingency. The fact that the shaft was to be used immediately by engineers for measurements (which one would have rather expected to go on paper by post) for making a new shaft would not, I think, have been in the contemplation of the carriers, on the meagre information available.

The facts of the present case lead to the view that the loss of market arose naturally, i.e., according to the usual course of things, from the shipowner's deviation. The sugar was being exported to Basrah where, as the respondents knew, there was a sugar market. It was sold on arrival and fetched a lower price than it would have done had it arrived on time. The fall in market price was not due to any unusual or unpredictable factor.

Had this been a case of non-delivery on sale of goods whether by sea or land, it is uncontested that the defendants would be liable for the loss of market. Had [713] it been a case of delay in sale of goods, the prima facie rule is that the damage is the difference between "the value of the article contracted for at the time when it ought to have been and the time when it actually was delivered" (per BLACKBURN, J., in Elbinger Actien-Gesellschafft v. Armstrong^[97]). Nor can it really be contended that it would have been otherwise if this had been a case of delayed delivery in carriage by land. For this has been long established by such cases as Collard v. South Eastern Ry. Co.^[98]; Wilson v. Lancashire & Yorkshire Ry. Co.^[99] and Horne v. Midland Ry. Co.^[100].

It is however argued that different considerations arise in delay in carriage at sea. The decision in The Parana^[1], it is said, established a special principle or practice with regard to delay in carriage by sea which should apply to this case and should confine the damages to loss of interest on the value of the goods. The Court of Appeal in The Parana^[1] appeared to decide largely on the ground that it was not "reasonably certain" that the goods would not be sold until they arrived and that they would be sold as soon as they did arrive. The estimates of the duration of the voyage appear to have varied between sixty-five days and ninety days; and in fact it took 127 days. No doubt the chief factor which influenced the court was that the uncertainties of the voyage were so great that the parties could not be said to have contracted on the footing that the goods would arrive at any particular moment. SIR RICHARD HENN COLLINS, M.R., said this when he dealt with The Parana^[1] in Dunn v. Bucknall Brothers^[101]. He pointed out that

"It is certainly not a rule of law; it is only an inference of fact that from the circumstances of the case no reasonable assumption as to the state of the market at the time of arrival could have been a factor in the contract between the parties."

In the latter case the court did award damages for loss of market. So too in The Ardennes (Owner of Cargo) v. The Ardennes (Owners)^[102].

In the United States the CORPUS JURIS SECUNDUM states^[81] that

"In the ordinary case of deviation or delay by a common carrier in delivering goods, the measure of damages is the difference in their market value at the time when actually delivered and when they should have been delivered, with interest . . ."

In 1924 in United States v. Middleton^[103] His Honour JUDGE ROSE of the Federal Court of Appeals said:

"The Parana^[1] was decided forty-seven years ago. It is by no means certain that, even in England, it would now be unhesitatingly followed . . . Nearly half a century has elapsed since the decision of The Parana^[1] and more than two decades since that of Dunn v. Bucknall Brothers^[35]. In the meanwhile steam has more and more taken the place of the shifting winds as the motive power upon the sea, with the result that the duration of voyages may now be calculated with at least some approach to certainty, even when they are to the ends of the earth. In these days merchants make their calculations accordingly, and it is not unreasonable to insist that shipowners shall do the like. There would seem to be little injustice in so doing, when it is remembered that they are not answerable at all when they are able [714] to show that the delay was caused by something which due diligence on their part was powerless to prevent."

In The Parana^[1] (and in the present case) reliance was placed on the fact that in cases of carriage by sea the goods are likely to have been sold in transit while still afloat and that therefore the shippers would not suffer by their late arrival. But, if they were so sold, under the bill of lading the buyer would stand in the shoes of the shipper, would suffer the loss, and would sue in respect of it. This fact makes the contemplation of the loss neither more nor less likely.

In my opinion the line of approach in Dunn v. Bucknall Brothers^[35] and in the United States cases is correct. In most cases the loss of market will be found to be within the contemplation of the parties in carriage of goods by sea. It is however ultimately a question of fact. Moreover it may be that in some unusual cases it will be found that the situation between the parties showed that the shipper was indifferent to the time of arrival and that the parties did not contract on the basis that in case of deviation or delay the shipowner should be liable for loss of market; but the absence of an express clause (which could easily be inserted) to that effect will obviously make it hard to establish. I have not dealt with the various particular facts in this case by which counsel for the shipowner's able argument seeks to show that these particular parties did not contemplate damage by loss of market. For I agree with the remarks of the majority of the Court of Appeal^[2] on this subject.

Accordingly if The Parana^[1] purported to lay down any general proposition or rule of law, it was wrongly decided. Even if it was merely purporting to draw an inference of facts from the particular case, I have some doubt of its correctness even at that date, and it has no applicability today. And in my opinion The Notting Hill^[60] which applied The Parana^[1] to a case of tort, was wrongly decided.

I would dismiss the appeal.

LORD UPJOHN: My Lords, this appeal is concerned solely with the proper measure of damages for an admitted breach of contract by a shipowner resulting in the late delivery of a cargo which he contracted to deliver to the port of discharge. The practical question is whether the charterer can claim damages for loss of market as the cargo of sugar was to be delivered to a port where there is a market in that commodity.

The general principle on which damages are assessed for breach of contract is succinctly stated by PARKE, B., in Robinson v. Harman^[104]:

". . . where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed",

a statement approved in your lordships' House in Watts, Watts & Co., Ltd. v. Mitsui & Co., Ltd.^[105]. The same rule has been laid down in your lordships' House for the assessment of damages generally including torts (see Livingstone v. Rawyards Coal Co.^[106]).

Such general principles were, however, applied rather strictly for until Hadley v. Baxendale^[3], the rule was that the damage resulting must be the proximate damage: thus in Smeed v. Foord^[107] during argument when Hadley v. Baxendale^[3] was under discussion LORD CAMPBELL, C.J., interjected^[108]: "The old rule was that, in estimating damages, only the proximate injury sustained [715] could be looked to." With the increasing complications of life and the upsurge of industrial activities these simple rules failed to give sufficient guidance to juries or indeed judges for the assessment of damages for breach of contract in more complicated cases. When, however, Messrs. Hadley, owners of a flour mill in Gloucester, having sent a broken mill shaft by the well-known carriers Pickfords to their suppliers in Greenwich to provide a pattern for a new shaft and there being a delay in delivery by Pickfords amounting to a breach of contract, claimed damages on the footing that the whole activities of their mill were held up for want of the shaft, it was clear that the rule, though requiring some expansion, must nevertheless receive some limitation. This led to the famous statement of ALDERSON, B., in that case^[7]:

"We think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."

Though stated by ALDERSON, B., in one sentence it contains and has always been interpreted as containing two branches and for my part I care not whether it is regarded as stating two rules or two branches of one rule, though I prefer the latter. Thus:

1. Damages should be such as may naturally and usually arise from the breach, or

2. Damages should be such as in the special circumstances of the case known to both parties may be reasonably supposed to have been in the contemplation of the parties, as the result of a breach, assuming the parties to have applied their minds to the contingency of there being such a breach.

See Hammond & Co. v. Bussey^[109] approved in this House in Re R. & H. Hall, Ltd. and W. H. Pim (Junior) & Co.'s Arbitration^[11]. However there is no dichotomy between these branches for, as LORD SHAW OF DUNFERMLINE pointed out in the last-mentioned case^[110], "they may run into each other and, indeed, be one".

In British Columbia & Vancouver Island Spa, Lumber and Saw-Mill Co., Ltd. v. Nettleship^[111] it was decided on the second branch of the rule that not only must there be common knowledge of some special circumstances but also liability for damages resulting therefrom must be made a term of the contract. This was followed in Horne v. Midland Ry. Co.^[112]. I do not see why that should be so. lf parties enter into the contract with knowledge of some special circumstances, and it is reasonable to infer a particular loss as a result of those circumstances that is something which both must contemplate as a result of a breach. It is quite unnecessary that it should be a term of the contract. I agree with the learned editor of 11 HALSBURY'S LAWS OF ENGLAND (3rd Edn.), p. 243, note (m) that those authorities ought not to be followed. In any event, as DIPLOCK, L.J., has pointed out^[113], this point had little application in practice.

So the claim for damages must be the natural consequence of the breach or in the contemplation of both parties; but in tort a different test has been adopted in expanding the basic law of damages and I cannot accept the argument addressed to your lordships that they remain the same. The test in tort, as now [716] developed in the authorities, is that the tortfeasor is liable for any damage which he can reasonably foresee may happen as a result of the breach however unlikely it may be, unless it can be brushed aside as far fetched. See The Wagon Mound cases^[114].

This difference is very reasonable. Once an examination of the facts establishes a breach of duty on the part of the tortfeasor, the acts and omissions of the innocent party are irrelevant until the question of contributory negligence comes to be considered. A tortfeasor may and frequently is a complete stranger to the innocent party but he is, however fleetingly in many cases, his neighbour for the purposes of the law and bound to act with due regard to his neighbour's rights whoever he may be. If he fails in such duty, the law has rightly laid down a more stringent test for the assessment of damages. In contract, however, the parties have only to consider the consequences of a breach to the other; it is fair that the assessment of damages should depend on their assumed common knowledge and contemplation and not on a foreseeable but most unlikely consequence. The parties may moreover agree to limit or exclude liability for damage, or agree on a liquidated sum, or one party can disclose to the other special circumstances which will render a breach especially serious to him. So the rules as to the assessment of damages have diverged in the two cases, and nowadays the concept of "foreseeability" and "contemplation of the parties" are different concepts in the law. It is true that as a matter of language there will in many cases be no great difference between foreseeing the possibility of an event happening and contemplating the possibility of that event happening, and in some of the cases, from BLACKBURN, J., in Cory v. Thames Ironworks Co.^[115] onwards, the word foresee or foreseeable is used in connexion with contract, but it is clear that it has really been used in the sense of reasonable contemplation; and in my view it is better to use contemplate or contemplation in the case of contract, leaving foresee or foreseeability to the realm of torts.

The rule in Hadley v. Baxendale^[3] was approved in express terms in Banco de Portugal v. Waterlow & Sons, Ltd.^[116], and in Monarch Steamship Co., Ltd. v. A.B. Karlshamns Oljefabriker^[75], and has been followed in a multitude of cases ever since it was decided. I think that, apart from some very early criticisms, it would be true to say that it stood without question until the case of Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd.^[4] when it received a colourful interpretation from ASQUITH, L.J., delivering the judgment of the court.

My lords, in my opinion this appeal renders it necessary to determine the following questions:

1. Has the Victoria Laundry case^[4] purported to alter the law and establish a somewhat different rule from that laid down in Hadley v. Baxendale^[3] for the assessment of damages in contract?

2. What, as a practical matter, is the test to be applied in ascertaining whether any particular consequences of a breach of contract should lead to recoverable damages as arising either naturally or such as may have been within the contemplation of the parties in the special circumstances of the case?

3. Applying that test [unless precluded by 4 below], what on the facts of this case is the proper measure of damages?

4. Is there some special rule of practice in relation to carriage of goods by sea established by The Parana^[1] which precludes the recovery of damages [717] beyond interest on the value of the goods over the period of the delay, unless the plaintiff can bring the case on its special circumstances within the second branch of the rule?

1. On the first point it is, I think, clear that on a fair reading of the judgments of the majority of the Court of Appeal^[2] they considered that the Victoria Laundry case^[4] did alter the law. That case was one plainly within the second branch of the rule, but nevertheless the observations of ASQUITH, L.J., were in general terms applicable to both branches. I do not myself think that the learned lord justice intended to alter the law. He was paraphrasing it and putting it into modern language, and I shall refer to this under the next heading. If he was doing more, I would disagree with him. But for my part I prefer to state the broad rule as follows:

what was in the assumed contemplation of both parties acting as reasonable men in the light of the general or special facts (as the case may be) known to both parties in regard to damages as the result of a breach of contract;

I omit for the moment any adjectival qualification of the result which I deal with in 2. below. LORD WRIGHT pointed out in The Monarch^[47] that each must be taken to understand the ordinary practices and exigencies of the other's trade, but it must be remembered when dealing-with the case of a carrier of goods by land, sea or air, he is not carrying on the same trade as the consignor of the goods and his knowledge of the practices and exigencies of the other's trade may be limited and less than between buyer and seller of goods, who probably know far more about one another's business.

2. On the second point, what as a practical matter is to be taken as within the contemplation of both parties as the result of a breach? The words "probable result" held the field at first; they were used in the enunciation of the rule itself and by LORD ESHER, M.R., in Hammond v. Bussey^[117] and adopted by VISCOUNT DUNEDIN in Hall and Pim's case^[118] who, however, was careful to add that" probable" in his view did not mean more than an even chance. LORD SHAW in that case interpreted^[119] the word probable in the sense of the not unlikely result. In The Monarch^[75] their lordships used a variety of different expressions. I will very briefly enumerate them—likelihood; possibility must have been in the minds of both parties; a matter commercially to be taken into account; a serious possibility or a real danger; a grave risk.

ASQUITH, L.J., in the Victoria Laundry case^[120] used the words "likely to result" and he treated that as synonymous with a serious possibility or a real danger. He went on to equate that with the expression "on the cards", but like all your lordships I deprecate the use of that phrase, which is far too imprecise and to my mind is capable of denoting a most improbable and unlikely event, such as winning a prize or a premium bond on any given drawing.

In my opinion, however, ASQUITH, L.J.,^[120] was not attempting to do more than explain the rule in the light of the observations made in this House in The Monarch^[75]. It is curious that Hall and Pim's case^[11] seems to have escaped citation in all the later cases until this appeal to your lordships.

It is clear that on the one hand the test of foreseeability as laid down in the case of tort is not the test for breach of contract; nor on the other hand must the loser establish that the loss was a near certainty or an odds-on probability. I am content to adopt as the test a "real danger" or a "serious possibility". There may be a shade of difference between these two phrases, but the assessment of [718] damages is not an exact science and what to one judge or jury will appear a real danger may appear to another judge or jury to be a serious possibility. I do not think that the application of that test would have led to a different result in Hadley v. Baxendale^[3]. I cannot see why Pickfords in the absence of express mention should have contemplated as a real danger or serious possibility that work at the factory would be brought to a halt while the shaft was away.

3. Applying this test to the facts of this case the first and most important matter for consideration is the contract contained in the charterparty which was dated Oct. 15, 1960. It provided that The Heron II should proceed to Constanza and there load three thousand tons of sugar and then proceed with all convenient speed to Basrah. At the date of the contract the ship was dry-docked in Piraeus and was expected to be ready to load about Oct. 25/27, so it was provided that lay days were not to run before then. It was further provided that if the ship was not ready to load by Nov. 10, 1960, the charterers were to have the option to cancel the charterparty. The charterers were also given the option of discharging the cargo at Jeddah to be declared five days before the commencement of loading. The distance from Constanza to Basrah is 4,370 miles and a reasonably accurate prediction of the length of the voyage was twenty days. The Heron II arrived at Constanza on Oct. 27 duly loaded and sailed on Nov. 1, 1960. Due to a number of breaches of contract, which I need not specify, the vessel took twenty-nine days to complete the voyage instead of the predicted twenty. The shipowner knew of the existence of a sugar market at Basrah, but had no detailed knowledge thereof. Those in essence are the relevant facts on which the question of damages has to be determined. It is common ground that the question falls within the first branch of the rule in Hadley v. Baxendale^[3].

Both MCNAIR, J., in the court of first instance and SELLERS, L.J., in his dissenting judgment in the Court of Appeal^[2] were impressed by the fact that the ship might lawfully have presented herself for loading at any time up to Nov. 10 and might have been directed to go to Jeddah, and this circumstance influenced each of them in reaching the conclusion that loss of market due to delay could not have been within the contemplation of the parties. I cannot agree with this; DIPLOCK and SALMON, L.JJ.,^[2] have, in my opinion, answered this point. The cancellation clause was put in to protect the charterers from undue delay if the repairs to the ship in dry-dock should take longer than anticipated; its existence does nothing in my opinion to alter the common contemplation of the parties as to the consequences of a failure of the ship to carry out the primary obligation to proceed on its journey with all convenient speed; if anything it supports the view that time was an important element in the voyage. Nor can I see the relevance of the fact in this respect that another port of discharge might have been designated. It was not and The Heron II was under contract to carry with all convenient speed one cargo to one port of discharge where there was a market for that cargo.

This case is quite different from those cases where cargo ships used in the old days literally to tramp up and down, for example, the Mediterranean, with liberty to call at any port in any order (though that phrase, as the authorities show, must receive a limited and not a literal construction) collecting and discharging cargo as they steamed from port to port; so that delay in carrying a cargo to a particular port within a particular time or even with all convenient speed cannot have been within the contemplation of the parties as giving rise to damage for loss of market—see, for example, Connolly Shaw, Ltd. v. Nordenfjeldske Steamship Co.^[121], per BRANSON, J. The Ardennes (Owners of Cargo) v. The Ardennes (Owners)^[102] might have been such a case if the facts had not brought it clearly within the second branch of the rule. [719] has long been established that in carrying marketable goods by rail to a where there is a market it must be assumed to be in the contemplation of the as a grave danger that the goods may be sold on arrival so that if there is one of the consequences may be loss of market. See Collard v. South Eastern Ry. Co.^[98] and Horne v. Midland Ry. Co.^[112]. The plaintiff failed in last case because there was no market loss and he failed to communicate the circumstances which led to his special loss. Is there any reason why this rule should not in principle apply to carriage of goods by sea?

As long ago as, 1902 in the case of Dunn v. Bucknall Brothers^[122] SIR RICHARD HENN COLLINS, M.R., pointed out that sea voyages of three to four weeks' duration are accomplished with almost absolute certainty, and the state of the market might well be a vital fact present to the minds of both parties at the time of making the contract. In Jensen v. Hollis Brothers & Co., Ltd.^[123] BRANSON, J., did not over-exaggerate when he said that ships with modern facilities run with somewhat of the regularity of railway trains. So I see no reason why in principle the normal rule as to carriage of goods by land should not apply to the type of voyage undertaken by The Heron II. I do not refer to the authorities to which your lordships were referred where there is a complete loss of, or some physical damage to, goods such as Rodocanachi v. Milburn^[124], for though the same principles apply, both LORD DUNEDIN and LORD ATKINSON pointed out in Williams Brothers v. Ed. T. Agius, Ltd.^[125] that there were substantial differences in practice between late delivery and non-delivery. Where marketable goods are lost it is almost axiomatic that the market price measures the damage; the same cannot be said of delay; it all depends on circumstances. Different considerations apply to cases between buyer and seller, as I have already pointed out. Nor do I think it necessary to discuss Wertheim v. Chicoutimi Pulp Co.^[126] and the criticisms of SCRUTTON, L.J., of that case in Slater v. Hoyle & Smith^[36]; that controversy was really concerned with the measure of damages on subsales.

The Heron II, however, took very nearly fifty per cent more than the reasonably predicted time and for no other reason than her owner's breaches of contract.

It is perfectly true that at the time of the contract nothing was said as to the purpose for which the charterer wanted the sugar delivered at Basrah; he might have wanted to do so to stock up his supply of sugar or to carry out a contract already entered into which had nothing to do with the market at Basrah; or he might sell it during the voyage, but all that is pure speculation. It seems to me that on the facts of this case the parties must be assumed to have contemplated that there would be a punctual delivery to the port of discharge and that port having a market in sugar there was a real danger that as a result of a delay in breach of contract the charterer would miss the market and would suffer loss accordingly. It being established that the goods were in fact destined for the market the shipowner is liable for that loss.

4. I turn, then, to the last question. Does The Parana^[1] lead to the conclusion that in the case of carriage of goods by sea there is a different rule of practice? It is not suggested that there is any different rule of law. MCNAIR, J., and SELLERS, L.J.,^[2] thought so, and that damages were limited to loss of interest on the value of the goods detained.

[720] No doubt in the days of sail pure and simple, when ships might be delayed by head winds for days, loss of market would not be within the contemplation of the parties. In 1877, when The Parana^[1] was decided, the steam engine was coming into its own, but it was still the golden age of sail and over half the ships built in this country were sailing ships at this time; these matters may well have influenced MELLISH, L.J., when he pointed out^[127] the difference between delay in delivery by carriers on land and cases of carriage of goods on long voyages by sea. Perhaps he was right as matters then stood, but the rapid improvement in the steam engine led to a different statement of principle in Dunn v. Bucknall Brothers^[35] a statement in accordance with general principle and which must govern the assessment of damages today. The Parana^[1], which has only once been followed, in The Notting Hill^[60], and frequently has been criticised, must be regarded as either obsolete, being overtaken by events or as overruled. It may be noted that The Parana was not treated by MELLISH, L.J., as a tramp steamer in the sense in which I have .used that phrase earlier in this judgment.

In Dunn v. Bucknall Brothers^[35] an explanation of the decision in The Parana^[1] was suggested, that the estimates of the proper time for completion of the voyage of The Parana varied very greatly so that the time of arrival was not predictable. This explanation was not given by MELLISH, L.J., himself and I doubt if it is valid. Even today, when very long journeys half-way round the world are undertaken, the estimate of the time which a ship ought to take may vary within wide limits; see, for example, two cases in the U.S.A., United States v. Middleton^[128] (an Atlantic port to Japan sixty to ninety days) and The Iossifoglu^[129] (Philippines to a U.S. Atlantic port forty-six to sixty-six days). Nevertheless in both those cases it was held that, in the case of marketable commodities being carried to a market, if the ship greatly exceeds the larger estimate through breach of contract and the cargo owner thereby misses his market, he is entitled to damages for loss of market. I agree with those decisions, so far as the judges who decided those cases felt no difficulty by reason of the fact that the time of arrival could only be estimated within broad limits.

For these reasons I would dismiss this appeal.

Appeal dismissed.

Solicitors: Ince & Co. (for the appellant); William A. Crump & Son (for the respondents).

[Reported by KATHLEEN J. H. O'BRIEN, Barrister-at-Law.]

[1] (1877), 2 P.D. 118.

[2] [1966] 2 All E.R. 593; [1966] 2 Q.B. 695.

[3] [1843-60] All E.R. Rep. 461; (1854), 9 Exch. 341.

[4] [1949] 1 All E.R. 997; [1949] 2 K.B. 528.

[5] [1843-60] All E.R. Rep. at pp. 465, 466; (1854), 9 Exch. at p. 355.

[6] [1843-60] All E.R. Rep. at p. 466; (1854), 9 Exch. at p. 356.

[7] [1843-60] All E.R. Rep. at p. 465, letter E; (1854), 9 Exch. at p. 354.

[8] (1873), L.R. 7 C.P. 583 at pp. 590, 591.

[9] (1868), L.R. 3 Q.B. 181 at pp. 190, 191; [1861-73] All E.R. Rep. 597 at p. 599, letter C.

[10] (1873), L.R. 10 Q.B. 111 at p. 118.

[11] [1928] All E.R. Rep. 763.

[12] [1928] All E.R. Rep. at p. 767, letter A.

[13] (1927), 137 L.T. 585.

[14] [1928] All E.R. Rep. at p. 767, letter E.

[15] [1928] All E .R. Rep. at p. 767, letter F.

[16] [1928] All E.R. Rep. at p. 769, letter A.

[17] [1928] All E.R. Rep. at p. 771, letter B.

[18] [1928] All E.R. Rep. at p. 769, letter F.

[19] [1949] 1 All E.R. at p. 1005, letter B; [1949] 2 K.B. at p. 543.

[20] (1813), 1 Dow. 201.

[21] [1949] 1 All E.R. at pp. 1002, 1003; [1949] 2 K.B. at pp. 539, 540.

[22] [1949] 1 All E.R. at p. 1002, letter G; [1949] 2 K.B. at p. 539.

[23] [1949] 1 All E.R. at p. 1003, letter A; [1949] 2 K.B. at p. 540.

[24] [1949] 1 All E.R. at p. 1003, letter B; [1949] 2 K.B. at p. 540.

[25] [1966] 2 All E.R. 709; [1967] 1 A.C. 617.

[26] [1949] 1 All E.R. at p. 1003, letter C; [1949] 2 K.B. at p. 540.

[27] [1949] 1 All E.R. 1 at p. 20; [1949] A.C. 196 at p. 234.

[28] [1949] 1 All E.R. at p. 10, letter A; [1949] A.C. at p. 219.

[29] [1949] 1 All E.R. at p. 13; [1949] A.C. at p. 222.

[30] [1949] 1 All E.R. at p. 18, letter H; [1949] A.C. at p. 232.

[31] [1949] 1 All E.R. at p. 20, letter G; [1949] A.C. at p. 235.

[32] [1949] 1 All E.R. at p. 20; [1949] A.C. at p. 232.

[33] THE SECOND WORLD WAR, Vol. 1, p. 270.

[34] (1877), 2 P.D. at p. 123 per MELLISH, L.J.

[35] [1900-03] All E.R. Rep. 131; [1902] 2 K.B. 614.

[36] [1918-19] All E.R. Rep. 654; [1920] 2 K.B. 11.

[37] [1843-60] All E.R. Rep. at p. 465; (1854), 9 Exch. at p. 354.

[38] [1843-50] All E.R. Rep. 461; (1854), 9 Exch. 341.

[39] [1949] 1 All E.R. at p. 12; [1949] A.C. at p. 221.

[40] [1949] 1 All E.R. at p, 19, letter A; [1949] A.C. at p. 232.

[41] (1859), 1 E. & E. 602 at p. 616.

[42] [1861-73] All E.R. Rep. 339; (1868), L.R. 3 C.P. 490.

[43] (1868), L.R. 3 C.P. at pp. 505, 506.

[44] [1949] 1 All E.R. at p. 7; [1949] A.C. at p. 214.

[45] [1949] 1 All E.R. at p. 7, letter H; [1949] A.C. at p. 215.

[46] [1949] 1 All E.R. at p. 13, letter A; [1949] A.C. at p. 221.

[47] [1949] 1 All E.R. at p. 14, letter F; [1949] A.C. at p. 224.

[48] [1949] 1 All E.R. at p. 18, letter H; [1949] A.C. at p. 235.

[49] [1949] 1 All E.R. at p. 19, letter G; [1949] A.C. at p. 233

[50] [1949] 1 All E.R. at p. 9, letter H; [1949] A.C. at p. 219.

[51] (1876), 1 P.D. 452.

[52] (1876), 1 P.D. at pp. 464, 465.

[53] (1877), 2 P.D. at p. 123.

[54] (1877), 2 P.D. at p. 224.

[55] (1877), 2 P.D. at p. 120.

[56] (1876), 1 Q.B. 274 at p. 277.

[57] (1876), 1 P.D. at p. 463.

[58] (1873), L.R. 8 C.P. 131 at p. 137.

[59] (1884), 9 P.D. 105 at p. 111.

[60] (1884), 9 P.D. 105.

[61] (1884), 9 P.D. at pp. 113, 114.

[62] [1900-03] All E.R. Rep. at p. 134, letter D; [1902] 2 K.B. at p. 622.

[63] [1900-03] All E.R. Rep. at p. 134, letter F; [1902] 2 K.B. at p. 623.

[64] [1928] All E.R. Rep. at p. 770, letter C.

[65] [1928] All E.R. Rep. at p. 770, letter F.

[66] [1934] All E.R. Rep. 326 at p. 331; [1934] P. 189 at p. 203

[67] [1900-03] All E.R. Rep. at p. 134; [1902] 2 K.B. at p. 622.

[68] [1902] 2 K.B. at p. 614.

[69] [1966] 2 All E.R. at p. 600, letter D; [1966] 2 Q.B. at p. 723.

[70] [1928] All E.R. Rep. at p. 766.

[71] [1928] All E.R. Rep. at p. 767, letter F.

[72] [1928] All E.R. Rep, at p. 769.

[73] [1928] All E.R. Rep. at p. 771.

[74] [1949] 1 All E .R. at p. 20; [1949] A.C. at p. 234.

[75] [1949] 1 All E.R. 1; [1949] A.C. 196.

[76] (1872), L.R. 7 C.P. at p. 590.

[77] (1877), 2 P.D. at p. 124.

[78] [1966] 2 All E.R. 613, letter F; [1966] 2 Q.B. at p. 745.

[79] Vol. 80, p. 931, para. 124.

[80] (1924), 3 Fed. R. (2nd) 384.

[81] [1961] 1 All E.R. 404; [1961] A.C. 388.

[82] [1966] 2 All E.R. 709; [1967] 1 A.C. 617.

[83] [1966] 2 All E.R. at p. 713; [1967] 1 A.C. at p. 634.

[84] [1843-60] All E.R. Rep. 383 at p. 385; (1848), 1 Exch. 850 at p. 855.

[85] [1928] All E.R. Rep. at p. 769, letter G.

[86] [1928] All E.R. Rep. at p. 770, letter D.

[87] [1928] All E.R. Rep. at p. 770, letter G.

[88] [1928] All R.R. Rep. at p. 774, letter I.

[89] [1928] All R.R. Rep. at p. 766, letter C.

[90] [1949] 1 All E.R. at p. 19, letter H, p. 20, letter A; [1949] A.C. at pp. 233, 234.

[91] [1949] 1 All E.R. at p. 18; [1949] A.C. at p. 232.

[92] [1949] 1 All E.R. at p. 20, letter G; [1949] A.C. at p. 235.

[93] [1932] All R.R. Rep. 181; [1932] A.C. 452.

[94] [1949] 1 All E.R. at p. 14, letter H; [1949] A.C. at pp. 224, 225.

[95] [1843-60] All E.R. Rep. at p. 465; (1854), 9 Exch. at p. 355.

[96] [1843-60] All E.R. Rep. at p. 466, letter C; (1854), 9 Exch. at p. 356.

[97] (1874), L.R. 9 Q.B. 473 at p. 477.

[98] [1861-73] All E.R. Rep. 851; (1861), 7 H. & N. 79.

[99] (1861), 9 C.B.N.S. 632.

[100] (1872), L.R. 7 C.P. 583; on appeal (1873), L.R. 8 C.P. 131.

[101] [1900-03] All E.R. Rep. at p. 134, letter E; [1902] 2 KB. at p. 623.

[102] [1950] 2 All E.R. 517; [1951] 1 KB. 55.

[103] (1924), 3 Fed. Rep. (2nd) at p. 393.

[104] [1843-60] All E.R. Rep. at p. 385; (1848), 1 Exch. at p. 855.

[105] [1916-17] All E.R. Rep. 501 at p. 507, letter G; [1917] A.C. 227 at p. 241.

[106] (1880), 5 App. Cas. 25 at p. 39.

[107] (1859), 1 E. & E. 602.

[108] (1859), 1 E. & E. at p. 608.

[109] (1887), 20 Q.B.D. 79.

[110] [1928] All E.R. Rep. at p. 769, letter G;

[111] [1861-73] All E.R. Rep. 339; (1868), L.R. 3 C.P. 499.

[112] (1873), L.R. 8 C.P. 131.

[113] [1966] 2 All E.R. at p. 603, letter E; [1966] 2 Q.B. at p. 728.

[114] (No. 1) [1961] 1 All E.R. 404; [1961] A.C. 388. (No. 2), [1966] 2 All E.R. 709; [1967] A.C. 617.

[115] [1861-73] All E.R. Rep. at p. 599; (1868), L.R. 3 Q.B. at p. 188.

[116] [1932] All E.R. Rep. 181; [1932] A.C. 452.

[117] (1887), 20 Q.B.D. 79.

[118] [1928] All E.R. Rep. at pp. 766, 767.

[119] [1928] All E.R. Rep. at p. 770.

[120] [1949] 1 All E.R. at p. 1003; [1949] 2 K.B. at p. 540.

[121] (1934), 49 Lloyd L.R. 183 at p. 191.

[122] [1900-03] All E.R. Rep. at p. 134, letter F; [1902] 2 K.E. at p. 623.

[123] [1936] 1 All E.R. 140 at p. 143.

[124] (1886), 18 Q.B.D. 67.

[125] [1914-15] All E.R. Rep. 97; [1914] A.C. 510.

[126] [1908-10] All E.R. Rep. 707; [1911] A.C. 301.

[127] (1877), 2 P.D. at pp. 121, 122.

[128] (1924), 3 Fed. Rep. (2nd) 384.

[129] (1929), 32 Fed. Rep. (2nd) 928.

110 U.S. 338
4 S.Ct. 81
28 L.Ed. 168
UNITED STATES
v.
BEHAN.
February 4, 1884.

[339] Sol. Gen. Phillips and John. S. Blair, for appellant.

J. W. Douglass, for appellee.

BRADLEY, J.

Behan, the appellee and claimant, filed a petition in the court below, setting forth that on the twenty-sixth of December, 1879, one John Roy entered into a contract with C. W. Howell, major of engineers of the United States army, to make certain improvements in the harbor of New Orleans, (describing the same,) and that the claimant and two other persons named became bondsmen for the faithful performance of the work; that on February 10, 1881, the contract with Roy was annulled by the engineer office, and the bondsmen were notified that they had a right to continue the work under the contract if they desired to do so, and that the claimant complied with this suggestion and undertook the work; that he went to great expense in providing the requisite machinery, materials, and labor for fulfilling the contract, but that in September, 1881, it being found, by the report of a board of engineers, that the plan of improve-[340]-ment was a failure, without any fault of the claimant, the work was ordered to cease; that thereupon the claimant stopped all operations, and disposed of the machinery and materials on hand upon the best terms possible, and sent to the war department an account of his outlay and expenses, and the value of his own time, claiming as due to him, after all just credits and offsets, the sum of $36,347.94, for which sum he prayed judgment. The claimant afterwards filed an amended petition, in which the various transactions and his operations under the contract were set forth in greater detail, showing, among other things, that the amount of his expenses for machinery and tools, for materials, and for labor and operations carried on, after deducting the proceeds realized from the sale of the plant remaining when the work was suspended, amounted to the sum of $33,192.90. The petition further alleged that the claimant could have completed the work contemplated by the contract by a further expense of $10,000, and that the amount which would then have been due therefor would have been $52,000, leaving a profit to him of $8,807.10. The petition concluded as follows: 'Your petitioner therefore respectfully shows that his reasonable and necessary expenditures upon the work above described amounted to $33,195.92, which sum represents the losses actually sustained by petitioner by reason of the defendants' breach of the contract. And petitioner further sets forth that the reasonable and legitimate profits which he might have obtained but for the said breach of contract may be properly computed at $8,807.10, assuming $52,000 as the amount to be paid for the completed work. And petitioner further shows that he has not received one dollar from the defendants on account of said work, but that his claim and accompaning accounts, presented to the engineer department, have been transmitted to this court by the secretary of war. Your petitioner therefore alleges that he is entitled to receive from the United States the sum of forty-two thousand dollars ($42,000) over and above all just credits and offsets. Wherefore he prays judgment for that amount.'

The court of claims found the material facts to be substan-[341]-tially as stated in the petition. The contract of Roy is set forth in full in the findings, from which it appears that the contracting party was required to furnish and lay down an artificial covering of cane-mats over the sloping portion of the riverbed of the Mississippi in front of the third district of New Orleans, to extend outwards to a depth in the river not exceeding 100 feet, and to be paid therefor at the rate of 65 cents per square yard. The court finds that Roy prosecuted the work under the contract during the year 1880, but his progress not being satisfactory to the engineer officers, the contract was formally annualled and the bondsmen notified, as stated in the petition. In March, 1881, Behan, the claimant, gave notice to Maj. Howell that he would undertake the work, and at his request the major gave him a description of the work to be done, estimated as not exceeding 77,000 or 80,000 square yards, which, at the contract price, would amount to from $50,000 to $52,000.

The court further finds as follows: 'The contract was of such a character as to require extensive preparations and a large initial expenditure. The claimant made the necessary preparations for carrying on the work to completion, and in procuring boats, tools, materials, and apparatus for its prosecution. He engaged actively in carrying out the contract on his part, incurred large expenditure for labor and materials, and had for some time proceeded with the work when the undertaking was abandoned by the defendants and the work stopped, without fault of the claimant, as set forth in the following letters:' Then follows a copy of correspondence between the officers and the department of engineers, showing that a board of engineer officers was appointed to examine and report upon the plan of improvement under which the work of the claimant was being carried on, and that this board, on the twenty-third of September, 1881, reported their uanimous opinion that the object sought to be accomplished by the improvement had not been attained, and that under the then existing plan of operations it could not be attained. On the twenty-ninth of September, 1881, the claimant received notice to discontinue the work, which he did at once, and gave Maj. Howell notice to that effect, and called his [342] attention to the exposed situation of the machinery, materials, and other property on hand, and requested instructions respecting the same. No instructions appear to have been given.

The court then finds as follows: 'The claimant thereupon closed up his work and sold the materials which he had on hand. Nothing has been paid to him for work, materials, or losses. The actual and reasonable expenditures by the claimant in the prosecution of his work, together with his unavoidable losses on the materials on hand at the time of the stoppage by the defendants, were equal to the full amount claimed therefor in his petition—$33,192.20. It does not appear from the evidence thereon on the one side and the other whether or not the claimant would have made any actual profit over and above expenditures, or would have incurred actual loss had he continued the work to the end and been paid the full contract price therefor.

'CONCLUSION OF LAW.

'Upon the foregoing findings of facts the court decides as a conclusion of law that the claimant is entitled to recover the sum of $33,192.20.'

The government has appealed from this decree, and complains of the rule of damages adopted by the court below. Counsel contend that, by making a claim for profits, the claimant asserts the existence of the contract as opposed to its rescission; and that in such case the rule of damages, as settled is Speed's Case, 8 Wall. 77, is 'the difference between the cost of doing the work and what claimants were to receive for it, making reasonable deduction for the less time engaged, and for release from the care, trouble, risk, and responsibility attending a full execution of the contract.' And when such a claim is made, they contend that the burden of proof is on the claimant to show what the profits would have been; and as the court of claims expressly finds that it does not appear from the evidence whether or not the claimant would have made any profits, or would have incurred loss, therefore the [343] laimant was not entitled to judgment for any amount whatever.

The manner in which the subject was viewed by the court of claims is shown by the following extract from its opinion: 'Whatever rule may be adopted in calculating the damages to a contractor when, without his fault, the other party, during its progress, puts an end to the contract before completion, the object is to indemnify him for his losses sustained and his gains prevented by the action of the party in fault, viewing these elements with relation to each other. The profits and losses must be determined according to the circumstances of the case and the subject-matter of the contract. The reasonable expenditures already incurred, the unavoidable losses incident to stoppage, the progress attained, the unfinished part, and the probable cost of its completion, the whole contract price, and the estimated pecuniary result, favorable or unfavorable to him, had he been permitted or required to go on and complete his contract, may be taken in consideration. Sickels' Case, 1 Ct. Cl. 214; Speed's Case, 2 Ct. Cl. 429; affirmed on appeal, 8 Wall. 77, and 7 Ct. Cl. 93; Wilder's Case, 5 Ct. Cl. 468; Bulkley's Case, 7 Ct. Ci. 543, 19 Wall. 37, and 9 Ct. Cl. 81; Parish's Case, 100 U. S. 500; Field's Case, 16 Ct. Ci. ,434; Moore & Krone's Case, 17 Ct. Ci 17; Power's Case, decided at this term; Masterson v. City of Brooklyn, 7 Hill, 71. The amount of the claimant's unavoidable expenditures and losses already incurred are set forth in the findings. But we can give him nothing on account of prospective profits, because none have been proved. So, for the same reason, we can deduct nothing from his expenditures on account of prospective losses which he might have incurred had he not been relieved from completing his contract. This leaves his expenditures as the only damage proved to have resulted to him from the defendant's breach of contract, and are, therefore, the proper measure of damages under all the circumstances of the case.'

We think that these views, as applied to the case in hand, are substantially correct. The claimant has not received a dollar, either for what he did, or for what he expended, except the proceeds of the property which remained on his bands when [344] the performance of the contract was stopped. Unless there is some artificial rule of law which has taken the place of natural justice in relation to the measure of damages, it would seem to be quite clear that the claimant ought at least to be made whole for his losses and expenditures. So far as appears, they were incurred in the fair endeavor to perform the contract which he assumed. If they were foolishly or unreasonably incurred, the government should have proven this fact. It will not be presumed. The court finds that his expenditures were reasonable. The claimant might also have recovered the profits of the contract if he had proven that any direct, as distinguished from speculative, profits would have been realized. But this he failed to do; and the court below very properly restricted its award of damages to his actual expenditures and losses.

The prima facie measure of damages for the breach of a contract is the amount of the loss which the injured party has sustained thereby. If the breach consists in preventing the perfaormance of the contract, without the fault of the other party, who is willing to perform it, the loss of the latter will consist of two distinct items or grounds of damage, namely,—First, what he has already expended towards performance, (less the value of materials on hand;) secondly, the profits that he would realize by performing the whole contract. The second item, profits, cannot always be recovered. They may be too remote and speculative in their character, and therefore incapable of that clear and direct proof which the law requires. But when, in the language of Chief Justice NELSON, in the case of Masterson v. Mayor of Brooklyn, 7 Hill, 69, they are 'the direct and immediate fruits of the contract,' they are free from this objection; they are then 'part and parcel of the contract itself, entering into and constituting a portion of its very elements; something stipulated for, the right to the enjoyment of which is just as clear and plain as to the fulfillment of any other stipulation.' Still, in order to furnish a ground of recovery in damages, they must be proved. If not proved, or if they are of such remote and speculative character that they cannot be legally proved, the party is confined to his loss of actual outlay and expense. This loss, however, he is clearly entitled to re-[345]-cover in all cases, unless the other party, who has voluntarily stopped the performance of the contract, can show the contrary.

The rule, as stated in Speed's Case, is only one aspect of the general rule. It is the rule as applicable to a particular case. As before stated, the primary measure of damages is the amount of the party's loss; and this loss, as we have seen, may consist of two heads or classes of damage—actual outlay and anticipated profits. But failure to prove profits will not prevent the party from recovering his losses for actual outlay and expenditure. If he goes also for profits, then the rule applies as laid down in Speed's Case, and his profits will be measured by 'the difference between the cost of doing the work and what he was to receive for it,' etc. The claimant was not bound to go for profits, even though he counted for them in his petition. He might stop upon a showing of losses. The two heads of damage are distinct, though closely related. When profits are sought a recovery for outlay is included and something more. That something more is the profits. If the outlay equals or exceeds the amount to be received of course there can be no profits. When a party injured by the stoppage of a contract elects to rescind it, then, it is true, he cannot recover any damages for a breach of the contract, either for outlay or for loss of profits; he recovers the value of his services actually performed as upon a quantum meruit. There is then no question of losses or profits. But when he elects to go for damages for the breach of the contract, the first and most obvious damage to be shown is the amount which he has been induced to expend on the faith of the contract, including a fair allowance for his own time and services. If he chooses to go further, and claims for the loss of anticipated profits, he may do so, subject to the rules of law as to the character of profits which may be thus claimed. It does not lie, however, in the mouth of the party, who has voluntarily and wrongfully put an end to the contract, to say that the party injured has not been damaged at least to the amount of what he has been induced fairly and in good faith to lay out and expend, (including his own services,) after mak-[346]-ing allowance for the value of materials on hand; at least it does not lie in the mouth of the party in fault to say this, unless he can show that the expenses of the party injured have been extravagant, and unnecessary for the purpose of carrying out the contract.

It is unnecessary to review the authorities on this subject. Some of them are referred to in the extract made from the opinion of the court below; others may be found referred to in Sedgwick on the Measure of Damages, and in Smith's Leading Cases, vol. 2, p. 36, etc., (notes to Cutter v. Powell;) Add. Cont. §§ 881, 897. The cases usually referred to, and which, with many others, have been carefully examined, are, Planche v. Colburn, 5 Car. & P. 58; S. C. 8 Bing. 14; Masterson v. Mayor of Brooklyn, 7 Hill, (N. Y.) 61; Goodman v. Pocock, 15 Q. B. 576; Hadley v. Baxendale, 9 Ex. 341; Fletcher v. Tayleur, 17 C. B. 21; Smeed v. Food, 1 El. & El. 602; Inchbald v. Western Coffee Co. 17 C. B. (N. S.) 733; Griffin v. Colver, 16 N. Y. 489; and the case of U. S. v. Speed, supra.

It is to be observed that when it is said in some of the books that where one party puts an end to the contract the other party cannot sue on the contract, but must sue for the work actually done under it, as upon a quantum meruit; this only means that he cannot sue the party in fault upon the stipulations contained in the contract, for he himself has been prevented from performing his own part of the contract upon which the stipulations depend. But, surely, the willful and wrongful putting an end to a contract, and preventing the other party from carrying it out, is itself a breach of the contract for which an action will lie for the recovery of all damage which the injured party has sustained. The distinction between those claims under a contract which result from a performance of it on the part of the claimant, and those claims under it which result from being prevented by the other party from performing it, has not always been attended to. The party who voluntarily and wrongfully puts an end to a contract, and prevents the other party from performing it, is estopped from denying that the injured party has not been [347] damaged to the extent of his actual loss and outlay fairly incurred.

The particular form of the petition in this case ought not to preclude the claimant from recovering what was fairly shown by the evidence to be the damage sustained by him. Though it is true that he does pray judgment for damages arising from loss of profits, yet he also prays judgment for the amount of his outlay and expenses, less the amount realized from the sale of materials on hand. The claim for profits, if not sustained by proof, ought not to preclude a recovery of the claim for losses sustained by outlay and expenses. In a proceeding like the present, in which the claimant sets forth by way of petition a plain statement of the facts without technical formality, and prays relief either in a general manner, or in an alternative or comulative form, the court ought not to hold the claimant to strict technical rules of pleading, but should give to his statement a liberal interpretation, and afford him such relief as he may show himself substantially entitled to if within the fair scope of the claim as exhibited by the facts set forth in the petition.

We think that the judgment of the court of claims was right, and it is affirmed.

27 A. 912
56 N.J.L. 23
KEHOE
v.
MAYOR, ETC., OF BOROUGH OF RUTHERFORD.
Supreme Court of New Jersey.
Nov. 9, 1893.

(Syllabus by the Court.)

Action on a contract by John Kehoe against the mayor and common council of the borough of Rutherford. Heard on a rule to show cause why a new trial should not be granted after order of nonsuit Rule discharged.

Argued June term, 1893, before BEASLEY, C. J., and MAGIE, GARRISON, and DIXON, JJ.

Addison Ely and S. B. Ransom, for plaintiff.

Geo. B. Luce, for defendant.

DIXON, J. On October 15, 1888, the plaintiff and defendant entered into a written contract, under seal, by which the plaintiff became bound to grade, work, shape, level, smooth, and roll Montrose avenue, in the borough of Rutherford, to its entire width, according to [27 A. 913] the established grade, commencing at Washington avenue, and ending at Pierpont avenue, and the defendant became bound to pay him therefor 65 cents per lineal or running foot.

Soon afterwards, the plaintiff began the work, and continued until it was discovered that some of the land to be graded under the contract was private property. Then, being forbidden by the owners to enter upon this property, the plaintiff stopped the work, by direction of the borough authorities, and concluded to abandon it in the meantime, he had been paid $1,850 of the contract price.

On this state of facts, he brought suit against the defendant, relying, in one count of his declaration, upon the breach of the special contract, and, in another, on the quantum meruit for the work done.

At the trial in the Bergen circuit the plaintiff's evidence tended to prove that the length of the whole work required by the contract was 4,220 feet, which, at the contract rate,—65 cents per lineal foot,—made the aggregate price $2,743; that about 3,500 feet in length had been substantially graded, but still needed trimming up and finishing; that in doing this work he had excavated about 8,000 cubic yards of earth, and had put in about 1,300 cubic yards of filling; that to complete the job, about 14,000 cubic yards of filling were still necessary, besides the trimming up and finishing of the entire length of the street. His evidence further indicated that the fair cost of the work done was:

8,000 cubic yards of excavation, at 35 cents     $2,800
900 cubic yards of filling, at 21 cts                      189
400 cubic yards of filling, at 41 cts                      164
Making a total of                                           $3,153

—and that the fair cost of the work remaining to be done, in completely performing the contract, was:

14,000 cubic yards of filling, at 12 cents            $1,680
4,220 feet of finishing, at 5 cents                        211
Making a total of                                           $1,891

—thus showing the fair cost of the whole work required by the contract to be $5,044.

These calculations are, in every instance, based upon the testimony most favorable to the plaintiff; allowing him the highest estimates for what he had done, and reckoning the residue at the lowest. If his own estimates, or those of any single witness, were taken throughout, the result would be more to his disadvantage.

Upon the evidence thus presented, the plaintiff was nonsuited, and a rule allowed that the defendant show cause why a new trial should not be awarded.

The nonsuit was ordered upon the theory that the plaintiff could recover, for the work done, only such a proportion of the contract price as the fair cost of that work bore to the fair cost of the whole work required, and, in respect of the work not done, only such profit, if any, as he might have made by doing it for the unpaid balance of the contract price. Under this theory, his recovery for the work done was to be limited to such a proportion of $2,743 as 3,153 bears to 5,044, viz. $1,715; and as to the work not done, since it would cost him $1,891 to do it, while the unpaid balance of the price was only $893, no profit could be earned by doing it. Hence, it was considered that he had been overpaid to the extent of the difference between $1,850 and $1,715.

But the contention of the plaintiff was and is that, as he was prevented from completing the contract without fault on his part, he is entitled to the reasonable value of the work done, without reference to the contract price; and if this be the correct rule, undoubtedly the case should have gone to the jury. But, at the very threshold, we are confronted with this possible result of the application of the rule contended for: That the plaintiff might recover $3,153 for doing about three-fifths of the work, while, if he had done it all, he could have recovered only $2,743. The absurdity of the result condemns the application of such a rule.

Circumstances may exist in which, for work done under a special contract, the plaintiff will recover its fair value. Thus, if the contract be within the prohibition of the statute of frauds, (McElroy v. Ludlum, 32 N.J. Eq. 828;) or if, the work being only partly done, that which is done, or that which is left undone, cannot be measured, so as to ascertain its price at the rate specified in the contract, (Derby v. Johnson, 21 Vt. 17,) or, in the absence of evidence to the contrary, it may be assumed that the rate specified is a reasonable one, (U. S. v. Behan, 110 U. S. 338, 4 Sup. Ct. Rep. 81.) But, generally, when it can be determined what, according to the contract, the plaintiff would receive for that which he has done, and what profit he would have realized by doing that which, without fault, he has been prevented from doing, then these sums become the legal, as they are the just, measure of his damages. He is to lose nothing, but, on the other hand, he is to gain nothing, by the breach of the contract, except as the abrogation of a losing bargain may save him from additional loss.

This is the rule applied in the case of Masterton v. Mayor, etc., of Brooklyn, 7 Hill, 61, where the plaintiff was to receive $271,600 for 88,819 feet of marble, and after he had delivered 14,779 feet the defendant stopped him. He was awarded the contract price for the 14,779 feet, and the profit which he would have made by delivering the balance. The same principle was declared by this court in Boyd v. Meighan, 48 N.J. Law, 404, 4 Atl. Rep. 778, and accords with the fundamental doctrines laid down by Mr. Sedgwick, (1 Sedg. Dam. [200] 432:) First, that the plaintiff must show himself to have sustained damage, or, in other words, that actual compensation [27 A. 914] will only be given for actual loss; and, second, that the contract itself furnishes the measure of damages.

Sometimes it has been held that if the contract binds the defendant to pay otherwise than in money, and he refuses, then the plaintiff may recover the cash value of what he has done or delivered. Ankeny v. Clark, 148 U. S. 345, 13 Sup. Ct. Rep. 617. But in New Jersey the rule is that he shall recover the cash value of what he was to receive, (Hinchman v. Rutan, 31 N.J. Law, 496,) thus maintaining the standard fixed by the contract.

Some of the obscurity surrounding this subject springs, I think, from a failure to distinguish between the right to sue upon the quantum meruit, when the contract remains uncompleted through the fault of the defendant, and the measure of damages in such a state of facts. It is well settled that if the plaintiff has fully performed his contract, so that nothing remains but the duty of the defendant to pay, the plaintiff may declare upon the quantum meruit, ignoring the special contract, and the plaintiff's readiness and offer to perform are to this extent, but to this extent only, (Shannon v. Comstock, 21 Wend. 457,) equivalent to actual performance. In both cases, however, the amount which the plaintiff deserves to recover is regulated by the contract. The refusal of the defendant to pay, after all the work is done, is no less a breach of the contract than is his refusal to permit the plaintiff to do all that the bargain entitled him to do; but neither breach does or ought to put the parties in the position they would have occupied if no contract had been made. In both cases, what is done was done under the contract, and should be paid for accordingly.

If, on partial performance, the plaintiff confines himself to the common counts, he excludes by his pleading any claim for what he has not performed, but he does not thereby enhance his deserts for what he has performed; and therefore, in order to obtain complete justice on breach of a profitable bargain, he must resort to a special count.

Our conclusion is that, as the plaintiff had been paid up to the full measure of the contract for the work done, and could have made no profit by its further prosecution, the nonsuit was substantially right.

The rule to show cause is discharged.

230 Pa. St. 480
Philadelphia
v.
Tripple, Appellant.

Argued Jan. 5, 1911. Appeal, No. 61, Jan. T., 1910, by defendants, from order of C. P. No. 1, Phila. Co., Dec. Term, 1903, No. 803, dismissing exceptions to report of referee in case of Philadelphia to use of John McMenamy v. William Y. Tripple, Trustee in Bankruptcy of the Estate of George C. Dietrich, substituted defendant for George C. Dietrich and J. Hampton Moore, Receiver of City Trust, Safe Deposit & Surety Company of Philadelphia, substituted defendant for said City Trust Safe Deposit & Surety Company. Before FELL, C. J., BROWN, MESTREZAT, POTTER, ELKIN, STEWART and MOSCHZISKER, JJ. Affirmed.

Appeal from Court of Common Pleas, Philadelphia County.

Action by the City of Philadelphia, to the use of John McMenamy, against William Y. Tripple, trustee in bankruptcy of George C. Dietrich, substituted defendant for George C. Dietrich and J. Hampton Moore, receiver of City Trust, Safe Deposit & Surety Company of Philadelphia, substituted defendant for such company. From an order dismissing exceptions to the referee's report, defendants appeal. Affirmed on the report of the referee.

Exceptions to report of George Wharton Pepper, Esq., referee.

The referee's report was substantially as follows:

FINDINGS OF FACT

1. On October 4, 1902, George C. Dietrich entered into a contract with the city of Philadelphia to furnish and deliver the materials and to perform the work required to [481] be done in "constructing the foundations and superstructure for Engine House No. 2 and Boiler House No. 2 situate on ground lying between the Delaware River and Milnor Street and Between Robins Street and Levick Street in the Forty-first Ward of said city. . . .”

2. On the same day Dietrich as principal and the City Trust, Safe Deposit and Surety Company of Philadelphia as surety executed and delivered to the city a bond in the sum of $56,500 conditioned as follows: "That if the said George C. Dietrich shall and will promptly make payment to all persons, any and all sum or sums of money which may be due for supplying him with labor and materials, whether as a subcontractor or otherwise, in the prosecution of the work provided for in said contract, and shall and will comply with all the provisions of the ordinance of the Select and Common Councils of the city of Philadelphia entitled, 'An ordinance for the protection of sub-contractors,' etc. . . ."

3. On February 16, 1903, the said Dietrick and John McMenamy entered into a contract by which the latter undertook the excavation for and laying pipe and placing all material required to construct the main conduit, Delaware River Conduit, the East Conduit, the intake chamber and gate chamber Nos. 1, 2 and 3 with their connections as shown on the plans, . . . . for the price or sum of $34,500, to be paid in monthly cash payments as the work progressed in accordance with the estimates as certified by the inspectors and engineers in charge of the work in accordance with a certain schedule dated February 16, 1903; to the extent of 35 per cent thereof and the final payment reserved until the full completion and approval of the work by the city engineers and inspectors. This contract, inter alia, provided that the work of the sub-contractor was to be completed within 125 working days from its date.

4. Under this contract McMenamy began his work of excavation at the intake chamber in the Delaware river and progressed westwardly with the excavation of the [482] conduit to a point near the wall of an engine house belonging to the city, and constituting a part of the pumping station. When the conduit arrived opposite the engine house the excavation was widened out for the building of a gate chamber until the excavation was bounded by the wall of the engine house. In the course of the excavation of this gate chamber it was found that the foundation wall of the engine house grew thicker as it descended, so that a line drawn from the top of the foundation to the bottom formed an angle with the perpendicular wall. The foundation rested on a grillage, which in its turn was supported by piles. The ordinary method of excavating was to drive sheathing just outside of the line of the excavation, so as to prevent the displacement of material, but as one side of the gate chamber was against the engine house foundation wall, it was impossible to drive sheathing outside of this line without tearing down the engine house wall, and it was impossible to drive sheathing inside the line and build the gate chamber, without departing from the plans. This difficulty was rendered inevitable by the fact that the surface of the foundation of the engine house was found to slope outward as it went downward below the surface in the manner hereinbefore described. About the time that the excavation reached the bottom of the engine house wall, water from the Delaware river rushed up into the middle of the excavation through the gravel bottom, its source being afterwards ascertained to be a defect in the forebay of the pumping station. This influx of water was not the result of fault on the part of McMenamy.

5. After the water had come in from the bottom of the excavation, a consultation was held, with the result that the chief engineer of the city changed the plans and moved the location of the gate chamber westward so as to take it away from the neighborhood of the engine house, and he also ordered the excavation made for the original gate chamber to be partially filled up adjoining the engine house, so as to facilitate the pumping out of the water. [483] The work of finishing the original excavation for the conduit was then continued. It ran from the Delaware river past and some distance from the wall of the engine house, until it reached the new gate chamber west of the engine house. In pursuing this work, great difficulty was encountered in keeping the trench clear from water, and from April until October the progress of the work was exceedingly slow, the city engineers in the meantime endeavoring to locate the leak.

6. The period of 125 working days specified in the contract of February 16, 1903, expired on or about July 14, 1903. No action was taken by Dietrich in view of the noncompletion of the work at that time, and McMenamy continued work under his contract with the knowledge and acquiescence of Dietrich. As time went on, however, Dietrich became more and more dissatisfied with the rate of progress, and early in October, 1905, a meeting to consider the situation was held on the ground, those present being Dietrich, McMenamy and their respective counsel. Dietrich complained that McMenamy was not able to cope with the water problem, and McMenamy complained that Dietrich had been derelict in not furnishing the pumps required by the contract. . . .

8. On October 15, 1903, Dietrich wrote to McMenamy a letter in which he said:

"Inasmuch as you have failed to complete the construction of conduit at Lardners Point Pumping Station, Philadelphia, within the time and in accordance with the other requirements of your contract made with me February 16, 1903, you will please discontinue further work on the conduit and remove all your men, tools, machinery and materials therefrom within five days from this date."

9. On October 16, 1903, McMenamy wrote to Dietrich:

"I will obey your notice and will at once commence and will within the time designated finish the work of removal which you demand.

"I wish to say, however, that you have no foundation for complaint at the noncompletion of the construction of the [484] Lardners Point Pumping Station conduit. You have already been told, both in writing and by word of mouth, of the particulars of which you have failed to carry out your contract. In addition to this many of the changes which have been made and the things which have been done have interfered with the completion.

"I will obey your notice, therefore, without acquiescing in your suggestion about my having failed in anything. I will bring a suit against you to recover the amount of my expenditures which I have already made and the damages which will result to me from your improper cancelling of my contract."

10. After writing the above letter of October 16, McMenamy did in fact discontinue further work under the contract and removed his men, tools, machinery and materials from the ground.

11. McMenamy was not in fact in default in the performance of his contract at the date of Dietrich's notice to quit.

12. The actual cost to McMenamy of labor and material to the date of the receipt of Dietrich's notice to quit was $24,461.89. He received from Dietrich, as the work progressed, $9,000, on account of the contract price.

FINDINGS OF LAW

1. The failure of McMenamy to perform his contract within the time specified therein gave to Dietrich a right to treat McMenamy as in default at the expiration of the period of 125 working days, from February 16, 1903. Dietrich's conduct after the expiration of the specified period amounted to a waiver of his right to enforce the time limit. As McMenamy thereafter, with Dietrich's knowledge, spent time and money in doing work under the contract, Dietrich is equitably estopped from setting up the failure to complete within the specified time as a defense to the present suit.

2. As McMenamy was not in default in the performance of his contract on October 15, 1903, the legal effect of the [485] letter written to him on that date by Dietrich was to discharge McMenamy from further obligation to perform his contract and to waive a tender of further performance.

3. Nothing in the contract between McMenamy and Dietrich justified the position taken by Dietrich in his letter of October 15, 1903.

4. In virtue of his discharge by Dietrich from the obligation of further performance, McMenamy acquired the right to bring an action against Dietrich for the breach of contract or to treat the contract as rescinded by the action of Dietrich, and to bring an action to recover the amount theretofore expended by McMenamy for labor and materials, less a proper credit for sums paid on account of the contract price. McMenamy, in fact, elected to stand on the second of these two rights. This circumstance that McMenamy, had he been permitted to complete his contract, would necessarily have expended (if we are to judge by the subsequent experience of Dietrich) a sum largely in excess of the contract price, is not a circumstance that deprives him of his right to recover the actual cost of labor and material incurred by him.

5. The money which McMenamy is entitled to recover from Dietrich in virtue of the election of remedies made by McMenamy, falls within the meaning of the words "money which may be due for supplying . . . . labor and materials," in the condition of the bond given by Dietrich, as principal, and the City Trust, Safe Deposit & Surety Company, as surety, and a valid right of action for such moneys arose upon said bond in favor of McMenamy against the original defendants.

6. The bond in suit is not in its nature a bond indemnifying McMenamy against loss. It is an absolute undertaking by its makers that money due the subcontractor for supplying the principal contractor with labor and materials shall be paid; and this circumstance makes it immaterial to the obligee's rights that he would or might have lost money on his contract, had he been permitted to proceed with performance. The plaintiff, McMenamy, [486] is entitled to recover from the substituted defendants the sum of $15,461.89 with interest from October 14, 1903.

OPINION

The findings of fact heretofore made by the referee sufficiently indicate the view taken by him upon such conflicts of testimony as are disclosed by the record. Nor does it seem necessary to state more fully than in the findings of law the reasons which have led the referee to conclude that the failure of McMenamy to finish his work within the time specified in the contract is not a material circumstance in the case.

The only question of law which seems to the referee to call for a more extended comment is the question of the right of McMenamy to recover his disbursements for labor and material in a case where it seems reasonable to infer that full performance by McMenamy would have involved an expenditure by him of sums in excess of the contract price. It may be remarked in passing that the large expenditures made by Dietrich when he undertook to complete the work begun by McMenamy do undoubtedly suggest the inference that McMenamy would have completed at a loss, although it is of course not a necessary conclusion of fact or of law that this would have been the case.

Even, however, if it be assumed that McMenamy, if allowed to complete his work, would have lost money in so doing, the referee is of opinion that the act of the defendant Dietrich, in discharging the plaintiff from further obligation to perform, gave rise to a right on the part of the plaintiff to recover for his disbursements. Let it be assumed that, in an extreme case, a builder has actually expended in the course of his work a sum in excess of the contract price and has not yet completed performance. If under such circumstances, the builder finishes his work, the owner, upon paying the contract price, will receive the benefit of a large expenditure actually made, in return for the payment of a smaller sum of money. This [487] result, which may well involve a hardship upon the builder, is made necessary by a proper regard for the contractural rights of the owner. The owner has made a valid contract, and this contract must be protected and enforced even if the builder suffers.

Let it further be supposed, however, that the owner, who finds himself in this position of advantage, voluntarily puts an end to his contract rights in the premises. This in legal effect he does if he himself breaks the contract or discharges the builder from his obligation to perform it. The situation which then presents itself is one in which the builder has in good faith expended money in the course of work done for the benefit of the owner, and has, in the absence of contract, an equitable claim to be reimbursed. The owner, on the other hand, has deprived himself of the legal right which would have sufficed to defeat the equity. He accordingly stands defenseless in the presence of the builder's claim.

Such, it is submitted, is the legal analysis of the situation in which the parties to this action find themselves. It may, of course, be contended that Dietrich did not receive an actual benefit coextensive with McMenamy's expenditure. It is a sufficient answer to this contention to observe that (upon the facts as heretofore found) McMenamy expended the money in good faith and in the course of attempted performance. This is sufficient to give him an equitable claim for reimbursement.

The defendants do not dispute the general proposition that a plaintiff may, as if in the absence of contract, recover the cost of work and materials in case he is prevented by the owner from finishing his work. The defendants earnestly contend, however, that the rule meets with an exception in case the disbursements exceed the contract price. In other words, they regard the difference between the price specified in the contract and the sum of the disbursements as the measure of recovery, and they insist that if the aggregate of disbursements equals or exceeds the contract price there can be no recovery at all.

[488] This view, as is indicated by the analysis made above, appears to the referee to involve a confusion of thought. How can the plaintiff's claim for disbursements actually made be met by the limitation contained in a contract, unless the defendant retains the right to enforce the contract? And how can it be contended that the defendant retains such a right when the contract has been discharged by his own act? It may well be that a plaintiff, upon defendant's breach may offer the discharged contract as evidence of the value of that for which he is seeking recovery. The plaintiff in such a case has not broken the contract; he may fairly contend that its terms are at least an admission by the defendant which the jury should take into consideration. But where the defendant undertakes to limit the plaintiff's recovery by treating the contract price as a limitation upon such recovery, he is asserting a right under the very contract which he himself has discharged. The defendants cite Brown v. Foster, 51 Pa. 165, as sustaining their contention. On examination, however, it is clear that the case does not help them. It was the case of a plaintiff not in default who was held to be entitled to offer the contract in evidence in an action upon the common counts. It was not the case of a defendant in default who attempted to enforce a right created by the broken contract. On the other hand, Mooney et al. v. York Iron Co., 82 Mich. 263 (46 N. W. Repr. 376), cited by the plaintiff, throws much light upon the question under consideration, for in that case the plaintiff was permitted to recover from defendant in default the fair value of labor and material which was said not to be correctly measured by their value to the defendant.

The case last referred to becomes particularly significant when we come to consider Doolittle v. McCullough, 12 Ohio St. 360, which is strongly relied upon by the defendants. If the opinion is read without attentive consideration of the facts, there are a number of statements by the court which supports the defendant's view. That the case abounds in obiter dicta is recognized in the later de [489] cision of the same learned court in Wellston Coal Co. v. Franklin Paper Co., 57 Ohio St. 182 (48 N. E. Repr. 888). Even in the latter case, however, it is fair to the defendants to say that the court treats Doolittle v. McCullough as authority for the alleged general rule that a plaintiff cannot in indebitatus assumpsit recover more than the contract price. Curiously enough, the judge who criticises the looseness of the language in the earlier opinion fell into the same error himself. Doolittle v. McCullough is not an authority for any such general rule. What happened in that case was this: that contractor who had done excavation at the contract price of eleven cents per cubic yard and had received payment at the contract price for which he had done, was permitted (after an alleged stoppage of the work by the defendant) to recover not only for subsequent disbursements, but additional compensation for work already paid for—on the ground that its fair value was in excess of the contract price. A verdict for the plaintiff involving such a recovery was set aside and the instruction which made it possible was held to be erroneous. An accurate statement of what was really decided in Doolittle v. McCullough will be found in Keener on Quasi Contracts, pp. 312 and 313. In the footnote on the latter page will be found a careful discrimination between those cases in which the plaintiff is in default and those in which the defendant is in default.

Doolittle v. McCullough is not, therefore, an authority in the present case. So far as the evidence shows, not a dollar of the sum now claimed by the plaintiff represents disbursements for work that has been paid for, nor is he seeking additional compensation for having done such work at a loss. He stands upon the proposition that a plaintiff not in default may recover in indebitatus assumpsit against a defendant in default the cost to the plaintiff of such labor and materials as have not yet been paid for, although such cost is in excess of the price fixed in the contract which the defendants' act has discharged. This proposition is of strength amply sufficient for the plaintiff's support.

It is indeed suggested that the plaintiff's statement, by including a claim for profits, makes it impossible to regard the action as an action in disaffirmance of the contract. The claim for profits has been abandoned by the plaintiff, and the amount awarded by the referee includes no such element. As a mere matter of pleading, however, the defendant's point would be well taken but for the circumstance that, in the last analysis, the action is to be regarded as an action on the bond given by the defendant. The various averments in the statement of claim must be treated as averments of the facts which are alleged to have constituted a breach of the condition. If the proofs establish such a part of the allegata as suffice to constitute a breach of the condition, a recovery may be had without amendment. As the alleged variance has really not misled the defendants, an amendment of the statement would be permitted at any stage of the cause even in case it were technically necessary.

For the reasons above given, and in accordance with the findings heretofore made, the referee recommends the entry of a judgment in favor of the plaintiff and against the defendants in the sum of $15,461.89 with interest from October 14, 1903.

Exceptions to referee's report were dismissed by the court.

Error assigned was in dismissing exceptions to referee's report.

Hampton L. Carson, with him John Kent Kane and Joseph Hill Brinton, for appellants.

Frank P. Prichard, with him John G. Johnson, for appellee.

Per Curiam, February 27, 1911.

The judgment appealed from is affirmed for the reasons stated in the report of the learned referee.

51 S.W.2d 572

SECURITY STORE & MANUFACTURING CO., RESPONDENT,
v.
AMERICAN RAILWAYS EXPRESS CO., APPELLANT.

No. 17560.
Kansas City Court of Appeals. Missouri.
May 23, 1932.

[573] Appeal from the Circuit Court of Jackson County. — Hon. Ralph S. Latshaw, Judge.

AFFIRMED.

Joseph F. Keirnan for respondent.

Lathrop, Crane, Reynolds, Sawyer & Mersereau and Dean Wood for appellant.

BLAND, J.

This is an action for damages for the failure of defendant to transport, from Kansas City to Atlantic City, New Jersey, within a reasonable time, a furnace equipped with a combination oil and gas burner. The cause was tried before the court without the aid of a jury, resulting in a judgment in favor of plaintiff in the sum of $801.50 and interest, or in a total sum of $1000. Defendant has appealed.

The facts show that plaintiff manufactured a furnace equipped with a special combination oil and gas burner it desired to exhibit at the American Gas Association Convention held in Atlantic City in October, 1926. The president of plaintiff testified that plaintiff engaged space for the exhibit for the reason "that the Henry L. Dougherty Company was very much interested in putting out a combination oil and gas burner; we had just developed one, after we got through, better than anything on the market and we thought this show would be the psychological time to get in contact with the Dougherty Company;" that "the thing wasn't sent there for sale but primarily to show;" that at the time the space was engaged it was too late to ship the furnace by freight so plaintiff decided to ship it by express, and, on September 18, 1926, wrote the office of the defendant in Kansas City, stating that it had engaged a booth for exhibition purposes at Atlantic City, New Jersey, from the American Gas Association, for the week beginning October 11th; that its exhibition consisted of an oil burning furnace, together with two oil burners which weighed at least 1500 pounds; that, "In order to get this exhibit in place on time it should be in Atlantic City not later than October the 8th. What we want you to do is to tell us how much time you will require to assure the delivery of the exhibit on time."

Mr. Bangs, chief clerk in charge of the local office of the defendant, upon receipt of the letter, sent Mr. Johnson, a commercial representative of the defendant, to see plaintiff. Johnson called upon plaintiff taking its letter with him. Johnson made a notation on the bottom of the letter giving October 4th, as the day that defendant was required to have the exhibit in order for it to reach Atlantic City on October 8th.

On October 1st, plaintiff wrote the defendant at Kansas City, referring to its letter of September 18th, concerning the fact that the furnace must be in Atlantic City not later than October 8th, and stating what Johnson had told it, saying:

"Now, Mr. Banks, we want to make doubly sure that this shipment is in Atlantic City not later than October 8th and the purpose of this letter is to tell you that you can have your truck call for the shipment between 12 and 1 o'clock on Saturday, October 2nd for this." (Italics plaintiff's.)

On October 2nd, plaintiff called the office of the express company in Kansas City and told it that the shipment was ready. Defendant came for the shipment on the last mentioned day, received it and delivered the express receipt to plaintiff. The shipment contained twenty-one packages. Each package was marked with stickers backed with glue and covered with silica of soda, to prevent the stickers being torn off in shipping. Each package was given a number. They ran from one to twenty-one.

Plaintiff's president made arrangements to go to Atlantic City to attend the convention and install the exhibit, arriving there about October 11th. When he reached Atlantic City he found the shipment had been placed in the booth that had been assigned to plaintiff. The exhibit was set up, but it was found [574] that one of the packages shipped was not there. This missing package contained the gas manifold, or that part of the oil and gas burner that controlled the flow of gas in the burner. This was the most important part of the exhibit and a like burner could not be obtained in Atlantic City.

Wires were sent and it was found that the stray package was at the "over and short bureau" of defendant in St. Louis. Defendant reported that the package would be forwarded to Atlantic City and would be there by Wednesday, the 13th. Plaintiff's president waited until Thursday, the day the convention closed, but the package had not arrived at the time, so he closed up the exhibit and left. About a week after he arrived in Kansas City, the package was returned by the defendant.

Banks testified that the reasonable time for a shipment of this kind to reach Atlantic City from Kansas City would be four days; that if the shipment was received on October 4th, it would reach Atlantic City by October 8th; that plaintiff did not ask defendant for any special rate; that the rate charged was the regular one; that plaintiff asked no special advantage in the shipment; that all defendant, under its agreement with plaintiff was required to do was to deliver the shipment at Atlantic City in the ordinary course of events; that the shipment was found in St. Louis about Monday afternoon or Tuesday morning; that it was delivered at Atlantic City at the Ritz Carlton Hotel, on the 16th of the month. There was evidence on plaintiff's part that the reasonable time for a shipment of this character to reach Atlantic City from Kansas City was not more than three or four days.

The petition upon which the case was tried alleges that plaintiff, on October 2, 1926, delivered the shipment to the defendant; that defendant agreed, in consideration of the express charges received from plaintiff, to carry the shipment from Kansas City to Atlantic City, and

"to deliver the same to plaintiff at Atlantic City, New Jersey, on or before October 8, 1926, the same being the reasonable and proper time necessary to transport said shipment to Atlantic City, in as good condition as when received of defendant (plaintiff) at Kansas City, Missouri; that previous to the delivery of said goods to defendant at Kansas City, Missouri, this plaintiff apprised defendant of the kind and nature of the goods and told defendant of the necessity of having the goods at Atlantic City by October 8, 1926, and the reason therefor; that defendant knew that the goods were intended for an exhibit at the place and that they would have to be at Atlantic City by that date to be of any service to the defendant (plaintiff)." (Italics ours.)

"That this defendant through its servants and agents, after being apprised of the nature of the shipment of goods and all of the necessity of having the goods at Atlantic City at the time specified, to-wit: October 8, 1926, agreed with plaintiff and promised and assured plaintiff that if they would transport the goods through defendant, and deliver said goods to defendant at Kansas City by October 4th, that they would be at Atlantic City by said date, to-wit: October 8, 1926; that relying upon the promises and assurances of the defendant's agents and servants that the goods would be in Atlantic City by October 8, 1926, this plaintiff delivered said goods to the defendant on October 2, 1926, at Kansas City, Missouri, and paid defendant the express charges on same, as above set out, in packages or parcels, numbered from one to twenty-one inclusive.

"That relying upon defendant's promise and the promises of its agents and servants, that said parcels would be delivered at Atlantic City by October 8, 1926, if delivered to defendant by October 4, 1926, plaintiff herein hired space for an exhibit at the American Gas Association Convention at Atlantic City, and planned for an exhibit at said Convention and sent men in the employ of this plaintiff to Atlantic City to install, show and operate said exhibit, and that these men were in Atlantic City ready to set up this plaintiff's exhibit at the American Gas Association Convention on October 8, 1926."

"That defendant, in violation of its agreement, failed and neglected to deliver one of the packages to its destination on October 8, 1926:

"That the package not delivered by defendant contained the essential part of plaintiff's exhibit which plaintiff was to make at said convention on October 8th, was later discovered in St. Louis, Missouri, by the defendant herein, and that plaintiff, for this reason, could not show his exhibit."

Plaintiff asked damages, which the court in its judgment allowed as follows: $147 express charges (on the exhibit); $45.12 freight on the exhibit from Atlantic City to Kansas City; $101.39 railroad and pullman fares to and from Atlantic City, expended by plaintiff's president and a workman taken by him to Atlantic City; $48 hotel room for the two; $150 for the time of the president; $40 for wages of plaintiff's other employee and $270 for rental of the booth, making a total of $801.51.

Defendant contends that its instructions in the nature of demurrers to the evidence should have been given for the reason that the petition and plaintiff's evidence show that plaintiff has based its cause of action on defendant's breach of a promise to deliver [575] the shipment at a specified time and that promise is non-enforceable and void under the Interstate Commerce Act; that the court erred in allowing plaintiff's expenses as damages; that the only damages, if any, that can be recovered in cases of this kind, are for loss of profits and that plaintiff's evidence is not sufficient to base any recovery on this ground.

No attack was made upon the petition at the trial and at this late day it must be adjudged to be sufficient if it states any cause of action whatever, however in artificially it may be drawn. Of course, the law applicable to the case is governed by the Statutes of the United States as construed by the Federal Courts. [Bilby v. A.T.S.F. Ry. Co., 199 S.W. 1004.] It is well established that a shipper cannot recover on a special contract to move a shipment within a specified time, for such would work an unjust discrimination among shippers. The only duty that the carrier is under is to carry the shipment safely and to deliver it at its destination within a reasonable time. [United States v. Am. Ry. Exp. Co., 265 U.S. 425; 44 Sup. Ct. Rep. 560; C. & A.R.R. Co. v. Kirby, 225 U.S. 155, 164; A.T. & S.F. Ry. v. Robinson, 233 U.S. 173, 34 Sup. Ct. 556; Fruit & Produce Co. v. Pa. Co., 201 Mo. App. 609.]

While the petition alleges that defendant agreed to deliver the shipment at Atlantic City on or before October 8, 1926, it also alleges that this was the reasonable and proper time necessary to transport said shipment to Atlantic City. Therefore, giving the petition a liberal construction, it would appear that all that plaintiff was contending therein was that defendant had agreed to transport the shipment within a reasonable time, and that delivery on or before October 8th was necessary to comply with the agreement. The petition refers several times to the agreement that if the goods were delivered to defendant by October 4th, they would be delivered at Atlantic City not later than October 8th, but it also alleges that the goods were not delivered to defendant until October 2nd. It is quite apparent from reading the petition, as a whole, that it was not upon a contract to deliver at Atlantic City on October 8th, goods delivered by plaintiff to defendant at Kansas City on October 4th. It would appear that the purpose of plaintiff, in pleading this agreement, was to allege sufficient facts to base its claim of special damages, that is that defendant was notified that it was necessary to have the shipment at Atlantic City by October 8th, and that the damages sustained accrued as a result of plaintiff's reliance on its being so delivered and that October 8th was plenty of time for defendant to have taken to transport the shipment. Much of the petition is surplusage but we cannot adjudge it wholly insufficient at this juncture.

There is nothing in the evidence tending to show any unjust discrimination between shippers in the agreement had between plaintiff and defendant. Boiled down to its last analysis, the agreement was nothing more than that the shipment would be transported within the ordinary time. Plaintiff sought no special advantage, was asking nothing that would be denied any other shipper, was asking no particular route, no particular train, nor for any expedited service. It was simply seeking the same rights any other shipper could have enjoyed on the same terms. No special instructions were given or involved in the case. [Foster v. Cleveland, et al. R. Co., 56 Fed. 434; Packing Co. v. Alaska S.S. Co., 22 Fed. (2d) 12.]

We think, under the circumstances in this case, that it was proper to allow plaintiff's expenses as its damages. Ordinarily the measure of damages where the carrier fails to deliver a shipment at destination within a reasonable time is the difference between the market value of the goods at the time of the delivery and the time when they should have been delivered. But where the carrier has notice of peculiar circumstances under which the shipment is made, which will result in an unusual loss by the shipper in case of delay in delivery, the carrier is responsible for the real damage sustained from such delay if the notice given is of such character, and goes to such extent, in informing the carrier of the shipper's situation, that the carrier will be presumed to have contracted with reference thereto. [Central Trust Co. v. Savannah & W.R. Co., 69 Fed. 683, 685.]

In the case at bar defendant was advised of the necessity of prompt delivery of the shipment. Plaintiff explained to Johnson the "importance of getting the exhibit there on time." Defendant knew the purpose of the exhibit and ought to respond for its negligence in failing to get it there. As we view the record this negligence is practically conceded. The undisputed testimony shows that the shipment was sent to the over and short department of the defendant in St. Louis. As the packages were plainly numbered this, prima facie, shows mistake or negligence on the part of the defendant. No effort was made by it to show that it was not negligent in sending it there, or not negligence in not forwarding it within a reasonable time after it was found.

There is no evidence or claim in this case that plaintiff suffered any loss of profits by reason of the delay in the shipment. In fact defendant states in its brief:

"The plaintiff introduced not one whit of [576] evidence showing or tending to show that he would have made any sales as a result of his exhibit but for the negligence of the defendant. On the contrary Blakesley testified that the main purpose of the exhibit was to try to interest the Henry L. Dougherty Company in plaintiff's combination oil and gas burner, yet that was all the evidence that there was as to the benefit plaintiff expected to get from the exhibit.

"As a matter of evidence, it is clear that the plaintiff would not have derived a great deal of benefit from the exhibit by any stretch of the imagination....

"Nowhere does plaintiff introduce evidence showing that the Henry L. Doherty Company in all probability would have become interested in the combination oil and gas burner and made a profitable contract with the plaintiff."

There is evidence that the exhibit was not sent to make a sale.

In support of its contention that plaintiff can sue only for loss of profit, if anything, in a case of this kind, defendant, among other cases cites that of Adams Exp. Co. v. Egbert, 36 Pa. 360. That case involved the shipment of a box containing architectural drawings or plans for a building, to a building committee of the Touro Almshouse, in New Orleans. This committee had offered a premium of $500 to the successful competitor. These plans arrived after the various plans had been passed upon and the award made to another person. It was sought in that case to recover the value of the plans. The evidence, however, showed that the plans would not have won the prize had they arrived on time. The court held that the plans, under the circumstances, had no appreciable value and recovery could not be had for them and there was no basis for recovery for loss of the opportunity to compete for the prize. The opinion states that in denying recovery for the plans it is contrary to the English rule in such cases. Other cases cited by defendant involve loss of profits or the loss of opportunity to compete in such events as horse racing and the like. In one case, Table & Chair Co. v. R.R., 105 Miss. 861, it was held that the plaintiff could recover for loss of profits that might have been made in the sale of its commodity, as a result of exhibiting a sample at an exhibition, where the shipment was delayed too late for the exhibit. Some of the cases cited by defendant hold that such profits in those classes of cases are not recoverable, and others to the contrary.

Defendant contends that plaintiff "is endeavoring to achieve a return of the status quo in a suit bases on a breach of contract. Instead of seeking to recover what he would have had, had the contract not been broken, plaintiff is trying to recover what he would have had, had there never been any contract of shipment;" that the expenses sued for would have been incurred in any event. It is no doubt, the general rule that where there is a breach of contract the party suffering the loss can recover only that which he would have had, had the contract not been broken, and this is all the cases decided upon which defendant relies, including C.M. & St. P. Ry. v. McCaull-Dinsmore Co., 253 U.S. 97, 100, 40 Sup. Ct. Rep. 504, 504. But this is merely a general statement of the rule and is not inconsistent with the holdings that, in some instances, the injured party may recover expenses incurred in relying upon the contract, although such expenses would have been incurred had the contract not been breached. [See Morrow v. Railroad, 140 Mo. App. 200, 212, 213; Bryant v. Barton, 32 Neb. 613, 616; Woodbury v. Jones, 44 N.H. 206; Driggs v. Dwight, 31 Am. Dec. 283.]

In Sperry et al. v. O'Neill-Adams Co., 185 Fed. 231, the court held that the advantages resulting from the use of trading stamps as a means of increasing trade are so contingent that they cannot form a basis on which to rest a recovery for a breach of contract to supply them. In lieu of compensation based thereon the court directed a recovery in the sum expended in preparation for carrying on business in connection with the use of the stamps. The court said, l.c 239:

"Plaintiff in its complaint had made a claim for lost profits, but, finding it impossible to marshal any evidence which would support a finding of exact figures, abandoned that claim. Any attempt to reach a precise sum would be mere blind guesswork. Nevertheless a contract, which both sides conceded would prove a valuable one, had been broken and the party who broke it was responsible for resultant damage. In order to carry out this contract, the plaintiff made expenditures which otherwise it would not have made. . . . The trial judge held, as we think rightly, that plaintiff was entitled at least to recover these expenses to which it had been put in order to secure the benefits of a contract of which defendant's conduct deprived it."

In the case of Gilbert v. Kennedy, 22 Mich. 117, involved the question of the measure of plaintiff's damages, caused by the conduct of defendant in wrongfully feeding his cattle with plaintiff's in the latter's pasture, resulting in plaintiff's cattle suffering by the overfeeding of the pasture. The court said l.c. 135, 136:

"There being practically no market value for pasturage when there was none in the market, that element of certainty is wanting, even as to those cattle which were removed [577] from the Pitcher farm to the home farm of the plaintiff for pasturage; and, as it could not apply to the others at all, and there being no other element of certainty by which the damages can be accurately measured, resort must be had to such principle or basis of calculation applicable to the circumstances of the case (if any be discoverable) as will be most likely to approximate certainty, and which may serve as a guide in making the most probable estimate of which the nature of the case will admit; and, though it may be less certain as a scale of measurement, yet if the principle be just in itself, and more likely to approximate the actual damages, it is better than any rule, however certain, which must certainly produce injustice, by excluding a large portion of the damages actually sustained."

In Hobbs v. Davis, 30 Ga. 423, a negro slave was hired to make a crop, but she was taken away by her owner in the middle of the year, the result of which the crop was entirely lost. The court said, l.c. 425:

"As it was, the true criterion of damages was perhaps, the hire of the negro, the rent of the land and all the expense incurred, and actual loss sustained by the misconduct of the defendant, rather than the conjecture of the witness, as to what the crop would have been worth.

"Compensation is a fundamental principle of damages whether the action is in contract or tort. [Wicker v. Hoppock, 6 Wall, 94, 99, 18 L. Ed. 752.] One who fails to perform his contract is justly bound to make good all damages that accrue naturally from the breach; and the other party is entitled to be put in as good a position pecuniarily as he would have been by performance of the contract."

The case at bar was to recover damages for loss of profits by reason of the failure of the defendant to transport the shipment within a reasonable time, so that it would arrive in Atlantic City for the exhibit. There were no profits contemplated. The furnace was to be shown and shipped back to Kansas City. There was no money loss, except the expenses, that was of such a nature as any court would allow as being sufficiently definite or lacking in pure speculation. Therefore, unless plaintiff is permitted to recover the expenses that it went to, which were a total loss to it by reason of its inability to exhibit the furnace and equipment, it will be deprived of any substantial compensation for its loss. The law does not contemplate any such injustice. It ought to allow plaintiff, as damages, the loss in the way of expenses that it sustained, and which it would not have been put to if it had not been for its reliance upon the defendant to perform its contract. There is no contention that the exhibit would have been entirely valueless and whatever it might have accomplished defendant knew of the circumstances and ought to respond for whatever damages plaintiff suffered. In cases of this kind the method of estimating the damages should be adopted which is the most definite and certain and which best achieves the fundamental purpose of compensation. [17 C.J., p. 846: Miller v. Robertson, 266 U.S. 243, 257, 45 Sup. Ct. Rep. 73, 78.] Had the exhibit been shipped in order to realize a profit on sales and such profits could have been realized, or to be entered in competition for a prize, and plaintiff failed to show loss of profits with sufficient definiteness, or that he would have won the prize, defendant's cases might be in point. But as before stated, no such situation exists here.

While, it is true that plaintiff already had incurred some of these expenses, in that it had rented space at the exhibit before entering into the contract with defendant for the shipment of the exhibit and this part of plaintiff's damages, in a sense, arose out of a circumstance which transpired before the contract was even entered into, yet, plaintiff arranged for the exhibit knowing that it could call upon defendant to perform its common-law duty to accept and transport the shipment with reasonable dispatch. The whole damage, therefore, was suffered in contemplation of defendant performing its contract, which it failed to do, and would not have been sustained except for the reliance by plaintiff upon defendant to perform it. It can, therefore, be fairly said that the damages or loss suffered by plaintiff grew out of the breach of the contract, for had the shipment arrived on time, plaintiff would have had the benefit of the contract, which was contemplated by all parties, defendant being advised of the purpose of the shipment.

The judgment is affirmed. All concur.

178 F.2d 182 (1949)

L. ALBERT & SON
v.
ARMSTRONG RUBBER CO.

No. 6, Docket 21183.
United States Court of Appeals Second Circuit.
Argued October 5, 1949.
Decided November 29, 1949.

[178 F.2d 184]

Abraham S. Ullman, Irving Sweedler and William L. Beers, New Haven, Conn., for plaintiff.

Albert H. Barclay and William L. Hadden, New Haven, Conn., with whom on the brief were Albert H. Barclay, Jr. and John W. Barclay, New Haven, Conn., for defendant.

Before L. HAND, Chief Judge and SWAN and CLARK, Circuit Judges.

L. HAND, Chief Judge.

Both sides appeal from the judgment in an action brought by the Albert Company, which we shall speak of as the Seller, against the Armstrong Company, which we shall call the Buyer. The action was to recover the agreed price of four "Refiners," machines designed to recondition old rubber; the contract of sale was by an exchange of letters in December, 1942, and the Seller delivered two of the four "Refiners" in August, 1943, and the other two on either August 31st or September 8th, 1945. Because of the delay in delivery of the second two, the Buyer refused to accept all four in October, 1945 — the exact day not being fixed — and it counterclaimed for the Seller's breach. The judge dismissed both the complaint and the counterclaim; but he gave judgment to the Seller for the value without interest of a part of the equipment delivered — a 300 horse-power motor and accessories — which the Buyer put into use on February 20th, 1946. On the appeal the Seller's position is that its delay was not too long; that in any event the Buyer accepted delivery of the four "Refiners"; and that they were in accordance with the specifications. As an alternative it insists that the Buyer is liable, not only for the value of the motor, but for interest upon it; and, as to the counterclaim, that the Buyer proved no damages, assuming that there was a breach. The judge found that all four "Refiners" conformed to the specifications, or could have been made to do so with slight trouble and expense; that the contract was inseparable and called for four not two and two; that the delivery of the second two was too late; and that, as the Buyer rejected all four, it was not liable on the contract at all. On the [178 F.2d 185] other hand, as we have said, he found that the Buyer's use for its own purposes of the motor, although not an acceptance of the "Refiners," made it liable for the value of the motor in quasi contract, but without interest. He dismissed the Buyer's counterclaim because it had failed to prove any damages.

The first issue is whether the Seller's delivery of the second two "Refiners" was too late, and justified the Buyer's rejection of all four in October of that year. The Seller does not — at least on this appeal — seek to recover the purchase price of the first two "Refiners" on the ground that the parties had at any time severed the contract into two separate ones, each for two. It follows that the Buyer was entitled in October, 1945, to reject the four, if the delivery of the second two was too late. The evidence as to this was as follows. Although the Buyer had suggested cancellation of the contract in the spring of 1943, by April first of that year it was pressing for delivery, and, when the Seller wrote at the end of July that it would ship the first two in "a couple of weeks," and the other two probably within four weeks, the Buyer not only did not protest against the delay, but in August accepted the two which the Seller did deliver. Moreover, when the Seller did not ship the other two within the time mentioned, the Buyer on October first, 1943, recognized the contract as still in existence. True, by the end of that year it began to complain of the performance of the two machines delivered, and it suggested that the Seller take them back; but, when the Seller answered by offering to put these two in proper condition, an active correspondence followed, resulting in a personal interview between the heads of the two parties in July, 1944. At this there was an inconclusive discussion of settlement, after which in August the Buyer agreed to install the two; and in September the Seller recognized the original contract as still in existence. Although in December the Buyer did declare its doubts whether it would be able "to keep these machines in production without considerable maintenance expense," and proposed a resale of them to the Seller, apparently the Seller did not reply; and in any event this proposal lapsed, for on February 23d, 1945, the Buyer wrote that it "would like to have you ship the two remaining Refiners at once." This demand the Seller answered by complaining that the two already delivered had never been paid for, to which on March 28th the Buyer rejoined that nothing was due on the contract until "30 days after the delivery of the complete order." It continued: "We want to complete the installation of this refiner line and are again requesting you to ship the two remaining refiners if they are in good operating condition."

Thus it appears that, whatever may have been the Seller's delay up to that time, the Buyer would have been bound to accept a delivery of the second two within a reasonable time after March 28th, and to pay for the four, assuming that they conformed to the specifications, as the judge found that they did. As we understand it, the parties are not at variance so far, except for the finding as to conformity, just mentioned, which turns out to be irrelevant, as will appear. Since the Seller did not deliver the second two machines until five months after the demand of March 28th, the first question is whether the judge was right in holding that that was too late. When the Seller in July, 1943, said that it would ship the second two machines within four weeks, we will assume that that was the proper measure of a reasonable time for their delivery, and would have been conclusive, had it not been for the conduct of the parties during the following eighteen months. However, although during that period the Buyer had been in doubt whether it could make operative the two already delivered, it had never even intimated an objection to the delay in the delivery of the second two. If the circumstances had not changed as much as they did during the five months after March 28th, it might therefore be plausibly argued that the long drawn negotiations showed that further delay was not of vital consequence, in spite of the fact that in mercantile contracts, time is ordinarily "of the essence."^[1] Nevertheless, we [178 F.2d 186] think it impossible to excuse the delay, because the circumstances did greatly change after March 28th, 1945. The judge found that "the great demand at the time of the commencement of this program for lowgrade reclaimed rubber was of a temporary nature"; it could not compete with any other rubber if that appeared in "sufficient" quantities. That did not mean that rubber was not still "reclaimed" and sold in the open market; but "obviously market conditions for second-hand rubber-machinery changed between the days of acute shortage in which the contract was made and the time of delivery." We accept his summing up of the situation in the following words: "at approximately the date of delivery * * * the fighting war came to an end, the prospect of future availability of rubber was altered, and any loss from change in conditions in that period may well fall upon the party whose unexcused delay prevented prompt delivery on the final demand." We agree that the delivery was too late.

The Seller answers that in any event the Buyer accepted the "Refiners" because (1) it "intimated" that it had done so; (2) it had done an "act in relation to them * * * inconsistent with the ownership of the seller"; and (3) it had without objection retained them for more than "a reasonable time."^[2] The supposed intimation was a letter of the Buyer on October 11th, 1945, in which it asked the Seller to confirm to the Buyer's accountants the amount of the Seller's claim against it as of September 30th, 1945; and in which it stated that claim as $25,500; the full purchase-price. It must be conceded that this was a most unhappy statement, vis-à-vis the Buyer, for, taken at its face, it surely presupposed acceptance of the "Refiners." Nor would it be any excuse that the Buyer's practise was to charge itself upon its books with the cost of goods as soon as they were delivered, and by way of precaution to check its figures with those with whom it dealt. Nevertheless, although the Buyer could not excuse the letter by any undisclosed practice or intent of its own, and although judged by itself it might have constituted an "intimation" of acceptance, we think that, when it is read with what had passed between the parties before it was written, it is not susceptible of that understanding. These were the facts. After the Seller had delivered the first two "Refiners" in August, 1943, the Buyer on October 1st, 1943, complained that the Seller had billed it for four machines, although it had delivered only two, and asked for "corrected invoices covering only the portion you have shipped." A year later, on October 24th, 1944, after the Seller had on September 2d, 1944, made it clear that it was going on with the contract, in a letter in precisely the same terms, mutatis mutandis, as the letter of October 11th, 1945, the Buyer asked the Seller to confirm the charge in its favor on the Buyer's books of $15,500, the price of the first two "Refiners." While matters stood in this posture it could be argued with considerable plausibility that the contract had been severed, or "split," into two contracts, each for two machines, and that the letter of October 24th, 1944, was an acceptance of the first two. However, it soon transpired, if it was not already known, that the Buyer had no such intent, and that not only did the contract remain single as it had been at the start; but that the inquiry of October 24th, 1944, was not an acceptance of anything, but had been made because of the way the Buyer kept its books. Hence, when the Seller received the letter of October 11th, 1945, couched in the same terms, it had no warrant for assuming that its meaning was different from its predecessor of a year before.

Besides, the issue is irrelevant for another reason. It does not appear whether the telephone talk in which the Buyer repudiated the contract was before or after October 11th, 1945. If the letter was after the talk, it would not have affected the rights of the parties because, however broadly one may construe it, it certainly could not be understood as a retraction of the express repudiation; only in case it came before the talk, could it be deemed an acceptance. If the Seller had [178 F.2d 187] the burden of proof, it failed, for the issue remains undecided; and it is plain that it did have the burden, for the delivery, being too late, had to be excused by showing that some conduct of the Buyer condoned it.

Second, as an act inconsistent with its "ownership," the Seller puts forward the Buyer's write-off on its books — as a loss deductible from its income tax — of a depreciation in value of the "Refiners." Whether this was done before or after the telephone talk, also does not appear; and, as in the case of the letter of October 11th, 1945, the question is irrelevant for that reason; but it is insufficient on the merits as well. It is of course true that, as an indication of the Buyer's state of mind, the entry was unequivocal, and could not be reconciled with any other conclusion than that the Buyer regarded the machines as its own — unless it was preparing a fraud on the Treasury which is not to be presumed. Yet that did not make the entry an act "inconsistent" with the rights of the Seller, as we understand that word in the statute. It is true that two decisions of the intermediate court of appeals of Illinois^[3] have held that it is an acceptance for a buyer to collect insurance on the delivered goods, and it may be that that is a sufficient act of dominion. At any rate it is not the same as the Buyer's conduct here. The decisions are not very helpful; for the most part they concern situations where the buyer has done something to the goods themselves, which would be an invasion of some interest of the seller, although apparently it is enough to offer them for sale, since that asserts a right to dispose of them.^[4] Be that as it may, it does not interfere with a seller's ownership to make an entry upon the buyer's books that the goods are the buyer's. Nor would it be so, though the buyer were to claim a deduction for depreciation in his income tax return, or were even to succeed in getting the claim allowed.

A much more doubtful question arises from the Buyer's use of the motor and its accessories which began on February 20th, 1946. Had that been before the telephone talk, instead of four months later, it would have brought the situation strictly within the Act; but it does not follow that the result is the same when the use follows an unequivocal rejection of all the goods. In the case at bar the use of the motor was no basis for inferring that the Buyer in fact meant to retract its rejection and to accept the goods; and that is true whether we regard as controlling the private intent of the Buyer, or the assumed intent of a "reasonable" buyer in his circumstances. If use of the motor is to be treated as an acceptance, it is not because the Buyer so intended, but because otherwise the use was an unlawful invasion of the Seller's rights. In Connecticut two decisions^[5] have dealt with situations which, though closely akin, did not involve the point. The buyer had received the goods, had found them unsatisfactory, but had continued to use a part of them — all before he rejected them as eventually he did. In such cases the use of the goods is merely one circumstance — perhaps enough in itself — among those facts which together constitute acceptance. However, in Modern Home Utilities, Inc. v. Garrity,^[6] although the buyer had rejected a beer cooling apparatus as not in conformity with the contract, she continued to make use of one part of it — a beer pump — and she was held for the price of the whole apparatus. This was on two grounds: that her original rejection was in any event unjustified; and, as an alternate, that, even if it had not been, the rejection made her a bailee, and, "if she used the equipment or a part of it she ceased to be bailee and made that part her own and could not claim rescission."

[178 F.2d 188] The contract being indivisible, the buyer "had no right to accept one part and to reject the rest." It must be owned that, if this is to be understood to lay down an absolute doctrine, the Buyer's use of the motor in the case at bar constituted a retraction of its rejection.

The Uniform Sales Act^[7] has somewhat modified the consequences of a buyer's acceptance of any part of the goods^[8]; and we are disposed to believe that there may be situations, in which the buyer's eventual use of a part, even though it may be strictly a violation of his duties as bailee, will not impose upon him in invitum a retraction of an earlier rejection. In the case at bar any other result would be to the last degree harsh; for, as has already appeared, the Seller had delayed delivery until the "Refiners" had lost the greater part of their value anyway; and after the Buyer had unequivocally rejected them the Seller had allowed them to lie unclaimed for four months. When the Buyer finally did use the motor, it was not for its intended purpose, but in salvage of what would otherwise have been a total loss. Finally, the Seller's indifference for the four months, although it may not have altogether justified the inference that it had abandoned the property, at least gave some color for that conclusion. Considering that the retraction of a buyer's rejection is not derived from his consent, but is a legal duty imposed upon him as a consequence of the wrong of meddling with goods of which he is only a bailee, we hold that in the circumstances at bar that consequence should not follow. To impose a liability of $25,500 for goods which had certainly by February 20th, 1946, become substantially valueless, seems to us to impose a penalty.

Third, is the question whether the Buyer should have allowed the "Refiners" to remain in its possession for a month "without intimating" that it had "rejected them." We limit the time to a month because, as we have said, the Seller had the burden, because the "Refiners" were delivered at least not before the end of August, and because the repudiation may have been at the beginning of October. On the whole we are disposed to agree with the judge that the Buyer's delay in declaring its position did not prejudice, and could not have prejudiced, the Seller, because, the prime market for the "Refiners" having already gone when delivery was made, with it disappeared any immediate call upon the Buyer to declare itself. We hold therefore that the Seller failed to excuse its breach under any of the three statutory grounds for imputing acceptance to the Buyer. The dismissal of its complaint upon the contract was correct.

Upon the Seller's appeal there remains only the question whether it was entitled to interest upon the value of the motor and its accessories, which the judge denied. The Buyer's use of this property was indeed a conversion, for which the Seller might sue in quasi-contract, as it did; and the judge found that the motor, although it was secondhand machinery originally, had a "fair market value of $4,590." We follow the law of Connecticut upon the point, and we read Regan v. New York & New England R. Co.^[9] and Healy v. Fallon^[10] as establishing the principle that, when the value of goods can be "ascertained with reasonable certainty as of a definite time," interest should be recovered. Hence we hold that the Seller should have been awarded interest on the value of the motor and its accessories from the date of the Buyer's appropriation — February 20th, 1946.

Coming next to the Buyer's appeal, it does not claim any loss of profit, but it does claim the expenses which it incurred in reliance upon the Seller's promise. These were of three kinds: its whole investment in its "reclaim department," $118,478; the cost of its "rubber scrap," $27,555.63; the cost of the foundation which it laid for the "Refiners," $3,000. The judge in his opinion held that the Buyer had not proved that "the lack of production" of the [178 F.2d 189] reclaim department "was caused by the delay in delivery of plaintiffs' refiners"; but that that was "only one of several possible causes. Such a possibility is not sufficient proof of causation to impose liability on the plaintiffs for the cost of all machinery and supplies for the reclaim department." The record certainly would not warrant our holding that this holding was "clearly erroneous"; indeed, the evidence preponderates in its favor. The Buyer disposed of all its "scrap rubber" in April and May, 1945; and, so far as appears, until it filed its counterclaim in May, 1947, it never suggested that the failure to deliver two of the four "Refiners" was the cause of the collapse of its "reclaim department." The counterclaim for these items has every appearance of being an afterthought, which can scarcely have been put forward with any hope of success.

The claim for the cost of the foundation which the Buyer built for the "Refiners," stands upon a different footing. Normally a promisee's damages for breach of contract are the value of the promised performance, less his outlay, which includes, not only what he must pay to the promisor, but any expenses necessary to prepare for the performance; and in the case at bar the cost of the foundation was such an expense. The sum which would restore the Buyer to the position it would have been in, had the Seller performed, would therefore be the prospective net earnings of the "Refiners" while they were used (together with any value they might have as scrap after they were discarded), less their price — $25,500 — together with $3,000, the cost of installing them. The Buyer did not indeed prove the net earnings of the "Refiners" or their scrap value; but it asserts that it is nonetheless entitled to recover the cost of the foundation upon the theory that what it expended in reliance upon the Seller's performance was a recoverable loss. In cases where the venture would have proved profitable to the promisee, there is no reason why he should not recover his expenses. On the other hand, on those occasions in which the performance would not have covered the promisee's outlay, such a result imposes the risk of the promisee's contract upon the promisor. We cannot agree that the promisor's default in performance should under this guise make him an insurer of the promisee's venture; yet it does not follow that the breach should not throw upon him the duty of showing that the value of the performance would in fact have been less than the promisee's outlay. It is often very hard to learn what the value of the performance would have been; and it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other.^[11] On principle therefore the proper solution would seem to be that the promisee may recover his outlay in preparation for the performance, subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost, if the contract had been performed.

The decisions leave much to be desired. There is language in United States v. Behan^[12] which, read literally, would allow the promisee to recover his outlay in all cases: the promisor is said to be "estopped" to deny that the value of the performance would not equal it. We doubt whether the Supreme Court would today accept the explanation, although the result was right under the rule which we propose. Moreover, in spite of the authority properly accorded to any decision of that court, we are here concerned only with Connecticut law; and the decisions in that state do not seem to be in entire accord. In the early case of Bush v. Canfield^[13] the buyer sued to recover a payment of $5,000 made in advance for the purchase of 2,000 barrels of flour at $7.00 a barrel. Although at the time set for delivery the value of the flour had fallen to $5.50, the seller for some undisclosed reason failed to perform. The action was on the case for the breach, not in indebitatus [178 F.2d 190] assumpsit, and the court, Hosmer, J., dissenting, allowed the buyer to recover the full amount of his payment over the seller's objection that recovery should be reduced by the buyer's loss. The chief justice gave the following reason for his decision which we take to be that of the court, 2 Conn. page 488: "The defendant has violated his contract; and it is not for him to say that if he had fulfilled it, the plaintiffs would have sustained a great loss, and that this ought to be deducted from the money advanced." If there is no difference between the recovery of money received by a promisor who later defaults, and a promisee's outlay preparatory to performance, this decision is in the Buyer's favor. However, when the promisor has received any benefit, the promisee's recovery always depends upon whether the promisor has been "unjustly enriched"; and, judged by that nebulous standard, there may be a distinction between imposing the promisee's loss on the promisor by compelling him to disgorge what he has received and compelling him to pay what he never has received. It is quite true that the only difference is between allowing the promisee to recover what he has paid to the promisor and what he has paid to others; but many persons would probably think that difference vital.

In any event, unless this be a valid distinction, it appears to us that Santoro v. Mack^[14] must be read as taking the opposite view. The plaintiff, the vendee under a contract for the sale of land, had paid an electrician and an architect whom he had employed in reliance upon the promised conveyance. These payments he sought to recover, and was unsuccessful on the ground that they had not benefited the vendor, and that they had been incurred without the vendor's knowledge or consent. Yet it would seem that such expenses were as much in reasonable preparation for the use of the land, as the cost of the foundation was for the use of the "Refiners." The point now before us was apparently not raised, but the decision, as it stands, seems to deny any recovery whatever. Three other Connecticut decisions — the only ones which at all approach the question — do not throw any light upon the point.^[15]

The result is equally inconclusive if we consider the few decisions in other jurisdictions. The New Jersey Court of Errors and Appeals in Holt v. United Security Life Insurance & Trust Co.^[16] recognized as the proper rule that, although the promisor had the burden of proving that the value of the performance was less than the promisee's outlay, if he succeeded in doing so, the recovery would be correspondingly limited. In Bernstein v. Meech^[17] the promisee recovered his full outlay, and no limitation upon it appears to have been recognized, as may be inferred from the following sentence: "It cannot be assumed that any part of this loss would have been sustained by the plaintiff if he had been permitted to perform his contract." In Reynolds v. Levi^[18] the promisee was a well digger, who had made three unsuccessful efforts to reach water, and the promisor — a farmer — stopped him before he had completed his fourth. The court limited the recovery to the amount earned on the fourth attempt, but for reasons that are not apparent. It appears to us therefore that the reported decisions leave it open to us to adopt the rule we have stated. Moreover, there is support for this result in the writings of scholars. The Restatement of Contracts^[19] allows recovery of the promisee's outlay "in necessary preparation" for the performance, subject to several limitations, of which one is that the promisor may deduct whatever he can prove the promisee would have lost, if the contract had been fully performed. Professor McCormick [178 F.2d 191] thinks^[20] that "the jury should be instructed not to go beyond the probable yield" of the performance to the promisee, but he does not consider the burden of proof. Much the fullest discussion of the whole subject is Professor Fuller's in the Yale Law Journal.^[21] The situation at bar was among those which he calls cases of "essential reliance," and for which he favors the rule we are adopting. It is one instance of his "very simple formula: We will not in a suit for reimbursement of losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied, had the contract been fully performed."

The judgment will therefore be affirmed with the following modifications. To the allowance for the motor and accessories will be added interest from February 20th, 1946. The Buyer will be allowed to set off $3,000 against the Seller's recovery with interest from October, 1945, subject to the Seller's privilege to deduct from that amount any sum which upon a further hearing it can prove would have been the Buyer's loss upon the contract, had the "Refiners" been delivered on or before May 1st, 1945.

Judgment modified as above, and affirmed as so modified.

[1] Restatement of Contracts, § 276 (b).

[2] § 48, Uniform Sales Act; § 4668, General Statutes of Connecticut, Revision of 1930.

[3] Telford v. Albro, 60 Ill.App. 359; Foley & Co. v. Excelsior Stove & Mfg. Co., 265 Ill.App. 78.

[4] Ostman v. Lee, 91 Conn. 731, 101 A. 23; Lilly White v. Devereux, 15 Meeson & Welsly, 285; Brown v. Foster, 108 N.Y. 387, 393, 15 N.E. 608; Eagle Manufacturing Co. v. Arkell & Douglas, Inc., 197 App.Div. 788, 189 N.Y.S. 140.

[5] Thompson Machines & Supply Co. v. Graves, 91 Conn. 71, 98 A. 331; Loveland v. Aymett's Auto Arcade, Inc., 121 Conn. 231, 184 A. 376.

[6] 121 Conn. 651, 186 A. 639.

[7] § 44, subd. 3.

[8] Portfolio v. Rubin, 233 N.Y. 439, 135 N.E. 843.

[9] 60 Conn. 124, 22 A. 503, 25 Am.St.Rep. 306.

[10] 69 Conn. 228, 37 A. 495.

[11] Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563, 51 S.Ct. 248, 75 L.Ed. 544.

[12] 110 U.S. 338, 345, 346, 4 S.Ct. 81, 28 L.Ed. 168.

[13] 2 Conn. 485.

[14] 108 Conn. 683, 145 A. 273.

[15] Edward DeV. Tompkins, Inc., v. City of Bridgeport, 94 Conn. 659, 110 A. 183, 191; Kastner v. Beacon Oil Co., 114 Conn. 190, 158 A. 214, 81 A.L.R. 97; Jordan v. Patterson, 67 Conn. 473, 35 A. 521.

[16] 76 N.J.L. 585, 72 A. 301, 21 L.R.A., N.S., 691;

[17] 130 N.Y. 354, 360, 29 N.E. 255, 257.

[18] 122 Mich. 115, 80 N.W. 999.

[19] § 333 (d).

[20] McCormick on Damages, § 142, p. 584.

[21] 46 Yale Law Journal, 752, pp. 75-80.

72 Mass. 174

EPHRAIM NUTE
vs.
HAMILTON MUTUAL INSURANCE COMPANY

Suffolk County Common Pleas Court.
Decided: 1856.

A plaintiff, who, in a declaration against an insurance company on a policy issued by them by a name other than their own, "subject to the provisions, conditions and limitations of the by-laws of said company," avers that the policy was so issued, (which is admitted by the defendants in their answer,) is bound by the valid provisions of the charter and by-laws of the defendants.

A provision of a by-law of a mutual fire insurance company, to which their policies are expressed to be subject, that any suit on a policy shall be brought in the county where the company are established, is not binding on the assured.

ACTION OF CONTRACT by an inhabitant of the county of Suffolk against a mutual fire insurance company established at Salem in the county of Essex. The declaration alleged the making of a policy to the plaintiff by the defendants, "acting under the name and style of the Manufacturers' Insurance Company;" a loss by fire during the term of the insurance; due notice and statement of the loss, within three days after it happened; and that the defendants were bound by the terms of said policy to pay the plaintiffs the amount of the loss. The answer admitted the making of a policy of insurance, and the loss, as alleged in the declaration; and averred that the defendants, three days after [175] receiving the notice and statement of loss, proceeded, according to their by-laws, to ascertain and determine whether any loss had occurred for which the company were liable, and determined and voted that no such loss had occurred, and gave the plaintiff notice of such determination and vote; and that the plaintiff should have commenced his suit within four months after such determination and vote, at a proper court in the county of Essex. This action was brought within said four months at a court of common pleas in this county.

At the trial in that court, the defendants' determination and notice thereof to the plaintiff were proved. And the policy was introduced, headed thus: “Manufacturers' Insurance Company For, insuring manufacturing establishments, machinery and goods against loss or damage by fire;" and, in consideration of the payment of a certain premium, and of his subscription to a certain sum in "the capital stock of said company," and of a certain annual premium to be paid, insuring the plaintiff for the terra and upon the property stated in the declaration, against loss or damage by fire, "subject to the provisions, conditions and limitations of the charter and by-laws of said company." The insurers were described throughout the policy as "said company," and the name of Hamilton Mutual Insurance Company did not appear on the face of the policy, except the single word "Hamilton" upon a scroll appended to an engraved coat of arms in the margin of the policy. Upon the back of the policy were printed the title and substance of the" act to incorporate the Hamilton Mutual Insurance Company," (St. 1852, c. 6,) and a set of by-laws, one article of which provided that the property insured by the company should be divided into four classes, called respectively "the Farmers' Insurance Company," "the Citizens' Insurance Company," "the Merchants' Insurance Company," and "the Manufacturers' Insurance Company;" and the only other article of which that is material to be stated was the following:

"ART. 22. Upon notice of loss being given in the manner provided by the preceding section, the directors shall proceed, as soon as may be, to ascertain and determine if any loss [176] has occurred for which the company is liable; and if they shall determine that the company is liable, then they shall also determine the amount of the loss, and shall pay the same within three months after such notice. But if the assured shall not acquiesce in their determination as to the liability of the company, or the extent of the loss claimed, the claim may be submitted to referees, if both parties shall consent thereto; or the assured may, within four months after any such determination, but not after that time, bring an action at law against the company for the loss claimed, which action shall be brought at a proper court in the county of Essex; and in case any suit or action shall be commenced against said company after the expiration of four months as aforesaid, the lapse of time shall be taken and deemed as conclusive evidence, in any court of law or chancery, against the validity of the claim thereby so attempted to be enforced. And if the plaintiff shall not recover, before referees or in his action at law, a greater sum than the amount which had been determined by the directors, the company shall recover their costs, and execution shall issue for the balance in favor of the party entitled to it."

Bishop, J. ruled that this action could not be maintained, because not brought in the county of Essex; and the plaintiff submitted to a verdict against him, and alleged exceptions to this ruling.

S. J. Thomas, for the plaintiff.

R. Choate, O. P. Lord & J. W. Perry, for the defendants, submitted a restatement in writing of their argument in the case of Amesbury v. Bowditch Mutual Fire Ins. Co., post, 600.

SHAW, C. J. The defence to this action, on a policy entered into by a mutual fire insurance company, is, that by the terms of the policy the contract was that the suit should be brought at a proper court in the county of Essex, within four months after the determination by the directors that nothing was due to the plaintiff upon the loss claimed. By a comparison of dates, it appears that this suit was brought within four months; but it was brought in the county of Suffolk, and not in the county of Essex; and on that ground the court of common pleas held [177] that the action could not be maintained. The correctness of that ruling is the sole question now presented to this court.

In cases recently determined, it has been held that a stipulation in a policy of insurance, or in a by-law constituting in legal effect a part of such policy, by way of condition to their liability, that no recovery shall be had unless a suit is commenced within a certain time limited, was a valid condition, and that, unless complied with, the plaintiffs were not entitled to recover. Cray v. Hartford Fire Ins. Co. 1 Blatchf. C. C. 280. Wilson v. Aetna Ins. Co. 27 Verm. 99.^[*] In this case it is strenuously insisted that a stipulation, that an action shall be brought in a particular county, where by law it may be brought, is strictly analogous, and ought to be enforced as a condition precedent by a court which, without such stipulation and condition, would clearly have jurisdiction of the subject matter and of the parties.

A preliminary objection is taken here, in the argument for the plaintiff, that the plaintiff is not bound by the by-laws annexed to the policy, because they are not in fact and do not purport to be the by-laws of the Hamilton Insurance Company, but of another corporation denominated the Manufacturers' Insurance Company. This is founded on the peculiar and remarkable form of this policy. The policy appears throughout to be the act of the Manufacturers' Insurance Company, which would seem to be another corporation; and the name of the Hamilton Company nowhere appears in the policy, except the single word "Hamilton" on a symbolical device on the face of the policy in the form of a coat of arms. And it is true that, on the face of the policy, the terms "by-laws of said company" would appear to mean those of the Manufacturers' Company; and so the term "said company" is used throughout the instrument.

But the decisive answer seems to be, that unless the Hamilton Company are the corporation with whom the plaintiff contracted, he has no cause of action, and the argument for the plaintiff would state his case out of court. The plaintiff, in his decla [178] ration, avers that the defendants, by the name of the Manufacturers' Insurance Company, made the policy. If so, they have simply adopted another name as the designation of the Hamilton Company; and then it follows that the "said company" means the company contracting, and "their by-laws" are those of the Hamilton Company, in reference to and conformity with which the contract on both sides was made. The Hamilton Company admit this policy to be their contract, but deny the breach; and this is the issue with them, in which the plaintiff joins.

The cause of this peculiar form of policy, on taking the policy and by-laws together, appears plainly enough; the by-laws direct that the risks of the Hamilton Company shall be divided into four classes, to be called "the Farmers'," "the Citizens'," "the Merchants'" and the "Manufacturers' Insurance Company"; so that in effect this is the policy of the Hamilton Company, insuring the plaintiff's property in that class of risks called the Manufacturers' Insurance Company; and the name used in the policy does not designate a corporation, but a class of risks in the Hamilton Company. It seems to be an inconvenient and awkward arrangement, by which, in the form of their contracts, they renounce their own corporate name, usually the very test of corporate identity, and adopt, what, on the face of it, would appear to be the name of another corporation. But when the plaintiff alleges that the Hamilton Company did thus make this contract by such name, that the policy annexed is their policy, regardless of the name; and the defendants, being served with process, come into court and admit it, and tender an issue; and the plaintiff takes issue with them on the question of breach and damages; no question is presented to this court on the subject. It follows conclusively that the policy being the act and contract of the Hamilton Company, the charter and by-laws of "the said company," referred to in the policy, are their charter and by-laws, and are those stated at length on the back of said policy.

It is the Hamilton Mutual Insurance Company, of which the plaintiff, by force of his application and by the acceptance of [179] his policy, became a member, with the usual rights and powers of a corporator. By this fact, as well as by the definite reference in the policy itself, we think the plaintiff as well as the defendants were bound; and their rules are to be regarded, in construing the policy, as if they were embodied in it. The clause in the policy is, that the company do promise and agree to insure him against loss or damage by fire, "subject to the provisions, conditions and limitations of the charter and by-laws of said company."

The provision on which this defence depends is found in art. 22d of the by-laws. After providing that notice of loss shall be given, and that thereupon the directors shall proceed to determine whether any loss has occurred for which the company are liable, and if so, ascertain the amount, it provides that, if the assured do not acquiesce in such determination, as to the liability or the extent of it, and both parties do not agree to refer, as they may, "the assured may, within four months after such determination, but not after that time, bring an action at law against the company for the loss claimed, which action shall be brought at a proper court in the county of Essex."

Here are no negative words, and, strictly speaking, no stipulation that the action shall not be brought elsewhere, unless they are implied by the term "shall be brought" in Essex. These words were not necessary to give the assured a remedy, because without them it is conceded that they would have a remedy at common law, as in all cases of breach of contract, for which no stipulation is necessary. In this respect, the case differs essentially from that of Boynton v. Middlesex Mutual Fire Ins. Co. 4 Met. 212. There it was provided by the act of incorporation, which has all the force and effect of a general law, that in case the directors should find the company liable and award a certain sum, and the assured should not acquiesce, but be dissatisfied with the amount, the action should be brought in the county of Middlesex. In such case, the action to be brought was in the nature of an appeal from the decision of the directors, as in a case of allowance or disallowance of a debt by commissioners of insolvency on the estates of deceased persons, or, under the insolvent [180] laws, in the case of a claim against a living insolvent debtor: and the legislature might rightfully regulate the time and mode of entering and prosecuting such appeal; and, as the law gave a new and specific right in such case of dissatisfaction with the amount awarded, and pointed out a specific remedy, by a well known rule of law, the specific remedy must be pursued. But it was also held, in that case, that as the directors had determined that the company were not liable and had awarded nothing, it was not the specific case of the statute, and that the assured were remitted to their remedy at law, by action in either of the counties where, by the general law, it might be brought.

Upon the particular question here presented, the court are of opinion that there is an obvious distinction between a stipulation by contract as to the time when a right of action shall accrue and when it shall cease, on the one hand; and as to the forum before which, and the proceedings by which an action shall be commenced and prosecuted. The one is a condition annexed to the acquisition and continuance of a legal right, and depends on contract and the acts of the parties; the other is a stipulation concerning the remedy, which is created and regulated by law. Perhaps it would not be easy or practicable to draw a line of distinction, precise and accurate enough to govern all these classes of cases, because the cases run so nearly into each other; but we think the general distinction is obvious.

The time within which money shall be paid, land conveyed, a debt released, and the like, are all matters of contract, and depend on the will and act of the parties; but, in case of breach, the tribunal before which a remedy is to be sought, the means and processes by which it is to be conducted, affect the remedy, and are created and regulated by law. The stipulation, that a contracting party shall not be liable to pay money, or perform any other collateral act, before a certain time, is a regulation of the right, too familiar to require illustration; a stipulation, that his obligation shall cease if payment or other performance is not demanded before a certain time, seems equally a matter affecting the right. A stipulation, that an action shall not be brought after a certain day or the happening of a certain event, although, [181] in words, it may seem to be a contract respecting the remedy, yet it is so in words only; in legal effect, it is a stipulation that a right shall cease and determine if not pursued in a particular way within a limited time, and then it is a fit subject for contract, affecting the right created by it.

But the remedy does not depend on contract, but upon law, generally the lex fori, regardless of the lex loci contractus, which regulates the construction and legal effect of the contract.

Suppose it were stipulated in an ordinary contract, that in case of breach no action shall be brought; or that the party in default shall be liable in equity only and not at law, or the reverse; that in any suit to be commenced no property shall be attached on mesne process or seized on execution for the satisfaction of a judgment, or that the party shall never be liable to arrest; that, in any suit to be brought on such contract, the party sued will confess judgment, or will waive a trial by jury, or consent that the report of an auditor appointed under the statute shall be final, and judgment be rendered upon it, or that the parties may be witnesses, or, as the law now stands, that the plaintiff will not offer himself as a witness; that, when sued on the contract, the defendant will not plead the statute of limitations, or a discharge in insolvency; and many others might be enumerated; is it not obvious, that, although in a certain sense these are rights or privileges which the party, in the proper time and place, may give or waive, yet a compliance with them cannot e annexed to the contract, cannot be taken notice of and enforced by the court or tribunal before which the remedy is sought, and cannot therefore be relied on by way of defence to the suit brought on the breach of such contract?

We do not mean to say that many of these are stipulations which it would be unlawful to make, or void in their creation, if made on good consideration, or that they do not become executory contracts upon which an action would lie, and upon which damages, if any were sustained, might be recovered. Still they would not be conditions annexed to the contract, to defeat it if not complied with, and so to be used by way of defence to an action upon it.

[182] This seems to have been the distinction taken in the latest English case cited at the bar. Livingston v. Ralli, 5 El. & Bl. 132. The point decided there was, that, though an agreement to submit a difference arising on a contract to arbitration is not a good plea in bar to an action on such contract, the breach of it may be a good ground of action.

It is true that a covenant never to sue after the breach of a contract, though a stipulation respecting the remedy to be pursued, may be allowed as a bar to an action upon it; but this is upon the ground that a covenant never to »ue is, in legal effect, equivalent to a release, and, to avoid circuity of action, may be pleaded by way of release.

The distinction between that which is matter of contract and may be a proper subject of consideration, to be applied in expounding it, making it what it is, and to be applied to the construction of ii, whenever and wherever it is to be enforced; and that which is matter of remedy regulated by law, the law of the place where the remedy is sought, is recognized and stated in an early case of our own. Pearsall v. Dwight, 2 Mass. 84.

Supposing then the rule to be well settled by principle and authority, that a stipulation is valid which provides that no action shall be brought unless commenced within a specified time, which appears to us to be equivalent to a condition in the contract, that all liability shall cease and-determine unless the claim upon it is made by an action within the time limited, and attaches to the contract itself, still, in our opinion, there is not such an analogy between that and the stipulation as to the forum in which a suit shall be commenced, that the one can be taken as an authority for the other. Upon the grounds stated, we think the two cases stand upon very different reasons.

Supposing the words in the by-law, "which action shall be brought at a proper court in the county of Essex," be deemed equivalent to a negative provision, that no action shall be brought in any other county—of which we give no opinion—we are not aware of any authority bearing upon the question that such stipulation or condition can be regarded as a condition of the contract, or that a noncompliance with it will be a defence to [183] the action before a court having jurisdiction of the subject matter and of the parties.

In recurring to the full and elaborate written argument of the defendants' counsel, we find no authority upon this part of the case. In referring to the case of Boynton v. Middlesex Mutual Fire Ins. Co. 4 Met. 212, which we have already alluded to, it is urged, on the authority of Holden v. James, 11 Mass. 396, in which a special statute of limitations, (which was a strictly private act,) was held unconstitutional, that the ground on which the court decided must have been the contract of the parties, and not the law of the land. But the court, in 4 Met. 215, cite Rev. Sts. c. 2, § 3, directing that all acts of incorporation shall be deemed public acts. If so, they are the law of the land, controlling, and, as far as they go, repealing other public acts. Whether this ground was correct or not, it was that on which the court decided, and the case therefore is not an authority for giving a like effect to matters of mere contract.

In a certain sense, all persons are said to be parties and assent to the laws of the government to which they owe allegiance; such laws are binding on them, and enter into and make part of every agreement which such persons make. But we are speaking of the known and familiar distinction between contracts between parties in pais, which are binding on them because they have so agreed; and duties created by law, which are binding on the parties because they are law, and do not derive their force from contract.

A party is barred by the statute of limitations, not because he has so agreed, but because such is the positive law, the lex fori, the aid of which he is seeking to obtain his rights. So of arrest of the person, sequestration of goods, levy on lands, and the like; the plaintiff does not derive his right to the use of these means from the agreement of the contractor, but from the positive law which gives him the remedy, and the means of obtaining satisfaction, incident thereto.

Most of the cases cited, both English and American, are conditions annexed to the contract; such as bringing the action within a certain time, procuring certificates of churchwardens, [184] magistrates or others, practising no fraud, making seasonable and true representations of loss, and the like; as such, they are modifications of the contract, not of the remedy.

We place no great reliance upon considerations of public policy, though, as far as they go, we think they are opposed to the admission of such a defence. The rules to determine in what courts and counties actions may be brought are fixed, upon considerations of general convenience and expediency, by general law; to allow them to be changed by the agreement of parties would disturb the symmetry of the law, and interfere with such convenience. Such contracts might be induced by considerations tending to bring the administration of justice into disrepute; such as the greater or less intelligence and impartiality of judges, the greater or less integrity and capacity of juries, the influence, more or less, arising from the personal, social or political standing of parties in one or another county. It might happen that a mutual insurance company, in which every holder of a policy is a member, and of course interested, would embrace so large a part of the men of property and business in the county, that it would be difficult to find an impartial and intelligent jury. But as already remarked, these considerations are not of much weight. The greatest inconvenience would be in requiring courts and juries to apply different rules of law to different cases, in the conduct of suits, in matters relating merely to the remedy, according to the stipulations of parties in framing and diversifying their contracts in regard to remedies.

The law fixing the rate of interest is cited as an illustration of the point, that, though the law has fixed the rate of interest, yet parties may vary it by contract, and take a less interest. Undoubtedly they may. But take the whole statute together; what are its objects? Manifestly two; first, to fix a rate of interest where the parties have made no agreement as to the rate; secondly, to fix a rate beyond which a creditor cannot take or receive interest with impunity. The contract is not void, as formerly; but the creditor suffers a penalty for it. These objects are effectually accomplished by the provisions of the statute; and no more. Rev. Sts. c. 35, § 2. St. 1846, c. 199. Of course it is [185] not repugnant to these provisions, for parties to fix a rate of interest by agreement, within this limit. This has no analogy to the present question.

There being no authority upon which to determine the case, it must be decided upon principle. The question is not without difficulty, but, upon the best consideration the court have been able to give it, they are of opinion that it is not a good defence to this action, that it was brought in the county of Suffolk and not in the county of Essex; and therefore that the exceptions must be sustained, the verdict set aside, and a new trial granted.

[*] S. P. Amesbury v. Bowditch Mutual Fire Ins. Co., post, 596.

[831]

386 N.Y.S.2d 831
40 N.Y.2d 354, 353 N.E.2d 793, 83
A.L.R.3d 1024

Joan GARRITY, Respondent,
v.
LYLE STUART, INC., Appellant.

Court of Appeals of New York.
July 6, 1976.

Richard Goldsweig, Yonkers, and Jack N. Albert, New York City, for appellant.

[832] Donald S. Engel, New York City, for respondent.

BREITEL, Chief Judge.

Plaintiff author brought this proceeding under CPLR 7510 to confirm an arbitration award granting her $45,000 in compensatory damages and $7,500 in punitive damages against defendant publishing company. Supreme Court confirmed the award. The Appellate Division affirmed, one Justice dissenting, and defendant appeals.

The issue is whether an arbitrator has the power to award punitive damages.

The order of the Appellate Division should be modified to vacate the award of punitive damages and otherwise affirmed. An arbitrator has no power to award punitive damages, even if agreed upon by the parties (Matter of Publishers' Ass'n of N.Y. City (Newspaper Union), 280 App.Div. 500, 504-506, 114 N.Y.S.2d 401, 404-406). Punitive damages is a sanction reserved to the State, a public policy of such magnitude as to call for judicial intrusion to prevent its contravention. Since enforcement of an award of punitive damages as a purely private remedy would violate strong public policy, an arbitrator's award which imposes punitive damages should be vacated.

Plaintiff is the author of two books published by defendant. While the publishing agreements between the parties contained broad arbitration clauses, neither of the agreements provided forthe imposition of punitive damages in the event of breach.

A dispute arose between the parties and in December, 1971 plaintiff author brought an action for damages alleging fraudulent inducement, "gross" underpayment of royalties, and various "malicious" acts designed to harass her. That action is still pending.

In March, 1974, plaintiff brought a new action alleging that defendant had wrongfully withheld an additional $45,000 in royalties. Defendant moved for a stay pending arbitration, which was granted, and plaintiff demanded arbitration. The demand requested the $45,000 withheld royalties and punitive damages for defendant's alleged "malicious" withholding of royalties, which plaintiff contended was done to coerce her into withdrawing the 1971 action.

Defendant appeared at the arbitration hearing and raised objections concerning plaintiff's standing and the conduct of the arbitration hearing. Upon rejection of these objections by the arbitrators, defendant walked out.

After hearing testimony, and considering an "informal memorandum" on punitive damages submitted by plaintiff at their request, the arbitrators awarded plaintiff both compensatory and punitive damages. On plaintiff's motion to confirm the award, defendant objected upon the ground that the award of punitive damages was beyond the scope of the arbitrators' authority.

Arbitrators generally are not bound by principles of substantive law or rules of evidence, and thus error of law or fact will not justify vacatur of an award (see Matter of Associated Teachers of Huntington v. Board of Educ., 33 N.Y.2d 229, 235, 351 N.Y.S.2d 670, 674, 306 N.E.2d 791, 795, and cases cited). It is also true that arbitrators generally are free to fashion the remedy appropriate to the wrong, if they find one, but an authentic remedy is compensatory and measured by the harm caused and how it may be corrected (Matt of Staklinski (Pyramid Elec. Co.), 6 N.Y.2d 159, 163, 188 N.Y.S.2d 541, 542, 160 N.E.2d 78, 79; see Matter of Paver & Wildfoerster (Catholic High School Ass'n.), 38 N.Y.2d 669, 677, 382 N.Y.S.2d 22, 26, 345 N.E.2d 565, 569, and cases cited). These broad principles are tolerable so long as arbitrators are not thereby empowered to ride roughshod over strong policies in the law which control coercive private conduct and confine to the State and its courts the infliction of punitive sanctions on wrongdoers.

The court will vacate an award enforcing an illegal agreement or one violative of public policy (see Matter of Associated [833] Teachers of Huntington v. Board of Educ., 33 N.Y.2d 229, 235-236, 351 N.Y.S.2d 670, 674-675, 306 N.E.2d 791, 795, Supra, and cases cited; Matter of Western Union Tel. Co. (Amer. Communications Ass'n), 299 N.Y. 177, 187, 86 N.E.2d 162, 167; Matter of East India Trading Co. (Halari), 280 App.Div. 420, 421, 114 N.Y.S.2d 93, 94, affd., 305 N.Y. 866, 114 N.E.2d 213). Since enforcement of an award of punitive damages as a purely private remedy would violate public policy, an arbitrator's award which imposes punitive  damages, even though agreed upon by the parties, should be vacated (Matter of Publishers' Ass'n of N.Y. City (Newspaper Union), 280 App.Div. 500, 504-506, 114 N.Y.S.2d 401, 404-406, Supra; Domke, Commercial Arbitration, § 33.03; Fuchsberg, 9 N.Y. Damages Law, § 81, p. 61, n. 9; 14 N.Y.Jur., Damages, § 184, p. 46; cf. Local 127, United Shoe Workers of Amer. v. Brooks Shoe Mfg. Co., 3 Cir., 298 F.2d 277, 278, 284).

Matter of Associated Gen. Contrs., N.Y. State Chapter (Savin Bros.), 36 N.Y.2d 957, 373 N.Y.S.2d 555, 335 N.E.2d 859, is inapposite. That case did not involve an award of punitive damages. Instead, the court permitted enforcement of an arbitration award of treble liquidated damages, amounting to a penalty, assessed however in accordance with the express terms of a trade association membership agreement. The court held that the public policy against permitting the awarding of penalties was not of 'such magnitude as to call for judicial intrusion' (p. 959). In the instant case, however, there was no provision in the agreements permitting arbitrators to award liquidated damages or penalties. Indeed, the subject apparently had never ever been considered.

The prohibition against an arbitrator awarding punitive damages is based on strong public policy indeed. At law, on the civil side, in the absence of statute, punitive damages are available only in a limited number of instances (see Walker v. Sheldon, 10 N.Y.2d 401, 404, 223 N.Y.S.2d 488, 490, 179 N.E.2d 497, 498). As was stated in Walker v. Sheldon (supra):

"(p)unitive or exemplary damages have been allowed in cases where the wrong complained of is morally culpable, or is actuated by evil and reprehensible motives, not only to punish the defendant but to deter him, as well as others who might otherwise be so prompted, from indulging in similar conduct in the future."

It is a social exemplary "remedy", not a private compensatory remedy.

It has always been held that punitive damages are not available for mere breach of contract, for in such a case only a private wrong, and not a public right, is involved (see, e.g., Trans-State Hay & Feed Corp. v. Faberge, Inc., 35 N.Y.2d 669, 360 N.Y.S.2d 886, 319 N.E.2d 201, affg. on mem. at App.Div., 42 A.D.2d 535, 344 N.Y.S.2d 730; Van Valkenburgh, Nooger & Neville v. Hayden Pub. Co., 33 A.D.2d 766, 767, 306 N.Y.S.2d 599, 601 (breach of contract by book publisher, which failed deliberately and in breach of good faith to use "best efforts" to promote plaintiff's books; punitive damages denied), affd., 30 N.Y.2d 34, 330 N.Y.S.2d 329, 281 N.E.2d 142 (discussing the facts and particularly the breach of fair dealing in greater detail), cert. den., 409 U.S. 875, 93 S.Ct. 125, 34 L.Ed.2d 128; Restatement, Contracts, § 342; 14 N.Y.Jur., Damages, § 183, pp. 45-46).

Even if the so-called "malicious" breach here involved would permit of the imposition of punitive damages by a court or jury, it was not the province of arbitrators to do so. Punitive sanctions are reserved to the State, surely a public policy "of such magnitude as to call for judicial intrusion" (Matter of Associated Gen. Contrs., N.Y. State Chapter (Savin Bros.), 36 N.Y.2d 957, 959, 373 N.Y.S.2d 555, 556, 335 N.E.2d 859, 860, Supra). The evil of permitting an arbitrator whose selection is often restricted or manipulatable by the party in a superior bargaining position, to award punitive damages is that it displaces the court and the jury, and therefore the State, as the engine for imposing a social [834] sanction. As was so wisely observed by Judge, then Mr. Justice, Bergan in Matter of Publishers' Ass'n of N.Y. City (Newspaper Union), 280 App.Div. 500, 503, 114 N.Y.S.2d 401, 404, Supra:

"The trouble with an arbitration admitting a power to grant unlimited damages by way of punishment is that if the court treated such an award in the way arbitration awards are usually treated, and followed the award to the letter, it would amount to an unlimited draft upon judicial power. In the usual case, the court stops only to inquire if the award is authorized by the contract; is complete and final on its face; and if the proceeding was fairly conducted.

"Actual damage is measurable against some objective standard—the number of pounds, or days, or gallons or yards; but punitive damages take their shape from the subjective criteria involved in attitudes toward correction and reform, and courts do not accept readily the delegation of that kind of power. Where punitive damages have been allowed for those torts which are still regarded somewhat as public penal wrongs as well as actionable private wrongs, they have had rather close judicial supervision. If the usual rules were followed there would be no effective judicial supervision over punitive awards in arbitration."

The dissent appears to have recognized the danger in permitting an arbitrator in his discretion to award unlimited punitive damages. Thus, it notes that the award made here was neither "irrational" nor "unjust" (40 N.Y.2d p. 365, 386 N.Y.S.2d p. 838, 353 N.E.2d p. 800). Standards such as these are subjective and afford no practical guidelines for the arbitrator and little protection against abuse, and would, on the other hand, contrary to the sound development of arbitration law, permit the courts to supervise awards for their justness (cf. Lentine v. Fundaro, 29 N.Y.2d 382, 386, 328 N.Y.S.2d 418, 422, 278 N.E.2d 633, 635).

Parties to arbitration agree to the substitution of a private tribunal for purposes of deciding their disputes without the expense, delay and rigidities of traditional courts. If arbitrators were allowed to impose punitive damages, the usefulness of arbitration would be destroyed. It would become a trap for the unwary given the eminently desirable freedom from judicial overview of law and facts. It would mean that the scope of determination by arbitrators, by the license to award punitive damages, would be both unpredictable and uncontrollable. It would lead to a Shylock principle of doing business without a Portia-like escape from the vise of a logic foreign to arbitration law.

In imposing penal sanctions in private arrangements, a tradition of the rule of law in organized society is violated. One purpose of the rule of law is to require that the use of coercion be controlled by the State (Kelsen, General Theory of Law and State, p. 21). In a highly developed commercial and economic society the use of private force is not the danger, but the uncontrolled use of coercive economic sanctions in private arrangements. For centuries the power to punish has been a monopoly of the State, and not that of any private individual (Kelsen, Loc. cit., supra). The day is long past since barbaric man achieved redress by private punitive measures.

The parties never agreed or, for that matter, even considered punitive damages as a possible sanction for breach of the agreement (see dissenting opn. below by Mr. Justice Capozzoli, 48 A.D.2d 814, 370 N.Y.S.2d 6). Here there is no pretense of agreement, although plaintiff author argues feebly that the issue of punitive damages was 'waived' by failure to object originally to the demands for punitive damages, but only later to the award. The law does not and should not permit private persons to submit themselves to punitive sanctions of the order reserved to the State. The freedom of contract does not embrace the freedom to punish, even by contract. On this view, there was no power to waive the [835] limitations on privately assessed punitive damages and, of course, no power to agree to them by the failure to object to the demand for arbitration (cf. Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 704, 65 S.Ct. 895, 900, 89 L.Ed. 1296, affg., 293 N.Y. 666, 56 N.E.2d 259 ("waiver" of right "charged or colored with the public interest" is ineffective); see, generally, 6A Corbin, Contracts, § 1515, pp. 728--732 (e.g., "waiver" of defense to an usurious agreement is ineffective)).

Under common-law principles, there is eventual supervision of jury awards of punitive damages, in the singularly rare cases where it is permitted, by the trial court's power to change awards and by the Appellate Division's power to modify such awards (see Walker v. Sheldon, 10 N.Y.2d 401, 405, n. 3, 223 N.Y.S.2d 488, 491, 179 N.E.2d 497, 499, Supra). That the award of punitive damages in this case was quite modest is immaterial. Such a happenstance is not one on which to base a rule.

Accordingly, the order of the Appellate Division should be modified, without costs, to vacate so much of the award which imposes punitive damages, and otherwise affirmed.

GABRIELLI, Judge (dissenting).

Although espousing a desire to obviate a "trap for the unwary" and a "Shylock principle of doing business without a Portia-like escape" (40 N.Y.2d p. 359, 386 N.Y.S.2d p. 834, 353 N.E.2d p. 796), the majority reaches a result favoring a guileful defendant and voids a just and rational award of punitive damages to a wholly innocent and deserving plaintiff. Stripped to its essence the defendant, by willful and fraudulent guises, refused to pay plaintiff royalties known to be due and owing to her; forced her to commence actions claiming fraudulent acts and to enforce arbitration to redress the wrongs done to her and to collect the sums rightfully due; and, finally, defendant waived any objection to the claim for punitive damages, deliberately refused to participate in the arbitration hearing and abruptly left the hearing without moving against the claim for punitive damages or even so much as offering any countervailing evidence or argument on the merits of plaintiff's claims. I cannot, therefore, join with the majority and conclude, as they now do, that the ultimate limit of the damages awardable to plaintiff is that sum which was unquestionably due and owing to her in any event under the royalty agreement.

The basic issue presented for our determination is whether, in an arbitration proceeding brought pursuant to a contract containing a broad arbitration clause, an award of punitive damages is violative of public policy.

Plaintiff, the author of The Sensuous Woman and The Sensuous Man, entered into agreements with the defendant to publish the two books. The agreements contain identical, broad arbitration clauses which provide:

"Any controversy or claim arising out of this agreement or the breach or interpretation thereof shall be determined by arbitration in accordance with the rules then obtaining of the American Arbitration Association, and judgment upon the award may be entered in the highest court of the forum, State or Federal, having jurisdiction."

A dispute arose between the parties and in December, 1971 plaintiff commenced an action for damages against defendant alleging that defendant and its principal officer, Lyle Stuart, committed fraud in inducing her to enter into the agreements, substantially underpaid her royalties then due, and engaged in nefarious business activities calculated to harass and annoy her. Defendant moved for a stay of the action pending arbitration. The decision on the motion has been held in abeyance pending trial of the fraudulent inducement issue, which as yet has not been held due to protracted pretrial discovery proceedings.

In March, 1974 plaintiff commenced a new and separate action asserting that defendant [836] had wrongfully withheld an additional $45,000 in royalties during the first half of 1973. Defendant obtained a stay of that action pending arbitration and plaintiff subsequently served a demand for arbitration. The demand restated the claim made in the March, 1974 complaint and also contained an additional claim for punitive damages allegedly resulting from defendant's maliciously withholding royalties due plaintiff who charged that it was done for the unjustifiable and vindictive purpose of coercing plaintiff to withdraw the pending 1971 action.

Defendant participated in the selection of the arbitrators and appeared at the hearing. Represented by counsel and two corporate officers, defendant promptly entered objections concerning the standing of plaintiff to bring the proceeding and certain administrative matters. No objection was addressed to the demand for punitive damages. The objections were overruled, and defendant's representatives walked out of the hearing and refused to participate any further in the arbitration proceeding. None of the objections raised at the hearing have ever been renewed.

Following the departure of defendant's officers and counsel, the arbitrators heard extensive and, of course, unchallenged evidence from plaintiff. As a result, the arbitrators awarded plaintiff $45,000 on her claim for royalties and $7,500 in punitive damages plus interest and fees. When plaintiff moved to confirm the award, defendant objected, for the first time, that an award of punitive damages is violative of public policy and beyond the scope of the authority of the arbitrators. Special Term confirmed the award and the Appellate Division upheld that determination. I would affirm.

In doing so, I would reject the notion that this award of punitive damages is violative of public policy. We have only recently treated with a somewhat similar argument in Matter of Associated Gen. Contrs., N.Y. State Chapter (Savin Bros.), 36 N.Y.2d 957, 373 N.Y.S.2d 555, 335 N.E.2d 859. There we considered the effect of a public policy argument against penalty awards with respect to an arbitration commenced by a national trade association in the construction industry against one of its employer-members pursuant to the provisions of a broad arbitration clause contained in the association agreement. Specifically at issue was whether an arbitration award of treble liquidated damages, assessed in accordance with the express terms of the agreement, was enforceable.^[*] We held that since the arbitration was in consequence of a broad arbitration clause and concerned no third-party interests which could be said to transcend the concerns of the parties to the arbitration, there was present (p. 959, 373 N.Y.S.2d p. 556, 335 N.E.2d p. 860) "no question involving public policy of such magnitude as to call for judicial intrusion" (see, also, Matter of Riccardi (Modern Silver Linen Supply Co.), 36 N.Y.2d 945, 373 N.Y.S.2d 551, 335 N.E.2d 856; cf. Hirsch v. Hirsch, 37 N.Y.2d 312, 372 N.Y.S.2d 71, 333 N.E.2d 371). The Associated Gen. Contrs. case may be contrasted with Matter of Aimcee Wholesale Corp. (Tomar Prods.), 21 N.Y.2d 621, 289 N.Y.S.2d 968, 237 N.E.2d 223, where the issue to be arbitrated concerned the enforcement of State antitrust law, a matter which was, as we said in Aetna Life & Cas. Co. v. Stekardis, 34 N.Y.2d 182, 186, n., 356 N.Y.S.2d 587, 589, 313 N.E.2d 53, 54, "of overriding public policy significance such as to call for judicial intervention dehors the provisions of CPLR 7503". Other policies, "especially [837] those embodied in statutory form" (Matter of Aimcee, supra, 21 N.Y.2d at p. 629, 289 N.Y.S.2d at p. 974, 237 N.E.2d at p. 227), have also been accorded similar significance (see Matter of Knickerbocker Agency (Holz), 4 N.Y.2d 245, 173 N.Y.S.2d 602, 149 N.E.2d 885 (liquidation of defunct insurance companies); Durst v. Abrash, 17 N.Y.2d 445, 266 N.Y.S.2d 806, 213 N.E.2d 887 (usury law); Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (Securities Act of 1933 violation); American Safety Equip. Corp. v. Maguire Co., 2 Cir., 391 F.2d 821 (Federal antitrust law)).

The case at bar falls within the rationale and rule of the Associated Gen. Contrs. case. Controlling here, as there, is the fact that the arbitration clause is broad indeed; there are no third-party interests involved; and the public policy against punitive damages is not so commanding that the Legislature has found it necessary to embody that policy into law, especially one that would apply to all cases involving such damages irrespective of the amount sought, the relative size of the award, or the punishable actions of the parties. Or, put another way, the public policy which 'favors the peaceful resolutions of disputes through arbitration' (Associated Gen. Contrs., supra, at p. 959, 373 N.Y.S.2d at p. 556, 335 N.E.2d at p. 859) outweighs the public policy disfavoring the assessment of punitive damages in this instance, where the unjustifiable conduct complained of is found to be with malice. I would conclude, therefore, that any public policy limiting punitive damage awards does not rise to that level of significance in this case as to require judicial intervention.

The majority would distinguish the Associated Gen. Contrs. case (supra) upon the thin ground that the enforcement of a treble liquidated damages clause which was applicable to numerous nationwide contracts that conceivably could have amounted to astronomical sums is not the equivalent of the enforcement of an award of penalty damages. However, as Mr. Justice Greenblott specifically stated for the majority below in that case, and in an opinion expressly approved by this court, the amount of damages therein computed in the arbitration bore "no reasonable relationship to the amount of damages which may be sustained" (emphasis added; 45 A.D.2d 136, 140, 356 N.Y.S.2d 374, 378); and a contract clause which is grossly disproportionate to the presumable damage or readily ascertainable loss is a penalty clause, irrespective of its label (Equitable Lbr. Corp. v. IPA Land Development Corp., 38 N.Y.2d 516, 521-522, 381 N.Y.S.2d 459, 462-463, 344 N.E.2d 391, 395-396; Ward v. Hudson Riv. Bldg. Co., 125 N.Y. 230, 235, 26 N.E. 256, 257; see Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 192 N.E. 297; Uniform Commercial Code, § 2-718, subd. (1); Restatement, Contracts, § 339; 3 Williston, Contracts (rev. ed.), § 779). In short, Associated Gen. Contrs. is not only apposite but is controlling. Conversely, Matter of Publishers' Assn. of N.Y. City (Newspaper Union), 280 App.Div. 500, 504-506, 114 N.Y.S.2d 401, 404-406, decided in 1951, and a predicate for the majority holding, has been seriously questioned and said to be of "doubtful validity" (8 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 7510.07) due to the subsequent enactment of CPLR 7501 which intentionally broadened the scope of arbitration and made awards therein enforceable "without regard to the justiciable character of the controversy". Even the court which authored Publishers' Ass'n now agrees that the issue there considered was not properly framed (see Associated Gen. Contrs., 45 A.D.2d at p. 142, 356 N.Y.S.2d at p. 380, Supra).

An affirmative here would do no violence to precedents in this court. In at least two varied circumstances we have held that although public policy would bar a civil suit for relief, that same public policy was not of such overriding import as to preclude confirmation of an arbitration award (Matter of Staklinski (Pyramid Elec. Co.), 6 N.Y.2d 159, 188 N.Y.S.2d 541, 160 N.E.2d 78; Matter of Ruppert (Egelhofer), 3 N.Y.2d 576, 170 N.Y.S.2d 785, 148 N.E.2d [838] 129). In Ruppert was permitted the enjoining of a work stoppage in a labor dispute by arbitration despite the fact that the issuance of such relief by a court was prohibited by statute (then Civil Practice Act, § 876-a). Similarly, in Staklinski, citing Ruppert, we upheld an arbitration award of specific performance of an employment contract in the face of the public policy against compelling a corporation to continue the services of an officer whose services were unsatisfactory to the board of directors. The rule to be distill these cases, therefore, is that only where the public interest clearly supersedes the concerns of the parties should courts intervene and assert exclusive dominion over disputes in arbitration (see Comment, Judicial Review of Arbitration: Role of Public Policy, 58 Nw.U.L.Rev. 545, 554-555; see, also, McLaughlin, Supplementary Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, CPLR 7501, Supp., p. 164; Note, 52 Col.L.Rev. 943, 945).

Nor can we hold, as defendant also urges, that the arbitrators exceeded their authority in awarding punitive damages to plaintiff. Arbitrators are entitled to do justice. It has been said that, short of "complete irrationality", "they may fashion the law to fit the facts before them" (Lentine v. Fundaro, 29 N.Y.2d 382, 386, 328 N.Y.S.2d 418, 422, 278 N.E.2d 633, 636, quoting Matter of National Cash Register Co. (Wilson), 8 N.Y.2d 377, 383, 208 N.Y.S.2d 951, 955, 171 N.E.2d 302, 305, and Matter of Exercycle Corp. (Maratta), 9 N.Y.2d 329, 336, 214 N.Y.S.2d 353, 357, 174 N.E.2d 463, 466; see also, Matter of Spectrum Fabrics Corp. (Main St. Fashions), 309 N.Y. 709, 128 N.E.2d 416, affg., 285 App.Div. 710, 139 N.Y.S.2d 612). The award made here was neither irrational nor unjust. Indeed, defendant has not denied that its actions were designed to harass and intimidate plaintiff, as she claimed and the arbitrators obviously concluded. Hence, the award was within the power vested in the arbitrator.

As we have noted, plaintiff sought punitive damages as listed and set forth in the demand for arbitration, presenting of course a threshold question to which defendant failed to respond and, in fact, summarily refused to address himself. In effect, therefore, defendant's failure to act, respond or contest the claim is tantamount to a waiver of any objection thereto and, indeed, is equivalent to an agreement to arbitrate the allegation now complained of.

Accordingly, the order of the Appellate Division should be affirmed.

JASEN, FUCHSBERG and COOKE, JJ., concur with BREITEL, C.J.

GABRIELLI, J., dissents and votes to affirm in a separate opinion in which JONES and WACHTLER, JJ., concur.

Order modified, without costs, in accordance with the opinion herein and, as so modified, affirmed.

* The agreement provided that where an arbitrator found that a member had violated the terms of the agreement, damages were to be awarded "in an amount no less than three (3) times the daily liquidated damage amount provided for in each * * * heavy and highway construction contract to which the undersigned firm is a party within the geographic area of the applicable labor contract * * * for each * * * day the firm complained of is found by the arbitrator to have been in violation of its obligations." (Matter of Associated Gen. Contrs., supra, 36 N.Y.2d p. 958, 373 N.Y.S.2d p. 555, 335 N.E.2d p. 859).

6 Bing. 141

KEMBLE
v.
FARREN.

Court of Common Pleas.
July 6, 1829.

ASSUMPSIT by the manager of Covent Garden Liquidated damages for the violation of an engagement to perform served on at Covent Garden for four seasons.

By an agreement between the Plaintiff and Defendant, the Defendant had engaged himself to act as a principal comedian at Covent Garden Theatre for four seasons, commencing with October 1828, and in all things to conform to the regulations of the theatre. The Plaintiff agreed to pay the Defendant £3. 6s. 8d. every night on which the theatre should be open for theatrical performances during the ensuing four seasons; and that the Defendant should be allowed one benefit  night during each season, on certain terms therein  specified. And the agreement contained a clause, that if either of the parties should neglect or refuse to fulfil the said agreement, or any part thereof, or any stipulation therein contained, such party should pay to the other the sum of £1000, to which sum it was thereby agreed that the damages sustained by any such omission, neglect, or refusal should amount; and which sum was thereby declared by the said parties to be liquidated and ascertained damages, and not a penalty or penal sum, or in the nature thereof.

The breach alleged was, that the Defendant refused to act during the second season; and at the trial the jury gave a verdict for the Plaintiff for £750 damages, subject to a motion for increasing them to £1000, if the Court should be of opinion that, upon this agreement, [142] the Plaintiff was entitled to the whole sum claimed as liquidated damages.

Wilde Serjt. having accordingly obtained a rule nisi to that effect,

Spankie Serjt. shewed cause. Upon this agreement the Plaintiff is not entitled to recover £1000 for liquidated damages, but only such compensation as a jury shall think fit. The rule is, that where an agreement contains several stipulations, some of them touching matters of great importance to the parties, and others, matters of little or no importance, a covenant for liquidated damages, generally, upon any violation of the agreement, shall not be carried into effect, however strong the language may be. But if the agreement consist only of a single stipulation, or the covenant for liquidated damages be confined to any specified breach or breaches where the agreement contains more than one stipulation, such covenant is valid, and may be enforced. And this is no violation of the rule, that written instruments shall be construed according to the intention of the parties; for the parties must be taken to have overlooked the effect of their words, when by a general covenant for liquidated damages, they propose such an absurdity as the payment of a sum disproportionately heavy for an omission to observe the most unimportant part of an agreement.

For instance, it might probably have been intended between the parties in this case, that the Defendant should forfeit £1000 if he quitted Cement Garden Theatre, and joined a rival establishment; but it never could have been in the contemplation of the parties, that he should forfeit £1000 if he neglected to attend a single rehearsal, or that the Plaintiff should forfeit £1000  if he omitted to pay the Defendant the salary for one night, [143] £3. 6s. 8d. But as the stipulation for liquidated damages is general, and applies in terms equally to the minutest as well as the most important violations of the agreement, the Court has no means of determining to which breach the parties meant it should be actually applied, and must, therefore, leave it to a jury, to ascertain the probable amount of damage. The leading case on the subject is Astley v. Weldon^[1], where the manager of a theatre sued an actress on the breach of an agreement to perform. That agreement also contained a general stipulation for liquidated damages in terms as strong as the present, and Heath J. said, "Where articles contain covenants for the performance of several things, and then one large sum is stated at the end to be paid upon breach of performance, that must be considered as a penalty. But where it is agreed that if a party do such a particular thing, such a sum shall be paid by him, there the sum stated may be treated as liquidated damages." Chambre J. said, "There is one case in which the sum agreed for must always be considered as a penalty, and that is, where the payment of a smaller sum is secured by a larger. In this case it is impossible to garble the covenants, and to hold that in one case the plaintiff shall recover only for the damages sustained, and in another that he shall recover the penalty. The concluding clause applies equally to all the covenants. "And per Eldon C.J." There are many instances of the defendant's misconduct which are made the subject of specific fines by the laws of the theatre. Are we, then, to hold that, if the defendant happens to offend in a case which has been so provided for by those laws, she shall pay only 2s. 6d. or 5s.; but if she offend in a case which has not been so provided for, she shall pay £200?"

[144] That case has been recognized in Street v. Rigby.^[2] In Lowe v. Peers^[3] the contract had but a single object, that the defendant should marry the plaintiff, who, therefore, recovered the liquidated damages provided by the contract. And in Reiley v. Jones^[4] the whole object of the agreement was, that the defendant should transfer to the plaintiff his interest in a public-house. Park J. put the judgment of the Court upon this footing. In Barton v. Glover^[5], Farrant v. Olmius^[6], and Crisdee v. Bolton^[7], the agreements for liquidated damages were all confined to some specific breach. The Court has no power to select one out of the various stipulations contained in this agreement, and apply the liquidated damages to that. The whole agreement must be taken together. In Davies v. Penion^[8], Bayley J. said, "We must look at all parts of the instrument, in order to ascertain whether it was the intention of the parties that the sum of £500 should be a penalty or liquidated damages. Now, where the sum which is to be the security for the performance of an agreement to do several acts will, in cases of breaches of the agreement, be in some instances too large, and in others too small a compensation for the injury thereby occasioned, that sum is to be considered a penalty." Holroyd. J. " We must look to the nature of the agreement, and of the sum to be paid, in order to ascertain whether the sum which was to secure the performance of the agreement was intended to be a penalty or liquidated damages." Littledale J. “Since the statute 8 & 9 W. 3. parties in framing agreements have frequently changed the word penalty for liquidated damages; but the mere [145] alteration of the term cannot alter the nature of the thing; and if the Court see, upon the whole agreement, that the parties intended the sum to be a penalty, they ought not to allow one party to deprive the other of the benefit to be derived from the statute." And in Randal v. Everest^[9], where an agreement not under seal, for the lease of a public house, contained a clause that the party neglecting to comply with his part of the agreement should pay the sum of £100 mutually agreed upon to be the damages ascertained and fixed on breach thereof, it was held, that the party making a default was not liable beyond the damages actually sustained. Lord Tenterden laid it down, that "whether the term penalty or liquidated damages be used in the agreement, a party who claims compensation for default shall only be allowed to recover what damage he has really sustained." The exaction of liquidated damages would be the more severe in the present instance, as the Plaintiff has had the benefit of the Defendant's services for a considerable proportion of the time agreed on; and it is contrary to every principle of contracts, that a party should have performance pro tanto, and a penalty too. Pothier^[10] says, "I cannot receive the whole of the penalty, and enjoy in part the benefit of my right of servitude : I cannot, at the same time, have the one and the other."

Wilde Serjt. contra. In all cases the rule is, to collect the intention of the parties from the language of the agreement, and not to decide what is reasonable or unreasonable, for on that no two persons would be found to agree. On the contrary, if a contract be never so unreasonable, the Court will sustain it, provided it appears clearly to have been the intention of the parties [146] to carry it into effect. In Astley v. Weldon, the Court treated the question of liquidated damages purely as a question of intention ; and Lord Eldon said, " If a party choose to stipulate for £5 or £50, additional rent, upon every acre of furze broken up, or for any given sum of money upon every load of wood cut and stubbed up, I see nothing irrational in such a contract; and it appears to me extremely difficult to apply with propriety the word excessive to the terms in which parties choose to contract with each other." Although the sum fixed in the present instance may appear somewhat exorbitant, when applied to slight violations of the contract, the parties probably fixed it on the whole agreement, on account of the difficulty of ascertaining the damages in matters regarding theatrical performance. It would be difficult, if not impossible, to prove the precise sum the Plaintiff would lose by the Defendant's neglecting to attend rehearsals, and so, performing imperfectly the parts allotted to him, or by his transferring his services to a rival establishment. In Reiley v. Jones, the Court decided on the ground that the parties had one paramount object in the agreement, and that the defendant had violated the agreement in respect of that object. The paramount object between these parties was, that the Plaintiff should retain the Defendant in his theatre, and that the Defendant should not transfer his services to a rival establishment; the Defendant has violated the agreement in that respect. The language in which the liquidated damages are agreed to be paid is the strongest that can be employed; it manifests the clearest intention that the parties shall abide by it; and if it be not sufficient to secure the payment, there is no language and no contract by which they can be secured. Davies v. Penton turned on the circumstance, that the defendant had waived his right to insist on liquidated damages.

Cur. adv. vult.

[147] TINDAL C. J. This is a rule which calls upon the Defendant to shew cause why the verdict, which has been entered for the Plaintiff for £750, should not be increased to £1000.

The action was brought upon an agreement made between the Plaintiff and the Defendant, whereby the Defendant agreed to act as a principal comedian at the Theatre Royal, Covent Garden, during the four then next seasons, commencing October 1828, and also to conform in all things to the usual regulations of the said Theatre Royal, Covent Garden; and the Plaintiff agreed to pay the Defendant £3. 6s. 8d. every night on which the theatre should be open for theatrical performances, during the next four seasons, and that the Defendant should be allowed one benefit night during each season, on certain terms therein specified. And the agreement contained a clause, that if either of the parties should neglect or refuse to fulfil the said agreement, or any part thereof, or any stipulation therein contained, such party should pay to the other the sum of £1000, to which sum it was thereby agreed that the damages sustained by any such omission, neglect, or refusal, should amount; and which sum was thereby declared by the said parties to be liquidated and ascertained damages, and not a penalty or penal sum, or in the nature thereof.

The breach alleged in the declaration was, that the Defendant refused to act during the second season, for which breach, the jury, upon the trial, assessed the damages at £750; which damages the Plaintiff contends ought by the terms of the agreement to have been assessed at £1000.

It is, undoubtedly, difficult to suppose any words more precise or explicit than those used in the agreement; the same declaring not only affirmatively that the sum of £1000 should be taken as liquidated damages, but [148] negatively also that it should not be considered as a penalty, or in the nature thereof. And if the clause had been limited to breaches which were of an uncertain nature and amount, we should have thought it would have had the effect of ascertaining the damages upon any such breach at £1000. For we see nothing illegal or unreasonable in the parties, by their mutual agreement, settling the amount of damages, uncertain in their nature, at any sum upon which they may agree. In many cases, such an agreement fixes that which is almost impossible to be accurately ascertained; and in all cases, it saves the expense and difficulty of bringing witnesses to that point. But in the present case, the clause is not so confined; it extends to the breach of any stipulation by either party. If, therefore, on the one hand, the Plaintiff had neglected to make a single payment of £3. 6s. 8d. per day, or on the other hand, the Defendant had refused to conform to any usual regulation of the theatre, however minute or unimportant, it must have been contended that the clause in question, in either case, would have given the stipulated damages of £1000. But that a very large sum should become immediately payable, in consequence of the nonpayment of a very small sum, and that the former should not be considered as a penalty, appears to be a contradiction in terms; the case being precisely that in which courts of equity have always relieved, and against which courts of law have, in modern times, endeavoured to relieve, by directing juries to assess the real damages sustained by the breach of the agreement. It has been argued at the bar, that the liquidated damages apply to those breaches of the agreement only which are in their nature uncertain, leaving those which are certain to a distinct remedy, by the verdict of a jury. But we can only say, if such is the intention of the parties, they have not expressed it; but have made the clause relate, by express [149] and positive terms, to all breaches of every kind. We cannot, therefore, distinguish this case, in principle, from that of Ashley v. Weldon, in which it was stipulated, that either of the parties neglecting to perform the agreement should pay to the other of them the full sum of £200  to be recovered in his Majesty's courts at Westminster. Here there was a distinct agreement, that the sum stipulated should be liquidated and ascertained damages: there were clauses in the agreement, some sounding in uncertain damages, others relating to certain pecuniary payments; the action was brought for the breach of a clause of an uncertain nature; and yet it was held by the Court, that for this very reason it would be absurd to construe the sum inserted in the agreement as liquidated damages, and it was held to be a penal sum only. As this case appears to us to be decided on a clear and intelligible principle, and to apply to that under consideration, we think it right to adhere to it, and this makes it unnecessary to consider the subsequent cases, which do not in any way break in upon it. The consequence is, we think the present verdict should stand, and the rule for increasing the damages be discharged.

Rule discharged.

Notes:

[1] 2 B & P. 346.

[2] 6 Ves. 815. 

[3] Burr. 2225.

[4] 1 Bingh. 302.

[5] Holt, N. P. C. 43.

[6] 3 B. & A. 692.

[7] 3 Carr. & P. 240.

[8] 6 R. & C. 126.

[9] 1 M.& M. 41.

[10] Traites des Obligations, part 2. cap. 5. art. 3. pl. 351.

297 P.2d 981
46 Cal.2d 577
Harold McCARTHY, Plaintiff and Appellant,
v.
Thomas Seymour TALLY, Defendant and Appellant.
Thomas Seymour TALLY, Plaintiff and Appellant,
v.
Harold McCARTHY, Defendant and Appellant.
L. A. 23310, 23311.
Supreme Court of California, In Bank.
June 1, 1956.

[297 P.2d 983]

[46 Cal.2d 579] Combs & Hoose, Lee Combs and Harned Pettus Hoose, Beverly Hills, for Harold McCarthy.

Wilson & Wilson, San Bernardino, for Thomas S. Tally.

CARTER, Justice.

These two actions arose because of disputes concerning a ten-year lease of a summer resort known as Glenn Ranch owned by Tally and leased by him and him father to Mr. and Mrs. McCarthy.^[1] In the first action Harold McCarthy sought declaratory relief and damages for fraud against Seymour Tally; Tally later brought an action against McCarthy in which he sought to establish certain rights under the lease in question and for the appointment of a receiver. The actions were consolidated for trial. The court made separate findings in each case and entered separate judgments. In the McCarthy case, the judgment was in favor of Tally; in the Tally case, judgment was rendered against McCarthy in the sum of $1,414.14 (unpaid rent and taxes), together with [46 Cal.2d 580] $2,000 as attorney's fees, $1,038.50 as costs and charges of the receiver appointed, $67.50 for certain other costs and disbursements, and it was concluded that plaintiff Tally was not entitled to recover any sum as liquidated damages. McCarthy was adjudged entitled to the sum of $821.32 for unearned premium of an insurance policy owned by him and retained by Tally. McCarthy appealed from the whole of the judgment in the McCarthy case except that portion denying Tally liquidated damages; Tally appealed only from that portion of the judgment in the Tally case denying him liquidated damages.

On July 17, 1944, T. L. Tally and Thomas Seymour Tally, as lessors, and Harold McCarthy and his wife, Barbara, as lessees, executed an agreement in writing by which the Tallys leased to the McCarthys certain real and personal property in the San Bernardino mountains, known as the “Glenn Ranch.” The lease was for a term of ten years, at an annual rental of $10,000 and provided for the continuance of the operation of a hotel and summer resort then being operated by the Tallys.

The McCarthys entered into possession on August 1, 1944, operated the business and paid the rent until October 31, 1950. On or about November 28, 1950, Tally served McCarthy with a notice to pay rent or vacate the premises. On or about December 1, 1950, McCarthy served Tally with a notice that he had vacated and surrendered the property and that he was delivering possession to Tally. On January 4, 1951, a receiver was appointed to take charge of the business and the ranch.

In the McCarthy action, McCarthy sought damages on the theory that certain false statements had been made by Tally to him to induce the execution of the lease and that he had relied on such false representations. It was alleged that Tally had told him that the Glenn Ranch had produced a net annual income of $27,000 in previous years, and that the ranch was in “excellent,” “very good,” “wonderful'” condition, and that these representations were known by Tally to be untrue. Concerning both allegations of fraudulent representations, the evidence was in sharp conflict. With respect to the net income of the ranch, Tally testified that he had not made the alleged statements, but that he had stated that because of a decided increase in the business in the year in which the McCarthys took over, it was expected that the net income would better $27,000; that the maximum income [46 Cal.2d 581] he had ever made on the ranch was $22,000 the previous year. The trial court found that the alleged fraudulent misrepresentations as to income had not been made and the evidence is sufficient to support the finding.

In connection with the alleged representations concerning the condition of [297 P.2d 984] the ranch, the trial court found that Tally and his wife truthfully represented to the McCarthys that the property and facilities referred to in the lease were in “good operating condition.” McCarthy testified that at the time took over the operation of the summer resort the place was full of guests and reservations had been made for guests later in the year. The record shows that McCarthy had inspected the ranch; that he had been there as a guest of the Tallys on several occasions prior to leasing it; that his wife had been there almost every week in 1943 and quite often in 1944. The record also shows that the ranch was one which had been operated for many years as a summer resort and that McCarthy knew that some of the buildings were very old. This evidence is sufficient to support the finding of the trial court that the alleged fraudulent representations were untrue and that it was true that the ranch was in good operating condition. McCarthy's attempt to reargue the evidence and the weight thereof in this court is unavailing. As we have frequently said, it is the general rule on appeal that an appellate court will view the evidence in the light most favorable to the respondent and will not weigh the evidence. An appellate court will indulge all intendments and reasonable inferences which favor sustaining the finding of the trier of fact and will not disturb that finding when there is substantial evidence in the record in support thereof. Berniker v. Berniker, 30 Cal.2d 439, 444, 182 P.2d 557.

A more troublesome point is that relating to the provision for liquidated damages. Paragraph (28) of the lease provides:

“That it is and will be impracticable and extremely difficult to fix the actual damages to said Parcel Four^[2] in the event of termination of this lease by the lessors for cause, or by reason of abandonment of the demised property by the lessees, and that the sum of $10,000.00 shall be and said sum is hereby fixed as the amount of the liquidated damages in the event of such termination or such abandonment; that [46 Cal.2d 582] said lessees have this day executed to the lessors a demand note for $10,000^[3] secured by a deed of trust upon real property in Riverside County, California, to evidence and secure the payment of such liquidated damages; that said lessees may at any time deposit with the lessors the sum of $10,000.00 in lieu of said note and deed of trust;

“That in the event said lessors successfully prosecute proceedings to terminate this lease for cause, the Court may, in addition to actual damages by reason of loss with respect of Parcels One, Two and Three, award to said lessors liquidated damages in the sum of $10,000.00 by reason of loss with respect to Parcel Four;

“That in the event said lessees abandon and give up possession of said demised property to the lessors, said lessees shall be liable to the lessors for actual damages by reason of loss with respect to Parcels One, Two and Three, plus liquidated damages in the sum of $10,000.00 by reason of loss with respect to Parcel Four;

“That in the event of such termination of such abandonment, the liquidated damages aforesaid shall be paid to the lessors from said deposit or from the proceeds derived from a sale under said Deed of Trust; that the payment of actual and liquidated damages, as aforesaid, shall fully satisfy all obligations of lessees under and by virtue of the provisions hereof.”

Paragraph (29) provides

“That default shall not be deemed to have occurred with respect to any of the terms, covenants and conditions herein set forth, other than the payment of the aforesaid installments of rental, unless the lessees, within ten days after written notice of the nature of the asserted breach, shall have failed to cure such breach.”

[297 P.2d 985] Section 1670 of the Civil Code provides that “Every contract by which the amount of damage to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided in the next section.”

Section 1671 provides that “The parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.”

Tally alleged, and the trial court found, that under the circumstances existing at the time the contract was entered [46 Cal.2d 583] into, it would have been impracticable or extremely difficult for actual damages to be fixed in the event of a breach of the conditions of the lease. In the McCarthy action, however, the trial court in amended findings found that in the event of a breach the damages would not be difficult of ascertainment. It has been held that whether or not damages would be impracticable or extremely difficult to fix is a question of fact in each case for the trier of fact, Rice v. Schmid, 18 Cal.2d 382, 385, 115 P.2d 498, 138 A.L.R. 589; Better Food Markets v. American District Telegraph Co., 40 Cal.2d 179, 184, 253 P.2d 10, 42 A.L.R.2d 580; Atkinson v. Pacific Fire Extinguisher Co., 40 Cal.2d 192, 195, 253 P.2d 18, unless the circumstances existing at the time of making the stipulation are not in dispute and permit of but one conclusion.

Ordinarily, provisions for liquidated damages will not lie for failure to pay rent as provided in the lease. Rez v. Summers, 34 Cal.App. 527, 529, 168 P. 156; Webster v. Garrette, 10 Cal.App.2d 610, 615, 52 P.2d 550; Jack v. Sinsheimer, 125 Cal. 563, 566, 58 P. 130; Knight v. Marks, 183 Cal. 354, 357, 191 P. 531. This is so because in such a case there is no presumption that the amount of damages which may result from a tenant's breach of a covenant to pay rent is impossible or extremely difficult to fix. In the present case, however, while the breach was failure to pay rent, the liquidated damage provision in the lease related to a possible injury to the goodwill of the business of operating a summer resort. Where a contract providing for the sale of the goodwill of a business was concerned, it has been held that an agreement for liquidated damages was proper and that the plaintiff was required only to prove a breach of the contract in order to recover such liquidated damages. Potter v. Ahrens, 110 Cal. 674, 43 P. 388; Franz v. Bieler, 126 Cal. 176, 181, 56 P. 249, 58 P. 466; Streeter v. Rush, 25 Cal. 67, 72; Nash v. Hermosilla, 9 Cal. 584, 587.

We have here a breach of the contract occasioned by McCarthy's failure to pay rent. The record shows that the breach occurred in November after the summer resort had been closed for the season. The court found, specifically, that “there is no evidence establishing any damage to or loss of said goodwill” and concluded that Tally was not entitled to recover the agreed-upon sum of $10,000 as liquidated damages for the possible injury to the goodwill of the business. The record bears out the finding of the trial court [46 Cal.2d 584] that the goodwill of the business had not been affected by McCarthy's failure to pay rent.

In Kelly v. McDonald, 98 Cal.App. 121, 125, 276 P. 404, 406, it was held:

“While the term ‘liquidated damages’ does imply that the parties have ascertained and agreed upon a sum which they assume will adequately compensate for a breach of the contract, this does not necessarily mean that the amount specified must be paid whether damages result from the breach or not. The very term of ‘damages’ contemplates an injury sustained or detriment resulting from the breach of a contract or the nonperformance of a duty. As the court said in Starr v. Lee, supra (88 Cal.App. 344, 348, 263 P. 376): 'We find authorities holding that recovery cannot be had when the evidence shows that no damage at all resulted from the breach.' The exception to the general rule to the effect that the predetermined amount of damages for the breach of an obligation is void, as that exception is expressed in section 1671 of the Civil Code does not purport to declare that an amount of liquidated damages agreed upon shall be conclusively presumed to be the exact figure which will adequately compensate [297 P.2d 986] for the breach of contract. This section merely asserts that it is 'presumed to be the amount of damages sustained.' This presumption may be rebutted by proof that no detriment whatever resulted from the breach.”

(Emphasis added.)

We held in Better Food Markets v. American District Telegraph Co., 40 Cal.2d 179, 187, 253 P.2d 10, 15, 42 A.L.R.2d 580, that the amount agreed upon as liquidated damages “must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained”. Dyer Bros. Golden West Iron Works v. Central Iron Works, 182 Cal. 588, 189 P. 445; Rice v. Schmid, 18 Cal.2d 382, 386, 115 P.2d 498, 138 A.L.R. 589; Rest. Contracts, § 339, p. 554.^[4] There is nothing in the record to show that the sum of $10,000 agreed upon as liquidated damages represented a “reasonable endeavor” to estimate the actual damage to be sustained in the event of a breach [46 Cal.2d 585] nor is there any finding on the subject by the trial court. As we have heretofore pointed out, the trial court in the Tally case found that damages would be difficult of ascertainment; in the McCarthy case, it was found that such damages would not be difficult of ascertainment. In the Tally case the trial court's conclusion that liquidated damages were not recoverable was obviously based on its finding that no actual damage had been sustained; in the McCarthy case, the conclusion was based on the finding that the provision for liquidated damages was void and ineffectual because damages were not difficult of ascertainment. Because of these inconsistent findings it is impossible for us to determine which of the two theories motivated the trial court's judgment in each case and we must, therefore, reverse the judgments.

The general rule in the United States with respect to provisions for liquidated damages appears to be that the plaintiff must plead and prove that at the time the contract was entered into damages in the event of a breach of the contract would be difficult of ascertainment; that the sum agreed upon represented a reasonable attempt to ascertain what such damages would be; and that a breach of the contract had occurred. A note in 34 A.L.R. 1336, 1341, points out that

“The majority of the cases hold that the amount stipulated in the contract as liquidated damages for a breach thereof, and which is regarded by the courts as liquidated damages, and not as a penalty, may be recovered in the event of a breach of the contract, even though no actual damages are suffered as a consequence of such breach”

(listing cases from Arkansas, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, New York, Oregon, Pennsylvania, Texas, Washington, West Virginia and Canada). The following statement from 15 Am. Jur., Damages, section 263, pages 696-697, is to the same effect:

“The majority of the cases hold that the amount stipulated in the contract as liquidated damages for a breach thereof, and which is regarded by the courts as liquidated damages, and not as a penalty, may be recovered in the event of a breach of the contract, even though no actual damages are suffered as a consequence of such breach. In many of the cases there are statements to the effect that actual damages need not be pleaded or proved in order to recover the stipulated amount. According to this view, the only evidence proper or necessary on this point is that the contract has been broken. In support of this rule it is said that the question of reasonableness is [46 Cal.2d 586] to be determined as of the time of the making of the contract that is, in regard to any possible amount of damages which may be conceived to [297 P.2d 987] have been within the contemplation of the parties at that time and that neither the intention of the parties nor the construction of the contract can depend upon occurrences happening afterward, which were not in their contemplation when the contract was made.

“Some courts, however, have held that where no damage has been sustained from the breach of the contract, the amount which the contract stipulates as liquidated damages cannot be recovered, even upon the assumption that the provision is to be regarded as one for liquidated damages, rather than a penalty, and that a mere technical breach resulting in nominal damages is not sufficient, although, in some of the cases apparently so holding at least, the real explanation of the result would seem to be that the court, in view of the lack of actual damages, regarded the provision in question as one for a penalty, although denominated by the contract itself as 'liquidated damages.'

“Under a provision construed to be a penalty nothing can be recovered for a breach of the contract where no actual damages appear.”

We hold that in order to recover on a contract provision for liquidated damages the plaintiff must plead and prove that at the time the contract was entered into damages in the event of a breach would be impracticable or extremely difficult of ascertainment; that the sum agreed upon represented a reasonable endeavor to ascertain what such damages would be; and that a breach of the contract had occurred. In other words, no actual damage is necessary in order to recover under a liquidated damages provision provided that the case is, in other respects, a proper one under the conditions set forth in section 1671 of the Civil Code. As we have heretofore pointed out, there is, in the case under consideration, no finding that the sum of $10,000 represented a reasonable endeavor by the parties to ascertain what the damages would be in the event of a breach, and the findings as to whether, at the time the contract was entered into, the damages would be extremely difficult or impracticable of ascertainment in the event of a breach were fatally inconsistent.

The liquidated damages provision here involved related to the goodwill of a summer resort business. As we have heretofore pointed out, it has been held that a breach [46 Cal.2d 587] affecting the goodwill of a business may cause damages which, at the time the contract was entered into, may be impracticable or extremely difficult of ascertainment. Whether or not a breach such as occurred here in the non-operating months of the summer resort was within the contemplation of the parties is an issue to be pleaded and proved on a re-trial of the actions. It appears to us that if such a breach was within the contemplation of the parties, that the sum of $10,000 might not represent a reasonable endeavor to ascertain what the damages would be in the event of such a breach and that the provision might be invalid because of the time at which the breach occurred.

Any language in Kelly v. McDonald, 98 Cal.App. 121, 276 P. 404, and Starr v. Lee, 88 Cal.App. 344, 263 P. 376, contrary to the views herein expressed is disapproved.

McCarthy contends that the court erred in appointing a receiver and that the court wrongfully determined the costs and charges of such receiver. The clerk's transcript in the Tally case shows that the receiver was appointed on January 4, 1951, and that no appeal was taken from the order appointing the receiver. Such an order is appealable, Code Civ.Proc. § 963(2), and will not be reviewed on appeal from the final judgment. 22 Cal.Jur., § 61, p. 476; Weygandt v. Larson, 130 Cal.App. 304, 310, 19 P.2d 852.

Other contentions of the parties do not merit discussion.

The judgments are reversed.

GIBSON, C. J., and SHENK, TRAYNOR, SCHAUER, SPENCE, and McCOMB, JJ., concur.

[1] McCarthy succeeded to the interest of his co-lessee wife upon her death; Tally succeeded to the interest of his co-lessor father upon his death.

[2] Parcel Four is described in the lease as 'The said business and the goodwill thereof, and the right to the use of the trade name of Glenn Ranch.'

[3] Cash had been substituted therefor prior to trial.

[4] This reasonable endeavor to ascertain, in advance, the loss which may result from a possible breach distinguishes a provision for liquidated damages from one for a penalty since the characteristic feature of a penalty is its lack of any proportionate relation to the damage which may actually stem from the breach of a contract. Muldoon v. Lynch, 66 Cal. 536, 6 P. 417; People v. Central Pacific R. Co., 76 Cal. 29, 18 P. 90; Dyer Bros. Golden West Iron Works v. Central Iron Works, 182 Cal. 588, 189 P. 445.

296 N. Y. 1044

SIDNEY E. KLAR et al., Respondents,
v.
H. & M. PARCEL ROOM, INC., Appellant.

Court of Appeals of New York.

Submitted April 9, 1947; decided May 15, 1947.

Bailments — limitation of liability for checked parcel — package containing valuable furs checked for ten-cent fee by plaintiffs' agent in defendant's parcel room — small type on parcel check limited defendant's liability for loss to $25 — testimony by plaintiffs' agent that he did not read parcel check which he thought mere receipt and that limitation of liability not called to his attention by parcel room attendant — parcel mistakenly delivered to another — judgment properly directed for full value of furs.

Klar v. H. & M. Parcel Room, 270 App. Div. 538, affirmed. APPEAL, by permission of the Appellate Division of the Supreme Court in the first judicial department, from a judgment entered June 14, 1946, upon an order of said court which reversed, upon questions of fact and of law, a determination of the Appellate Term of the Supreme Court in the same judicial department (opinion 185 Misc. 477), entered in New York County, which modified a judgment of the Municipal Court of the City of New York, Borough of Manhattan (KATZENSTEIN, J.), in favor of plaintiffs, by reducing plaintiffs' recovery to the sum of $25 (the limit of loss appearing on the face of a parcel check) and affirming said judgment as so modified. The Appellate Division affirmed the judgment of the Municipal Court in favor of plaintiffs in the sum of. $939.50 and in so doing reversed (1) a finding of the Appellate Term that it was adequately shown by the evidence that the limitation of defendant's liability to the sum of $25 was sufficiently brought to plaintiffs' attention, and (2) a conclusion of law that defendant's liability under the contract was limited to $25. The action was brought to recover the alleged value of a paper-wrapped parcel of furs checked, for a fee of ten cents, by plaintiffs' agent with defendant at its parcel room in the Hudson Terminal at 33d [1045] Street and Broadway in the city of New York. At the time of checking plaintiffs' agent received a parcel check of which the following is a facsimile:

H. & M. PARCEL ROOM, INC.
Broadway & 33rd St.  Hudson Tunnels
Open 7:00 A. M. - Close 1:00 A. M.
(E. S. Time Except When Another Time Is In Effect)

CONTRACT
This CONTRACT is made on the following conditions and in consideration of the loaw rate at which the services is performed. And its acceptance by the depositor. Expressly binds both parties to the CONTRACT.
Charge — 10 cents for every 24 hours or fraction thereof. For each piece covered by this contract.
Loss or damage — no claim shall be mad ein excess of $25 for loss or damage to any piece.
Uclaimed articles remaining after 30 days may be sold at public or private sale to satisfy accured charges.
PHONE PEnnsylvania 6-2467 H. & M. PARCEL ROOM, INC.
34—971

The words were printed in black type on cream-colored cardboard, with the exception of the word "Contract" and the number "34—971" which were printed in red. Plaintiffs' agent testified that he did not read the parcel cheek when it was handed to him by the parcel room attendant; that he was not asked to read it and that he thought it was merely a receipt for the package. Two days later, when the check was presented at the parcel room, the package could not be found. It had, according to defendant, been delivered on another check. The Appellate Division stated, in substance, that parcel checking for a nominal fee is generally deemed a bailment for hire and damages for a bailee's failure to exercise ordinary care measured by the reasonable value of the property checked and that, to limit its liability, the bailee must establish a special contract of which the bailor received reasonable notice and to which he assented. In this case, the court ruled that it was a question of fact for the Trial Judge whether acceptance by the bailor of the receipt for the package constituted a contract between the parties limiting liability and that the Trial Judge's determination that there was no such agreement was amply supported by the evidence.

[1046] Travers E, Devlin and John E. Buck for appellant.

Horace G. Marks and George Landesman for respondents.

Judgment affirmed, with, costs; no opinion.

Concur: LOUGHRAN, Ch. J., LEWIS, CONWAY, DESMOND, THACHER, DYE and FULD, JJ.

32 N.J. 358 (1960)
161 A.2d 69

CLAUS H. HENNINGSEN AND HELEN HENNINGSEN, PLAINTIFFS-RESPONDENTS AND CROSS-APPELLANTS,
v.
BLOOMFIELD MOTORS, INC., AND CHRYSLER CORPORATION, DEFENDANTS-APPELLANTS AND CROSS-RESPONDENTS.

The Supreme Court of New Jersey.
Argued December 7, 1959.
Decided May 9, 1960. 

[364] Mr. Bernard Chazen argued the cause for plaintiffs (Mr. Carmen C. Rusignola, attorney; Messrs. Baker, Garber & Chazen, of counsel; Mr. Martin Itzikman, on the brief).

Mr. Samuel Weitzman argued the cause for defendant Bloomfield Motors, Inc. (Messrs. Parsonnet, Weitzman & Oransky, attorneys).

Mr. Sidney M. Schreiber argued the cause for defendant Chrysler Corporation (Messrs. Schreiber, Lancaster & Demos, attorneys; Mr. Roger F. Lancaster, of counsel).

The opinion of the court was delivered by FRANCIS, J.

Plaintiff Claus H. Henningsen purchased a Plymouth automobile, manufactured by defendant Chrysler Corporation, from defendant Bloomfield Motors, Inc. His wife, plaintiff Helen Henningsen, was injured while driving it and instituted suit against both defendants to recover damages on account of her injuries. Her husband joined in the action seeking compensation for his consequential [365] losses. The complaint was predicated upon breach of express and implied warranties and upon negligence. At the trial the negligence counts were dismissed by the court and the cause was submitted to the jury for determination solely on the issues of implied warranty of merchantability. Verdicts were returned against both defendants and in favor of the plaintiffs. Defendants appealed and plaintiffs cross-appealed from the dismissal of their negligence claim. The matter was certified by this court prior to consideration in the Appellate Division.

The facts are not complicated, but a general outline of them is necessary to an understanding of the case.

On May 7, 1955 Mr. and Mrs. Henningsen visited the place of business of Bloomfield Motors, Inc., an authorized De Soto and Plymouth dealer, to look at a Plymouth. They wanted to buy a car and were considering a Ford or a Chevrolet as well as a Plymouth. They were shown a Plymouth which appealed to them and the purchase followed. The record indicates that Mr. Henningsen intended the car as a Mother's Day gift to his wife. He said the intention was communicated to the dealer. When the purchase order or contract was prepared and presented, the husband executed it alone. His wife did not join as a party.

The purchase order was a printed form of one page. On the front it contained blanks to be filled in with a description of the automobile to be sold, the various accessories to be included, and the details of the financing. The particular car selected was described as a 1955 Plymouth, Plaza "6," Club Sedan. The type used in the printed parts of the form became smaller in size, different in style, and less readable toward the bottom where the line for the purchaser's signature was placed. The smallest type on the page appears in the two paragraphs, one of two and one-quarter lines and the second of one and one-half lines, on which great stress is laid by the defense in the case. These two paragraphs are the least legible and the most difficult to read in the instrument, but they are most important in [366] the evaluation of the rights of the contesting parties. They do not attract attention and there is nothing about the format which would draw the reader's eye to them. In fact, a studied and concentrated effort would have to be made to read them. De-emphasis seems the motif rather than emphasis. More particularly, most of the printing in the body of the order appears to be 12 point block type, and easy to read. In the short paragraphs under discussion, however, the type appears to be six point script and the print is solid, that is, the lines are very close together.

The two paragraphs are:

"The front and back of this Order comprise the entire agreement affecting this purchase and no other agreement or understanding of any nature concerning same has been made or entered into, or will be recognized. I hereby certify that no credit has been extended to me for the purchase of this motor vehicle except as appears in writing on the face of this agreement.

I have read the matter printed on the back hereof and agree to it as a part of this order the same as if it were printed above my signature. I certify that I am 21 years of age, or older, and hereby acknowledge receipt of a copy of this order."

On the right side of the form, immediately below these clauses and immediately above the signature line, and in 12 point block type, the following appears:

"CASH OR CERTIFIED CHECK ONLY ON DELIVERY."

On the left side, just opposite and in the same style type as the two quoted clauses, but in eight point size, this statement is set out:

"This agreement shall not become binding upon the Dealer until approved by an officer of the company."

The two latter statements are in the interest of the dealer and obviously an effort is made to draw attention to them.

The testimony of Claus Henningsen justifies the conclusion that he did not read the two fine print paragraphs referring [367] to the back of the purchase contract. And it is uncontradicted that no one made any reference to them, or called them to his attention. With respect to the matter appearing on the back, it is likewise uncontradicted that he did not read it and that no one called it to his attention.

The reverse side of the contract contains 8 1/2 inches of fine print. It is not as small, however, as the two critical paragraphs described above. The page is headed "Conditions" and contains ten separate paragraphs consisting of 65 lines in all. The paragraphs do not have headnotes or margin notes denoting their particular subject, as in the case of the "Owner Service Certificate" to be referred to later. In the seventh paragraph, about two-thirds of the way down the page, the warranty, which is the focal point of the case, is set forth. It is as follows:

"7. It is expressly agreed that there are no warranties, express or implied, made by either the dealer or the manufacturer on the motor vehicle, chassis, or parts furnished hereunder except as follows:

"The manufacturer warrants each new motor vehicle (including original equipment placed thereon by the manufacturer except tires), chassis or parts manufactured by it to be free from defects in material or workmanship under normal use and service. Its obligation under this warranty being limited to making good at its factory any part or parts thereof which shall, within ninety (90) days after delivery of such vehicle to the original purchaser or before such vehicle has been driven 4,000 miles, whichever event shall first occur, be returned to it with transportation charges prepaid and which its examination shall disclose to its satisfaction to have been thus defective; this warranty being expressly in lieu of all other warranties expressed or implied, and all other obligations or liabilities on its part, and it neither assumes nor authorizes any other person to assume for it any other liability in connection with the sale of its vehicles. * * *" (Emphasis ours)

After the contract had been executed, plaintiffs were told the car had to be serviced and that it would be ready in two days. According to the dealer's president, a number of cars were on hand at the time; they had come in from the factory about three or four weeks earlier and at least [368] some of them, including the one selected by the Henningsens, were kept in the back of the shop for display purposes. When sold, plaintiffs' vehicle was not "a serviced car, ready to go." The testimony shows that Chrysler Corporation sends from the factory to the dealer a "New Car Preparation Service Guide" with each new automobile. The guide contains detailed instructions as to what has to be done to prepare the car for delivery. The dealer is told to "Use this form as a guide to inspect and prepare this new Plymouth for delivery." It specifies 66 separate items to be checked, tested, tightened or adjusted in the course of the servicing, but dismantling the vehicle or checking all of its internal parts is not prescribed. The guide also calls for delivery of the Owner Service Certificate with the car.

This Certificate, which at least by inference is authorized by Chrysler, was in the car when released to Claus Henningsen on May 9, 1955. It was not made part of the purchase contract, nor was it shown to him prior to the consummation of that agreement. The only reference to it therein is that the dealer "agrees to promptly perform and fulfill all terms and conditions of the owner service policy." The Certificate contains a warranty entitled "Automobile Manufacturers Association Uniform Warranty." The provisions thereof are the same as those set forth on the reverse side of the purchase order, except that an additional paragraph is added by which the dealer extends that warranty to the purchaser in the same manner as if the word "Dealer" appeared instead of the word "Manufacturer."

The new Plymouth was turned over to the Henningsens on May 9, 1955. No proof was adduced by the dealer to show precisely what was done in the way of mechanical or road testing beyond testimony that the manufacturer's instructions were probably followed. Mr. Henningsen drove it from the dealer's place of business in Bloomfield to their home in Keansburg. On the trip nothing unusual appeared in the way in which it operated. Thereafter, it was used for short trips on paved streets about the town. It had [369] no servicing and no mishaps of any kind before the event of May 19. That day, Mrs. Henningsen drove to Asbury Park. On the way down and in returning the car performed in normal fashion until the accident occurred. She was proceeding north on Route 36 in Highlands, New Jersey, at 20-22 miles per hour. The highway was paved and smooth, and contained two lanes for northbound travel. She was riding in the right-hand lane. Suddenly she heard a loud noise "from the bottom, by the hood." It "felt as if something cracked." The steering wheel spun in her hands; the car veered sharply to the right and crashed into a highway sign and a brick wall. No other vehicle was in any way involved. A bus operator driving in the left-hand lane testified that he observed plaintiffs' car approaching in normal fashion in the opposite direction; "all of a sudden [it] veered at 90 degrees * * * and right into this wall." As a result of the impact, the front of the car was so badly damaged that it was impossible to determine if any of the parts of the steering wheel mechanism or workmanship or assembly were defective or improper prior to the accident. The condition was such that the collision insurance carrier, after inspection, declared the vehicle a total loss. It had 468 miles on the speedometer at the time.

The insurance carrier's inspector and appraiser of damaged cars, with 11 years of experience, advanced the opinion, based on the history and his examination, that something definitely went "wrong from the steering wheel down to the front wheels" and that the untoward happening must have been due to mechanical defect or failure; "something down there had to drop off or break loose to cause the car" to act in the manner described.

As has been indicated, the trial court felt that the proof was not sufficient to make out a prima facie case as to the negligence of either the manufacturer or the dealer. The case was given to the jury, therefore, solely on the warranty theory, with results favorable to the plaintiffs against both defendants.

[370] I. THE CLAIM OF IMPLIED WARRANTY AGAINST THE MANUFACTURER.

In the ordinary case of sale of goods by description an implied warranty of merchantability is an integral part of the transaction. R.S. 46:30-20. If the buyer, expressly or by implication, makes known to the seller the particular purpose for which the article is required and it appears that he has relied on the seller's skill or judgment, an implied warranty arises of reasonable fitness for that purpose. R.S. 46:30-21(1). The former type of warranty simply means that the thing sold is reasonably fit for the general purpose for which it is manufactured and sold. Giant Mfg. Co. v. Yates-American Mach. Co., 111 F.2d 360 (8 Cir. 1940); Dunbar Bros. Co. v. Consolidated Iron-Steel Mfg. Co., 23 F.2d 416, 419 (2 Cir. 1928); Simmons v. Rhodes & Jamieson, Ltd., 46 Cal.2d 190, 293 P.2d 26 (Sup. Ct. 1956); Mead v. Coca Cola Bottling Co., 329 Mass. 440, 108 N.E.2d 757 (Sup. Jud. Ct. 1952); Ryan v. Progressive Grocery Stores, 255 N.Y. 388, 175 N.E. 105, 74 A.L.R. 339 (Ct. App. 1931); 1 Williston on Sales, § 243 (Rev. ed. 1948). As Judge (later Justice) Cardozo remarked in Ryan, supra, the distinction between a warranty of fitness for a particular purpose and of merchantability in many instances is practically meaningless. In the particular case he was concerned with food for human consumption in a sealed container. Perhaps no more apt illustration of the notion can be thought of than the instance of the ordinary purchaser who informs the automobile dealer that he desires a car for the purpose of business and pleasure driving on the public highway.

In this connection, it is appropriate to note that sale of an article by a trade name does not negate the warranty of merchantability. Adams v. Peter Tramontin Motor Sales, 42 N.J. Super. 313 (App. Div. 1956); Ryan v. Progressive [371] Grocery Stores, supra; Frigidinners, Inc. v. Branchtown Gun Club, 176 Pa. Super. 643, 109 A.2d 202 (Super. Ct. 1954); 2 Harper & James, Law of Torts, § 28.20, p. 1082 (1956). An informative statement of the rule (said to be supported by overwhelming authority) was made by the Supreme Court of Pennsylvania in Frantz Equipment Co. v. Leo Butler Co., 370 Pa. 459, 88 A.2d 702, 706 (Sup. Ct. 1952):

"It is perfectly clear, then, that even if the sale be under a trade name there is implied an obligation on the part of the seller that the article delivered will be of the same quality, material, workmanship, and availability for use as articles generally sold under such name. It would be wholly unreasonable to hold that, if one were to purchase, for example, an automobile under the trade name of 'Ford' or 'Buick' or 'Cadillac' or the like, no implied warranty of merchantable quality could be asserted by the purchaser even though the particular car delivered was in such bad condition, so gravely defective in materials and construction, that it could not be operated at all and was wholly useless for the ordinary purpose which an automobile is designed to serve."

Of course such sales, whether oral or written, may be accompanied by an express warranty. Under the broad terms of the Uniform Sale of Goods Law any affirmation of fact relating to the goods is an express warranty if the natural tendency of the statement is to induce the buyer to make the purchase. R.S. 46:30-18. And over the years since the almost universal adoption of the act, a growing awareness of the tremendous development of modern business methods has prompted the courts to administer that provision with a liberal hand. Vold, Law of Sales, § 86, p. 429 (2d ed. 1959). Solicitude toward the buyer plainly harmonizes with the intention of the Legislature. That fact is manifested further by the later section of the act which preserves and continues any permissible implied warranty, despite an express warranty, unless the two are inconsistent. R.S. 46:30-21(6).

The uniform act codified, extended and liberalized the common law of sales. The motivation in part was to [372] ameliorate the harsh doctrine of caveat emptor, and in some measure to impose a reciprocal obligation on the seller to beware. The transcendent value of the legislation, particularly with respect to implied warranties, rests in the fact that obligations on the part of the seller were imposed by operation of law, and did not depend for their existence upon express agreement of the parties. And of tremendous significance in a rapidly expanding commercial society was the recognition of the right to recover damages on account of personal injuries arising from a breach of warranty. R.S. 46:30-75, 76; Simon v. Graham Bakery, 31 N.J. Super. 117 (App. Div. 1954), reversed on other grounds 17 N.J. 525 (1955); Marko v. Sears, Roebuck and Co., 24 N.J. Super. 295, 303 (App. Div. 1953); Ryan v. Progressive Grocery Stores, supra; Stonebrink v. Highland Motors, 171 Or. 415, 137 P.2d 986 (Sup. Ct. 1953); Wells v. Oldsmobile Co., 147 Or. 687, 35 P.2d 232 (Sup. Ct. 1934); Ebbert v. Philadelphia Electric Co., 126 Pa. Super. 351, 191 A. 384 (Super. Ct. 1937), affirmed 330 Pa. 257, 198 A. 323 (Sup. Ct. 1938); 77 C.J.S., Sales, § 383; Prosser, Law of Torts, p. 493 (1955). The particular importance of this advance resides in the fact that under such circumstances strict liability is imposed upon the maker or seller of the product. Recovery of damages does not depend upon proof of negligence or knowledge of the defect. Simon v. Graham Bakery, supra; Tomlinson v. Armour & Co., 75 N.J.L. 748, 754 (E. & A. 1907); Frank R. Jelleff, Inc. v. Braden, 98 U.S. App. D.C. 180, 233 F.2d 671, 63 A.L.R.2d 400 (D.C. App. 1956); 2 Harper & James, supra, § 28.15; Prosser, supra, 494, 506, 523.

As the Sales Act and its liberal interpretation by the courts threw this protective cloak about the buyer, the decisions in various jurisdictions revealed beyond doubt that many manufacturers took steps to avoid these ever increasing warranty obligations. Realizing that the act governed the relationship of buyer and seller, they undertook to withdraw from actual and direct contractual contact with the [373] buyer. They ceased selling products to the consuming public through their own employees and making contracts of sale in their own names. Instead, a system of independent dealers was established; their products were sold to dealers who in turn dealt with the buying public, ostensibly solely in their own personal capacity as sellers. In the past in many instances, manufacturers were able to transfer to the dealers burdens imposed by the act and thus achieved a large measure of immunity for themselves. But, as will be noted in more detail hereafter, such marketing practices, coupled with the advent of large scale advertising by manufacturers to promote the purchase of these goods from dealers by members of the public, provided a basis upon which the existence of express or implied warranties was predicated, even though the manufacturer was not a party to the contract of sale.

The general observations that have been made are important largely for purposes of perspective. They are helpful in achieving a point from which to evaluate the situation now presented for solution. Primarily, they reveal a trend and a design in legislative and judicial thinking toward providing protection for the buyer. It must be noted, however, that the sections of the Sales Act, to which reference has been made, do not impose warranties in terms of unalterable absolutes. R.S. 46:30-3 provides in general terms that an applicable warranty may be negatived or varied by express agreement. As to disclaimers or limitations of the obligations that normally attend a sale, it seems sufficient at this juncture to say they are not favored, and that they are strictly construed against the seller. 2 Harper & James, supra, § 28.25; Vold, supra, p. 459; "Warranties of Kind & Quality," 57 Yale L.J. 1388, 1400-1401 (1948).

With these considerations in mind, we come to a study of the express warranty on the reverse side of the purchase order signed by Claus Henningsen. At the outset we take notice that it was made only by the manufacturer and that by its terms it runs directly to Claus Henningsen. [374] On the facts detailed above, it was to be extended to him by the dealer as the agent of Chrysler Corporation. The consideration for this warranty is the purchase of the manufacturer's product from the dealer by the ultimate buyer. Studebaker Corp. v. Nail, 82 Ga. App. 779, 62 S.E.2d 198 (Ct. App. 1950).

Although the franchise agreement between the defendants recites that the relationship of principal and agent is not created, in particular transactions involving third persons the law will look at their conduct and not to their intent or their words as between themselves but to their factual relation. Restatement (Second), Agency § 27 (1958). The normal pattern that the manufacturer-dealer relationship follows relegates the position of the dealer to the status of a way station along the car's route from maker to consumer. This is indicated by the language of the warranty. Obviously the parties knew and so intended that the dealer would not use the automobile for 90 days or drive it 4,000 miles. And the words "original purchaser," taken in their context, signify the purchasing member of the public. Columbia Motors Co. v. Williams, 209 Ala. 640, 96 So. 900 (Sup. Ct. 1923); Miller Rubber Co. v. Blewster-Stephens Service Station, 171 Ark. 1179, 287 S.W. 577, 59 A.L.R. 1237 (Sup. Ct. 1926). Moreover, the language of this warranty is that of the uniform warranty of the Automobile Manufacturers Association, of which Chrysler is a member. See Automotive Facts & Figures, 1958 Edition, published by Automotive Manufacturers Association, p. 69; Automotive News 1959 Almanac (Slocum Publishing Co., Inc., Detroit) p. 25. And it is the form appearing in the Plymouth Owner Service Certificate mentioned in the servicing instruction guide sent with the new car from the factory. The evidence is overwhelming that the dealer acted for Chrysler in including the warranty in the purchase contract. And see, Studebaker Corp. v. Nail, supra; Advance Rumley Thresher Co. v. Briggs Hardware Co., 202 Mo. App. 603, 206 S.W. 587 (Ct. App. 1918); New Way Motor [375] Co. v. Farmers' Electro-Lighting Co., 48 S.D. 4, 201 N.W. 1000 (Sup. Ct. 1925); Pelletier v. Brown Bros. Chevrolet & Oldsmobile, 164 (N.Y.S.2d 249 (Sup. Ct. 1956); Fetzer v. Haralson, 147 S.W. 290 (Tex. Civ. App. 1912); cf. General Motors Corporation v. Dodson, ___ Tenn. ___, ___ S.W.2d ___ (Jan. 15, 1960).

The terms of the warranty are a sad commentary upon the automobile manufacturers' marketing practices. Warranties developed in the law in the interest of and to protect the ordinary consumer who cannot be expected to have the knowledge or capacity or even the opportunity to make adequate inspection of mechanical instrumentalities, like automobiles, and to decide for himself whether they are reasonably fit for the designed purpose. Greenland Develop. Corp. v. Allied Heat. Prod. Co., 184 Va. 588, 35 S.E.2d 801, 164 A.L.R. 1312 (Sup. Ct. App. 1945); 1 Williston, supra, pp. 625, 626. But the ingenuity of the Automobile Manufacturers Association, by means of its standardized form, has metamorphosed the warranty into a device to limit the maker's liability. To call it an "equivocal" agreement, as the Minnesota Supreme Court did, is the least that can be said in criticism of it. Federal Motor Truck Sales Corporation v. Shanus, 190 Minn. 5, 250 N.W. 713, 714 (Sup. Ct. 1933).

The manufacturer agrees to replace defective parts for 90 days after the sale or until the car has been driven 4,000 miles, whichever is first to occur, if the part is sent to the factory, transportation charges prepaid, and if examination discloses to its satisfaction that the part is defective. It is difficult to imagine a greater burden on the consumer, or less satisfactory remedy. Aside from imposing on the buyer the trouble of removing and shipping the part, the maker has sought to retain the uncontrolled discretion to decide the issue of defectiveness. Some courts have removed much of the force of that reservation by declaring that the purchaser is not bound by the manufacturer's decision. Mills v. Maxwell Motor Sales Corporation, 105 Neb. 105, Neb. 465, 181 N.W. [376] 152, 22 A.L.R. 130 (Sup. Ct. 1920); Cannon v. Pulliam Motor Company, 230 S.C. 131, 94 S.E.2d 397 (Sup. Ct. 1956). In the Mills case, the court said:

"It would nevertheless be repugnant to every conception of justice to hold that, if the parts thus returned for examination were, in point of fact, so defective as to constitute a breach of warranty, the appellee's right of action could be defeated by the appellant's arbitrary refusal to recognize that fact. Such an interpretation would substitute the appellant for the courts in passing upon the question of fact, and would be unreasonable." Supra, 181 N.W., at page 154.

Also suppose, as in this case, a defective part or parts caused an accident and that the car was so damaged as to render it impossible to discover the precise part or parts responsible, although the circumstances clearly pointed to such fact as the cause of the mishap. Can it be said that the impossibility of performance deprived the buyer of the benefit of the warranty?

Moreover, the guaranty is against defective workmanship. That condition may arise from good parts improperly assembled. There being no defective parts to return to the maker, is all remedy to be denied? One court met that type of problem by holding that where the purchaser does not know the precise cause of inoperability, calling a car a "vibrator" would be sufficient to state a claim for relief. It said that such a car is not an uncommon one in the industry. The general cause of the vibration is not known. Some part or parts have been either defectively manufactured or improperly assembled in the construction and manufacture of the automobile. In the operation of the car, these parts give rise to vibrations. The difficulty lies in locating the precise spot and cause. Allen v. Brown, 181 Kan. 301, 310 P.2d 923 (Sup. Ct. 1957). But the warranty does not specify what the purchaser must do to obtain relief in such case, if a remedy is intended to be provided. Must the purchaser return the car, transportation charges prepaid, over a great distance to the factory? It may be said that in the usual [377] case the dealer also gives the same warranty and that as a matter of expediency the purchaser should turn to him. But under the law the buyer is entitled to proceed against the manufacturer. Further, dealers' franchises are precarious (see, Automobile Franchise Agreements, Hewitt (1956)). For example, Bloomfield Motors' franchise may be cancelled by Chrysler on 90 days' notice. And obviously dealers' facilities and capacity, financial and otherwise, are not as sufficient as those of the primarily responsible manufacturer in his distant factory.

The matters referred to represent only a small part of the illusory character of the security presented by the warranty. Thus far the analysis has dealt only with the remedy provided in the case of a defective part. What relief is provided when the breach of the warranty results in personal injury to the buyer? (Injury to third persons using the car in the purchaser's right will be treated hereafter.) As we have said above, the law is clear that such damages are recoverable under an ordinary warranty. The right exists whether the warranty sued on is express or implied. See, e.g., Ryan v. Progressive Grocery Stores, supra. And, of course, it has long since been settled that where the buyer or a member of his family driving with his permission suffers injuries because of negligent manufacture or construction of the vehicle, the manufacturer's liability exists. Prosser, supra, §§ 83, 84. But in this instance, after reciting that defective parts will be replaced at the factory, the alleged agreement relied upon by Chrysler provides that the manufacturer's "obligation under this warranty" is limited to that undertaking; further, that such remedy is "in lieu of all other warranties, express or implied, and all other obligations or liabilities on its part." The contention has been raised that such language bars any claim for personal injuries which may emanate from a breach of the warranty. Although not urged in this case, it has been successfully maintained that the exclusion "of all other obligations and liabilities on its part" precludes [378] a cause of action for injuries based on negligence. Shafer v. Reo Motors, 205 F.2d 685 (3 Cir. 1953). Another Federal Circuit Court of Appeals holds to the contrary. Doughnut Mach. Corporation v. Bibbey, 65 F.2d 634 (1 Cir. 1933). There can be little doubt that justice is served only by the latter ruling.

Putting aside for the time being the problem of the efficacy of the disclaimer provisions contained in the express warranty, a question of first importance to be decided is whether an implied warranty of merchantability by Chrysler Corporation accompanied the sale of the automobile to Claus Henningsen.

Preliminarily, it may be said that the express warranty against defective parts and workmanship is not inconsistent with an implied warranty of merchantability. Such warranty cannot be excluded for that reason. Knapp v. Willys-Ardmore, Inc., 174 Pa. Super. 90, 100 A.2d 105 (1953). And see, Hambrick v. Peoples Mercantile & Implement Co., 228 Ark. 1021, 311 S.W.2d 785 (Sup. Ct. 1958); Hardy v. General Motors Acceptance Corporation, 38 Ga. App. 463, 144 S.E. 327 (Ct. App. 1928); Bekkevold v. Potts, 173 Minn. 87, 216 N.W. 790, 59 A.L.R. 1164 (Sup. Ct. 1927); Hooven & Allison Co. v. Wirtz, 15 N.D. 477, 107 N.W. 1078 (Sup. Ct. 1906); Frigidinners, Inc. v. Branchtown Gun Club, supra.

Chrysler points out that an implied warranty of merchantability is an incident of a contract of sale. It concedes, of course, the making of the original sale to Bloomfield Motors, Inc., but maintains that this transaction marked the terminal point of its contractual connection with the car. Then Chrysler urges that since it was not a party to the sale by the dealer to Henningsen, there is no privity of contract between it and the plaintiffs, and the absence of this privity eliminates any such implied warranty.

There is no doubt that under early common-law concepts of contractual liability only those persons who were parties to the bargain could sue for a breach of it. In more recent [379] times a noticeable disposition has appeared in a number of jurisdictions to break through the narrow barrier of privity when dealing with sales of goods in order to give realistic recognition to a universally accepted fact. The fact is that the dealer and the ordinary buyer do not, and are not expected to, buy goods, whether they be foodstuffs or automobiles, exclusively for their own consumption or use. Makers and manufacturers know this and advertise and market their products on that assumption; witness, the "family" car, the baby foods, etc. The limitations of privity in contracts for the sale of goods developed their place in the law when marketing conditions were simple, when maker and buyer frequently met face to face on an equal bargaining plane and when many of the products were relatively uncomplicated and conducive to inspection by a buyer competent to evaluate their quality. See, Freezer, "Manufacturer's Liability for Injuries Caused by His Products," 37 Mich. L. Rev. 1 (1938). With the advent of mass marketing, the manufacturer became remote from the purchaser, sales were accomplished through intermediaries, and the demand for the product was created by advertising media. In such an economy it became obvious that the consumer was the person being cultivated. Manifestly, the connotation of "consumer" was broader than that of "buyer." He signified such a person who, in the reasonable contemplation of the parties to the sale, might be expected to use the product. Thus, where the commodities sold are such that if defectively manufactured they will be dangerous to life or limb, then society's interests can only be protected by eliminating the requirement of privity between the maker and his dealers and the reasonably expected ultimate consumer. In that way the burden of losses consequent upon use of defective articles is borne by those who are in a position to either control the danger or make an equitable distribution of the losses when they do occur. As Harper & James put it, "The interest in consumer protection calls for warranties by the maker that do run with the goods, to reach all who are [380] likely to be hurt by the use of the unfit commodity for a purpose ordinarily to be expected." 2 Harper & James, supra, 1571, 1572; also see, 1535; Prosser, supra, 506-511. As far back as 1932, in the well known case of Baxter v. Ford Motor Co., 168 Wash. 456, 12 P.2d 409 (Sup. Ct. 1932), affirmed 15 P.2d 1118, 88 A.L.R. 521 (Sup. Ct. 1932), the Supreme Court of Washington gave recognition to the impact of then existing commercial practices on the strait jacket of privity, saying:

"It would be unjust to recognize a rule that would permit manufacturers of goods to create a demand for their products by representing that they possess qualities which they, in fact, do not possess, and then, because there is no privity of contract existing between the consumer and the manufacturer, deny the consumer the right to recover if damages result from the absence of those qualities, when such absence is not readily noticeable." 12 P.2d, at page 412.

The concept was expressed in a practical way by the Supreme Court of Texas in Jacob E. Decker & Sons, Inc. v. Capps, 139 Tex. 609, 164 S.W.2d 828, 833, 142 A.L.R. 1479 (1942):

"In fact, the manufacturer's interest in the product is not terminated when he has sold it to the wholesaler. He must get it off the wholesaler's shelves before the wholesaler will buy a new supply. The same is not only true of the retailer, but of the house wife, for the house wife will not buy more until the family has consumed that which she has in her pantry. Thus the manufacturer or other vendor intends that this appearance of suitability of the article for human consumption should continue and be effective until some one is induced thereby to consume the goods. It would be but to acknowledge a weakness in the law to say that he could thus create a demand for his products by inducing a belief that they are suitable for human consumption, when, as a matter of fact, they are not, and reap the benefits of the public confidence thus created, and then avoid liability for the injuries caused thereby merely because there was no privity of contract between him and the one whom he induced to consume the food. * * *"

Although only a minority of jurisdictions have thus far departed from the requirement of privity, the movement in that direction is most certainly gathering momentum. Liability [381] to the ultimate consumer in the absence of direct contractual connection has been predicated upon a variety of theories. Some courts hold that the warranty runs with the article like a covenant running with land; others recognize a third-party beneficiary thesis; still others rest their decision on the ground that public policy requires recognition of a warranty made directly to the consumer. Welter v. Bowman Dairy Co., 318 Ill. App. 305, 47 N.E.2d 739 (App. Ct. 1943); Bahlman v. Hudson Motor Car Co., 290 Mich. 683, 288 N.W. 309 (Sup. Ct. 1939); Worley v. Procter & Gamble Mfg. Co., 241 Mo. App. 1114, 253 S.W.2d 532 (Ct. App. 1953); Markovich v. McKesson and Robbins, Inc., 106 Ohio App. 265, 149 N.E.2d 181 (Ct. App. 1958); 2 Harper & James, supra, 1573; Prosser, supra, 507; Jeanblanc, "Manufacturers' Liability to Persons other than their Immediate Vendees," 24 Va. L. Rev. 134, 156 (1937).

Further reference to Decker, supra, is enlightening:

"There certainly is justification for indulging a presumption of a warranty that runs with the article in the sale of food products. A party who processes a product and gives it the appearance of being suitable for human consumption, and places it in the channels of commerce, expects some one to consume the food in reliance on its appearance that it is suitable for human consumption. He expects the appearance of suitableness to continue with the product until some one is induced to consume it as food. But a modern manufacturer or vendor does even more than this under modern practices. He not only processes the food and dresses it up so as to make it appear appetizing, but he uses the newspapers, magazines, bill-boards, and the radio to build up the psychology to buy and consume his products. The invitation extended by him is not only to the house wife to buy and serve his product, but to the members of the family and guest to eat it. * * * The mere fact that a manufacturer or other vendor may thus induce the public to consume unwholesome food evidences the soundness of the rule which imposes a warranty, as a matter of public policy on the sale of food or other products intended for human consumption." 164 S.W.2d, at pages 832, 833. (Emphasis added)

In Patargias v. Coca-Cola Bottling Co. of Chicago, 332 Ill. App. 117, 74 N.E.2d 162 (App. Ct. 1947), involving the sale of a bottle of coca-cola by a dealer, the court said:

[382] "We are impelled to hold that, where an article of food or drink is sold in a sealed container for human consumption, public policy demands that an implied warranty be imposed upon the manufacturer thereof that such article is wholesome and fit for use, that said warranty runs with the sale of the article for the benefit of the consumer thereof * * *." 74 N.E.2d, at page 169. (Emphasis added)

And in Worley v. Procter & Gamble Mfg. Co., supra, it was said that:

"In the case of food products sold in original packages, and other articles dangerous to life [here a box of soap powder], if defective, the manufacturer, who alone is in a position to inspect and control their preparation, should be held as a warrantor, whether he purveys his products by his own hand, or through a network of independent distributing agencies. In either case, the essence of the situation is the same — the placing of goods in the channels of trade, representations directed to the ultimate consumer, and damaging reliance by the latter on those representations. Such representations, being inducements to the buyers making the purchase, should be regarded as warranties imposed by law, independent of the vendors' contractual intentions. The liability thus imposed springs from representations directed to the ultimate consumer, and not from the breach of any contractual undertaking on the part of the vendor. This is in accord with the original theory of the action * * *." 253 S.W.2d at page 537. (Insertion ours)

See to the same effect: Davis v. Van Camp Packing Co., 189 Iowa 775, 176 N.W. 382, 17 A.L.R. 649 (Sup. Ct. 1920); Nichols v. Nold, 174 Kan. 613, 258 P.2d 317, 38 A.L.R.2d 887 (Sup. Ct. 1953); Parks v. G.C. Yost Pie Co., 93 Kan. 334, 144 P. 202, L.R.A. 1915 C, 179 (Sup. Ct. 1914); Madouros v. Kansas City Coca-Cola Bottling Co., 230 Mo. App. 275, 90 S.W.2d 445 (Ct. App. 1936); Ward v. Morehead City Sea Food Co., 171 N.C. 33, 87 S.E. 958 (Sup. Ct. 1916).

Most of the cases where lack of privity has not been permitted to interfere with recovery have involved food and drugs. Haut v. Kleene, 320 Ill. App. 273, 50 N.E.2d 855 (App. Ct. 1943); Welter v. Bowman Dairy Co., supra; Davis v. Van Camp Packing Co., supra; Madouros v. Kansas [383] City Coca-Cola Bottling Co., supra; Greenberg v. Lorenz, 12 Misc.2d 883, 178 N.Y.S.2d 407 (Sup. Ct. 1958); Ryan v. Progressive Grocery Stores, Inc., supra; Jacob E. Decker & Sons, Inc. v. Capps, supra; La Hue v. Coca-Cola Bottling, 50 Wash.2d 645, 314 P.2d 421 (Sup. Ct. 1957). In fact, the rule as to such products has been characterized as an exception to the general doctrine. But more recently courts, sensing the inequity of such limitation, have moved into broader fields: home permanent wave set, Markovich v. McKesson and Robbins, Inc., supra; Rogers v. Toni Home Permanent Co., 167 Ohio St. 244, 147 N.E.2d 612 (Sup. Ct. 1958); soap detergent, Worley v. Procter & Gamble Mfg. Co., supra; inflammable cowboy suit (by clear implication), Blessington v. McCrory Stores Corp., 305 N.Y. 140, 111 N.E.2d 421, 37 A.L.R.2d 698 (Ct. App. 1953); exploding bottle, Mahoney v. Shaker Square Beverages, 46 Ohio Op. 250, 102 N.E.2d 281 (C.P. 1951); defective emery wheel, DiVello v. Gardner Machine Co., 46 Ohio Op. 161, 102 N.E.2d 289 (C.P. 1951); defective wire rope, Mannsz v. Macwhyte Co., 155 F.2d 445 (3 Cir. 1946); defective cinder blocks, Spence v. Three Rivers Builders & Masonry Supply, 353 Mich. 120, 90 N.W.2d 873 (Sup. Ct. 1958).

We see no rational doctrinal basis for differentiating between a fly in a bottle of beverage and a defective automobile. The unwholesome beverage may bring illness to one person, the defective car, with its great potentiality for harm to the driver, occupants, and others, demands even less adherence to the narrow barrier of privity. 2 Harper & James, supra, 1572; 1 Williston, supra, § 244a, p. 648; Note, 46 Harv. L. Rev. 161 (1932). In Mannsz v. Macwhyte Co., supra, Chief Judge Biggs, speaking for the Third Circuit Court of Appeals, said:

"We think it is clear that whether the approach to the problem be by way of warranty or under the doctrine of negligence, the requirement of privity between the injured party and the manufacturer [384] of the article which has injured him has been obliterated from the Pennsylvania law. The abolition of the doctrine occurred first in the food cases, next in the beverage decisions and now it has been extended to those cases in which the article manufactured, not dangerous or even beneficial if properly made, injured a person because it was manufactured improperly." 155 F.2d, at pages 449-450.

Under modern conditions the ordinary layman, on responding to the importuning of colorful advertising, has neither the opportunity nor the capacity to inspect or to determine the fitness of an automobile for use; he must rely on the manufacturer who has control of its construction, and to some degree on the dealer who, to the limited extent called for by the manufacturer's instructions, inspects and services it before delivery. In such a marketing milieu his remedies and those of persons who properly claim through him should not depend "upon the intricacies of the law of sales. The obligation of the manufacturer should not be based alone on privity of contract. It should rest, as was once said, upon 'the demands of social justice.'" Mazetti v. Armour & Co., 75 Wash. 622, 135 P. 633, 48 L.R.A., N.S., 213 (Sup. Ct. 1913). "If privity of contract is required," then, under the circumstances of modern merchandising, "privity of contract exists in the consciousness and understanding of all right-thinking persons." Madouros v. Kansas City Coca-Cola Bottling Co., supra, 90 S.W.2d, at page 450.

Accordingly, we hold that under modern marketing conditions, when a manufacturer puts a new automobile in the stream of trade and promotes its purchase by the public, an implied warranty that it is reasonably suitable for use as such accompanies it into the hands of the ultimate purchaser. Absence of agency between the manufacturer and the dealer who makes the ultimate sale is immaterial. 

[385] II. THE EFFECT OF THE DISCLAIMER AND LIMITATION OF LIABILITY CLAUSES ON THE IMPLIED WARRANTY OF MERCHANTABILITY.

Judicial notice may be taken of the fact that automobile manufacturers, including Chrysler Corporation, undertake large scale advertising programs over television, radio, in newspapers, magazines and all media of communication in order to persuade the public to buy their products. As has been observed above, a number of jurisdictions, conscious of modern marketing practices, have declared that when a manufacturer engages in advertising in order to bring his goods and their quality to the attention of the public and thus to create consumer demand, the representations made constitute an express warranty running directly to a buyer who purchases in reliance thereon. The fact that the sale is consummated with an independent dealer does not obviate that warranty. Mannsz v. Macwhyte Co., supra; Bahlman v. Hudson Motor Car Co., supra; Rogers v. Toni Home Permanent Co., supra; Meyer v. Packard Cleveland Motor Co., 106 Ohio St. 328, 140 N.E. 118, 28 A.L.R. 986 (1922); Baxter v. Ford Motor Co., supra; 1 Williston, Sales, supra, § 244a.

In view of the cases in various jurisdictions suggesting the conclusion which we have now reached with respect to the implied warranty of merchantability, it becomes apparent that manufacturers who enter into promotional activities to stimulate consumer buying may incur warranty obligations of either or both the express or implied character. These developments in the law inevitably suggest the inference that the form of express warranty made part of the Henningsen purchase contract was devised for general use in the automobile industry as a possible means of avoiding the consequences of the growing judicial acceptance of the thesis that the described express or implied warranties run directly to the consumer.

[386] In the light of these matters, what effect should be given to the express warranty in question which seeks to limit the manufacturer's liability to replacement of defective parts, and which disclaims all other warranties, express or implied? In assessing its significance we must keep in mind the general principle that, in the absence of fraud, one who does not choose to read a contract before signing it, cannot later relieve himself of its burdens. Fivey v. Pennsylvania R.R. Co., 67 N.J.L. 627 (E. & A. 1902). And in applying that principle, the basic tenet of freedom of competent parties to contract is a factor of importance. But in the framework of modern commercial life and business practices, such rules cannot be applied on a strict, doctrinal basis. The conflicting interests of the buyer and seller must be evaluated realistically and justly, giving due weight to the social policy evinced by the Uniform Sales Act, the progressive decisions of the courts engaged in administering it, the mass production methods of manufacture and distribution to the public, and the bargaining position occupied by the ordinary consumer in such an economy. The history of the law shows that legal doctrines, as first expounded, often prove to be inadequate under the impact of later experience. In such case, the need for justice has stimulated the necessary qualifications or adjustments. Perkins v. Endicott Johnson Corporation, 128 F.2d 208, 217 (2 Cir. 1942), affirmed 317 U.S. 501, 63 S.Ct. 339, 87 L.Ed. 424 (1943); Greenberg v. Lorenz, supra.

In these times, an automobile is almost as much a servant of convenience for the ordinary person as a household utensil. For a multitude of other persons it is a necessity. Crowded highways and filled parking lots are a commonplace of our existence. There is no need to look any farther than the daily newspaper to be convinced that when an automobile is defective, it has great potentiality for harm.

No one spoke more graphically on this subject than Justice Cardozo in the landmark case of MacPherson v. Buick Motor [387] Co., 217 N.Y. 382, 111 N.E. 1050, 1053, L.R.A. 1916 F, 696 (Ct. App. 1916):

"Beyond all question, the nature of an automobile gives warning of probable danger if its construction is defective. This automobile was designed to go 50 miles per hour. Unless its wheels were sound and strong, injury was almost certain. It was as much a thing of danger as a defective engine for a railroad. * * * The dealer was indeed the one person of whom it might be said with some approach to certainty that by him the car would not be used. * * * Precedents drawn from the days of travel by stagecoach do not fit the conditions of travel to-day. The principle that the danger must be imminent does not change, but the things subject to the principle do change. They are whatever the needs of life in a developing civilization require them to be."

In the 44 years that have intervened since that utterance, the average car has been constructed for almost double the speed mentioned; 60 miles per hour is permitted on our parkways. The number of automobiles in use has multiplied many times and the hazard to the user and the public has increased proportionately. The Legislature has intervened in the public interest, not only to regulate the manner of operation on the highway but also to require periodic inspection of motor vehicles and to impose a duty on manufacturers to adopt certain safety devices and methods in their construction. R.S. 39:3-43 et seq. It is apparent that the public has an interest not only in the safe manufacture of automobiles, but also, as shown by the Sales Act, in protecting the rights and remedies of purchasers, so far as it can be accomplished consistently with our system of free enterprise. In a society such as ours, where the automobile is a common and necessary adjunct of daily life, and where its use is so fraught with danger to the driver, passengers and the public, the manufacturer is under a special obligation in connection with the construction, promotion and sale of his cars. Consequently, the courts must examine purchase agreements closely to see if consumer and public interests are treated fairly.

[388] What influence should these circumstances have on the restrictive effect of Chrysler's express warranty in the framework of the purchase contract? As we have said, warranties originated in the law to safeguard the buyer and not to limit the liability of the seller or manufacturer. It seems obvious in this instance that the motive was to avoid the warranty obligations which are normally incidental to such sales. The language gave little and withdrew much. In return for the delusive remedy of replacement of defective parts at the factory, the buyer is said to have accepted the exclusion of the maker's liability for personal injuries arising from the breach of the warranty, and to have agreed to the elimination of any other express or implied warranty. An instinctively felt sense of justice cries out against such a sharp bargain. But does the doctrine that a person is bound by his signed agreement, in the absence of fraud, stand in the way of any relief?

In the modern consideration of problems such as this, Corbin suggests that practically all judges are "chancellors" and cannot fail to be influenced by any equitable doctrines that are available. And he opines that "there is sufficient flexibility in the concepts of fraud, duress, misrepresentation and undue influence, not to mention differences in economic bargaining power" to enable the courts to avoid enforcement of unconscionable provisions in long printed standardized contracts. 1 Corbin on Contracts (1950) § 128, p. 188. Freedom of contract is not such an immutable doctrine as to admit of no qualification in the area in which we are concerned. As Chief Justice Hughes said in his dissent in Morehead v. People of State of New York ex rel. Tipaldo, 298 U.S. 587, 627, 56 S.Ct. 918, 80 L.Ed. 1347, 1364 (1936):

"We have had frequent occasion to consider the limitations on liberty of contract. While it is highly important to preserve that liberty from arbitrary and capricious interference, it is also necessary to prevent its abuse, as otherwise it could be used to override all public interests and thus in the end destroy the very freedom of opportunity which it is designed to safeguard." [389] That sentiment was echoed by Justice Frankfurter in his dissent in United States v. Bethlehem Steel Corp., 315 U.S. 289, 326, 62 S.Ct. 581, 86 L.Ed. 855, 876 (1942):

"It is said that familiar principles would be outraged if Bethlehem were denied recovery on these contracts. But is there any principle which is more familiar or more firmly embedded in the history of Anglo-American law than the basic doctrine that the courts will not permit themselves to be used as instruments of inequity and injustice? Does any principle in our law have more universal application than the doctrine that courts will not enforce transactions in which the relative positions of the parties are such that one has unconscionably taken advantage of the necessities of the other?

These principles are not foreign to the law of contracts. Fraud and physical duress are not the only grounds upon which courts refuse to enforce contracts. The law is not so primitive that it sanctions every injustice except brute force and downright fraud. More specifically, the courts generally refuse to lend themselves to the enforcement of a `bargain' in which one party has unjustly taken advantage of the economic necessities of the other. * * *"

The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. "The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood in a vague way, if at all." Kessler, "Contracts of Adhesion — Some Thoughts About Freedom of Contract," 43 Colum. L. Rev. 629, 632 (1943); Ehrenzweig, "Adhesion Contracts in the Conflict of Laws," 53 Colum. L. Rev. 1072, 1075, 1089 (1953). Such standardized contracts have been [390] described as those in which one predominant party will dictate its law to an undetermined multiple rather than to an individual. They are said to resemble a law rather than a meeting of the minds. Siegelman v. Cunard White Star, 221 F.2d 189, 206 (2 Cir. 1955).

Vold, in the recent revision of his Law of Sales (2d ed. 1959), at page 447, wrote of this type of contract and its effect upon the ordinary buyer:

"In recent times the marketing process has been getting more highly organized than ever before. Business units have been expanding on a scale never before known. The standardized contract with its broad disclaimer clauses is drawn by legal advisers of sellers widely organized in trade associations. It is encountered on every hand. Extreme inequality of bargaining between buyer and seller in this respect is now often conspicuous. Many buyers no longer have any real choice in the matter. They must often accept what they can get though accompanied by broad disclaimers. The terms of these disclaimers deprive them of all substantial protection with regard to the quality of the goods. In effect, this is by force of contract between very unequal parties. It throws the risk of defective articles on the most dependent party. He has the least individual power to avoid the presence of defects. He also has the least individual ability to bear their disastrous consequences."

The warranty before us is a standardized form designed for mass use. It is imposed upon the automobile consumer. He takes it or leaves it, and he must take it to buy an automobile. No bargaining is engaged in with respect to it. In fact, the dealer through whom it comes to the buyer is without authority to alter it; his function is ministerial — simply to deliver it. The form warranty is not only standard with Chrysler but, as mentioned above, it is the uniform warranty of the Automobile Manufacturers Association. Members of the Association are: General Motors, Inc., Ford, Chrysler, Studebaker-Packard, American Motors (Rambler), Willys Motors, Checker Motors Corp., and International Harvester Company. Automobile Facts and Figures (1958 Ed., Automobile Manufacturers Association) 69. Of these companies, the "Big Three" (General Motors, Ford, and Chrysler) represented 93.5% of the passenger-car production for 1958 [391] and the independents 6.5%. Standard & Poor (Industrial Surveys, Autos, Basic Analysis, June 25, 1959) 4109. And for the same year the "Big Three" had 86.72% of the total passenger vehicle registrations. Automotive News, 1959 Almanac (Slocum Publishing Co., Inc.) p. 25.

The gross inequality of bargaining position occupied by the consumer in the automobile industry is thus apparent. There is no competition among the car makers in the area of the express warranty. Where can the buyer go to negotiate for better protection? Such control and limitation of his remedies are inimical to the public welfare and, at the very least, call for great care by the courts to avoid injustice through application of strict common-law principles of freedom of contract. Because there is no competition among the motor vehicle manufacturers with respect to the scope of protection guaranteed to the buyer, there is no incentive on their part to stimulate good will in that field of public relations. Thus, there is lacking a factor existing in more competitive fields, one which tends to guarantee the safe construction of the article sold. Since all competitors operate in the same way, the urge to be careful is not so pressing. See "Warranties of Kind and Quality," 57 Yale L.J. 1389, 1400 (1948).

Although the courts, with few exceptions, have been most sensitive to problems presented by contracts resulting from gross disparity in buyer-seller bargaining positions, they have not articulated a general principle condemning, as opposed to public policy, the imposition on the buyer of a skeleton warranty as a means of limiting the responsibility of the manufacturer. They have endeavored thus far to avoid a drastic departure from age-old tenets of freedom of contract by adopting doctrines of strict construction, and notice and knowledgeable assent by the buyer to the attempted exculpation of the seller. 1 Corbin, supra, 337; 2 Harper & James, supra, 1590; Prosser, "Warranty of Merchantable Quality," 27 Minn. L. Rev. 117, 159 (1932). Accordingly to be found in the cases are statements that disclaimers and [392] the consequent limitation of liability will not be given effect if "unfairly procured," Davis Motors, Dodge and Plymouth Co. v. Avett, 294 S.W.2d 882, 887 (Tex. Civ. App. 1956); International Harvester Co. of America v. Bean, 159 Ky. 842, 169 S.W. 549 (Ct. App. 1914); if not brought to the buyer's attention and he was not made understandingly aware of it, Vaughan's Seed Store v. Stringfellow, 56 Fla. 708, 48 So. 410 (Sup. Ct. 1908); Parsons Band Cutter & Self-Feeder Co. v. Haub, 83 Minn. 180, 86 N.W. 14 (Sup. Ct. 1901); Bell v. Mills, 78 App. Div. 42, 80 N.Y.S. 34 (1902); Landreth v. Wyckoff, 67 App. Div. 145, 73 N.Y.S. 388 (1901); St. Louis Cordage Mills v. Western Supply Co., 54 Okl. 757, 154 P. 646 (Sup. Ct. 1916); Reliance Varnish Co. v. Mullins Lumber Co., 213 S.C. 84, 48 S.E.2d 653 (Sup. Ct. 1948); Stevenson v. B.B. Kirkland Seed Co., 176 S.C. 345, 180 S.E. 197 (Sup. Ct. 1935); Black v. B.B. Kirkland Seed Co., 158 S.C. 112, 155 S.E. 268 (Sup. Ct. 1930); or if not clear and explicit, McPeak v. Boker, 236 Minn. 420, 53 N.W.2d 130 (Sup. Ct. 1952).

Some of these cases are worthy of more specific reference. In Stevenson v. B.B. Kirkland Seed Co., supra [176 S.C. 345, 180 S.E. 199], plaintiff asked for Abruzzi rye seed and defendant's agent sold seed to him as such. The invoice contained a non-warranty or disclaimer clause to the effect that no warranty, express or implied, was given by the seller "as to description, quality, productiveness, or any other matter of any seeds, bulbs, or plants," that there would be no responsibility for the crop, and that if the goods were not acceptable they were to be returned at once. The seed was discovered not to be Abruzzi when it had grown sufficiently to be distinguished. In the absence of proof that the disclaimer was actually brought to the attention of the buyer, it was declared not binding.

In St. Louis Cordage Mills v. Western Supply Co., supra [54 Okl. 757, 154 P. 648], the seller claimed that a card was attached to certain cables when they were sold. It purported to notify plaintiff that defendant "sells no goods [393] with a warranty." On this basis, the contention was advanced that any oral guaranty was rebutted. The "complete answer" was adjudged to be that the record failed to show that the card was brought to the attention of the plaintiff. And the court went on to say that if there was evidence tending to establish the fact, the problem was for determination by the jury.

International Harvester Co. of America v. Bean, supra, involved the purchase of an "auto wagon" which the buyer wanted for use in the transportation of passengers and their baggage between two cities. He explained the kind of roads to be traversed and the salesman recommended the type of vehicle purchased. The car could not operate on the roads described and rescission was sought.

International Harvester contended that the only warranty extended was contained in the purchase order. It was substantially similar to the one in the present case, providing for the replacement of defective parts over a 60-day period and reciting that "This express warranty excludes all implied warranties." The Kentucky Court of Appeals affirmed a rescission judgment saying:

"It must be borne in mind that the warranty of fitness for a particular use, which is implied by law where a manufacturer sells machinery for a purpose made known to him by the buyer thereof, relying on the skill and judgment of the manufacturer in selecting machinery adapted thereto, is a warranty which attaches itself to the contract of sale, independent of any express representation by the manufacturer of the suitability of the machinery for such use. It attaches by implication of law as a direct result of the communication by the buyer to the manufacturer of the nature of the intended use.

And while, if the parties to a contract for the sale of machinery, under such circumstances, expressly stipulate against all warranties implied by law, none will be imposed by the court against their consent, still such stipulation will not be given effect unless fairly made as a part of the contract of sale. Such a stipulation, relieving, as it does, the manufacturer from duties imposed by law, will be conclusively presumed to have been inserted in the contract of sale for the sole benefit of the manufacturer, the beneficiary of such relieving stipulation, and effect will not be given to such stipulation unless its inclusion in the contract was fairly procured.

[394] In the case under consideration, this stipulation was contained in a printed form of order blank or contract used by appellant company. The language of the stipulation is extremely technical, 'This express warranty excludes all implied warranties"; its meaning is clear to but few persons. The writing in which such stipulation appears directs appellant company to furnish to appellee an auto vehicle, a class of machinery concerning which appellee was indisputably ignorant; and the particular style or pattern of auto vehicle ordered was that selected and recommended by the company's agent; this is undenied. Appellee testified that he explained to the company's agent the purposes for which he intended to use the auto wagon; and it is apparent that, had he understood the full import of the stipulation, he would not have signed the order. Under these circumstances, the court will not say that the stipulation against implied warranties was fairly procured to be included in the contract of sale. To hold that it was so included would be to give life to the letter of the contract and render inanimate the spirit thereof." 169 S.W., at pages 550, 551. (Emphasis ours)

The same court, in Myers v. Land, 314 Ky. 514, 235 S.W.2d 988 (1950), made a similar forthright declaration. The plaintiff purchased a new machine designed and represented as capable of making concrete blocks. It would not do the work and recovery of the purchase price was sought.

The purchase order contained this provision:

"There are no understandings, agreements, representations or warranties, expressed or implied, not specified herein respecting this order. The warranties, provisions, terms and conditions on the reverse side hereof are expressly made a part of this agreement." 235 S.W.2d, at page 990.

The back of the order contained special warranties limiting the seller's liability to defects in material and workmanship which might develop under normal use and service, the obligation being limited to making good at its factory any defective parts.

Attention is attracted to the fact that the language quoted above is more comprehensive and formidable in its adverse implications to the buyer than in our case. The clause in the Henningsen purchase order makes no express reference to the exclusion of warranties express or implied except those appearing on the back of the contract. But in the case under [395] discussion, a jury question was held to exist as to the binding effect of the limitation of liability. The court said:

"In short, this contract undertakes to eliminate and to avoid practically every sort of warranty except the very limited one stated. There is no remedy provided in case the machinery proves to be worthless. The appellant relies upon this negation of an implied warranty.

The statute is, in the particulars involved here, a codification of the prevailing common law on the subject. This court long before its enactment recognized the principle that it was competent for the parties to a contract to stipulate expressly against implied or extrinsic warranties and to confine the obligations of the seller to specific terms. But we have always required that such limitation of liability shall be plainly expressed. * * * Though the present disclaimer of warranty is clear in its terms, we cannot overlook the fact that it is to be found in a long and formidable document prepared by the seller and that it was doubtless unnoticed or its import uncomprehended by the buyer. Anyone brought up to believe that for every wrong there is a remedy will pause before saying that the seller will escape all liability by merely putting in an order blank a statement to the effect that there is no assurance that the buyer will get a machine that will work. We have paused for the moment and have readily concluded that the avoidance of liability under such a circumstance is not permitted by the law. * * *" 235 S.W.2d, at page 990. (Emphasis ours)

The sales contract in Reliance Varnish Co. v. Mullins Lumber Co., supra, contained a limited liability warranty in fine print. The officers of the buyer who made the purchase testified they had not observed the limiting clause and that it was not called to their attention. The court pointed out that it was "so located as to easily escape attention" and declared:

"Certainly it could not be said as a matter of law that appellant should have been aware of the stipulation. 'The rule in this state is that for such a clause to be applicable in any case it must be shown that it was brought to the attention of the purchaser.'" 48 S.E.2d, at page 659.

Although Cutler Corp. v. Latshaw, 374 Pa. 1, 97 A.2d 234 (Sup. Ct. 1953), involves a contract for the performance of work for a homeowner, and not a sale, the result reached [396] by the court reflects a pertinent point of view. The contract for the work contained on its reverse side a warrant of attorney for the confession of judgment. In denying enforcement, this was said:

"Equally in the case at bar the defendant did not sign the warrant of attorney-confession of judgment. The reference on the face side of the contract to the 'conditions' on the reverse side, among which was buried the supposed authority for a warrant of attorney, can hardly be accepted in a court of law as an acknowledgment of a confession of judgment. While the word 'condition' may conceivably embrace almost any circumstance, upon which, or, because of which, a right is created or a liability attaches, it cannot be used to mean surrender of fundamental personal and property absolutes unless the word appears within a setting which warns of the potency of the capitulation being made.

* * * * * * * *

The case at bar falls far short of producing evidence that Miss Latshaw was even aware that a warrant of attorney was remotely contemplated. The physical characteristics of the five-page document demonstrate that the reverse sides were entirely ignored." 97 A.2d, at page 236.

The rigid scrutiny which the courts give to attempted limitations of warranties and of the liability that would normally flow from a transaction is not limited to the field of sales of goods. Clauses on baggage checks restricting the liability of common carriers for loss or damage in transit are not enforceable unless the limitation is fairly and honestly negotiated and understandingly entered into. If not called specifically to the patron's attention, it is not binding. It is not enough merely to show the form of a contract; it must appear also that the agreement was understandingly made. Hill v. Adams Express Co., 82 N.J.L. 373 (E. & A. 1911); S.S. Ansaldo San Giorgio I v. Rheinstrom Bros. Co., 294 U.S. 494, 55 S.Ct. 483, 79 L.Ed. 1016 (1935) (clause void as against public policy); Ferris v. Minneapolis & St. L. Ry. Co., 143 Minn. 90, 173 N.W. 178 (Sup. Ct. 1919); Healy v. New York Cent. & H.R.R. Co., 153 App. Div. 516, 138 N.Y.S. 287 (1912). The same holds true in cases of such limitations [397] on parcel check room tickets, Jones v. Great Northern Ry. Co., 68 Mont. 231, 217 P. 673, 37 A.L.R. 754 (1923); Klar v. H. & M. Parcel Room, 270 App. Div. 538, 61 N.Y.S.2d 285 (1946), affirmed 296 N.Y. 1044, 73 N.E.2d 912 (Ct. App. 1947); and on storage warehouse receipts, French v. Bekins Moving & Storage Co., 118 Colo. 424, 195 P.2d 968 (Sup. Ct. 1948); Denver Public Warehouse Co. v. Munger, 20 Colo. App. 56, 77 P. 5 (1904); Brasch v. Sloan's Moving & Storage Co., 237 Mo. App. 597, 176 S.W.2d 58 (1943); Voyt v. Bekins Moving & Storage Co., 169 Or. 30, 119 P.2d 586 (Sup. Ct. 1941), affirmed on rehearing 127 P.2d 360 (Sup. Ct. 1942); on automobile parking lot or garage tickets or claim checks, Kravitz v. Parking Service Co., 29 Ala. App. 523, 199 So. 727 (Ct. App. 1940); Hoel v. Flour City Fuel & Transfer Co., 144 Minn. 280, 175 N.W. 300 (Sup. Ct. 1919); Miller's Mut. Fire Ins. Ass'n of Alton, Ill. v. Parker, 234 N.C. 20, 65 S.E.2d 341 (Sup. Ct. 1951); Agricultural Ins. Co. v. Constantine, 144 Ohio St. 275, 58 N.E.2d 658 (Sup. Ct. 1944); as to exculpatory clauses in leases releasing a landlord of apartments in a multiple dwelling house from all liability for negligence where inequality of bargaining exists, see Annotation, 175 A.L.R. 8 (1948). And the validity of release clauses in orders signed by a depositor directing a bank to stop payment of his check, exonerating the bank from liability for negligent payment, has been seriously questioned on public policy grounds in this State, Reinhardt v. Passaic-Clifton Nat. Bank, 16 N.J. Super. 430, 436 (App. Div. 1951), affirmed 9 N.J. 607 (1952). Elsewhere they have been declared void as opposed to public policy. Speroff v. First-Cent. Trust Co., 149 Ohio St. 415, 79 N.E.2d 119, 1 A.L.R.2d 1150 (Sup. Ct. 1948).

French v. Bekins Moving & Storage Co., supra [118 Colo. 425, 195 P.2d 970], is particularly significant in the present connection. There the patron signed a storage receipt which contained blanks in which were written the details of removal of the household articles, charges and other information. [398] Toward the bottom, in "smaller poorly printed five-point type" were eight lines authorizing the handling of the goods at a limited valuation. Plaintiff testified that she did not read the provision and no one informed her of it or of its implications. The Supreme Court of Colorado, in commenting upon the clause, said:

"'While a warehouseman may not avoid his liability for negligence, he may nevertheless stipulate with the owner as to what the extent of the latter's recovery shall be, where the rate charged the owner is based upon an agreed valuation which is put upon the property. * * * if the condition was to become a part of the contract, it was necessary that plaintiff's attention be called to it, and that she be advised that the rate to be charged was a reduced rate to be applied in consideration of her consent to the limitation of defendant's liability.'" 195 P.2d, at page 971.

It is true that the rule governing the limitation of liability cases last referred to is generally applied in situations said to involve services of a public or semi-public nature. Typical, of course, are the public carrier or storage or parking lot cases. Kuzmiak v. Brookchester, 33 N.J. Super. 575 (App. Div. 1954); Annotation, supra, 175 A.L.R., at pp. 14-17. But in recent times the books have not been barren of instances of its application in private contract controversies, witness, e.g., Kuzmiak v. Brookchester, supra; Fairfax Gas & Supply Co. v. Hadary, 151 F.2d 939 (4 Cir. 1945); and Cutler Corp. v. Latshaw, supra. In the last named matter, which has been noted earlier, the court relied upon the public interest cases as authority. It said:

"Although these cases have to do with limitation on the liability of common carriers, their reasoning applies with equal force to the facts in the case at bar. When a party to a contract seeks to bind the other party with the unyielding thongs of a warrant of attorney-confession of judgment, a device not ordinarily expected by a homeowner in a simple agreement for alterations and repairs, the inclusion of such a self-abnegating provision must appear in the body of the contract and cannot be incorporated by casual reference with a designation not its own." 97 A.2d, at page 238.

[399] Basically, the reason a contracting party offering services of a public or quasi-public nature has been held to the requirements of fair dealing, and, when it attempts to limit its liability, of securing the understanding consent of the patron or consumer, is because members of the public generally have no other means of fulfilling the specific need represented by the contract. Having in mind the situation in the automobile industry as detailed above, and particularly the fact that the limited warranty extended by the manufacturers is a uniform one, there would appear to be no just reason why the principles of all of the cases set forth should not chart the course to be taken here.

It is undisputed that the president of the dealer with whom Henningsen dealt did not specifically call attention to the warranty on the back of the purchase order. The form and the arrangement of its face, as described above, certainly would cause the minds of reasonable men to differ as to whether notice of a yielding of basic rights stemming from the relationship with the manufacturer was adequately given. The words "warranty" or "limited warranty" did not even appear in the fine print above the place for signature, and a jury might well find that the type of print itself was such as to promote lack of attention rather than sharp scrutiny. The inference from the facts is that Chrysler placed the method of communicating its warranty to the purchaser in the hands of the dealer. If either one or both of them wished to make certain that Henningsen became aware of that agreement and its purported implications, neither the form of the document nor the method of expressing the precise nature of the obligation intended to be assumed would have presented any difficulty.

But there is more than this. Assuming that a jury might find that the fine print referred to reasonably served the objective of directing a buyer's attention to the warranty on the reverse side, and, therefore, that he should be charged with awareness of its language, can it be said that an ordinary layman would realize what he was relinquishing in [400] return for what he was being granted? Under the law, breach of warranty against defective parts or workmanship which caused personal injuries would entitle a buyer to damages even if due care were used in the manufacturing process. Because of the great potential for harm if the vehicle was defective, that right is the most important and fundamental one arising from the relationship. Difficulties so frequently encountered in establishing negligence in manufacture in the ordinary case make this manifest. 2 Harper & James, supra, §§ 28.14, 28.15; Prosser, supra, 506. Any ordinary layman of reasonable intelligence, looking at the phraseology, might well conclude that Chrysler was agreeing to replace defective parts and perhaps replace anything that went wrong because of defective workmanship during the first 90 days or 4,000 miles of operation, but that he would not be entitled to a new car. It is not unreasonable to believe that the entire scheme being conveyed was a proposed remedy for physical deficiencies in the car. In the context of this warranty, only the abandonment of all sense of justice would permit us to hold that, as a matter of law, the phrase "its obligation under this warranty being limited to making good at its factory any part or parts thereof" signifies to an ordinary reasonable person that he is relinquishing any personal injury claim that might flow from the use of a defective automobile. Such claims are nowhere mentioned. The draftsmanship is reflective of the care and skill of the Automobile Manufacturers Association in undertaking to avoid warranty obligations without drawing too much attention to its effort in that regard. No one can doubt that if the will to do so were present, the ability to inform the buying public of the intention to disclaim liability for injury claims arising from breach of warranty would present no problem.

In this connection, attention is drawn to the Plymouth Owner Certificate mentioned earlier. Obviously, Chrysler is aware of it because the New Car Preparation Service Guide sent from the factory to the dealer directs that it be given to the purchaser. That certificate contains a paragraph called [401] "Explanation of Warranty." Its entire tenor relates to replacement of defective parts. There is nothing about it to stimulate the idea that the intention of the warranty is to exclude personal injury claims.

At this point, a recent decision of the New York Court of Appeals is relevant. In Lachs v. Fidelity & Casualty Co. of New York, 306 N.Y. 357, 118 N.E.2d 555, 557 (1954), the plaintiff's mother went to Newark Airport in order to obtain a plane flight to Miami, Florida. A vending machine was located in front of the Air Service counter where she obtained her transportation ticket. On the machine, in letters ten times as large as any other words on it, appeared "Airline Trip Insurance." Over that legend was a well illuminated display of airplanes flying round and round, and in large characters the words and numerals "25¢ For Each $5,000. Maximum $25,000." Below that on a placard, in letters "many times" the size of the other words thereon, was printed:

"Domestic Airline Trip Insurance

25¢ for each $5,000. Maximum $25,000."

Below, in much smaller print on the same placard, appeared:

"Covers one-way flight shown on application * * * completed in 12 months within [certain points] on any scheduled airline. Policy void outside above limits."

The application mentioned was obtained by inserting 25¢ in a slot for each $5,000 of insurance desired. The application says, among other things: "I hereby apply to Company named below for Airline Trip Insurance to insure me on one Airline trip between:- * * *." Provision is made therein for the naming of a beneficiary and for the signature of the applicant.

Upon completion of the application, the prospective insured pressed a button and a policy of insurance emerged from the machine. The contract was about 11 inches long [402] and both sides of it were filled with printed matter. Across the front of it, in large letters which obliterated some of the printing beneath, was the statement: "This Policy Is Limited To Aircraft Accidents. Read It Carefully." The coverage clause on page 1 said:

"This insurance shall apply only to such injuries sustained following the purchase by or for the Insured of a transportation ticket from * * * a Scheduled Airline during any portion of the first one way or round airline trip covered by such transportation ticket * * * in consequence of: (a) boarding, riding as a passenger in * * * any aircraft operated on a regular or special or chartered flight by a Civilian Scheduled Airline maintaining regular, published schedules and licensed for interstate, intrastate or international transportation of passengers by the Governmental Authority having jurisdiction over Civil Aviation * * *." 118 N.E.2d, at page 557.

The mother's plane ticket (plaintiff was the named beneficiary) was for transportation on a Miami Airline, Inc. plane. It crashed on the way to Florida and she was killed. The insurance carrier refused to pay on the ground that the flight was not operated by a Civilian Scheduled Airline. The court sustained the refusal to dismiss the complaint, saying:

"What contract of insurance, then, did the decedent purchase? She intended to buy coverage for her flight to Miami. The defendant says it did not intend to cover her on that flight. We all know that a contract of insurance, drawn by the insurer, must be read through the eyes of the average man on the street or the average housewife who purchases it. Neither of them is expected to carry the Civil Aeronautics Act or the Code of Federal Regulations when taking a plane. * * * Was the decedent entitled to believe that she had purchased 'Airline Trip Insurance' through a policy 'Limited To Aircraft Accidents'? It seems to us that a jury could find that when decedent purchased her policy on an application for 'Airline Trip Insurance' from a machine having in prominent lighting those same three words, before obtaining her ticket from a counter in front of which the machine stood, she was covered on her flight, since the minds of the decedent and the company had met on that basis. * * *

* * * As we pointed out in Hartol Products Corp. v. Prudential Ins. Co., supra, the burden in such a case as this is on the [403] defendant to establish that the words and expressions used not only are susceptible of the construction sought by defendant but that it is the only construction which may fairly be placed on them. The defendant in its large illuminated lettering and in its application could have added proper, unambiguous words or a definition or could have avoided allowing its vending machine to be placed in front of the ticket counter 'utilized by all non-scheduled airlines operating out of the Newark Airport,' thus removing the ambiguity or equivocal character of the invitation to insure, of the application for insurance and the contract of insurance itself." 118 N.E.2d, at pages 558-559. (Emphasis ours)

The task of the judiciary is to administer the spirit as well as the letter of the law. On issues such as the present one, part of that burden is to protect the ordinary man against the loss of important rights through what, in effect, is the unilateral act of the manufacturer. The status of the automobile industry is unique. Manufacturers are few in number and strong in bargaining position. In the matter of warranties on the sale of their products, the Automotive Manufacturers Association has enabled them to present a united front. From the standpoint of the purchaser, there can be no arms length negotiating on the subject. Because his capacity for bargaining is so grossly unequal, the inexorable conclusion which follows is that he is not permitted to bargain at all. He must take or leave the automobile on the warranty terms dictated by the maker. He cannot turn to a competitor for better security.

Public policy is a term not easily defined. Its significance varies as the habits and needs of a people may vary. It is not static and the field of application is an ever increasing one. A contract, or a particular provision therein, valid in one era may be wholly opposed to the public policy of another. See Collopy v. Newark Eye & Ear Infirmary, 27 N.J. 29, 39 (1958). Courts keep in mind the principle that the best interests of society demand that persons should not be unnecessarily restricted in their freedom to contract. But they do not hesitate to declare void as against public policy contractual provisions which clearly tend to the injury of [404] the public in some way. Hodnick v. Fidelity Trust Co., 96 Ind. App. 342, 183 N.E. 488 (App. Ct. 1932).

Public policy at a given time finds expression in the Constitution, the statutory law and in judicial decisions. In the area of sale of goods, the legislative will has imposed an implied warranty of merchantability as a general incident of sale of an automobile by description. The warranty does not depend upon the affirmative intention of the parties. It is a child of the law; it annexes itself to the contract because of the very nature of the transaction. Minneapolis Steel & Machinery Co. v. Casey Land Agency, 51 N.D. 832, 201 N.W. 172 (Sup. Ct. 1924). The judicial process has recognized a right to recover damages for personal injuries arising from a breach of that warranty. The disclaimer of the implied warranty and exclusion of all obligations except those specifically assumed by the express warranty signify a studied effort to frustrate that protection. True, the Sales Act authorizes agreements between buyer and seller qualifying the warranty obligations. But quite obviously the Legislature contemplated lawful stipulations (which are determined by the circumstances of a particular case) arrived at freely by parties of relatively equal bargaining strength. The lawmakers did not authorize the automobile manufacturer to use its grossly disproportionate bargaining power to relieve itself from liability and to impose on the ordinary buyer, who in effect has no real freedom of choice, the grave danger of injury to himself and others that attends the sale of such a dangerous instrumentality as a defectively made automobile. In the framework of this case, illuminated as it is by the facts and the many decisions noted, we are of the opinion that Chrysler's attempted disclaimer of an implied warranty of merchantability and of the obligations arising therefrom is so inimical to the public good as to compel an adjudication of its invalidity. See 57 Yale L.J., supra, at pp. 1400-1404; proposed Uniform Commercial Code, 1958 Official Text, § 202.

[405] The trial court sent the case to the jury against Chrysler on the theory that the evidence would support a finding of breach of an implied warranty of merchantability. In fact, at one point in his charge he seemed to say that as a matter of law such a warranty existed. He also told them that:

"A provision in a purchase order for an automobile that an express warranty shall exclude all implied warranties will not be given effect so as to defeat an implied warranty that the machine shall be fit for the purposes for which it was intended unless its inclusion in the contract was fairly procured or obtained."

Thereafter, the court charged that when the car was sold a warranty arose that it was reasonably suited for ordinary use, and that if they found that it was defective and "not reasonably suited for ordinary driving" liability would exist "provided * * * you find there was an implied warranty and a breach thereof." The reasonable inference to be drawn from the whole context is that a preliminary finding against the binding effect of the disclaimer would have to be made, i.e., that the disclaimer was not "fairly procured," before an implied warranty could be deemed to exist. Even assuming that the duty to make such a finding was not as explicit as it should have been, in view of our holding that the disclaimer is void as a matter of law, the charge was more favorable to the defendant than the law required it to be. The verdict in favor of the plaintiffs and against Chrysler Corporation establishes that the jury found that the disclaimer was not fairly obtained. Thus, this defendant cannot claim to have been prejudiced by a jury finding on an aspect of the case which the court should have disposed of as a matter of law.

Chrysler raises in this court for the first time the defense that plaintiffs' failure to give reasonable notice of the breach of warranty bars their recovery. The claim was not made in the answer, pretrial order, at the trial or as a ground of appeal in the brief filed on this review. It [406] was added by letter filed after oral argument. It comes too late for consideration at this point in the proceedings.

The same situation arose in National Equipment Corporation v. Moore, 189 Minn. 632, 250 N.W. 677 (Sup. Ct. 1933). The contention was rejected, the court saying:

"It is enough to say that no such defense to the counterclaim was pleaded, litigated, or submitted to the jury. There was some testimony as to whether certain complaints were made * * * but nothing to indicate to the court or opposing counsel that such evidence was directed to prove noncompliance with said section 8423, and no such issue was submitted, or requested to be submitted, to the jury." 250 N.W., at page 679.

III. THE DEALER'S IMPLIED WARRANTY.

The principles that have been expounded as to the obligation of the manufacturer apply with equal force to the separate express warranty of the dealer. This is so, irrespective of the absence of the relationship of principal and agent between these defendants, because the manufacturer and the Association establish the warranty policy for the industry. The bargaining position of the dealer is inextricably bound by practice to that of the maker and the purchaser must take or leave the automobile, accompanied and encumbered as it is by the uniform warranty.

Moreover, it must be remembered that the actual contract was between Bloomfield Motors, Inc., and Claus Henningsen, and that the description of the car sold was included in the purchase order. Therefore, R.S. 46:30-21(2) annexed an implied warranty of merchantability to the agreement. Stuart v. Burlington Co. Farmers' Exchange, 90 N.J.L. 584 (E. & A. 1917); Adams v. Peter Tramontin Motor Sales, supra; Cassini v. Curtis Candy Co., 113 N.J.L. 91 (Sup. Ct. 1934); McCabe v. L.K. Liggett Drug Co., 330 Mass. 177, 112 N.E.2d 254 [407] (Sup. Jud. Ct. 1953); Ryan v. Progressive Grocery Stores, supra; Mahoney v. Shaker Square Beverages, Inc., supra; Prosser, Law of Torts, supra, at p. 495; Vold on Sales, supra, at pp. 436, 442-443; 1 Williston on Sales, supra, §§ 233, 242. It remains operative unless the disclaimer and liability limitation clauses were competent to exclude it and the ordinary remedy for its breach. It has been said that this doctrine is harsh on retailers who generally have only a limited opportunity for inspection of the car. But, as Chief Judge Cardozo said in Ryan, supra:

"The burden may be heavy. It is one of the hazards of the business.

* * * * * * * *

* * * In such circumstances, the law casts the burden on the seller, who may vouch in the manufacturer, if the latter was to blame. The loss in its final incidence will be borne where it is placed by the initial wrong." 175 N.E., at pages 106 and 107.

Re-examination of the purchase contract discloses an ambiguous situation with respect to the warranty position of the dealer. Section 7, on the reverse side thereof, says no warranties, express or implied, are made by the dealer or manufacturer except the express warranty of the manufacturer discussed above. However, the last paragraph of the section says that: "The dealer also agrees to promptly perform and fulfill all terms and conditions of the owner service policy." That policy, as noted above, sets forth the same manufacturer's warranty and then adds a stipulation substituting "dealer" in the context wherever "manufacturer" appears. Presumably the intention was to incorporate the policy into the sales contract by reference. Accepting that to be the dealer's intention, the binding character of the limitation on its liability to the buyer under the warranty is even less apparent than in the case of Chrysler. The uncontradicted proof shows that the policy was not shown or given to Henningsen prior to or at the time of execution of the sales agreement; it was delivered with the car. No [408] one suggests that the clause limiting the dealer's liability to replacement of defective parts and excluding implied warranties as well as responsibility for personal injury claims was specifically brought to Henningsen's attention, or that any attempt was made to make him understand that he was yielding his right, and that of any third person claiming in his right, to recover for such injuries.

For the reasons set forth in Part I hereof, we conclude that the disclaimer of an implied warranty of merchantability by the dealer, as well as the attempted elimination of all obligations other than replacement of defective parts, are violative of public policy and void.

The trial court submitted to the jury, on the same basis as in the claim against the manufacturer, the issue of whether the disclaimer provisions in the contract were fairly procured by the dealer. The dealer also contends that the language is susceptible of the conclusion that the jurors were told as a matter of law that an implied warranty of merchantability came into existence once the sale was made by him. As we have said, a reasonable purport of the instructions in context is that upon the evidence adduced at the trial a decision was to be made as to whether the disclaimer clauses were valid, and if it was found that they were not valid, then an implied warranty existed, breach of which would support plaintiffs' action. Submission of the case to the jury on that basis represented more favorable treatment than the dealer was entitled to receive. But assuming the contention to be correct that the only conclusion to be drawn from the court's statements is that the jury were told that an implied warranty of merchantability arose from the sale as a matter of law, and that they were to decide if the proof demonstrated a breach of it, such advice was correct for the public policy reasons already expressed. Under the circumstances, there is nothing in defendant Bloomfield Motors' criticism of the charge on that score which would warrant reversal of the judgment.

[409] IV. PROOF OF BREACH OF THE IMPLIED WARRANTY OF MERCHANTABILITY.

Both defendants argue that the proof adduced by plaintiffs as to the happening of the accident was not sufficient to demonstrate a breach of warranty. Consequently, they claim that their motion for judgment should have been granted by the trial court. We cannot agree. In our view, the total effect of the circumstances shown from purchase to accident is adequate to raise an inference that the car was defective and that such condition was causally related to the mishap. See, Yormack v. Farmers' Co-op. Ass'n of N.J., 11 N.J. Super. 416 (App. Div. 1951); Knapp v. Willys-Ardmore, Inc., supra. Thus, determination by the jury was required.

The proof adduced by the plaintiffs disclosed that after servicing and delivery of the car, it operated normally during the succeeding ten days, so far as the Henningsens could tell. They had no difficulty or mishap of any kind, and it neither had nor required any servicing. It was driven by them alone. The owners service certificate provided for return for further servicing at the end of the first 1,000 miles — less than half of which had been covered at the time of Mrs. Henningsen's injury.

The facts, detailed above, show that on the day of the accident, ten days after delivery, Mrs. Henningsen was driving in a normal fashion, on a smooth highway, when unexpectedly the steering wheel and the front wheels of the car went into the bizarre action described. Can it reasonably be said that the circumstances do not warrant an inference of unsuitability for ordinary use against the manufacturer and the dealer? Obviously there is nothing in the proof to indicate in the slightest that the most unusual action of the steering wheel was caused by Mrs. Henningsen's operation of the automobile on this day, or by the use of the car between delivery and the happening of the incident. Nor is there [410] anything to suggest that any external force or condition unrelated to the manufacturing or servicing of the car operated as an inducing or even concurring factor.

It is a commonplace of our law that on a motion for dismissal all of the evidence and the inferences therefrom must be taken most favorably to the plaintiff. And if reasonable men studying the proof in that light could conclude that the car was not merchantable, the issue had to be submitted to the jury for determination. Applying that test here, we have no hesitation in holding that the settlement of the question of breach of warranty as to both defendants was properly placed in the hands of the jury. In our judgment, the evidence shown, as a matter of preponderance of probabilities, would justify the conclusion by the ultimate triers of the facts that the accident was caused by a failure of the steering mechanism of the car and that such failure constituted a breach of the warranty of both defendants.

A somewhat similar case is Knapp v. Willys-Ardmore, Inc., supra, where liability was predicated upon breach of implied warranty of merchantability. Plaintiff bought a new car from defendant and drove it 107 miles in eight days. During that period it was used only for pleasure and was driven properly and without incident. Immediately before the accident, Mrs. Knapp was driving along at a moderate speed, when the steering mechanism failed to function and the car suddenly veered to the right over the curb and into a telephone pole. After the collision it was noted that the tie-rod at the right end of the steering assembly had become disconnected and had dropped to the ground. Inspection showed that the rod had been bent and a connecting sleeve or turn-buckle had been broken. A witness who had been driving in the opposite direction testified that he observed the right front wheel "wobbling" and the car "seemed to go out of control," over the curb and into the pole. A mechanic gave some testimony from which it might be inferred that the tie-rod had been broken before the impact with the pole. [411] It was held that the facts created a reasonable inference that the car was defective when delivered and that the defect was not caused by subsequent conduct of the plaintiff. The court pointed out that while existence of a defect cannot be found on the basis of mere conjecture or guess, yet it is not necessary to exclude every other possible cause which the ingenuity of counsel might suggest. The finding of breach of an implied warranty of merchantability was held to be circumstantially supportable by the necessary quantum of proof.

It may be conceded that the opinion of the automobile expert produced by the plaintiffs in the present case was not entitled to very much probative force. However, his assertion in answer to the hypothetical question that the unusual action of the steering wheel and front wheels must have been due to a mechanical defect or failure of something from the steering wheel down to the front wheels, that "something down there had to drop off or break loose" to cause the car to act in the manner it did, cannot be rejected as a matter of law. Its evaluation under all of the circumstances was a matter for jury consideration. Defendants argue that the proof of his qualifications was not adequate to warrant the admission of his testimony. But the matter of an expert's competency to testify is primarily for the discretion of the trial court. An appellate tribunal will not interfere unless a clear abuse of discretion appears. Carbone v. Warburton, 11 N.J. 418 (1953). In our view, the experience of the witness, as an automobile repairman and as an appraiser of damaged cars, was such as to preclude a holding by us that the trial court accepted his qualifications without any reasonable basis.

In M. Dietz & Sons, Inc. v. Miller, 43 N.J. Super. 334 (App. Div. 1957), defendant purchased a new car from a dealer. He drove it only 50 miles when, on the day of the accident while driving in traffic, he applied the brakes in order to stop in back of the Dietz vehicle. The brakes failed completely and Miller ran into the rear of that car. [412] Dietz sued Miller, who cross-claimed against the dealer for negligent installation or inspection of the power brakes. The Appellate Division properly declared that "even where the rule of res ipsa loquitur does not apply, the plaintiff may nevertheless show 'defendant's negligence by circumstantial or direct evidence of specific acts from which liability may be inferred.'" Supra, at page 338. And further that: "The real issue here is the efficacy of the circumstantial proof to create a fact issue as to defendant's negligence either in installation or inspection of the unit upon installation. There can be no doubt as to the sufficiency of the evidence to justify the finding that there was a power brake failure * * *." Supra, at pages 338-339. And see, Mazzietelle v. Belleville Nutley Buick Co., 46 N.J. Super. 410 (App. Div. 1957); Yormack v. Farmers' Co-op. Ass'n of N.J., supra. Although these latter cases sound in negligence, the test for finding a jury question in them is even more stringent. Circumstantial evidence sufficient to create a jury question as to the negligence of a manufacturer or dealer would clearly justify the same result where the issue is breach of warranty. As the late Chief Justice Vanderbilt said, in Simon v. Graham Bakery, supra, liability would exist notwithstanding all care was used to prevent a breach.

V. THE DEFENSE OF LACK OF PRIVITY AGAINST MRS. HENNINGSEN.

Both defendants contend that since there was no privity of contract between them and Mrs. Henningsen, she cannot recover for breach of any warranty made by either of them. On the facts, as they were developed, we agree that she was not a party to the purchase agreement. Faber v. Creswick, 31 N.J. 234 (1959). Her right to maintain the action, therefore, depends upon whether she occupies such legal status thereunder as to permit her to take advantage of a breach of defendants' implied warranties.

[413] For the most part the cases that have been considered dealt with the right of the buyer or consumer to maintain an action against the manufacturer where the contract of sale was with a dealer and the buyer had no contractual relationship with the manufacturer. In the present matter, the basic contractual relationship is between Claus Henningsen, Chrysler, and Bloomfield Motors, Inc. The precise issue presented is whether Mrs. Henningsen, who is not a party to their respective warranties, may claim under them. In our judgment, the principles of those cases and the supporting texts are just as proximately applicable to her situation. We are convinced that the cause of justice in this area of the law can be served only by recognizing that she is such a person who, in the reasonable contemplation of the parties to the warranty, might be expected to become a user of the automobile. Accordingly, her lack of privity does not stand in the way of prosecution of the injury suit against the defendant Chrysler.

The context in which the problem of privity with respect to the dealer must be considered, is much the same. Defendant Bloomfield Motors is chargeable with an implied warranty of merchantability to Claus Henningsen. There is no need to engage in a separate or extended discussion of the question. The legal principles which control are the same in quality. The manufacturer establishes the network of trade and the dealer is a unit utilized in that network to accomplish sales. He is the beneficiary of the same express and implied warranties from the manufacturer as he extends to the buyer of the automobile. If he is sued alone, he may implead the manufacturer. Davis v. Radford, 233 N.C. 283, 63 S.E.2d 822, 24 A.L.R.2d 906 (Sup. Ct. 1951); Annotation, 24 A.L.R.2d 913 (1952). His understanding of the expected use of the car by persons other than the buyer is the same as that of the manufacturer. And so, his claim to the doctrine of privity should rise no higher than that of the manufacturer. See, e.g., Haut v. [414] Kleene, supra; Greenberg v. Lorenz, supra; Ryan v. Progressive Grocery Stores, Inc., supra.

The situation before us in its legal aspects is very similar to that which we dealt with recently in Faber v. Creswick, supra. There, in a landlord and tenant relationship the lease contained a covenant to have the premises in good repair at the inception of the occupancy. The wife of the tenant was injured by reason of a breach of that agreement. We held that she was entitled to recover damages even though she was not a party to the lease. In doing so, our approval was given to the doctrine proposed by Section 357 of the Restatement of Torts that where a lessor agrees to keep the premises let in good repair, he is subject to liability for bodily harm caused to the lessee and others on the land with his consent by a condition of disrepair. True, the suit in Faber was in tort while this one is in contract. But it cannot be overlooked that historically actions on warranties were in tort also, sounding in deceit. Simon v. Graham Bakery, supra, 17 N.J., at pages 528, 529; 1 Williston on Sales, supra, §§ 195-197. The contract theory gradually emerged, although the tort idea has continued to lurk in the background, making the warranty "a curious hybrid of tort and contract." Prosser, supra, § 83. An awareness of this evolution makes for ready acceptance of the relaxation of rigid concepts of privity when third persons, who in the reasonable contemplation of the parties to a warranty might be expected to use or consume the product sold, are injured by its unwholesome or defective state.

It is important to express the right of Mrs. Henningsen to maintain her action in terms of a general principle. To what extent may lack of privity be disregarded in suits on such warranties? In that regard, the Faber case points the way. By a parity of reasoning, it is our opinion that an implied warranty of merchantability chargeable to either an automobile manufacturer or a dealer extends to the purchaser of the car, members of his family, and to other persons occupying or using it with his consent. It would be [415] wholly opposed to reality to say that use by such persons is not within the anticipation of parties to such a warranty of reasonable suitability of an automobile for ordinary highway operation. Those persons must be considered within the distributive chain.

Harper and James suggest that this remedy ought to run to members of the public, bystanders, for example, who are in the path of harm from a defective automobile. 2 Harper & James, supra, note 6, p. 1572. Section 2-318 of the Uniform Commercial Code proposes that the warranty be extended to "any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty." And the section provides also that "A seller may not exclude or limit the operation" of the extension. A footnote thereto says that beyond this provision "the section is neutral and is not intended to enlarge or restrict the developing case law on whether the seller's warranties, given to his buyer, who resells, extend to other persons in the distributive chain." Uniform Commercial Code, supra, at p. 100.

It is not necessary in this case to establish the outside limits of the warranty protection. For present purposes, with respect to automobiles, it suffices to promulgate the principle set forth above.

In his charge as to Mrs. Henningsen's right to recover on the implied warranty, the trial court referred to her husband's testimony that he was buying the car for her use, and then instructed the jury that on such facts the warranty extended to her. In view of our holding, obviously the protection of the warranty runs to her as an incident of the sale without regard to such testimony. Accordingly, the contention that the instruction was reversible error must be rejected.

Defendants rely upon certain cases for the proposition that lack of privity of contract bars Mrs. Henningsen's recovery. [416] The pertinent ones are Tomlinson v. Armour & Co., supra; Cassini v. Curtis Candy Co., supra; Schlosser v. Goldberg, 123 N.J.L. 470 (Sup. Ct. 1939); General Home, etc., Co. v. American, etc., Inc., 26 N.J. Misc. 24 (Cir. Ct. 1947). Tomlinson v. Armour & Co. provides the foundation for the others. It was decided 52 years ago and the principle on which defendants seek support for their case is contained in a short statement which, if applied in the light of the modern marketing conditions, is not inconsistent with the basic substance of the rule we have now espoused. In discussing the legal consequences of a sale of canned ham, Chancellor Pitney said:

"Whether a warranty be express or implied, it is a matter of contract, rendering the maker liable in case of breach, notwithstanding he used all care to prevent a breach, but rendering him liable in ordinary circumstances only to the party with whom he contracted, or to others for whose benefit the contract was made." 75 N.J.L., at pages 754-755. (Emphasis ours)

In 1908, the need of the community for the making of distinctions growing out of the nature of the contract was not as pressing as it is in this commercial era. A common rule was applied, as indicated by the citation of Marvin Safe Co. v. Ward, 46 N.J.L. 19 (Sup. Ct. 1884), and Styles v. F.R. Long Company, 67 N.J.L. 413 (Sup. Ct. 1902), which involved agreements wholly unrelated to the sale of products for consumer use. In this day, given the present situation, it is extremely unlikely that such an enlightened jurist as Chancellor Pitney would not find his expression that "others for whose benefit the contract was made" could sue for its breach compatible in spirit with the doctrine we deem to be necessary in the interest of justice. In any event, to the extent that Tomlinson v. Armour & Co. and its cited progeny conflict with our ruling, they can no longer be considered the law of this State. See Collopy v. Newark Eye and Ear Infirmary, supra.

The final argument on this point relates to the damage claim of Claus Henningsen. That claim has two [417] aspects: one for property damage to the automobile and the other for medical and hospital expenses and loss of his wife's society and services. As to the first, he being an actual party to the contract of sale, and the owner of the automobile, clearly the property damage is recoverable. The second claim is a derivative one, stemming from his wife's right. Faber v. Creswick, supra. But it is universally known that in family relations husbands and fathers are ordinarily responsible for such expenses of spouses and children. It would be illogical to accept the right of a wife to recover in contract for breach of warranty and to hold that the husband's derivative claim was not within the contemplation of the parties when the agreement of sale was made. For this reason it was proper to submit Henningsen's consequential losses to the jury as an element of damage.

VI.

Plaintiffs contend on cross-appeal that the negligence claim against the defendants should not have been dismissed. Their position is that on the facts developed, the issue should have been submitted to the jury for determination. The result we have reached on the other aspects of the case makes it unnecessary to consider the problem. For that reason we express no opinion thereon.

All other ground of appeal raised by both parties have been examined and we find no reversible error in any of them.

VII.

Under all of the circumstances outlined above, the judgments in favor of the plaintiffs and against defendants are affirmed.

For affirmance — Chief Justice WEINTRAUB, and Justices BURLING, JACOBS, FRANCIS, PROCTOR and SCHETTINO — 6.

For reversal — None.

[390 A.2d 240]

390 A.2d 240
257 Pa.Super. 50, 1 A.L.R.4th 1169

Lewis FAIR and Grace Fair, Appellants,
v.
Alexander NEGLEY, Appellee.

Superior Court of Pennsylvania.
Argued Nov. 14, 1977.
Decided July 12, 1978.

[390 A.2d 242] [257 Pa.Super. 53] Michael J. Kearney, Jr., Braddock, with him Matthew L. Vadnal, Butler, for appellants.

No appearance entered nor brief submitted for appellee.

Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT and SPAETH, JJ.

JACOBS, President Judge:

In the present action, Appellants Lewis and Grace Fair appeal the decision of the Court of Common Pleas of Butler County sustaining the demurrers of Appellee Alexander Negley to both counts of appellants' complaint. In asking us to reverse the trial court, appellants seek an extension of our recent decision to abolish the common law doctrine of Caveat emptor as it applies to residential leases and to apply an implied warranty of habitability to all such leases. Pugh v. Holmes, — Pa.Super. —, 384 A.2d 1234 (filed April 13, 1978). The two major issues raised by appellants are whether the implied warranty may be used as a basis for a complaint and whether the warranty may be waived by agreement of the parties to the residential lease. We hold that the implied warranty is a valid basis for a complaint and that the warranty may not be waived. Furthermore, we reverse the trial court's decision sustaining appellee's demurrer to the second count of appellants' complaint which alleged intentional infliction of emotional distress.

On March 12, 1974, appellants entered into a written rental agreement with appellee for a six room house in Butler, Pennsylvania. Appellants made rental payments of eighty dollars ($80.) per month until they vacated the premises in September, 1975. The clause in the agreement most at issue in this case stated that "premises taken in 'as is' condition, tenant knows the roof has a leak in the same, . . . ." Record at 10a and Appendix at 6.

Appellants filed a two count complaint against appellee. In the first count, they alleged that appellee breached the implied warranty of habitability on the rented premises; [257 Pa.Super. 54] they sought reimbursement for all past rent paid ($1,560) and for excess water bills ($132) caused by appellee's failure to fix the defective water system. As examples of the alleged breach, appellants cited, Inter alia, improper ventilation of a gas hot water heater and gas space heaters, lack of heat, falling plaster, defective electrical wiring, a malfunctioning water system, defective windows, broken porch steps and railings, and a leaking roof. Appellant's second count alleged that appellee had intentionally inflicted emotional distress upon them through his refusal to make the premises fit for human habitation; they sought $3,000 damages on the second count.

Appellee filed preliminary objections in the form of a demurrer to appellants' complaint. Argument was held on the demurrer and on January 12, 1977, Judge DILLON sustained appellee's demurrer and dismissed appellants' complaint with prejudice. This appeal followed.

We reverse the trial court's action in sustaining appellee's demurrer to the first count and reinstate appellants' complaint. In Pugh v. Holmes we held that the implied warranty of habitability may be used as the basis for a defense or for a counterclaim. Here, we hold that the warranty also may be used as the basis for a complaint. Just as with a counterclaim, standard contract remedies are available should appellants prove that appellee breached the implied warranty of habitability. For any time period during which the finder of fact determines that the premises were in an uninhabitable state, appellants may recover the difference between the amount of rent they paid and the reasonable rental value of the premises. Furthermore, they may recover any amount they spent on reasonable reparation and replacement in making the dwelling habitable. Finally, if the fact finder determines that their utility bills were excessive because of the uninhabitable condition of the premises, they may be reimbursed for the amount paid in excess of what their utility bills [390 A.2d 243] should have been had the premises been habitable. Of course, in order to succeed on their complaint, appellants must prove that they gave notice [257 Pa.Super. 55] to appellee of the defective conditions, that appellee had a reasonable opportunity to correct the defects, and that he failed to do so. Pugh v. Holmes, — Pa.Super. at —, 384 A.2d at 1241 and cases therein cited.

The major issue presented by this case is whether the implied warranty may be waived by agreement of the parties. In ruling on the "as is" clause in the lease the trial court adopted Section 2-316 of the Uniform Commercial Code and impliedly found that any warranty of habitability which may have existed had been waived. Act of April 6, 1953, P.L. 3, § 2-316 As reenacted by the Act of October 2, 1959, P.L. 1023, § 2, 12A P.S. § 2-316. That section states

(U)nless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty. . . .

12A P.S. § 2-316(3)(a). While we recognize that our decision in Pugh v. Holmes declared that all leases are to be treated as contracts and while we recognize the necessity and value of the freedom to contract between parties, we do not find this language from the Uniform Commercial Code, designed to regulate dealings concerning the sale of goods, controlling in the area of landlord tenant law.^[1]

Our initial decision to imply a warranty of habitability in residential leases was based primarily on four factors: the inability of tenants to adequately inspect or repair rental [257 Pa.Super. 56] units, the disparity of bargaining power between landlord and tenant, the scarcity of housing in the Commonwealth, and the effect of uninhabitable dwellings on the public health and safety. We must now decide whether, despite the doctrine of freedom to contract, a waiver of the warranty would be so against public policy that it should not be permitted in residential leases.

Although "public policy" is a term which escapes easy definition, we agree with Comment (e) to Section 5.6 of the Restatement (Second) of Property which states that "An agreement or provision may be against public policy if it will materially and unreasonably obstruct achievement of a well defined . . . common law policy." The Restatement lists several factors to be considered in determining whether an agreement violates public policy. Upon consideration of those factors applicable to residential leases like the one here at issue, we hold that a waiver of the implied warranty of habitability does violate the public policy sought to be achieved by the warranty and that, therefore, the warranty may not be waived.

One factor is whether the agreement will be counter to statutory and regulatory provisions concerning public health and safety. As we noted in Pugh v. Holmes,

(A)t least one court has found that the continued letting of "tumbledown" houses is ". . . a contributing cause of such problems as urban blight, juvenile delinquency and high property taxes for conscientious landowners." Pines v. Perssion, 14 Wis.2d 590, 596, 111 N.W.2d 409, 413 (1961).

— Pa.Super. at —, 384 A.2d at 1239. Furthermore, appellants here attached as [390 A.2d 244] an exhibit to their complaint a "Notice of City Ordinance Violation" from the Housing Code Enforcement Office of Butler, Pennsylvania to appellee/landlord. The Notice listed seven (7) major defects in the rental premises found by the Code Enforcement Office and ordered to be remedied by appellee. Record at 12a. It is clear that if we were to enforce the alleged waiver of the implied warranty of habitability in this case, we would lend [257 Pa.Super. 57] support not only to obvious violations of Butler ordinances but also to a situation hazardous to the public health and safety.

A second factor for consideration is the relative strength of the bargaining power held by the respective parties. The Courts of our Commonwealth have recognized that tenants in general have little or no bargaining power. In Reitmeyer v. Sprecher, the Supreme Court stated,

(M)ost frequently today the average prospective tenant vis-a-vis the prospective landlord occupies a disadvantageous position. Stark necessity very often forces a tenant into occupancy of premises far from desirable and in a defective state of repair. The acute housing shortage mandates that the average prospective tenant accede to the demands of the prospective landlord as to conditions of rental, which, under ordinary conditions with housing available, the average tenant would not and should not accept.

No longer does the average prospective tenant occupy a free bargaining status and no longer do the average landlord-to-be and tenant-to-be negotiate a lease on an "arm's length" basis. Premises which, under normal circumstances, would be completely unattractive for rental are now, by necessity, at a premium. If our law is to keep in tune with our times we must recognize the present day inferior position of the average tenant vis-a-vis the landlord when it comes to negotiating a lease.

431 Pa. 284, 289-90, 243 A.2d 395, 398 (1968). In discussing a lease clause which would exculpate a landlord from liability for personal injury, a situation analogous to waiving the implied warranty of habitability, the Court said,

The exculpatory clause is today contained in every form lease and, understandably enough, landlords are unwilling to strike therefrom that provision which strongly favors them. Thus it is fruitless for the prospective tenant of an apartment to seek a lease having no exculpatory clause. The result is that the tenant has no bargaining power and must accept his landlord's terms. There is no meeting of [257 Pa.Super. 58] the minds, and the agreement is in effect a mere contract of adhesion, whereby the tenant simply adheres to a document which he is powerless to alter, having no alternative other than to reject the transaction entirely. It is obvious that analysis of the form lease in terms of traditional contract principles will not suffice, for those rules were developed for negotiated transactions, which embody the intention of both parties. (Citation omitted.)

Galligan v. Arovitch, 421 Pa. 301, 304, 219 A.2d 463, 465 (1966). See also Commonwealth v. Monumental Properties, Inc., 459 Pa. 450, 474-75, 329 A.2d 812, 824 (1974), and Klein v. Allegheny County Health Department, 441 Pa. 1, 7, 269 A.2d 647, 651 (1970) for discussions of the housing shortages in the Commonwealth.^[2]

[390 A.2d 245] A review of the rental agreement in this case gives further support to these particular tenants' lack of bargaining power. Not only did the appellants agree to rent a house with a leaking roof, but also

as a security for the payment of all rent falling due under this lease (appellants grant all right) to the lessor (in) All the household and kitchen furniture, and all property, good and merchandise of the lessee upon the premises, or to be brought thereon, without any exceptions. (Emphasis added.)

[257 Pa.Super. 59] Record at 8a and Appendix at 6. Furthermore, the lease contained a clause granting appellee the right to enter a confessed judgment against appellants for any unpaid rent, or for breach of any of the covenants of the lease. Record at 9a-10a and Appendix at 6. In return for giving up substantially all of their rights as tenants, including the rights to sublet or assign without appellee's permission or to prevent appellee from entering onto the property without their permission, appellants received an uninhabitable dwelling place. A clearer case of disparity of bargaining power and disadvantage to the tenant would be difficult to imagine.

Were we to permit waiver of the implied warranty by an express provision in the lease, it would be a rare lease in which the waiver would not appear. As with the exculpatory clause, few, if any, tenants would be able to find housing on which the warranty had not been waived. To allow such wholesale, unbargained for waiver would make the implied warranty of habitability meaningless.

The third criterion is whether the provision is part of "an unduly harsh and unreasonable standard, 'boilerplate' lease document . . . ." A copy of the lease, as it appears in the reproduced record, is, in essence, boilerplate. The only provisions not in standard style and size of type in the lease are the names of the parties, the date, the address, the rental amount, and the "as is" clause. It is clear, then, that these are the only provisions upon which any negotiations Could have taken place. In most cases, including this one, it would be unreasonable and unconscionable for a landlord and tenant to voluntarily negotiate for a tenant to live in uninhabitable housing. The "as is" clause, therefore, must be viewed simply as a part of the boilerplate lease agreement.

The final consideration applicable, here, is whether the agreement imposes unreasonable liabilities or burdens on persons financially ill equipped to assume the burdens or on persons without significant bargaining power. Such is certainly the case, here. There is no doubt that appellants [257 Pa.Super. 60] were burdened by the attempted waiver of the habitability warranty. In addition, the printed lease form provided that appellants would pay for "(a)ny damage to building, fixtures, water or gas pipes, during the term of this lease . . . ." Not only, then, did appellee try to avoid having to rent a habitable house but also attempted to have appellants, without finances or bargaining power, maintain the premises after they rented them.

After considering the bases for our decision in Pugh v. Holmes, the public policy sought to be advanced by the implied warranty of habitability, and the factors to be employed in determining whether an agreement violates public policy, we can conclude only that an attempted waiver of the implied warranty of habitability in residential leases is unconscionable and must be held to be ineffective. Therefore, waiver is not a valid defense to a complaint based upon the warranty.

Finally, appellants allege that the trial court erred in sustaining appellee's demurrer to count two of their complaint which alleged intentional infliction of emotional distress. We agree and, therefore, reverse the court's ruling on the demurrer.

 As defined by Section 46 of the Restatement (Second) of Torts,

[390 A.2d 246] (1) One who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress, and if bodily harm to the other results from it, for such bodily harm.

While we refuse to hold that a breach of the implied warranty of habitability constitutes intentional infliction of emotional distress as a matter of law, we do hold that appellants have the right to allege and to try to prove that appellee, by breaching the warranty, has intentionally inflicted emotional distress upon the appellants. At least one other court has reached a similar conclusion in the context of a landlord/tenant case. Aweeka v. Bonds, 20 Cal.App.3d [257 Pa.Super. 61] 278, 97 Cal.Rptr. 650 (1971). The Restatement (Second) of Torts also notes that landlords previously have been held liable for intentional infliction of emotional distress "for extreme abuse of their position." § 46, comment (e).

"Preliminary objections in the nature of a demurrer should be sustained only where it appears with certainty that upon the facts averred the law will not permit the plaintiff to recover." Papieves v. Kelly, 437 Pa. 373, 381, 263 A.2d 118, 122 (1970). Upon reviewing the record in this case, we find that appellants alleged sufficient facts in both counts of their complaint to overcome a ruling against them as a matter of law. Accordingly, we reverse the ruling of the lower court, reinstate appellants' complaint, and remand this case for proceedings consistent with this opinion.

VAN der VOORT, J., joins this opinion as to Count I.

CERCONE, J., concurs in the result.

SPAETH, J., files a concurring opinion.

PRICE, J., files a dissenting opinion, in which VAN der VOORT, J., joins as to Count II.

WATKINS, former President Judge, did not participate in the consideration or decision of this case.

SPAETH, Judge, concurring:

I join in the majority opinion. I do not understand it, however, to preclude a bona fide agreement whereby parties of equal bargaining power shift the obligation to render the leased premises habitable. For example, suppose a landlord has obtained residential zoning for the use of loft space. It should not, I think, be impossible for the landlord and a prospective tenant to agree that for a reduced amount of rent, the tenant, rather than the landlord, will make such agreed upon improvements as are necessary to make the premises fit for human habitation. The enforcibility of such an agreement would depend upon a showing of a bona fide understanding, between parties of equal bargaining power, that such improvements will in fact be made. In such [257 Pa.Super. 62] circumstances the landlord's obligation to ensure compliance with the warranty would remain in full effect; the agreement would merely shift the obligation of performance of the agreed terms.

PRICE, Judge, dissenting.

Once again, the majority has elected to make a significant change in landlord-tenant law in this Commonwealth in order, in its opinion, to remedy inadequacies in today's residential housing. I dissent for the reasons stated in my dissenting opinion in Pugh v. Holmes, — Pa.Super. —, 384 A.2d 1234 (1978).

The law in Pennsylvania has always been that while a landlord may expressly covenant premises as tenantable, there is no implied warranty to that effect, and the landlord has no ongoing duty of repair. Lopez v. Gukenback, 391 Pa. 359, 137 A.2d 771 (1958). The majority, however, has deemed it appropriate to adopt an implied warranty of habitability in residential leases. I adhere to my conviction that responsibility for such a change, if it is to be made, rests with the legislature, so that exact standards may be formulated and a rent-withholding mechanism may be established. I can foresee several problems which the Pugh majority did not intend, but which will inevitably flow from this court's [390 A.2d 247] adoption of an implied warranty of habitability in residential leases. The purpose of that decision was to reduce the shortage of decent dwellings available, particularly to low income tenants. Most assuredly, the cost of repairs will be passed on to the tenant through increased rent. But a more detrimental result of Pugh is that many owners of marginal housing may deem the cost of repairs too substantial and the return on investment too questionable, and they will opt to close dwellings, thereby compounding the housing problem.

Beyond that, I find the further extension of the Pugh case by the majority absolutely offensive to contract principles. Pugh maintained that a lease should be viewed as a contract, and that the covenants of the two parties thereto must be [257 Pa.Super. 63] read as dependent. Yet in this case, the court ignores the contractual provisions of the agreement into which the two parties entered. One clause of the lease provides: "Premises taken in as is condition, tenants know the roof has a leak in the same."

The Uniform Commercial Code, Section 2-316(3)(a) provides:

"(U)nless the circumstances indicate otherwise, all implied warranties are excluded by expressions like 'as is,' 'with all faults' or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty. . . ."^[1]

The majority declares that "an attempted waiver of the implied warranty of habitability in residential leases is unconscionable and must be held to be ineffective." (Majority opn. at 245). Although Article 2 of the Uniform Commercial Code covers only the sale of goods, the freedom of contract which it recognizes in such transactions should likewise be acknowledged in the landlord-tenant relationship, which the majority has dubbed a contractual one. One should be free to bargain for premises of lesser quality to secure housing at a cheaper cost, if that is desired. At the very least, appellants in this case should not be entitled to any relief for alleged damages attributable to the leaking roof, a defect specified in the contract and accepted by appellants from the start of their tenancy. Instead, the majority is holding that as a matter of law, no waiver of the implied warranty of habitability will be upheld by our courts.

An additional problem which I have with the majority's decision in the instant case is that the complaint fails to allege notice to the landlord of the defects or the passage of a reasonable time after notice to permit repairs. Appellants' complaint states:

"7. The majority of the above defects were reported to the Defendant, Alexander Negley, as violations of the [257 Pa.Super. 64] City Ordinances. (A copy of the notice is attached hereto and made a part hereof as 'Exhibit B')."

The attached exhibit is a memorandum from the Housing Code Enforcement Office of Butler, Pennsylvania, enumerating several violations of city ordinances. This notice is dated September 5, 1975. Appellant's complaint alleged that conditions rendering the leased premises uninhabitable entitled them to recovery of all rent which they paid from the inception of the lease, on March 12, 1974, through September, 1975, when they vacated the premises.^[2] Even if the implied warranty is applied in this case, the complaint indicates that appellee received no notice of the complained of conditions until September. Thus, he cannot reasonably be held liable for breaching a warranty which requires that the tenant give notice and allow a reasonable time for repairs. The complaint thus fails to allege a cause of action against the landlord, and a demurrer was properly sustained.

Appellants' second contention is that the lower court erred in sustaining the landlord's demurrer to count two of their complaint which alleged intentional infliction of [390 A.2d 248] emotional distress. It is on the basis of the Restatement (Second) of Torts, Section 46, that the majority reverses the lower court's ruling. That section provides:

"(1) One who by Extreme and outrageous conduct intentionally or recklessly causes Severe emotional distress to another is subject to liability for such emotional distress. . . ." (Emphasis added).

As recognized in the comments following Section 46, intentional infliction of mental distress is a tort that has not enjoyed very rapid acceptance or enlargement. It is very difficult to prove. Still, in cases in which conduct could be labeled extreme or outrageous, a cause of action has been recognized. In this regard, Comment (d) provides in part:

"It has not been enough that the defendant has acted with an intent which is tortious or even criminal, or that he has [257 Pa.Super. 65] intended to inflict emotional distress, or even that his conduct has been characterized by 'malice,' or a degree of aggravation which would entitle the plaintiff to punitive damages for another tort. Liability has been found only where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community."

Comment (d) further recognizes that:

"The liability clearly does not extend to mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities."

Regarding the degree of emotional harm necessary to a finding of intentional infliction of emotional distress, Comment (j) provides in part:

"Complete emotional tranquility is seldom attainable in this world, and some degree of transient and trivial emotional distress is a part of the price of living among people. The law intervenes only where the distress inflicted is so severe that no reasonable man could be expected to endure it. The intensity and duration of the distress are factors to be considered in determining its severity."

One of the chief difficulties in recovering under Section 46 is establishing that the alleged tortfeasor acted with specific intent to cause emotional distress. See Forster v. Manchester, 410 Pa. 192, 189 A.2d 147 (1963). The leasing of low income housing is generally necessitated by the need of indigents and is prompted by landlords' economic interests; it is not motivated by the intent to cause tenants emotional distress. Further, I find the assertion that failure to repair in the landlord-tenant situation constitutes severe and outrageous conduct to be without merit. Such conduct does not rise to the level of other reprehensible actions for which a cause of action has been recognized. E. g., Papieves v. Kelly, 437 Pa. 373, 263 A.2d 118 (1970) (parents have cause of action for intentional mishandling of body of deceased son). Additionally, in the instant case, the implied warranty [257 Pa.Super. 66] which the majority would read into every residential lease has been disclaimed. Therefore, the landlord had no duty to make the necessary repairs of which appellants complain. From the face of the complaint it is clear that the landlord did not even have notice of the desired repairs until September 5, 1975. It is therefore inconceivable that he was intentionally inflicting emotional distress upon appellants when he did not realize their alleged plight during the months for which appellants seek relief.

The majority cites Aweeka v. Bonds, 20 Cal.App.3d 278, 97 Cal.Rptr. 650 (1971), in which the court held that the plaintiff had stated a cause of action by claiming punitive damages for eviction and intentional infliction of emotional distress. I concur in the assessment of Justice Kane, who wrote in his dissent:

"At a time when the judicial system is laboring under a load which includes an inordinate quantity of needless, and often frivolous, vexatious litigation, the effect of the majority's decision is to create yet another breeding ground." Id. at 283, 97 Cal.Rptr. at 653.

I would affirm the ruling of the lower court.

VAN der VOORT, J., joins this opinion as to Count II.

-----------

[1] If we were to find the language of § 2-316 controlling here, we would find § 2-302 of the Uniform Commercial Code to be controlling, as well. Section 2-302 states that

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.

The Act of April 6, 1953, P.L. 3, § 2-302, As reenacted by the Act of Oct. 2, 1959, P.L. 1023, § 2, 12A P.S. § 2-302(1). On the basis of § 2-302, we would find the "as is" clause of the lease to be an unconscionable and ineffective waiver.

[2] Even assuming that some tenants may possess limited bargaining power, courts have determined that the public policy behind the implied warranty of habitability is more important than any negotiated waiver of the warranty. In at least one case, a court has found that knowledge of the defective conditions and reduced rent are inadequate bases for waiving the implied warranty:

It can be argued, however, that the defendant should not be entitled to the protection of an implied warranty of habitability since he knew of a substantial number of defects when he rented the premises and the rent was reduced from $87 per month to $50 per month. We believe this type of bargaining by the landlord with the tenant is contrary to public policy and the purpose of the doctrine of implied warranty of habitability. A disadvantaged tenant should not be placed in a position of agreeing to live in an uninhabitable premises. Housing conditions, such as the record indicates exist in the instant case, are a health hazard, not only to the individual tenant, but to the community which is exposed to said individual.

Foisy v. Wyman, 83 Wash.2d 22, 28, 515 P.2d 160, 164 (1973).

-----------

[1] The Act of April 6, 1953, P.L. 3, § 2-316, As reenacted by the Act of October 2, 1959, P.L. 1023, § 2 (12A P.S. § 2-316).

[2] The complaint does not indicate the exact date on which appellants moved from the premises, but it does state that it was during September.

114 Mass. 530

THOMAS J. DANIELS
vs.
SAMUEL F. J. NEWTON & another.

January Term, 1874.

An action for the breach of a written agreement to purchase land, brought before the expiration of the time given for the purchase, cannot be maintained by proof of an absolute refusal on the defendant's part ever to purchase.

WELLS, J. This action is for breach of an agreement in writing, under seal, for the purchase of certain land from the plaintiff by the defendants. The time for performance is indicated by two clauses; one that "said premises are to be conveyed within thirty days from this date;" the other that "in case the said parties of the second part should fail to sell their estate at the expiration of the thirty days, then we agree to extend this agreement for thirty days." The inference from the latter clause is that the defendants were to have the whole thirty days for performance on their part, and, in the contingency mentioned, thirty days more. Such was the effect given to the terms of the written instrument, by the ruling at the trial, and we think correctly.

The plaintiff relied upon a supposed breach of the agreement by the defendants within the thirty days; to wit, May 29, the writing being dated May 15, and thereupon had brought his action May 30. The ruling of the court upon this point was that if the defendants "fixed a day, within said thirty days, for the performance of said agreement by the respective parties, and the plaintiff was then ready to perform his part, and the defendants then refused absolutely to perform said agreement on their part, then or at any other time, that would be a breach of the agreement on their part for which the plaintiff can maintain this action."

We do not understand this ruling to have been based upon the supposition of an oral agreement in regard to the time of per [531] formance varying the terms of the written instrument as an executor contract. It would have been clearly erroneous in that aspect; first, because no such substituted agreement is set forth in the declaration; secondly, because such an oral agreement in regard to land would be within the statute of frauds, and could not be so enforced.

Subsequent oral agreements in regard to the mode and time of performance of written contracts relating to land, are doubtless admissible to affect the question whether the conduct of either party, as proved, constitutes a breach of his written agreement. In that aspect, the evidence adduced by the plaintiff in this case was competent, and might have warranted the jury in finding a breach of the contract by the defendants, if they did not revoke their refusal within the thirty days, even without any further offer to perform on the part of the plaintiff.

The action having been brought immediately upon the refusal, and within the time allowed for performance by the terms of the written contract sued upon, the effect of the ruling was that an absolute refusal of performance, purporting and intended to be a refusal to fulfil the contract at any time, would be of itself a breach of a contract for acts to be done within a time not yet expired, so that an action would lie forthwith. The proposition involved in this ruling, to wit, that there may be a breach of contract, giving a present right of action, before the performance is due by its terms, seems to have been adopted by recent English decisions. Frost v. Knight, L. R. 7 Ex. 111 (1872). Hochster v. De la Tour, 2 E. & B. 678 (1853).

It is said to be applicable, not only in cases where performance has been rendered impossible by the voluntary conduct of the party, as, in agreements for marriage or conveyance of land, by marriage or conveyance to another, and by way of exception to the general rule formerly maintained, but to the full extent of a general rule; so that an absolute and unqualified declaration of a purpose not to fulfil or be held by the contract, made by one party to the other, may be treated as of itself a present breach of the contract by repudiation, as well before as after the time stipulated for its fulfilment by such party. The point was elaborately [532] discussed in Frost v. Knight, by Lord Chief Justice Cockburn, and the principle evolved is expressed in these propositions, on page 114:

"The promisee has an inchoate right to the performance of the bargain, which becomes complete when the time for performance has arrived. In the mean time he has a right to have the contract kept open as a subsisting and effective contract. Its unimpaired and unimpeached efficacy may be essential to his interests. His rights acquired under it may be dealt with by him in various ways for his benefit and advantage."

"The contract having been thus broken by the promisor and treated as broken by the promisee, performance at the appointed time becomes excluded, and the breach by reason of the future non-performance becomes virtually involved in the action as one of the consequences of the repudiation of the contract; and the eventual non-performance may therefore, by anticipation, be treated as a cause of action, and damages be assessed and recovered in respect of it, though the time for performance may yet be remote."

The first of these two propositions would apply with peculiar force to commercial paper, especially if its repudiation by the maker were made public. We see no reason for a distinction which should exclude it from the same rule that applies to other promises in writing, in respect to what will constitute a breach of the principal contract between the maker and payee. We are not aware, however, that any decision has carried out the rule by applying it to such contracts; and we doubt if the learned jurists who propounded it would have been willing to follow it to that extent.

The doctrine has never been adopted in this Commonwealth nor has it received any recognition, so far as we are able to learn, beyond that in Heard v. Bowers, 23 Pick. 455, 460. The court in that case, refer to Ford v. Tiley, 6 B. & C. 325, 327, and 5 Vin. Ab. 224; the doctrine announced in Ford v. Tiley, being, as it appears to us, an erroneous application of the maxims contained in Viner.

[533] A renunciation of the agreement, by declarations or inconsistent conduct, before the time of performance, may give cause for treating it as rescinded, and excuse the other party from making ready for performance on his part, or relieve him from the necessity of offering performance in order to enforce his rights. It may destroy all capacity of the party, so disavowing its obligations, to assert rights under it afterwards, if the other party has acted upon such disavowal. But we are unable to see how it can, of itself, constitute a present violation of any legal rights of the other party, or confer upon him a present right of action. An executory contract ordinarily confers no title or interest in the subject matter of the agreement. Until the time arrives when, by the terms of the agreement, he is or might be entitled to its performance, he can suffer no injury or deprivation which can form a ground of damages. There is neither violation of right, nor loss upon which to found an action. The true rule seems to us to be that in order to charge one in damages for breach of an executory personal contract, the other party must show a refusal or neglect to perform, at a time when and under conditions such that he is or might be entitled to require performance. Frazier v. Cushman, 12 Mass. 277. Pomroy v. Gold, 2 Met. 500. Hapgood v. Shaw, 105 Mass. 276. Carpenter v. Holcomb, 105 Mass. 280. Such undoubtedly was the interpretation of the common law in all the earlier decisions. Phillpotts v. Evans, 5 M. & W. 475. Ripley v. M’Clure, 4 Exch. 345. Lovelock v. Franklyn, 8 Q. B. 371.

The case of Ford v. Tiley, 6 B. & C. 325, cited in Heard v. Bowers, was an action on an agreement of the defendant that he would, as soon as he should become possessed of a certain public house, execute a lease thereof to the plaintiff for a term of years from December 21, 1825. There was in fact an outstanding lease of the premises to another, to expire at midsummer, in 1827. Before that term expired, the defendant joined with the trustees, who held the legal title, in a lease to another party for 23 years. It was held to be a breach of his agreement with the plaintiff, for which an action would lie at once; because the defendant had given up his right to have the possession, and put it out of his [534] power, so long as his own lease for twenty-three years should last. It does not appear that the suit was brought before December 21, 1825; nor that the time when the defendant would become possessed, was mentioned in the agreement. It was not the case of an agreement to make a lease at a named future day. The outstanding lease was an extrinsic fact, merely affecting the occurrence of the contingency upon which the performance of the agreement depended; it had no other force in the contract. When, therefore, the defendant made a lease to a stranger, he could no longer say that he was prevented from becoming possessed by the outstanding previous lease, because he had put it out of his power to come into possession, if that were surrendered or otherwise terminated. The plaintiffs' right to have a lease presently was subject only to a contingency, of which the defendant had no longer the ability to avail himself. The judgment accords with the rule we have indicated. But in giving judgment, Bayley, J., citing 1 Rol. Ab. 248; 5 Vin. Ab. 225; 21 Ed. IV. 55, and Co. Litt. 221 b, proceeds to say: "Now if the feoffment of a stranger before the day be a breach of a condition to enfeoff J. S. at a given day, the granting of a lease to a stranger before the day will be a breach of a contract to grant a lease to J. S. at a given day, and a fortiori will it be a breach so long as the lease to such stranger remains in force."

It seems to us, however, that the reasoning from conditions of forfeiture or defeasance to executory contracts is illogical. If one, having an estate on condition, by his own act in dealing with the estate, puts it out of his power to perform or comply with the condition, he does what is inconsistent with the terms upon which alone he has the estate; and his grantor may reenter, even before the time of stipulated performance, not because of a new right acquired by the terms of the agreement, but because the right of the other party having become forfeited or extinguished by his breach of the condition, or violation of the terms of his tenancy, the grantor or feoffor is restored to his former estate and right. It is by virtue of that right or title that he enters, the other party being no longer able to avail himself of his conditional estate or right. The analogy holds good if the plaintiff's right to require [535] performance of the agreement awaits only a contingency which the defendant removes by making it impossible, which was the real case in Ford v. Tiley. It gives no support to the very different proposition that, in a contract to be performed on a given day, the voluntary disability of one party will entitle the other to require performance, or to have an action for non-performance, before that day arrives.

The distinction is recognized by the authorities referred to by Mr. Justice Bayley. Lord Coke says: "And herein a diversity is to be observed between a disability for a time on the part of the feoffee, and a disability for a time of the part of the feoffor." In the one case, albeit "a certain day be limited, yet the feoffee being once disabled is ever disabled." "And the reason of the diversity is, for that, as Littleton saith, maintenant by the disability of the feoffee, the condition is broken, and the feoffor may enter, but so it is not by the disability of the feoffor, or his heirs; for if they perform the condition within the time, it is sufficient, for that they may at any time perform the condition before the day." Co. Litt. 221 b; 5 Vin. Ab. 224, Condition, B. c.

We have examined with care the opinions of Lord Chief Justice Cockburn in Frost v. Knight, and of Lord Campbell in Hochster v. De la Tour, and we are not convinced that the conclusions at which they arrive are founded in sound principles of jurisprudence, or sustained by the authorities cited in their support.

Frost v. Knight was an action upon a promise to marry the plaintiff on the death of the defendant's father. The defendant broke off the engagement by announcing his intention not to fulfil his promise. The action was brought without waiting for the death of the defendant's father. The plaintiff having recovered a, verdict, judgment was arrested by the Court of Exchequer; but on error it was held, in the Exchequer Chamber, that she was entitled to retain the verdict. The lord chief justice cites Lovelock v. Franklyn, 8 Q. B. 371, and Short v. Stone, 8 Q. B. 358, as having "established that where a party bound to the performance of a contract at a future time, puts it out of his own power to fulfil it, an action will at once lie." Neither decision cited establishes that proposition, where a definite time for per [536] formance is appointed by the terms of the contract; but only where the plaintiff was entitled to require performance upon some previous act or request which the conduct of the defendant has dispensed with.

Short v. Stone was upon a promise to marry the plaintiff "within a reasonable time after request." The defendant married another, and this was alleged as the breach. It was held that request was not necessary, and need not be alleged. It was rendered unavailing, and therefore unnecessary, by the act of the defendant, which was of itself a breach of the contract by rendering performance impossible. No question arose, or could arise, whether the action was premature, because there was no future time certain for performance. The defendant had made the only limit of time impossible.

Lovelock v. Franklyn was upon an agreement to assign a lease, at any time within seven years, upon payment of a sum named. The decision is explicitly upon the ground that the option as to the time, within the seven years, was with the plaintiff. "The defendant is to be ready throughout." Coleridge, J., p. 375. Denman, C. J., says: "Here the party puts it out of his power to perform what he has agreed to perform; that is, to assign at any time at which he may be called upon. This distinction shows that the passage cited from Lord Coke is inapplicable; that proves no more, on the point now before us, than that if an act is to be performed at a future time specified, the contract is not broken by something which may merely prevent the performance in the mean time. We are introducing no novelty. In all the cases put for the defendants, the party had the means of rehabilitating himself before the time of performance arrived; here he has incapacitated himself at the very time when he may be called on and should be ready." Patteson, J., says: "In this particular contract, the defendant has undertaken to keep himself ready for the whole time." So far from being sustained by this case, the proposition, to which it is cited by Lord Chief Justice Cockburn, is most carefully excluded, if not expressly disavowed.

The proposition, even if established, is not decisive of the case now before us. We have discussed it, however, because it has [537] an important bearing upon the argument, and is essential to the result reached in Frost v. Knight. The lord chief justice, taking it as established by the cases cited, proceeds to the next step. He says, "The case of Hochster v. De la Tour, upheld in this court in the Danube & Black Sea Co. v. Xenos, [13 C. B. (N. S.) 825,] went further, and established that notice of an intended breach of a contract to be performed in futuro had a like effect."

Hochster v. De la Tour appears to us to be the only case which sustains this position as an adjudication, although that decision has been recognized in several subsequent cases. Avery v. Bowden, 5 E. & B. 714; 6 E. & B. 952. Wilkinson v. Verity, L. R. 6 C. P. 206. It was an action upon a contract of hiring to go as courier for the plaintiff from June 1, 1852, at monthly wages. There was notice of renunciation of the employment; and the action brought May 22, 1852, was sustained. Lord Campbell says: "But it cannot be laid down as a universal rule that, where by agreement an act is to be done on a future day, no action can be brought for a breach of the agreement till the day for doing the act has arrived. If a man promises to marry a woman on a future day, and before that day marries another woman, he is instantly liable to an action for breach of promise of marriage. Short v. Stone, 8 Q. B. 358." The statement we have already made of Short v. Stone, will show how the essential fact in that case is mistaken, and the reason of the decision misapplied. He adds: "If a man contracts to execute a lease on and from a future day for a certain term, and, before that day, executes a lease to another for the same term, he may be immediately sued for breaking the contract. Ford v. Tiley, 6 B. & C. 325." We have already shown in what manner Ford v. Tiley fails to sustain the position for which it is cited.

In Bowdell v. Parsons, 10 East, 359, cited by Lord Campbell, as showing that upon a contract for sale and delivery of goods at a future time, an action "might have been brought before that time as soon as the vendor had sold and delivered to another," the only question was of the necessity of alleging time and place of request to deliver; the plaintiff being entitled to delivery on request.

[538] In Planche v. Colburn, 8 Bing. 14, also cited, no time was specified. The plaintiff would have been entitled to his compensation upon performance of the service he undertook, which was the preparation of an article or work for the defendant's periodical publication within a reasonable time. He had begun the work towards performance on his part. Full performance by him was rendered useless, and practically prevented by the defendant's abandonment of the enterprise. The case in reality establishes nothing more than that the plaintiff was entitled to treat the contract as rescinded, and recover for what he had done upon a quantum meruit.

Elderton v. Emmens, 4 C. B. 479; 6 C. B. 160, and 4 H. L. Cas. 624, was upon a contract of employment. The plaintiff had entered upon the service and was dismissed. The case recognizes a right of action, founded upon the defendant's obligation to continue the plaintiff in his service, and a breach of that obligation by wrongfully dismissing him. From the opinions of Martin, B., 4 H. L. Cas. 648, and of Talfourd, J., p. 652, it would appear that the action was not brought until after the term of stipulated service had expired. But we conceive that it would have afforded no support to the doctrine for which it was cited, if it had been brought immediately upon the dismissal of the plaintiff; because that was the time for performance of the defendant's agreement to employ the plaintiff, for breach of which the action was brought.

The Danube & Black Sea Co. v. Xenos, 13 C. B. (N. S.) 825, by which Hochster v. De la Tour is said to have been upheld, was an action upon an agreement by which the plaintiff was to receive and carry freight for the defendant, the shipment to commence on August 1st, and the action was not brought until after August 1st. The only question was whether a repudiation of the agreement, notified to the plaintiff before August 1st, and not recalled, excused the plaintiff from making an offer to perform on that day, and was sufficient to show a breach of the agreement. The judgment is in accordance with that in Ripley v. M'Clure, 4 Exch. 345, and with the plain rule of law that when the plaintiff is prevented by the defendant from performing the service or doing the act which will entitle him to the fruits of his contract [539] he is thereby excused from performance on his part, and is entitled to an appropriate remedy by action. Scot v. Mainy, Poph. 109. Goodman v. Pocock, 15 Q. B. 576. Cort v. Ambergate, &c., Railway Co. 17 Q. B. 126.

But the question, in what mode and at what time that remedy may be sought, must depend upon the provisions of his contract, and the nature of the rights to which it entitles him, and which are affected by the conduct of the other party. Throughout the whole discussion both in Hochster v. De la Tour, and Frost v. Knight, the question as to what conduct of the defendant will relieve the plaintiff from the necessity of showing readiness and an offer to perform at the day, in order to make out a breach by the other, appears to us to be confounded with that of the plaintiff's cause of action; or rather, the question, in what consists the plaintiff's cause of action, is lost sight of; the court dealing only with the conduct of the defendant in repudiating the obligations of his contract.

Much argument is expended in both cases upon the ground of convenience and mutual advantage to the parties from the rule sought to be established. But before that argument can properly have weight, the point to be reached must first be shown to be consistent with logical deductions from the strictly legal aspects of the case. The legal remedy must be founded on some present legal right, and must conform to the nature of that right. Until the plaintiff has either suffered loss or wrong in respect of that which has already vested in him in right, or has been deprived of or prevented from acquiring that which he is entitled to have or demand, he has no ground on which to seek a remedy by way of reparation. The conduct of the defendant is no wrong to the plaintiff until it actually invades some right of his. Actual injury and not anticipated injury is the ground of legal recovery. The plaintiff's rights are invaded by repudiation of the contract only when it produces the effect of non-performance, or prevents him from entering upon or completing performance on his part, at a time when and in the manner in which he is entitled to perform it or to have it performed.

That this is the natural and ordinary rule seems to be recog [540] nized by Lord Campbell, when he declares that "it cannot be laid down as a universal rule,” and proceeds to point out exceptions. And Lord Chief Justice Cockburn concedes it to be true "that there can be no actual breach of & contract by reason of non-performance, so long as the time for performance has not yet arrived." L. R. 7 Ex. 114. But preceding "inchoate right" is discovered, and a corresponding obligation implied, upon which there may be held to be "a breach of the contract when the promisor repudiates it and declares he will no longer be bound by it."

In Hochster v. De la Tour, Lord Campbell assigns, as one reason for the decision, that in case of employment as courier, and of promise to marry, a relation is established between the parties by the contract, even before the time of performance; "they impliedly promise that in the mean time neither will do anything to the prejudice of the other inconsistent with that relation;” and "it seems to be a breach of an implied contract if either of them renounces the engagement." In Frost v. Knight, the lord chief justice remarks of the promise to marry: "On such a contract being entered into, not only does a right to its completion arise with reference to domestic relations and possibly pecuniary advantages, as also to the social status accruing on marriage, but a new status, that of betrothment, at once arises between the parties." "Each becomes bound to the other; neither can, consistently with such a relation, enter into a similar engagement with another person; each has an implied right to have this relation continued till the contract is finally accomplished by marriage."

These, however, are considerations which touch the interpretation and effect of the particular kind of contract; and so far as they tend to sustain the decisions upon the ground of implied obligations arising and requiring observance at once upon entering into the relation by means of such a contract, they also tend to remove the decisions themselves out of the range of the question we are now discussing. If there be sound reason to deduce from a promise to marry, or to employ in a special capacity, at a future time, present obligations of implied contract, upon which an ac [541] tion may be founded, in which the breach of the entire agreement "by reason of the future non-performance" will be "virtually involved," "as one of the consequences of the repudiation of the contract,"  it surely is not sound reasoning by means of that process to arrive at the conclusion that all contracts, having a future day for their performance, include like rights and obligations, so as to enable one party to sue at once, as for a breach, whenever the other announces beforehand his purpose of future non-fulfilment. If this is the result, as it appears to be, of the English decisions referred to, or of the reasoning in those cases, we cannot accede to it. We have no occasion now to determine what may be the rule, where the contract may fairly be interpreted as establishing between the parties a present relation of mutual obligations, because we are of opinion that no such implied obligations can be engrafted upon the contract in the present case. It simply binds the defendants to receive a deed of real estate and pay or secure the purchase money; and its written provisions, by which alone their obligations are to be ascertained, allow them thirty days at least within which to fulfil their agreement. The plaintiff could require nothing of them until the expiration of that time; and no conduct on their part or declaration, whether of promise or denial, could give him any cause of action in respect of that agreement of sale. This action therefore cannot be maintained.

Exceptions sustained.^[*]

L. S. Dabney, for the defendant.

W. Colburn, for the plaintiff.

[*] At March session, 1874, for Suffolk, was argued and determined.

178 U.S. 1
20 S.Ct. 780
44 L.Ed. 953

JOHN ROEHM, Petitioner,
v.
PAUL R. G. HORST, E. Clemens Horst, and Louis A. Horst, Late Trading under the Firm of Horst Bros., to the Use of E. Clemens Horst and Louis A. Horst.

No. 188.
Argued March 15, 16, 1900.
Decided May 14, 1900.

This was an action for breach of four certain contracts, brought [2] by Paul R. G. Horst and others against John Roehm in the circuit court of the United States for the eastern district of Pennsylvania, in January, 1897, and was tried under a stipulation, waiving a jury, before Dallas, circuit judge, who made a special finding of facts, and, on the facts so found, gave judgment for plaintiffs. 84 Fed. Rep. 565. The case was carried by defendant to the circuit court of appeals for the third circuit, and the judgment of the circuit court was affirmed. 62 U. S. App. 520, 91 Fed. Rep. 345, 33 C. C. A. 550. Thereupon Roehm applied to this court for a writ of certiorari, which was granted, and the cause subsequently heard here.

The circuit court found that—

"On August 25th, 1893, the firm of Horst Brothers, composed of Paul R. G. Horst, E. Clemens Horst, and Louis A. Horst, the legal plaintiffs, entered into four written contracts with John Roehm, the defendant, of which the following are copies:

"Hop Contract.

"Memorandum of agreement made and entered into by and between Horst Brothers, doing business in the city of New York, parties of the first part, and John Roehm, party of the second part.

"Witnesseth: That the said parties of the first part agree to sell and deliver to the party of the second part, and that the party of the second part agrees to purchase, pay for, and receive from the party of the first part, one hundred (100) bales, prime Pacific coast hops of the crop of 1896. Three and one half pounds tare to be deducted on each bale. Said hops to be delivered ex dock or store, New York city, and to be paid for in net cash ten days from date of arrival at the rate of twenty-two (22) cents per pound.

"Time of shipment, 20 bales each month, October, November, December, January, and February, except as hereafter provided.

"If at any time a difference of opinion shall exist regarding the quality or condition of any hops submitted or tendered under this agreement, each party shall select an arbitrator, to whom the question of the quality and condition shall be submitted, [3] and, in case of their disagreement, a third arbitrator shall be selected by the two thus chosen, and the decision of a majority of the three shall be final; and in case the decision shall be that the hops tendered are not equal to the quality above called for, the parties of the first part shall, within thirty days after receipt of written notice of such decision, submit samples or tender delivery to the party of the second part, other hops, in fulfilment of this agreement, and party of the second part agrees to receive same.

"In witness whereof the said parties have hereunto set their hands, Philadelphia, this 25th day of August, 1893.

Horst Bros.
John Roehm."

[Here followed a second, third, and fourth contract, of same tenor and under same date, the second for 100 bales of the crop of 1896, to be shipped 20 bales each month, in the months of March, April, May, June, and July; the third for 100 bales of the crop of 1897, to be shipped 20 bales each month, in the months of October, November, December, January, and February; and the fourth for 100 bales of the crop of 1897, to be shipped 20 bales each month, in the months of March, April, May, June, and July.]

"The months named in each of these contracts respectively, as 'time of shipment,' must, under the custom of the trade, be understood as meaning the months so named, which would follow next after the summer months of the year of the crop referred to in the particular contract.

"On June 23d, 1896, the firm of Horst Brothers was dissolved, and Paul R. G. Horst assigned to his copartners, E. Clemens Horst and Louis A. Horst, the use plaintiffs, all the interest of him, the said Paul R. G. Horst, in the said contracts.

"Upon June 23d, 1896, a notice, of which the following is a copy, was addressed to and received by the defendant:

"June 23, 1896.

"Dear Sir: We beg to inform you that the partnership of Horst Brothers has been this day dissolved.

"Respectfully yours,
Horst Brothers."

[4] "To this, under date of June 27th, 1896, the defendant replied, saying: . . . 'I suppose that your reason for giving me the notice is on account of the contracts which I had with your late firm, . . . which, of course, you cannot fulfil. I therefore consider the contracts annulled ad will make other arrangements for the purchase of the hops I may need, and you may consider this as release from liability on your part to comply with the contracts.' In answer to this, Horst Brothers in liquidation addressed a letter to the defendant, which he duly received, in which it was said that he had misconstrued the notice of dissolution sent out to the trade; that its meaning was that no new contracts would be made and no new business undertaken by the firm of Horst Brothers; and in which it was further stated that, 'so far as the firm or business is concerned, the firm will discharge its obligations and will try to collect its claims. It does not ask for any release or discharge, and will punctually live up to all the contracts which it has made with you.' This communication was not replied to."

"In October, 1896, the first shipment of 20 bales of hops under the contracts was made, and the invoice and bill of lading covering that shipment were sent to the defendant, who, on October 24th, 1896, by telegram and letter, acknowledged receipt of the bill of lading and bill of particulars, but, upon the ground set up in his letter of June 27, 1896, declined to receive the hops.

"At the time of the defendant's refusal to receive the shipment above mentioned, the plaintiffs could have made subcontracts for forward delivery according to the contracts in suit, at the price of 9 cents per pound for "prime Pacific coast hops of the crop of 1896," and of 11 cents per pound for like hops of the crop of 1897; and the differences between the prices fixed by the contracts sued on and those above stated, together with interest on the sum of such differences, from October 24, 1896, to this date, are as follows:

[Here followed the computation resulting in the amount for which judgment was rendered.]

The opinion of the circuit court of appeals stated the case thus:

[5] "In August, 1893, Paul R. G. Horst, E. Clemens Horst, and Louis A. Horst, trading as Horst Brothers, entered into a contract with John Roehm, the defendant below, for the sale of 1,000 bales of prime Pacific coast hops, to be delivered at various dates in the future, at an uniform price of 22 cents per pound. Of the whole quantity 600 bales had been delivered, accepted, and paid for at the contract price, so that in July, 1896, there remained undelivered 400 bales. These were deliverable at the rate of 20 bales per month during each month from October, 1896, to July, 1898, both inclusive, excepting, however, from said period the months of August and September, 1897, when no deliveries were called for. The record shows that this contract was the result of one negotiation, and provided for a supply of hops for five years. Ten separate papers were drawn, each covering a period of five months or one season. They all bear the same date and are similar as regards the quantity of hops to be delivered and the price to be paid. They differ only in the time of delivery and the year's crop from which delivery was to be made. In June, 1896, the firm of Horst Brothers was dissolved by the retirement of Paul R. G. Horst. He assigned his interest in the Roehm contract to the remaining partners, who continued the business under the same firm name. Roehm, the defendant below, was notified of this dissolution of the firm and of the transfer of Paul R. G. Horst's interest in the contract to its successors. He thereupon gave notice to the firm that he considered his contract canceled thereby. Subsequently the firm of Horst Brothers advised the defendant of their ability and willingness to perform the contract, and under date of September 4, 1896, wrote Roehm, as follows:

"Dear Sir: Will you please write us whether you wish us to ship the hops under your contract direct to your city? The contract calls for delivery in New York, and as we ship direct from this coast we can ship to either city at same rate. Consequently there will be a saving to you of freight if we ship to your city direct from here. Awaiting your reply, we are,

"Very truly.

Horst Brothers."

[6] "To this letter Roehm replied, under date of September 14, 1896:

"Dear Sirs: In response to your letters dated 3d and 4th inst., state that before shipping me any hops always send me samples from which I can select lots, the same as you have been doing in the past.

"Very truly,

John Roehm."

"On October 9, 1896, Horst Brothers advised Roehm of the shipment of 20 bales of hops for the October delivery, as called for by the contract, which Roehm, by telegraph, refused to receive, and as supplementary thereto sent the following letter, dated October 24, 1896:

"Gentlemen: Yours of October 9, inclosing bill of lading and bill of particulars per 20 bales of hops forwarded me under the terms of contract of August 25, 1893, was received, and I have wired you that I decline to receive the same. I notified you under date of June 27, 1896, that, owing to the dissolution of the copartnership with which I originally contracted and the fact that this firm was no longer in existence, I considered my contract at an end, and will make arrangements for purchasing my supplies elsewhere. I am advised that I am under no obligations by that contract to accept supplies from you. If you desire to bill these goods at the current market rate under a new contract, I will accept them if upon inspection they are of the quality desired; otherwise they will remain at the freight station subject to your order.

"Very truly yours,

John Roehm."

"No further efforts were made by Horst Brothers to make delivery under the contract, but in January, 1897, this action was begun by all the original parties thereto, to the use of the firm as at present constituted, to recover damages for its breach. Judgment was rendered in favor of the plaintiffs."

The contention that Roehm was entitled to treat the contract as determined by the retirement of one of the members of the [7] firm of Horst Brothers, and the assignment of his interest to his copartners, was not renewed in this court.

Messrs. Samuel Dickson, R. O. Moon, and Richard C. Dale for petitioner.

Messrs. F. P. Prichard and John Garver for respondents.

Mr. Chief Justice Fuller delivered the opinion of the court:

It is conceded that the contracts set out in the finding of facts were four of ten simultaneous contracts, for 100 bales each, covering the furnishings of 1,000 bales of hops during a period of five years, of which 600 bales had been delivered and paid for. If the transaction could be treated as amounting to a single contract for 1,000 bales, the breach alleged would have occurred while the contract was in the course of performance; but plaintiffs' declaration or statement of demand averred the execution of the four contracts, "two for the purchase and sale of Pacific coast hops of the crop of 1896, and two for the purchase and sale of Pacific coast hops of the crop of 1897," set them out in extenso, and claimed recovery for breach thereof, and in this view of the case, while as to the first of the four contracts, the time to commence performance had arrived, and the October shipment had been tendered and refused, the breach as to the other three contracts was the refusal to perform before the time for performance had arrived.

The first contract falls within the rule that a contract may be broken by the renunciation of liability under it in the course of performance and suit may be immediately instituted. But the other three contracts involve the question whether, where the contract is renounced before performance is due, and the renunciation goes to the whole contract, and is absolute and unequivocal, the injured party may treat the breach as complete and bring his action at once. Defendant repudiated all [8] liability for hops of the crop of 1896 and of the crop of 1897, and notified plaintiffs that he should make (according to a letter of his attorney in the record that he had made) arrangements to purchase his stock of other parties, whereupon plaintiffs brought suit. The question is therefore presented, in respect of the three contracts, whether plaintiffs were entitled to sue at once or were obliged to wait until the tie came for the first month's delivery under each of them.

It is not disputed that if one party to a contract has destroyed the subject-matter, or disabled himself so as to make performance impossible, his conduct is equivalent to a breach of the contract, although the time for performance has not arrived; and also that if a contract provides for a series of acts, and actual default is made in the performance of one of them, accompanied by a refusal to perform the rest, the other party need not perform, but may treat the refusal as a breach of the entire contract, and recover accordingly.

And the doctrine that there may be an anticipatory breach of an executory contract by an absolute refusal to perform it has become the settled law of England as applied to contracts for services, for marriage, and for the manufacture or sale of goods. The cases are extensively commented on in the notes to Cutter v. Powell, 2 Smith, Lead. Cas. 1212, 1220, 9th edition by Richard Henn Collins and Arbuthnot. Some of these, though quite familiar, may well be referred to.

In Hochster v. De la Tour, 2 El. & Bl. 678, plaintiff, in April, 1852, had agreed to serve defendant, and defendant had undertaken to employ plaintiff, as courier, for three months from June 1st, on certain terms. On the 11th of May, defendant wrote plaintiff that he had changed his mind, and declined to avail himself of plaintiff's services. Thereupon, and on May 22d, plaintiff brought an action at law for breach of contract in that defendant, before the said 1st of June, though plaintiff was always ready and willing to perform, refused to engage plaintiff or perform his promise, and then wrongfully exonerated plaintiff from the performance of the agreement, to his damage. And it was ruled that as there could be a breach of contract before the time fixed for performance, a positive and [9] absolute refusal to carry out the contract prior to the date of actual default amounted to such a breach.

In the course of the argument, Mr. Justice Crompton observed:

When a party announces his intention not to fulfil the contract, the other side may take him at his word and rescind the contract. That word "rescind" implies that both parties have agreed that the contract shall be at an end, as if it had never been. But I am inclined to think that the party may also say:

"Since you have announced that you will not go on with the contract, I will consent that it shall be at an end from this time; but I will hold you liable for the damage I have sustained; and I will proceed to make that damage as little as possible by making the best use I can of my liberty."

In delivering the opinion of the court (Campbell, Ch. J., Coleridge, Erle, and Crompton, JJ.), Lord Campbell, after pointing out that at common law there were numerous cases in which an anticipatory act, such as an act rendering the contract impossible of performance, or disabling the party from performing it, would constitute a breach giving an immediate right of action, laid it down that a positive and unqualified refusal by one party to carry out the contract should be treated as belonging to the same category as such anticipatory acts, and said:

But it is surely much more rational, and more for the benefit of both parties, that, after the renunciation of the agreement by the defendant, the plaintiff should be at liberty to consider himself absolved from any future performance of it, retaining his right to sue for any damage he has suffered from the breach of it. Thus, instead of remaining idle and laying out money in perparations which must be useless, he is at liberty to seek service under another employer, which would go in mitigation of the damages to which he would otherwise be entitled for a breach of the contract. It seems strange that the defendant, after renouncing the contract and absolutely declaring that he will never act under it, should be permitted to object that faith is given to his assertion, and that an opportunity is not left to him of changing his mind. If the plaintiff is barred of any remedy by entering into an engagement inconsistent with starting as a courier with the defendant on the 1st June, he is [10] prejudiced by putting faith in the defendant's assertion; and it would be more consonant with principle if the defendant were precluded from saying that he had not broken the contract when he declared that he entirely renounced it. Suppose that the defendant, at the time of his renunciation, had embarked on a voyage for Australia, so as to render it physically impossible for him to employ the plaintiff as a courier on the continent of Europe in the months of June, July, and August, 1852; according to decided cases, the action might have been brought before the 1st June; but the renunciation may have been founded on other facts, to be given in evidence, which would equally have rendered the defendant's performance of the contract impossible. The man who wrongfully renounces a contract into which he has deliberately entered cannot justly complain if he is immediately sued for a compensation in damages by the man whom he had injured; and it seems reasonable to allow an option to the injured party, either to sue immediately, or to wait till the time when the act was to be done, still holding it as prospectively binding for the exercise of this option, which may be advantageous to the innocent party, and cannot be prejudicial to the wrongdoer. An argument against the action before the 1st June is urged from the difficulty of calculating the damages; but this argument is equally strong against an action before the 1st of September, when the three months would expire. In either case, the jury in assessing the damages would be justified in looking to all that had happened, or was likely to happen, to increase or mitigate the loss of the plaintiff down to the day of trial. We do not find any decision contrary to the view we are taking of this case.

In Frost v. Knight, L. R. 7 Exch. 111, defendant had promised to marry plaintiff so soon as his (defendant's) father should die. While his father was yet alive he absolutely in the exchequer chamber, overruling the decision of the court of exchequer (L. R. 5 Exch. 322), that for this breach an action was well brought during the father's lifetime. Cockburn, Ch. J., said:

The law with reference to a contract to be performed at a future time, where the party bound to performance announces prior to the time his intention [11] not to perform it, as established by the cases of Hochster v. De la Tour, 2 El & Bl. 678, and the Danube & B. S. Railway & K. Harbour Co. v. Xenos, 13 C. B. N. S. 825, on the one hand, and Avery v. Bowden, 5 El. & Bl. 714; Reid v. Hoskins, 6 El. & Bl. 953, and Barrick v. Buba, 2 C. B. N. S. 563, on the other, may be thus stated. The promisee, if he pleases, may treat the notice of intention as inoperative, and await the time when the contract is to be executed, and then hold the other party responsible for all the consequences of nonperformance; but in that case he keeps the contract alive for the benefit of the other party as well as his own; he remains subject to all his own obligations and liabilities under it, and enables the other party, not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstance which would justify him in declining to complete it. On the other hand, the promisee may, if he thinks proper, treat the repudiation of the other party as a wrongful putting an end to the contract, and may at once bring his action as on a breach of it; and in such action he will be entitled to such damages as would have arisen from the nonperformance of the contract at the appointed time, subject, however, to abatement in respect of any circumstances which may have afforded him the means of mitigating his loss.

The case of Danube & B. S. Railway & K. Harbour Co. v. Xenos, 11 C. B. N. S. 152, is state in the headnotes thus: On the 9th of July, A, by his agent, agreed to receive certain goods of B on board his ship to be carried to a foreign port, — the shipment to commence on the 1st of August. On the 21st of July A wrote to B, stating that he did not hold himself responsible for the contract, the agent having no authority to make it; and on the 23d he wrote again offering a substituted contract, but still repudiating the original contract. B, by his attorneys, gave A notice that he should hold him bound by the original contract, and that, if he persisted in refusing to perform it, he (B) should forthwith proceed to make other arrangements for forwarding the goods to their destination, and look to him for any loss. On the 1st of August, A. again wrote to B, stating that he was then prepared to receive the goods on board his ship, making no allusion to [12] the original contract. B had, however, in the meantime entered into a negotiation with one § for the conveyance of the goods by another ship, which negotiation ended in a contract for that purpose with S on the 2d of August. B thereupon sued A for refusing to receive the goods pursuant to his contract; and A brought a cross action against B for refusing to ship. Upon a special case stating these facts: Held, that it was competent to B to treat A's renunciation as a breach of the contract; and that the fact of such renunciation afforded a good answer to the cross action of A, and sustained B's plea that before breach A discharged him from the performance of the agreement.

Erle, Ch. J., said (p. 175):

In Cort v. Ambergate, N. & B. & E. Junction R. Co. 17 Q. B. 127, it was held that, upon the company giving notice to Mr. Cort that they would not receive any more of his chairs, he might abstain from manufacturing them and sue the company for the breach of contract without tendering the goods for their acceptance. So, in Hochster v. De la Tour, 2 El. & Bl. 678, it was held that the courier whose services were engaged for a period to commence from a future day, being told before that day that they would not be accepted, was at liberty to treat that as a complete breach, and to hire himself to another party. And the boundary is equally well ascertained on the other side. Thus, in Avery v. Bowden, 5 El. & Bl. 714, 6 El. & Bl. 953, where the agent of the charterer intimated to the captain that, in consequence of the breaking out of the war, he would be unable to furnish him with a cargo, and wished the captain to sail away, and the latter did not do so, it was not to fall within the principle already adverted to, and not to amount to a breach or renunciation of the contract. But where there is an explicit declaration by the one party of his intention not to perform the contract on his part, which is accepted by the other as a breach of the contract, that beyond all doubt affords a cause of action.

The case was heard on error in the exchequer chamber before Cockburn, Ch. J., Pollock, C. B., Wightman, J., Crompton, J., Channell, B., and Wilde, B.; and the judgment of the common pleas was unanimously affirmed. 13 C. B. N. S. 825.

In Johnstone v. Milling, L. R. 16 Q. B. Div. 467, Lord Esher, Mas [13] ter of the Rolls, puts the principle thus:

When one party assumes to renounce the contract, that is, by anticipation refuses to perform it, he thereby, so far as he is concerned, declares his intention then and there to rescind the contract. Such a renunciation does not, of course, amount to a rescission of the contract, because one party to a contract cannot by himself rescind it, but by wrongfully making such a renunciation of the contract he entitles the other party, if he pleases, to agree to the contract being put an end to, subject to the retention by him of his right to bring an action in respect of such wrongful rescission. The other party may adopt such renunciation of the contract by so acting upon it as in effect to declare that he too treats the contract as at an end, except for the purpose of bringing n action upon it for the damages sustained by him in consequence of such renunciation.

Lord Justice Bowen said (p. 472):

We have, therefore, to consider upon what principles and under what circumstances it must be held that a promisee, who finds himself confronted with a declaration of intention by the promisor not to carry out the contract when the time for performance arrives, may treat the contract as broken, and sue for the breach thereof. It would seem on principle that the declaration of such intention by the promisor is not in itself and unless acted on by the promisee a breach of the contract; and that it only becomes a breach when it is converted by force of what follows it into a wrongful renunciation of the contract. Its real operation appears to be to give the promisee the right of electing either to treat the declaration as brutum fulmen, and, holding fast to the contract, to wait till the time for its performance has arrived, or to act upon it and treat it as a final assertion by the promisor that he is no longer bound by the contract, and a wrongful renunciation of the contractual relation into which he has entered. But such declaration only becomes a wrongful act if the promisee elects to treat it as such. If he does so elect, it becomes a breach of contract, and he can recover upon it as such.

The doctrine which thus obtains in England has been almost universally accepted by the courts of this country, although the precise point has not been ruled by this court.

[14] In Smoot's Case, 15 Wall. 36, 48, sub nom. United States v. Smoot, 21 L.Ed. 107, 110, Mr. Justice Miller observed:

In the case of Phillpotts v. Evans, 5 Mees. & W. 475, the defendant, who had agreed to receive and pay for wheat, notified the plaintiff, before the time of delivery, that he would not receive it. The plaintiff tendered the wheat at the proper time, and the only question raised was, whether the measure of damages should be governed by the price of the wheat at the time of the notice of at the time of the tender. Baron Parke said: "I think no action would have lain for the breach of the contract at the time of the notice, but that plaintiff was bound to wait until the time of delivery to see whether the defendant would then receive it. The defendant might have chosen to take it and would have been guilty of no breach of contract. His contract was not broken by his previous declaration that he would not accept." And though some of the judges in the subsequent case of Hochster v. De la Tour, 2 El. & Bl. 678, disapprove very properly of the extreme ground taken by Baron Parke, they all agree that the refusal to accept, on the part of the defendant, in such case, must be absolute and unequivocal, and must have been acted on by the plaintiff.

In Lovell v. St. Louis Mut. L. Ins. Co. 111 U. S. 264, 28 L.Ed. 423, 4 Sup. Ct. Rep. 390, a life insurance company had terminated its business and transferred its assets and policies to another company, and the court held that this in itself authorized the insured to treat the contract as at an end, and to sue to recover back the premiums already paid, although the time for the performance of the obligation of the insurance company, to wit, the death of the insured, had not arrived. Mr. Justice Bradley, delivering the opinion of the court, said:

Our third conclusion is that, as the old company totally abandoned the performance of its contract with the complainant by transferring all its assets and obligations to the new company, and as the contract is executory in its nature, the complainant had a right to consider it as determined by the act of the company, and to demand what was justly due to him in that exigency. Of this we think there can be no doubt. Where one party to an executory contract prevents the performance of it, or puts it out of his own power to per [15] form it, the other party may regard it as terminated and demand whatever damage he has sustained thereby.

In Dingley v. Oler, 117 U. S. 490, 29 L e d. 984, 6 Sup. Ct. Rep. 850, it was held that the case did not come within the rule laid down in Hochster v. De la Tour, but within Avery v. Bowden and Johnstone v. Milling, since, in the view entertained by the court, there was not a renunciation of the contract by a total refusal to perform.

So in Cleveland Rolling Mill v. Rhodes, 121 U. S. 255, 264, 30 L.Ed. 920, 923, 7 Sup. Ct. Rep. 882, involving a contract for the delivery of iron ore, the court said:

The necessary conclusion is that the defendant was justified in refusing to accept any of the iron shipped in 1881; and whether the notice previously given by the defendant to the plaintiff, that it would not accept under the contract any iron made after December 31, 1880, might have been treated by the plaintiff's as a renunciation and a breach of the contract, need not be considered, because the plaintiffs did not act upon it as such.

In Anvil Min. Co. v. Humble, 153 U. S. 540, 38 L.Ed. 814, 14 Sup. Ct. Rep. 876, performance had been commenced, but completion was prevented by defendant, and Mr. Justice Brewer, speaking for the court, said:

Whenever one party thereto is guilty of such a breach as is here attributed to the defendant the other party is at liberty to treat the contract as broken and desist from any further effort on his part to perform; in other words, he may abandon it, and recover as damages the profits which he would have received through full performance. Such an abandonment is not technically a rescission of the contract, but is merely an acceptance of the situation which the wrongdoing of the other party has brought about.

In Pierce v. Tennessee Coal, I. & R. Co. 173 U. S. 1, 43 L.Ed. 591, 19 Sup. Ct. Rep. 335, it was held that on discharge from a contract of employment the party discharged might elect to treat the contract as absolutely and finally broken, and in an action recover the full value of the contract to him at the time of the breach, including all that he would have received in the future as well as in the past, deducting any sum that he might have earned or that he might thereafter earn; and Mr. Justice Gray said:

The plaintiff was not bound to wait to see if the defendant would change its decision and take him back into its service; or to resort to [16] successive actions for damages from time to time; or to leave the whole of his damages to be recovered by his personal representatives after his death. But he had the right to elect to treat the contract as absolutely and finally broken by the defendant; to maintain this action, once for all, as for a total breach of the entire contract.

In Hancock v. New York L. Ins. Co. Fed. Cas. No. 6,011, Hochster v. De la Tour was followed by Bond, J., in the circuit court for the eastern district of Virginia; and in Grau v. McVicker, 8 Biss. 13, Fed. Cas. No. 5,703, Drummond, J., fully approved of the principles decided in that case, and remarked:

It seems to me that it is the better rule to hold that the party who has refused to perform his contract is liable at once to an action, and that whatever arises afterwards, or may arise in consequence of the time not having come or not having expired, should be considered in estimating the damages.

Again, in Dingley v. Oler, 11 Fed. Rep. 372, Lowell, J., applied the rule in the circuit court for the district of Maine, and, after citing Hochster v. De la Tour, Frost v. Knight, and other cases, said:

These cases seem to me to be founded in good sense, and to rest on strong grounds of convenience, however difficult it may be to reconcile them with the strictest logic.

And see Foss-Schneider Brewing Co. v. Bullock, 16 U. S. App. 311, 59 Fed. Rep. 83, 8 C. C. A. 14; Edward Hines Lumber Co. v. Alley, 43 U. S. App. 169, 73 Fed. Rep. 603, 19 C. C. A. 599; Marks v. Van Eeghen, 57 U. S. App. 149, 85 Fed. Rep. 853, 30 C. C. A. 208.

The great weight of authority in the state courts is to the sae effect, as will appear by reference to the cases cited in the margin.^[1]

On the other hand, in Greenway v. Gaither, Taney, 227, Fed. Cas. No. 5,788, [17] Mr. Chief Justice Taney, sitting on circuit in Maryland, declined to apply the rule in that particular case. The cause was tried in November, 1851, and more than two years after, at November term, 1853, application was made to the chief justice to seal a bill of exceptions. Hochster v. De la Tour was decided in June, 1853, and the decision of the circuit court had apparently been contrary to the rule laid down in that case. The chief justice refused to seal the bill, chiefly on the ground that under the circumstances the application came too late, but also on the ground that there was no error, as the rule was only applicable to contracts of the special character involved in that case, and the chief justice said as to the contract in hand, by which defendant engaged to pay certain sums of money on certain days:

It has never been supposed that notice to the holder of a bond, or a promissory note, or bill of exchange, that the party would not (from any cause) comply with the contract, would give to the holder an immediate cause of action upon which he might sue before the time of payment arrived.

The rule is disapproved in Daniels v. Newton, 114 Mass. 530, and in Stanford v. McGill, 6 N. D. 536, 38 L. R. A. 760, 72 N. W. 938, on elaborate consideration. The opinion of Judge Wells in Daniels v. Newton is generally regarded as containing all that could be said in opposition to the decision of Hochster v. De la Tour, and one of the propositions on which the opinion rests is that the adoption of the rule in the instance of ordinary contracts would necessitate its adoption in the case of commercial paper. But we are unable to assent to that view. In the case of an ordinary money contract, such as a promissory note, or a bond, the consideration has passed; there are no mutual obligations; and cases of that sort do not fall within the reason of the rule.

In Nichols v. Scranton Steel Co. 137 N. Y. 487, 33 N. E. 566, Mr. Justice Peckham, then a member of the court of appeals of New York, thus expresses the distinction:

It is not intimated that in the bald case of a party bound to pay a promissory note which rests in the hands of the payee, but which is not yet due, such note can be made due by any notice of the maker that he does not intend to pay it when it matures. We decide simply this case where there are material provisions and [18] obligations interdependent. In such case, and where one party is bound, from time to time, as expressed, to deliver part of an aggregate and specified amount of property to another, who is to pay for each parcel delivered at a certain time and in a certain way, a refusal to be further bound by the terms of the contract of to accept further deliveries, and a refusal to give the notes already demandable for a portion of the property that has been delivered, and a refusal to give any more notes at any time of for any purpose in the future, or to pay moneys at any time, which are eventually to be paid under th c ontract, all this constitutes a breach of the contract as a whole, and gives a present right of action against the party so refusing to recover damages which the other may sustain by reason of this refusal.

We think it obvious that both as to renunciation after commencement of performance and renunciation before the time for performance has arrived, money contracts, pure and simple, stand on a different footing from executory contracts for the purchase and sale of goods.

The other proposition on which the case of Daniels v. Newton was rested is that until the time for performance arrives neither contracting party can suffer any injury which can form a ground of damages. Wells, J., said:

An executory contract ordinarily confers no title or interest in the subjectmatter of the agreement. Until the time arrives when by the terms of the agreement he is or might be entitled to its performance, he can suffer no injury or deprivation which can form a ground of damages. There is neither violation of right, nor loss upon which to found an action.

But there are many cases in which, before the time fixed for performance, one of the contracting parties may do that which amounts to a breach and furnishes a ground of damages. It has always been the law that where a party deliberately incapacitates himeslf or renders performance of his contract impossible, his act amounts to an injury to the other party, which gives the other party a cause of action for breach of contract; yet this would seem to be inconsistent with the reasoning in Daniels v. Newton, though it is not there in terms decided "that [19] an absolute refusal to perform a contract, after the time and under the conditions in which plaintiff is entitled to require performance, is not a breach of the contract, even although the contract is by its terms to continue in the future." Parker v. Russell, 133 Mass. 874.

In truth, the opinion goes upon a distinction between cases of renunciation before the arrival of the time of performance and those of renunciation of unmatured obligations of a contract while it is in course of performance, and it is said that before the argument on the ground of convenience and mutual advantage to the parties can properly have weight, "the point to be reached must first be shown to be consistent with logical deductions from the strictly legal aspects of the case."

We think that there can be no controlling distinction on this point between the two classes of cases, and that it is proper to consider the reasonableness of the conclusion that the absolute renunciation of particular contracts constitutes such a breach as to justify immediate action and recovery therefor. The parties to a contract which is wholly executory have a right to the maintenance of the contractual relations up to the time for performance, as well as to a performance of the contract when due. If it appear that the party who makes an absolute refusal intends thereby to put an end to the contract so far as performance is concerned, and that the other party must accept this position, why should there not be speedy action and settlement in regard to the rights of the parties? Why should a locus poenitentiae be awarded to the party whose wrongful action has placed the other at such disadvantage? What reasonable distinction per se is there between liability for a refusal to perform future acts to be done under a contract in course of performance and liability for a refusal to perform the whole contract made before the time for commencement of performance?

As Lord Chief Justice Cockburn observed in Frost v. Knight, the promisee has the right to insist on the contract as subsisting and effective before the arrival of the time for its performance, and its unimpaired and unimpeached efficacy may be essential to his interests, dealing as he may with rights acquired under it in various ways for his benefit and advantage. And of all [20] such advantage, the repudiation of the contract by the other party, and the announement that it never will be fulfilled, must of course deprive him. While by acting on such repudiation and the taking of timely measures, the promisee may in many cases avert, or, at all events, materially lessen, the injurious effects which would otherwise flow from the nonfulfilment of the contract.

During the argument of Cort v. Ambergate, N. & B. & F. Junction R. Co. 17 Q. B. 127, Erle, J., made this suggestion: "Suppose the contract was that plaintiff should send a ship to a certain port for cargo, and defendant should there load one on board; but defendant wrote word that he could not furnish a cargo; must the ship be sent to return empty?" And if it was not necessary for the ship owner to send his ship, it is not perceived why he should be compelled to wait until the time fixed for the loading of the ship at the remote port before bringing suit upon the contract.

If in this case these ten hop contracts had been written into one contract for the supply of hops for five years in instalments, then when the default happened in October, 1896, it cannot be denied that an immediate action could have been brought in which damages could have been recovered in advance for the breach of the agreement to deliver during the two remaining years. But treating the four outstanding contracts as separate contracts, why is it not equally reasonable that an unqualified and positive refusal to perform them constitutes such a breach that damages could be recovered in an immediate action? Why should plaintiff be compelled to bring four suits instead of one? For the reasons above stated, and having reference to the state of the authorities on the subject, our conclusion is that the rule laid down in Hochster v. De la Tour is a reasonable and proper rule to be applied in this case and in many others arising out of the transactions of commerce of the present day.

As to the question of damages, if the action is not premature, the rule is applicable that plaintiff is entitled to compensation based, as far as possible, on the ascertainment of what he would have suffered by the continued breach of the other party down to the time of complete performance, less any abatement by [21] reason of circumstances of which he ought reasonably to have availed himself. If a vendor is to manufacture goods, and during the process of manufacture the contract is repudiated, he is not bound to complete the manufacture, and estimate his damages by the difference between the market price and the contract price, but the measure of damage is the difference between the contract price and the cost of performance. Hinckley v. Pittsburgh Bessemer Steel Co. 121 U. S. 264, 30 L.Ed, 967, 7 Sup. Ct. Rep. 875. Even if in such cases the manufacturer actually obtains his profits before the time fixed for performance, and recovers on a basids of cost which might have been increased or diminished by subsequent events, the party who broke the contract before the time for complete performance cannot complain, for he took the risk involved in such anticipation. If the vendor has to buy instead of to manufacture, the same principle prevails, and he may show what was the value of the contract by showing for what price he could have made subcontracts, just as the cost of manufacture in the case of a manufacturer may be shown. Although he may receive his money earlier in this way, and may gain, or lose, by the estimation of his damage in advance of the time for performance, still, as we have seen, he has the right to accept the situation tendered him, and the other party cannot complain.

In this case plaintiffs showed at what prices they could have made subcontracts for forward deliveries according to the contracts in suit, and the difference between the prices fixed by the contracts sued on and those was correctly allowed.

Judgment affirmed.

[1] Fox v. Kitton, 19 Ill. 518; Kadish v. Young, 108 Ill. 170, 43 Am. Rep. 548; John A. Roepling's Sons' Co. v. Lock-Stitch Fence Co. 130 Ill. 660, 22 N. E. 518; Lake Shore & M. S. R. Co. v. Richards, 152 Ill. 59, 30 L. R. A. 33, 38 N. E. 773; Burtis v. Thompson, 42 N. Y. 246, 1 Am. Rep. 516; Windmuller v. Pope, 107 N. Y. 674, 14 N. E. 436; Mountjoy v. Metzger, 9 Phila. 10; Zuck v. McClure, 98 Pa. 541; Hocking v. Hamilton, 158 Pa. 107, 27 Atl. 836; Dugan v. Anderson, 36 Md. 567, 11 Am. Rep. 509; Hosmer v. Wilson, 7 Mich. 294, 74 Am. Dec. 716; Platt v. Brand, 26 Mich. 173; Crabtree v. Messersmith, 19 Iowa, 179; McCormick v. Basal, 46 Iowa, 235; Kurtz v. Frank, 76 Ind. 594, 40 Am. Rep. 275; Cobb v. Hall, 33 Vt. 233; Davis v. Grand Rapids School Furniture Co. 41 W. Va. 717, 24 S. E. 630; and other cases cited in the text-books and encyclopaedias.

[215 Md. 223]

215 Md. 223
137 A.2d 159

George W. PHELPS et ux. Charles W. Sandsbury et ux.
v.
James J. HERRO et ux.

No. 65.
Court of Appeals of Maryland.
Dec. 19, 1957.
Dissenting Opinion Dec. 31, 1957.

[215 Md. 225] [137 A.2d 160] William D. Macmillan and J. Calvin Carney, Baltimore (W. Garrett Larrimore, Annapolis, on the brief), for appellants.

John O. Herrmann, Baltimore (Charles F. Rechner, Jr., Baltimore, on the brief), for appellees.

Before BRUNE, C. J., and HENDERSON, HAMMOND and PRESCOTT, JJ.

PRESCOTT, Judge.

This appeal questions the validity of an order passed on April 3, 1957, that directed "the Plaintiffs' (appellees') motion for a Summary Judgment be granted," and a judgment entered on April 8, 1957, in favor of the appellees against the appellants for the sum of $34,135.82; both in the Circuit Court for Anne Arundel County.

On October 21, 1955, the appellees and appellants entered into a written agreement whereby the appellees agreed to sell, and the appellants agreed to buy, fractional interests of the appellees in and to certain real property and corporate stock for the sum of $37,500. The agreement further [137 A.2d 161] provided that appellants should pay the purchase price as follows:

"1. Five Thousand Dollars ($5,000.00) in cash on or before January 1, 1956.

"2. A promissory note in the amount of Thirty-two Thousand Five Hundred Dollars ($32,500.00) calling for principal payments in the amount of Five Thousand Dollars ($5,000.00) plus interest at the rate of four per cent (4%) per annum on the first of each succeeding January and the entire balance to become due and payable January 1, 1961. However, Phelps and Sandsbury (appellants), may extend the maturity date until January 1, 1963, by [215 Md. 226]giving notice of intention to so extend in writing to Herro (appellee) on or before July 1, 1960."

The appellants paid the first $5,000 as provided in the agreement. They and the appellees remained rather closely associated in several intricate and complicated business transactions until some time in September of 1956. At that time, the appellees transferred unto the appellants their fractional interests in the real estate and corporate stock named in the contract. Soon thereafter, negotiations were conducted by the parties, which had as their objective the sale to the appellants of all of the interests of the appellees in all business enterprises where there were mutual interests, or a purchase by the appellees of the appellants' interests therein. A meeting was held and attended by all of the parties on October 11, 1956, at the office of the appellees' counsel. At this meeting, the appellants contend the appellees made an oral proposal that was subsequently accepted unconditionally by the appellants in writing, thereby making a binding contract. While the appellants fully acknowledge the existence of the contract involved in the case at bar, this alleged contract, as set forth by them, materially changed their obligations thereunder. The appellees contend the appellants did not accept the proposal as made by them, and claim the purported acceptance contained a number of terms either in addition to or at variance with the oral offer made by them; consequently the purported acceptance was no more than a counter-proposal, which was not acceptable to them.

The appellees instituted an action at law against the appellants on December 7, 1956. The declaration consisted of five common counts in assumpsit and one special count on the written contract. At the same time, the appellees filed a motion for a summary judgment to which was attached a photostatic copy of the written contract. This motion was supported by an affidavit in proper form. This affidavit, after stating some of the facts related above, alleges the appellees:

"transferred and conveyed to the defendants their said interest in and to said real and personal property and performed all other matters and things required of them under said [215 Md. 227] agreement; that the defendants paid the plaintiffs five thousand dollars ($5,000.00) but have failed and refused to execute and deliver to the plaintiffs a promissory note in accordance with the said agreement although plaintiffs have so requested and demanded; that defendants have, through their attorney and agent, notified the plaintiffs, through their attorney and agent, that they will not pay the balance of the purchase price to the plaintiffs in the amount of thirty-two thousand five hundred dollars ($32,500); that there is now therefore justly due and owing the plaintiffs by the defendants over and above all credits the sum of thirty-two thousand five hundred dollars ($32,500) together with interest from January 1, 1956."

The appellants filed what they termed an "Answer in Opposition to Plaintiffs' Motion for Summary Judgment." As the affidavit attached to his "answer" was clearly defective in not being made on personal knowledge (Maryland Rule 610, subd. b), it cannot be considered here. The appellees filed a supplemental affidavit before the hearing on the motion for summary judgment stating that they had [137 A.2d 162] received no payment from the appellants since the filing of the suit. A hearing was held on the motion on March 29, 1957. On April 3, 1957, a docket entry was made that reads: "Ordered that the Plaintiffs' motion for Summary Judgment be granted," and on April 8, 1957, judgment was entered against the appellants in favor of the appellees for $34,135.82. From these, the appellants have appealed.

The judgments herein were entered under the authority of Maryland Rule 610. Section a, par. 1 of this rule provides:

"In an action, a party asserting a claim, * * * may at any time make a motion for a summary judgment in his favor as to all or any part of the claim on the ground that there is no genuine dispute as to any material fact and that he is entitled to judgment as a matter of law." As the appellants' affidavit was defective, there was no genuine dispute concerning the facts, so we must determine whether the appellees were "entitled to judgment as a matter of law."

It will be noted suit was filed December 7, 1956, and the next instalment of $5,000 was not due under the contract until January 1, 1957. It is well settled and familiar law [215 Md. 228] that a cause of action must be ripe at the commencement of the suit and the non-existence of a cause of action at that time is fatal to the right to recover; therefore it would be superfluous to cite authorities in support of the proposition.

The appellees' theory of the case is that at the time of the hearing on the motion for a summary judgment, their allegations that the appellants had failed and refused, although requested and demanded, to execute and deliver a promissory note, and that the appellants had notified the appellees they would not pay the balance of the purchase price showed such a definite and specific repudiation of the contract that it entitled them to sue immediately for the entire sum due by the appellants under the contract. The appellants, on the other hand, claim the suit was prematurely brought; that originally the contract was a bilateral one that became unilateral as soon as the appellees performed all of the matters and things required of them under the agreement (the fact that appellees had so performed being admitted in appellees' affidavit); that under the agreement of the parties, the appellants had not agreed to give a negotiable promissory note, or a note that was to be secured in any manner, but simply a promissory note payable to the appellees and signed by the appellants; that the consideration named was higher than the appellants would have agreed upon, unless the appellees had agreed to take an unsecured note payable over a long period of time; that when the contract became unilateral, the only obligation thereunder was that the appellants were required to pay several sums of money in instalments, which obligation, assuming a failure to give a note and a statement by their attorney that appellants would not pay the note, would not be accelerated so as to make the entire sum named in the contract, or any part thereof, due on December 7, 1956, when suit was instituted.

One of the leading cases on the question of the anticipatory breach of a contract is Hochster v. De la Tour, 2 El. and Bl. 678. There, the plaintiff in April, 1852, had agreed to serve the defendant, and the defendant had undertaken to employ the plaintiff, as courier, for three months from June 1, 1852, on certain terms. On May 11, 1852, the defendant wrote [215 Md. 229] the plaintiff that he had changed his mind, and declined to avail himself of plaintiff's services. On May 22, 1852, the plaintiff brought an action at law for breach of the contract. It was held that there could be a breach before the time fixed for performance; that a positive and absolute refusal to carry out the contract prior to the date of actual default amounted to such a breach. Since the decision in this case, there have been numerous and varied rulings on the many and complex angles that have arisen in applying, or not applying, the doctrine of anticipatory breach of a contract, and it [137 A.2d 163] is entirely possible the law relating thereto is not, at the present, well settled in all of its aspects. Annotation, 105 A.L.R. 460, 462.

However, with reference to unilateral contracts, or bilateral contracts that have become unilateral by full performance on one side, for the payment of money in the future, without surety or other conditions involved (the situation in this case when suit was instituted), the text writers and decisions are in general accord that the doctrine of anticipatory breach has no application. 5 Williston, Contracts, sec. 1328; 4 Corbin, Contracts, sec. 963; Annotation, 105 A.L.R. 460, 465; Restatement, Contracts, sec. 318, comment e. In Roehm v. Horst, 178 U.S. 1, 20 S.Ct. 780, 44 L.Ed. 953, a leading case, the Supreme Court, on elaborate consideration by Chief Justice Fuller, recognized the principle. In Greenway v. Gaither, C.C., Fed.Cas. No. 5,788, Taney 227, 231, the facts were quite analogous to those in the case at bar. The plaintiff agreed to sell, and the defendant to buy, a house and lot for a sum of money to be paid in 18, 24, 30 and 36 months. The defendant repudiated the contract, and suit was instituted before the first instalment of the purchase-money was due. Chief Justice Taney decided the case had been prematurely brought. In ruling on an application to seal a bill of exceptions, he stated:

"It has never been supposed that notice to the holder of a bond, or a promissory note, or bill of exchange, that the party would not (from any cause) comply with the contract, would give to the holder an immediate cause of action, upon which he might sue before the time of payment arrived."

A similar ruling was made in General American Tank Car Corp. v. [215 Md. 230] Goree, 4 Cir., 296 F. 32, 36, wherein the court stated flatly:

"No right of action arises from the repudiation before maturity of a unilateral contract, nor for repudiation of an independent promise in a bilateral contract. An action cannot be sustained on a promissory note before maturity on the ground that the maker had declared his intention not to pay it. A tenant's repudiation of his lease does not give his landlord an immediate right of action for future rent."

In a case decided by this Court, Appleman v. Michael, 43 Md. 269, the plaintiff agreed to sell, and the defendant to purchase, certain goods; payment therefor was to be made by the defendant by executing his note in the amount of the purchase price, payable in ninety days. The defendant refused to execute the note or to pay for the goods. suit was instituted more than three years after the defendant's refusal to execute the note, but less than three years from the maturity of the note, which the defendant was alleged to have agreed to execute. The Statute of Limitations was pleaded. This Court held that this was not a sale upon condition that a note be given where no title would have passed unless the note were given; that it was a case where the sale and delivery of the goods were absolute, and where the title to them passed immediately, but they were to be paid for at a subsequent time; that the credit was not dependent upon the execution of the note, so that it could be terminated or treated at an end by the vendor upon the neglect or refusal of the purchaser to give the note; that the note would have given no additional security to the vendor and there was no stipulation in the contract for such security; that it was simply a case of a sale of goods upon an absolute credit of ninety days, and the Court was "clearly of (the) opinion (that) no action for their value could, under any circumstances, have been sustained if brought before the expiration of that time." In other words, the Court held that if the action had been brought after the neglect or refusal to give the note, but before its maturity date, the cause of action would not then have accrued and the suit would have been prematurely brought.^[1]

[137 A.2d 164] [215 Md. 231] We think the proper rule is that the doctrine of anticipatory breach of a contract has no application to money contracts, pure and simple, where one party has fully performed his undertaking, and all that remains for the opposite party to do is to pay a certain sum of money at a certain time or times, and, under the circumstances of this case, this is as far as we need to rule, although some of the cases cited hold that the doctrine of anticipatory breach has no application whatsoever in unilateral contracts, or bilateral contracts that have become unilateral by full performance on one side.

The appellees cited to us the case of Precision Development Co. v. Fast Bearing Co., 183 Md. 399, 37 A.2d 905. We fail to see that it applies to the facts of the present controversy. There, the defendant purchased certain articles, consisting entirely of personal property, from the plaintiff. The purchase price was to be paid by a payment of $10,000 within 30 days and the balance, according to the defendant, in five annual instalments on the first day of December of each calendar year. The defendant agreed to execute and deliver its promissory note or notes for the balance of the purchase price secured by chattel mortgage on the goods sold. However, the defendant failed to pay the $10,000 within the prescribed time, did not have the property insured, and declined to execute the notes or chattel mortgage. It accepted delivery of all the articles and disposed of portions thereof. It was held that these facts furnished ample evidence upon which the jury could find that the contract had been breached, and, if so [215 Md. 232] found by the jury, warranted a recovery of the full purchase price. Cf. Better v. Williams, 203 Md. 613, 102 A.2d 750. In the case at bar, there was no agreement to secure the notes in any manner whatsoever, but the agreement of the appellants was a bald promise to pay money at a future date.

The appellees relied heavily upon the cases of Hanna v. Mills, 1839, 21 Wend. 90, 34 Am.Dec. 216; Bowman v. Branson, 1892, 111 Mo. 343, 19 S.W. 634; Bayne v. Morris, 1863, 1 Wall. 97, 68 U.S. 97, 17 L.Ed. 495, and Bennett v. Dodgson, 1955, 129 Mont. 228, 284 P.2d 990.

The Hanna and Bowman cases are greatly weakened, if not overruled entirely, by subsequent rulings in New York and Missouri in so far as they can be said to have permitted recoveries for anticipatory breaches of contracts for the recovery of money only. (The Hanna case called for a note to be indorsed by a person satisfactory to the plaintiffs, which was tantamount to the giving of security.) Nichols v. Scranton Steel Co., 137 N.Y. 471, 33 N.E. 561, 566; Kelly v. Security Mut. Life Ins. Co., 186 N.Y. 16, 78 N.E. 584; Sulyok v. Penzintezeti Kozpont Budapest, 279 App.Div. 528, 111 N.Y.S.2d 75, and cases therein cited, modified on other grounds, 304 N.Y. 704, 107 N.E.2d 604; Leon v. Barnsdall Zinc Co., 309 Mo. 276, 274 S.W. 699, 703. In Bayne v. Morris, the defendant was not only obligated to pay money, but to furnish a bond with penalty and surety; and in Bennett v. Dodgson the defendant agreed to give a "bankable" note. A different rule applies when an agreement calls for the giving of a note with security from one that simply requires the giving of a note. [137 A.2d 165]

The appellees argued further that a promise to give a negotiable note stands on the same footing as a promise to furnish security. We find it unnecessary to decide this question; because we think the promise to give a note in this case contemplated a non-negotiable one. The contract does not explicitly call for a negotiable instrument; it was to be paid over a rather extended period of time; the appellants had the option of extending the maturity date until January 1, 1963, by merely giving notice to one of the appellees; and the declaration filed by the appellees does not declare on a promise to give a negotiable instrument. Considering these facts and [215 Md. 233] all of the circumstances surrounding the execution of the contract, we conclude that the note promised by the appellants to appellees was a non-negotiable one.

From what we have said above, we conclude this case was prematurely brought, so the judgments must be reversed.

This ruling renders it unnecessary to pass upon the other questions raised by the appellants and the appellees.

We have not overlooked the fact that suit possibly could have been entered on December 7, 1956, if the suit were regarded as an action for a breach of the contract by the appellants in refusing to give the note within a reasonable time, as distinguished from an action for the value of the interests sold. Appleman v. Michael, supra, 43 Md. at page 281. If it had been treated as such, the appellees would have been limited to nominal damages, or such as they could have proved resulted from the failure to give the note, alone; but they were not entitled to recover the instalments named in the contract, which were not then due.

Judgments reversed without prejudice to the appellees' right to institute further proceedings to enforce whatever rights they may have under the contract, appellees to pay the costs.

HAMMOND, Judge (dissenting).

I concur with the majority of the Court only as far as agreeing that the judgment should be reversed. It is clear to me that the case should go back for decision, on the facts or as a matter of law as the question requires, as to (a) whether there had been a novation that eliminated the duty to pay what was sued for; (b) or if not, whether the contract had remained bilateral in part; (c) or if it had become wholly unilateral, whether the refusal to give the note (whether negotiable or not) did not support damages equal to the amount of the note because there had been such a trustration of the ends the agreement was expected to subserve that a breach calling for immediate full reparation should be recognized. Essentially, I dissented because I could not bring myself to [215 Md. 234] put the appellees out of Court on a factless appeal and at the same time to saddle Maryland needlessly with what I consider to be illogical and unsound law—a doctrine that is more apparent than real, and one that has been repudiated by the ablest judges and scholars.

The Court holds that the affidavit of defense first filed could not be "considered here" and did not raise below the issue of a genuine dispute as to a material fact because it was made on knowledge, information and belief. The record discloses that the defendants' answer in opposition to the motion for summary judgment alleged (a) that the plaintiffs had failed to do certain things they had agreed to as part of the contract "particularly in the assistance in the operation of Ritchie Swift Homes, Inc."; (b) that the contract had "become an integral part of a subsequent agreement between the parties hereto, thereby modifying the terms of this agreement." The affidavit was made by each of the four defendants and their counsel. It must be obvious, as was noted in White v. Friel, 210 Md. 274, 123 A.2d 303, that it may be assumed that the parties necessarily have personal knowledge of matters and agreements in which they were involved and that [137 A.2d 166] they are competent to testify with regard thereto. This being so, the answer and affidavit, although they were inartificial and inadequate, disclosed enough to show that there was a genuine dispute as to material facts, and the case should have gone to trial. See Tellez v. Canton Railroad Co., 212 Md. 423, 129 A.2d 809.

If it be assumed that the first answer and affidavit were insufficient to stay a summary judgment, the motion to strike the judgment and its supporting affidavits, filed within thirty days from the entry of the judgment, demonstrated by the detailed and elaborate recital of facts alleged to be known that if the defendants could support their allegations with proof they had an absolute defense to the suit against them because the plaintiffs had agreed by a new contract to allocate the sums due them under the first agreement (that were to be evidenced by the note) to another purpose. Within the thirty day period provided by the rules the court has complete control of a judgment whether it be entered after trial, by default, by confession or as a summary judgment. Where [215 Md. 235] a meritorious defense to a judgment is shown within the thirty day period, justice requires that the judgment be opened for proof of the defense. I think the trial court abused his discretion in refusing to allow the defendants to present the facts as to novation. If novation was not shown then the point of present breach by refusing to give the note in a reasonable time and the consequent allowance of damages equalling the amount of the note (perhaps discounted for early payment) could be decided.

The majority of the Court, instead of deciding that summary judgment should have been refused, unnecessarily decided an issue that might never have presented itself, by adopting for the first time as the law of Maryland a dubious exception to the rule of immediate allowance of damages for anticipatory breach of contract. That a right of action accrues on an anticipatory breach is firmly established. Williston opposes the idea and while forced to admit that it is the law, argues that it should not be. Perhaps because of his dislike of the doctrine, Williston urges that there should be no action for anticipatory breach of a unilateral contract or a bilateral contract that has been fully performed on one side. 5 Williston, Contracts (Rev.Ed.), Chap. XL. The cases, however, do not support this view, holding generally that there may be. Roehm v. Horst, 178 U.S. 1, 20 S.Ct. 780, 44 L.Ed. 953; Precision Development Co. v. Fast Bearing Co., 183 Md. 399, 37 A.2d 905. Williston, in endeavoring to limit the doctrine of anticipatory breach, is consistent when he declares that the violation of the bare promise to pay money in the future in a contract that always was, or has become, unilateral can never give rise to immediate action. He is apologetic for his view and, recognizing that it has been criticized, says in the work cited, Sec. 1328 at 3734, that since the whole doctrine of anticipatory breach "was founded on a confusion of a right of action with a defense, it seems undesirable to enlarge the boundaries of the doctrine." Corbin denies the validity of Williston's views and conclusions. 4 Corbin, Contracts, Chap. 54. In Sec. 963 at 866, Professor Corbin says that "Although the author of this volume believes that the distinction should make no difference in the result reached, attention must be called to [215 Md. 236] the fact that some courts have distinguished unconditional money debts from those in which the debtor's duty to pay is conditional on some performance yet to be rendered by his creditor, recognizing anticipatory breach in the latter cases and not in the former." See also Sec. 965, where the learned author shows that the argument that recognition of anticipatory breach of money contracts involves "acceleration of date of maturity" is fallacious. To require immediate payment of sums that were to have been paid in the future does not give the promisee something he did not bargain for, if a discount that reflects the earlier date of payment is imposed.

Judge Learned Hand agrees with Corbin. See Equitable Trust Co. of New York v. Western Pac. Ry. Co., D.C., 244 F. 485, 501-502, [137 A.2d 167] where, speaking of the doctrine of anticipatory breach, he said:

"Furthermore, if performance remains mutually executory, the doctrine still applies, even though the promise is only to pay money * * *. If the doctrine has any limits, they only exclude, and that arbitrarily enough, cases in which at once the promisee has wholly performed, and the promise is only to pay money. Assuming what I do not mean to admit, that it has such limits, they result because the eventual victory of the doctrine over vigorous attack * * * has not left it scathless." (Emphasis supplied.)

In New York Life Ins. Co. v. Viglas, 297 U.S. 672, 56 S.Ct. 615, 618, 80 L.Ed. 971, 976-977, the Supreme Court denied an insured the immediate recovery of the total of monthly disability benefits measured by his life expectancy on a holding that the insurance company had not actually and completely repudiated the contract. Mr. Justice Cardozo pointed out that if one analyzes the cases one discovers the rationale of those

"which have stated at times, though with needless generality, that by reason of the subject-matter of the undertaking the rule applicable to contracts for the payment of money is not the same as that applicable for the performance of services or the delivery of merchandise. * * * The root of any valid distinction is not in the difference between money and merchandise or between money and services. What counts decisively is the relation between the maintenance of the contract and the frustration of the ends it was expected to subserve. The [215 Md. 237] ascertainment of this relation calls for something more than the mechanical application of a uniform formula. To determine whether a breach avoids the contract as a whole one must consider what is necessary to work out reparation in varying conditions. * * * The law will be able to offer appropriate relief 'where compensation is wilfully and contumaciously withheld.'" (Emphasis supplied.)

Two of the three cases cited by the Court in the body of the opinion do not hold what the majority opinion holds; they merely repeat in discussion "in needless generality" what the majority opinion decides, and, on the facts before them, found a breach justifying full damages. Only three of the cases cited in the footnote actually hold what the majority opinion holds; in the others the contract was held to be bilateral, or there was no breach.

It is small wonder, then, that the author of the annotation in 105 A.L.R. 460, 461, on anticipatory breach of a bilateral contract which has been fully performed on one side, says:

"From his own examination of the cases the writer is unable to state upon what substantial reason the limitation in question may be said to rest. * * * one would hesitate to say that the question under consideration in this annotation has, with the possible exception of money contracts, become at all settled. Yet the peculiar condition of the cases, as above outlined, the numerous assumptions and dicta, the apparent rulings on matters of anticipatory breach where in fact the breaches if any were actual, not anticipatory, have created at least an appearance of generally settled law." (Emphasis supplied.)

The Maryland authorities would tend to refute rather than sustain the view of the majority. In Appleman v. Michael, 43 Md. 269, 280, heavily relied on in the opinion, the holding was only that the suit there actually entered was one for the value of the goods sold and was not one for the breach of contract to execute the note that was to be given in payment for the goods. Judge Miller, in his discussion, noted that there were various cases wherein it had been held that the vendor could bring a special action on the case for damages for [215 Md. 238] breach of the contract to give the promised note "such damages as the jury might have though reasonable for that breach of contract." That is precisely what the plaintiffs sought in the case before us, damages for breach of the contract to give the note. In Precision Development Co. v. Fast Bearing Co., 183 Md. 399, 37 A.2d 905, which was cited above, the breached contract [137 A.2d 168] had become wholly unilateral and damages were allowed equal to the purchase price of the property sold. Williston, again somewhat reluctantly, recognizes that the result reached in the Development case has been reached by a number of Courts. He says in 5 Williston, Contracts, Sec. 1471, that generally the price of property sold on credit cannot be recovered until the stipulated period of credit has expired, and continues:

"Yet the failure to give the promised bill or note is surely a material breach, and the plaintiff's right to sue for the value of his goods has been recognized by some courts. Indeed, since the measure of damages in an action on the contract to give a bill or note is the price of the goods, a sum which was to be the amount of the note, and since the price of the goods is also generally the test of their value in an action based upon rescission, the seller may ordinarily recover the equivalent of restitution."

And in Sec. 1411 he says:

"Where a purchaser of goods promises to give a negotiable instrument payable in the future for them, though aside from the doctrine of anticipatory breach the seller has not generally been allowed to sue for the price of the goods immediately if the buyer failed to give the negotiable instrument as agreed, an action will lie for breach of the special promise to give the negotiable instrument, and in such an action the damages are fixed by the amount of the agreed instrument."

This Court's acknowledgment in the Appleman case of the right to sue for damages for the failure to give a note as agreed and its decision in the Development case that such damages equal the purchase price of the property sold, are judicial recognition that Williston's statement, just quoted, have been up to now the law of Maryland.

It has certainly been the law of many States. See the annotation in 12 L.R.A.,N.S., 180-181, 182, where the author says that:

"* * * the vendor cannot recover on the [215 Md. 239] common count in assumpsit for goods sold and delivered until the credit has expired * * *. He may, nevertheless, proceed immediately for a breach of the special agreement to give the notes,"

and concludes:

"The measure of damages in an action brought by a vendor upon the purchaser's failure to execute notes as stipulated has been held to be prima facie the amount of the note (C. Aultman & Co. v. Daggs, 50 Mo.App. 280), but is more commonly stated to be the agreed price of the goods * * *."

See Clarke v. Dill, 8 Sadler, Pa., 164, 11 A. 82 ("When the defendant refused to give the notes as per contract, the plaintiff had either of two remedies: He might treat the contract as broken, and sue for damages; or, on the other hand, he might elect to regard the contract as subsisting, and sue for the installments as they became due.") Kelly v. Pierce, 16 N.D. 234, 112 N.W. 995, 12 L.R.A.,N.S., 180; Standard Lumber Co. v. Deer Park Lumber Co., 104 Wash. 84, 175 P. 578, 582 ("For the breach of an agreement to execute a promissory note payable in the future, damages may be recovered presently, and the amount for which the note was to be given will be the prima facie measure of such damages."); Thomas Mfg. Co. v. Watson, 85 Me. 300, 27 A. 176 ("While the plaintiff could not maintain for this breach an action of indebitatus assumpsit for goods sold and delivered, it could maintain an action of special assumpsit, counting on the written contract and its breach. Hunneman v. Inhabitants of Grafton, 10 Metc., Mass. 454, 459. The declaration in this action contains such a special court, and under it the plaintiffs are entitled to recover damages, which are to be assessed at the contract price, since the defendant cannot successfully dispute the full value of notes indorsed or signed by himself.").

The majority acknowledge the principle just discussed by noting that the failure to give a promised security for the delayed payment of the price of property constitutes a present breach that permits current recovery of the purchase price. The opinion attempts to avoid the applicability of the doctrine to the present case by saying: "A different rule applies when an agreement calls for the giving of a note with security [137 A.2d 169] from one that simply requires the giving of a note."

The appellees argue that the same rule applies where the note to be given [215 Md. 240] is to be a negotiable note as where security is to be given, and I think it is clear that they are right. The appellants themselves, both in their original brief and in their reply brief, say:

"* * * the exception to the general rule prohibiting full recovery upon the breach of an instalment contract is limited to cases where a negotiable note or security of another sort—and not the bare promise to pay money at a future time—is the agreed exchange."

Williston recognizes what the appellants concede when he says in Sec. 1411 of his work cited:

"Where as part of an executory contract there is a promise to give security, and breach of this promise involves breach of the entire contract, the measure of damages is properly the value of the security to the promisee, and this is prima facie the amount of the sum to be secured. Where the failure to give a negotiable instrument or security of a different kind involves the entire breach of a contract which would ultimately require payment of the sum for which the instrument was given or the security pledged, this measure of damages seems accurate * * *." (Emphasis supplied.)

See Hanna v. Mills, 21 Wend., N.Y., 90; Bowman v. Branson, 111 Mo. 343, 19 S.W. 634; Bennett v. Dodgson, 129 Mont. 228, 284 P.2d 990; Bayne v. Morris, 1 Wall. 97, 68 U.S. 97, 17 L.Ed. 495.

See, too, American Mfg. Co. v. Klarquist, 47 Minn. 344, 50 N.W. 243, 244, where the action was for the recovery of the unpaid part of the purchase price of personal property. A part of this purchase price was to be evidence by a promissory note and the defense was that the amount so evidenced was not yet due. The Court said in answer:

"* * * It is enough to say that the defendants admit that they refused to give their note therefor, in accordance with the terms of the written agreement, and because of that refusal the plaintiff is entitled to recover damages, which, prima facie, are measured by the amount for which the note was to have been given. Barron v. Mullin, 21 Minn. 374."

Barron v. Mullin was a case in which the defendant had failed to provide the security promised and the Court indicated that full recovery could be had because the failure to give the security was in itself failure of consideration. The point is that the Minnesota Court, like the appellants and like Williston, equate the [215 Md. 241] failure to give a promised note with the failure to give promised security.

Many of the cases, in sustaining the right to sue for breach of contract to give a note, do not distinguish between a negotiable and a non-negotiable note. No apparent reason why there should be a distinction suggests itself. If a negotiable note is requisite to support the action, it seems clear to me that the agreement in the case before us contemplated a negotiable note. Otherwise, there would be no point in giving a note at all because the terms of payment set out in the written agreement would have served as well as a non-negotiable note. Further, it has been held that when the word "note" is used, ordinarily a negotiable note is meant. American National Bank v. Marshall, 122 Kan. 793, 253 P. 214; Road Improvement District No. 4 v. Southern Trust Co., 152 Ark. 422, 239 S.W. 8. The provision for extension of maturity of the contemplated note did not render it non-negotiable. The negotiable instrument law requires no more than that a negotiable instrument be payable "on demand, or at a fixed or determinable future time". Code 1951, Art. 13, Sec. 21.

One more ground for immediate recovery of full damages should be available to the plaintiffs if there was no novation. The cases recognize that if there has been a failure to pay one instalment of a note or one month's rent under a lease, coupled with an absolute repudiation of the whole obligation to pay that instalment and all future instalments, there is not an anticipatory breach but an actual present breach and, in such cases, the only question is the amount of the damages presently recoverable. Williston, [137 A.2d 170] Contracts, Vol. 5, Sec. 1317, and the Restatement, Contracts, Sec. 317, recognize this rule, although Williston, and presumably the Restatement, attempt to limit it to breaches of bilateral contracts. Such a limitation has not always, or indeed generally, been recognized and I think no such limitation really exists. 4 Corbin, Contracts, Sec. 966, says that in a unilateral agreement failure to pay one instalment would not, without more, be a repudiation of the whole obligation to pay and adds that:

"In other cases, however, accompanying the non-payment of one instalment there has been a definite repudiation of the [215 Md. 242] balance. Here, the cases that give judgment for damages for a partly anticipatory breach might well be followed."

In Sagamore Corp. v. Willcutt, 120 Conn. 315, 180 A. 464, there was a failure to pay an instalment of rent due under a lease, plus repudiation of the whole lease. The Court, assuming for the argument the validity of the "bare promise to pay money" rule, held that there was not merely an anticipatory breach but an actual breach plus repudiation, and that even though the contract had become unilateral and called only for the payment of money, all future sums due under the lease could be recovered. See also In re Edgewood Park Junior College, 123 Conn. 74, 192 A. 561; Hawkinson v. Johnston, 8 Cir., 122 F.2d 724, 137 A.L.R. 420; In Pollack v. Pollack, Tex.Com.App., 46 S.W.2d 292, the plaintiff conveyed a business and property to the defendant in return for a promise to pay him $5,000 a year for life. After making a number of payments the defendant repudiated the obligation. The plaintiff was allowed to recover on the basis of life tables at the present value of $5,000 a year for the life expectancy. See also Universal Life & Accident Ins. Co. v. Sanders, 129 Tex. 344, 102 S.W.2d 405.

Many questions of fact and law cry for decision by a trial court under the pleadings of this case before an appellate court should declare and apply the law. Many of them would obviate a decision on the point decided by the majority of the Court. If that decision ever had to be made after trial on the merits, the case should not be decided, as it was, by the "mechanical application of a uniform formula", but only after consideration of the contractual rights and obligations of the parties under their agreements and of whether their failure to give the note and to make the payments were such a frustration of their contract purposes, so wilfully and contumaciously made, as to require immediate payment of the purchase price properly discounted. I would remand the case for full trial.

[1] For other cases holding that the doctrine of anticipatory breach of contract either has no application to unilateral contracts, or that it has no application to unilateral contracts for the pure and simple payment of money, see City of Hampton, Virginia v. United States, 4 Cir., 218 F.2d 401; Moore v. Security Trust and Life Ins. Co., 8 Cir., 168 F. 496; Brimmer v. Union Oil Co., 10 Cir., 81 F.2d 437; Sagamore Corp. v. Willcutt, 120 Conn. 315, 180 A. 464; Manufacturers' Furniture Co. v. Cantrell, 172 Ark. 642, 290 S.W. 353, 354; Huffman v. Martin, 226 Ky. 137, 10 S.W.2d 636, 638; Sheketoff v. Prevedine, 133 Conn. 389, 51 A.2d 922, 924, 171 A.L.R. 1009; Parks v. Maryland Casualty Co., D.C.W.D.Mo., 59 F.2d 736; Cf. Fidelity and Deposit Co. v. Brown, 230 Ky. 534, 20 S.W.2d 284; Better v. Williams, 203 Md. 613, 617, 102 A.2d 750; Weiss v. Sheet Metal Fabricators, 206 Md. 195, 203, 110 A.2d 671.

8 F. 463 (C.C.W.D. Pa 1881)
MISSOURI FURNACE CO.
v.
COCHRAN, Adm'x, etc.
Circuit Court, W. D. Pennsylvania.
August 26, 1881.

1. FORWARD CONTRACT TO FURNISH COKE TO PROPRIETOR OF BLAST FURNACES—BREACH BY VENDOR, AND NOTICE THAT HE WILL NOT DELIVER—NEW FORWARD CONTRACT BY VENDEE—MEASURE OF DAMAGES.

Defendant's intestate sold and agreed to deliver to plaintiff, the proprietor of blast furnaces for smelting iron, 36,621 tons of Connellsville coke, at $1.20 per ton, deliverable, in equal daily quantities, on each working day during the year 1880. After delivering 3,765 tons, the vendor, without valid excuse, notified plaintiff, on February 13, 1880, that he rescinded the contract, and thereafter delivered no coke. The vendor persisting in his refusal to deliver, the plaintiff, on February 27, 1880, made a substantially similar forward contract with H. for the delivery, during the balance of the year, of 29,587 tons of such coke at four dollars per ton, which was the 'then market rate for such a forward contract, and rather below the market price for present deliveries. The market price of coke declined in May, 1880, to $1.30 per ton. The plaintiff brought suit on February 26, 1880. Held, (1) that the plaintiff was not entitled to recover the difference between the price stipulated in the contract sued on and the price which the plaintiff agreed to pay H. under the contract of February 27,1880; (2) that the measure of damages was the sum of the differences between the price stipulated in the contract sued on and the market price of Connellsville coke, at the place of delivery, on the several days when the several deliveries should have been made under the contract.

Sur motion ex parte plaintiff for a new trial.

Henry Hitchcock, George Shims, and S. Sehoyer, Jr., for plaintiff. G. E. Boyle and D. T. Watson, for defendant.

ACHESON, D.J. This suit, brought February 26, 1880, was to recover damages for the breach by John M. Cochran of a contract for the sale and delivery by him to the plaintiff of 86,621 tons of Standard Connellsville coke, at the price of $1.20 per ton, (subject to an [464] advance in case of a rise in wages,) deliverable on cars at his works, at the rate of nine cars of 13 tons each per day on each working day during the year 1880. After 3,765 tons were delivered, Cochran, on February 13, 1880, notified the plaintiff that he had rescinded the contract, and thereafter delivered no coke. After Cochran's refusal further to deliver coke, the plaintiff made a substantially similar contract with one Hutchinson for the delivery during the balance of the year of 29,587 tons of Connellsville coke at four dollars per ton, which was the market rate for such a forward contract, and rather below the market price for present deliveries on February 27, 1880, the date of the Hutchinson contract. The plaintiff claimed to recover the difference between the price stipulated in the contract sued on, and the price which the plaintiff agreed to pay Hutchinson under the contract of February 27, 1880. But the court refused to adopt this standard of damages, and instructed the jury that the plaintiff was

"entitled to recover, upon the coke which John M. Cochran contracted to deliver and refused to deliver to the plaintiff, the sum of the difference between the contract price — that is, the price Cochran was to receive — and the market price of standard Connellsville coke, at the place of delivery, at the several dates when the several deliveries should have been made under the contract."

Under this instruction there was a verdict for the plaintiff, for $22,171.49. As the plaintiff had in its hands $1,521.10 coming to the defendant for coke delivered, the damages as found by the jury amounted to the sum of $23,692.50.

The plaintiff moved the court for a new trial; and, in support of the motion, an earnest and certainly very able argument has been made by plaintiff's counsel. But we are not convinced that the instruction complained of was erroneous.

Undoubtedly it is well settled, as a general rule, that when contracts for the sale of chattels are broken by the vendor failing to deliver, the measure of damages is the difference between the contract price and the market value of the article at the time it should be delivered. Sedgwick on the Measure of Damages, (7th Ed.) 552. In Shepherd v. Hampton, 3 Wheat. 200, this rule was distinctly sanctioned. Chief Justice Marshall there says: "The unanimous opinion of the court is that the price of the article at the time it was to be delivered is the measure of damages." Id. 204. Nor does the case of Hopkins v. Lee, 6 Wheat. 118, promulgate a different doctrine; for, clearly, "the time of the breach" there spoken of is the time when delivery should have been made under the contract.

[465] It is said in Sedgwick on the Measure of Damages, (7th Ed.) 558, note b: "Where delivery is required to be made by instalments, the measure of damages will be estimated by the value at the time each delivery should have been made." In accordance with this principle the damages were assessed in Broun v. Muller, Law Rep. 7 Ex. 319, and Roper v. Johnson, Law Rep. 8 G. P. 167, which were suits by vendee against vendor for damages for failure to deliver iron, in the one case, and coal, in the other, deliverable in monthly instalments. In one of these cases suit was brought after the contract period had expired; in the other case before its expiration; but in both cases the vendor had given notice to the plaintiff that he did not intend to fulfil his contract. To the argument, there urged on behalf of the vendor, that upon receiving such notice it is the duty of the vendee to go into the market and provide himself with a new forward contract, Kelly, C. B., in Brown v. Muller, said:

He is not bound to enter into such a contract, which might be to his advantage or detriment, according as the market might fall or rise. If it fell, the defendant might fairly say that the plaintiff had no right to enter into a speculative contract, and insist that he was not called upon to pay a greater difference than would have existed had the plaintiff held his hand.

Where the breach is on the part of the vendee, it seems to be settled law that he cannot have the damages assessed as of the date of his notice that he will not accept the goods. Sedgwick on Measure of Damages, 601. The date at which the contract is considered to have been broken by the buyer is that at which the goods were to have been delivered, not that at which he may give notice that he intends to break the contract. Benjamin on Sales, § 759. And, indeed, it is a most rational doctrine that a party, whether vendor or vendee, may stand upon his contract and disregard a notice from the other party of any intended repudiation of it. If this were not so, the party desiring to be off from a contract might choose his own time to discharge himself from further liability.

The law as to the effect of such notice is clearly and most satisfactorily stated by Cockburn, C. J., in Frost v. Knight, Law Kep. 7 Ex. 112.

The promisee, if he pleases, may treat the notice of intention as inoperative, and wait the time when the contract is to be executed, and then hold the other party responsible for all the consequences of non-performance; but in that case he keeps the contract alive for the benefit of the other party as well as his own; he remains subject to all his own obligations and liabilities under it, and enables the other party not only to complete the contract, if so [466] advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances which would justify him to decline to complete it. On the other hand, the promisee may, if he thinks proper, treat the repudiation of the other party as a wrongful putting an end to the contract, and may at once bring his action as on a breach of it; and in such action he will be entitled to such damages as would have arisen from the nonperformance of the contract at the appointed time, subject,"however, to abatement in respect of any circumstances which may have afforded him the means of mitigating his loss.

We do not think the force of the English cases referred to has been at all weakened by that of the Dunkirk Colliery v. Lever, 41 Law Times Rep. (U. S.) 632, so much relied on by the plaintiff's counsel. Nor are the facts of that case similar to those of the case in hand. There the controlling fact was that at the time the vendee definitively refused to accept, there was no regular market for cannel coal, and the vendors resold as soon as they found a purchaser according to the ordinary course of their business, and without unreasonable delay. Therefore, it was held that the plaintiffs were entitled to the full amount of the difference between the contract price and that which they obtained.

Our attention has been called to Masterton v. Brooklyn, 7 Hill, 61. Undoubtedly this is a leading case in this branch of the law, and especially upon the subject of the profits allowable as damages, and the principles upon which they are to be ascertained. The suit, however, was upon a contract to procure, manufacture, and deliver marble for a building, and involved an investigation into the constituent elements of the cost to which the contractor might have been subjected had the contract been carried out, such as the price of rough material in the quarry, expenses of dressing, etc. Upon the question as to the time at which the cost of labor and materials was to be estimated the court was divided, and I do not find that the views of the majority upon this precise point have been followed. The case, however, lacked the element of market value, (Id. 70;) and as Judge Nelson cited with approbation Boorman. Nash, 9 Barn. & C. 145, and Leigh v. Paterson, 8 Taunt. 540, it cannot be supposed that the court intended, in a case of a marketable article having a market value, to sanction the principle contended for here.

I see nothing in the present case to distinguish it from the ordinary case of a breach by the vendor of a forward contract to supply a manufacturer with an article necessary to his business. For such breach what is the true measure of damages? Says Kelly, C. B., in Brown v. Muller: "The proper measure of damages is that sum which [467] the purchaser requires to put himself in the same condition as if the contract had been performed." That result — which is compensation — is secured, it seems to me, by the rule given to the jury here, unless the case is exceptional. The vendee's real loss, whether delivery is to be made at one time or in instalments, ordinarily is the difference between the contract price and the market value at the times the goods should be delivered. If, however, the article is of limited production, and cannot, for that or other reason, be obtained in the market, and the vendee suffers damage beyond that difference, the measure of damages may be the actual loss he sustains. McHose v. Fulmer, 73 Pa. St. 367; Richardson v. Chynoweth, 26 Wis. 656; Sedgwick on Dam. 554. With this qualification to meet exceptional cases, the rule that the damages are to be assessed with reference to the times the contract should be performed, furnishes, I think, a safe and just standard from which it Would be hazardous to depart.

In this case I fail to perceive anything to call for a departure from that standard. There was no evidence of any special damage to the plaintiff by the stoppage of its furnaces or otherwise. Furthermore, the contract with Hudson, February 27, 1880, was made at a time when the coke market was excited and in an extraordinary condition. Unexpectedly and suddenly coke had risen to the unprecedented price of four dollars per ton; but this rate was of brief duration. The market declined about May 1, 1880, and by the middle of that month the price had fallen to one dollar and thirty cents per ton. The good faith of the plaintiff in entering into the new contract cannot be questioned, but it proved a most unfortunate venture. By the last of May the plaintiff had in its hands more coke than was required in its business, and it procured — at what precise loss does not clearly appear — the cancellation of contracts with Hutchinson to the extent of 20,000 tons. As the plaintiff was not bound to enter into the new forward contract, it seems to me it did so at its own risk, and cannot fairly claim that the damages chargeable against the defendant shall be assessed on the basis of that contract.

The motion for a new trial is denied.

1 Denio 317

CLARK
v.
MARSIGLIA.

July 1845.

The measure of damages against a party who has employed another to do certain mechanical work at a price agreed upon, and who has countermanded his directions and forbidden the further execution of the work, after it had been commenced, is not the whole amount agreed to be paid, but a just recompense for each injury as the party employed has sustained on account of the breach of the agreement. The party so employed has not right to proceed with the work after such countermand.

Error from the New York common pleas. Marsiglia sued Clark in the court below in assumpsit, for work, labor and materials, in cleaning, repairing and improving sundry painting belongs to the defendant. The defendant pleaded non assumpsit.

The plaintiff proved that a number of paintings were delivered to him by the defendant to clean and repair, at certain prices for each. They were delivered upon two occasions. As to the first parcel, for the repairing of which the price was seventy-five dollars, no defence was offered. In respect to the other, for which the plaintiff charged one hundred and fifty-six dollars, the defendant gave evidence tending to show that after the plaintiff had commenced work upon them, he desired him not to go on, as he had concluded not to have the work done. The plaintiff, notwithstanding, finished the cleaning and repairing of the pictures, and claimed to recover for doing the whole, and for the materials furnished, insisting that the defendant had no right to countermand the order which he had given. The defendant’s counsel requested the court to charge that he had the right to countermand his instructions for the work, and that the plaintiff could not recover for any work done after such countermand.

The court declined to charge as requested, but on the contrary, instructed the jury that inasmuch as the plaintiff had commenced the work before the order was revoked, he had a right to finish it, and to recover the whole value of his labor and for the materials furnished. The jury found their verdict [318] accordingly, and the defendant’s counsel excepted. Judgment was rendered upon the verdict.

C. P. Kirkland, for the plaintiff in error, stopped by the court.

A. Taher, for the defendant in error. By the contract between these parties, the plaintiff acquired the possession of these pictures, and a right to use his materials and labor upon them, and a lien upon them for payment. He could not be divested of these rights except by his own consent. The case differs from those where a party is in a situation in which he may violate a contract by refusing to perform a stipulation which is indispensable to enable the other party to go on. In such cases the contract is necessarily broken up, and the court can do no more than to compel the payment of such damages as are appropriate to the breach. Here the defendant had not the physical right to violate his contract, and not having the legal or moral right to do it, it cannot be done.

PER CURIAM. The question does not arise as to the right of the defendant below to take away these pictures, upon which the plaintiff had performed some labor, without payment for what he had done, and his damages for the violation of the contract, and upon that point we express no opinion. The plaintiff was allowed to recover as though there had been no countermand of the order; and in this the court erred. The defendant, by requiring the plaintiff to stop work upon the paintings, violated his contract, and thereby incurred a liability to pay such damages as the plaintiff should sustain. Such damages would include a recompense for the labor done and materials used, and such further sum in damages as might, upon legal principles, be assessed for the breach of the contract: but the plaintiff had no right, by obstinately persisting in the work, to make the penalty upon the defendant greater than it would otherwise have been.

To hold that one who employs another to do a piece of work [319] is bound to suffer it to be done at all events, would sometimes lead to great injustice. A man may hire another to labor for a year, and within the year his situation may be such as to render the work entirely useless to him. The party employed cannot persist in working, though he is entitled to the damages consequent upon his disappointment. So if one hires another to build a house, and subsequent events put it out of his power to pay for it, it is commendable in him to stop the work, and pay for what has been done and the damages sustained by the contractor. He may be under a necessity to change his residence; but upon the rule contended for, he would be obliged to have a house which he did not need and could not use. In all such cases the just claims of the party employed are satisfied when he is fully recompensed for his part performance and indemnified for his loss in respect to the part left unexecuted; and to persist in accumulating a larger demand, is not consistent with good faith towards the employer. The judgment must be reversed, and a venire de novo awarded.

Judgment reversed.

238 Mass. 567
MOUNT PLEASANT STABLE COMPANY
vs.
LOUIS STEINBERG & another.
Suffolk.
March 16, 1921. — May 28, 1921.

Present: RUGG, C. J., BRALEY, PIERCE, CARROLL, & JENNEY, JJ.

Damages, For breach of contract. Contract, Construction. Interest.

The rule that, when a contract calling for personal services is broken by the party to whom the services are to be rendered, the party who was to furnish the services is bound to use reasonable efforts to obtain other employment reasonably adapted to his abilities, thereby lessening the damage to be paid him as compensation for the breach of the contract, has no application in an action by a master teamster for damages resulting from a breach of a contract in writing whereby he agreed, at a stipulated price per team, to “furnish to" a merchant "all teams required by" him "for the delivery of" his goods, the merchant agreeing to let the teamster know each afternoon the number of teams that would be required the next day and not to hire outside teams while the teamster could supply them, it also appearing that the contract did not require any special skill on the part of the teamster and could be performed by his employees, and did not preclude him from carrying on other contracts.

The plaintiff in the action above described was entitled to recover damages measured by the difference between the contract price and what it would have cost him fully to have performed the contract.

At the trial of the action above described, it appeared that the teamster bought two horses for special use in the carrying out of the contract, which, after the breach of the contract by the defendant, he sold at a loss of $140. Held, that this loss could not be recovered in addition to the damages assessed according to the rule above stated.

In the action above described, the plaintiff was entitled to interest from the date of the writ upon the amount assessed according to the rule above stated.

It appeared that the contract above described called for performance for a period of two years, that it was broken and the action was begun within the first four months of the two years, and that the damages assessed were based upon findings of the profit per team that the plaintiff would have realized from a full performance of the contract. Held, that the plaintiff was entitled to interest from the date of the writ upon the amount assessed as damages.

CONTRACT upon a contract in writing providing that for two years beginning August 1, 1914, the plaintiff should "furnish to" the defendants "all teams required by them for the delivery of their goods, each team to be equipped with a canvas," and that the defendants should pay therefor $6 per day for double teams and $4 per day for single teams, the defendants also agreeing to [568] notify the plaintiff before six o'clock each afternoon as to the number of teams required for the following day, and that they would hire no outside teams while the plaintiff could supply them. Writ dated November 7, 1914.

In the Superior Court the action was referred to an auditor. The auditor's findings on the question of damages were as follows:—

"Should the court find that as a matter of law the plaintiff is entitled to recover and that it is entitled to recover damages from the time it discontinued its work up to the expiration of the contract, I find as a fact that the contract had one year, eight months and twenty days to run and that deducting from that period of time Sundays and holidays and other days when horses and caravans would not be used by reason of weather conditions, the plaintiff would have been called upon to supply horses and caravans for approximately four hundred and fifty days. I find that the general average of horses and wagons (caravans and tip-carts) used was four and one half per day and that the profit which the plaintiff would make was $1 per wagon, making a total profit of $2,025. To this sum should be added the loss resulting from the sale of the two Cliest horses, making a total loss of $2,165, which sum the plaintiff is entitled to recover as damages."

Other material findings of the auditor are described in the opinion. The action was heard by Keating, J., without a jury, upon the auditor's report as the only evidence. He found for the plaintiff, in the sum of $2,733.75, "consisting of $2,025, the sum found due the plaintiff in one of the auditor's findings, with interest from the date of the writ;" and reported the action to this court for determination.

C. S. Hill, for the defendants.

P. D. Turner, for the plaintiff.

CARROLL, J. The parties entered into a written contract dated June 25, 1914, by which the plaintiff was to furnish at an agreed price, single and double teams to do the defendants' trucking. There was evidence that after the parties had operated under the contract for a few months the defendants broke the contract. The auditor found that at the time of the breach the contract had four hundred and fifty days to run; that the defendants were using during the period on an average "four and one half teams per day," and that the profit to the plaintiff would be $1 for each team, [569] making the total profit $2,025. He also found that the plaintiff purchased for special use in the defendants' business, two “Cliest” horses for which it paid $625 and sold them for $485, sustaining a loss thereby of $140. The defendants contend that the plaintiff is entitled to damages, only from the time the work under the contract was discontinued to the date of sale; that the rule of damages is the same as in a contract for personal services, and it is the duty of the party claiming damages for the breach of such contract, to make all reasonable efforts to secure another contract. In the Superior Court the case was heard on the auditor's report. The judge found for the plaintiff in the sum of $2,025 for damages, and interest from the date of the writ, and the case was reported to this court on the question of damages only, on the pleadings and the auditor's report.

The auditor found that eight days after the contract was broken, the plaintiff sold all its horses, caravans and other equipment at public auction; that at this time there was a demand for horses and caravans, and it could have found a ready market for their use at a price equal to that which it was to receive from the defendants; that the plaintiff could have found use for its horses and wagons, had it made any real effort to do so, at the contract price; and that if the plaintiff was entitled to damages only from the time of the breach, to the time of the sale, it is entitled to recover $36.

The rule that when a contract calls for the personal services of a party, he is required, in case the contract is broken by the other party, to use reasonable efforts to obtain other employment reasonably adapted to his abilities, thereby lessening the damages, Maynard v. Royal Worcester Corset Co. 200 Mass. 1, 6, Hussey v. Holloway, 217 Mass. 100, has no application to the case at bar. The auditor found that the contract did not require on the part of the plaintiff, any special skill and could be performed by its employees. In Dixon v. Volunteer Co-operative Bank, 213 Mass. 345, the plaintiff was hired by the defendant to act as its attorney for one year. His work was to examine titles to land offered to the bank as security. Before he was discharged he had the right to do additional work without accounting to the defendant for the profits received. It was held that this was not lessened by the defendant's breach of the contract, that the plaintiff's [570] time did not belong to the defendant under his contract and he was not its servant and not bound to minimize the damages suffered by him, and that the rule of damages which is applicable when a contract for personal service is broken, did not apply. The same rule governs the case at bar. Wolf v. Studebaker, 65 Penn. St. 459. Allen v. Murray, 87 Wis. 41, 47, 48.

The contract did not preclude the plaintiff from carrying on as many other contracts as it saw fit. Its time did not belong to the defendants and the contract did not call for personal services on the part of the plaintiff. The defendants having broken the contract became liable to the plaintiff for all damages which would compensate it for its loss and such as the parties were supposed to have contemplated would result from its breach. The plaintiff was entitled to recover damages measured by the difference between the contract price and what it would have cost it to have performed the contract, or, as found by the auditor, a profit of $1 on each team from the time the contract was broken until its expiration according to its terms. Olds v. Mapes-Reeve Construction Co. 177 Mass. 41. Hanson & Parker, Ltd. v. Wittenberg, 205 Mass. 319. John Hetherington & Sons, Ltd. v. William Firth Co. 210 Mass. 8, 21. Dixon v. Volunteer Co-operative Bank, supra. Nelson Theatre Co. v. Nelson, 216 Mass. 30, 34. Pipolo v. Fred T. Ley & Co. Inc. 216 Mass. 246.

The auditor found that the plaintiff bought two "Cliest" horses specially for use in connection with the defendants' business, for which he paid $625 and sold them at a loss of $140. The plaintiff contends it is entitled to recover this amount in addition to the profits on the contract. If the plaintiff had completed the contract, it could recover only the contract price. This expenditure for preliminary outlays could not be received in addition, and by recovering the profits on the contract, full compensation is given for its loss. See Holt v. United Security Life Ins. & Trust Co. 47 Vroom, 585, 597, 599; Worthington & Co. v. Gwin, 119 Ala. 44, 51. It is not necessary to decide in this case, if a contract is broken, what damages should be recovered for expenses in preparing for its performance, where the profits cannot be determined. See Pond v. Harris, 113 Mass. 114, 121, 122.

The plaintiff is entitled to interest from the date of the writ. [571] Cormier v. Brock, 212 Mass. 292. Jackson v. Brockton, 182 Mass. 26. Speirs v. Union Drop Forge Co. 180 Mass. 87. According to the report, judgment is to be entered on the findings.

So ordered.

 78 W.Va. 612
Jameson
v.
Board of Education.
Supreme Court of Appeals of West Virginia.
Submitted March 14, 1916.
Decided June 3, 1916.

[612] 1. Master and Servant Employment Contract Breach.

A contract between employer and employee for services to be rendered for a period of nine months, for a stipulated salary payable monthly, is an indivisible contract and is broken by the refusal of the employer to permit the employe to perform his part of the contract. (p. 614).

2. Judgment Master and Servant Res Judicata Breach of Employment Contract.

For such breach plaintiff can bring but one action and he is entitled to recover entire damages therein. He can not elect to treat the contract as still in force and recover on an indebitatus assumpsit count for unearned salary, but can only recover damages for the breach. Judgment in one action, in such case, is a bar to a subsequent suit. (p. 614).

(POFFENBARGER AND MILLER, JUDGES, dissenting).

Error to Circuit Court, Marshall County.

Action by Hallie Janes Jameson against the Board of Education, etc. Judgment for plaintiff, and defendant brings error.

Reversed and rendered.

John P. Arbenz, for plaintiff in error.

Martin Brown, for defendant in error.

Williams, President: Plaintiff recovered a judgment against defendant for $609.67, the amount of seven months wages, claimed to be due [613] her on a contract of employment as teacher of music in the public schools of the cities of Benwood and McMechen, in the school district of Union, Marshall county, and by this writ of error defendant seeks a reversal.

Plaintiff declared upon the special contract, averring that she was employed by defendant for a period of nine months, beginning on the 11th of September, 1911, and continuing for nine school months, on an agreed salary of $75 per month, payable monthly; that, throughout the term of employment, she stood ready to perform her part of the contract; that she appeared at the schools on the morning of each school day and demanded of the respective superintendents thereof that her work be assigned her; and that she did actually perform her part of the contract. The declaration contains also the common counts in assumpsit. The only breach averred is the failure and refusal of defendant to pay the wages for the last seven months of the schools.

Defendant pleaded the general issue, and also tendered a special plea, which the court rejected on motion of plaintiff. It averred that plaintiff had theretofore sued defendant and recovered a judgment against it for $150, on account of salary claimed by plaintiff for the first two months of school, ending, respectively, on the 6th of October and the 3rd of November, 1911; that it was proven, on the trial of that action, that defendant had revoked or attempted to revoke plaintiff's appointment as music teacher, and had refused to permit her to teach; and that she had not, in fact, taught, though she held herself in readiness to do so; and that said, judgment is still in force. Wherefore, defendant prayed judgment whether plaintiff ought to have or maintain her present action.

The case was tried by the court in lieu of a jury, upon an agreed statement of facts, from which it appears that the plaintiff was not permitted by defendant to teach; that it sued out a writ of injunction to prevent her from continually appearing at the schools for the purpose of teaching, which writ was later dissolved on her motion. It thus appears that plaintiff actually performed no part of the contract, although she was at all times ready to do so, but that she was prevented from performing by defendant.

[614] There was a total breach of the contract by defendant's refusal to permit plaintiff to perform her part of it. Her right of action for that breach was then complete, and it was not necessary for her to appear at the schools each day and demand opportunity to perform the contract. She could not thereby make her cause of action any more perfect than it was the moment she was informed that defendant had refused to be bound by the contract. Her suit is not for damages for a breach of the contract of employment, but is a suit for wages claimed to be due under the contract, for services which were never actually performed. She seeks to treat the contract as subsisting until the end of the term, and broken only in respect of the promise to pay her the agreed monthly wages. This she can not do. Having performed no services whatever, she can not recover upon the promise, as if wages were earned. Her only right of action is for a breach of the contract. It is insisted that she is entitled to recover on account of constructive service, that being always ready and willing to perform the contract she should be regarded in law as having actually performed it. That doctrine was first announced by Lord Ellenborough in Gandell v. Potigny, 4 Campbell 375, a nisi prius case decided in 1816, in which he held that a servant, employed for a quarter and wrongfully discharged before the end thereof, might recover upon an indebitatus assumpsit count for wages for the entire quarter. Although that doctrine was followed in a few later cases, it has, long since, been repudiated as unsound, both in England and in a majority of the states of the Union. The court of King's Bench, in 1828, held that,

"If the contract between master and servant be the usual one for a year, determinable at a month, the servant, if turned away improperly, cannot recover on a count stating the contract to be for an entire year; and he cannot, on the common count for wages, recover for any further period than that during which he had served.''

Archard v. Hornor, 3 Car. & P. 349. See also, Smith v. Hayward, 7 Ad. & E. 544, 112 Eng. Rep. 575; Goodman v. Pocock, 15 Q. B. 576. In the case last cited, plaintiff hired for a year, and was wrongfully dismissed in the middle of a quarter. He brought an action for his wrongful dismissal, the declaration [615] containing a special count therefor. The jury were instructed not to take into account the services actually rendered during the broken quarter, as they were not recoverable except upon an indebitatus count; and they gave damages accordingly. He then brought a second action to recover on an indebitatus count for services rendered during the broken quarter, and the court held that it could not be maintained. In his opinion at page 580, Lord Campbell says:

"He might then have rescinded the contract, and have recovered pro rata on a quantum meruit. But he did not do this; he sued on the special contract, and recovered damages for a breach of it. By this course he treated the contract as subsisting; and he recovered damages on that footing. It is said that he recovered in that action in respect of no services except those of the past quarters. I receive with profound respect the opinion which the illustrious Judge who tried the former action is said to have expressed: but I have a clear opinion, and I must act upon it, that the jury in assessing damages for the wrongful dismissal ought to have taken into the account the plaintiff's salary up to the time of his dismissal. It is said there is now no plea to raise the point. The plea of non assumpsit is quite sufficient: it obliges the plaintiff to shew a debt due; and that could be only by shewing that work was done for which payment could be claimed under the common count.''

Coleridge, J., in his opinion in the same case, says:

"In a case like this the servant may either treat the contract as rescinded and bring indebitatus assumpsit, or he may sue on the contract; but he cannot do both; and, if he has two counts, he must take the verdict on one only. Here the plaintiff elected to sue on the contract: and he cannot now sue in this form."

The following English cases are to the same effect: Elder ton v. Emmens, 6 C. B. 160, 136 Eng. Rep. 1213, affirmed in House of Lords, 13 C. B. 495, 138 Eng. Rep. 1292; and Beckham v. Drake, 2 House of Lords Cases, 579.

The constructive service doctrine was followed for a while by the courts of New York, but. was later repudiated. The court of appeals of that state, in Howard v. Daly, 61 N. Y. 362, 19 L. R. A. 285, expressly disapproves the doctrine of Gandell v. Potigny, supra, and overrules the earlier New York [616] decisions. In that case plaintiff was employed to act at the Fifth Avenue Theatre, in such capacity and manner as defendant might direct, and was to be paid a salary of $10 a week during the season, beginning about September 15, 1870, and continuing until about July 1, 1871. There, as in this case, plaintiff was prevented by the defendant from entering upon the discharge of her engagement, and, in fact, never rendered any actual service. The court held that she could not maintain an action for wages, but could sue only for breach of the contract, and that it was not necessary to tender her services after the breach. Respecting the constructive service doctrine, Judge Dwight, at page 373, says:

"This doctrine is, however, so opposed to principle, so clearly hostile to the great mass of the authorities, and wholly irreconcilable to that great and beneficent rule of law, that a person discharged from service must not remain idle, but must accept employment elsewhere if offered, that we cannot accept it. If a person discharged from service may recover wages, or treat the contract as still subsisting, then he must remain idle in order to be always ready to perform the service. How absurd it would be that one rule of law should call upon him to accept other employment, while another rule required him to remain idle in order that he may recover full wages. The doctrine of 'constructive service' is not only at war with principle, but with the rules of political economy, as it encourages idleness and gives compensation to men who fold their arms and decline service, equal to those who perform with willing hands their stipulated amount of labor. Though the master has committed a wrong, the servant is not for one moment released from the rule that he should labor; and no rule can be sound which gives him full wages while living in voluntary idleness. For these reasons, if the plaintiff was discharged after the time of service commenced, she had an immediate cause of action for damages, which were prima facie a sum equal to the stipulated amount, unless the defendant should give evidence in mitigation of damages."

Keedy v. Long, 71 Md. 385, was a case similar to the one we are now considering, except that there plaintiff had been permitted to render some services, whereas, in this case plaintiff [617] was prevented from rendering any services. Miss Long was employed by Mr. Keedy to teach music in The Hagerstown Female Seminary, of which he was principal, for the period of a year at a salary of $350 for the term, payable in monthly installments. She taught one month and twenty days and was then discharged, having received pay for the first full month. She sued for twenty days salary and recovered judgment therefor which Keedy paid. She later sued for a breach of the contract and recovered a judgment for damages in the lower court. The defendant appealed and secured a reversal, the court holding that the judgment in the first action was a complete bar to the second. Another well considered case by the same court, and directly in point here, is Olmstead v. Bach, 78 Md. 132. There plaintiff had been employed for a period of a year as cutter in defendant's establishment and was to be paid $50 weekly. He was discharged before the end of the term and all wages due at that time were paid to him, including four days beyond the time when he was discharged. Nine days after his discharge he brought an action before a justice of the peace and recovered judgment for $50, which was satisfied. He thereafter brought another action, in the city court of Baltimore, for wages claimed to have become due after the first action. Defendant pleaded the judgment recovered in the first suit, as a bar to the second, to which plaintiff replied that the first suit was only for one week's salary under the contract. A demurrer to this replication was sustained, and judgment rendered for defendant; and plaintiff appealed. The court of appeals affirmed the judgment, holding that the contract was entire and indivisible and that, after its breach, but one action could be maintained on it.

James v. Allen County, 44 Ohio St. 226, is also directly in point. There plaintiff was employed as superintendent of the stone and brick work in the building of a courthouse, for such time as would be necessary to complete the building, at a salary of $100 a month, payable monthly. He was discharged before the building was completed, and sued for the wages which he claimed he should have been permitted to earn, from April 13 to June 13, 1882, and recovered judgment therefor. Later, he sued for wages which he could have earned [618] from June 13 to August 13, 1882, and defendant pleaded the former recovery. A demurrer to this plea was overruled by the common pleas court, and judgment given for defendant. The judgment was affirmed on appeal, the court holding:

"Where an employee, engaged under a contract for a specific time, the wages being payable in installments, is wrongfully discharged before the expiration of the period of hire, and all wages actually earned at the time of the discharge have been paid, an action will not lie to recover the future installments, as though actually earned, but the remedy is by action for damages arising from the breach of the contract, and one recovery upon such claim is a bar to a future action."

The decisions of the different states of the Union on the point are not harmonious, some of them still holding to the early English doctrine. But the great majority of the states, as well as the better considered cases, hold that, where an employe has been engaged to render services for a definite period, even though his salary is payable in installments, the contract is not divisible, and, if wrongfully discharged or prevented from entering upon the services by his employer, he can not recover on a count for salary claimed to be due for services not actually performed; nor can he maintain but one action for the breach of contract. The authorities following the doctrine of constructive service announced by Lord Ellenborough, as well as those that ignore it, some of them going so far as to expressly disapprove it, may be found collated in 13 Am. & Eng. Ann. Cases, pp. 112-115.

The peculiar doctrine of successive liability for loss of wages, as if upon a contract of continuing indemnity, anounced by the Minnesota court in McMullan v. Dickinson, 60 Minn. 156, 51 Am. St. Rep. 511, to be the proper rule, where a servant has been wrongfully discharged, we do not find to be followed by any other court. Such a rule produces a multiplicity of suits for one and the same wrong, and tends to encourage idleness in the discharged servant. Although wrongfully discharged, a servant still owes a duty, both to himself and to society, to be diligent in trying to secure other employment. A recovery once had, whether it be upon a count [619] for damages for a breach, of the contract or upon an indebitatus assumpsit count for services which could have been rendered, bars subsequent recovery. For the breach of an entire contract, the party aggrieved has a right to recover in the one action all damages, prospective as well as past. 2 Sedgwick, (9th ed.), Sec. 636g; Thomas v. Willoughby, 24 Grat, 521; Lamoreaux v. Rolfe, 36 N. H. 33; Wilkinson v. Dunbar, 149 N. C. 20; Sutherland v. Wyer, 67 Me. 64; Litcher, stein v. Brooks, 75 Tex. 196; and Monarch Cycle M'f'g. Co. v. Meuller, 83 Ill. App. 359.

That the contract, in this case, was entire needs no discussion. Plaintiff's declaration alleges that she was employed for a period of nine months, a school year.

Having declared on the special contract for wages which she claimed to be due thereunder, the performance of the services for which they were to be paid is put in issue by the general plea, and the agreed facts prove that plaintiff actually performed no services whatever, and, therefore, her suit must fail, unless her declaration may properly be regarded as a suit for damages for the breach of the contract for her employment. This question we need not determine, for the reason that, if it could be so regarded, her former recovery is a complete bar to the present action.

The judgment will be reversed; and, it being apparent from the agreed facts that plaintiff could not make, out any better ease, if a new trial should be awarded, judgment will be entered here for defendant.

ON RE-HEARING

After a careful reconsideration of this case and the authorities bearing thereon we are of opinion to adhere to our former conclusion. The authorities are not harmonious, but our decision harmonizes with the weight of fhe more modern and better reasoned cases from other states, and accords with what we regard as the better rule applicable to cases of this character. The contract was entire, the breach thereof also entire and plaintiff had but one right of action. She exhausted her remedy by her former suit and is barred of the present action by the judgment rendered therein.

Reversed, and rendered.

[620] Poffenbarger, Judge, (dissenting):

I am unable to concur in the conclusion adopted by a majority of the members of the court. In my opinion, the procedure to which they have committed themselves subordinates substantial right and justice to a bare technicality. If the ruling had any foundation in a statute, I would, of course, acknowledge its supremacy. But it is of judicial origin and its correctness has not been universally admitted. It has never been recognized in this state, and the decisions in other jurisdictions are only persuasive authority here. Whether the weight of. authority favors it may well be doubted. Originally, all authority was against it. Since 1850, the trend has been in its favor, but it stands upon fallacious and unsound reasoning. That the wages for the whole term of nine months, less any sum the plaintiff might have earned at similar employment, in the same community, within the same period, by the exercise of diligence, or did actually earn within that period, anywhere or in any way, could have been recovered in a single action, is conceded by all authorities. Such an action could have been brought immediately upon the refusal of the board to permit the plaintiff to teach, or at the expiration of the term contemplated by the contract. The additional right to sue for the installments, as of the dates at which they would have become due and payable, on the theory of constructive service, accepted in some jurisdictions, or separate and distinct breeches of the contract, as of the times at which the installments would have become due, giving a right of indemnity for each separate breach of such character, is accorded in some states and denied in others, the latter asserting the doctrine of a single and entire breach for which only one action can be maintained.

The constructive service theory advanced by Lord Ellenborough in Gandell v. Potigny, 4 Camp. 375, has been accepted and extensively applied in this country. Marx. v. Miller, 134 Ala. 347; Moss v. Land Co., 93 Ala. 269; Ramey v. Holcombe, 21 Ala. 567; Liddell v. Chidester, 84 Ala. 508; Gardenhire v. Smith, 39 Ark. 280; Champion v. Hartshorne, 9 Conn. 564; Hitchens v. School Dist., 62 Alt. 897; Rogers v. Rarham, 8 G-a. 190; Hickman v. Motor Car Co., 151 Mich. 214; Isaacs [621] v. McAndrew, 1 Mont. 437; Madden v. Porterfield, 53 N. C. 166; Stewart v. Walker, 14 Pa. St. 293; King v. Steiren, 44 Pa. St. 171; Rye v. Stubbs, 1 Hill L. (S. C.) 384; Waits v. Todd, 1 McNull. L. (S. C.) 26; Congregation v. Peres, 1 Coldw. (Tenn.) 620; Jones v. Jones, 2 Swan (Tenn.) 605; Dunn v. Hereford, 1 Wyo. 206; McGuffin v. Coyley, 2 U. C. L. B. 308. But it has been repudiated as unsound in the country of its origin. Smith v. Hayward, 7 Ad. & El. 544; Goodman v. Pocock, 15 Q. B. 576. Nevertheless, many of the American courts adhere to the doctrine of several and successive actions for breeches of contracts for services, containing covenants or promises to pay in installments, some saying constructive service is only a fiction set up as a means of working out just results, and others, that the doctrine of constructive service may consistently be rejected without abrogation of the rule allowing successive action for installments. The best exposition of the latter theory is found in McMullan v. Dickinson Company, 60 Minn. 156, 51 Am. St. 512.

As the character of the contract involved in that case affords better means of illustration of the operation of the two rules, than those usually found either in. the decided cases or the course of business, it having been one for service throughout a long period of time, about thirty years, the facts upon which the decision rests are here briefly stated. The defendant, a corporation, by a written contract, employed the plaintiff as its general manager, at a salary of $1500.00 per year, payable in monthly instalments of $125.00, from and after the date of the contract, as long as he should own in his own name 50 shares of the capital stock of the corporation, fully paid up, and the business of the corporation should be con tinued, not exceeding the term of the existence of the corporation, the charter of which gave it right of life for thirty years. The contract was dated February 25, 1892. Having complied with all conditions and performed the service contemplated until October 23, 1893, the plaintiff had been then discharged and dismissed without cause. Having recovered, in one action, his salary to March 1, 1894, amounting to $512.00, he brought a second one for his salary for the months of March [622] and April, 1894, in bar of which the defendant plead the former recovery. A demurrer to this plea was sustained and the plea rejected. From the order thus holding the plea insufficient and rejecting it, an appeal was taken, on which the order was affirmed.

The gist of the decision, sustained by a well considered and logical opinion, is set forth in the syllabus of the case as follows:

"The liability of the master to the servant is not an absolute liability for wages for constructive service during the balance of the term, but a contingent liability of indemnity for loss of wages. This liability accrues by installments on successive contingencies, each of which consists in the failure of the servant, without his fault, to earn, during an installment period, the amount of wages which he would have earned had the contract been performed, and the deficiency is the measure of damages. The original breach is not total, but the failures to pay the successive installments constitute successive breaches, and successive actions may be maintained for the recovery of the installments of damages as they accrue, if any. This is the rule of damages usually allowed under the fiction of constructive service, but that fiction is rejected as false and inconsistent with that rule, while the rule itself is retained."

The opinion is a vigorous denial of the correctness of the theory of legal singleness and indivisibility of the breach of such a contract, effected by the refusal of the employer to allow performance by the employee, and demonstration of the fallaciousness of some of the argument given in support of the proposition. Such of it as exposes the contradiction inherent in the constructive service theory is approved, but its applicability to the allowance of successive actions for damages, on the theory of several and distinct breaches, is denied and refuted. Allowance thereof no more encourages idleness on the part of the discharged employee than limitation to a single action; for, in neither case, is the servant required to present himself for work daily. In neither, does he seek recovery of wages, on the theory of either actual or constructive service. He goes for damages in each, founded upon the wrongful discharge only. In each, the measure of the damages [623] is the amount of wages or salary agreed to be paid, less what the plaintiff has actually earned or could have obtained in similar employment. In each, he must avail himself of any opportunity he may have to mitigate the damages by similar service, and the defendant carries the burden of proof of such opportunity. This alleged economic reason, for entirety of breach and singleness of right of action, in such cases, suggested in Howard v. Daly, 61 N. Y. 362 and so strongly urged in James v. Allen County, 44 Ohio St. 226 and Glass Co. v. Stoehr, 54 Ohio St. 157, obviously has no application after the elimination of the theory of constructive service.

What remains of the argument is little more than an arbitrary declaration of the courts, that the discharge or renunciation of the contract can afford only one cause of action. Of course, public policy, as well as equitable considerations, forbids the splitting of actions. One controversy over a single matter suffices. Two or more work an unnecessary consumption of the time of the courts, intensify and prolong contro versies, involve waste of the time and resources of the litigants and militate against social peace and harmony. But these considerations are manifestly subordinate to the contract lights of the citizen, and afford no justification for abatement thereof. Indivisibility of a single cause of action is wise and just and should be rigidly observed, but the classification of causes respecting singleness should be so made as to avoid infliction of hardship and oppression or production of absurd results. In the absence of legislation, the classification is a court function and a mere matter of procedure. In the exercise of this right, some courts have declared the cause of action arising upon a breach of such a contrast as is involved here single, Olmstead v. Bach and Myers, 78 Md. 132; Keedy v. Long, 71 Md. 385; Closeman v. Lacoste, 28 Eng. L. & Eq. R. 140, while others assert the contrary. See the long list of cases first cited.

Injustice of the single action rule, in both the practical and legal senses of the term, is forcibly demonstrated by Canty, J. in McMullan v. Dickinson Co., 60 Minn. 156, 158, in this language:

''By this charter the life of this corporation is thirty years. If the action is commenced immediately after the [624] breach how can prospective damages be assessed for this thirty years, or for even one year? To presume that the discharged servant will not be able for a large part of that time to obtain other employment, and award him large damages, might be grossly unjust to the defendant. Again the servant is entitled to actual indemnity, not to such speculative indemnity as must necessarily be given by awarding him prospective damages. His contract was not a speculative one and the law should not make it such."

It is said entirety of the breach and cause of action is a logical sequence of entirety of the contract, but logic alone does not determine the character of laws. Primarily, it is formal rather than practical and often ignores the most vital elements of wise and just conduct. Conditions, more than theories, determine the form and operation of laws. That such a contract as this imposes more than one obligation upon the employer is obvious. One is to permit the service throughout the entire stipulated period, others to pay for the service at the end of each installment period. He may violate any of the latter without breaking the former and the servant may sue him as often as he breaks them. If the agreement were entire and indivisible, this would be an impossibility. In the absence of a provision for periodical payments, there could be no right of action for wages actually earned, until all the service contracted for should have been performed. Omstein v. Yahr, 119 Wis. 429. So a contract providing for periodical payments is severable, while one stipulating for a single payment for the whole service is indivisible and entire in all respects. Though unlike and different in class, while in full operation, it is said such contracts are exactly alike when broken. That is a palpable non sequitur. What rule or principle of law confers upon the employer power to alter the form, force or effect of the contract, by his own act and that a wrongful one? To permit him to do so violates a maxim basic and fundamental in both law and equity. Both sternly and uniformly deny to any man the fruit or benefit of his own wrong. Imperious judicial declaration of likeness, impossible except for the effect accorded a wrongful act, is no justification of manifest departure from an all-prevading legal principle. In form and effect, the contract, [625] as made, in operation and without breach other than non-payment, is divisible. How does it become indivisible and entire in all respects? By the sole act of the employer? He may break it, but he alone can no more change its character than he alone could have made it. No such right in him is judicially recognized. The court itself endeavors to make the alteration, founding its action partly on his wrong, in violation of the maxim to which reference has been made.

Nor can he by his own act, destroy the contract. He can wrongfully terminate the relation of master and servant, but that is not the contract. It is only a thing stipulated or provided for by the contract. His wrong in doing so confers upon the injured party right of rescission or abrogation of the agreement, but, until he does rescind, it remains in force. If he sees fit to sue on it for his damages, he elects to keep it in force, not to destroy it, and, in doing that, he subjects himself to the burden, and extends to the defendant the benefit, of another invariable and fundamental principle of law and equity. He cannot accept or hold the benefit of it in any manner or degree without taking upon himself all of its burdens. He must give as well as take. He remains under all the obligations the contract imposes upon him and extends to the defendant all the benefits it confers upon the latter. He can no more partially continue the contract in force by an action on it or otherwise, than he can partially rescind it. If either party, after an opportunity to escape from the obligation of the contract, elects to stay within it for any purpose, he is in for all. For the proposition that the injured party has an absolute right to keep a contract fully alive, after renunciation thereof by the other party, there is authority of the highest character. In Frost v. Knight, L. R. Exch. Ill, (1 Moak, 218) Cockburn Ch. J. said:

"The promisee, if he pleases, may treat the notice of intention," (not to perform the contract), "as inoperative, and await the time when the contract is to be executed, and then hold the other party responsible for all the consequences: but in that case he keeps the contract alive for the benefit of the other party as well as his own. He remains subject to all his own obligations and liabilities under it, and enables the other party not only to [626] complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances which would justify him in declining to complete it."

The doctrine is affirmed by an unbroken line of authority. Leigh v. Patterson, 8 Taunt. 540; Phillpotts v. Evans, 5 M. & W. 275; Ripley v. McClure, 4 Exch. 359; Cort v. Ambergate, 6 Eng. L. & Eq. 230; Hochester v. Ve La Tour, 20 Eng. L. Eq. 157; Kadish v. Young et al., 108 I11. 170; Roebling's Sons Co. v. Fence Co., 130 Ill. 660.

These decisions only define the right of the injured party, in the case of notice to him of intention on the part of the other, not to perform the contract, given before the time of performance has arrived. The status of the contract, after an action upon it for damages for the breach has been brought, is not therein defined. But they emphatically give the injured party the right of election and deny power in the wrong-doer to abrogate or alter its obligation. If the contract does not survive, how does it sustain an action? There is no recission. The action is founded upon its terms, not upon an implied promise to reimburse for money expended, materials furnished or work done, under it, as in the case of rescission; and its terms and provisions constitute the basis of ascertainment of the damages. Neither the election to sue nor the action itself abates anything from the contract. The declaration affirms it and adheres to it. Only refusal or failure of performance is complained of. The contract continues to operate and bind the defendant, else he would not be bound. It, not merely his wrongful act, is the foundation of the action. If it were not, the cause of action would have to be treated as having arisen ex delicto, from a mere tort. Continuance of the obligation through the action and beyond it to the end of the term, is the basis of allowance of damages and imposition of the reciprocal duty of mitigation, when the action has been brought before arrival of the time for performance or the end of the period of service contracted for.

In case of renunciation or default on the part of the employer, the employee has an universally acknowledged right of election as to whether he will rescind, whether he will sue on the contract, whether, in that event, he will sue immediately [627] after the default, or await the time of performance or the exniration of the contract period. Being faultless, he may take any legal course he may choose to pursue. The contract has a main or principal obligation, but it has others of a minor character and severable. All are broken. It is entirely practicable to sue for a breach of the separable minor stipulation. Why should the courts bar that course? To shield the wrong doer from the costs and annoyance of several suits? He could have protected himself from that by omission of the minor stipulations from the contract, when he made it. Is it to save time to the courts? They are provided lor the purpose of administering the law and awarding just and legal rights.

A severable contract is not a separate or independent one. To say a contract is severable necessarily implies union of its parts, but not an indissoluble union. Separate and independent contracts are wholly disconnected. Any complete contract, consisting of several parts, is, in some sense, entire, but many such contracts are severable, and they are severed or separated for remedial purposes, the very purpose for which severance here is denied. The severance is made to enable the courts to do justice between the parties. "The great weight of modern authority is to the effect, however, that a contract to do several things at several times is divisible in its nature because, although the agreement is in one sense entire, the performance is several, and an action will lie for the breach of any one of the stipulations, each of them being considered in respect to the remedy as a several contract.'' 23 Cyc. 444. Thus, Maryland, denying right of successive actions on a contract of employment, stipulating for periodical payments, holds several suits on the same bond for different breaches may be maintained and that a recovery for one default on it does not bar a second action on it for another breach. Ollendorff v. Orendorff, 48 Md. 298. Likewise, Indiana holds:

"Although a mortgagee, holding several notes secured by the same mortgage, which mature at different times, and one of which is due, may foreclose as to all, yet he may institute his suit to foreclose alone as to the note due, and if he do not prosecute but one such suit at the same term of Court, he shall recover costs in each successive foreclosure.

[628] "A judgment of foreclosure on one such note can not be pleaded as a bar to a subsequent suit on the same mortgage to enforce payment of another note, because said notes may properly be considered as so many successive mortgages, and successive causes of action."

Grouse v. Holman, 19 Ind. 31. In Badger v. Titcomb, 15 Pick. (Mass.) 409, the court held, after reviewing the English authorities, that "A contract to do several things at several times is divisible in nature, and an action of assumpsit lies upon every default." Anciently, in England, no action was allowed on a contract for money payable in installments, until the last one became due. Beckwith v. Noti, Cm. Jac. 504; Rudder v. Price, 1 H. Bl. 547; Siddall v. Rawcliffe, 1 Cromp. & M. 487. Later the courts departed from the rule, held such contracts divisible and allowed assumpsit for installments. Cooke v. Whorwood, 2 Samed. 337; Rudder v. Pierce, 1 H. Bl. 547. As to when two actions for matters growing out of the same contract may be maintained, the authorities are not uniform. In Hartley v. Harman, 11 Ad. & Ell. 798, and Goodwin v. Pocock, 15 Q. B. 576, right to recover wages earned under a service contract, in an action for wrongful dismissal, was denied. In Perry v. Dickerson, 85 N. Y. 345, it was allowed. The right to do this was asserted in Howard v. Daly, 61 N. Y. 369, but the Maryland court, in Keedy v. Long, 71 Md. 385, denies it.

The constructive service theory of recovery was not rejected in England until 1850. Finding that theory contradictory and illogical, the court, in rejecting it, enunciated the extreme doctrine now in question, without any inquiry as to whether the contract was severable, and solely upon the fallacious suggestion of the economic reason to which reference has been made. In the mean time, the doctrine of the early English cases had been followed in most of the jurisdictions of this country. As has been shown, the reason for the English departure has no application to successive actions for damages and, for such purpose, the contract is divisible in nature. To deny the right of division to the party not in fault gives to the wrong-doer the benefit of his wrongful act. It allows him to introduce an enormous element of uncertainty into the estimate of the damages, one so great that [629] some courts decline to allow any beyond the date of the trial. Gordon v. Brewster, 7 Wis. 355; Bowler v. Armour, 24 Ala. 194. It is equally unjust to the defendant. Often the issue is whether there was any employment and the defendant, to test that question, must hazard everything on the issue. If he fails, he may be required to pay an enormous sum for nothing. An action for damages for an installment would enable him to test that question and, on losing, to tender the employment, and thus obtain the services in return for his money, or put an end to the damages. Refusal to perform a contract, under an erroneous impression as to its obligation, does not deny, to the party so refusing, the benefit of the contract. Armstrong v. Boss, 61 W. Va. 38; Bannister v. Coal & Coke Co., 63 W. Va. 502. Why should a refusal, under a mistake as to whether one has been made at all, work such ruinous consequences as sometimes ensue from such action, in this class of cases? Ordinarily, such contracts are made for short periods of time, but they may be for long periods as in McMullan v. Dickinson Co.

Procedure ought not to be characterized by such technicalities as unnecessarily work hardship and injustice. This harsh rule so operates and, besides it is not well founded in precedent and has not been settled with due regard to fundamental principles or the results of its operation.

Judge Miller joins in this dissent.

285 N.E.2d 904
362 Mass. 306
LOUISE CAROLINE NURSING HOME, INC.
v.
DIX CONSTRUCTION CORP. et al.
Supreme Judicial Court of Massachusetts, Suffolk.
Argued May 1, 1972.
Decided July 13, 1972.

[285 N.E.2d 905] Joel Z. Eigerman, Boston, for plaintiff.

Paul V. Power, Boston (Joseph P. Rooney, Boston, with him), for Reliance Ins. Co.

Before TAURO, C.J., and REARDON, QUIRICO, BRAUCHER and HENNESSEY, JJ.

QUIRICO, Justice.

This is an action of contract in which Louise Caroline Nursing Home, Inc. (Nursing Home) seeks damages from Dix Construction Corp. (Dix) for breach of a contract to build a nursing home, and from Reliance Insurance Company (Reliance), for its default on a surety bond guaranteeing performance by Dix. Dix filed no answer, was defaulted, and did not participate in [362 Mass. 307] the litigation. Reliance filed an answer and defended in its own behalf.^[1]

The case was referred to an auditor for hearing pursuant to a stipulation of the parties that his findings of fact would be final.^[2] After hearing the parties, the auditor filed a report in which he found generally: (1) that the Nursing Home had fulfilled all of its contractual obligations to Dix; (2) that Dix had committed a breach of its contractual obligations to the Nursing Home by failing, without justification, to complete the contract within the time agreed; and (3) that Reliance committed a breach of its obligations as surety by failing to take any action when Dix defaulted. However, he further found that the Nursing Home "suffered no compensable damages as a result of the breach by Dix . . . and the breach by Reliance . . . in that the cost to complete the nursing home . . . was within the contract [285 N.E.2d 906] price . . . less what had been paid to Dix. . . ."

The Nursing Home filed a number of objections to the auditor's report and requested, pursuant to Rule 90 of the Superior Court (1954), that the auditor file a brief summary of the evidence relating to each such objection. After the auditor filed such a summary, the Nursing Home filed a motion to recommit the case to the auditor for correction of alleged errors. Reliance filed a cross motion asking (a) that the Nursing Home's objections [362 Mass. 308] to the report be overruled and (b) that judgment be entered in its favor on the report. The judge denied the motion of the Nursing Home and allowed that of Reliance. The case is before us on the Nursing Home's exceptions to those rulings which in turn involve its objections to the auditor's report.

1. The Nursing Home objected to the auditor's failure to grant four of its requests for findings. Although we could properly refuse to consider this objection because it was not argued in the Nursing Home's brief, it is sufficient to say that requests to an auditor to make findings of fact have no standing, without more, as the basis for objections, although they may be part of the foundation for a motion to recommit. Greenhood v. Richardson, 226 Mass. 208, 209-210, 115 N.E. 296, and cases cited. Staples Coal Co. v. Ucello, 333 Mass. 464, 466, 131 N.E.2d 763.

2. The Nursing Home objects to the auditor's action in striking the testimony of one Goggin offered by it as an expert witness to establish (1) the value of the incomplete building when Dix ceased construction and (2) the projected value of the building when completed. With reference to Goggin's testimony the auditor stated in his report:

I am disregarding this opinion evidence of Goggin and striking it out without regard to its relevancy. The principal reason for striking this testimony is that the witness never stated any valid basis in fact for his opinions. Further, I have doubts about the witness's qualifications to give such testimony.^[3]

[362 Mass. 309] A judge, or an auditor or master designated by a judge to hear a matter, has broad discretion to determine whether an expert witness has a proper basis, in terms of adequate information and preparation, to render an opinion on the matter in dispute. See State Tax Commn. v. Assessors of Springfield, 331 Mass. 677, 684-685, 122 N.E.2d 372; H. H. Hawkins & Sons Co. v. Robie, 338 Mass. 61, 65, 153 N.E.2d 768. The auditor's exclusion of Goggin's testimony for the reasons set forth in his report and in his summary of evidence under Superior Court Rule 90 was a proper exercise of his discretion and was not error.

The auditor's observation that he had doubts about Goggin's qualifications affords an additional ground for the exclusion [285 N.E.2d 907] of his testimony. We have often stated that

"(w)hether a witness who is called as an expert has the requisite qualifications and knowledge to enable him to testify, is a preliminary question for the court. The decision of this question is conclusive, unless it appears upon the evidence to have been erroneous, or to have been founded upon some error in law."

Perkins v. Stickney, 132 Mass. 217, 218, and cases cited. No such error appearing on the record, Goggin's testimony was also properly excluded on this ground.

3. Two of the Nursing Home's objections relate to the measure of the damages applied by the auditor in reaching his conclusion that it suffered no "compensable damages." The rule of damages applied by the auditor was that if the cost of completing the contract by the use of a substitute contractor is within the contract price, less what had already been paid on the contract, no 'compensable damages' have occurred. The Nursing Home argues that the proper rule of damages would entitle it to the difference between the value of the building as left by Dix and the value it would have had if the contract had been fully performed. Under this rule the Nursing [362 Mass. 310] Home contends that it was entitled to the "benefits of its bargain," meaning that if the fair market value of the completed building would have exceeded the contractual cost of construction, recovery should be allowed for this lost extra value. It bases this argument primarily upon our statement in Province Sec. Corp. v. Maryland Cas. Co., 269 Mass. 75, 94, 168 N.E. 252, 257, that

"(i)t is a settled rule that the measure of damages where a contractor has failed to perform a contract for the construction of a building for business uses is the difference between the value of the building as left by the contractor and its value had it been finished according to contract. In other words the question is how much less was the building worth than it would have been worth if the contract had been fully performed. Powell v. Howard, 109 Mass. 192. White v. McLaren, 151 Mass. 553, 24 N.E. 911. Norcross Brothers Co. v. Vose, 199 Mass. 81, 95, 96, 85 N.E. 468. Pelatowski v. Black, 213 Mass. 428, 100 N.E. 831."

This statement was probably not necessary to the court's decision in the Province Sec. Corp. case and, in any event, must be read in light of the cases cited by the court in support of it. All of these cases involved failure of performance in the sense of defective performance, as contrasted with abandonment of performance. In one of the cases, Pelatowski v. Black, 213 Mass. 428, 431, 100 N.E. 831, 832, the court expressly distinguished "cases where a contractor has abandoned his work while yet unfinished."

The fundamental rule of damages applied in all contract cases was stated by this court in Ficara v. Belleau, 331 Mass. 80, 82, 117 N.E.2d 287, 289, in the following language:

"It is not the policy of our law to award damages which would put a plaintiff in a better position than if the defendant had carried out his contract. Magnolia Metal Co. v. Gale, 189 Mass. 124, 132-133, 75 N.E. 219. Snelling v. Dine, 270 Mass. 501, 506, 170 N.E. 403. Bucholz v. Green Bros. Co., 272 Mass. 49, 54, 172 N.E. 101. Associated Perfumers, Inc. v. Andelman, 316 Mass. 176, 185-186, 55 N.E.2d 209. 'The fundamental principle upon which the rule of damages is based is compensation. . . . Compensation is the value of the performance of the contract, that is, what the plaintiff would have made had the contract [362 Mass. 311] been performed.' F. A. Bartlett Tree Expert Co. v. Hartney, 308 Mass. 407, 412, 32 N.E.2d 237, 240. . . . The plaintiff is entitled to be made whole and no more."

Consonant with this principle we have held that in assessing damages for failure to complete a construction contract,

"(t)he measure of the plaintiffs' damages (at least in the absence of other elements of damage, as, for example, for delay in construction, which the master has not found here) can be only in the [285 N.E.2d 908] amount of the reasonable cost of completing the contract and repairing the defendant's defective performance less such part of the contract price as has not been paid."

DiMare v. Capaldi, 336 Mass. 497, 502, 146 N.E.2d 517, 521. This principle was recently reiterated in Providence Washington Ins. Co. v. Beck, 356 Mass. 739, 255 N.E.2d 600.^[4] In the face of this principle the Nursing Home's arguments attempting to demonstrate the amount of alleged "benefits of its bargain" lost are to no avail. In any event, it should be noted that any such "benefits of its bargain" as would derive from obtaining a building worth much more than the actual costs of construction are preserved if the building can be completed at a total cost which is still within the contract price, less any amount which has already been paid on the contract. The auditor was correct in applying the "cost of completion" measure of damages which excluded any separate recovery for lost "benefits of its bargain."

The Nursing Home additionally contends that even under the rule of damages applied by the auditor they were entitled, in the words of the DiMare case, supra, to recover "other elements of damage, as, for example, for delay in construction." 336 Mass. at 502, 146 N.E.2d at 521. The short answer to this contention is the auditor's express statement, [362 Mass. 312] in his summary of the evidence, that "(t)here was no specific evidence as to the costs of delay, if any."

The Nursing Home also argues that it is entitled to recover such additional interest as it was required to pay as a result of the default by Reliance and the breach of contract by Dix. This argument is based on the auditor's findings and summary of evidence that the interest rate on the $400,000 construction loan was to be one per cent per month "commencing with the date of maturity," and that the total interest paid, including all discounted interest, was $120,094.76.^[5] There was no evidence or finding, however, as to the rate of interest paid prior to maturity or as to the amount of alleged excess interest attributable to the defendants' defaults. The Nursing Home simply has not sustained its burden of proof on this point.

4. For the foregoing reasons the Nursing Home's exceptions to the denial of its [285 N.E.2d 909] motion to recommit the auditor's report and to the granting of Reliance's motion for entry of judgment in accordance with the auditor's report must be overruled.

Exceptions overruled.

[1] The City Bank and Trust Company, the first mortgagee of the nursing home property, was originally a plaintiff in this action seeking recovery from Reliance on the surety bond of which the bank was an obligee. During the hearings before the auditor counsel agreed that the bank is seeking no damages in this action. We treat this as tantamount to a discontinuance by the bank. This was probably due to the fact that the bank foreclosed its mortgage and the proceeds of the foreclosure sale were sufficient to pay what was due it at that time. Several months before this action was started, a court of this Commonwealth appointed a receiver for Dix. Although Dix seasonably filed a suggestion of that fact in this case with a request that the receiver be substituted for it, no action appears to have been taken on the request. A third party action brought by Reliance against several officers of Dix was severed from this case before the hearing and is not before us.

[2] A companion case brought by Dix against the Nursing Home was also referred to the same auditor for hearing with the present case, but it was discontinued at some unspecified time before the auditor filed his report.

[3] In his summary of the evidence relating to the objection on this point the auditor amplified his reasons for excluding Goggin's testimony. The summary states, in part: 'The basis of Goggin's opinions with reference to the value of the nursing home at different times was a rule of thumb or practice of appraisal by which a purchaser of a nursing home determined the value of such nursing home. He also testified there was a per bed valuation put on a building and this sometimes was regardless of the cost of the building. When asked to clarify or explain the 'perbed valuation,' the witness did state that it (the valuation) varied with the type of construction, that at that time the state came out with rules and so did the Government that it was Class 1, 2, 3, 4, 5 construction, that the per bed cost would be formulated or based on the type of construction, . . . the area in which it was located, the land area, the surrounding scene and the environment. He further testified that all of these things had a bearing, and that each and every nursing home was considered in all the lights of these various aspects of an appraisal and that he approached this nursing home in this manner. The witness did not state the particular or specific facts on which his opinions were based.'

[4] In the earlier case of Pelatowski v. Black, 213 Mass. 428, 431, 100 N.E. 831, 832, the court had suggested that "(i)n such cases the measure of damages to be recovered or recouped well might be the reasonable cost of completing the work.' However, this observation was subsequently disapproved in Ficara v. Belleau, 331 Mass. 80, 82, 117 N.E.2d 287, because it included no provision for the deduction of 'such part of the contract price as has not been paid and is not still payable. . . ." 331 Mass. at 81, 117 N.E.2d at 289 (quoting from Restatement: Contracts, § 346(1)).

[5] There is an aura of mystery about this interest figure of $120,094.76. The auditor's report states that this is "(t)he total amount of interest paid by . . . (the Nursing Home) to" the bank under the construction loan agreement. The manner in which it is computed is not disclosed. When the bank foreclosed its mortgage on February 2, 1967, it had advanced a total of $230,905.24 for periodic payments to Dix as construction of the building progressed. The foreclosure sale price was $351,000 which, by coincidence or otherwise, happens to be exactly $120,094.76 above the principal balance due on the mortgage. This figure of $120,094.76 appears to be a computation of interest at the rate of one per cent per month, or twelve per cent per year, on $400,000 for the two years, six months and nine days between July 24, 1964, when the bank agreed to loan that amount, and February 2, 1967, when it foreclosed its mortgage. Of course, the bank never advanced more than $230,905.24 of the $400,000 face amount of the mortgage. Even if we were to assume, contrary to fact, that the sum of $230,905.24 had been advanced on July 24, 1964, it would require an interest rate in excess of twenty per cent per annum to accumulate interest of $120.094.76 by February 2, 1967. A careful reading of the record sheds no light on issue on which the Nursing Home had the burden of proof.