10 Adol. & El. 309, 113 Eng. Rep. 119

HAIGH AND ANOTHER
against
BROOKS.

1839

[309] Declaration in assumpsit, stating that defendant promised, in consideration that plaintiffs, at his request, would give up to him a certain guarantee of £10,000 on behalf of L., then held by plaintiffs. Averment, that plaintiffs gave up the guarantee, but defendant did not perform his promise. Plea, that the guarantee was a promise to answer for the debt of another, and that there was no agreement, &c., in writing, wherein any sufficient consideration was stated (according to stat. 29 Car. 2, c. 3, s. 4). And that the supposed guarantee was contained in the following written memorandum signed by defendant:—"Messrs. H." (the plaintiffs). "In consideration of your being in advance to L. in the sum of £10,000 for the purchase of cotton, I do hereby give you my guarantee for that amount on their behalf. J. B." Held, by the Court of Queen's Bench, on demurrer, that the words of the guarantee did not necessarily imply a past advance; and that, if they left it even doubtful whether a future advance was not guaranteed, a promise made in consideration of giving it up was valid. But, held, further, that at all events it appeared on the pleadings that the plaintiffs had delivered something to the defendant, on the faith of his promise, which he at the time considered valuable, and this being so, and no fraud imputed, he could not afterwards excuse a breach of the promise, by alleging that the thing given up was not of the value he had supposed. Judgment affirmed all error, by the Court of Exchequer Chamber. Held, by the Court of Error, that the guarantee did not necessarily imply a past advance; and that the plaintiffs, on a trial, might have offered evidence to shew that future advances had been contemplated. Held also, Maule B. dubitante, that the paper on which the guarantee was written appeared by the declaration and plea to have been given up by plaintiffs to defendant; and that this alone was consideration for a promise. Held, by the Court of Queen's Bench, that, on the trial of an issue of fact raising the question whether or not the above guarantee bad been delivered up, the guarantee might be given in evidence, though unstamped.

[S. C. 2 P. & D. 452; 9 L. J. Q. B. 194. See Souch v. Strawbridge, 1846, 2 C. B. 808. Followed, Goldshede v. Swan, 1847, 1 Ex. 160. Adopted, Edwards v. Jones, 1849, 8 C. B. 445; Bainbridge v. Wade, 1850, 16 Q. B. 98; Broom v. Batchelor, 1856, 1 H. & N. 263.]

Assumpsit. The first count of the declaration stated that heretofore, to wit on, &c., "in consideration that the said plaintiffs, at the special instance and request of the said defendant, would give up to him a certain guarantee of £10,000 on behalf of Messrs. John Lees and Son, Manchester, then held by the said plaintiffs, he the said defendant undertook, and then faithfully promised the said plaintiffs, to see certain bills, accepted by the said Messrs. John Lees and Sons, paid at maturity; that is to say, a certain hill of exchange" bearing date, &c., drawn by plaintiffs upon and accepted by the said Lees and Sons, payable three months after date, for £3466. 13s. 7d., and made payable at, &c.: and also a certain other bill, &c.: describing two other bills [113 Eng. Rep. 120] for £3000 and £3200 drawn by plaintiffs upon and [10 Adol. & El. 310] accepted by Lees and Sons, and made payable at, &c.: averment, that plaintiffs, relying on defendant's said promise, did then, to wit on, &c., "give up to the said defendant the said guarantee of £10,000" Breach, non-payment of the bills, when they afterwards came to maturity, by Lees and Sons, or the parties at whose houses the bills respectively were made payable, or by defendant, or any other person, &c.

Third plea, to the first count: "That the said supposed guarantee of £10,000, in consideration of the giving up whereof the defendant made such supposed promise and undertaking as therein mentioned, and which guarantee was so given up to the said defendant as therein mentioned, was a special promise to answer the said plaintiffs for the debt and default of other persons, to wit the said Messrs. John Lees and Sons in the said first count mentioned; and that no agreement in respect of or relating to, the said supposed guarantee or special promise, or any memorandum or note thereof, wherein any sufficient consideration for the said guarantee or special promise was stated or shewn, was in writing and signed by the said defendant, or any other person by him thereunto lawfully authorized. And the said defendant further saith that the said supposed guarantee, in consideration of the giving up whereof the defendant made the said supposed promise and undertaking in the said first count mentioned, and which was so given up as therein mentioned, was and is contained in a certain memorandum in writing signed by the defendant, and which was and is in the words and figures and to the effect following, that is to say :—'Manchester, 4th February, 1837. Messrs. Haigh and Franceys. Gent.— In consideration of your being [10 Adol. & El. 311] in advance to Messrs. John Lees and Sons, in the sum of £10,000 for the purchase of cotton, I do hereby give you my guarantee for that amount (say £10,000), on their behalf. John Brooks.' — And that there was no other agreement or memorandum or note thereof, in respect of, or relating to, the said last-mentioned supposed guarantee or special promise: wherefore the said defendant says that the supposed guarantee, in consideration whereof the said defendant made the said supposed promise and undertaking in the said first count mentioned, was and is void and of no effect; and therefore that the said supposed promise and undertaking in the said first count mentioned was and is void and of no effect." Verification.

Demurrer, assigning for cause, "That it is admitted by the plea that the memorandum, the giving up of which was the consideration of the guarantee in the said declaration mentioned, was actually given up to the said defendant by the said plaintiffs, and the consideration was therefore executed by the said defendant, and that, even if the original memorandum was not binding in point of law, the giving up was a sufficient consideration for the promise in the declaration mentioned." Joinder.

The demurrer was argued in last Hilary term^[1].

Sir W. W. Follett for the plaintiff. The undertaking declared upon is, on the face of it, sufficient to satisfy the Statute of Frauds, 29 Car. 2, c. 3, s. 4. It is said, however, that the consideration is really insufficient, because the guarantee delivered up was one which could [10 Adol. & El. 312] not have been sued upon consistently with the statute. But, assuming that to be so, a promise in consideration of delivering up such a guarantee might still be good. The defendant might, for substantial reasons, wish to have the guarantee back His mercantile character was pledged by it. It might, on various other accounts, be important to him that such a paper should not remain in the plaintiff's hands: and, if the bargain was made upon any consideration, the Court will not inquire into its adequacy. This principle was lately recognized in Hitchcock v. Coker^[2]. Such a promise might be made in consideration of delivering up a letter; no one but the defendant might be able to judge how far the possession of it was valuable; but, if the letter was given up at his request, the rule would apply, that any thing so given, to the plaintiff's detriment, or the benefit of the defendant, is consideration for an assumpsit. Suppose the undertaking given up had been one rendered unavailing by the Statute of Limitations, no action would have lain upon it, but the attempt to enforce it could not perhaps have been resisted without injury to the defendant's mercantile character; the relinquishment of it, therefore, would have been [113 Eng. Rep. 121] good consideration for a promise. The present is a similar case. Release from a moral obligation is consideration enough for an express promise. If it were necessary that something should be foregone to which there was a legal right, the delivery of the mere written paper, which contained the first guarantee, was sufficient in this case. The plaintiffs are entitled to put some value on the possession of such a paper, though not legally available; as they might on the possession of a cancelled bond, or bills [10 Adol. & El. 313] accepted by the defendant on wrong stamps. It is not, indeed, clear in this case that the first guarantee was void. In Boehm v. Campbell (3 B. Moore, 15. 8 Taunt. 679), a similar guarantee was held to shew a sufficient consideration, though the advance for which the security was given had been already made, and it did not appear more distinctly than in the present case that time was to be granted. Supposing it even questionable whether the former undertaking bound the defendant, yet the discharge from a claim, or waiver of a defence, on which the promisee might or might not have been legally entitled to succeed, is consideration enough to support an assumpsit; Longridge v. Dorvilie (5 B. & Ald. 117), Stacy v. The Bank of England (6 Bing. 754). Here, however, it appears, at all events, that the original guarantee may have been given under circumstances which rendered it morally binding; and that brings it within the principle of Lee v. Muggeridge (5 Taunt. 36), and other cases in which promises supported by moral obligation have been held sufficient.

Sir J. Campbell, Attorney General, contra. First, the original guarantee was void; and, if so, then, secondly, the promise declared upon is without consideration. First, the guarantee of February 4, 1837, expresses only the past consideration of the plaintiffs "being in advance." The cases cited in note 1 to Osborne v. Rogers (1 Wms. Saund. 264), shew that this is not sufficient ground for an assumpsit, no request being alleged. A valid consideration was essential to a promise at common law; and, when the Statute of Frauds required that thee agree [10 Adol. & El. 314] ment, in certain cases, should be written, it thereby became necessary, not only that a proper consideration should exist, but that the writing should distinctly shew it: Wain v. Warlter's (5 East, 10), Saunders v. Wakefield (4 B. & Ald. 595), Jenkins v. Reynolds (3 Brod. & B. 14), Cole v. Dyer (1 Cro. & J. 461. 1 Tyrwh. 304), Wood v. Benson (2 Cro. & J. 94. 2 Tyrwh. 93), James v. Williams (5 B. & Ad. 1109). A consideration cannot be intended; it must be actually expressed, or necessarily to be implied; Hawes v. Armstrong (1 New Ca. 761), Raikes v. Todd (8 A. & E. 846). Secondly, the guarantee being void, the undertaking substituted for it, without any new consideration, is void also. The case is no better than if a second guarantee had been given in the words of the first. A consideration, to support a promise, must have some value in point of law; Smith and Smith's case (3 Leon. 88), and other authorities cited in note [b] to Barber v. Fox^[3] Rann v. Hughes^[4] illustrates the same point. A man may have in his possession a letter of which improper use might be made; but his delivering it up is no legal consideration. An unfounded action may create annoyance; but the renouncing it is no consideration in law for a promise. Where, indeed, there is a reasonable doubt, in point of law, whether the promisee would or would not succeed if the litigation were prosecuted, the case is different: that was so in Langridge v. Dorville (5 B. & Ald. 117), and Stacy v. The Bank of England (6 Bing. 754). In Shortrede v. Cheek^[5] the consideration disclosed was, [10 Adol. & El. 315] that the plaintiff should withdraw a promissory note, on which he had an unquestioned right of action: and Parke J. said, "There is no doubt that the giving up of any note upon which the plaintiff might have sued, would be a sufficient consideration." It is argued that foregoing a security upon which the Statute of Limitations had attached would be a consideration; but there an action would lie on the security if the statute were not pleaded. Whether the giving up a bill drawn on a wrong stamp would be a consideration or not may be questionable; but the objection is not one of which the Court would take judicial notice: here the Court must take notice that the guarantee is invalid. It is contended here that the promise is binding, because grounded on a moral obligation; but that obligation rests on a promise which is itself not binding; the new engagement, then, cannot have more force than the original one. In the cases where a moral obligation has been held sufficient ground for an express promise, the obligation has been something more [113 Eng. Rep. 122] than a nudum pactum: thus, in Lee v. Muggeridge (5 Taunt. 36), money had been advanced by the plaintiff at the request of the promisor. But the doctrine, that a moral obligation is sufficient consideration for a subsequent promise, is not free from doubt. Lord Tenterden said, in Littlefield v. Shee (2 B. & Ad. 811), that it must be "received with some limitation." The instances which have been considered as establishing that doctrine are brought together in note (a) to Wennall v. Adney (3 Bos. & P. 249), and seem to resolve themselves into these classes. First, where there has been a legal obligation antecedent to the promise; as the duty of overseers to provide for the [10 Adol. & El. 316] poor. Secondly, where there was an antecedent equitable liability, as that of an executor to pay legacies; but the doctrine, as applicable to these cases, appears to have been overruled. Thirdly, where a debt existed before the promise, but the remedy was barred by statute; as in the eases of certificated bankrupts or discharged insolvents; or where the Statute of Limitations has attached: in these instances the party indebted may waive the statutory bar and oblige himself, by a promise, to pay the debt. Fourthly, where a promise merely voidable has been ratified; as in the case of a person of full age promising to pay a debt contracted during his infancy^[6]. In all these cases, so far as the doctrine is established, there has been an actual benefit received, or a debt, or other ground of legal obligation, antecedent to the promise relied upon: not merely a nudum pactum, as in the present instance, where the party originally promising had received no benefit, nor had the plaintiffs incurred any loss or prejudice at his request. The money had been advanced when the guarantee was given; then the defendant says, "forego the guarantee, and I will see you paid." The prior moral obligation was only that which every man is under to keep his word. Nash v. Brown^[7], Holliday v. Atkinson (5 B. & C. 501), and Bret v. J. S. and his Wife (Cro. El. 755), (cited in note [5] to Barber v. Fox (2 Wms. Saund. 137 e. 5th ed.), all shew that moral considerations, where no actual benefit has been received by one party, or prejudice sustained by the other, and no legal duty has attached, are not sufficient [10 Adol. & El. 317] ground for an assumpsit. As to the delivery, in this case, of the mere paper, it is not pretended that the paper bad any value: the contract of guarantee, not the paper containing it, was the object really in question.

Sir W. W. Follett in reply. It may be collected from the guarantee in this ease, as it was from that in Boehm v. Campbell (3 B. Moore, 15. 8 Taunt. 679), that the consideration for giving it was forbearance; and, if that appears with certainty, though not expressed in direct terms, the guarantee was sufficient. Boehm v. Campbell (3 B. Moore, 15. 8 Taunt. 679), is not over-ruled by Bailees v. Todd (8 A. & E. 846). This Court, in the latter ease, could not see clearly that the consideration stated in the guarantee was that alleged in the declaration: but two of the learned Judges were inclined to think, with Alderson B. who tried the cause, that "I hereby undertake to secure to you the payment of any sums of money you have advanced" to H. D. implied a future forbearance by the plaintiffs. So far, that case is favorable to the present plaintiffs: and the words relied upon by them, "I do hereby give you my guarantee for that amount," are stronger than those used in Bailees v. Todd (8 A. & E. 846). And, if it was only doubtful whether such a guarantee was not available, the giving it up was a good consideration. If the invalidity of it was not a point as clear as that the eldest son inherits, the Court will not measure the degree of doubt. It has scarcely been disputed that the giving up of bills drawn on wrong stamps, or a contract on which the Statute of Limitations had attached, would be sufficient consideration: but those cases do not essentially differ from the present. The [10 Adol. & El. 318] bills are void from the first, and cannot be made valid; though the promisor may have good reason for wishing to get them into his possession. It is suggested that the bar created by the Statute of Limitations may be waived; but so also may that under the Statute of Frauds. It is clear that, to support a promise of this kind, there need not have been an original liability in the promisor; for that is not so in the case of the bills, or in that of the contract made during infancy. That a promise may be founded on sufficient consideration, though no benefit has accrued to the promisor, appears from Stevens v. Lynch (12 East, 38), where the drawer of a bill, knowing that time had been given to the acceptor, undertook to pay on the acceptor's default, and an action was held maintainable on that undertaking. But, supposing the guarantee in this case to have been [113 Eng. Rep. 123] totally void, the giving up of a paper on which no action would lie may be sufficient consideration for a promise. Here the plaintiffs, though not entitled to recover on the guarantee, might have brought trover for the document if unlawfully taken out of their hands. In considering whether or not such an action would lie, the value would be of no importance; it is enough for the present argument, if the plaintiffs could have recovered a shilling. Suppose the defendant had said, "If you will not bring trover, I will pay the bills;" an action would clearly have lain on such an agreement, and the case would not have differed from the present. The consideration here is, not the releasing of an action on the guarantee, but the giving it up; whatever its value may have been, the bargain is binding. [Coleridge J. It is decided in Scott v. [10 Adol. & El. 319] Jones (4 Taunt. 865), that trover lies for an unstamped document if it is capable of being made good by stamping.] Any paper may be the subject of an action of trover.

Cur. adv. vult.

Lord Denman C.J., in this term (June 6th), delivered the judgment of the Court.

The action was brought upon an assumpsit to see certain acceptances paid, in consideration of the plaintiffs giving up a guarantee of £10,000 due from the acceptor to the plaintiffs. Plea, that the guarantee was for the debt of another, and that there was no writing wherein the consideration appeared, signed by the defendant, and so the giving it up was no good consideration for the promise. Demurrer, stating for cause that the plea is bad, because the consideration was executed, whether the guarantee were binding in law or not. The form of the guarantee was set out in the plea. "In consideration of your being in advance to Messrs. John Lees and Sons, in the sum of £10,000 for the purchase of cotton, I do hereby give you my guarantee for that amount (say £10,000), on their behalf. John Brooks."

It was argued for the defendant that this guarantee is of no force, because the fact of the plaintiffs being already in advance to Lees could form no consideration for the defendant's promise to guarantee to the plaintiffs the payment of Lees's acceptances. In the first place, this is by no means clear. That "being in advance" must necessarily mean to assert that he was in advance at the time of giving the guarantee, is an assertion open to argument. It may possibly have been intended [10 Adol. & El. 320] as prospective. If the phrase had been "in consideration of your becoming in advance," or "on condition of your being in advance," such would have been the clear import^[8]. As it is, nobody can doubt that the defendant took a great interest in the affairs of Messrs. Lees, or believe that the plaintiffs had not come under the advance mentioned at the defendant's request. Here is then sufficient doubt to make it worth the defendant's while to possess himself of the guarantee; and, if that be so, we have no concern with the adequacy or inadequacy of the price paid or promised for it.

But we are by no means prepared to say that any circumstances short of the imputation of fraud in fact could entitle us to hold that a party was not bound by a promise made upon any consideration which could be valuable; while of its being so the promise by which it was obtained from the holder of it must always afford some proof.

Here, whether or not the guarantee could have been available within the doctrine of Wain v. Warlters (5 East, 10), the plaintiffs were induced by the defendant's promise to part with something which they might have kept, and the defendant obtained what he desired by means of that promise. Both being free and able to judge for themselves, how can the defendant be justified in breaking this promise, by discovering afterwards that the thing in consideration of which he gave it did not possess that value which he supposed to belong to it? It cannot be ascertained that that value was what he most regarded. He may have had other objects and motives; and of their weight he was the only judge. [10 Adol. & El. 321] We therefore think the plea bad: and the demurrer must prevail.

Judgment for the plaintiffs.

There was also, in this ease, an issue of fact, raising the question whether or not the plaintiffs had given up the original guarantee. On this issue the parties went [113 Eng. Rep. 124] to trial at the Liverpool Spring Assizes, 1839, before Alderson B. The plaintiffs called on the defendant to produce the guarantee. On production it appeared to be unstamped, and Cresswell, for the defendant, therefore objected to its being read. Alderson B. admitted it; and the plaintiffs had a verdict. Cresswell moved for a new trial in the ensuing term, on account of the admission of that evidence; and he cited Jardine v. Paine (1 B. & Ad. 663). Patteson J. mentioned Coppock v. Bower (4 M. & W. 361), and Waliss v. Broadbent (4 A. & E. 877). The rule was afterwards made absolute by consent. The cause was tried again at the Liverpool Spring Assizes, 1840, before Erskine J. The guarantee was not produced, having been destroyed since the last trial; but the learned Judge (assuming it not to have been stamped) allowed evidence to be given of its contents; and, on this ground, Cresswell, in the ensuing Easter term, moved for a new trial^[9]. He referred to Crisp v. Anderson (1 Stark. N. P. C. 35), and Gillett v. Abbott (7 A. & E. 783).

Cur. adv. vult.

[1] January 18th. Before Lord Denman C.J., Littledale, Williams, and Coleridge Js.

[2] 6 A. & E. 438. And see Archer v. Marsh, 6 A. & E. 959.

[3] 2 Wms. Saund. 137 e. 5th ed. See Jones v. Waite, 5 New Ca, 341.

[4] Note (a) to Mitchinson v. Hewson, 7 T. R. 350.

[5] 1 A & E. 57. See Wilkinson v. Byers, 1 A. & E. 106.

[6] See Meyer v. Haworth, 8 A. & E. 467.

[7] Chitty on Bills, 74, note x. 9th ed. (1840), by Chitty and Hulme.

[8] See the discussion on the words "for giving his vote," in Lord Huntingtower v. Gardiner, 1 B. & C. 297.

[9] April 16th. Before Lord Denman C.J., Littledale, Patteson, and Coleridge Js.

1 Best and Smith 559, 121 Eng. Rep. 822

COOK AND OTHERS
against
WRIGHT.

Tuesday, July 9th, 1861.—Claim. Compromise. Consideration.—1. The compromise of a claim may be a good consideration for a promise, although litigation has not been actually commenced. 2. The defendant was agent for B., the non-resident owner of houses in a district subject to a local Act. Works had been done by the Commissioners for executing  the Act, the expenses of which, under the provisions of the Act, they charged on the owners of the adjoining houses. Notice had been given to the defendant as if he had been owner of these houses, calling on him to pay the proportion chargeable in respect of them. He attended at a meeting of the Commissioners, and objected both to the amount and nature of the charge, and also stated that he was not the owner of the houses, and that B. was. He was told that if he did not pay, legal proceedings would be taken against him. In the result, the amount charged upon the defendant was reduced, and time was given to him to pay it in three instalments, for which he gave three promissory notes. In an action upon the notes by the Commissioners, Held that there was a sufficient consideration for the notes in the compromise.

[S. C. 30 L. J. Q. B. 321; 4 L. T. 704. Followed, Callisher v. Bischoffsheim, 1870, L. R. 5 Q. B. 452. Approved, Miles v. New Zealand, Alford Estate Company, 1886, 32 Ch. D. 266.]

Declaration by the plaintiffs, as payees, against the defendant, as maker of two promissory notes, dated the 7th February, 1856. The first count was upon a note for 101. 10s., payable twelve months after date; the second was upon a note for 111., pay [121 Eng. Rep. 823] able twenty-four months after date. There was also a count upon an account stated. Claim 501^[a1].

First plea, to the whole declaration: That, after the passing and coming into operation of The Whitechapel Improvement Act, 1853, and after the passing and coming into operation of The Metropolis Local Management Act, 1855, the defendant made the several promissory notes in the said first and second counts mentioned, at the request of the plaintiffs, and that, at the time of making the said promissory notes, the plaintiffs asserted and represented to the [1 Best & Smith 560] defendant, and the defendant believed such assertion and representation to be true, that there was then due and owing, and payable from him, the defendant, as the owner of certain lands and buildings in certain streets called Finch Street, John Street and Dowson's Place, situate within the parish of St. Mary, Whitechapel, to the trustees of the parish of St. Mary, Whitechapel, under the provisions of The Whitechapel Improvement Act, 1853, divers large sums of money in respect of paving the streets fronting, adjoining and abutting on such lands and buildings. And the defendant says that, at the time of making the said promissory notes no sum of money whatsoever was due or owing or payable from the defendant as such owner to the said trustees, nor was the defendant such owner as aforesaid, and that there never was any consideration or value for the defendant making the said promissory notes in the first and second counts mentioned, or either of them, or for his paying the same, or any part thereof; and the plaintiffs never were, nor was any person, ever a holder of the said notes, or either of them, for value or consideration; and that the account stated, in the declaration mentioned, was stated of and concerning the matters and things in this plea mentioned, and not of or concerning any other matter or thing whatsoever.

Second plea, to the first and second counts: That the defendant was induced to make, and did make, the promissory notes in those counts mentioned, and each of them, by the fraud, covin, and misrepresentation of the plaintiffs and others in collusion with them.

On the trial, before Wightman J., at the Sittings in London, during Easter Term, 1860, it appeared that the plaintiffs were four of the Commissioners or trustees [1 Best & Smith 561] acting under and incorporated by sect. 27 of The Whitechapel Improvement Act, 1853, 16 & 17 Vict, c, cxli.; and the action was brought to recover the amount of the two notes mentioned in the declaration. The evidence as to what took place at the time of the giving of the notes was as follows. Mitchell, the clerk to the trustees, said that, certain parts of the district not being in repair in 1854, notices to do repairs were sent or left addressed to the owners; and in October, 1855, he wrote a letter to the defendant demanding 701. for expences incurred by the trustees in doing paving works in front of houses, of which the defendant was the owner or occupier, situate in and abutting on public highways within the district of The Whitechapel Improvement Act^[a2]. The defendant complained that the works done by the trustees had [121 Eng. Rep. 824] seriously injured the property, and that [1 Best & Smith 562] the tenants were dissatisfied, and requested him to get an abatement made. He informed the defendant that the trustees assented, and the balance to be paid by the defendant was agreed to at £30: the defendant then requested time, and time was given, upon condition that he paid interest; and three promissory notes were given by the defendant, the first of which was paid by him under protest. The defendant was called, and stated that Mrs. Bennett was owner of the three houses in question, and that he was tenant of one of them, at a rack rent under her, and collected the rents of the others for her; that he paid the paving rate of the house which he occupied, and the paving rates of the other houses he paid for Mrs. Bennett and in her name; that, upon receiving the notice of October 1855, he went before the Board of Trustees and told them that he was not the owner of the property, and shewed them Mrs. Bennett's receipts for the rent. They replied that, as he paid the rates, they considered he was the owner within the meaning of The Whitechapel Improvement Act, 1853, and, if he did not give notes, they would serve him as they had served Goble, which was by levying an execution on him; that there was another case in which the question of the liability of the inhabitants was to be tried, and, if decided against the trustees, he should not be called on to pay. When the first note became due he complained to Mitchell that the trustees had not carried out their promise to try one of the cases. Mitchell said that, as the defendant had signed the notes, he must pay them, and that the promised trial should take place: thereupon the defendant paid the first note. The defendant was afterwards told by Mrs. Bennett that he was not the owner within the [1 Best & Smith 563] meaning of the Act, and he thereupon went to a Board meeting of the trustees and told them that he would not pay the other notes. It was contended for the defendant that the notes were given without consideration, the defendant not being an "owner" within sect. 7 of The Whitechapel Improvement Act. The jury, in answer to questions put to them by the learned Judge, found that the defendant told Mitchell or the Board, before he gave the notes, that he was not the owner; that the defendant mentioned, before he gave the notes, that Mrs. Bennett was the owner; and that Mitchell, or some member of the Board, told the defendant, in the Board-room, that, unless he gave the notes, he would be served as Goble had been. The verdict was thereupon entered for the defendant, leave being reserved to move to enter a verdict for the plaintiffs. In the same Term (May 4),

Montagu Chambers obtained a rule to shew cause accordingly, on the ground that the evidence did not prove want of consideration for giving the notes, and that, upon the evidence, the plaintiffs were entitled to a verdict.

This rule was argued in this Term, May 23d; before Cockburn C.J., Wightman, Crompton and Blackburn JJ.

Shee Serjt. and Barnard shewed cause.—There was no consideration for the notes. The defendant signed them upon the representation by the trustees that they considered him the owner of the houses because he collected the rents, and was liable to pay the rates. But the defendant was not the owner within sect. 7 of stat. 16 & 17 Vict. c. cxli., by which "the word 'owner,'used with reference to any lands or buildings in respect of which any work is required to be done, or [1 Best & Smith 564] any rate to be paid under this Act, shall mean the person for the time being entitled to receive, or who, if such lands or buildings were let to a tenant at rack rent, would be entitled to receive, the rack rent from the occupier thereof."

The existence of disputes and controversies between a plaintiff and defendant, as to whether the defendant is indebted to the plaintiff, is not a sufficient consideration for a promise: there must be a debt in existence; Edwards v. Baugh (11 M. & W. 641). These notes were not given for the debt of another party : the trustees did not profess to take them in payment of the rates due from Mrs. Bennett. [Crompton J. Suppose money had been paid by the defendant, could he have recovered it back? The maxim quod fieri non debet factum valet seems to apply. Wightman J. referred to Southall v. Bigg and Forman. v. Wright (11 C. B. 481).] In Addison on Contracts, p. 15, 4th ed., it is said: "So if the consideration prove to be a nullity, the promise founded upon it is void, as if the consideration be the forbearance of a suit when there [121 Eng. Rep. 825] is no cause of action . . . or a promise to pay a debt which never had an existence in point of law."

Hannen, in support of the rule.—1. The plea was not proved. The defendant did not believe the representation of the trustees that he was liable as owner of the houses under the provisions of The Whitechapel Improvement Act, 1853. 2. The plea is not good. In Edwards v. Baugh (11 M. & W. 641) the defendant might have been imposed upon as to there being a debt due from him to the plaintiff, but in this case there is no statement that the de [1 Best & Smith 565] fendant yielded to the assertion that he was owner of the houses—it amounts to no more than that he thought it doubtful whether he was liable. [Crompton J. Did the trustees put themselves in a worse position by taking the notes ? Might they not the next day have said, "We have mistaken our position," and have returned the notes?] No. In Baker v. Walker (14 M. & W. 465) Parke B. said, p. 467, "If I give a promissory note for the debt of a third person, I am bound to pay it when due." [Crompton J. The defendant gave the note in discharge of his own liability: he took the debt upon himself, whosoever it was, if the trustees would give him time.] The defendant signed the notes because the trustees threatened to sue him, not because he believed himself to be liable; and he obtained time for payment of the debt of a third person, which is a sufficient consideration for giving the notes; Sowerby v. Butcher (2 Cr. & M. 368). Suppose the trustees had sued Mrs. Bennett for the rates, she might have pleaded that the trustees had taken notes for the amount from her agent. The notes were given for the debt claimed to be due in respect of a particular property. [Cockburn C.J. The difficulty which I feel is that I do not see in what character the defendant acted when he gave the notes. Wightman J. By sect. 11 of stat. 16 & 17 Vict. c. cxli., the provisions of "The Towns Improvement Clauses Act, 1847," 10 & 11 Vict. c. 34, are incorporated with the first mentioned Act, with respect to the paving and maintaining the streets, except sections 54 and 55; and provided that sect. 53 shall extend to such streets only as shall be public highways at the time of the passing of this Act, and that the [1 Best & Smit 566] expenses incurred under the last mentioned section shall be repaid by the owners of the lands therein mentioned, and shall be recoverable from the owners or occupiers in the same manner as is provided with respect to the recovery of expences under the provisions for insuring the execution of works required to be done by the owners and occupiers of lands."]

Cur. adv. vult.

Blackburn J. (July 9th) delivered the judgment of Cockburn C.J., Wightman J. and himself; Crompton J. having left the Court before the argument was concluded.

In this case it appeared on the trial that the defendant was agent for a Mrs. Bennett, who was non-resident owner of houses in a district subject to a local Act. Works had been done in the adjoining street by the Commissioners for executing the Act, the expences of which, under the provisions of their Act, they charged on the owners of the adjoining houses. Notice had been given to the defendant, as if he had himself been owner of the houses, calling on him to pay the proportion chargeable in respect of them. He attended at a Board meeting of the Commissioners, and objected both to the amount and nature of the charge, and also stated that he was not the owner of the houses, and that Mrs. Bennett was. He was told that, if he did not pay, he would be treated as one Goble had been. It appeared that Goble had refused to pay a. sum charged against him as owner of some houses, and the Commissioners had taken legal proceedings against him, and he had then submitted and paid, with costs. In the result it [1 Best & Smith 567] was agreed between the Commissioners and the defendant that the amount charged upon him should be reduced, and that time should be given to pay it in three instalments; he gave three promissory notes for the three instalments; the first was duly honoured; the others were not, and were the subject of the present action. At the trial it appeared that the defendant was not in fact owner of the houses. As agent for the owner he was not personally liable under the Act. In point of law, therefore, the Commissioners were not entitled to claim the money from him; but no ease of deceit was alleged against them. It must be taken that the Commissioners honestly believed that the defendant was personally liable, and really intended to take legal proceedings against him, as they had done against Goble. The defendant, according to his own evidence, never believed that he was liable in law, but signed the notes in order to avoid being sued as Goble was. Under these circumstances the substantial question reserved (irrespective of the form of the plea) was [112 Eng. Rep. 826] whether there was any consideration for the notes. We are of opinion that there was.

There is no doubt that a bill or note given in consideration of what is supposed to be a debt is without consideration if it appears that there was a mistake in fact as to the existence of the debt; Bell v. Gardiner (4 M. & Gr. 11); and, according to the cases of Southall v. Rigg and Forman v. Wright (11 C. B. 481), the law is the same if the bill or note is given in consequence of a mistake of law as to the existence of the debt. But here there was no mistake on the part of the defendant either of law or fact. What he did was not merely the making an erroneous [1 Best & Smith 568] account stated, or promising to pay a debt for which he mistakingly believed himself liable. It appeared on the evidence that he believed himself not to be liable; but he knew that the plaintiffs thought him liable, and would sue him if he did not pay, and in order to avoid the expence and trouble of legal proceedings against himself he agreed to a compromise; and the question is, whether a person who has given a note as a compromise of a claim honestly made on him, and which but for that compromise would have been at once brought to a legal decision, can resist the payment of the note on the ground that the original claim thus compromised might have been successfully resisted.

If the suit had been actually commenced, the point would have been concluded by authority. In Longridge v. Dorvlle (5 B. & Aid. 117) it was held that the compromise of a suit instituted to try a doubtful question of law was a sufficient consideration for a promise. In Atlee v. Backhouse (3 M. & W. 633), where the plaintiff's goods had been seized by the excise, and he had afterwards entered into an agreement with the Commissioners of Excise that all proceedings should be terminated, the goods delivered up to the plaintiff, and a sum of money paid by him to the Commissioners, Parke B. rests his judgment, p. 650, on the ground that this agreement of compromise honestly made was for consideration, and binding. In Cooper v. Parker (15 Com. B. 822) the Court of Exchequer Chamber held that the withdrawal of an untrue defence of infancy in a suit, with payment of costs, was a sufficient consideration for a promise to accept a smaller sum in satisfaction of a larger.

[1 Best & Smith 569] In these cases, however, litigation had been actually commenced; and it was argued before us that this made a difference in point of law, and that though, where a plaintiff has actually issued a writ against a defendant, a compromise honestly made is binding, yet the same compromise, if made before the writ actually issues, though the litigation is impending, is void. Edwards v. Baugh (11 M. & W. 641) was relied upon as an authority for this proposition. But in that ease Lord Abinger expressly bases his judgment (pp. 645, 646) on the assumption that the declaration did not, either expressly or impliedly, shew that a reasonable doubt existed between the parties. It may be doubtful whether the declaration in that ease ought not to have been construed as disclosing a compromise of a real bona fide claim, but it does not appear to have been so construed by the Court. We agree that unless there was a reasonable claim on the one side, which it was bona fide intended to pursue, there would be no ground for a compromise; but we cannot agree that (except as a test of the reality of the claim in fact) the issuing of a writ is essential to the validity of the compromise. The position of the parties must necessarily be altered in every case of compromise, so that, if the question is afterwards opened up, they cannot be replaced as they were before the compromise. The plaintiff may be in a less favourable position for renewing his litigation, he must be at an additional trouble and expence in again getting up his case, and he may no longer be able to produce the evidence which would have proved it originally. Besides, though he may not in point of law be bound to refrain from enforcing his rights against third persons during the continuance of [1 Best & Smith 570] the compromise, to which they are not parties, yet practically the effect of the compromise must be to prevent his doing so. For instance, in the present ease, there can be no doubt that the practical effect of the compromise must have been to induce the Commissioners to refrain from taking proceedings against Mrs. Bennett, the real owner of the houses, while the notes given by the defendant, her agent, were running; though the compromise might have afforded no ground of defence had such proceedings been resorted to. It is this detriment to the party consenting to a compromise arising from the necessary alteration in his position which, in our opinion, forms the real consideration for the promise, and not the technical and almost illusory consideration arising from the extra costs of litigation. The real consideration therefore depends, not on [121 Eng. Rep. 827] the actual commencement of a suit, but on the reality of the claim made and the bona fides of the compromise.

In the present ease we think that there was sufficient consideration for the notes in the compromise made as it was.

The rule to enter a verdict for the plaintiff must be made absolute.

Rule absolute.

[a1] The suit was commenced in the Whitechapel County Court of Middlesex, and was removed by certiorari into this Court.

[a2] Sect. 38 of stat. 16 & 17 Viet. c. cxli. "That in case any present or future street, not being a highway repaired by any Board of Commissioners or trustees or any part thereof, be not from time to time levelled, paved, flagged, and channelled to the satisfaction of the said trustees, and in such manner and with such materials as they may direct, they may, by notice in writing to the respective owners or occupiers of the lands or buildings fronting, adjoining, or abutting upon such parts thereof as may require to be levelled, paved, flagged or channelled, require them to level, pave, flag or channel the same within a time to be specified in such notice; and if such notice be not complied with, the said trustees may, if they shall think fit, execute the works mentioned or referred to therein, and the expences incurred by them in so doing shall be paid by the owners in default, according to the frontage of their respective lands or buildings, and in such proportions as shall be settled by the trustees, having regard to all the circumstances of the case; and such expences may be recovered from the last mentioned owners as liquidated damages, or by action on the case, in any county court or superior Court of law, in the same manner as rates hereinafter mentioned, and also in like manner as in and by The Towns Improvement Clauses Act [1847], herewith incorporated, is provided, with respect to the recovery of expences in the clauses of the last mentioned Act with respect to the execution of works by owners."

154 F. 481

MARKS
v.
GATES et al.

No. 1,282.
Circuit Court of Appeals, Ninth Circuit.
May 27, 1907.

[482] Appeal from the District Court of the United States for the Third Division of the District of Alaska.

On April 27, 1903, the appellant and the appellee William C. Gates, entered into an agreement at San Francisco, Cal., as follows:

This agreement made and entered into this 27th day of April 1903, by and between William C. Gates, of Seattle, state of Washington, the party of the first part, and Isaac L. Marks, of the city and county of San Francisco, state of California, the party of the second part, witnesseth:

That the said William C. Gates, for and in consideration of one dollar (1) to him in hand paid, the receipt whereof is hereby acknowledged, does hereby agree to and with the said party of the second part that he will convey to said party of the second part a twenty (2D) per centum interest in any and all property which said Gates shall acquire, either by location, purchase or otherwise, in the Territory of Alaska.

In witness whereof the said parties hereto have hereunto set their hands and seals the day and year first above written.

To enforce the specific performance of this contract, the appellant brought a suit alleging that the real consideration of the agreement was the cancellation of a prior indebtedness of $11,225 due to him from Gates, and the payment by the appellant to Gates of the further sum of $1,000 in cash: that in pursuance of said agreement Gates went to Alaska, and thereafter and prior to June 20, 1905, the date of the commencement of the suit, acquired there, by location, purchase, and otherwise, various properties, including certain specified mining claims in the Fairbanks mining district of Alaska, the value of which is more than $750,000. The appellee, Gates, demurred to the complaint on the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was sustained on the ground that the contract set forth in the complaint is so unjust and inequitable as not to entitle the appellant to relief.

Miller, West & De Journel, J. C. Campbell, W. H. Metson, F. C. Drew, S. D. Wood, and C. H. Oatman, for appellant. Before GILBERT, ROSS, and MORROW, Circuit Judges.

GILBERT, Circuit Judge, after stating the case as above, delivered the opinion of the court.

The enforcement of a contract by a decree for its specific performance rests in the sound discretion of the court—a judicial discretion to be exercised in accordance with established principles of equity. A contract may be valid in law and not subject to cancellation in equity, and yet the terms thereof, the attendant circumstances, and in some cases the subsequent events, may be such as to require the court to deny its specific performance. In Pomeroy, § 400, it is said:

He who seeks equity must do equity. The doctrine, thus applied, means that the party asking the aid of the court must stand in conscientious relations towards his adversary; that the transaction from which his claim arises must be fair and just, and that the relief itself must not be harsh and oppressive upon the defendant.

Said the court, in King v. Hamilton, 4 Pet. 311-327 (7 L. Ed. 869):

But this power is to be exercised under the sound judicial discretion of the court with an eye to the substantial justice of the case. When a party comes into a court of chancery seeking equity, he is bound to do justice, and not ask the court to become the instrument of iniquity. When a contract is hard and destitute of all equity, the court will leave parties to their remedy at law, and, if that has been lost by negligence, they must abide by it. It is a settled rule, in a bill for specific performance of a contract, to allow a defendant to show that it is unreasonable or unconscientious.

[483] In Willard v. Tayloe, 8 Wall. 567 (19 L. Ed. 501), Mr. Justice Field said:

In general it may be said that the specific relief will be granted when it is apparent, from a view of all the circumstances of the particular case, that it will subserve the ends of justice, and that it will be withheld when, from a like view, it appears that it will produce hardship or injustice to either of the parties. It is not sufficient, as shown by the cases cited, to call forth the equitable interposition of the court that the legal obligation under the contract to do the specific thing desired may be perfect. It must also appear that the specific enforcement will work no hardship or injustice, for, if that result would follow, the court will leave the parties to their remedies at law.

In Pope Manufacturing Co. v. Gormully, 144 U. S. 224-236, 12 Sup. Ct. 632, 637, 36 L. Ed. 414, Mr. Justice Brown said:

To stay the arm of a court of equity from enforcing a contract, it is by no means necessary to prove that it is invalid; from time to time immemorial it has been the recognized duty of such courts to exercise a discretion, to refuse their aid in the enforcement of unconscionable, oppressive, or iniquitous contracts, and to turn the party claiming the benefit of such contract over to a court of law.

The contract in the present case had, at the time when it was made, no reference to any property then owned by the contracting parties, or even to property then in existence. It did not obligate the appellee, Gates, ever to go to Alaska or to acquire property there. It bound him during his lifetime to transfer to the appellant a one-fifth interest in all property of every description that he might acquire in Alaska by whatever means, whether by location, purchase, devise, gift, or inheritance — property of which neither party could know even approximately the value. It was a bargain made in the dark. The complaint is silent as to the means whereby the property therein described was obtained by Gates. It alleges that its value is more than $750,000. For aught that appears in the complaint to the contrary, the appellee, Gates, purchased this property and paid therefor its full value. The appellant, for the payment of $1,000 in cash and the cancellation of a debt of $11,225, which may or may not have been valid or collectible, now comes into a court of equity and asks the court to decree that the appellee, Gates, transfer to him property of the value of more than $150,000. If he now has the right to such relief, it follows that he may hereafter sustain suits to acquire a like interest in all property of every nature and description which Gates may at any time obtain in Alaska, and that such right will end only with the life of Gates. Courts of equity have often decreed specific performance where the consideration was inadequate, and it may be said in general that mere inadequacy of consideration is not of itself ground for withholding specific performance unless it is so gross as to render the contract unconscionable. But where the consideration is so grossly inadequate as it is in the present case, and the contract is made without any knowledge at the time of its making on the part of either of the parties thereto of the nature of the property to be affected thereby, or of its value, no equitable principle is violated if specific performance is denied, and the parties are left to their legal remedies, if any they have. In King v. Hamilton, supra, specific performance of a contract for the sale of a patented grant of land within the [484] Virginia Military District was denied in a case where the patent specified, and the parties understood, that the grant contained 1,533 ⅓ acres, and it subsequently appeared from a survey that it contained 876 acres in excess of that quantity. In Day v. Newman, 10 Ves. Jr. 300, Lord Alvanley refused to enforce the specific performance of an agreement for the sale for £20,000 of an estate worth only £10,000. There was no actual fraud in the case, but the inadequacy was so great that the court would not enforce it. In Earl of Chesterfield v. Jansen, 2 Ves. Sr. 125, Lord Hardwicke declared unconscionable a contract whereby an expectant heir, in consideration of £5,000, obligated himself to pay £10,000 out of his grandmother's estate if he survived her, but was to pay nothing if she survived him. In Mississippi & Missouri R. R. Co. v. Cromwell, 91 U. S. 643, 23 L. Ed. 367, Mr. Justice Bradley said:

He comes into court with a very bad grace when he asks to use its extraordinary power to put him in possession of $30,000 worth of stock for which he paid only $50. The court is not bound to shut its eyes to the evident character of the transaction. It will never lend its aid to carry out an unconscionable bargain, but will leave the party to his remedy at law.

The facts presented in the complaint are not such as to entitle the court to retain the case for the assessment of such damages as the appellant may have sustained for breach of the contract. A court of equity will not grant pecuniary compensation in lieu of specific performance unless the case presented is one for equitable interposition such as would entitle the plaintiff to performance but for intervening facts, such as the destruction of the property, the conveyance of the same to an innocent third person, or the refusal of the vendor's wife to join in a conveyance. Cooley v. Lobdell, 153 N. Y. 596, 47 N. E. 783; Matthews v. Matthews, 133 N. Y. 679, 31 N. E. 519; Bourget v. Monroe, 58 Mich. 573, 25 N. W. 514; Eastman v. Reid, 101 Ala. 320, 13 South. 46; Milkman v. Ordway, 106 Mass. 232.

The decree of the court below is affirmed.

127 Wash. 285

HENRY EMBOLA, Respondent,
v.
JOHN TUPPELA, by his Guardian ad Litem, C. H. Farrell, Appellant.^[1]

No. 18164. Department Two.
December 7, 1923.

Appeal from a judgment of the superior court for King county, Ronald, J., entered April 16, 1923, upon findings in favor of the plaintiff, in an action on contract, tried to the court. Affirmed.

Howe, Farrell & Meier and J. H. Cobb, for appellant. Murphy & Kumm and Charles L. Harris, for respondent.

PEMBERTON, J.—John Tuppela joined the gold seekers’ rush to Alaska, and, after remaining there a number of years prospecting, was adjudged insane and committed to an asylum in Portland, Oregon. Upon [286] his release, after a confinement of about four years, he found that his mining properties in Alaska had been sold by his guardian. In May of 1918, Tuppela, destitute and without work, met respondent at Astoria, Oregon. They had been close friends for a period of about thirty years. Respondent advanced money for his support, and in September brought him to Seattle to the home of Herman Lindstrom, a brother-in-law of respondent. Tuppela had requested a number of people to advance money for an undertaking to recover his mining property in Alaska, but found no one who was willing to do so. The estimated value of this mining property was about $500,000. In the month of September, Tuppela made the following statement to respondent: "You have already let me have $270. If you will give me $50 more so I can go to Alaska and get my property back, I will pay you ten thousand dollars when I win my property." Respondent accepted this offer and immediately advanced the sum of $50. In January, 1921, after extended litigation, Tuppela recovered his property. Tuppela, remembering his agreement with respondent, requested Mr. Cobb, his trustee, to pay the full amount, and upon his refusal so to do, this action was instituted to collect the same.

The answer of the appellant denies the contract and alleges that, if it were made, it is unconscionable, not supported by adequate consideration, procured through fraud, and is usurious. The appellant also alleges that the amount advanced did not exceed $100, and he has paid $150 into the registry of the court for the benefit of respondent.

The court found in favor of the respondent, and from the judgment entered, this appeal is taken. It is contended by appellant that the amount advanced is a loan and therefore usurious, and that the [287] sum of $300 is not an adequate consideration to support a promise to repay $10,000. It is the contention of respondent that the money advanced was not a loan but an investment; that the transaction was in the nature of a grubstake contract which has been upheld by this court. Raymond v. Johnson, 17 Wash. 232, 49 Pac. 492, 61 Am. St. 908; Ranahan v. Gibbons, 23 Wash. 255, 62 Pac. 773; Mack v. Mack, 39 Wash. 190, 81 Pac. 707; Mattocks v. Great Northern R. Co., 94 Wash. 44, 162 Pac. 19.

This is not a case wherein respondent advanced money to carryon prospecting. The money was advanced to enable appellant to recover his mining property. Appellant had already been advised by an attorney that he could not recover this property. The risk of losing the money advanced was as great in this case as if the same had been advanced under a grubstake contract. Where the principal sum advanced is to be repaid only on some contingency that may never take place, the sum so advanced is considered an investment and not a loan and the transaction is not usurious. "To constitute usury it is essential that the principal sum loaned shall be repayable at all events and not put in hazard absolutely. If it is payable only on some contingency, then the transaction is not usurious. . . ." 27 R. C. L. §21, p. 220. The fact that the money advanced was not to be returned until appellant won his property, a contingency at that time unlikely to occur, supports the finding that the consideration was not inadequate.

To the contention that the contract was procured through fraud, the testimony shows that appellant voluntarily offered to pay the $10,000, and at the time was of sound and disposing mind and considered that the contract was fair and to his advantage.

[288] The trial court having found that there was no fraud and that the contract was not unconscionable, we should uphold these findings unless the evidence preponderates against them. Thompson v. Seattle Park Co., 94 Wash. 539, 162 Pac. 994; Austin v. Union Lumber Co., 95 Wash. 608, 164 Pac. 245; Mottinger v. Reagan, 96 Wash. 49, 164 Pac. 595; Hayes v. Hayes, 96 Wash. 125, 164 Pac. 740. We are satisfied that the evidence supports the findings.

The judgment is affirmed.

MAIN, C.J., MITCHELL, FULLERTON, and BRIDGES, JJ., concur.

[1] Reported in 220 Pac. 789.

[Syllabus from pages 289-291 intentionally omitted]

[315 U.S. 291] Merrs. Francis Biddle, Atty. Gen., and Charles Fahy, Sol. Gan., for petitioners.

Mr. Frederick H. Wood, of New York City, for respondents.

[315 U.S. 292] Mr. Justice BLACK delivered the opinion of the Court.

These two cases arise from a dispute between Bethlehem Shipbuilding Corporation, Ltd., and the government about the amount of profits claimed by Bethlehem under thirteen war time contracts for building ships. The contracts were negotiated and executed in 1917 and 1918, when Germany's destructive warfare against our ocean shipping essential to the successful prosecution of the war made it necessary for the United States to build the greatest possible number of ships in the shortest possible time. They are typical products of a system of procurement heavily relied upon by the United States Shipping Board Emergency Fleet Corporation and other government purchasing agencies at the time.

On June 15, 1917, Congress gave to the President sweeping war powers, 40 Stat. 182, including (1) the power to commandeer shipbuilding plants and facilities, (2) the power to purchase ships at what he deemed a reasonable price with a provision for subsequent revision by the courts in the event the seller regarded the price set as unfair, and (3) the power to purchase or contract for the building of ships at prices to be established by negotiation. Acting under authority delegated to it by the President with Congressional approval, the Fleet Corporation declined to seek utilization of the first and second methods but chose, under the third alternative, to make purchases though ordinary business bargaining.

The "actual cost" to Bethlehem of building the ships over which this dispute arises was about $109,000,000. The generously inclusive formula^[1] for determining "ac [315 U.S. 293] tual cost," not challenged by the government here, was not peculiar to these contracts. It was based on the standard formula used by the Fleet Corporation in its contracts with other shipbuilders. And, as in practically all contracts of this type, there was no risk of loss.^[2] The total profits claimed under the contracts by Bethlehem, and [315 U.S. 294] allowed by both courts below, were about $24,000,000,^[3] or a little more than 22% of the computed cost.^[4] This figure of $24,000,000 does not include such profits as may have been made by Bethlehem Steel Company, Bethlehem's parent, which sold it at the maximum prices established by the War Industries Board, 43,000 tons of steel used in these ships.^[5] The percentage of profits in relation to the actual investment and working capital devoted by Bethlehem to the building of the ships was not found by either of the courts below.^[6]

In No. 8, the government filed a bill in equity against Bethlehem and others. The bill alleged that the gov [295] ernment had been induced to enter into the contracts by fraudulent representations of Bethlehem's agents; and as an independent ground for relief, that it had been the duty of Bethlehem to perform the contracts fairly, honestly, and economically "in the shortest practicable time" for no more than "a fair and reasonable profit" and that any provisions in the contract for payment of more are "void and unenforceable." The prayer was for an accounting and a decree requiring Bethlehem to refund all amounts previously paid to it by the government in excess of what the court should find to be just and reasonable compensation for building the ships. Bethlehem filed an answer and a counterclaim for damages based on alleged breach of contract by the Fleet Corporation.

In No. 9, Bethlehem brought suit at law against the Fleet Corporation claiming damages for breach of the same contracts. In an affidavit of defense and counterclaim the Fleet Corporation repeated the allegations made by the government in No. 8 and sought the same relief.

The two actions were jointly referred by the District Judge to a Master who held hearings and made findings. In No. 8, the Master recommended that the government's bill be dismissed, and on the authority of Nassau Smelting & Refining Works v. United States, 266 U.S. 101, 45 S. Ct. 25, 69 L. Ed. 190, further recommended that Bethlehem's counterclaim be dismissed for want of jurisdiction, the amount claimed being in excess of $10,000. In No. 9, he recommended that judgment be entered for Bethlehem for $5,272,075^[7] with interest at 2% from September 1, 1922. The District Judge declined to allow any interest, applying the law of Pennsylvania as he thought our decision in Erie R. Co. v. [315 U.S. 296] Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, required. In all other respects he followed the Master's recommendations and rendered judgment accordingly. 23 F. Supp. 676; 26 F. Supp. 259. The Circuit Court of Appeals affirmed. 3 Cir., 113 F.2d 301, 305. On application of the United States and the Fleet Corporation, we granted certiorari. 311 U.S. 632, 61 S. Ct. 49, 85 L. Ed. 402.

As the case reaches us, the controversy revolves primarily around the section of the contracts which sets out what is to be paid to Bethlehem. In all the contracts, that section contains substantially the following provisions:

"The price to be paid for each vessel to be constructed and furnished in accordance with the terms of this contract . . . shall be the actual cost, plus the definite sum for profit hereinafter in this Article provided for, based upon an estimated base cost to the Contractor. . . . Should the actual cost be less than the estimated . . . cost . . . the Contractor shall be allowed as profit on each vessel in addition to said fixed sum for profit . . . one-half the amount by which such actual cost of each vessel falls short of the estimated cost. . . ."

Thus, a high estimated cost would increase the probability of "savings" to be divided between Bethlehem and the government. And the more the estimated cost exceeded actual cost, the greater would be Bethlehem's share. It can be seen, therefore, that the estimated cost agreed upon by the parties is a pivotal figure.

The government charged Bethlehem with fraud in submitting estimated cost figures which were adopted in the contracts. It was alleged that Bethlehem's agents made two false representations: (1) that it was impracticable to estimate closely what the cost would be and (2) that the estimates Bethlehem submitted, and which the Fleet Corporation accepted, were fair and reasonable under the [315 U.S. 297] circumstances. The Master found that there was no evidence to support this charge of fraud. The District Judge approved this finding as did the Circuit Court of Appeals which said that it had "carefully considered the record in the light of this contention (of fraud)" and concluded that "the estimates submitted by Bethlehem and prepared for it by its representative Brown were fairly and honestly made and as accurate as could be expected under the uncertain conditions then prevailing." And in this Court the petitioner accepts these findings. Therefore, in considering other attacks upon Bethlehem's right to recover, we must do so on the assumption that there was no fraud in Bethlehem's negotiations with the government.

The government contends that even in the absence of fraud, Bethlehem is entitled to nothing by virtue of the half-savings clauses.

One argument is that the contracts gave Bethlehem the benefits of participating in the savings only if Bethlehem by special efforts increased its efficiency and brought actual costs below the estimates agreed to in the contracts.

Neither the specific language of the half-savings provision nor its context supports this contention. On its face, the provision contains an unconditional promise to pay Bethlehem one-half of the difference between the actual and estimated cost of the ships in question. That such a method of computation would tend to discourage careless expenditures and encourage vigorous attempts at realizing economies in building the ships is hardly debatable. But the half-savings clause does not impose any positive obligations upon the builder. The Master found, upon consideration both of the terms of the contracts and testimony on the understanding of the parties, that a showing of savings, without more, obligated the government to share them with Bethlehem. It cannot be main [315 U.S. 298] tained that this finding, accepted by both courts below, is without ample support.

Nothing in the negotiations between the parties as revealed in the record indicates that they had a contrary understanding of the contracts. Bethlehem held out against the Fleet Corporation's early insistence upon lump sum contracts. It continually asserted that uncertainties about final cost due to rapidly rising prices would require it to protect itself by insisting upon a figure too high for the Fleet Corporation's acceptance and therefore itself proposed the cost-plus-fixed-fee-plus-half-savings method of determining compensation. While there seems to have been recognition that this method might induce greater efforts at efficiency which would be to the advantage of both parties, there is not the smallest hint that either Bethlehem or the government regarded the substitution of this method as imposing any positive obligations upon Bethlehem in addition to those it would have had under lump sum contracts.

In the alternative, the government urges that the half-savings clauses are severable and that if the contracts imposed upon Bethlehem no obligation of special effort to effect savings, these clauses were unsupported by consideration, and are therefore unenforceable. The Master and the courts below, however, treated these clauses as non-severable; to do otherwise would call for departure from accepted principles of the law of contract. Whether a number of promises constitute one contract or more than one is to be determined by inquiring "whether the parties assented to all the promises as a single whole, so that there would have been no bargain whatever, if any promise or set of promises were struck out." Williston on Contracts, Rev. Ed., §863 and cases there cited. The record makes it clear that each of the contracts here was assented to as a single whole, and that consummation of a bargain between the parties depended upon inclusion of [315 U.S. 299] the half-savings clause. Furthermore, we know of no federal or state statute or established rule of law in any jurisdiction inconsistent with the elementary proposition that a promise to build ships is good consideration for a promise to pay a sum of money whether fixed in amount or depending upon the relationship between actual and estimated cost.^[8] Cf. Dayton Airplane Co. v. United States, 6 Cir., 21 F.2d 673, 682, 683.

The government further argues that if the half-savings clauses must be taken as permitting Bethlehem to participate in savings however caused, the contracts are invalid because unconscionable. Without specifying that it relies on the law of any particular jurisdiction, the petitioner rests its argument on an asserted general doctrine of unconscionability at common law. Since there is no governing constitutional or federal statutory provision, if these were contracts between private individuals, the law of some locality would be controlling. Erie R. Co. v. Tompkins, supra. Whether the same rule would apply to government contracts in general or to the contracts of the Fleet Corporation^[9] in particular, we need not decide. Nor assuming the applicability of the [315 U.S. 300] Tompkins case to the contracts before us, would we have to determine whether the law of the District of Columbia or of some particular state is decisive. For in invoking the asserted doctrine of unconscionability claimed to be applicable here, the government relies entirely upon the alleged existence of two elements: duress and profits grossly in excess of customary standards. And for reasons we shall set out, neither of these two elements exists here.

Duress. The word duress implies feebleness on one side, overpowering strength on the other. Here it is suggested that feebleness is on the side of the government of the United States, overpowering strength on the side of a single private corporation. Although there are many cases in which an individual has claimed to be a victim of duress in dealings with government, e.g., Union Pac. R. Co. v. Public Service Comm., 248 U.S. 67, 39 S. Ct. 24, 63 L. Ed. 131, this, so far as we know, is the first instance in which government has claimed to be a victim of duress in dealings with an individual.

The argument by which the petitioner seeks to establish that the contracts were made under duress is essentially this: Germany's submarine warfare made it imperative that the government secure the greatest possible number of ships in the shortest possible time; there was a scarcity of ships and shipbuilding facilities in the United States; Bethlehem, the largest shipbuilder in the world, not only had shipbuilding facilities available, but also a trained organization; at a time when Bethlehem's facilities and trained organization were vital to the prosecution of the war, it declined to accept terms proposed by the government, but insisted upon prices which some of [315 U.S. 301] the government's representatives thought too high; although Congress had authorized the Executive to commandeer shipbuilding facilities if necessary, Bethlehem's organization was also needed and the government was without power to compel performance by an unwilling organization; the government therefore had to accept contracts on whatever terms Bethlehem proposed or, doing without the ships which Bethlehem could produce, run the risk of military defeat.

Two basic propositions underlie this argument: (1) The government's representatives involuntarily accepted Bethlehem's terms. (2) The circumstances permitted the government no other alternative.

Upon reviewing the negotiations between the representatives of the government and the representatives of Bethlehem, we cannot find support for the first proposition. The Master found, and the courts below agreed, that "the contracts resulted from negotiations in which both parties were represented by intelligent, well informed and experienced officers whose sole object was to make the best trade possible, under conditions which included the uncertainties of war time contingencies, the results from which were not and could not have been known at the time the contracts were made." Two of the three principal negotiators for the Fleet Corporation have testified in the proceedings before the Master. It is abundantly clear from their testimony that, during the course of the negotiations, they did not consider themselves compelled to accept whatever terms the other side proposed. In the disposition of the two main differences between the negotiators there is no evidence of that state of overcome will which is the major premise of the petitioner's argument of duress. Cf. French v. Shoemaker, 14 Wall. 314, 332, 20 L. Ed. 852.

One of the differences was settled by the government's abandonment of its earlier insistence upon a lump sum arrangement together with a guaranteed date of delivery.

[315 U.S. 302] In view of the rising prices and unpredictable labor supply of the time, Bethlehem's reluctance to enter into contracts on such terms does not seem unreasonable.^[10] And if the government's abandonment of its position is to be regarded as evidence of compulsion, we should have to find compulsion in every contract in which one of the parties makes a concession to a demand, however reasonable, of the other side.

The other major difference between the negotiators was on the matter of price. There is evidence that some of the Fleet Corporation's representatives considered Bethlehem's demands high, but we cannot conclude that the figure finally accepted by the Fleet Corporation was accepted because its representatives felt themselves powerless to refuse. On the contrary, Bethlehem by letter voluntarily offered to accept contracts on terms to be fixed by the Fleet Corporation's general manager. This offer was rejected, one of the Fleet Corporation's negotiators testifying that it preferred to make contracts rather than assume the attitude of dictating terms. Moreover, the general manager of the Fleet Corporation, in whom final authority was vested and who approved these contracts, was of the opinion that high estimated cost figures would be advantageous to the government because "care must be exercised that they be not placed at too low a figure, for if they are, the probabilities are that the contractor will lose interest in keeping the cost down." And one of the negotiators for the Fleet Corporation has given testimony that he was not so much concerned with cost as with speed of production since "legislation was already in the offing in the form of war profit taxes . . . to take care of extreme [315 U.S. 303] cases." We must therefore conclude that the negotiations do not show that Bethlehem forced the government's representatives to accept contracts against their will.

If the negotiations do not establish duress, the government finds it in the circumstances themselves. The petitioner concedes that the government could have commandeered Bethlehem's plants, but it contends that if the plants had been commandeered, Bethlehem's organization would have been unwilling to serve the government in them. Heavy reliance is placed on an observation in the Master's report that "the Government did not have power to compel performance by an unwilling organization." We shall later consider the alleged lack of power. We now point out that the alleged unwillingness is an assumption unsupported by findings of evidence. Since the possibility of commandeering appears not even to have been suggested to Bethlehem, we have no basis for knowing what its reaction would have been. We cannot assume that if the negotiations failed to produce contracts acceptable to both sides, Bethlehem would have refused to contribute to the war effort except under legal compulsion. We cannot lightly impute to Bethlehem's whole organization, composed as it was of hundreds of people, such an attitude of unpatriotic recalcitrance in the face of national peril.

But even if we were to assume, as we do not, an initial attitude of unwillingness, we do not think that the government was entirely without means of overcoming it. For the representatives of the Fleet Corporation, an agent of the United States, came to Bethlehem armed with bargaining powers to which those of no ordinary private corporation can be compared. If it chose to, the Fleet Corporation could have foregone all negotiation over price, compelling Bethlehem to undertake the work at a price set by the President with the burden of going to court if it considered the compensation unreasonably low. And the [315 U.S. 304] power to commandeer Bethlehem's entire plant and facilities, in accordance with authority specifically delegated by the President, provided the Fleet Corporation with an alternative bargaining weapon difficult for any company to resist.

The government nevertheless urges that the circumstances here are analogous to those under which courts of admiralty have held contracts to be unenforceable. In particular, it points to the principle that courts of admiralty "will not tolerate the doctrine that a salvor can take the advantage of his situation, and avail himself of the calamities of others to drive a bargain; nor will they permit the performance of a public duty to be turned into a traffic of profit." Post v. Jones, 19 How. 150, 160, 15 L. Ed. 618. We think this principle has no real relevance to the case before us.

In the first place, if there was a "traffic of profit" here, it was not the unanticipated result of an accident as in the salvage cases. When Congress authorized the procurement of ships through ordinary commercial negotiations, it must have known that the purchases could not be made in a market of open competition because existing shipbuilding facilities would be overtaxed by the construction program. See Department of Commerce, Government Aid to Merchant Shipping, Rev. Ed. 1923, 433; Hearings before House Committee on the Merchant Marine and Fisheries on H.R. 10500, 64th Cong., 1st Sess., passim. And Congress must have anticipated that in the contracts agreed upon profits would be expected and that the self interest inherent in commercial transactions would make itself felt. Therefore, in seeking to establish duress from the circumstances in which these contracts were made, the government is relying on the identical circumstances which were in existence at the time Congress chose the policy of authorizing procurement of ships through com [315 U.S. 305] mercial negotiation. We cannot now invalidate contracts made pursuant to a congressionally selected policy on the sole ground of the coercive effect of circumstances which Congress clearly contemplated. To do so we should have to repudiate legislative power exercised in proper constitutional sphere.

In the second place, the captain of a ship in distress on the high seas who is completely at the mercy of his salvor cannot be likened to a sovereign power dealing with an individual contractor. We cannot regard the government of the United States at war as so powerless that it must seek the organization of a private corporation as a helpless suppliant. The Constitution art. 1, §8 grants to Congress power "to raise and support Armies," "to provide and maintain a Navy," and to make all laws necessary and proper to carry these powers into execution. Under this authority Congress can draft men for battle service. Selective Draft Law Cases (Arver v. United States), 245 U.S. 366, 38 S. Ct. 159, 62 L. Ed. 349, L. R. A. 1918C, 361, Ann.Cas. 1918B, 856. Its power to draft business organizations to support the fighting men who risk their lives can be no less.

Profits. The general common law rule of unconscionability on which the petitioner relies is said to deny enforcement to contracts when the profits provided for are grossly in excess of a standard established by common practice. Whether there is such a rule, what is its scope, and whether it is part of the body of law governing these contracts, we need not decide. For high as Bethlehem's 22% profit seems to us, we are compelled to admit that so far as the record or any other source of which we can take notice discloses, it is not grossly in excess of the standard established by common practice in the field in which Congress authorized the making of these contracts. And in particular, it may be added, the Master found that the ships built by Bethlehem cost the government less than comparable ships built by other shipbuilders. The gov [315 U.S. 306] ernment made no attempt to establish, nor is there any indication in the record, that the profits realized by other shipbuilders were any less than Bethlehem's.

To establish a standard of customary profits, the petitioner points to the experience of the Navy and War Departments and other branches of the government in connection with straight cost plus contracts. Because 10% was the profit specified in many such contracts, the government asserts that it is an appropriate figure here, and urges that the profits on these contracts, tested by such a standard, cannot be allowed. The relevance of experience with cost plus contracts to the contracts here is not clear. The Shipping Board deliberately chose to avoid cost plus contracts where possible, having found them unsatisfactory in practice. Moreover, the record shows that the total cost to the government of comparable ships under cost plus contracts was higher than the total cost of the ships Bethlehem built under the contracts here in question. And experience in many fields has demonstrated that the percentage of profit actually realized under cost plus contracts is likely to be far more than the percentage specified. As stated in 1918 by Charles E. Hughes, later Chief Justice, in his report to the Attorney General on the aircraft industry, "contracts of this sort lead to waste, foster abuses, and impose an almost intolerable burden of cost accounting, in itself a hinderance to rapid production." Report to the Attorney General on the Aircraft Inquiry (1918) 134. See, also, Expenditures in the War Department—Camps, House Report No. 816, 66th Cong., 2d Sess., 49—53. The 10% which the petitioner derives by reference to the cost plus contracts of certain governmental department cannot be taken as a standard of common practice. It is in illusory figure without basis in the realities of business experience.

If profits earned under government contracts in general are taken as the standard of comparison the 22% [315 U.S. 307] claimed here is overshadowed in too many instances for it to be regarded as extraordinary. The Hughes report referred to above, for example, points out (pp. 136—146) that most of the airplane production during the last war was under contracts providing for much higher profits. To take an example of the profits made on food products, the Federal Trade Commission determined that in 1917, profits on the sales of salmon canneries, a major portion of whose output was purchased by the government, ranged from 15 to 68% of cost, averaging 52%.^[11] Federal Trade Commission, Report on Canned Salmon (1918) 63. In the shipbuilding industry itself, even in peace times, profits were found by a special committee of the Senate which investigated the munitions industry to have been from 25% to 37% on the cruisers built in 1927, about 22% in 1929, and of like range for other years. Senate Report No. 944, 74th Cong., 1st Sess., 4.

If the comparison is made with industrial profits, not limited to profits on government contracts alone, the 22% asked for here likewise loses all claim to distinction. An exhibit, the accuracy of which the government has not challenged, incorporated into the record of this case, indicates that in terms of profit on gross sales, the largest American steel company made 49, 58, and 46% during the years 1916, 1917, and 1918. As computed by the Federal Trade Commission, net earnings in 1917 of the same company on all its business were 25% of total investment, and the Commission cites instances of other steel companies whose earnings thus measured ranged from 30 to 320%. Federal Trade Commission, Letter on Profiteering (1918) 9. Profits of lumber producers, again in terms of return [315 U.S. 308] on investment, ranged as high as 121%; and of producers of petroleum products, as high as 122%, over half of the industry earning more than 20%. Id. 12, 13. During the first six months of 1917, one of the two major sulphur producers in the country sold its product at an average price of $18.11 per ton, more than 200% above cost which was $5.73 per ton; the other major producer earned 236% on its investment during the first eleven months of the same year. Id. 11. The Federal Trade Commission's collection of data for various other industries, a collection which the Commission stated was "by no means a complete catalog," affords many additional examples of the same kind. But further confirmation should be unnecessary for a conclusion no businessman would question: that the profits claimed here, seen in their commercial environment, cannot be considered exceptional.

The profits claimed here arise under contracts deliberately let by the Fleet Corporation under authority delegated by the President in accordance with an act of Congress. Neither Congress not the President restricted the freedom of the Fleet Corporation to grant measures of profits common at the time. And the Fleet Corporation's chosen policy was to operate in a field where profits for services are demanded and expected. The futility of subjecting this choice of policy to judicial review is demonstrated by this case, coming to this Court as it does more than twenty years after the ships were completed. In any event, we believe the question of whether or not this policy was wise is outside our province to decide. Under our form of government we do not have the power to nullify it, as we believe we should necessarily be doing, were we to declare these contracts unenforceable on the ground that profits granted under Congressional authority were too high. The profits made in these and other contracts entered into under the same system may justly arouse indignation. But indignation based on the no [315 U.S. 309] tions of morality of this or any other court cannot be judicially transmuted into a principle of law of greater force than the expressed will of Congress.^[12]

The problem of war profits is not new. In this country, every war we have engaged in has provided opportunities for profiteering and they have been too often scandalously seized. See Hearings before the House Committee on Military Affairs on H.R. 3 and H.R. 5293, 74th Cong., 1st Sess., 590—598. To meet this recurrent evil, Congress has at times taken various measures. It has authorized price fixing. It has placed a fixed limit on profits, or has recaptured high profits through taxation. It has expressly reserved for the government the right to cancel contracts after they have been made. Pursuant to Congressional authority, the government has requisitioned existing production facilities or itself built and operated new ones to provide needed war materials. It may be that one or some or all of these measures should be utilized more comprehensively, or that still other measures must be devised. But if the Executive is in need of additional laws by which to protect the nation against war profiteering, the Constitution has given to Congress, not to this Court, the power to make them.

Affirmed.

The CHIEF JUSTICE and Mr. Justice JACKSON, who as former Attorneys General actively participated in the prosecution of these cases, take no part in this decision. Mr. Justice ROBERTS also takes no part in the decision.

[315 U.S. 310] Mr. Justice MURPHY, concurring.

I concur in the opinion of the Court insofar as it relates to duress and coercion and the non-severability of the "bonus for savings" clauses, but desire to add a brief further statement of my views.

In voting for affirmance of the judgment, I do not wish to be understood as expressing approval of an arrangement like the one now under review, by which a company engaged in doing work for the Government in time of grave national peril—or any other time—is entitled to a profit of 22 per cent. under contracts involving little or no risk and grossing many millions of dollars. Such an arrangement not only is incompatible with sound principles of public management, but is injurious to public confidence and public morale. The fact that such cases were common during the last war, as evidenced by the circumstances recited in the opinion of the Court, provides no justification to my mind for such a practice then or now. No man or set of men should want to make excessive profits out of the travail of the nation at war, and government officials entrusted with contracting authority, and the Congress bestowing such authority, should be alert to prevent it.

The question before the Court for decision, however, is not whether an arrangement like the one presented for review accords with our conceptions of business morality or with correct administration of the public business. Having made a bargain, the Government should be held to it unless there are valid and appropriate reasons known to the law for relieving it from its obligations. It is the duty and responsibility of the courts, not to re-write contracts according to their own views of what is practical and fair, but to enforce them in accordance with the evidence and recognized principles of law.

In my opinion the elements of duress and coercion have not been established in this case. The doctrine that [315 U.S. 311] "necessitous men are not free men," a doctrine evolved by the English courts of chancery in the eighteenth century for the protection of harassed debtors,^[1] is not applicable to the Government of the United States, armed as it is with both an actual and a potential arsenal of powers adequate to protect its interests in dealings with private persons.

I am also of opinion that the "bonus for savings" clauses are integral parts of the contracts in question and part of the entire consideration moving to Bethlehem in exchange for its promise to build ships. To characterize these clauses as severable and supported by consideration only if Bethlehem promised to increase its efficiency is ingenious, but requires us to close our eyes to the actualities of the record before us and to ignore fundamental contract law.

Nor can I accept the proposition that the "bonus for savings" clauses are properly interpreted as meaning that Bethlehem was to receive one-half of the "savings" only insofar as Bethlehem could prove that the "savings" were due to its increased efficiency. Such an interpretation, it is true, would prevent Bethlehem from benefiting by reason of purely fortuitous "savings." However, in the absence, as here, of fraud, mistake, or that overreaching which we label "duress" and "coercion," contracts should be interpreted as they are written, not as they might or should have been written in the light of after-thought and subsequent experience. The language of the "savings" clauses does not limit Bethlehem's participation in "savings" to those attributable only to its own efforts. The Master found that "Bethlehem was to participate in savings however earned." The suggested interpretation, ignoring the language of the contracts and the expressed [315 U.S. 312] understanding of the parties, gratuitously rewrites the contracts to accord with notions of fairness acquired in the light of subsequent developments.

It is understandable that one may be indignant at Bethlehem's claim, but such indignation does not justify the distortion of established legal principles to relieve the Government of its approval of a hard bargain. It cannot be left out of consideration that the Government entered into the agreements with full understanding of their terms. Surely there is much to be said in favor of the Government's standing behind obligations, even though quite onerous, which it incurred with knowledge of the circumstances. The possibility that the Government may be relieved of bargains twenty-four years after agreeing to them is not conducive to mutual trust and confidence between citizens and their government.

The judgment should be affirmed.

Mr. Justice FRANKFURTER, dissenting.

The Founders divided our government into three branches, partly to prevent autocratic concentration of power and partly to achieve appropriate division of labor in the difficult task of government. The President has his duties, the Congress its duties, and we ours. What powers the Congress should give the President in order to obtain the most effective production of war supplies, how the President should exercise those powers, whether a system of private contracts for war materials is conducive to unjustifiable waste and profiteering, or whether government production of necessary war supplies is a wiser course—these and like matters are not our business and upon them we should neither express nor intimate views. However circumscribed the judicial area may be, we had best remain within it. But the function of the judiciary is not so limited that it must sanction the use of the federal courts as instruments of injustice in dis [315 U.S. 313] regard of moral and equitable principles which have been part of the law for centuries. I am compelled, therefore, the dissent from the judgment of the Court.

In the summer of 1917 the United States was at war with Germany. The enemy's submarine was taking terrific toll of our shipping. The immediate threat to our national security had to be met promptly. Congress enacted the Emergency Shipping Fund Act of June 15, 1917, 40 Stat. 182, conferring vast powers upon the President. He was authorized to place orders for such ships or material as "the necessities of the Government" may require; to modify, suspend, cancel or requisition contracts for the building, production, or purchase of ships or material; and to take over any plants and ships constructed or in the process of construction. If any person owning any ship, plant, or material refused to build or sell ships or material ordered by the Government "at such reasonable price as shall be determined by the President," he was empowered to take possession of the ships, material, or plant of such person.

On July 11, 1917, the President delegated all the authority vested in him by this Act to the United States Shipping Board Emergency Fleet Corporation. A stupendous task was thereby imposed upon the Fleet Corporation. "The program of construction, as well as operation was gigantic. It involved an expenditure of more than three and a half billion dollars, a sum greater than any expended by any corporation in a similar period of time. Many of the officials and board members were without experience in either shipbuilding or operation. No adequate organization existed at the beginning. A complete organization to carry out its large program had to be created. There was a shortage of shipbuilding skill as well as shipbuilding facilities. The need for ships was imperative and constantly increased during the combat period." Report of the Select Committee on U.S. Ship [315 U.S. 314] ping Board Operations, H.Rep. No. 1399, 66th Cong., 3d Sess., p. 24.

Bethlehem was the largest shipbuilding company in the world. Its five subsidiaries and their plants were experienced shipbuilders, with efficient and well-equipped organizations. As the Master in this case found, "it was understood by all parties concerned that the Fleet Corporation shipbuilding program would call for capacity production at each of Bethlehem's shipyards." Of course the Government had the power to take over Bethlehem's shipyards and plants. But the United States was at war. It needed ships—and it needed them at once. The shipyards and plants of a recalcitrant shipbuilder would not produce the necessary tonnage, at least not in the needed time, without an organization able to operate them at maximum efficiency. The Master found that "A failure to induce Bethlehem to undertake the shipbuilding program covered by these contracts, followed by the taking possession by the Fleet Corporation of the Bethlehem plants, could not have accomplished the desired result. It was Bethlehem's organization that was necessary to insure success to the shipbuilding program of the Fleet Corporation and, as the Government did not have the power to compel performance by an unwilling organization, if Bethlehem demanded its price on the basis of substantial commercial profits rather than contribute such services on a patriotic basis, the Government was obliged to take the contracts on such basis or not at all."

Bethlehem does not deny that in these negotiations the Government's legal power to requisition its shipyards was, for purposes of bargaining, an empty weapon. "It is also true," Bethlehem admits, "that, although the Fleet Corporation had the power to take over Bethlehem's yards, what it really required for the carrying out of its program was the use of Bethlehem's organization—its knowledge of how to build ships." The representatives [315 U.S. 315] of both Bethlehem and the Fleet Corporation knew that the Government did not regard its power to requisition plants and shipyards as a satisfactory alternative to making contracts with private shipbuilders for the construction of ships.^[1] It is not for us to say that the Government should not have determined upon such a policy. It is enough that when these contracts were made, none of the parties believed that there was open to the Government the feasible alternative which now, twenty-five years later, this Court says was open to it.

This was the setting in which the contracts in suit were made. Bethlehem was represented throughout the negotiations by Joseph W. Powell, its vice president and operating manager, and Harry Brown, its technical manager, described by the Master as "two of the ablest and most experienced shipbuilders and estimators of shipbuilding costs in the United States." On behalf of the Fleet Corporation the active negotiators were Admiral E. T. Bowles, manager of its division of steel ship construction, and G. S. Radford, manager of its contract [315 U.S. 316] division. The Master characterized Bowles and Radford as "equally competent shipbuilding experts." However, they were not empowered to conclude contracts on behalf of the Fleet Corporation. That ultimate authority belonged to Charles Piez, the vice-president and general manager of the Fleet Corporation. Piez was a business man who had had no previous shipbuilding experience, and the Master found that "At the time of the negotiations relating to the contracts in controversy, the relations between Powell and Piez were very close. Piez, as Powell knew, had had no shipbuilding experience whatsoever, had implicit confidence in Powell's integrity and shipbuilding ability and experience, and was accustomed to look to him for information and assistance with respect to matters of shipbuilding."

Following a conference in Washington on June 15, 1917, attended by Powell and other shipbuilders, the General Manager of the Fleet Corporation requested Bethlehem to submit formal proposals for the construction of ships. Throughout the entire negotiations which followed, the Fleet Corporation tried to persuade Bethlehem to enter into "lump-sum" contracts. Powell refused, insisting upon the so-called "half-savings" form of contract which he had originated. He set forth his proposals in his letter of December 13, 1917, to the Fleet Corporation: "Because of the unprecedented conditions surrounding the Labor and Material market, it is impracticable to estimate within a reasonable percentage what will be the actual cost of construction, and it is therefore impossible to submit fixed prices for any of these vessels, except upon a basis so far above estimated cost that any figure acceptable to this Company would not be acceptable to the Emergency Fleet Corporation. It is proposed, however, that they be constructed on the basis of actual cost plus a fee, with an agreed upon probable cost, this Company to be paid in addition to the fee one-half of any saving that may be [315 U.S. 317] made below this cost figure, and with the further provision that the estimated cost figure will be increased due to any increase in rates of wages that may be approved by the Emergency Fleet Corporation."

After further conferences, Powell submitted a proposal, dated December 19, 1917, specifying the estimated costs and fixed fees of the vessels to be constructed. On the morning of January 3, 1918, before the Fleet Corporation had expressed any views on the proposal of December 19, Powell handed Piez a letter, dated January 3, 1918, offering to construct a greater number of vessels than was specified in his earlier proposal. The letter concluded "that while this company cannot undertake any capital expenditures at its expense, if the terms in our proposal do not otherwise meet with the Emergency Fleet Corporation's approval, we are prepared to accept the order to construct these vessels on such terms as may be personally determined by Mr. Charles Piez, the Vice President and General Manager, and strongly urge there be no delay in placing this order, as we are making this offer because of our knowledge of the vital emergency now confronting this nation in connection with the requirements for additional merchant vessels."

Upon receipt of this letter, Piez arranged a conference between Powell, Brown, Bowles, and Radford, which occurred on the afternoon of January 3. But Bowles and Radford did not know, and neither was informed before or during the conference, of the offer made to Piez in Powell's letter of January 3. It can hardly be said, therefore, that this letter, neither addressed to nor made known to the real negotiators for the Government, was a factor in their negotiations.

At the conference, which lasted about five hours, Bowles again attempted to persuade Powell to undertake the construction upon a lump-sum basis. Powell was adamant, however, and Bowles had to acquiesce in the half-savings [315 U.S. 318] form of contract in order to reach any agreement. Powell insisted that the estimates previously submitted by Bethlehem were fair and reasonable. Neither Bowles nor Radford submitted any estimates or counter-proposals, "their criticism being limited to the opinion expressed by Bowles that the original and reduced estimates submitted by Powell were too high." Powell made several reductions in the estimates, and in response to Bowles' inquiry, Brown assured him that the estimates were about as accurate as could be made under the circumstances. Bowles and Radford thereupon agreed to the prices, subject to confirmation by Piez. On the same day they handed Piez the following memorandum:

"We hand you herewith the Bethlehem Shipbuilding Corporation's proposal dated December 19, for additional construction at their various plants, amounting in all to 19 vessels, exclusive of tugs. It may be noted that, with the exception of three ships, the vessels in question are troop ships and tankers—ships of a type that only real shipbuilders can produce satisfactorily. As is well known, we have been having difficulty in placing such vessels.

"We wish to place on record the fact that the Bethlehem Shipbuilding Corporation's representatives have insisted on comparatively high prices for these vessels; that they have only with difficulty been persuaded to quote us on the types of ships referred to; and, that their attitude has been characterized by an arbitrary refusal to guarantee or stand behind delivery dates. In other words, it was difficult to persuade them to quote even a tentative delivery date, and they refused positively to accede to a bonus and penalty clause for delivery.

"The letter herewith, addressed to the Bethlehem Shipbuilding Corporation, in reply to their proposal, has been prepared for your signature and is now presented with the recommendation that it be signed. While the prices we have agreed to, with representatives of the Bethlehem [315 U.S. 319] Shipbuilding Corporation, are not satisfactory to us, nevertheless, they represent a material reduction from the prices quoted by that Corporation. Realizing that the Nation will need these vessels we have been actuated by the belief that further delay in placing the contracts should be eliminated and we believe we have made the best compromise possible under very difficult conditions."

As a consequence of these negotiations, the thirteen contracts here in controversy were executed, seven on February 1, 1918, and six thereafter.

The provisions of these contracts demand careful analysis. The contract marked No. 183, calling for the construction by Bethlehem of three steel tank vessels each weighing about 9,100 tons, is typical.

In order to provide the sums necessary for carrying on the work under the contract, the Fleet Corporation agreed to deposit in advance "such sums as may be necessary to constitute and keep constituted a fund from which to finance the work, to provide for payments to be made for materials, and for wages and salaries of persons employed upon the work hereunder." The Fleet Corporation agreed also to assist Bethlehem "to secure with the utmost practicable expedition and at the minimum cost consistent with the existing conditions, the facilities, utilities, parts, materials and supplies required for the work under this contract." The price to be paid for each vessel was defined to include (a) the "actual cost," plus (b) a fixed fee of $185,000, plus (c) one-half the amount by which the actual cost of each vessel should fall short of an estimated cost of $1,865,000.

It would be difficult to draft a more inclusive definition of "cost" than that contained in this contract. "Actual cost" was defined to include the following items, as well as "items similar thereto in principle": (a) the net costs of labor (including bonuses), materials, machinery, equipment, and supplies furnished by Bethlehem, and all other [315 U.S. 320] direct charges, such as insurance on the vessels, etc.; (b) a "proper proportion" of running expenses, including rentals, cost of repairs and maintenance, light, heat, power, insurance, management, salaries (including bonuses), and all other indirect charges; (c) a "proper proportion" of interest accrued on bonds, loans, or other debts existing or previously made, the proceeds of which "shall be used, or shall have been or shall be invested in plant, equipment, etc., that shall be used," in the performance of the contract; (d) a "proper proportion" of taxes of all kinds, except federal taxes, with respect to the business or property; (e) a "proper proportion" of physical losses sustained in connection with the construction of the vessels under the contract, including losses from fire, flood, storm, riot, vandalism, acts of God, acts of war, or other casualties; and (f) a "reasonable" allowance for depreciation of property and plants used in connection with the construction under the contract.

The Master found that under the "half-savings" clause Bethlehem was entitled to receive one-half the difference between the estimated cost and the actual cost, regardless of how this difference was achieved. Bethlehem was therefore not required to show that the "savings" were attributable to its efforts to increase efficiency.

Since the estimated costs of construction specified in the contracts are crucial in fixing the extent of Bethlehem's profits, it is necessary to consider how they were determined. According to the explanation furnished by Bethlehem, Brown prepared the estimated costs specified in Bethlehem's letter of December 19, 1917, as follows: As the basis of his estimate he took the cost of constructing Hull 253, a 9,100 ton tanker which had recently been completed at the Fore River yard. The cost of the material in Hull 253 was about $389,000, consisting of $150,000 for the steel structure and $239,000 for the remaining material. Brown estimated that the cost of the material [315 U.S. 321] in a similar tanker to be constructed in 1918 would be $817,000, including $399,000 for the steel structure and $418,000 for the remainder. His estimate assumed an increase in freight rates and costs of delivery of 42%. The next item was the cost of labor, which on Hull 253 amounted to 38.75 cents per hour. Brown assumed that wage scales would rise to 50 cents per hour, an increase of 29%, and that efficiency would decrease about 30%. Therefore, he estimated a total labor cost of $548,000, as compared with the actual labor cost upon Hull 253 of $326,000. Similarly, the estimates of plant operating expenses were computed on the basis of equally large assumed increases. The total estimated cost of material, labor, operating expenses, and overhead amounted to $1,694,000, to which Brown added a flat 10% allowance to cover items such as armed guard equipment and "to make allowance for other contingencies," making a total estimated cost of $1,863,000, or approximately $205 per ton. To this figure Powell added an additional $10 per ton because, as he testified, "there was an item of increased cost of steel, which represented a contract for very high-priced steel that we had to use in connection with this program, and which amounted to about $2.50 a ton spread over the program that we expected to undertake. That was a very rough figure. Whatever else I put on I put on because I knew I was going to have to trade the final contract out with Admiral Bowles and I knew I would not get what I asked for, and if I did not ask for more than I expected I would not get out where I wanted to be." Brown testified that "He (Powell) took the figures that I gave him and added $10 a ton to it" for some reason which he could not recall.

The estimated cost finally specified in the contract for the construction of the three vessels was $1,865,000; the estimated cost of such vessels proposed in Powell's letter of December 19, 1917, was $1,983,800, a difference of $118,800, or less than 6% of the proposed estimate.

[315 U.S. 322] The Master found that during the negotiations the Fleet Corporation was uninformed as to the probable cost of materials and labor, Bethlehem's overhead and operating expenses, and depreciation and similar charges. Consequently, at the conference of January 3, 1918, from which emerged the contracts in controversy, the representatives of the Fleet Corporation did not submit any counter-offers to Bethlehem; they merely insisted that Bethlehem's estimates were too high. Brown's testimony is illuminating as to the nature of the bargaining at the conference:

"Q. Now I am asking you whether with respect to these vessels Admiral Bowles submitted any price of his own?

"A. No, sir.

"Q. Did he ask you how your estimates were made up?

"A. No, sir.

"Q. Did he ask you to justify your estimates in any way?

"A. No, sir.

"Q. He just objected to them repeatedly and said they were too high?

"A. Yes, sir.

"Q. But did not ask you to justify them?

"A. No, sir.

"Q. Until Powell finally came down to a figure which Bowles was willing to accept?

"A. Well, I should put it this way; to a figure which Mr. Powell refused to go below."

The total estimated costs of construction in the thirteen contracts in controversy amounted to $119,750,000. The total actual costs, as defined in the contracts, were $92,990,521. The estimated costs therefore exceeded the actual costs by $26,759,479, or, to put it another way, the estimated costs were almost 29% greater than actual costs. Nowhere in the long record, as the Master found, is there any explanation or justification for the tremendous dis [315 U.S. 323] parity between the estimated costs submitted by Bethlehem, or those specified in the contracts, and the actual costs.

Bethlehem's profits under these contracts amount to approximately $24,000,000, or about 22% of actual costs including extra work. In two of these contracts, Nos. 191 and 226, its profits exceed 34% and 32%, respectively. Moreover these figures do not include the profits made by Bethlehem Steel Company, an affiliate, on the sales to Bethlehem at the maximum prices permitted by the War Industries Board of 43,000 tons of steel used in the construction of ships under these contracts.

To speak of Bethlehem's profits as only 22% is in any event misleading. The profits are 22% of "cost," and not 22% of what might fairly be described as Bethlehem's capital investment in these contracts. For under these contracts Bethlehem took absolutely no risk of loss; in addition, the Government agreed to advance all sums necessary to finance the construction of the vessels. Even in usurious transactions the lender takes the risk of the borrower's insolvency. Here Bethlehem took no risks at all.

Bethlehem has already received from the Government the total costs of construction (including items for wage increases and extra work), plus fixed profits of $11,962,400 (representing about 11% of the actual costs including extra charges), plus bonuses of $8,093,157 under the half-savings clause (over 7% of costs). It has thus received total profits of more than $20,000,000 under these contracts. In the present suits it is seeking additional sums of more than $7,500,000, of which about $3,800,000 represents bonuses under the contracts in question. In sustaining the judgments of the lower courts, this Court is awarding Bethlehem further profits of about 4% on these contracts.

The Master expressly found that it was essential that Bethlehem undertake to build the vessels provided for in [315 U.S. 324] the contracts, and that since the Government needed Bethlehem's organization, it had no satisfactory alternative. It had to make the contracts on Bethlehem's terms or not at all. He concluded, nevertheless, that since "the Fleet Corporation made the contracts with open eyes, although resenting the commercial attitude of Bethlehem and condemning Bethlehem for demanding its 'pound of flesh,'" the contracts were enforceable by Bethlehem in the absence of any proof of fraud.

The District Court concurred in the proposition that the absence of fraud made the contracts invulnerable. But its conclusion is contradicted by its findings:

The managers for the contractor adopted the famous Rob Roy distinction who admitted he was a robber but proudly proclaimed that he was no thief. The contractor boldly and openly fixed the figures in the estimated cost so high as to give them the promise of large bonus profits. The managers for the Fleet Corporation knew that the estimate was high and why it was made high and so protested it. The reply of the contractor's managers was, "We will take the contract with this promise of bonus profits incorporated in it but not otherwise. You take it or leave it." Whatever wrong there was in this, may have been the wrong in a daylight robbery but there was no element of deception in it.

23 F. Supp. 676, 679.

Similarly, the affirmance of the Circuit Court of Appeals appears to have been based upon the assumption that the government's failure to show fraud was fatal:

"It is of course obvious that these negotiations took place in time of war when the need of the Government for ships was extremely urgent and the necessity of reaching an agreement with Bethlehem, therefore, vital. It is equally clear that Bethlehem insisted upon assuring itself a margin of profit which in view of the necessities of the Government was so large as to indicate an attitude of commercial greed but little diluted with patriotic feeling. There is no doubt [315 U.S. 325] that this attitude on the part of Bethlehem was deeply resented by the Government representatives but the latter were faced with the alternative of either agreeing to Bethlehem's terms or taking possession of its shipyards and having the Government itself construct the vessels. We think the record clearly indicates that the Government representatives felt that the latter course could not have accomplished the shipbuilding program with the speed which was essential. It was Bethlehem's existing shipbuilding organization that was necessary to insure success to the program of the Fleet Corporation. Consequently the Government representatives, feeling as they did that Bethlehem's organization was necessary to their program, were obliged to accept the terms offered by Bethlehem. This they did with full knowledge, as we have said, that the estimated cost figures included in the contracts did not represent close approximations but were so prepared as to assure to Bethlehem substantial additional profits by way of the bonus of savings. It follows that while Bethlehem may be condemned for having taken advantage of the Nation's necessities to secure inordinate profits it cannot be charged with having misrepresented the facts to the Government's representatives."

113 F.2d 301, 305, 306.

Thus, not less than six times did the Circuit Court of Appeals declare that the unconscionable terms of this contract were forced upon the Government by the dire necessities of national self-preservation. Nevertheless the Court found itself impotent to resist the demand that the courts themselves become the means of realizing these "inordinate profits." But law does not subject courts to such impotence. Courts need not be the agents of a wrong that offends their conscience if they heed the commands of law.

In England prior to 1285 (Statute of Westminster II, 13 Edw. I, c. 50) suitors were frequently "obliged to depart from the Chancery without getting writs, because there are none which will exactly fit their cases, although these cases [315 U.S. 326] fall within admitted principles." Maitland, Forms of Action at Common Law, Lect. IV (1936 ed.) p. 51. Today it is held that because the circumstances of this case cannot be fitted into a neatly carved pigeonhole in the law of contracts, "daylight robbery," exploitation of the "necessities" of the country at war, must be consummated by this Court. 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. "And there is great reason and justice in this rule, for necessitous men are not, truly speaking, free men, but, to answer a present exigency, will submit to any terms that the crafty may impose upon them." Vernon v. Bethell, 2 Eden 110, 113. So wrote Lord Chancellor Northington in 1761.

The fact that the representative of the Government entered into the contracts "with their eyes wide open" does not mean that they were not acting under compulsion. "It always is for the interest of a party under duress to choose the lesser of two evils. But the fact that a [315 U.S. 327] choice was made according to interest does not exclude duress. It is the characteristic of duress properly so called." Holmes, J., in Union Pac. R. Co. v. Public Service Comm., 248 U.S. 67, 70, 39 S. Ct. 24, 25, 63 L. Ed. 131. In that case a state unconstitutionally exacted a fee for a certificate of authority to issue railroad bonds. A railroad which had paid the fee and obtained a certificate, rather than run the risk of subsequent invalidation of its bonds and imposition of serious penalties, was held to have been coerced into making the payments. In Swift & Courtney & Beecher Mfg. Company v. United States, 111 U.S. 22, 29, 4 S. Ct. 244, 247, 28 L. Ed. 341, the taxpayer's only alternatives were "to submit to an illegal exaction or discontinue its business." The payment of the tax in these circumstances was held to be under duress. See, also, Ward v. Board of County Com'rs of Love County, 253 U.S. 17, 23, 40 S. Ct. 419, 421, 64 L. Ed. 751. The courts generally regard the dilemma of the taxpayer who must either pay the taxes or incur serious business losses as a species of duress. E.g., Morgan v. Palmer, 2 Barn. & C. 729; Ripley v. Gelston, 9 Johns., N.Y., 201, 6 Am. Dec. 271; Scottish U. & N. Ins. Co. v. Herriott, 109 Iowa 606, 80 N.W. 665, 77 Am. St. Rep. 548; see Notes, 64 A.L.R. 9, 84 A.L.R. 294.

Underlying all these cases is the law's recognition of a basic psychological truth. In Atkinson v. Denby, 7 Hurst. & N. 934, 936, Cockburn, C.J., said that "Where the one person can dictate, and the other has no alternative but to submit, it is coercion." See, also, Abbott, C.J., in Morgan v. Palmer, 2 Barn. & C. 729, 735: "But if one party has the power of saying to the other, "that which you require shall not be done except upon the conditions which I choose to impose," no person can contend that they stand upon anything like an equal footing." And these were decisions in days when law was supposed to be much more rigid and more respectful of forms than we now ordinarily deem just.

The fundamental principle of law that the courts will not enforce a bargain where one party has unconscionably [315 U.S. 328] taken advantage of the necessities and distress of the other has found expression in an almost infinite variety of cases. See Lonergan v. Buford, 148 U.S. 581, 589, 591, 13 S.Ct. 684, 686, 687, 37 L. Ed. 569; Snyder v. Rosenbaum, 215 U.S. 261, 265, 266, 30 S. Ct. 73, 75, 76, 54 L. Ed. 186. Perhaps the most familiar is the situation of the mortgagor who under the pressure of financial distress conveys his equity of redemption to the mortgagee. The courts will scrutinize the transaction very carefully, Villa v. Rodriguez, 12 Wall. 323, 339, 20 L.Ed. 406, and if it appears that the mortgagee has taken unfair advantage of the other's position, the conveyance will not be enforced. Compare Vernon v. Bethell, 2 Eden 110; Close v. Phipps, 7 M. & G. 586; Richardson v. Barrick, 16 Iowa 407.

Similarly, an heir or remainderman who is compelled by financial circumstances to sell his expectancy for a song may recover it if the vendee has unduly exploited the other's distress. Wood v. Abrey, 3 Madd. 216, 219 (where the Vice-Chancellor, Sir John Leach, said: "If a man who meets his purchaser on equal terms, negligently sells his estate at an under value, he has no title to relief in equity. But a Court of Equity will inquire whether the parties really did meet on equal terms; and if it be found that the vendor was in distressed circumstances, and that advantage was taken of that distress, it will avoid the contract."); Underhill v. Harwood, 10 Ves. Jr. 209; McKinney v. Pinckard's Ex'r, 2 Leigh 149, 29 Va. 149, 21 Am. Dec. 601; Butler v. Duncan, 47 Mich. 94, 10 N.W. 123, 41 Am. Rep. 711; Brown v. Hall, 14 R.I. 249, 51 Am.Rep. 375. In Administrators of Hough v. Hunt, 2 Ohio 495, 502, 15 Am. Dec. 569, a person heavily in debt, in order to obtain a further loan with which to meet debts falling due, agreed to buy land at more than double its value. The court found that the lender had unjustly taken advantage of the borrower's necessities and therefore rescinded the contract: "The rule in chancery is well established. When a person is incumbered with debts, and that fact is known to a person with whom he contracts, who avails himself of it to exact an [315 U.S. 329] unconscionable bargain, equity will relieve upon account of the advantage and hardship." This was written in 1826. To the same effect are Vyne v. Glenn, 41 Mich. 112, 1 N.W. 997, and Bither v. Packard, 115 Me. 306, 98 A. 929.

Another class of cases in which this principle has been applied arises where a customer of a gas or electric company pays charges which he asserts he is not obligated to pay, rather than have his service disconnected. Payments made in such circumstances are regarded as coerced. See Boston v. Edison Electric Illuminating Co., 242 Mass. 305, 310, 136 N.E. 113; Westlake & Button v. St. Louis, 77 Mo. 47, 46 Am.Rep. 4; Note, 34 A.L.R. 185.

Cobb v. Charter, 32 Conn. 358, 87 Am.Dec. 178, illustrates another type of controversy in which the courts have given effect to the historic principle of duress which is now seemingly rejected as an innovation. The defendant there had possession of a chest of tools belonging to the plaintiff, a mechanic. He refused to give up the chest, which the plaintiff needed in order to ply his trade, unless the latter would pay a bill for which he denied responsibility. The plaintiff's payment of the bill in these circumstances was held to have been made under duress. Accord: Lonergan v. Buford, 148 U.S. 581, 589, 591, 13 S.Ct. 684, 686, 687, 37 L.Ed. 569; Fenwick Shipping Co. v. Clarke Bros., 133 Ga. 43, 65 S.E. 140; Stenton v. Jerome, 54 N.Y. 480; Harmony v. Bingham, 12 N.Y. 99, 62 Am.Dec. 142.

In Stiefler v. McCullough, 97 Ind.App. 123, 174 N.E. 823, a merchant who had to obtain a loan in order to remain in business agreed to pay the president of a bank an exorbitant sum in consideration for his services in procuring a loan. The court refused to enforce this agreement as unconscionable. Similarly, in Niedermeyer v. Curators of University of Missouri, 61 Mo. App. 654, a student paid tuition fees which he regarded as excessive, and which he did not believe he was required to pay under his contract with the university, only because he feared expulsion for non-payment. This payment was held to have been made [315 U.S. 330] under duress and hence recoverable. Cf. Baldwin v. Sullivan Timber Co., 65 Hun 625, 20 N.Y.S. 496; Kelley v. Caplice, 23 Kan. 474, 33 Am. Rep. 179.

Strikingly analogous to the case at bar are the decisions that a salvor who takes advantage of the helplessness of the ship in distress to drive an unconscionable bargain will not be aided by the courts in his attempts to enforce the bargain. Post v. Jones, 19 How. 150, 160, 15 L. Ed. 618; The Tornado, 109 U.S. 110, 117, 3 S. Ct. 78, 82, 27 L. Ed. 874; The Elfrida, 172 U.S. 186, 193, 19 S.Ct. 146, 148, 43 L. Ed. 413. In Post v. Jones, supra (19 How. 160, 15 L. Ed. 618), it was said that the courts: will not tolerate the doctrine that a salvor can take the advantage of his situation, and avail himself of the calamities of others to drive a bargain; nor will they permit the performance of a public duty to be turned into a traffic of profit." These cases are not unlike the familiar example of the drowning man who agrees to pay an exorbitant sum to a rescuer who would otherwise permit him to drown. No court would enforce a contract made under such circumstances.^[2]

To deny the existence of duress in a Government contract by ironic reference to the feebleness of the United States as against the overpowering strength of a single private corporation is an indulgence of rhetoric in disregard of fact. The United States with all its might and majesty never makes a contract. To speak of a contract by the United States is to employ an abstraction. We must not allow it to become a blinding abstraction. Contracts are made not by 130 million Americans but by some official on their behalf. Because the national interest is represented [315 U.S. 331] not by the power of the nation but by an individual professing to exercise authority of vast consequence to the nation, action by Government officials is often not binding against the Government in situations where private parties would be bound.^[3] The contracts here were not made by an abstraction known as the United States or by the millions of its citizens. For all practical purposes, the arrangement was entered into by two persons, Bowles and Radford. And it was entered into by them against their better judgment because they had only Hobson's choice—which is no choice. They had no choice in view of the circumstances which subordinated them and by which they were governed, namely, that ships were needed, and needed quickly, and Bethlehem was needed to construct them quickly. The legal alternative—that the Government take over Bethlehem—was not an actual alternative, and Bethlehem knew this as well as the representatives of the Government.

The suggestion is made that Bethlehem's profits under these contracts were not exceptional when compared with the profits made under similar contracts, and that the enormous profits claimed by Bethlehem under these contracts cannot be regarded as supporting the inference that Bethlehem took advantage of the Government's distress. But the only contracts before us are those involved in this litigation. There is nothing in this record which enables us to say that although these contracts are unconscionable, all contracts made by the Government during the same period were no less unconscionable. And [315 U.S. 332] even if this were so, it would be no argument that this Court should give its sanction to these contracts by making itself the instrument for realizing the unconscionable profits. What little light the record does cast upon contemporary contracts gives no justification for regarding these contracts as typical. The policy of Charles M. Schwab, Director General of the Fleet Corporation, was to make contracts providing for a maximum profit of 10%, out of which all federal taxes would have to be paid. See Letter of Oct. 2, 1918, to Edward N. Hurley, Chairman of the Shipping Board, relating to contracts with the American Shipbuilding Company.

If we are to go outside the record, the evidence is confusing and unreliable. It must be borne in mind that Bethlehem took no risk of loss, that under the contracts it was protected from the risks of rising costs of labor, materials, transportation, etc., that under the contracts it was not required to make any capital expenditures, that the Government agreed to advance all sums that should be necessary for the performance of the contracts. It is idle to compare the profits made by Bethlehem under these contracts with profits made by industrial concerns of various types under different types of contracts. Such figures are statistical quicksand unless we are told also that in each case the contractor was not required to make any capital investment, that he was insured against normal business risks, and that he was guaranteed a profit, regardless of any change in circumstances.

We know that the policy of the Navy Department with respect to so-called straight cost-plus shipbuilding contracts was to allow profits of 10% of actual cost. See Annual Report of the Secretary of the Navy (1917) p. 33; Annual Report (1918) p. 685; Annual Report (1919) pp. 572-76; Annual Report (1920) pp. 147-48. We know that, similarly, the policy of the War Department with respect to cost-plus contracts for the construction of can [315 U.S. 333] tonments was to allow profits not exceeding 10% of cost. See Annual Report of the Secretary of War (1917) vol. 1, p. 28; Annual Report (1918) vol. 1, p. 1319; Annual Report (1919) pp. 4138-42. See also Crowell, Government War Contracts, p. 85 (in "emergency building contracts" a sliding scale of profits was employed, ranging from cost plus 7% on contracts less than $100,000 to cost plus 2½% on contracts more than $10,000,000). Similarly, contracts for the construction of buildings to house war workers were let on the basis of cost plus 2½% on contracts over $1,000,000, and 3½% on contracts under $1,000,000. See testimony of Otto M. Eidlitz, President of the U.S. Housing Corporation, Hearings before the subcommittee of the Senate Committee on Public Buildings and Grounds pursuant to S. Res. 371, 65th Cong., 3d Sess., p. 35.

These statistics obviously do not tell the whole story of Government contracts in the last war. But they indicate plainly enough that this Court should not accept, as a basis for decision in this case, the premise that Bethlehem's profits were conventional when compared with profits made in comparable transactions.

It is said, further, that even if these contracts are unenforceable when measured by standards of justice and equity enforced by the courts for centuries, nevertheless this Court must enforce the contracts now before us because Congress and the President specifically authorized such a traffic in profits. The suggestion is not consistent with historical fact.

The legislative history of the Emergency Shipping Fund Act furnishes no support for the contention that in conferring upon the President authority to enter into contracts for the construction of ships, Congress thereby commanded the courts to enforce all contracts that were made. Without regard to their provisions and the circumstances under which they were negotiated. On the contrary, the [315 U.S. 334] debates contain many indications that Congress expected that the shipbuilders of the nation would provide their services for a reasonable compensation, and that the power conferred upon the President to take over shipyards would not be exercised. See remarks of Senator Knox, 55 Cong.Rec. 2518; Senator Calder, 55 id. 2529; Rep. Fitzgerald, 55 id. 3018. Indeed, the Act itself specified that ships should be built "at such reasonable price as shall be determined by the President." 40 Stat. 182, 183.

The National Defense Act, 39 Stat. 166, 213, 50 U.S.C.A. § 80, specifically provided that "The compensation to be paid to any individual, firm, . . . for its products or material, or as rental for use of any manufacturing plant while used by the United States, shall be fair and just." There can be no clearer indication that Congress did not authorize or approve any policy of trafficking in profits. The fact that Congress took care to ascertain whether the war agencies were letting contracts under which excessive profits were being made, see Hearings before subcommittee of the House Committee on Appropriations on H.R. 3971, 65th Cong., 1st Sess., especially pp. 15-17, shows very plainly that Congress in no way countenanced exploitation for exorbitant private profit of the necessities of the Government.

Authority given to make contracts does not imply authority to make unconscionable contracts. Suppose that Congress in authorizing the contracts in question had written into its legislation: "Provided, that no agency of government shall be authorized to enter into unconscionable contracts." Can it be that because Congress did not expressly provide that "unconscionable contracts" are unauthorized it impliedly sanctioned the making of "unconscionable contracts"? Or suppose the estimated costs in the contracts were so inflated by Bethlehem that its profits were 200% rather than 22%. Would this Court still be bound to enforce these contracts on the ground that [315 U.S. 335] Congress had commanded their enforcement? Surely Congress did not impliedly repeal historic legal principles and prohibit this Court from exercising its duty to withhold relief when the particular circumstances disclose an unconscionable arrangement in the making of which the Government's contracting officers had no practical choice.

The suggestion that President Wilson authorized a "traffic in profit" is refuted, if explicit proof be needed, by his utterances. For example, addressing a meeting of mine operators and manufacturers on July 12, 1917, he spoke as follows:

"I hear it insisted that more than a just price, more than a price that will sustain our industries, must be paid; that it is necessary to pay very liberal and unusual profits in order to 'stimulate production'; that nothing but pecuniary rewards will do it—rewards paid in money, not in the mere liberation of the world.

"I take it for granted that those who argue thus do not stop to think what that means. Do they mean that you must be paid, must be bribed, to make your contribution, a contribution that costs you neither a drop of blood nor a tear, when the whole world is in travail and men everywhere depend upon and call to you to bring them out of bondage and make the world a fit place to live in again, amidst peace and justice?

"Do they mean that you will exact a price, drive a bargain, with the men who are enduring the agony of this war on the battlefield, in the trenches, amidst the lurking dangers of the sea, or with the bereaved women and the pitiful children, before you will come forward to do your duty and give some part of your life, in easy, peaceful fashion, for the things we are fighting for, the things we have pledged our fortunes, our lives, our sacred honor to vindicate and defend—liberty and justice and fair dealing and the peace of nations? Of course you will not.

[315 U.S. 336] "It is inconceivable. Your patriotism is of the same self-denying stuff as the patriotism of the men dead or maimed on the fields of France, or else it is no patriotism at all.

"Let us never speak, then, of profits and of patriotism in the same sentence, but face facts and meet them.

"Let us do sound business, but not in the midst of a mist. Many a grievous burden of taxation will be laid on this Nation, in this generation and in the next, to pay for this war. Let us see to it that for every dollar that is taken from the people's pockets it shall be possible to obtain a dollar's worth of the sound stuffs they need."

Public Papers of Woodrow Wilson, Vol. 3, pp. 75-6; 55 Cong. Rec. 4995.

Mr. Justice Holmes has said that "Men must turn square corners when they deal with the Government." Rock Island, etc., R. Co. v. United States, 254 U.S. 141, 143, 41 S. Ct. 55, 56, 65 L. Ed. 188. His admonition has particular relevance when this Court is called upon to enforce agreements made with the Government at war for the production of supplies essential to the prosecution of the war. During wartime the bargaining position of Government contracting officers is inherently weak, no matter how conscientious they may be. If they are to deal on equal terms with private contractors, particularly where the subject matter of contracts is so intricate and so specialized as the building of ships, they must have available to them not only detailed information but also the time within which to study the data and the freedom to exercise a real choice. In the last war, at least, this was not generally true. See Sen. Rep. No. 944, 74th Cong., 1st Sess., pt. 4, p. 30. It is not difficult in these days to appreciate the position of negotiators for the Government in time of war and to realize how much the pressures of war deprive them of equality of bargaining power in situations where bargaining with private contractors is the only practicable means of securing necessary war supplies.

[315 U.S. 337] Because the Government is in such a dependent position, and because those who deal with it on a cost-plus arrangement or some similar basis are assured of a profit, it is wholly consistent with practicalities and makes no unduly idealistic demand for the law to judge the arrangements of such wartime contractors by standards not unlike those by which a fiduciary's conduct is judged. Those upon whom the nation is dependent for its supplies in the defense of its life would hardly wish to be judged by lower standards.

The modes are vast and varied by which the nation obtains its war supplies. What will best supply war needs in amplest measure in the quickest time and least wastefully—whether by private letting and, if so, under what restrictions and safeguards; under what circumstances the Government should do its own supplying either by taking over old plants or building new ones or a combination of the two; to what extent and through what means peacetime habits and traditions may be displaced and disregarded these are questions of policy for the wisdom and responsibility of the Congress and the Executive. The very limited scope of inquiry to which a litigation on a particular transaction is confined is hardly the basis for judgment on such far-flung issues. If the history of this Court permits one generalization above all others, it is the unwisdom of entering the domain of policy outside the very narrow legal limits presented by the record of a particular litigation. Such intrusion into the executive and legislative domains is not conducive to the just disposition of the immediate controversy. We are much less likely to go wrong if we do not depart from the well-grooved path of judicial competence.

This Court should not permit Bethlehem to recover these unconscionable profits, and thereby "make the court the instrument of this injustice." Thomas v. Brownville, etc., R. Co., 109 U.S. 522, 526, 3 S. Ct. 315, 318, 27 L. Ed. 1018.

[315 U.S. 338] Mr. Justice DOUGLAS.

On the point of duress and coercion I thoroughly agree with the views expressed by Mr. Justice BLACK and join in the opinion of the Court. For the reasons stated by Mr. Justice BLACK, the claim that Bethlehem's profits were unconscionable in the legal sense would likewise fail.

There is, however, one aspect of the case on which I take a somewhat different view.

The United States does not contest here the right of Bethlehem to retain its "fixed fee" of approximately $12,000,000 for the construction of the ships. The dispute revolves around an additional sum of $12,000,000 which Bethlehem claims under the so-called "bonus-for-savings" provision of the contracts. That provision in the several contracts was the same except for the amount of the fixed fee. Thus a typical contract provided: "Should the actual cost be less than the estimated . . . cost . . . the Contractor shall be allowed as profit on each vessel in addition to said fixed sum for profit of . . . $210,000 one-half the amount by which such actual cost of each vessel falls short of the estimated cost. . . ."

I agree that the consummation of the bargain depended upon the inclusion of this "savings" clause and that in each instance there was but one contract, not several. My view, however, is that each contract was divisible or severable." . . . the essential feature of such a contract is that a portion of the price is by the terms of the agreement set off against a portion of the performance and made payable for that portion, so that when an apportioned part of the performance has been rendered a debt for that part immediately arises." Williston on Contracts, § 861 (Rev. Ed.). In other words, the whole performance of each contract was divided "into two sets of partial performances, each part of each set being the agreed exchange [315 U.S. 339] for a corresponding part of the set of performances to be rendered by the other promisor." Id., §860A. (1) The promise of the Fleet Corporation to pay the actual cost plus the fixed fee was exchanged for Bethlehem's undertaking to construct the ships. (2) The promise of the Fleet Corporation to pay one-half the amount by which the actual cost fell short of the estimated cost was exchanged for Bethlehem's promise (which is implied) to effect the savings by increasing efficiency.

Although I am clear that the contracts would not have been made but for the inclusion of the "savings" provision, I do not believe that there is a "necessary dependency" between these two sets of promises within the rule of Philadelphia, W. & B.R. Co. v. Howard, 13 How. 307, 339, 14 L. Ed. 157. And see Pollak v. Brush Electric Assoc., 128 U.S. 446, 455, 9 S. Ct. 119, 121, 32 L. Ed. 474; Fullmer v. Poust, 155 Pa. 275, 278, 26 A. 543, 35 Am. St. Rep. 881; Restatement, Contracts, §266(3). Precedents, to be sure, are of little aid since each case turns on its special circumstances. But the construction of divisibility seems warranted by the facts, though here as in other cases considerable reliance must be placed on implications.

Bethlehem's argument against divisibility rests on such testimony of Piez, who represented the Fleet Corporation, as follows: "The price had to be placed for actual cost, if we knew the cost, plus an allowance for contingencies, plus an allowance for incentive, plus the fee. So we start out with the bare cost; then in order to meet any contingencies that may happen, add some allowance for contingencies; in order to give a proper incentive, add an incentive allowance; and then add the fee." That is to say the "savings" clause was deemed to be valuable from the Fleet Corporation's viewpoint as an "incentive" to keep the costs down and to expedite the work. And Powell, the author of the "savings" clause in this case and the representative of Bethlehem, testified that the savings to be obtained would [315 U.S. 340] be sufficient to "wipe out the excess profits taxes," so that the fixed fee would be "net" to Bethlehem.

But Powell's testimony also indicated that while the "savings" clause was an "incentive," Bethlehem was to earn the "savings":

"Q. Then I take it that one of your great problems, as the driving force of this organization, was to improve your labor conditions, or first to prevent labor conditions from getting worse and then to try to improve them?

"A. Yes.

"Q. Over what they were in December of 1917?

"A. Yes.

"Q. And if you were able to do that, then there was a possibility of some profit in these contracts under the half savings clause?

"A. Yes.

"Q. Was there any likelihood, or did you at that time foresee any likelihood, of any substantial saving in your material items?

"A. No, I should not have expected at that time to make any saving of any amount in the materials.

"Q. So that, if Bethlehem was to make any money out of these contracts in excess of the fixed fee, it was your judgment that the only way to do it was by increasing the efficiency of the yards?

"A. Exactly."

Powell also testified:

"The estimate was a figure which we had to shoot at that in my judgment gave us a reasonable profit or a chance of making a substantial saving. To make that saving, we had to operate more efficiently than what we might say was average efficiency under conditions that then existed. If we were going to make that saving, we had to overcome any increased cost due to decreased efficiency, and increase efficiency beyond what it was at that time."

[315 U.S. 341] And Piez testified that the provision was to give the shipbuilders an "incentive" to "use their ingenuity to make a larger profit."

The Special Master found that the estimates designated as "base prices" in the contracts "would afford Bethlehem a reasonable opportunity to effect 'savings' as a result of its efforts and ability to increase efficiency of management and labor as compared with average efficiency then existing." He also found that "it was understood that participation in 'savings' was supposed to represent a bonus or additional compensation to be earned by Bethlehem as consideration for its special efforts and ability to reduce cost by increasing efficiency of management and labor as compared with efficiency then existing." Yet he further found that "Bethlehem was to participate in savings however earned, but expected to produce savings by increased efficiency."

My difficulty is with that last finding. If Bethlehem was to share half of the savings "however earned," then its right to receive the bonus might well depend on a wholly fortuitous circumstance or it might accrue as petitioner suggests "simply as a reward for the inaccuracy of its estimate of actual costs." Under that view Bethlehem would be entitled to $12,000,000 additional compensation merely because the wholesale price index fell. Yet that would be tantamount to a gift by public officers of property of the United States. The same result would follow if the clause be read as containing merely a "best efforts" provision. The contract already provided that Bethlehem "in all its acts hereunder, shall use its best efforts to protect and subserve the interest of the Owner." Even if the absence of such a provision, one would be implied. United States v. A. Bentley & Sons Co., D.C., 293 F. 229, 235; United States v. George A. Fuller Co., D.C., 296 F. 178, 180. Hence it is difficult for me to imply that this additional $12,000,000 was offered as a reward for performing an obligation which the [315 U.S. 342] law would impose on the contractor in any event. Burke & James, Inc., v. United States, 63 Ct. Cl. 36, 57. That, too, would be a grant of public funds for which the United States would receive no quid pro quo.

Hence it seems more reasonable to imply that Bethlehem was to render an additional performance for the additional compensation of $12,000,000. Such a construction of the contracts avoids the difficulties I have mentioned, as it gives the United States a quid pro quo for its promise to pay an additional $12,000,000. Cf. Dayton Airplane Co. v. United States, 6 Cir., 21 F.2d 673, 682, 683. And it is supported by the testimony of the representatives of the two contracting parties who negotiated the contracts.

In that view of the matter Bethlehem would be put to its proof that it effected the savings which it now claims. Mere guesswork would not be enough. J. J. Preis & Co. v. United States, 58 Ct. Cl. 81, 86. Precise proof of each dollar saved might not be possible. But a reasonable approximation of Bethlehem's contribution to the savings would be necessary. Such burden of proof has been sustained in other cases involving similar contracts. Cohen, Endel & Co. v. United States, 60 Ct. Cl. 513; F. Jacobson & Sons v. United States, 61 Ct. Cl. 420. The Circuit Court of Appeals stated that there was "some evidence tending to show that the savings resulted, in part at least, from increased efficiency." 113 F.2d 301, 307. But there was no clear showing that special efforts were made to reduce costs and that the savings which resulted were traceable to such efforts. The necessary findings on that issue were not made.

[1] Included in the detailed and comprehensive itemization of "actual cost" were the following and "items similar thereto in principle":

"The net costs . . . of labor (including compensation of labor by way of bonuses), and materials, machinery, equipment, and supplies . . . and other direct charges, such as insurance on the vessels, etc.

"A proper proportion of running expenses, including ordinary rentals, . . . repairs, and maintenance, light, heat, power, insurance, management, salaries (including compensation by way of bonuses), and other indirect charges. . . .

"A proper proportion of interest accrued . . . on bonds or other debts or loans existing or contracted for prior to the date of this contract and the proceeds of which shall be used, or shall have been or shall be invested in plant, equipment, etc., that shall be used, in the performance of the work under this contract.

"A proper proportion of taxes of all kinds accrued during the taxable year with respect to the business or property, except any Federal taxes.

"A proper proportion of physical losses actually sustained within the taxable year in connection with the construction of the vessels under this contract, including losses from fire, flood, storm, riot, vandalism, any acts of God, acts of war, or other casualties and not compensated for by insurance or otherwise.

"A reasonable allowance, according to the condition, for depreciation of values of the property and plant of the Contractor used in connection with the work under this Contract."

Neither in the contracts nor under any relevant statutory provision was there any restriction on salaries and bonuses to be paid to executives of the shipbuilder or its affiliates. Cf. Sections 505(c) and 805(c) of the Merchant Marine Act of 1936, 49 Stat. 1985, 1999, 2013.

[2] Even in the case of lump sum contracts with the government, it is generally recognized that the real risk of loss is negligible. It is usual in this kind of contract to set prices high enough to cover, or otherwise specifically to provide against, unforeseen contingencies. And where loss does occur contrary to the expectation of both parties, Congress often passes special bills making the contractors whole.

[3] These ships apparently cost the government at least a large part of still another $4,825,415. The government paid this amount to Bethlehem to aid in expansion of plant facilities to build the ships—facilities which were turned over to Bethlehem after the war. The government's money was contributed under a contract commonly in use whereby the contractor was given the option of purchasing the additional facilities at a depreciated value. Whether the government, upon conveyance of the property, received any compensation at all does not clearly appear.

[4] While profits on individual contracts ranged above and below 22%, both in the proceedings below and in this Court the whole series of contracts was regarded as a unit. The government has made no separate argument with respect to the individual contracts in which more than the average profit was realized, nor has Bethlehem with respect to the contracts in which the amount due under the half-savings clause proved to be small. The only finding of the Master in which any separation of contracts is made shows that the profits realized on contracts in which the estimated costs were checked by the Fleet Corporation were higher than those on contracts in which the Fleet Corporation accepted Bethlehem's estimates without check.

[5] Compare the statutory method of restricting profits of affiliates embodied in Section 803 of the Merchant Marine Act of 1936, 49 Stat. 1985, 2012, 46 U.S.C.A. § 1221.

[6] The contracts contained a provision, usual in Fleet Corporation contracts, under which the government agreed "to provide the cash funds necessary to pay for work already done and materials already furnished and for carrying on the work under this contract."

[7] The government concedes "that $1,514,995 of the judgment awarded . . . in the action at law is . . . due under contracts other than those now under attack."

[8] Of the cases called to our attention by the government, only in Burke & James, Inc., v. United States, 63 Ct.Cl. 36, was a bonus for savings clause held severable and invalid although regarded as "part and parcel of the original . . . contract." We agree, as did both courts below, with the Master's statement that the Burke case is not applicable here because "the facts upon which the decision of that case was based are so different."

[9] The District Court treated the contracts as governed by the law of Pennsylvania. The Circuit Court of Appeals treated them as governed by the law either of Pennsylvania or the District of Columbia, but did not decide which. The Fleet Corporation was organized under the laws of the District of Columbia. Although wholly owned and controlled by the government it has been held subject to suit either in state or federal courts. Sloan Shipyards Corporation v. United States Shipping Board Emergency Fleet Corp., 258 U.S. 549, 42 S. Ct. 386, 66 L. Ed. 762; United States Shipping Board Merchant Fleet Corp. v. Harwood, 281 U.S. 519, 50 S. Ct. 372, 74 L. Ed. 1011.

[10] Cf.: "Obviously no sane man would bid on a lump-sum contract under such conditions, unless perchance he should treat the matter as a pure gamble and include an excessive margin in his proposal for unforeseen contingencies." Report of Chief of Construction Division, War Department Annual Reports (1919) 4147.

[11] The Federal Trade Commission Report does not give separate figures on sales to the government, but points out (p. 7) that the government had announced its intention to purchase 80% of the 1918 pack.

[12] Cf.: "It would be very dangerous, indeed, to the best interests of the government . . . if . . . this (Court) should . . . render decrees on the crude notions of the judges of what is or would be morally right between the government and the individual." Smoot's Case, 15 Wall. 36, 45, 46, 21 L.Ed. 107.

[1] Vernon v. Bethell, 2 Eden 110, 113. And see Wood v. Abrey, 3 Madd. 417; Underhill v. Horwood, 10 Ves. 211.

[1] Whatever the scope and importance of the Government's requisitioning power in other situations (compare Baruch, American Industry in War, p. 77, with Sen. Rep. No. 944, 74th Cong., 1st Sess., pt. 2, pp. 4-5, 111-15), it was without significance in the Fleet Corporation's shipbuilding program. The reports of the Shipping Board show that the exercise of the power was limited to the acquisition of vessels which had been built or were being constructed; the power does not seem to have been employed to take over the shipyards of recalcitrant private contractors. Indeed, the policy of the Government, based upon its wartime needs, was to encourage, financially and otherwise, the construction and maintenance of shipyards by private interests. See 1st Annual Report of the U.S. Shiping Board (1917) pp. 12—15; 2d Annual Report (1918) pp. 33-36, 120-22; Report of Director General Charles Piez to the Board of Trustees of the U.S. Shipping Board Emergency Fleet Corporation (April 30, 1919) pp. 13-14, 78, 123; Report of the President of the U.S. Shipping Board Emergency Fleet Corporation to the Board of Trustees (August 1, 1919) pp. 25-26.

[2] The books are full of cases in which courts have refused to lend themselves as collecting agencies of contracts made under circumstances offensive to the conscience. See, for example, in addition to the cases cited in the text, Johnson v. Ford, 147 Tenn. 63, 245 S.W. 531; Harris v. Cary, 112 Va. 362, 71 S.E. 551, Ann. Cas. 1913A, 1350; Northwestern Mut. Life Ins. Co. v. Barker's Ex'x, 241 Ky. 490, 497, 44 S.E.2d 292; Caivano v. Brill, 171 Misc. 298, 11 N.Y.S.2d 498.

[3] E.g., the right to recover money paid under mistake of law, Wisconsin Central Railroad Co. v. United States, 164 U.S. 190, 212, 17 S. Ct. 45, 52, 41 L. Ed. 399, and the unavailability against the Government of the defenses of laches or neglect of duty, United States v. Kirkpatrick, 9 Wheat. 720, 735, 6 L. Ed. 199, and estoppel based on unauthorized acts of its agents, Lee v. Munroe, 7 Cranch 366, 3 L.Ed. 373; Utah Power & Light Co. v. United States, 243 U.S. 389, 408, 409, 37 S. Ct. 387, 391, 61 L. Ed. 791.

[350 F.2d 447]

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

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

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

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

Before BAZELON, Chief Judge, and DANAHER and WRIGHT, Circuit Judges.

J. SKELLY WRIGHT, Circuit Judge:

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

The contract further provided that

"the amount of each periodical installment payment to be made by [purchaser] to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment payment to be made by [purchaser] under such prior leases, bills or accounts; and all payments now and hereafter made by [purchaser] shall be credited pro rata on all outstanding leases, bills and accounts due the Company by [purchaser] at the time each such payment is made."

(Emphasis added.) The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings.

On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps, having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 17, 1962, appellant Williams bought a stereo set of stated value of $514.95.^[1] She too defaulted shortly thereafter, and appellee sought to replevy all the items purchased since December, 1957. The Court of General Sessions granted judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants' motion for leave to appeal to this court.

Appellants' principal contention, rejected by both the trial and the appellate courts below, is that these contracts, or at least some of them, are unconscionable and, hence, not enforceable. In its opinion [350 F.2d 448] in Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), the District of Columbia Court of Appeals explained its rejection of this contention as follows:

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

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

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

"...If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to...."^[3]

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

Congress has recently enacted the Uniform Commercial Code, which specifically provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made. 28 D.C.CODE § 2-302 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that [350 F.2d 449] the common law of the District of Columbia was otherwise at the time of enactment, nor does it preclude the court from adopting a similar rule in the exercise of its powers to develop the common law for the District of Columbia. In fact, in view of the absence of prior authority on the point, we consider the congressional adoption of § 2-302 persuasive authority for following the rationale of the cases from which the section is explicitly derived.^[5] Accordingly, we hold that where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.^[6] Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power.^[7] The manner in which the contract was entered is also relevant to this consideration. Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain.^[8] But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule that the terms of the [350 F.2d 450] agreement are not to be questioned^[9] should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.^[10]

In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered "in the light of the general commercial background and the commercial needs of the particular trade or case."^[11] Corbin suggests the test as being whether the terms are "so extreme as to appear unconscionable according to the mores and business practices of the time and place." 1 CORBIN, op. cit. supra Note 2.^[12] We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract.

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

DANAHER, Circuit Judge (dissenting):

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

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

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

I mention such matters only to emphasize the desirability of a cautious approach to any such problem, particularly since the law for so long has allowed parties such great latitude in making their own contracts. I dare say there must annually be thousands upon thousands of installment credit transactions in this jurisdiction, and one can only speculate [350 F.2d 451] as to the effect the decision in these cases will have.^[13] I join the District of Columbia Court of Appeals in its disposition of the issues.

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

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

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

[4] While some of the statements in the court's opinion in District of Columbia v. Harlan & Hollingsworth Co., 30 App.D.C. 270 (1908), may appear to reject the rule, in reaching its decision upholding the liquidated damages clause in that case the court considered the circumstances existing at the time the contract was made, see 30 App.D.C. at 279, and applied the usual rule on liquidated damages. See 5 CORBIN, CONTRACTS §§ 1054-1075 (1964); Note, 72 YALE L.J. 723, 746-755 (1963). Compare Jaeger v. O'Donoghue, 57 App.D.C. 191, 18 F.2d 1013 (1927).

[5] See Comment, § 2-302, Uniform Commercial Code (1962). Compare Note, 45 VA.L.REV. 583, 590 (1959), where it is predicted that the rule of § 2-302 will be followed by analogy in cases which involve contracts not specifically covered by the section. Cf. 1 STATE OF NEW YORK LAW REVISION COMMISSION, REPORT AND RECORD OF HEARINGS ON THE UNIFORM COMMERCIAL CODE 108-110 (1954) (remarks of Professor Llewellyn).

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

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

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

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

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

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

[9] This rule has never been without exception. In cases involving merely the transfer of unequal amounts of the same commodity, the courts have held the bargain unenforceable for the reason that "in such a case, it is clear, that the law cannot indulge in the presumption of equivalence between the consideration and the promise." 1 WILLISTON, CONTRACTS § 115 (3d ed. 1957).

[10] See the general discussion of "Boiler-Plate Agreements" in LLEWELLYN, THE COMMON LAW TRADITION 362-371 (1960).

[11] Comment, Uniform Commercial Code § 2-307.

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

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

Maribeth Halloran, Washington, D. C., with whom Richard B. Wolf, Washington, D. C., was on the brief for appellant.

Jordan M. Spivok, Chevy Chase, Md., with whom Harry Protas and Robert L. [112] Kay, Chevy Chase, Md., were on the brief, for appellee.

Before KELLY, KERN and PAIR, Associate Judges.

KELLY, Associate Judge.

According to an agreed statement of proceedings and evidence the appellant, Mrs. Bernice Patterson, bought merchandise from appellee in three separate transactions during 1968. In January she bought an 18-inch Emerson portable television, with stand, for $295.95, signing an installment contract which obligated her to pay appellee $20 a month on account. In March she bought a five-piece dinette set for $119.95, increasing her monthly payments to $24. In July she purchased a set of wedding rings for $159.95 and the payments rose to $25 per month. The total price for all the goods, including sales tax, was $597.25. Mrs. Patterson defaulted in her payments after she had paid a total of $248.40 toward the agreed purchase price.

Appellant answered^[1] Walker-Thomas' action to recover the unpaid balance on the contracts by claiming, in pertinent part,^[2] that she had paid an amount in excess of the fair value of the goods received and that the goods themselves were so grossly overpriced as to render the contract terms unconscionable and the contracts unenforceable under the Uniform Commercial Code as enacted in the District of Columbia.^[3]

Objections to interrogatories addressed to appellee in an effort to establish her defense that the goods were in fact grossly overpriced were sustained, the court ruling in part that the information sought was outside the scope of discovery "because the defense of unconscionability based on price is not recognized in this jurisdiction". It ruled further "that certain information sought was readily obtainable to defendant by resort to the contracts admittedly in her possession and that certain of the interrogatories amounted to 'harassment of the business community'."

Appellant persisted in her efforts to present the defense of unconscionability by issuing a subpoena duces tecum for the production of appellee's records, and, alleging indigency, by moving for the appointment of a special master or expert witness to establish the value of the goods, the price Walker-Thomas paid for them, and their condition (whether new or secondhand) when she purchased them. The pretrial judge quashed the subpoena duces tecum on the ground that appellant was precluded from obtaining the same information by means of the subpoena that she had been denied through the use of interrogatories. The motion to appoint a special master or expert witness was also denied.

A trial judge subsequently held that the prior rulings of the motions judge and the pretrial judge established the law of the [113] case. Inasmuch as appellant's then sole defense was that the goods were grossly overpriced and no proof on this issue was presented, the court entered judgment for appellee.^[4] We affirm.

Suggested guidelines for deciding whether or not a contract is unconscionable appear in Williams v. Walker-Thomas Furniture Co., 121 U.S.App.D.C. 315, 319-320, 350 F.2d 445, 449-450, 18 A.L.R.3d 1297, 1301-1303 (1965), as follows:^[5]

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. * * *

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

Later, citing Williams in another context, this court said that "two elements are required to exist to prove unconscionability; i. e., `an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.'" Diamond Housing Corp. v. Robinson, D.C. App., 257 A.2d 492, 493 (1969). (Emphasis in the original.)

On the basis of these authorities we conclude that in a proper case gross overpricing may be raised in defense as an element of unconscionability.^[6] Under the test outlined in Williams price is necessarily an element to be examined when determining whether a contract is reasonable. The Corbin test mentioned in the opinion specifically deals with the "terms" [114] of the contract and certainly the price one pays for an item is one of the more important terms of any contract. We emphasize, however, that price as an unreasonable contract term is only one of the elements which underpin proof of unconsionability. Specifically, therefore, in the instant case the reasonableness of the contracts is not to be gauged by an examination of the price stipulation alone or any other term of the contract without parallel consideration being given to whether or not appellant exercised a meaningful choice in entering into the contracts.

We conclude also that because excessive price-value may comprise one element of unconscionability, discovery techniques may be employed to garner information relevant to that issue for purposes of defense. By statute, upon a claim of unconscionability, the court determines as a matter of law whether a contract or any clause thereof is unconscionable only after the parties have been given a reasonable opportunity to present evidence as to its commercial setting, purpose and effect. Certainly, therefore, interrogatories may be used to develop evidence of the commercial setting, purpose and effect of a contract at the time it was made in order to assure an effective presentation of the defense at an evidentiary hearing.

In our judgment, however, appellant here was not erroneously precluded from developing evidence through the use of interrogatories by the ruling of the trial court. Having said that under proper circumstances excessive price may be a component of the defense of unconscionability and that discovery techniques may be used to develop that defense, we are nevertheless of the opinion that a sufficient factual predicate for the defense must be alleged before wholesale discovery is allowed. An unsupported conclusory allegation in the answer that a contract is unenforceable as unconscionable is not enough. Sufficient facts surrounding the "commercial setting, purpose and effect" of a contract at the time it was made should be alleged so that the court may form a judgment as to the existence of a valid claim of unconscionability and the extent to which discovery of evidence to support that claim should be allowed.

Admittedly, appellant neither alleged nor attempted to prove the existence of any fraud, duress or coercion when she entered into the instant contracts. Her verified complaint alleges only that the goods she purchased and still retains were grossly overpriced and that she has already paid appellee a sum in excess of their fair value. These are conclusions without factual support. It cannot be said that the goods were grossly overpriced merely from an examination of the prices which appear on the face of the contracts. No other term of the contract is alleged to be unconscionable, nor is an absence of meaningful choice claimed.^[7] We hold that the two elements of which unconscionability is comprised; namely, an absence of meaningful choice and contract terms unreasonably favorable to the other party, must be particularized in some detail before a merchant is required to divulge his pricing policies through interrogatories or through the production of records in court.^[8] An answer, such as the one here, asserting the affirmative defense of unconscionability only on the basis of a stated conclusion that the price is excessive is insufficient.

Accordingly, the judgment of the trial court is

Affirmed.

[1] Originally, appellant filed a pro se answer stating she was behind in her payments because of illness and that Walker-Thomas had refused to accept a partial payment on account. She was later allowed to file an amended answer.

[2] A second affirmative defense, that the contract had been reformed by setting new terms of payment, was not pursued. Nor does appellant complain of the court's action in striking her counterclaim for damages.

[3] D.C.Code 1967, § 28:2-302. Unconscionable contract or clause.

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

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

[4] The agreed statement of proceedings and evidence says (R. 79, 80) that "[d]efendant [appellant], not present in Court, proferred [sic] testimony through counsel and over objection of plaintiff [appellee] that in January 1968 defendant had bad credit at Montgomery Ward, the store at which she previously made her household purchases; defendant did not have credit lines established at any other retail store; defendant met a salesman of Walker-Thomas who, understanding defendant's credit situation, encouraged her to go to plaintiff's store and represented to defendant that credit would be available to her at Walker-Thomas; and relying on this representation defendant went to plaintiff's store, was extended credit and executed the first of the series of three contracts upon which plaintiff sues." The proffered testimony, of course, is not evidence in this case. An offer of proof is made when testimony to be given by a witness in court is, upon objection, excluded by the court. It is not made through counsel when the witness is not present to testify. See generally 88 C. J.S. Trial § 73 (1955).

[5] Although Williams was decided on principles of common law, it is upon those principles that § 28:2-302 is based.

[6] Other courts have said that in certain circumstances excessive price might constitute an unreasonable contractual provision within § 28:2-302. See Toker v. Perl, 103 N.J.Super. 500, 247 A.2d 701 (1968); Central Budget Corp. v. Sanchez, 53 Misc.2d 620, 279 N.Y.S.2d 391 (1967); State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303 (1966); American Home Improvement, Inc. v. MacIver, 105 N.H. 435, 201 A.2d 886, 889, 14 A.L.R.3d 324, 328-329 (1964).

[7] The proffered testimony at trial is the first mention of any purported facts surrounding these transactions.

[8] The same reasoning applies to a request for appointment of a master or expert witness.

Nager & Korobow for plaintiffs. Keilson & Keilson for defendant.

[190] SOL WACHTLER, J.

On August 31, 1965 the plaintiffs, who are welfare recipients, agreed to purchase a home freezer unit for $900 as the result of a visit from a salesman representing Your Shop At Home Service, Inc. With the addition of the time credit charges, credit life insurance, credit property insurance, and sales tax, the purchase price totaled $1,234.80. Thus far the plaintiffs have paid $619.88 toward their purchase. The defendant claims that with various added credit charges paid for an extension of time there is a balance of $819.81 still due from the plaintiffs. The uncontroverted proof at the trial established that the freezer unit, when purchased, had a maximum retail value of approximately $300. The question is whether this transaction and the resulting contract could be considered unconscionable within the meaning of section 2-302 of the Uniform Commercial Code which provides in part:

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

"(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination." (L. 1962, ch. 553, eff. Sept. 27, 1964.)

There was a time when the shield of caveat emptor would protect the most unscrupulous in the marketplace — a time when the law, in granting parties unbridled latitude to make their own contracts, allowed exploitive and callous practices which shocked the conscience of both legislative bodies and the courts.

The effort to eliminate these practices has continued to pose a difficult problem. On the one hand it is necessary to recognize the importance of preserving the integrity of agreements and the fundamental right of parties to deal, trade, bargain, and contract. On the other hand there is the concern for the uneducated and often illiterate individual who is the victim of gross inequality of bargaining power, usually the poorest members of the community.

Concern for the protection of these consumers against overreaching by the small but hardy breed of merchants who would prey on them is not novel. The dangers of inequality of bargaining power were vaguely recognized in the early English common law when Lord HARDWICKE wrote of a fraud, which [191] "may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make". The English authorities on this subject were discussed in Hume v. United States (132 U. S. 406, 411 [1889]) where the United States Supreme Court characterized (p. 413) these as "cases in which one party took advantage of the other's ignorance of arithmetic to impose upon him, and the fraud was apparent from the face of the contracts."

The law is beginning to fight back against those who once took advantage of the poor and illiterate without risk of either exposure or interference. From the common-law doctrine of intrinsic fraud we have, over the years, developed common and statutory law which tells not only the buyer but also the seller to beware. This body of laws recognizes the importance of a free enterprise system but at the same time will provide the legal armor to protect and safeguard the prospective victim from the harshness of an unconscionable contract.

Section 2-302 of the Uniform Commercial Code enacts the moral sense of the community into the law of commercial transactions. It authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. "The principle", states the Official Comment to this section, "is one of the prevention of oppression and unfair surprise". It permits a court to accomplish directly what heretofore was often accomplished by construction of language, manipulations of fluid rules of contract law and determinations based upon a presumed public policy.

There is no reason to doubt, moreover, that this section is intended to encompass the price term of an agreement. In addition to the fact that it has already been so applied (Matter of State of New York v. ITM, Inc., 52 Misc 2d 39; Frostifresh Corp. v. Reynoso, 52 Misc 2d 26, revd. 54 Misc 2d 119; American Home Improvement v. MacIver, 105 N. H. 435), the statutory language itself makes it clear that not only a clause of the contract, but the contract in toto, may be found unconscionable as a matter of law. Indeed, no other provision of an agreement more intimately touches upon the question of unconscionability than does the term regarding price.

Fraud, in the instant case, is not present; nor is it necessary under the statute. The question which presents itself is whether or not, under the circumstances of this case, the sale of a freezer unit having a retail value of $300 for $900 ($1,439.69 including [192] credit charges and $18 sales tax) is unconscionable as a matter of law. The court believes it is.

Concededly, deciding the issue is substantially easier than explaining it. No doubt, the mathematical disparity between $300, which presumably includes a reasonable profit margin, and $900, which is exorbitant on its face, carries the greatest weight. Credit charges alone exceed by more than $100 the retail value of the freezer. These alone, may be sufficient to sustain the decision. Yet, a caveat is warranted lest we reduce the import of section 2-302 solely to a mathematical ratio formula. It may, at times, be that; yet it may also be much more. The very limited financial resources of the purchaser, known to the sellers at the time of the sale, is entitled to weight in the balance. Indeed, the value disparity itself leads inevitably to the felt conclusion that knowing advantage was taken of the plaintiffs. In addition, the meaningfulness of choice essential to the making of a contract can be negated by a gross inequality of bargaining power. (Williams v. Walker-Thomas Furniture Co., 350 F.2d 445.)

There is no question about the necessity and even the desirability of installment sales and the extension of credit. Indeed, there are many, including welfare recipients, who would be deprived of even the most basic conveniences without the use of these devices. Similarly, the retail merchant selling on installment or extending credit is expected to establish a pricing factor which will afford a degree of protection commensurate with the risk of selling to those who might be default prone. However, neither of these accepted premises can clothe the sale of this freezer with respectability.

Support for the court's conclusion will be found in a number of other cases already decided. In American Home Improvement v. MacIver (supra) the Supreme Court of New Hampshire held that a contract to install windows, a door and paint, for the price of $2,568.60, of which $809.60 constituted interest and carrying charges and $800 was a salesman's commission was unconscionable as a matter of law. In Matter of State of New York v. ITM, Inc. (supra) a deceptive and fraudulent scheme was involved, but standing alone, the court held that the sale of a vacuum cleaner, among other things, costing the defendant $140 and sold by it for $749 cash or $920.52 on time purchase was unconscionable as a matter of law. Finally, in Frostifresh Corp. v. Reynoso (supra) the sale of a refrigerator costing the seller $348 for $900 plus credit charges of $245.88 was unconscionable as a matter of law.

[193] One final point remains. The defendant argues that the contract of June 15, 1966, upon which this suit is based, constitutes a financing agreement and not a sales contract. To support its position, it points to the typed words "Refinance of Freezer A/C #6766 and Food A/C #56788" on the agreement and to a letter signed by the plaintiffs requesting refinance of the same items. The request for "refinancing" is typed on the defendant's letterhead. The quoted refinance statement is typed on a form agreement entitled "Star Credit Corporation — Retail Instalment Contract". It is signed by the defendant as "seller" and by the purchasers as "buyer". Above the signature of the buyers, they acknowledge "receipt of an executed copy of this RETAIL INSTALMENT CONTRACT". The June 15, 1966 contract by defendant is on exactly the same form as the original contract of August 31, 1965. The original, too, is entitled "Star Credit Corporation — Retail Instalment Contract". It is signed, however, by "Your Shop At Home Service, Inc." Printed beneath the signatures is the legend "Duplicate for Star". In substance and effect, the agreement of June 25, 1966 constitutes a novation and replacement of the earlier agreement. It is, in all respects, as it reads, a "Retail Instalment Contract".

Having already paid more than $600 toward the purchase of this $300 freezer unit, it is apparent that the defendant has already been amply compensated. In accordance with the statute, the application of the payment provision should be limited to amounts already paid by the plaintiffs and the contract be reformed and amended by changing the payments called for therein to equal the amount of payment actually so paid by the plaintiffs.

58 N.J. 522 (1971)
279 A.2d 640

GEORGE F. KUGLER, JR., ATTORNEY GENERAL OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
RICHARD ROMAIN, BOTH INDIVIDUALLY AND t/a EDUCATIONAL SERVICES CO., DEFENDANT-RESPONDENT.

The Supreme Court of New Jersey.
Argued April 5, 1971.
Decided June 28, 1971.

[524] Mr. Douglas J. Harper, Deputy Attorney General, argued the cause for appellant (Mr. Stephen Skillman, Assistant Attorney General, of counsel; Mr. George F. Kugler, Jr., Attorney General of New Jersey, attorney).

Mr. Carl R. Lobel, argued the cause for New Jersey State Office of Legal Services, amicus curiae (Mr. Carl F. Bianchi, attorney).

Mr. Nathan N. Goldberg argued the cause for respondent.

[525] The opinion of the Court was delivered by FRANCIS, J.

Acting under the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., the Attorney General instituted this action in the Superior Court, Chancery Division, against defendant Richard Romain individually and trading as Educational Services Co. Injunctive and other affirmative relief was sought based on charges that in connection with the house-to-house sale of certain so-called educational books defendant had engaged in business practices which violated Section 2 of the Act, N.J.S.A. 56:8-2. Section 2 provides in pertinent part as follows:

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale * * *  of any merchandise, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice; * * *.

The specific authorization for this proceeding appears in N.J.S.A. 56:8-8:

Whenever it shall appear to the Attorney General that a person has engaged in, is engaging in or is about to engage in any practice declared to be unlawful by this act he may seek and obtain in an action in the Superior Court an injunction prohibiting such person from continuing such practices or engaging therein or doing any acts in furtherance thereof * * * . The court may make such orders or judgments as may be necessary to prevent the use or employment by a person of any prohibited practices, or which may be necessary to restore to any person in interest any moneys or property, real or personal which may have been acquired by means of any practice herein declared to be unlawful.

The Attorney General prayed for (1) injunctive relief barring the specific practices allegedly violative of N.J.S.A. 56:8-2; (2) a declaration that the price of the books printed in the form of contract was a transgression of the statute either because it constituted a fraud within the express [526] terms of N.J.S.A. 56:8-2 or because it was unconscionable under the Uniform Commercial Code, N.J.S.A. 12A:2-302 which he argued is implicitly included within N.J.S.A. 56:8-2; (3) restoration and remedial orders for all persons who were induced to execute such purchase contracts; (4) rescission of all contracts with purchasers listed on a schedule attached to the complaint; (5) imposition of civil penalties against defendant, as provided in the Act, N.J.S.A. 56:8-13, 14; and (6) an order restraining defendant from doing business in New Jersey until he registered his trade name as required by N.J.S.A. 56:1-2.

The relief sought was not limited to the 24 customers whose names were set out in the schedule referred to. The complaint asked for

(3) An order enjoining defendant from enforcing or collecting in any manner those obligations arising out of the contracts entered into with those consumers set forth in Schedule A and those consumers similarly situated.

(4) An order rescinding any and all obligations arising out of the purported contracts entered into by those consumers set forth in the attached schedule and those consumers similarly situated. (Emphasis added.)

After a plenary hearing, the trial court found that defendant violated N.J.S.A. 56:8-2 by using deceptive and fraudulent practices to induce the 24 customers named in the schedule to execute contracts for the purchase of an "educational package" of books and related materials. Accordingly, a judgment was entered in favor af the Attorney General granting certain specified injunctive, restorative and remedial relief which will be discussed more fully hereafter. Kugler v. Romain, 110 N.J. Super. 470 (Ch. Div. 1970). Believing that the relief granted was not as extensive as the circumstances warranted, the Attorney General appealed from the trial court's judgment. Defendant cross-appealed but abandoned his appeal before argument and limited his participation to a defense of the portions of the judgment attacked by the Attorney General. We certified the cause on [527] our own motion before the appeal was heard in the Appellate Division.

The trial court's reported opinion contains a substantial outline of facts and findings thereon, as well as a comprehensive discussion of the legal issues involved, with most of which we are in agreement. However, since we have concluded that full effectuation of the statute, N.J.S.A. 56:8-1 et seq., and of the remedies intended to be made available thereby to the merchandise-consuming public requires more extensive remedial application, it is necessary to set forth some factual background relating to defendant's business practices and methods of operation.

Defendant, a resident and member of the bar of the State of New York, was engaged in the installment sale of so-called educational books and related materials in New York and New Jersey. He operated under the trade name Educational Services Company from an office in New York City. The trade name was not registered in New Jersey as required by N.J.S.A. 56:1-2 as a condition to doing business here.

Sales solicitations were made exclusively through house-to-house canvass by defendant's employees. No advance appointments were made. The solicitors simply descended upon a selected section of a municipality and undertook by house-to-house calls to sell a package of books which was described in large type on the contract presented to the prospective customers as "A Complete Ten Year Educational Program." It was also indicated thereon that the package was the product of the "Junior Institute," and nearby was the plea "Give your child its chance." In engaging his sales personnel, defendant sought persons who were "sales oriented" and extroverted. They were trained by defendant and his sales manager. The sales force fluctuated in number depending upon the season; the number was greater in the summer, reaching 30-35 persons. Defendant's "crew leader" transported them by car to the New Jersey area to be covered.

The geographical areas to be the subject of sales solicitation were primarily the urban centers of Newark, Paterson, Elizabeth [528] and Rahway. They were chosen by defendant who was familiar with them and the class of people to be sought out by his sales force. Within these target areas, the sales solicitations were consciously directed toward minority group consumers and consumers of limited education and economic means. Persons with incomes of less than $5000 a year were favored; some buyers were welfare recipients. Sales among these people were thought to be "easier." Although the canvassing was door-to-door, ordinances in the municipalities involved in this case which required licensing or registration were ignored.

Defendant's educational package consisted of the following books and materials:

1. Questions Children Ask (1 Vol.)

2. Child Horizons (4 Vols.)

3. New Achievement Library (5 Vols.)

4. High School Subjects Self-Taught (4 Vols.)

5. Science Library (1 Vol.)

6. Play-Way French and Spanish Records (2 45 r.p.m. Records)

7. Tell Time Flash Card Set.

Additionally a "bonus" volume — a Negro History, a World Atlas or a Bible — was offered either along with the original package or after completion of payment.

The printed contract form marked "Retail Installment Obligation," which was presented to the customer for signature, consisted of a single sheet covered with printed matter on both sides. The cash and time sale prices were printed on the face of the contract, the former at $249.50, and the latter at $279.95, less a $9 down payment which was obtained whenever possible. Apparently no one paid the cash price.^[1] Also printed on the face in small print was the statement: "This order is not subject to cancellation and set is not returnable."

[529] On the reverse side under "Conditions" appeared certain payment acceleration and waiver of defenses clauses, including waiver of all exemptions and right to jury trial. It is noted also that on the face of the form in large print appears "Credit Life Insurance at no additional charge" and "Property Insurance Certificate at no additional charge." Moreover, in the sales price computation column, which likewise appears on the face of the contract, "Credit Life Insurance" and "Property Insurance" are listed again with the notation "No Add. Chg." But on the reverse side under "Conditions," it is noted in small type that the insurance is not provided unless a charge is made for it in the price computation column "on the face hereof."

The trial court found that the wholesale price for the basic package, including the bonus items, was $35 to $40. Thus the cash sale price was six or seven times the wholesale price. Defendant's sales personnel were paid on a commission basis, ranging from $16.50 to $33 per sale; the amount paid depended upon whether (1) he secured the $9 down payment; (2) he obtained the customer's home telephone number; (3) the customer was not self-employed; and (4) the customer had been employed for at least 1-1/2 years. In most cases the commission averaged $16.50. The crew leader also worked on a commission basis and additionally received an over-ride commission of $5 on every approved order of a member of his crew.

The Attorney General offered uncontradicted expert evidence that in view of industry-wide practices the maximum retail price which should have been charged for the entire package was approximately $108-$110. In the witness's opinion, the price charged by defendant was about two and one-half times the retail maximum, and he said that it was exorbitant. The trial court found that the price was exorbitant but held that such exorbitance per se did not constitute a fraud under N.J.S.A. 56:8-2. In its view, proof of deceptive practices was required in addition to the excessive price before a consumer's contract could be vitiated under the statute.

[530] In deciding whether defendant, contrary to the statute, used any deception, fraud, false pretense, or misrepresentation, or whether he concealed, suppressed or omitted any material fact in connection with the sales to book purchasers, the price charged the consumer is only one element to be considered. If the price is grossly excessive in relation to the seller's costs, and if in addition the goods sold have little or no value to the consumer for the purpose for which he was persuaded to buy them and which the seller pretended they would serve, the price paid by the consumer takes on even more serious characteristics of imposition. Here the Attorney General offered persuasive evidence that the books had little or no educational value for the children in the age group and socio-economic position the defendant represented would be benefited by them.

The testimony showed that as to the New Achievement Library, three of the five volumes dealing with Nature, Science and Civilization, represented "very poor, watered-down articles which cover the * * * areas very superficially." They were of "extremely little use" or value as a means of raising the educational level of the children they were supposed to help. Another volume entitled "Getting Acquainted with Your Opportunities in Education" was extremely poor both in quality and content. Although the volume required a tenth grade reading level, it contained articles which the witness characterized as obsolete at the time it was being sold and irrelevant to 98% of its intended readers. "Child Horizons," consisting of four volumes and designed for children 6 to 10 years of age, was said to have no relevance to children whose unfortunate socio-economic conditions did not make them susceptible to the concepts and ideas reflected therein. It was, according to the expert, like giving calculus to a person who had never studied simple algebra. As to "High School Self Taught," the four volumes were useless not merely for members of a minority group but for basic education for any individual. They might have some value for refreshment purposes for a person who has been through high school, [531] "but for one to self teach, it is just impossible." Similar comments were made about other books in the package. Taken as a whole, the witness said that, in his judgment, the books

 * * * will serve no purpose in improving the intellectual level of these children, arousing their intellectual curiosity and compensating for the deficient intellectual climate in which they are being raised.

Defendant offered no contradictory proof on this subject.

The Attorney General produced 24 consumers who testified concerning their own experiences with defendant's sales personnel which led to the execution of the printed form purchase contracts. In no case was there any real explanation of the obligation being assumed upon signing the contract. Many buyers, relying on the representations of defendant's agents, did not read the form being signed. Even if they had read it, it is implicit in the trial court's finding that either they were incapable of comprehending its real import or they believed that, whatever it said, the real bargain they were making was the one outlined to them by defendant's sales representatives. These 24 consumers also described defendant's contract enforcement and collection practices. In each case the trial court found that "[t]he proofs abundantly support the finding that deceptive and fraudulent practices prohibited by N.J.S.A. 56:8-2 have been perpetrated by the defendant's sales representatives upon each of the 24 customers who testified. 110 N.J. Super. at 478." As already noted, defendant does not dispute that finding on this appeal.

For purposes of this opinion it is sufficient to set forth generally the nature of the misrepresentations and deceptions practiced by defendant's solicitors:

1. Statements that defendant's employee was selling books under a special federal grant;

2. Statements that the books were being sold for "Head Start," for a school, for the Newark Board of Education, for [532] the school system, for a high school, or for a named school which did not exist;

3. Statements that the total contract price was $49.50, payable by the accumulation of 10¢ per day to meet the monthly payments, that the price was $115, $160, $199 or "pennies a day," $25, $75, 48¢ per week, etc., or that the package was free for experimental or demonstration purposes;

4. Statements that the contract was cancellable at the option of the consumer (where the consumer wanted to review the contract with her husband) followed by institution of suit to collect upon the contract;

5. Statements that the contract was not effective until receipt of the deposit, followed by litigation on the contract to collect even though no deposit was ever paid;

6. Institution of suit to collect against a non-signatory spouse following misrepresentative statements;

7. Statements that purchase of the package would lead to a high school equivalency diploma.

The record reveals that defendant brought suit against at least 19 of the 24 persons who testified in this case with the following results:

Default judgments ........................................ 8 or 9

Garnishment .............................................. 3

Garnishment against non-signing spouse ................... 5

Case dismissed; these occurred when defendant's attorneys refused to file answers to interrogatories or failed to appear at the trial ...................................... 4

Case settled ............................................. 8

In one of these cases a young wife under 21 years of age with two infant children had been induced to sign a contract by a false price. Her husband, also under 21 years of age, had not signed the contract but his wages were garnished and he lost his position.

Defendant instituted 779 collection actions in New Jersey on these contracts between 1964 and 1968; 628 of these resulted [533] in judgments for the plaintiff, with no representative of Educational Services Company even appearing to testify. According to the only figures available there were 174 garnishment proceedings out of the last 183 suits. The trial court found that defendant had brought suit to enforce 70% of his New Jersey contracts.

In a comprehensive opinion, the trial court resolved all factual issues in favor of the Attorney General. Its consequent judgment

(1) enjoined defendant from continuing or engaging in any fraud or deception as defined in N.J.S.A. 56:8-2 and particularly from engaging in any of the deceptive practices or misrepresentations hereinabove outlined;

(2) ordered that defendant enter cancellations of all judgments arising out of the sales contracts involved in the case which were docketed against any of the consumers or their spouses who testified at this trial;

(3) ordered defendant to restore to the testifying customers all moneys they paid him pursuant to default judgments entered against them; upon receiving payment, such persons were directed to return to defendant whatever books and materials they had received under the contracts which they still had in their possession; it was provided also that their inability to make complete return of the books, etc. would not bar their right to recovery of the sums they paid under the default judgments;

(4) enjoined defendant from instituting any action seeking a money recovery under the sales contract against any of the 24 consumers who had testified in the case;

(5) recited that since the 24 contracts involved in the action were obtained through practices violative of N.J.S.A. 56:8-2, a penalty of $100 in each instance or $2400 would be imposed upon defendant under N.J.S.A. 56:8-13.

However, the trial court declined certain additional relief sought, hence this appeal. More particularly, although it was declared that all of the 24 contracts discussed in the proofs were procured in violation of the statute, restoration [534] of moneys paid by some victims through their attorneys in settlement of defendant's claims against them was denied.^[2] But more important, it was held that although the contract price for the "educational package" was exorbitant it did not constitute a fraud per se under the statute. Further, and of crucial importance to the Attorney General's position as representative of the public and of the Office of Consumer Protection, N.J.S.A. 52:17B-5.6, 5.7, the court held that the unconscionability of a contract or clause thereof within the meaning of the Uniform Commercial Code, N.J.S.A. 12A:2-302, and the remedy provided therefor by that section, are matters of private concern and cannot be asserted by the Attorney General under the consumer fraud statute here involved, N.J.S.A. 56:8-8. See N.J.S.A. 52:17A-4(h), 52:17B-5.7. Therefore it declared that the unconscionability section of the Code was neither relevant nor available to the Attorney General in the action either as it related to the 24 named consumers or to other consumers similarly situated for whom relief was sought. That view resulted in the rejection of the Attorney General's contention that the contract, being unconscionable within Section 2-302 of the Code, was also violative of Section 2 of the Consumer Fraud Act, and therefore for that reason alone should be adjudged illegal, not only in the 24 specific cases covered by the proof, but also in behalf of all others similarly situated, i.e., those consumers who had executed the same contract for the same so-called educational package at the same price. We find ourselves in agreement with the Attorney General's contention that his claims for broader affirmative relief should be recognized. Denial of such relief would be unfortunate not only in this case, but it would operate as a serious impairment to the deterrent effect of the sanctions which we believe underlies the Consumer Fraud Act.

[535] I

In resolving the problems presented, first attention must be given to the authority and status of the Attorney General to institute an action in consumer fraud cases seeking affirmative relief not only for the benefit of specifically named consumers but also for a large number of unnamed consumers similarly situated who wish to be represented and to benefit by the judgment entered therein. Obviously a just resolution can be reached only through a sensitive awareness of the climate of our time as it has been influenced by legislative and judicial measures affecting the buyer-seller relationship in the marketing of consumer goods. There can be no doubt that, in today's society, sale of consumer goods, especially on an installment credit basis, has become a matter of ever-increasing state and national anxiety. In recent years New Jersey lawmakers have become deeply concerned with suppression of commercial deception in consumer transactions. See General Investment Corp. v. Angelini, 58 N.J. 396 (1971); Unico v. Owen, 50 N.J. 101 (1967); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 388-391 (1960). The Consumer Fraud Act invoked here, N.J.S.A. 56:8-1 et seq., is only one example of the concern. To it may be added the Retail Installment Sales Act, N.J.S.A. 17:16C-1 et seq., and the Home Repair Financing Act, N.J.S.A. 17:16C-62 et seq. See General Investment Corp. v. Angelini, supra.

The courts, recognizing the current trends in consumer protection legislation, have realized that with such measures, as well as with utilization of the common law concepts of fraud and unconscionability, they can assume an active role in strengthening the consumer's limited market leverage. As this Court said in Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528 (1967):

Courts and legislatures have grown increasingly sensitive to imposition, conscious or otherwise, on members of the public by persons with whom they deal, who through experience, specialization, [536] licensure, economic strength or position, or membership in associations created for their mutual benefit and education, have acquired such expertise or monopolistic or practical control in the business transactions involved as to give them an undue advantage. 50 N.J. at 553.

Contemporary judicial sentiments of which we approve were expressed recently by the New York Supreme Court in this fashion:

The law is beginning to fight back against those who once took advantage of the poor and illiterate without risk of either exposure or interference. From the common law doctrine of intrinsic fraud we have, over the years, developed common and statutory law which tells not only the buyer but also the seller to beware. This body of laws recognizes the importance of a free enterprise system but at the same time will provide the legal armor to protect and safeguard the prospective victim from the harshness of an unconscionable contract. Jones v. Star Credit Corp., 59 Misc.2d 189, 298 N.Y.S.2d 264, 266 (Sup. Ct. 1969).

See also State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303, 321-322 (Sup. Ct. 1966).

The existing statutes in our State, and particularly N.J.S.A. 56:8-1 et seq. and 12A:2-302, reveal that the Legislature did not limit its consideration or treatment of the need for consumer protection to the creation of private remedies between the individual buyer and seller. Obviously it recognized that the deception, misrepresentation and unconscionable practices engaged in by professional sellers seeking mass distribution of many types of consumer goods frequently produce an adverse effect on large segments of disadvantaged and poorly educated people, who are wholly devoid of expertise and least able to understand or to cope with the "sales oriented," "extroverted" and unethical solicitors bent on capitalizing upon their weakness, and who therefore most need protection against predatory practices. As we see the statutes cited, as well as the act establishing the Office of Consumer Protection, N.J.S.A. 52:17B-5.6, it seems plain that the lawmakers accepted the premise that the market bargaining process does not protect ordinary [537] consumers from serious damage in a large number of transactions. Obviously, giving the consumer rights and remedies which he must assert individually in the courts would provide little therapy for the overall public aspect of the problem. It has been said that "[o]ne cannot think of a more expensive and frustrating course than to seek to regulate goods or 'contract' quality through repeated lawsuits against inventive 'wrongdoers.'" Leff, "Unconscionability and the Crowd — Consumers and The Common Law Tradition," 31 U. Pitt. L. Rev. 349, 356 (1970). As Professor Leff suggests, mass consumer transactions growing out of unequal bargaining power and unfair practices should not be handled on a case-by-case basis. The emphasis must be upon public rather than private remedies, and the natural remedial step is government intervention. Id. 351.

Accepting the need for a public as well as a private remedy, the Legislature, by N.J.S.A. 56:8-8, clearly empowered the Attorney General to police consumer practices and contracts. Section 8 authorized him to obtain an injunction against a seller who in marketing his products uses deception, fraud, false pretense, misrepresentation or concealment of material facts in violation of N.J.S.A. 56:8-2. And this remedy is available even though no consumer has in fact been misled or damaged thereby. But more important for purposes of the present case, in such an injunction action, as the cited section says, the court "may make such orders or judgments as may be necessary to prevent the use or employment by a person of any prohibited practices, or which may be necessary to restore to any person in interest any moneys or property, real or personal which may have been acquired by means of any practice herein declared to be unlawful." That the Legislature intended to confer on the Attorney General the broadest kind of power to act in the interest of the consumer public is indicated not only by the quoted language but also by the act establishing the Office of Consumer Protection. Under the latter statute all of the functions, powers and duties of the Attorney General derived [538] from the Consumer Fraud Act as set out in N.J.S.A. 56:8-2 and 8 are directed to be exercised by him through the Office of Consumer Protection. N.J.S.A. 52:17B-5.7. That office in turn is ordered to advise the Attorney General "as to all matters affecting the interests of the public as consumers," (N.J.S.A. 52:17B-5.9(b)) and to do through the Attorney General "such other acts as may be incidental to the exercise of the powers and functions" conferred upon it. N.J.S.A. 52:17B-5.9(i).

The purpose to be gleaned from the statute specifically involved here, when read in light of the other pertinent legislation adverted to, is that while private rights and interests were to be served, public interests of substantial consumer groups were likewise to be protected. It has been amply demonstrated that the strongest case for relief from form contract oppression and deceptive and fraudulent misrepresentations is presented by the poor, the naive and the uneducated consumers who have yielded unwittingly to such high pressure sales tactics. The Legislature has decreed that they are a class of persons to whom the courts should give special protection. Consequently there is a tremendous need to find a simple, inexpensive solution which will accomplish the greatest possible good for the greatest possible number of consumers who have common problems and complaints vis-a-vis the seller. If the only available route had been pursuit of a private remedy by individual victims of the unfair practices specified by N.J.S.A. 56:8-2, such a rule would require an unrealistic expenditure of judicial energy and would be inconsistent with current trends in consumer protective legislation. Speidel, "Unconscionability, Assent and Consumer Protection," 31 U. Pitt. L. Rev. 359, 364-65 (1970).

In our judgment the statutes referred to above in their total impact, when considered in connection with the Attorney General's general statutory and common law authority to act in matters affecting the public welfare (N.J.S.A. 52:17A-4(h); O'Regan v. Schermerhorn, 25 N.J. Misc. 1, [539] 9, 50 A.2d 10 (Sup. Ct. 1946), require the conclusion that he has authority to bring action in the public interest under N.J.S.A. 56:8-8 either on behalf of specifically named buyers who have been imposed upon contrary to Section 2 thereof, or in the nature of a class action on behalf of all similarly situated buyers. Although the procedural aspects of such a suit need not be passed upon at this time, guidance may be found in R. 4:32-1, 2 and 3 which relate generally to class actions.

Recently the Supreme Court of California in a forward looking opinion sustained a class action brought by a group of consumers on their own behalf and on behalf of others similarly situated. Vasquez v. The Superior Court of San Joaquin County, 4 Cal. 3d 800, 94 Cal. Rptr. 796, 484 P.2d 964 (1971). The suit sought rescission of contracts for the purchase of frozen food and freezers, which were entered into through the fraudulent misrepresentations of the seller's agents. In approving the form of action the court commented:

Protection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society. According to the report of the Kerner Commission, many persons who reside in low income neighborhoods experience grievous exploitation by vendors using such devices as high pressure salesmanship, bait advertising, misrepresentation of prices, exorbitant prices and credit charges, and sale of shoddy merchandise. State laws governing relations between consumers and merchants are generally utilized only by informed, sophisticated parties, affording little practical protection to low income families. * * * The alternatives of multiple litigation * * *  do not sufficiently protect the consumer's rights because these "devices" presuppose "a group of economically powerful parties who are obviously able and willing to take care of their own interests individually through individual suits or individual decisions about joinder or intervention."

* * * * * * * *

Frequently numerous consumers are exposed to the same dubious practice by the same seller so that proof of the prevalence of the practice as to one consumer would provide proof for all. Individual actions by each of the defrauded consumers is often impracticable because the amount of individual recovery would be insufficient to justify bringing a separate action; thus an unscrupulous seller retains [540] the benefits of its wrongful conduct. A class action by consumers produces several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition and avoidance to the judicial process of the burden of multiple litigation involving identical claims. The benefit to the parties and the courts would, in many circumstances, be substantial. 94 Cal. Rptr. 800-801, 484 P.2d at 968-969.

The court rejected the contention that a class action could not be maintained because each consumer made a separate contract at a different time and under different circumstances than the others. It declared that if plaintiffs could prove their allegations that the salesmen employed substantially identical misrepresentations, sufficient commonality of interest and problem would appear to justify the class suit. See Travers and Landers, "The Consumer Class Action," 18 U. Kan. L. Rev. 811 (1970); Eckhardt, "Consumer Class Actions," 45 Notre Dame Lawyer 663 (1970).

It may be noted that the Attorney General of California filed a brief amicus curiae in support of the class action device. He indicated, however, that the limited personnel of his office prevented him from pursuing such actions in his official capacity. But he did not suggest that as Attorney General he lacked authority to institute class actions of the type before the court.^[3] See Dole, "Consumer Class Actions [541] Under Recent Consumer Credit Legislation," 44 N.Y.U.L. Rev. 80 (1969); Speidel, supra, 31 U. Pitt. L. Rev. at 365; and see Larson v. State, ex rel. Patterson, 266 Ala. 589, 97 So.2d 776 (1957) where the court made plain that the Attorney General could seek an injunction and a collection bar against a finance company which was charging usurious interest rates on short term small loans to necessitous borrowers. It was said that such conduct, i.e., the continuous and intentional charging of such interest, in taking advantage of financially distressed people caused injury to the public welfare, and was enjoinable as a public nuisance. See Nash v. State, 271 Ala. 173, 123 So. 2d 24 (1960); Annotation, "Practice of exacting usury as a nuisance or ground for injunction," 83 A.L.R.2d 848 (1962); and cf. State v. Martin, 77 N.J.L. 652 (E. & A. 1909); State v. Diamant, 73 N.J.L. 131 (Sup. Ct. 1905); Comment, "Commercial Nuisance: A Theory of Consumer Protection," 33 U. Chi. L. Rev. 590 (1966).

II

Since we are satisfied that the public welfare would be sufficiently adversely affected by a consumer goods seller's engagement in practices condemned by N.J.S.A. 56:8-2 to justify a remedial action by the Attorney General in behalf of consumers who constitute an ascertainable class of victims with a sufficient community of interest, we turn to his right to the specific relief denied below. Quite obviously the Attorney General recognized that a class action is not maintainable if the right of each individual claimant to relief depended upon a separate set of facts applicable only to him. Although the proof adduced at the hearing showed that defendant's agents practiced certain patterns of sales conduct, each of which deceived and misled a group of consumers, no effort was made to obtain separate adjudication of illegality of the contracts of each group of the 24 persons who participated in the trial or the contracts of all others [542] similarly situated who were victimized by the same pattern of conduct. And no such issue is before us.

The Attorney General's claim was that there was one illegal aspect of the sales contract which was common to every transaction, namely the fixed price. This price for the package of books and materials, which the testimony showed was about two and a half times a reasonable price in the relevant market, was found by the trial court to be exorbitant. As we have already noted, the Attorney General pointed out that in addition to being excessive in relation to defendant's cost, the books had very little and in some cases no value for the purpose for which the consumers were persuaded to buy them. Consequently he urged that under the circumstances the price was unconscionable under Section 2-302 of the Uniform Commercial Code and, as such, was within the proscription of Section 2 of the Consumer Fraud Act. More particularly, he contends that on the uncontradicted and common facts of each transaction, the unconscionable price must be equated with the deception, fraud, false pretense, misrepresentation or knowing material omission condemned by Section 2. If the contention is sound, then it should follow that every consumer who executed the form agreement for the educational package described above at the price fixed by defendant ought to be considered similarly situated, and the Attorney General would therefore be entitled to a judgment invalidating the contract for the entire class of such consumers.

As already noted, however, the trial court declined to hold that the price per se constituted a violation of Section 2 in the absence of some concomitant deceptive practice perpetrated by the seller. The opinion pointed out that the word "unconscionable" did not appear in Section 2 and consequently should not be considered as included therein. 110 N.J. Super. at 482. Further the court declared that even though enforcement of an unconscionable contract may be denied under Section 2-302 of the Code, the remedy provided thereby is "strictly a matter of private concern" and [543] cannot be asserted or relied upon by the Attorney General in a suit allegedly brought for protection of the consuming public. 110 N.J. Super. at 481.

Unconscionability is not defined in Section 2-302 of the Uniform Commercial Code, and we agree that it is not mentioned by name in Section 2 of the Consumer Fraud Act. It is an amorphous concept obviously designed to establish a broad business ethic. The framers of the Code naturally expected the courts to interpret it liberally so as to effectuate the public purpose, and to pour content into it on a case-by-case basis.^[4] In that way a substantial measure of predictability will be achieved and professional sellers of [544] consumer goods as well as draftsmen of contracts for their sale to ordinary consumers will become aware of the abuses the courts have declared unacceptable and will avoid them. The intent of the clause is not to erase the doctrine of freedom of contract, but to make realistic the assumption of the law that the agreement has resulted from real bargaining between parties who had freedom of choice and understanding and ability to negotiate in a meaningful fashion. Viewed in that sense, freedom to contract survives, but marketers of consumer goods are brought to an awareness that the restraint of unconscionability is always hovering over their operations and that courts will employ it to balance the interests of the consumer public and those of the sellers.

The standard of conduct contemplated by the unconscionability clause is good faith, honesty in fact and observance of fair dealing. The need for application of the standard is most acute when the professional seller is seeking the trade of those most subject to exploitation — the uneducated, the inexperienced and the people of low incomes. In such a context, a material departure from the standard puts a badge of fraud on the transaction and here the concept of fraud and unconscionability are interchangeable. Thus we believe that in consumer goods transactions such as those involved in this case, unconscionability must be equated with the concepts of deception, fraud, false pretense, misrepresentation, concealment and the like, which are stamped unlawful under N.J.S.A. 56:8-2. We do not consider that absence of the word "unconscionable" from the statute detracts in any substantial degree from the force of this conclusion. That view is aided and strengthened by the plain inference that the Legislature intended to broaden the scope of responsibility for unfair business practices by stating in Section 2 that the use of any of the described practices is unlawful "whether or not any person [the consumer] has in fact been misled, deceived or damaged thereby."

We have no doubt that an exorbitant price ostensibly agreed to by a purchaser of the type involved in this case — but [545] in reality unilaterally fixed by the seller and not open to negotiation — constitutes an unconscionable bargain from which such a purchaser should be relieved under Section 2. If, therefore, in this case the price charged for the educational package is so exorbitant as to be unconscionable, Section 2 makes it unnecessary to decide whether the Attorney General could maintain a class action for all similarly affected consumers based solely upon violation of Section 2-302, the unconscionability clause of the Uniform Commercial Code. Adequate and proper relief for all consumers victimized by an unconscionable price may be obtained by the Attorney General through Section 2 of the Consumer Fraud Act under which his action was brought here.

Sale at an exorbitant price especially in the market described by the evidence in this case raises a strong inference of imposition. Here the facts reveal that the seller's price was not only roughly two and one half times a reasonable market price, assuming functional adequacy of the book package for the represented purpose, but they indicate also that most of the package was actually practically worthless for that purpose. Such price-value clearly constitutes unconscionability and renders Section 2 available to the Attorney General in a class-type remedial action for the benefit of all similarly situated consumers. The statement to the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., supports this view. It said:

The purpose of this bill is to permit the Attorney General to combat the increasingly widespread practice of defrauding the consumer. The authority conferred will provide effective machinery to investigate and prohibit deceptive and fraudulent advertising and selling practices which have caused extensive damage to the public.

In other jurisdictions exorbitant prices for consumer goods sold in a marketing milieu similar to our case have been declared unconscionable. In State by Lefkowitz v. ITM, Inc., supra, 275 N.Y.S.2d 303, the seller marketed broilers, vacuum cleaners and color television sets using various types of deceptive sales practices. Among other things it appeared [546] that the sales prices to the consumers for the various items ranged from two to six times the costs to the seller. The proof showed also that defendant represented that the goods were not obtainable elsewhere at its prices. But they were available and at much lower prices. The court said it was clear that "these excessively high prices constituted 'unconscionable contractual provisions'^[5] within the meaning of section 63, subsection 12 of the Executive Law," N.Y. Executive Law § 63 (12) (McKinney, 1970-71 Supp.), and further that even if the prices were not unconscionable per se, "they were unconscionable within the context of this case" under Section 2-302 of the Uniform Commercial Code.

In Jones v. Star Credit Corp., supra, 298 N.Y.S.2d 264, defendant sold a home freezer unit for $900 ($1439.69 with credit charges and sales tax) to plaintiffs who were welfare recipients at the time. The actual retail value was $300. The sale was held unconscionable as a matter of law under Section 2-302 of the Uniform Commercial Code.

The New Hampshire Supreme Court in American Home Improvement, Inc. v. MacIver, 105 N.H. 435, 201 A.2d 886 (1964) had for decision a home improvement contract where the materials to be furnished and the services to be rendered were valued at $959. The home owner agreed to pay $2568.60 therefor, the price including service charges and commissions. It was held that "the contract should not be enforced because of its unconscionable features." 201 A.2d at 889. In so holding the court referred to U.C.C. 2-302(1) and to the New Hampshire counterpart, R.S.A. 382-A:2-302(1). See also Williams v. Walker-Thomas Furniture Company, 121 U.S. App. D.C. 315, 350 F.2d 445 [547] (D.C. Cir.1965); Central Budget Corp. v. Sanchez, 53 Misc. 2d 620, 279 N.Y.S.2d 391 (Civil Ct. N.Y. 1967); and cf. Osage Nation of Indians v. United States, 97 F. Supp. 381, 119 Ct. Cl. 592 (U.S.Ct. Cl.), cert. den. 342 U.S. 896, 72 S.Ct. 230, 96 L.Ed. 672 (1951).

Two of our trial courts have declared that price unconscionability rendered a sales contract unenforceable. In Toker v. Perl, 103 N.J. Super. 500 (Law Div. 1968), the price of a freezer to the buyer was more than two and one half times its maximum value. The Appellate Division affirmed the judgment but on other grounds. 108 N.J. Super. 129 (App. Div. 1970). In Toker v. Westerman, 113 N.J. Super. 452 (Dist. Ct. 1970) involving the sale of a refrigerator-freezer, the price of two and one half times the reasonable retail value was found to be "shocking, and therefore unconscionable" (113 N.J. Super. at 454) within the contemplation of the Uniform Commercial Code §2-302.

As set forth above, we are satisfied that the price for the book package was unconscionable in relation to defendant's cost and the value to the consumers and was therefore a fraud within the contemplation of N.J.S.A. 56:8-2. Further, for the reasons stated we are convinced that a view that such price unconscionability gives rise only to a private remedy is an unreasonable limitation on the aim and scope of the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. The public purpose to be served thereby (and we see the legislative emphasis as being more on public than on private remedies) can be accomplished effectively only by recognizing the authority of the Attorney General to intervene in behalf of all consumers similarly affected by the broadly described fraudulent sales tactics of merchandise sellers.

More specifically here, since the price unconscionability rendered the sales contract invalid as to all consumers who executed it, the Attorney General was entitled to a judgment so holding as to the entire class of such persons. Accordingly, the trial court's order must be modified to the end that such a judgment may be entered. The mechanics of effectuating [548] the judgment with respect to the individuals comprising the class and of accomplishing the necessary restorative relief required by N.J.S.A. 56:8-8 are left to the trial court.

As modified the judgment is affirmed and the cause is remanded for further proceedings consistent with this opinion.

For affirmance as modified — Chief Justice WEINTRAUB and Justices JACOBS, FRANCIS, PROCTOR, HALL, SCHETTINO and MOUNTAIN — 7.

For reversal — None.

[1] The contract provided for payment of the $279.95, less the $9 deposit, in 24 equal monthly installments of $11.50 each. As the Attorney General points out, 24 x $11.50 equals $276.

[2] No appeal was taken from this portion of the judgment. Consequently we express no opinion as to its legal propriety.

[3] While the case was pending the California Legislature enacted the Consumers Legal Remedies Act (Civ. Code § 1750, et seq.) which authorizes class actions by private consumers under certain conditions, i.e.:

(1) It is impracticable to bring all members of the class before the court.

(2) The questions of law or fact common to the class are substantially similar and predominate over the questions affecting the individual members.

(3) The claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class.

(4) The representative plaintiffs will fairly and adequately protect the interests of the class. § 1781(b).

Our class action rule, R. 4:32-1, is substantially the same. Cf. Crescent Park Tenants Ass'n v. Realty Equities Corp., 58 N.J. 98 (1971).

[4] This approach to the definition of "unconscionability" parallels that employed in developing the definition of fraud. Thus, one commentator has observed:

The Courts have always avoided hampering themselves by defining or laying down as a general proposition what shall be held to constitute fraud. Fraud is infinite in variety. The fertility of man's invention in devising new schemes of fraud is so great, that the Courts have always declined to define it, or to define undue influence, which is one of its many varieties, reserving to themselves the liberty to deal with it under whatever form it may present itself. Fraud, in the contemplation of a Civil Court of Justice, may be said to include properly all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat any one is considered as fraud. Kerr, Fraud and Mistake, 1 (7th ed. (1952)).

See also 37 Am. Jur.2d, Fraud and Deceit § 1, pp. 17-20 (1968); Riverside Trust Co. v. Collin, 114 N.J. Eq. 157 (E. & A. 1933); Hume v. United States, 132 U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889).

For an excellent discussion of the significance of "unconscionability" see the article by Professor John E. Murray, Jr. "Unconscionability: Unconscionability," 31 U. Pitt. L. Rev. 1 (1969), and the trilogy of comments thereon, "The Unconscionable Contract or Term," 31 U. Pitt. L. Rev. 337 (1970) by Professor Braucher; "Unconscionability and the Crowd, Consumers and the Common Law Tradition," 31 U. Pitt. L. Rev. 349 (1970) by Professor Leff, and "Unconscionability, Assent and Consumer Protection," 31 U. Pitt. L. Rev. 359 (1970) by Professor Speidel, and see also Professor Spanogle's article "Analyzing Unconscionability Problems," 117 U. Pa. L. Rev. 931 (1969).

[5] The New York Executive Law specifically includes "unconscionable contractual provisions" among the fraudulent practices condemned. As already indicated with respect to the New Jersey Consumer Fraud Act, if that language were not present in the New York law it would nonetheless be covered by the condemnation of "any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretence, false promise or * * *." N.Y. Executive Law § 63 (12) (McKinney, 1970-71 Supp.)

Camp. 317
170 Eng. Rep. 1168 (K.B. 1809)

STILK
v.
MYRICK.

Saturday, Dec. 16, 1809.

[170 Eng. Rep. 1168] (In the course of a voyage some of the seamen desert, and the captain not being able to find others to supply their place, promises to divide the wages which would have become due to them among the remainder of the crew. This promise is void for want of consideration.)

[S. C. 6 Esp. 129.]

This was an action for seaman's wages, on a voyage from London to the Baltic and back.

By the ship's articles, executed before the commencement [2 Camp. 318] of the voyage, the plaintiff was to be paid at the rate of £5 a month; and the principal question in the cause was, whether he was entitled to a higher rate of wages?—In the course of the voyage two of the seamen deserted; and the captain having in vain attempted to supply their places at Cronstadt, there entered into an agreement with the rest of the crew, that they should have the wages of the two who had deserted equally [170 Eng. Rep. 1169] divided among them, if he could not procure two other hands at Gottenburgh. This was found impossible; and the ship was worked back to London by the plaintiff and eight more of the original crew, with whom the agreement had been made at Cronstadt.

Garrow for the defendant insisted, that this agreement was contrary to public policy, and utterly void. In West India voyages, crews are often thinned greatly by death and desertion; and if a promise of advanced wages were valid, exorbitant claims would be set up on all such occasions. This ground was strongly taken by Lord Kenyon in Harris v. Watson, Peak. Cas. 72, where that learned Judge held, that no action would lie at the suit of a sailor on a promise of a captain to pay him extra wages, in consideration of his doing more than the ordinary share of duty in navigating the ship; and his Lordship said, that if such a promise could be enforced, sailors would in many cases suffer a ship to sink unless the captain would accede to any extravagant demand they might think proper to make.

[2 Camp. 319] The Attorney-General, contra, distinguished this case from Harris v. Watson, as the agreement here was made on shore, when there was no danger or pressing emergency, and when the captain could not be supposed to be under any constraint or apprehension. The mariners were not to be permitted on any sudden danger to force concessions from the captain;—but why should they be deprived of the compensation he voluntarily offers them in perfect security for their extra labour during the remainder of the voyage?

Lord Ellenborough.—I think Harris v. Watson was rightly decided; but I doubt whether the ground of public policy, upon which Lord Kenyon is stated to have proceeded, be the true principle on which the decision is to be supported. Here, I say, the agreement is void for want of consideration. There was no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed from London they had undertaken to do all that they could under all the emergencies of the voyage. They had sold all their services till the voyage should be completed. If they had been at liberty to quit the vessel at Cronstadt, the case would have been quite different; or if the captain had capriciously discharged the two men who were wanting, the others might not have been compellable to take the whole duty upon themselves, and their agreeing to do so might have been a sufficient consideration for the promise of an advance of wages. But the desertion of a part of the crew is to be [2 Camp. 320] considered an emergency of the voyage as much as their death; and those who remain are bound by the terms of their original contract to exert themselves to the utmost to bring the ship in safety to her destined port. Therefore, without looking to the policy of this agreement, I think it is void for want of consideration, and that the plaintiff can only recover at the rate of £5 a month.

Verdict accordingly.^[1]

The Attorney-General and Espinasse for the plaintiff.

Garrow and Reader for the defendant.

[Attornies, Rippingham and Warry.]

[1] But where a seaman performs some service beyond the scope of his original contract, the case is otherwise. Thus before the ransoming of ships was prohibited, a promise by the captain of a captured ship to pay monthly wages to one of the sailors, in order to induce him to become a hostage, was held binding on the owners, although they abandoned the ship and cargo. Yates v. Hall, 1 T. R. 73.

A seaman at monthly wages, who is impressed or enters from a merchant ship into the royal navy during a voyage is not entitled to wages to the time of his quitting the ship, unless the voyage be completed.

Anon, coram Lord Ellenborough, at Guildhall, December 11th, 1806.

Action for seaman's wages.—The plaintiff entered on board the defendant's ship at Shields, and was to have the monthly wages of £6, 3s. The ship was bound to Gibraltar with a cargo of coals, and she arrived there in safety. She then sailed for Zante, where she was to take in a cargo, with which she was to return to England. In the course of this voyage, the plaintiff was impressed; and before it was completed the ship was captured. The defend [ 2 Camp. 321] ant had paid into Court the amount of the plaintiff's wages to Gibraltar;—and the question was, whether anything more was due?—On the part of the plaintiff, it was contended that by virtue of stat. 2 Geo. II. c. 36, s. 13, he was entitled to recover his wages from his leaving Gibraltar to the period of his being impressed." It is thereby enacted "that nothing in that Act contained shall extend, or be construed to extend, to debar any seaman or mariner belonging to any merchant ship or vessel, from entering or being entered into the service of his Majesty, his heirs, &c. on board of any of his or their ships or vessels; nor shall such seaman or mariner for such entry forfeit the wages due to him during the term of his service in such merchant ship or vessel." And even before the passing of that statute, it was held by Holt, C. J. (Wiggins v. Ingleton, 2 Ld. Raym. 1211) that an impressed seaman is entitled to Ms wages pro tanto. It followed, that the plaintiff was entitled to payment at the time when he left the ship, and therefore that he could not be affected by the subsequent casualties of the voyage.—But

Lord Ellenborough held, that the plaintiff was not placed in a better situation than the other seamen; and was not entitled to any apportionment of wages for his service during a voyage which had not been completed.

15 S.W. 844
103 Mo. 578

LINGENFELDER et al.
v.
WAINWRIGHT BREWERY CO.

Supreme Court of Missouri, Division No. 2.
March 17, 1891.

CONTRACT—CONSIDERATION

Where the architect engaged in the erection of a brewery declines to proceed with his undertaking upon discovering that the contract for the refrigerating plant has been awarded to a business rival of the refrigerating company of which he is president, takes away his plans, and calls off his superintendent in charge of the building, a promise by the president of the brewery company, who was in great haste to have the building completed, to pay him a commission of 5 per cent. upon the cost of the refrigerating plant as an inducement to resume work, is void for want of consideration.

Appeal from St. Louis circuit court; SHEPARD BARCLAY, Judge.

This was an action by Phillip J. Lingenfelder and Leo Rassieur, executors of Edmund Jungenfeld against the Wainwright Brewery Company upon a contract for services as an architect. The second amended petition upon which this cause was tried alleges that Edmund Jungenfeld "during his life-time, to-wit, from the 18th day of June, 1883, to the 20th day of December, 1884, at the special instance and request of the defendant, (which request was made shortly before the commencement of said work, to-wit, on the 16th day of June, 1883,) performed work and labor for said defendant as architect in forming and drawing plans and in superintending the erection for said defendant of a certain brewery building, together with all the outhouses, outbuildings, erections and improvements belonging to, connected with or used in connection with said brewery, and all engines, boilers, machinery, apparatus, and fixtures in and about the same;" that the entire gross cost of [15 S.W. 845] the said buildings, improvements, apparatus, and machinery amounts to the sum of $354,227.30, as will more fully appear from the itemized statement of the cost thereof, contained in Exhibit A, and that 5 per centum thereof, to-wit, the sum of $17,711.36, is the reasonable value of the work and labor so performed by the said Jungenfeld; that defendant has paid on account of said work and labor the sum of $10,500, leaving the balance of $7,211.30 due, for which plaintiffs sue.

The answer is, first, a denial of each and every allegation of the second amended petition; and, next, the averment of a counter-claim alleging that on said 16th day of June, 1883, the said Jungenfeld agreed to make the plans for and to superintend the erection of the stock-house, one of the buildings enumerated in Exhibit A, which was to be constructed with wooden floors, to be covered with a layer of asphalt to make them water-tight; that as such superintendent it was the duty of the deceased to see that all work in and upon said stock-house was carefully and properly done, and to cause the same to be so done; that in disregard of his said duty the deceased negligently suffered and permitted said wooden floors to be improperly laid, and to be laid in disregard of the requirements of the plan for their construction, in consequence whereof defendant was compelled to have them taken up and laid anew at an expense and loss of $3,000, for which it asks judgment.

The reply admits that on the 16th day of June, 1883, the said Jungenfeld agreed and undertook to make plans for and superintend the erection and construction of said stock-house, and affirms that the same is part of the contract set forth in the petition; but denies all other allegations of affirmative matter in said answer contained.

The cause was referred to Frederick A. Wislizenus to try all the issues therein. The referee heard the case, and on the 2d of July, 1886, filed his report, and returned into court with his said report the testimony taken by him in the cause.

In the hearing before the referee it was shown that Jungenfeld, on or about the 16th of June, 1883, entered into contract with the Wainwright Brewery Company to design the plans and make the drawings and specifications for certain brewery buildings which the company was then about to erect, and to superintend their construction to completion for a commission of 5 per cent. on the cost of the building; and defendant at the very outset of the hearing conceded that the cost of said building was $220,405.93.

Plaintiffs claimed that the deceased was also entitled to commission on the cost of grading the premises done before the buildings were commenced, and on the cost of a refrigerator plant; all of which defendant denied.

The items in dispute were grouped under seven general heads, representing an aggregate cost of $133,821.37. The referee found that the deceased "was employed as architect and superintendent of the architectural work only, and that the preliminary grading, the subsequent purchasing and placing of machinery, — in a word, all the items as to which I have found against the plaintiffs, — were not in the scope of Mr. Jungenfeld's employment."

The referee found that the total cost of all the work within the terms and scope of Jungenfeld's contract with the brewery company was $235,479.13, and allowed a commission of 5 per cent. thereon, amounting to $11,773.96, from which he deducted the credit of $10,500 given in the petition, leaving a balance of $1,273.96, for which he found for the plaintiffs on the cause of action set forth in the petition.

Upon the defendant's counter-claim the referee found that the floors of the stock-house were improperly laid; that the deceased was responsible for the defect, and that the defendant, in remedying it, was necessarily put to an expense of $2,716.36, for which sum the referee found in favor of the defendant and against the plaintiffs; and, deducting from the amount so found to be due the defendant on the counter-claim the amount found to be due the plaintiffs on the cause of action set forth in the petition, the referee found the plaintiffs to be indebted to the defendant in the sum of $1,492.17, for which amount he recommended judgment in favor of defendant and against plaintiffs as executors of the deceased.

Upon the coming in of the referee's report plaintiffs filed their exceptions to the same. The tenth exception (and the only one involved in the present controversy) is as follows: "(10) Because the referee found against plaintiffs' right to compensation on the item of 'refrigerating plant,' and disallowed the same." The court overruled all of said exceptions except the tenth, which it sustained in and by the following order:

"Wednesday, March 9, 1887. Now, at this day, the exceptions heretofore filed herein by the plaintiffs to the referee's report being submitted to the court, and duly considered, it is ordered that so much of said exceptions as refer to the disallowance by the referee of the item of commission or percentage on the refrigerator plant be sustained, and that this cause be re-referred to Frederick A. Wislizenus, and that said referee be and is hereby directed to allow plaintiffs credit on that item, and that he make a report of his proceedings herein with all convenient speed. And it is further ordered that all the other exceptions of plaintiffs herein be overruled."

And defendant then and there duly excepted to the action of the court in sustaining said exception of plaintiffs, and in directing said referee to allow plaintiffs credit for the compensation or percentage on the refrigerator plant, and in directing him to state the account anew on that basis.

And afterwards, to-wit, on the 23d day of March, 1887, the parties plaintiffs and defendant made and filed the following stipulation in said cause, to-wit:

"The parties plaintiffs and defendant to the above-entitled cause hereby waive a re-reference of the cause as heretofore directed by the court, and agree that the court may, upon the facts and evidence reported by the referee, pronounce the conclusion of law, and enter judgment accordingly. DEXTER TIFFANY and B. SCHNURMACHER, Attorneys for Plaintiffs. KEHR & TITTMANN, Attorneys for Defendant."

And thereupon the court entered the following judgment:

"Monday, April 4, 1887. Now again come said [15 S.W. 846] parties, and, the court having duly considered the report of said referee and the evidence by him reported and returned into court, doth find the issues herein joined as follows: On plaintiffs' cause of action in favor of plaintiffs in the sum of $4,720.71, and on defendant's counter-claim in favor of said defendant in the sum of $2,766.13. It is therefore considered by the court that plaintiffs recover of said defendant the sum of $1,954.58 and their costs in this behalf expended, and have execution therefor."

And within four days thereafter, to-wit, on the 5th day of April, 1887, defendant filed its motion for new trial in said cause for the reasons following, to-wit:

(1) Because the court erred in allowing the plaintiffs credit for the item of commission or percentage on the refrigerator plant, to-wit, the sum of $3,446.75, and erred in including the latter in the sum, for which the court finds for the plaintiffs on their cause of action.

(2) Because, upon the special findings of fact made by the referee in his report concerning said item, and upon the evidence returned by him regarding the same, the plaintiffs are not entitled to said commission or percentage, and the finding upon said item should have been for defendant.

(3) Because the court erred in its conclusion of law upon the facts found, and the evidence reported by the referee in respect to said item.

(4) Because upon the facts found and upon the evidence reported by the referee the court should have found only for the plaintiffs on their cause of action for the sum of $1,273.96, and it was error to find for them any sum in excess of said sum of $1,273.96.

(5) Upon the facts found by the referee and the evidence returned by him with his report, the judgment should have been for the defendant for the amount recommended by the referee, with interest and costs.

The court overruled the motion for new trial, and defendant appealed.

The controversy in the court below finally turned upon the single question whether or no, upon the facts found by the referee and the evidence returned by him, the deceased was entitled to commissions on the cost of the refrigerator plant. In considering the subject it should be borne in mind that Jungenfeld's contract with the brewery company was made on or about the 16th of June, 1883; that under and by it he undertook to design the buildings, and superintend their erection to completion; that the superintending or placing of machinery in the building was no part of his contract, and that the claim for commissions on the cost of the refrigerator plant is based solely on a subsequent promise, the facts of which are thus found and stated by the referee.

The refrigerator plant "was ordered not only without Mr. Jungenfeld's assistance, but against his wishes. He was in no way connected with its erection. Plaintiffs' claim as to this item rests on a distinct ground, as to which I make the following finding of facts:

"Mr. Jungenfeld was president of the Empire Refrigerating Company, and was largely interested therein. The De la Vergne Ice-Machine Company was a competitor in business. Against Mr. Jungenfeld's wishes, Mr. Wainwright awarded the contract for the refrigerating plant to the De la Vergne Company. The brewery was at the time in proceess of erection, and most of the plans were made. When Mr. Jungenfeld heard that the contract was awarded he took away his plans, called off his superintendent on the ground, and notified Mr. Wainwright that he would have nothing more to do with the brewery. The defendant was in great haste to have its new brewery completed for divers reasons. It would be hard to find an architect to fill Mr. Jungenfeld's place, and the making of new plans and arrangements when another architect was found would involve much loss of time. Under these circumstances, Mr. Wainwright promised to give Mr. Jungenfeld five per cent. on the cost of the De la Vergne ice machine if he would resume work. Mr. Jungenfeld accepted, and fulfilled the duties of superintending architect till the completion of the brewery.

"It is not clear to me how plaintiffs can bring their claim for this extra compensation on special agreement under their petition, which asks for the quantum meruit of Mr. Jungenfeld's labor; but I pass all questions of pleading, and treat the claim as properly before me, since it is desirable that this report should present finding as to the merits of all branches of the case.

"What was the consideration for defendant's promise to pay five per cent. on the cost of the refrigerating plant, in addition to the regular charges?

"Plaintiffs submit two theories accounting for the consideration:

"(1) It is claimed that the transaction was the compromise of a doubtful claim. I do not find that Mr. Jungenfeld claimed that defendant had broken the contract, or intended to do so. I infer that Mr. Jungenfeld had confidently expected to get for his 'Empire Company' the contract for putting the refrigerating plant into the Wainwright brewery. When the De la Vergne machine was selected, he felt disappointed, aggrieved, angry; but I can find in the whole record no evidence that he ever claimed that any of his legal rights had been violated. With this understanding of the evidence, I find no basis for upholding defendant's promise to pay commission on this refrigerating plant as the compromise of any doubtful claim.

"(2) Plaintiffs also contend that the original contract between the parties was abrogated; that a new contract was entered into between the parties, differing from the old only in the fact that defendant was to pay a sum over and above the compensation agreed on in the discarded, original contract. The services to be performed (and thereafter actually performed) by Jungenfeld would, in this view, constitute a sufficient consideration.

"Such a principle has been recognized in a number of cases: Munroe v. Perkins, 9 Pick. 305; Holmes v. Doan, 9 Cush. 135; Lattimore v. Harsen, 14 Johns. 330; Peck v. Requa, 13 Gray, 408.

"Without discussing the legal doctrine involved, (of the accuracy of which I may say, however, I am not convinced,) I do not think the case in hand warrants its application. I find in the evidence no substitution of one contract for another. As I understand the [15 S.W. 847] facts, and as I accordingly formally find, defendant promised Mr. Jungenfeld a bonus to resume work, and complete the original contract under the original terms. This case seems to me analogous to that of seamen who, when hired for a voyage, under threats of desertion in a foreign port receive promises of additional compensation. It has been uniformly held they could not recover.

"I accordingly submit that in my view defendants' promise to pay Mr. Jungenfeld five per cent. on the cost of the refrigerating plant was without consideration, and recommend that the claim be not allowed."

The referee's finding of fact is based on the testimony of Adolphus Busch, Philip Stock, Ellis Wainwright, and is amply borne out by the testimony.

Upon this state of facts the referee was of opinion that the promise to pay the 5 per cent. commissions on the cost of the refrigerator plant was void, and the claim should be rejected; whereas, the learned circuit judge was of opinion that the promise was good in law, and that the commissions should be allowed; and this question of law is the sole matter presented by this record.

Kehr & Tittman, for appellant. Rassieur & Schnurmacher, for respondent.

GANTT, P. J., (after stating the facts.)

It is not only conceded, but urged by counsel on both sides, that the finding of the referee is equivalent to a special verdict, and where there is evidence tending to establish the facts found the court will not disturb the referee's finding. Wiggins Ferry Co. v. Chicago & A. R. Co., 73 Mo. 389. Nor is it questioned that, while the referee's findings are conclusive as to the facts, his conclusions as to the law may, if erroneous, be set aside, and the law properly applied, by either the trial or appellate court. Gamble v. Gibson, 83 Mo. 290.

Upon the coming in of the referee's report in this cause the plaintiffs filed various exceptions. The circuit court overruled all those exceptions except the tenth. This exception simply raised the question of law on the facts found. Under this state of case, there was no occasion to refer the case back to the referee, as it was as competent for the circuit court to adopt the facts found and apply the law as it was to send it back with the direction to allow plaintiffs credit on the disputed item involved in this tenth exception. To avoid this re-reference counsel stipulated that "the court might, upon the facts and evidence reported by the referee, pronounce the conclusion of law, and enter judgment accordingly."

The learned counsel for the respondents invite us to indulge in the presumption that the circuit court disregarded the findings of the referee, and examined the evidence for himself, and, if there was any evidence to support the judgment, this court ought not to reverse. The argument is more specious than ingenuous. This court has held that in a law case the court must either accept or set aside altogether the findings of fact by the referee. This, we take it, the court did in this case. He evidently accepted the facts as found, and disagreed with the referee only as to the law on the tenth exception, and we so construe the stipulation. In the light of the record, it will not bear any other construction; hence we shall confine this discussion to the one issue raised by the tenth exception to the referee's report.

The referee found that Jungenfeld, the plaintiffs' testator, was not entitled to the commission of 5 percent. on the cost of the refrigerator plant. He found that Jungenfeld's employment as architect was to design plans and make drawings and specifications for certain brewery buildings for the Wainwright Brewery Company, and superintend their construction to completion for a commission of 5 per cent. on the cost of the buildings. He found further that Jungenfeld's contract did not include the refrigerator plant that was to be constructed in these buildings. He further found, and the evidence does not seem to admit of a doubt as to the propriety of his finding, that this refrigerator was ordered not only without Mr. Jungenfeld's assistance, but against his wishes. He was in no way connected with its erection.

"Mr. Jungenfeld was president of the Empire Refrigerating Company, and largely interested therein. * * * The De la Vergne Ice-Machine Company was a competitor in business. * * * Against Mr. Jungenfeld's wishes Mr. Wainwright awarded the contract for the refrigerating plant to the De la Vergne Company. * * * The brewery was at that time in process of erection, and most of the plans were made. When Mr. Jungenfeld heard that the contract was awarded he took his plans, called off his superintendent on the ground, and notified Mr. Wainwright that he would have nothing more to do with the brewery. The defendant was in great haste to have its new brewery completed for divers reasons. It would be hard to find an architect in Mr. Jungenfeld's place, and the making of new plans and arrangements when another architect was found would involve much loss of time. Under these circumstances, Mr. Wainwright promised to give Jungenfeld 5 per cent. on the cost of the De la Vergne ice-machine if he would resume work. Jungenfeld accepted and fulfilled the duties of superintending architect till the completion of the brewery.

"As I understand the facts, and as I accordingly formally find defendant promised Jungenfeld a bonus to resume work and complete the original contract under the original terms.

"I accordingly submit that in my view defendant's promise to pay Jungenfeld five per cent. on the cost of the refrigerating plant was without consideration, and recommend that the claim be not allowed."

The referee also finds "that Mr. Jungenfeld never claimed that defendant had broken the contract, or intended to do so, or that any of his legal rights had been violated."

The learned circuit judge, upon this state of facts, held that the defendant was liable on this promise of Wainwright to pay the additional 5 per cent. on the refrigerator plant. The point was duly saved, and from the decision this appeal is taken.

Was there any consideration for the promise of Wainwright to pay Jungenfeld the 5 per cent. on the refrigerator plant. If there was not, plaintiffs cannot recover [15 S.W. 848] the $3,449.75, the amount of that commission. The report of the referee and the evidence upon which it is based alike show that Jungenfeld's claim to this extra compensation is based upon Wainwright's promise to pay him this sum to induce him, Jungenfeld, to complete his original contract under its original terms.

It is urged upon us by respondents that this was a new contract. New in what? Jungenfeld was bound by his contract to design and supervise this building. Under the new promise he was not to do any more or anything different. What benefit was to accrue to Wainwright? He was to receive the same service from Jungenfeld under the new, that Jungenfeld was bound to render under the original, contract. What loss, trouble, or inconvenience could result to Jungenfeld that he had not already assumed? No amount of metaphysical reasoning can change the plain fact that Jungenfeld took advantage of Wainwright's necessities, and extorted the promise of 5 per cent. on the refrigerator plant as the condition of his complying with his contract already entered into. Nor was there even the flimsy pretext that Wainwright had violated any of the conditions of the contract on his part.

Jungenfeld himself put it upon the simple proposition that "if he, as an architect, put up the brewery, and another company put up the refrigerating machinery, it would be a detriment to the Empire Refrigerating Company," of which Jungenfeld was president. To permit plaintiff to recover under such circumstances would be to offer a premium upon bad faith, and invite men to violate their most sacred contracts that they may profit by their own wrong.

"That a promise to pay a man for doing that which he is already under contract to do is without consideration" is conceded by respondents. The rule has been so long imbedded in the common law and decisions of the highest courts of the various states that nothing but the most cogent reasons ought to shake it. Harris v. Carter, 3 El. & Bl. 559; Stilk v. Myrick, 2 Camp. 317; 1 Chit. Cont. (11th Amer. Ed.) 60; Bartlett v. Wyman, 14 Johns. 260; Reynolds v. Nugent, 25 Ind. 328; Ayres v. Railroad Co., 52 Iowa, 478, 3 N. W. Rep. 522; Festerman v. Parker, 10 Ind. 474; Eblin v. Miller, 78 Ky. 371; Sherwin v. Brigham, 39 Ohio St. 137; Overdeer v. Wiley, 30 Ala. 709; Jones v. Miller, 12 Mo. 408; Kick v. Merry, 23 Mo. 72; Laidlow v. Hatch, 75 Ill. 11; Wimer v. Overseers, 104 Pa. St. 317; Cobb v. Cowdery, 40 Vt. 25; Vanderbilt v. Schreyer, 91 N. Y. 392.

But "it is carrying coals to New Castle" to add authorities on a proposition so universally accepted, and so inherently just and right in itself.

The learned counsel for respondents do not controvert the general proposition. Their contention is, and the circuit court agreed with them, that when Jungenfeld declined to go further on his contract, that defendant then had the right to sue for damages, and, not having elected to sue Jungenfeld, but having acceded to his demand for the additional compensation, defendant cannot now be heard to say his promise is without consideration. While it is true Jungenfeld became liable in damages for the obvious breach of his contract we do not think it follows that defendant is estopped from showing its promise was made without consideration.

It is true that as eminent a jurist as Judge COOLEY, in Goebel v. Linn, 47 Mich. 489, 11 N. W. Rep. 284, held that an ice company which had agreed to furnish a brewery with all the ice they might need for their business from November 8, 1879, until January 1, 1881, at $1.75 per ton, and afterwards, in May, 1880, declined to deliver any more ice unless the brewery would give it $3 per ton, could recover on a promissory note given for the increased price. Profound as is our respect for the distinguished judge who delivered that opinion, we are still of the opinion that his decision is not in accord with the almost universally accepted doctrine, and is not convincing, and certainly so much of the opinion as held that the payment by a debtor of a part of his debt then due would constitute a defense to a suit for the remainder is not the law of this state, nor, do we think, of any other where the common law prevails.

The case of Bishop v. Busse, 69 Ill. 403, is readily distinguishable from the case at bar. The price of brick increased very considerably, and the owner changed the plan of the building, so as to require nearly double the number. Owing to the increased price and change in the plans the contractor notified the party for whom he was building that he could not complete the house at the original prices, and thereupon a new arrangement was made and it is expressly upheld by the court on the ground that the change in the buildings was such a modification as necessitated a new contract. Nothing we have said is intended as denying parties the right to modify their contracts, or make new contracts, upon new or different considerations, and binding themselves thereby.

What we hold is that, when a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefor, and although by taking advantage of the necessities of his adversary he obtains a promise for more, the law will regard it as nudum pactum, and will not lend its process to aid in the wrong.

So holding, we reverse the judgment of the circuit court of St. Louis to the extent that it allows the plaintiffs below (respondents here) the sum of $3,449.75, the amount of commission at 5 per cent. on the refrigerator plant, and at the request of both sides we proceed to enter the judgment here which, in our opinion, the circuit court of St. Louis should have entered, and accordingly it is adjudged that the report of the referee be in all things approved, and that defendant have and recover of plaintiffs, as executors of Edmund Jungenfeld, the sum of $1,492.17, so found by the referee, with interest from March 9, 1887. All the judges of this division concur.

47 Mich. 489

AUGUST GOEBEL AND THEODORE GORENFLO
v.
ALEXANDER R. LINN AND WILLIAM F. LINN.

Contract—Duress—Novation—Consideration.

Defendants were large brewers, and had a contract with an ice company to supply them with ice during the season of 1880 at one dollar seventy-five cents a ton, or two dollars if the crop was short. The contract was made in November, 1879. The following winter was so mild that the ice crop was a failure. In May defendants were notified by the ice company that no more ice would be furnished them under the contract. Defendants had then on hand a considerable amount of beer that would be spoiled without ice, and under stress of the circumstances they made a new arrangement with the ice company, and agreed to pay $3.50 per ton for the ice. At this rate ice was received and paid for afterwards. A note given for ice at this rate in October being sued, defendants disputed its validity, claiming that it was obtained without consideration and under duress.

Held, 1. That it was entirely competent for the parties to enter into the new arrangement if they saw fit. Moore v. Detroit Locomotive Works 14 Mich. 266.

2. That the note was not without consideration, being given for ice received.

3. That the refusal of the ice company to perform its contract, and the exaction of a higher price, was not legal duress. Hackley v. Headley 45 Mich. 569.

[490] Error to Superior Court of Detroit. Submitted January 11. Decided January 18.

ASSUMPSIT. Defendants bring error. Affirmed.

Maybury & Conely and Fred. A. Baker for plaintiffs in error.

Jno. Atkinson and C. J. Reilly for defendants in error. Duress is not shown in this case: 6 Wait's Actions 658; Miller v. Miller 68 Penn. St. 486; there was sufficient consideration for the new contract in its mutuality and in the rescission of the first: Cutter v. Cochrane 116 Mass. 409; Rollins v. Marsh 128 Mass. 116.

COOLEY, J. The action in this case is upon a promissory note given by defendants, October 20, 1880, to the Belle Tale Ice Co., and by that company transferred to the plaintiffs after it fell due. The execution of the note is admitted, and the only question in the case is, whether the defendants have established any defence to it.

The defence set up is that the note was obtained without consideration, and by means of duress. The facts which are supposed to show duress are the following:

November 8, 1879, the Belle Isle Ice Co. entered into a contract with the defendants below, who are brewers in the city of Detroit, whereby the company undertook to furnish defendants at their brewery all the ice they might need for their business from that date until January 1, 1881. The ice was to be delivered on orders, and the price was to be one dollar seventy-five cents per ton, and in case of the scarcity of ice during the season of 1880, two dollars per ton. Ice was furnished under this contract until May, 1880, when defendants were notified by Mr. Lorman, the manager or president of the ice company, that owing to the failure of the ice crop the preceding winter the company could and would furnish, no more at the price stipulated. Other brewers in the city who held similar contracts received the like notification. This led to a meeting of several of the brewers with the president of the company and one of his [491] associates, at which the brewers were informed that instructions were given to the teamsters of the company to deliver no more ice until the parties had agreed to pay more for it. Five dollars a ton was at first demanded, but the company finally agreed to deliver for three dollars and a half. Mr. Goebel who was a witness on behalf of the defendants explained the situation thus:

"We had to pay most anything, if they asked twenty dollars; if we had no ice one day or two, if we had been without ice, all our stock would have been spoiled; if we hadn't ice for two days, all our stock of beer would have been spoiled; we cannot run our business one day without ice; it would spoil our beer; it cools the cellar and cools the beer. At that time I could not procure ice of anybody; they waited just long enough not to give us a chance to buy ice of anybody else; * * * we could not contract with anybody for ice as there was not any; all ice was contracted for then; all the ice of the icemen right here in this market; there were several men came over who had boat loads to sell and offered us ice; I told Lorman we had a chance to buy ice, and he told us we should not; he would see our contract filled; this was during the spring months, before this conversation. At the time of this conversation no ice was obtainable in this market; not in such large quantities as we wanted. * * * We never had less than 2000 or 3000 barrels of beer on hand. At 2500 at $6 a barrel would be $15,000, which would have been an entire loss, besides ruining the whole business, the whole trade; we could not have had any customers; we could not have brewed any more; the brewing would have stopped also."

The consequence was, as he says, that they were forced to assent to the terms imposed upon them. From that time defendants paid $3.50 per ton for the ice as it was delivered to them, up to the first day of January following. Notes were given for the ice at this rate from time to time, and, with the exception of the one in suit, paid as they fell due. This statement is a sufficient presentation of the facts for the purposes of a decision. The defendants claim a set-off of the sums paid by them for ice in excess of two dollars a ton.

[492] It is very manifest that there is no ground for saying that the note in suit was given without consideration. It was given for ice which was furnished by the payee to the defendants; which was owned by the payee and bought by the defendants, and for which defendants concede their liability to make payment. What the defendants dispute is, the justice of compelling them to pay the sum stipulated in the note when according to their previous contract they ought to have received the ice for a sum much smaller. The defence, therefore, is not that the consideration has failed, but that a note for a sum greater than the contract price has been extorted under circumstances amounting to duress.

It is to be observed of these circumstances that if we confine our attention to the very time when the arrangement for an increased price was made the defendants make out a very plausible case. They had then a very considerable stock of beer on hand, and the case they make is one in which they must have ice at any cost, or they must fail in business. If the ice company had the ability to perform their contract, but took advantage of the circumstances to extort a higher price from the necessities of the defendants, its conduct was reprehensible, and it would perhaps have been in the interest of good morals if defendants had temporarily submitted to the loss and brought suit against the ice company on their contract. No one disputes that at their option they might have taken that course, and that the ice company would have been responsible for all damages legally attributable to the breach of its contract.

But the defendants did not elect to take that course. They chose for reasons which they must have deemed sufficient at the time to submit to the company's demand and pay the increased price rather than rely upon their strict rights under the existing contract. What these reasons were is not explained to us except as above shown. It is obvious that there might be reasons that would go beyond the immediate injury to the business. Suppose, for example, the defendants had satisfied themselves that the ice com [493] pany under the very extraordinary circumstances of the entire failure of the local crop of ice must be ruined if their existing contracts were to be insisted upon, and must be utterly unable to respond in damages; it is plain that then, whether they chose to rely upon their contract or not, it could have been of little or no value to them. Unexpected and extraordinary circumstances had rendered the contract worthless; and they must either make a new arrangement, or, in insisting on holding the ice company to the existing contract, they would ruin the ice company and thereby at the same time ruin themselves. It would be very strange if under such a condition of things the existing contract, which unexpected events had rendered of no value, could stand in the way of a new arrangement, and constitute a bar to any new contract which should provide for a price that would enable both parties to save their interests.

We do not know that the condition of things was as supposed, but that it may have been is plain enough. What is certain is, that the parties immediately concerned and who knew all the facts, joined in making a new arrangement out of which the note in suit has grown. The case of Moore v. Detroit Locomotive Works 14 Mich. 266, where a similar ease was fully considered, is ample authority for supporting the new arrangement.

If unfair advantage was taken of defendants, whereby they were forced into a contract against their interests, it is very remarkable that they submitted to abide by it as they did for nearly eight months without in the meantime taking any steps for their protection. Whatever compulsion there was in the case was to be found in the danger to their business in consequence of the threat made at the beginning of May to cut off the supply of ice; but the force of the threat would be broken the moment they could make arrangements for a supply elsewhere; and there is no showing that such a supply was unattainable. The force of the threat was therefore temporary; and the defendants, as soon as they were able to supply their needs elsewhere, might have been in position to act independently, and to deal with the [494] ice company as freely as they might with any other party who declined to keep his engagements. On any view, therefore, which we may take of the law, the defence must fail.

But if our attention were to be restricted to the very day when notice was given that ice would no longer be supplied at the contract price, we could not agree that the case was one of duress. It is not shown to be a case even of a hard bargain; and the price charged was probably not too much under the circumstances. But for the pre-existing contract the one now questioned would probably have been fair enough, and if made with any other party would not have been complained of. The duress is therefore to be found in the refusal to keep the previous engagements. How far this falls short of legal duress was so recently considered by us in Hackley & McGordon, v. Headley 45 Mich. 569, that further discussion now would serve no valuable purpose. In that case there was a dispute respecting the amount of a debt. The debtor refused to pay unless the creditor would accept in full the amount conceded by him to be owing. The creditor insisted that a large sum was due him, but being in immediate need of money, the circumstances were such that he felt compelled, as he claimed, to accept the sum offered. Afterwards he repudiated the arrangement, as having been made under duress. This court on a careful examination of the authorities, found no support for the claim in legal principles. The following language made use of in disposing of the case is not without relevancy here:

"In what did the alleged duress consist in the present case? Merely in this: that the debtors refused to pay on demand a debt already due, though the plaintiff was in great need of the money and might be financially ruined in case he failed to obtain it It is not pretended that Hackley & McGordon had done anything to bring Headley to the condition which made this money so important to him at this very time, or that they were in any manner responsible for his pecuniary embarrassment except as they failed to pay this demand. The duress, then, is to be found exclusively in their failure to [495] meet promptly their pecuniary obligation. But this, according to the plaintiffs claim, would have constituted no duress whatever if he had not happened to be in pecuniary straits; and the validity of negotiations, according to this claim, must be determined, not by the defendant's conduct, but by the plaintiff's necessities. The same contract which would be valid if made with a man easy in his circumstances, becomes invalid when the contracting party is pressed with the necessity of immediately meeting his bank paper. But this would be a most dangerous, as well as a most unequal doctrine; and if accepted, no one could well know when he would be safe in dealing on the ordinary terms of negotiation with a party who professed to be in great need."

We are of opinion that the defence failed, and that the judgment should be affirmed with costs.

The other Justices concurred.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BERGAN, Judge (dissenting).

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

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

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

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

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

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

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

The order should be affirmed.

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

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

Ordered accordingly.

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

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

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

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

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

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

345 Mass. 429 (1963)
187 N.E.2d 669

WILLIAM H. SKINNER & another
vs.
TOBER FOREIGN MOTORS, INC.

Supreme Judicial Court of Massachusetts, Hampden.
November 7, 1962.
February 7, 1963.

Present: WILKINS, C.J., SPALDING, WHITTEMORE, CUTTER, KIRK, & SPIEGEL, JJ.

David Burres for the defendant.

Francis P. Tehan for the plaintiffs.

SPALDING, J.

In this suit the plaintiffs seek equitable replevin of an airplane alleged to belong to them and to be detained against their right by the defendant; in the alternative, damages were sought.

A master, to whom the case was referred, found the following facts: The plaintiffs at all times here material were [430] residents of Connecticut. The defendant is a Massachusetts corporation and its principal place of business at the time of the transactions under consideration was at Springfield in this Commonwealth. On October 3, 1959, the plaintiffs purchased an airplane from the defendant. Negotiations for the purchase were carried on in Springfield and all of the instruments in connection with the transaction were executed there. These instruments included a bill of sale, an instalment contract, and an instalment note. The instalment contract was a form commonly used in Connecticut, and all the instruments were drawn by a Connecticut attorney retained by the defendant. Neither party was represented by counsel when the instruments were executed. A Connecticut form was used, and a Connecticut attorney was retained, because of the belief on the part of the defendant's president that this was necessary since the plaintiffs lived in Connecticut and the plane was to be based there. The plaintiffs knew that a Connecticut form was being used but were "not aware of the fact that this use had any peculiar legal significance, if any it had."

The instruments executed by the parties provided for payments of $200 per month over a period of twenty-four months with a payment of $353.34 on the twenty-fifth month. Prior to the due date of the first payment the airplane developed engine trouble. This necessitated either the rebuilding of the engine or the installation of a new one at a cost of $1,400. After discussion between the plaintiffs and officers of the defendant, the plaintiffs decided that a new engine should be installed. But the necessity of replacing the engine so soon after the purchase of the plane imposed a financial burden on the plaintiffs which they would be unable to bear. Accordingly, they "offered to return the unrepaired plane to the . . . [defendant] without charge in exchange for a cancellation of all agreements." In order to alleviate the plaintiffs' burdens, and rather than accept the return of the plane, the defendant, through its officers, agreed that for the first year of the instalment contract the payments were to be $100 per month. The plaintiffs agreed [431] to this arrangement and the new engine was installed. This agreement, which was made late in October, 1959, was oral. The defendant derived no benefit from this agreement other than the facts that the plane was not returned and the payments hereinafter mentioned were made.

Following the making of this agreement the plaintiffs, beginning in November, 1959, and continuing through May, 1960, made payments of $100 each month. Throughout this period the plane was kept in Connecticut.

In March of 1960 the defendant's president told the plaintiffs that thereafter the monthly payments would have to be increased to $200 or "he would have to take action." The plaintiffs did not agree to this proposal and, after another discussion with the defendant's president, made the April and May payments of $100 each.

On May 26, 1960, the defendant's president, accompanied by two deputy sheriffs of Connecticut and another man, went to the Windham Airport at Willimantic, Connecticut, took possession of the plane, and flew it to an airport in this Commonwealth. No demand for full payment was ever made. If the oral modification was controlling the plaintiffs were not in default in their payments.^[1] After repossessing the plane, the defendant sold it for $4,400. The master concluded that, subject to the determination of certain questions of law by the court, the damages sustained by the plaintiffs were $2,280, plus interest. This amount was arrived at by deducting from the value of the plane ($6,200) the unpaid balance ($3,920) of the purchase price. From a final decree awarding the plaintiffs damages in the amount found by the master, together with interest, the defendant appeals.

[432] The master reported several questions of law for the court's determination, but we need not deal with all of them; those discussed below are decisive of the case.

The defendant argues that Connecticut rather than Massachusetts law governs the transactions. We are of opinion that they are governed by the law of this Commonwealth. General Laws c. 106, § 1-105, inserted by St. 1957, c. 765, § 1 (Uniform Commercial Code), provides: "Except as provided hereafter in this section, when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties. Failing such agreement this chapter applies to transactions bearing an appropriate relation to this state." There is no finding that the parties agreed that the Connecticut law should apply. The transactions bore an appropriate relation to this State. The contract of sale was executed here and the plane was delivered to the plaintiffs here. Budget Plan, Inc. v. Sterling A. Orr, Inc. 334 Mass. 599, 600-601. In addition, the defendant (the seller) had its place of business in this Commonwealth.

General Laws c. 106, § 1-105 (2), reads: "Where one of the following provisions of this chapter specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law (including the conflict of laws rules) so specified:. . . . Policy and scope of the Article on Secured Transactions. Sections 9-102 and 9-103." The defendant argues that the quoted subsection brings the transactions within the ambit of § 9-103 (2) which provides: "If the chief place of business of a debtor is in this state, this Article governs the validity and perfection of a security interest. . . . Otherwise, the law (including the conflict of laws rules) of the jurisdiction where such chief place of business is located shall govern. . . ." This section does not aid the defendant. Section 1-201 (37) defines "security interest" as "an interest in personal property or fixtures which secures payment or performance of an obligation." The issue in the [433] case at bar involves the duties of the parties under the primary obligation; neither party contests the validity or perfection of the security interest. See comment to § 2-102.

There was no evidence one way or the other as to where the oral modification to the written agreement was made. The written agreement, as we have held, bore "an appropriate relation to this state" and was governed by our law rather than by the law of Connecticut. In the absence of any proof that the oral modification did not bear such a relation to this State there is no basis for holding that any other law would govern. Thus the modification, no less than the original agreement, would be governed by art. 2 of the Uniform Commercial Code which deals with sales. Section 2-102 makes this article applicable to "transactions in goods" and there can be no doubt that the transactions here belong to this class. See § 2-105.

The defendant argues that the oral modification is unenforceable and invalid because of the statute of frauds and because it was not supported by consideration. The short answer to the first point is that the defence of the statute of frauds is not available to the defendant, for it was not pleaded. Watkins v. Briggs, 314 Mass. 282, 284. Abalan v. Abalan, 329 Mass. 182, 183, and cases cited. We do not, therefore, reach the question whether the transactions would be taken out of the statute by reason of delivery and acceptance of the goods, or by part payment. See § 2-201 (3) (c). As to the oral modification not being supported by consideration the answer may be found in § 2-209 (1) which provides that an "agreement modifying a contract within this Article needs no consideration to be binding."

If the oral modification to the written contract was valid and binding — and we hold that it was — the defendant had no right to take possession of the plane. The defendant makes no contention to the contrary. Rather it seeks to justify what it did on the basis that the oral modification was invalid. It follows that the final decree is affirmed and the plaintiffs are to have costs of this appeal.

So ordered.

[1] We lay to one side the fact that, although the contract called for the making of the monthly payment on the fifteenth of each month, they were in fact made between the fifteenth and the eighteenth. But the defendant never protested, and continued to accept payments on that basis as long as the contract remained in force. The defendant makes no point of this tardiness in its brief. Also of no importance is the fact that for a brief period (seven days) the plaintiffs failed to carry the insurance on the plane which the contract called for. This breach likewise is not relied on by the defendant. Moreover, there were findings that would amply justify the conclusion that the defendant waived these breaches.

 9 App. Cas. 605 (1884).

JOHN WESTON FOAKES, APPELLANT.
v.
JULIA BEER, RESPONDENT.

HOUSE OF LORDS.
16 May 1884.

The House took time for consideration.

May 16.

EARL OF SELBORNE L.C.:—

My Lords, upon the construction of the agreement of the 21st of December 1876, I cannot differ from the conclusion in which both the Courts below were agreed. If the operative part could properly be controlled by the recitals, I think there would be much reason to say that the only thing contemplated by the recitals was giving time for payment, without any relinquishment, on the part of the judgment creditor, of any portion of the amount recoverable (whether for principal or for interest) under the judgment. But the agreement of the judgment creditor, which follows the recitals, is that she "will not take any proceedings whatever on the judgment," if a certain condition is fulfilled. What is that condition? Payment of the sum of £150 in every half year, "until the whole of the said sum of £2090 19 s." (the aggregate amount of the principal debt and costs, for which judgment had been entered) "shall have been fully paid and satisfied." A particular "sum" is here mentioned, which does not include the interest then due, or future interest. Whatever was meant to be payable at all, under this agreement, was clearly to be payable by half-yearly instalments of £150 each; any other construction must necessarily make the conditional promise nugatory. But to say that the half-yearly payments were to continue till the whole sum of £2090 19 s., "and interest thereon," should have been fully paid and satisfied, would be to introduce very important words into the agreement, which are not there, and of which I cannot say that they are necessarily implied. Although, therefore, I may (as indeed I do) very much doubt whether the effect of the agreement, as a conditional waiver of the interest to which she was by law entitled under the judgment, was really present to the mind of the judgment creditor, still I cannot deny that it might have that effect, if capable of being legally enforced.

But the question remains, whether the agreement is capable of being legally enforced. Not being under seal, it cannot be legally enforced against the respondent, unless she received consideration for it from the appellant, or unless, though without consideration, it operates by way of accord and satisfaction, so as to extinguish the claim for interest. What is the consideration? On the face of the agreement none is expressed, except a present payment of £500, on account and in part of the larger debt then due and payable by law under the judgment. The appellant did not contract to pay the future instalments of £150 each, at the times therein mentioned; much less did he give any new security, in the shape of negotiable paper, or in any other form. The promise de futuro was only that of the respondent, that if the half-yearly payments of £150 each were regularly paid, she would "take no proceedings whatever on the judgment." No doubt if the appellant had been under no antecedent obligation to pay the whole debt, his fulfilment of the condition might have imported some consideration on his part for that promise. But he was under that antecedent obligation; and payment at those deferred dates, by the forbearance and indulgence of the creditor, of the residue of the principal debt and costs, could not (in my opinion) be a consideration for the relinquishment of interest and discharge of the judgment, unless the payment of the £500, at the time of signing the agreement, was such a consideration. As to accord and satisfaction, in point of fact there could be no complete satisfaction, so long as any future instalment remained payable; and I do not see how any mere payments on account could operate in law as a satisfaction ad interim, conditionally upon other payments being afterwards duly made, unless there was a consideration sufficient to support the agreement while still unexecuted. Nor was anything, in fact, done by the respondent in this case, on the receipt of the last payment, which could be tantamount to an acquittance, if the agreement did not previously bind her.

The question, therefore, is nakedly raised by this appeal, whether your Lordships are now prepared, not only to overrule, as contrary to law, the doctrine stated by Sir Edward Coke to have been laid down by all the judges of the Common Pleas in Pinnel's Case^[1] in 1602, and repeated in his note to Littleton, sect. 344^[2], but to treat a prospective agreement, not under seal, for satisfaction of a debt, by a series of payments on account to a total amount less than the whole debt, as binding in law, provided those payments are regularly made; the case not being one of a composition with a common debtor, agreed to, inter se, by several creditors. I prefer so to state the question instead of treating it (as it was put at the Bar) as depending on the authority of the case of Cumber v. Wane^[3], decided in 1718. It may well be that distinctions, which in later cases have been held sufficient to exclude the application of that doctrine, existed and were improperly disregarded in Cumber v. Wane^[3]; and yet that the doctrine itself may be law, rightly recognised in Cumber v. Wane^[3], and not really contradicted by any later authorities. And this appears to me to be the true state of the case. The doctrine itself, as laid down by Sir Edward Coke, may have been criticised, as questionable in principle, by some persons whose opinions are entitled to respect, but it has never been judicially overruled; on the contrary I think it has always, since the sixteenth century, been accepted as law. If so, I cannot think that your Lordships would do right, if you were now to reverse, as erroneous, a judgment of the Court of Appeal, proceeding upon a doctrine which has been accepted as part of the law of England for 280 years.

The doctrine, as stated in Pinnel's Case^[1], is "that payment of a lesser sum on the day" (it would of course be the same after the day), "in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges, that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum." As stated in Coke Littleton, 212 (b), it is, "where the condition is for payment of £20, the obligor or feoffor cannot at the time appointed pay a lesser sum in satisfaction of the whole, because it is apparent that a lesser sum of money cannot be a satisfaction of a greater;" adding (what is beyond controversy), that an acquittance under seal, in full satisfaction of the whole, would (under like circumstances) be valid and binding.

The distinction between the effect of a deed under seal, and that of an agreement by parol, or by writing not under seal, may seem arbitrary, but it is established in our law; nor is it really unreasonable or practically inconvenient that the law should require particular solemnities to give to a gratuitous contract the force of a binding obligation. If the question be (as, in the actual state of the law, I think it is), whether consideration is, or is not, given in a case of this kind, by the debtor who pays down part of the debt presently due from him, for a promise by the creditor to relinquish, after certain further payments on account, the residue of the debt, I cannot say that I think consideration is given, in the sense in which I have always understood that word as used in our law. It might be (and indeed I think it would be) an improvement in our law, if a release or acquittance of the whole debt, on payment of any sum which the creditor might be content to receive by way of accord and satisfaction (though less than the whole), were held to be, generally, binding, though not under seal; nor should I be unwilling to see equal force given to a prospective agreement, like the present, in writing though not under seal; but I think it impossible, without refinements which practically alter the sense of the word, to treat such a release or acquittance as supported by any new consideration proceeding from the debtor. All the authorities subsequent to Cumber v. Wane^[1], which were relied upon by the appellant at your Lordships' Bar (such as Sibree v. Tripp^[2], Curlewis v. Clark^[3], and Goddard v. O'Brien^[4]) have proceeded upon the distinction, that, by giving negotiable paper or otherwise, there had been some new consideration for a new agreement, distinct from mere money payments in or towards discharge of the original liability. I think it unnecessary to go through those cases, or to examine the particular grounds on which each of them was decided. There are no such facts in the case now before your Lordships. What is called "any benefit, or even any legal possibility of benefit," in Mr. Smith's notes to Cumber v. Wane^[1], is not (as I conceive) that sort of benefit which a creditor may derive from getting payment of part of the money due to him from a debtor who might otherwise keep him at arm's length, or possibly become insolvent, but is some independent benefit, actual or contingent, of a kind which might in law be a good and valuable consideration for any other sort of agreement not under seal.

My conclusion is, that the order appealed from should be affirmed, and the appeal dismissed, with costs, and I so move your Lordships.

LORD BLACKBURN:—

My Lords, the first question raised is as to what was the true construction of the memorandum of agreement made on the 21st of December 1876. What was it that the parties by that writing agreed to?

The appellants contend that they meant that on payment down of £500, and payment within a month after the 1st day of July and the 1st day of January in each ensuing year of £150, until the sum of £2090 19 s. was paid, the judgment for that sum and interest should be satisfied, for an agreement to take no proceedings on the judgment is equivalent to treating it as satisfied. This construction of the memorandum requires that after the tenth payment of £150 there should be a further payment of £90 19 s. made within the next six months. This is the construction which all three Courts below have put upon the memorandum.

The respondent contends that the true construction of the memorandum was that time was to be given on those conditions for five years, the judgment being on default of any one payment enforceable for whatever was still unpaid, with interest from the date the judgment was signed, but that the interest was not intended to be forgiven at all.

If this is the true construction of the agreement the judgment appealed against is right and should be affirmed, whether the reason on which the Court of Appeal founded its judgment was right or not. I am, however, of opinion that the Courts below, who on this point were unanimous, put the true construction on the memorandum. I do not think the question free from difficulty.

It would have been easy to have expressed, in unmistakeable words, that on payment down of £500, and punctual payment at the rate of £300 a year till £2090 19 s. was paid, the judgment should not be enforced either for principal or interest; or language might have been used which should equally clearly have expressed that, though time was to be given, interest was to be paid in addition to the instalments. The words actually used are such that I think it is quite possible that the two parties put a different construction on the words at the time; but I think the words "till the said sum of £2090 19 s. shall have been fully paid and satisfied" cannot be construed as meaning "till that sum, with interest from the day judgment was signed, shall have been fully paid and satisfied," nor can the promise "not to take any proceedings whatever on the judgment" be cut down to meaning any proceedings except those necessary to enforce payment of interest.

I think, therefore, that it is necessary to consider the ground on which the Court of Appeal did base their judgment, and to say whether the agreement can be enforced. I construe it as accepting and taking £500 in satisfaction of the whole £2090 19 s., subject to the condition that unless the balance of the principal debt was paid by the instalments, the whole might be enforced with interest. If, instead of £500 in money, it had been a horse valued at £500, or a promissory note for £500, the authorities are that it would have been a good satisfaction, but it is said to be otherwise as it was money.

This is a question, I think, of difficulty.

In Coke, Littleton 212 b, Lord Coke says:

"where the condition is for payment of £20, the obligor or feoffor cannot at the time appointed pay a lesser sum in satisfaction of the whole, because it is apparent that a lesser sum of money cannot be a satisfaction of a greater. . . . If the obligor or feoffor pay a lesser sum either before the day or at another place than is limited by the condition, and the obligee or feoffee receiveth it, this is a good satisfaction."

For this he cites Pinnel's Case^[1]. That was an action on a bond for £16, conditioned for the payment of £8 10 s. on the 11th of November 1600. Plea that defendant, at plaintiff's request, before the said day, to wit, on the 1st of October, paid to the plaintiff £5 2 s. 2 d., which the plaintiff accepted in full satisfaction of the £8 10 s. The plaintiff had judgment for the insufficient pleading. But though this was so, Lord Coke reports that it was resolved by the whole Court of Common Pleas

"that payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction for the whole, because it appears to the judges that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe, & c., in satisfaction is good, for it shall be intended that a horse, hawk, or robe, & c., might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted of it in satisfaction. But when the whole sum is due, by no intendment the acceptance of parcel can be a satisfaction to the plaintiff; but in the case at bar it was resolved that the payment and acceptance of parcel before the day in satisfaction of the whole would be a good satisfaction in regard of circumstance of time; for peradventure parcel of it before the day would be more beneficial to him than the whole at the day, and the value of the satisfaction is not material; so if I am bound in £20 to pay you £10 at Westminster, and you request me to pay you £5 at the day at York, and you will accept it in full satisfaction for the whole £10, it is a good satisfaction for the whole, for the expenses to pay it at York is sufficient satisfaction."

There are two things here resolved. First, that where a matter paid and accepted in satisfaction of a debt certain might by any possibility be more beneficial to the creditor than his debt, the Court will not inquire into the adequacy of the consideration. If the creditor, without any fraud, accepted it in satisfaction when it was not a sufficient satisfaction it was his own fault. And that payment before the day might be more beneficial, and consequently that the plea was in substance good, and this must have been decided in the case.

There is a second point stated to have been resolved, viz.: "That payment of a lesser sum on the day cannot be any satisfaction of the whole, because it appears to the judges that by no possibility a lesser sum can be a satisfaction to the plaintiff for a greater sum." This was certainly not necessary for the decision of the case; but though the resolution of the Court of Common Pleas was only a dictum, it seems to me clear that Lord Coke deliberately adopted the dictum, and the great weight of his authority makes it necessary to be cautious before saying that what he deliberately adopted as law was a mistake, and though I cannot find that in any subsequent case this dictum has been made the ground of the decision, except in Fitch v. Sutton^[1], as to which I shall make some remarks later, and in Down v. Hatcher^[2], as to which Parke, B. in Cooper v. Parker^[3], said, "Whenever the question may arise as to whether Down v. Hatcher^[2] is good law, I should have a great deal to say against it," yet there certainly are cases in which great judges have treated the dictum in Pinnel's Case^[4] as good law.

For instance, in Sibree v. Tripp^[5], Parke, B. says, "It is clear if the claim be a liquidated and ascertained sum, payment of part cannot be satisfaction of the whole, although it may, under certain circumstances, be evidence of a gift of the remainder." And Alderson, B. in the same case says,

"It is undoubtedly true that payment of a portion of a liquidated demand, in the same manner as the whole liquidated demand which ought to be paid, is payment only in part, because it is not one bargain, but two; viz. payment of part, and an agreement without consideration to give up the residue. The Courts might very well have held the contrary, and have left the matter to the agreement of the parties, but undoubtedly the law is so settled."

After such strong expressions of opinion, I doubt much whether any judge sitting in a Court of the first instance would be justified in treating the question as open. But as this has very seldom, if at all, been the ground of the decision even in a Court of the first instance, and certainly never been the ground of a decision in the Court of Exchequer Chamber, still less in this House, I did think it open in your Lordships' House to reconsider this question. And, notwithstanding the very high authority of Lord Coke, I think it is not the fact that to accept prompt payment of a part only of a liquidated demand, can never be more beneficial than to insist on payment of the whole. And if it be not the fact, it cannot be apparent to the judges.

I will first examine the authorities. If a defendant pleaded the general issue, the plaintiff could join issue at once, and if the case was not defended get his verdict at the next assizes. But by pleading a special plea, the plaintiff was obliged to reply, and the defendant often caused the plaintiff, merely by the delay occasioned by replying, to se an assize. If the replication was one to which he could demur he made this sure. Strangely enough it seems long to have been thought that if the defendant kept within reasonable bounds neither he nor his lawyers were to blame in getting time in this way by a sham plea — that a chattel was given and accepted in satisfaction of the debt. The recognised forms were giving and accepting in satisfaction a beaver hat: Young v. Rudd^[1], or a pipe of wine^[2]. All this is now antiquated. But whilst it continued to be the practice, the pleas founded on the first part of the resolution in Pinnel's Case^[3], were very common, and that law was perfectly trite. No one for a moment supposed that a beaver hat was really given and accepted; but every one knew that the law was that if it was really given and accepted it was a good satisfaction. But special pleas founded on the other resolution in Pinnel's Case^[3], on what I have ventured to call the dictum, were certainly not common. I doubt if a real defence of this sort was ever specially pleaded. When there really was a question as to whether a debt was satisfied by a payment of a smaller sum the defendant pleaded the general issue, and if it was proved to the satisfaction of the jury that a smaller sum had been paid and accepted in satisfaction of a greater, if objection was raised the jury might perhaps, as suggested by Holroyd J. in Thomas v. Heathorn^[4], find that the circumstances were such that the legal effect was to be as if the whole was paid down and a portion thrown back as a God's-penny. This, however, seems to me to be an unsatisfactory and artificial way of avoiding the effect of the dictum, and it could not be applied to such an agreement as that now before this House.

For whatever reason it was, I know of no case in which the question was raised whether a payment of a lesser sum could be satisfaction of a liquidated demand from Pinnel's Case^[1] down to Cumber v. Wane, 5 Geo. 1^[2], a period of 115 years.

In Adams v. Tapling^[3] where the plea was bad for many other reasons, it is reported to have been said by the Court that: "In covenant where the damages are uncertain, and to be recovered, as in this case, a lesser thing may be done in satisfaction, and there 'accord and satisfaction' is a good plea." No doubt this was one of the cases which Parke, B. would have cited in support of his opinion that Down v. Hatcher^[4] was not good law. The Court are said to have gone on to recognise the dictum in Pinnel's Case^[1], or at least not to dissent from it, but it was not the ground of their decision. In every other reported case which I have seen the question arose on a demurrer to a replication to what was obviously a sham or dilatory plea.

Some doubt has been made as to what the pleadings in Cumber v. Wane^[5] really were. I have obtained the record^[6]. The plea is that after the promises aforesaid, and before the issuing of the writ, it was agreed between the said George and Edward Cumber that he, the said George, "daret eidem Edwardo Cumber quandm notam in script vocatam 'a promissory note' manu propria ipsius Georgii subscript pr. solucon eidem Edwardo Cumber vel ordiñi quinque librarum," fourteen days after date, in full satisfaction and exoneration of the premises and promises, which said note in writing the said George then gave to the said Edward Cumber, and the said Edward Cumber then and there received from the said George the said note in full satisfaction and discharge of the premises and promises.

The replication is that, "the said George did not give to him Edward any note in writing called a promissory note with the hand of him George subscribed for the payment to him Edward or his order of £5, fourteen days after date in full satisfaction and discharge of the premises and promises." To this there is a demurrer and judgment in the Common Pleas for the plaintiff "that the replication was good in law."

The reporter, oddly enough, says there was an immaterial replication. The effect of the replication is to put in issue the substance of the defence, namely, the giving in satisfaction; Young v. Rudd^[1], and certainly that was not immaterial. But for some reason, I do not stop to inquire what, Pratt C.J. prefers to base the judgment affirming that of the Common Pleas on the supposed badness of the plea rather than on the sufficiency of the replication. It is impossible to doubt that the note, which it is averred in the plea was given as satisfaction, was a negotiable note. And therefore this case is in direct conflict with Sibree v. Tripp^[2].

Two cases require to be carefully considered. The first is Heathcote v. Crookshanks^[3]. The plea there pleaded would, I think, now be held perfectly good, see Norman v. Thompson^[4]; but Buller J. seems to have thought otherwise. He says,

"thirdly it was said that all the creditors were bound by this agreement to forbear, but that is not stated by the plea. It is only alleged that they agreed to take a certain proportion, but that is a nudum pactum, unless they had afterwards accepted it. In the case in which Cumber v. Wane^[5] was denied to be law, Hardcastle v. Howard (26 Geo. 3, B.R.), the party actually accepted. But as the plaintiff in the present case refused to take less than the whole demand, the plea is clearly bad."

That decision goes entirely on the ground that accord without satisfaction is not a plea. I do not think it can be fairly said that Buller J. meant by saying "that is a nudum pactum, unless they had afterwards accepted it," to express an opinion that if the dividend had been accepted it would have been a good satisfaction. But he certainly expresses no opinion the other way.

In Fitch v. Sutton^[6] not only did the plaintiff not accept the payment of the dividend in satisfaction, but refused to accept it at all, unless the defendant promised to pay him the balance when of ability, and the defendant assented and made the promise required, so that but for the fact that other creditors were parties to the composition there could have been no defence. There was no point of pleading in that case, the whole being open under the general issue. And in Steinman v. Magnus^[1] it was pretty well admitted by Lord Ellenborough that the decision in Fitch v. Sutton^[2] would have been the other way, if they had understood the evidence as the reporter did. But though this misapprehension of the judges as to the facts, and the absence of any acceptance of the dividend, greatly weaken the weight of Fitch v. Sutton^[2], still it remains that Lord Ellenborough, a very great judge indeed, did, however hasty or unnecessary it may have been to express such an opinion, say,

"It is impossible to contend that acceptance of £17 10 s. is an extinguishment of a debt of £50. There must be some consideration for the relinquishment of the residue; something collateral, to shew a possibility of benefit to the party relinquishing his further claim, otherwise the agreement is nudum pactum. But the mere promise to pay the rest when of ability put the plaintiff in no better condition than he was before. It was expressly determined in Cumber v. Wane^[3] that acceptance of a security for a lesser sum cannot be pleaded in satisfaction of a similar security for a greater. And though that case was said by me in argument in Heathcote v. Crookshanks^[4] to have been denied to be law, and in confirmation of that Buller J. afterwards referred to a case (stated to be that of Hardcastle v. Howard (H. 26 Geo. 3)), yet I cannot find any case of that sort, and none has been now referred to; on the contrary the decision in Cumber v. Wane^[3] is directly supported by the authority of Pinnel's Case^[5], which never appears to have been questioned."

I must observe that, whether Cumber v. Wane^[3] was, or was not denied to be law in Hardcastle v. Howard, it certainly was denied to be law in Sibree v. Tripp^[6], and that, though it is quite true that Pinnel's Case^[1], as far as regards the points actually raised in the case, has not only never been questioned, but is often assented to, I am not aware that in any case before Fitch v. Sutton^[2], unless it be Cumber v. Wane^[3], has that part of it which I venture to call the dictum ever been acted upon; and as I have pointed out, had it not been for the composition with other creditors, there could have been no defence in Fitch v. Sutton^[2], whether the dictum in Pinnel's Case^[1] was right or wrong.

Still this is an authority, and I have no doubt that it was on the ground of this authority and the adhesion of Bayley J. to it in Thomas v. Heathorn^[4], that Barons Parke and Alderson expressed themselves as they did in the passages I have cited from Sibree v. Tripp^[5]. And I think that their expressions justify Mr. John William Smith in laying it down as he does in his note to Cumber v. Wane^[3], in the second edition of his "Leading Cases," that

"a liquidated and undisputed money demand, of which the day of payment is passed (not founded upon a bill of exchange or promissory note), cannot even with the consent of the creditor be discharged by mere payment by the debtor of a smaller amount in money in the same manner as he was bound to pay the whole."

I am inclined to think that this was settled in a Court of the first instance. I think however that it was originally a mistake.

What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for so thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them.

I assent to the judgment proposed, though it is not that which I had originally thought proper.

LORD WATSON:—

My Lords, I am of opinion that the judgment of the Court of Appeal ought to be affirmed.

I regret that I have been unable to adopt that construction of the memorandum of agreement which has commended itself to your Lordships who have already spoken as well as to the judges of the Court of Appeal. It appears to me that the respondent did not intend to pass, and did not pass, from her legal claim for interest on the judgment debt due to her by the appellant. She undertakes not to take proceedings on the judgment provided the stipulated termly instalments are regularly paid, "until the whole of the said sum of £2090 19 s. shall have been fully paid and satisfied." But these words, the "said sum," ought, in my opinion, to be construed as referring to the sum of £2090 19 s. previously described as being contained in a judgment of Her Majesty's High Court of Justice, and therefore bearing interest ex lege. The whole context of the memorandum appears to me to be consistent with this view, and to point strongly to the inference that there was no agreement, or even proposal, that the respondent should make any abatement of her legal claims, or do more than give her debtor time on the conditions expressed, "to pay such judgment."

I must assume, however, that I have wrongly construed the memorandum of agreement, and that its language imports that the respondent was to abstain from taking proceedings upon the judgment, if and when instalments to the amount of £2090 19 s. had been duly and regularly paid. Upon that assumption, I am still of opinion that the respondent ought to prevail, on the simple ground that, in that view of the memorandum her agreement to abate part of her claim was nudum pactum, for which the appellant gave no legal consideration.

I do not think it necessary to consider whether it would still be open to this House, if so advised, to overrule the doctrine of Cumber v. Wane^[1] and Pinnel's Case^[2], because I am not prepared to disturb that doctrine. Nor do I think it necessary to occupy the time of the House with a detailed explanation of the considerations which have led me to that result, seeing that I concur in the judgment of the Lord Chancellor, and also in the opinion about to be delivered by my noble and learned friend opposite (Lord FitzGerald), which I have had the advantage of reading.

LORD FITZGERALD:—

My Lords, the first question is as to the true construction of the memorandum of agreement of the 21st of December 1876, and I express my opinion on it with the greatest diffidence. My excuse for expressing any opinion upon it is that I feel rather strongly on the point. The memorandum is, it may be observed, unilateral, for Dr. Foakes by it assumes no obligation.

The first recital is that Mrs. Beer had obtained a judgment against Dr. Foakes for a sum of £2090 19 s. The judgment would not per se, at common law, entitle the plaintiff to interest, but the statute 1 & 2 Vict. c. 110 s. 17 provides "that every judgment debt shall carry interest at 4 per cent. from the time of entering up until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment." This right to interest is different from interest arising on contract, or which a jury may give as damages or may withhold. It is a clear statutory right, arising immediately on entering up the judgment, and continuing until the judgment debt is fully paid. The position of the parties at the date of the agreement then was that Dr. Foakes owed Mrs. Beer the principal sum of £2090 19 s., recovered by a judgment which carried interest at 4 per cent., arising de die in diem as a statutory right, and then (that is, at the time of the agreement) amounting to £113 16 s. 2 d.

The agreement then contains this recital: "And whereas the said J. W. Foakes has requested the said Julia Beer to give him time in which to pay such judgment, which she has agreed to do on the following conditions." He does not ask for any remission of any portion of his obligation, he solicits only time for payment, and she agrees to give him that time and no more.

It seems to me clear and free from doubt that "such judgment" in this recital would, if there was no more to guide us, mean the judgment debt with its statutable interest at 4 per cent. The language of the recital and of the whole agreement seems to be that of Mr. Smith, the defendant's solicitor, as we find in Mackreth's evidence this statement: "The agreement was prepared by Smith and sent to me, and I approved of it on behalf of Mrs. Beer."

Returning to the language of the agreement, it is remarkable that Dr. Foakes undertakes by it no obligation whatever; he does not bind himself to pay any instalment to her or to her "nominee;" and it was not necessary that he should, for I can entertain no doubt that if what is called the “condition” for payment of the instalments had not been fulfilled, then Mrs. Beer could have enforced the whole residue of her demand for principal and the interest that accrued, by execution on the judgment. Dr. Foakes enters into no obligation to pay to her "nominee," and this seems to displace in fact the foundation of the judgment of the Divisional Court, where Williams J. is reported to have said^[1]:

"The doctrine is that an agreement to pay a less sum in satisfaction of a debt is without consideration. The English law forbids such an agreement. That is the law in its naked simplicity. But I think a very little departure from the mere agreement to pay a less sum will make the agreement good. If the creditor says, 'You owe me a large sum of money—I am willing to accede to your request for time, but you must enter into an agreement in writing, at your expense (as it would be) and you shall pay the money to me or to any person I may name at my election,' that, I think, is enough to make this agreement not a nudum pactum."

(There is no such thing in the agreement here.) And Mathew J. adds,

"It is noticeable that the agreement is framed so that it casts an obligation which would not otherwise have existed. The agreement to pay the creditor's nominee renders it a document available as a security."

It would seem, to me at least, that the terms of the agreement had never been properly conveyed to the minds of the judges; for in fact Dr. Foakes assumed no greater obligation than the law imposed on him in respect of the judgment.

The expressed consideration is the payment to Mrs. Beer "of the sum of £500 in part satisfaction of the said judgment debt of £2090 19 s.," and again I should repeat here that the last words would mean the debt and the right to interest which it carried, if there is nothing subsequent to impose a different meaning. The term "satisfaction" is specially applicable to a judgment. You could not in former times plead payment simply to a scire facias on a judgment. The plea should shew satisfaction. The judgment would not be satisfied on payment of the £2090 19 s. but only by payment of that sum and the interest. The agreement then provides as a condition for the payment of the instalments of £150, "until the whole of the said sum of £2090 19 s. shall have been fully paid and satisfied." The whole difficulty arises on this passage. If in place of using the word "sum" it had used "judgment" or "judgment debt," in my opinion there could have been but one construction, viz., that "judgment" or "judgment debt" meant the principal sum of £2090 19 s. with "interest at 4 per cent." Now, having regard to what the parties were at, why should we not read "the said sum of £2090 19 s." by the light of the antecedent parts of the same agreement as meaning "the said judgment for £2090 19 s.," and thus do full and complete justice, and not deprive Mrs. Beer of about £350 as justly due to her as the £2090 19 s., and which, it is to me manifest, she never intended and was never asked to relinquish? There is a special recital indicating what the parties intended, viz., "time on certain conditions" but without a word as to relinquishing any part of the plaintiff's demand, and if the subsequent words are more general, we should limit and qualify them by the special language of the recital.

Dr. Foakes did not ask for any remission, he asked for time and for time alone, and we ought to assume that when his solicitor prepared and furnished the memorandum of agreement he did not intend by its language that any part of Mrs. Beer's demand was to be released. Mackreth says that in the course of the negotiation "interest was never mentioned at all in reference to that agreement." She adopted the language of the memorandum, and it became hers, but was it such as to lead Dr. Foakes to understand that Mrs. Beer agreed on performance of the condition to give up her claim to interest? I think that we ought not to adopt such a conclusion.

There are many authorities for the proposition that you may limit the general words of release by the antecedent recitals, so as to effectuate that alone which was within the intention of the parties. I might refer to a number of cases, for example Thorpe v. Thorpe^[1], where it is said per Cur:

"Where there are general words only in a release they shall be taken most strongly against the releasor, but where there is a particular recital and general words follow, there the general words shall be qualified by the special words."

Applying that rule to the present case, you may limit the general words at the conclusion of the memorandum to the giving of time alone, that is to say, if "judgment debt of £2090 19 s." means the sum of £2090 19 s. and nothing more, then that Mrs. Beer agrees to give time for payment of the principal debt of £2090 19 s. by the instalments and at the times indicated, and that pending that arrangement she would not "take any proceedings whatever on the said judgment." This would give effect to every word and leave the “interest” untouched, which, if the principal is to be paid by instalments, could not well be ascertained until the time had been reached for the payment of the last instalment. There is nothing in the memorandum, it should be observed, to prevent Dr. Foakes from coming in at any time and discharging the whole principal before the instalments became payable. Upon the construction of the memorandum I am of opinion that the decision of the Court of Appeal should be affirmed.

The second question now presents itself, but with my view on the first it is not actually necessary for me to express any opinion on it, but it seems more satisfactory that I should do so. Assuming that I have fallen into error in interpreting the agreement, and that it is to be read that if Dr. Foakes should pay the actual sum of £2090 19 s. by instalments according to the condition she would relinquish her statutable debt for interest and not issue execution on the judgment to recover it, is such an agreement nudum pactum, and therefore incapable of being enforced?

I have listened with much interest, and I may add, with no small instruction, to the judgment of my noble and learned friend Lord Blackburn. He has as usual gone to the very foundation, and I regret that I have been unable to assist him in overturning the resolution of the Court of Common Pleas as reported by Lord Coke in Pinnel's Case^[1], or in expunging from the books the infinitesimal remains of Cumber v. Wane^[2]. It seems to me doubtful whether the question arises which my noble and learned friend has presented, viz.: whether payment of a part of a debt ascertained by judgment can be a satisfaction of the whole? In the case before us the whole of the £2090 19 s., the principal of the judgment, has been paid to the last farthing.

The interpretation put by the judges of the Courts below, and adopted by the Lord Chancellor, and my noble and learned friend Lord Blackburn, on the memorandum, seems to me to divide it in effect into two stipulations, the first being that if Dr. Foakes, should pay down £500, and the remainder of the actual sum of £2090 19 s. in the manner prescribed, Mrs. Beer would so accept it, and pending the payments, would take no proceeding on the judgment; and the second being that if the £2090 19 s. should be paid in the manner indicated, she would relinquish her claim for interest, and would not take any proceedings whatever on the judgment to enforce that interest. The question is whether there is any sufficient legal consideration for the relinquishment of the debt for interest. I am clearly of opinion that there is not.

My noble and learned friend Lord Blackburn has shewn us very clearly that the resolution in Pinnel's Case^[1] was not necessary for the decision of that case, and that the principle on which it seems to rest does not appear to have been made the foundation of any subsequent decision of the Exchequer Chamber or of this House, and further, that some of the distinctions which have been engrafted on it, make the rule itself absurd. But it seems to me that it is not the rule which is absurd, but some of those distinctions, emanating from the anxiety of judges to limit the operation of a rule which they considered often worked injustice. That resolution in Pinnel's Case has never been overruled. For 282 years it seems to have been adopted by our judges. During that whole period it seems to have been understood and taken to be part of our law that the payment of a part of a debt then due and payable cannot alone be the foundation of a parol satisfaction and discharge of the residue, as it brings no advantage to the creditor, and there is no consideration moving from the debtor, who has done no more than partially to perform his obligation. Though it may not have been made the subject of actual decision, yet we find that every judge in this country who has had occasion to deal with the proposition states the law to be so. And in the sister country it has always been so received, and in the case of Corporation of Drogheda v. Fairtlough^[2] Lefroy C.J. thus expresses himself — I may say that his language is entitled to very considerable weight; he was a judge who had sat at the feet of Lord Kenyon, and he was the well-known reporter of the decisions of Lord Redesdale. That very learned judge thus states the law:—

"There is also a failure of evidence of the consideration for the contract to remove the rule of the common law that payment of a less sum cannot be a satisfaction of a greater liquidated sum, unless there is some further advantage accompanying the payment."

And in another part of his judgment he puts the proposition thus:—

"The payment merely of a less sum, not being in pursuance of any contract by deed, cannot by the common law be deemed to be a satisfaction of a greater liquidated sum, but the law will allow the payment of a smaller sum to be a satisfaction of a greater liquidated sum if there be any collateral advantage, however small, to the creditor attending the transaction."

The question did arise directly in that case, but the plea failed in other points, and it was, therefore, not necessary actually to decide it. I refer to it as shewing how a judge of great experience considered the law to stand.

I am not aware of any decision that controverts this position, and the text-books uniformly present it thus; that "the payment of part of a liquidated and ascertained sum is in law no satisfaction of the whole." The proposition itself is but a part of a rule of our law, which affects and governs many of the daily relations of life, "Nuda pactio obligationem non parit." And, again, the law says that "nudum pactum est ubi nulla subest causa præter conventionem."

I should hesitate before coming to a decision which might be a serious inroad on that rule, but I concur with my noble and learned friend that it would have been wiser and better if the resolution in Pinnel's Case^[1] had never been come to, and there had been no occasion for the long list of decisions supporting composition with a creditor on the rather artificial consideration of the mutual consent of other creditors. We find the law to have been accepted as stated for a great length of time, and I apprehend that it is not now within our province to overturn it.

The short question then is, in relation to a judgment debt payable immediately, and on which the creditor is entitled to have execution, is the payment by the debtor of a part a sufficient consideration to support a parol agreement by the judgment creditor not to take any proceedings whatever on the judgment for the residue? In my opinion it is not; and I think, therefore, that the judgment of the Court of Appeal should be affirmed.

----------

[1] 5 Rep. 117 a.

[2] Co. Litt. 212 b.

[3] 1 Sm. L. C. 8th ed. 357.

----------

[1] 1 Sm. L. C. 8th ed. 366.

[2] 15 M. & W. 23.

[3] 3 Ex. 375.

[4] 9 Q. B. D. 37.

----------

[1] 5 Rep. 117 a.

----------

[1] 5 East, 230.

[2] 10 A. & E. 121.

[3] 15 C.B. 828.

[4] 5 Rep. 117 a.

[5] 15 M. & W. 33, 37.

----------

[1] 5 Mod. 86.

[2] 3 Chit. Plead. 7th Ed. 92.

[3] 5 Rep. 117 a.

[4] 2 B. & C. 482.

----------

[1] 5 Rep. 117 a.

[2] 1 Sm. L. C. 8th Ed. 357.

[3] 4 Mod. 88.

[4] 10 A. & E. 121.

[5] 1 Str. 426.

[6] The reference is: Queen's Bench (Plea side) Plea Roll. 5 Geo. 1, Trinity, ro. 173.

----------

[1] 5 Mod. 86.

[2] 15 M. & W. 23.

[3] 2 T. R. 24.

[4] 4 Ex. 755.

[5] 1 Str. 426.

[6] 5 East, 230.

----------

[1] 11 East, 390.

[2] 5 East, 230.

[3] 1 Str. 426.

[4] 2 T. R. 24.

[5] 5 Rep. 117 a.

[6] 15 M. & W. 23.

----------

[1] 5 Rep. 117 a.

[2] 5 East, 230.

[3] 1 Str. 426.

[4] 2 B. & C. 477.

[5] 15 M. & W. 23.

----------

[1] 1 Sm. L. C. 8th Ed. 357.

[2] 5 Rep. 117 a.

----------

[1] These quotations are from the printed papers before the House.

----------

[1] 1 Ld. Raym. 235.

----------

[1] 5 Rep. 117 a.

[2] 1 Str. 426.

----------

[1] 5 Rep. 117 a.

[2] 8 Ir. C. L. R. 98, 110, 114.

----------

[1] 5 Rep. 117 a.

45 Mich. 569

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

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

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

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

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

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

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

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

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

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

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

ASSUMPSIT. Defendant brings error. Reversed.

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

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

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

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

I.

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

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

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

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

II.

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

                                                                                                                 "MUSKEGON, MICH., August 3, 1875.

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

Witness: THOMAS HUME.                                                                                 JOHN HEADLEY."

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

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

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

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

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

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

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

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

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

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

The other Justices concurred.

222 S.W. 158

FITTS
v.
PANHANDLE & S. F. RY. CO.

(No. 139-3053.)
Commission of Appeals of Texas, Section B.
June 2, 1920.

Error to Court of Civil Appeals of Seventh Supreme Judicial District.

Action by C. I. Fitts against the Panhandle & Santa Fé Railway Company. From judgment for plaintiff, defendant appealed to the Court of Civil Appeals, which reversed and remanded (188 S. W. 528), and plaintiff brings error. Judgment of the Court of Civil Appeals reversed, and that of the district court affirmed, on recommendation of the Commission of Appeals.

E. T. Miller, J. N. Browning, L. C. Barrett, and Marvin Jones, all of Amarillo, for plaintiff in error.

Madden, Trulove, Ryburn & Pipkin, of Amarillo, for defendant in error.

McCLENDON, J.

C. I. Fitts, the plaintiff, recovered judgment against the Panhandle & Santa Fé Railway Company, defendant, for the loss of his eye, alleged to have been caused by the actionable negligence of defendant. Among other defenses to the suit, defendant pleaded a release in full, the recited consideration whereof being: "An order on the treasurer of said company for $1, the receipt of which is hereby acknowledged," and "the promise of said company to employ me for one day as trucker at the usual rate of pay, the execution thereof being conclusive evidence that said company has made me such promise." Plaintiff alleged the invalidity of said release upon several grounds, one of which was that it was without consideration. Upon the trial, plaintiff having testified that he never received the $1 recited in the release, the court declined to admit the release in evidence. The Court of Civil Appeals reversed and remanded the cause, holding this ruling to be erroneous. 188 S. W. 528. Writ of error was granted by the Committee of Judges, in the view that the Court of Civil Appeals committed error in this holding.

The full review and discussion by the Court of Civil Appeals of the authorities upon the question at issue renders unnecessary any extended observations thereupon. The release in question is identical in its language with that in the case of Quebe v. Railway, 98 Tex. 6, 81 S. W. 20, 66 L. R. A. 734, 4 Ann. Cas. 545, except as to the subject-matter dealt with. The cases are practically on all fours in every particular, except that in the Quebe Case the $1 was paid, whereas in the case at bar it was not paid. In the Quebe Case the Supreme Court, speaking through Judge Williams, says:

"The consideration was a valuable and legal one, though small. Considering the fact that the matter settled was regarded by both parties as involving no large amount, it cannot be said the smallness of the consideration, by itself, furnishes grounds for disregarding the release."

The distinguishing element in the two cases is the failure in the instant case to pay the dollar. We have the views of the Supreme Court upon the question thus presented, expressed in the following language:

"Since the recited consideration of $1 in the release in this case was not paid, it is our opinion that the release was wholly without consideration. It seems to us that a mere promise to re-employ for one day, paying for the work done for that one day no more than the ordinary or customary rate of wages, conferred, in practical effect, no benefit upon the plaintiff, and the railway company thereby suffered no detriment, since inevitably it was to receive the day's work for the re-employment."

We conclude that the judgment of the Court of Civil Appeals should be reversed, and that of the district court affirmed.

PHILLIPS, C. J.

We approve the judgment recommended in this case.

322 N.Y.S.2d 420
66 Misc.2d 816

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Plaintiff,
v.
Mark E. ARROLL, Defendant.

Civil Court of the City of New York, New York County, Trial
Term, Part XLV.
May 19, 1971.

[322 N.Y.S.2d 421] [66 Misc.2d 817] John M. Keegan, New York City, for plaintiff; Samuel Levine, New York City, of counsel.

Mark E. Arroll, New York City, pro se.

MILTON SANDERS, Judge.

This is an action by Consolidated Edison Company of New York, Inc., ("Con Edison,") to recover a balance alleged to be due from defendant on five electric bills for the summer periods of 1968, 1969, and 1970. Defendant disputed the amounts of these bills on the basis that they exceeded past bills for comparable periods, including the summer of 1967, by too great an amount to have any validity. He questioned the accuracy of the meter and/or the readings taken, as well as Con Edison's statements as to the amount of electricity consumed. After a considerable amount of correspondence had taken place between the parties, defendant sent a letter on December 6, 1969 to the attention of the president of Con Edison, with carbon copies to the company at their local office and to the post office box designated for the payment of bills. The letter stated again defendant's disagreement with the amounts of the first three bills, and advised that he had arbitrarily picked the sum of $35.00 as the proper amount due on each bill, as that sum reflected his past experience, and stated further that he was sending three checks for $35.00 each to the office designated for collection. Each check would bear the legend:

"This check is in full payment and satisfaction of the bill of Consolidated Edison Company of New York, Inc., to Mark Arroll, Account [322 N.Y.S.2d  422] Number 26-2726-0191-002 for the period of ____  to  ____ and negotiation of this check constitutes release of any bills or claims of Consolidated Edison Company of New York, Inc., sometimes known as Con Edison, against Mark Arroll."

[66 Misc.2d 818] The letter went on to state that it is the law that the cashing or mere retention of the checks beyond a reasonable length of time constitutes an accord and satisfaction. On September 25, 1970, defendant took the same action with respect to the remaining two bills in dispute, sending a similar letter to the president of the company, and carbon copies to the same offices. Con Edison subsequently replied to defendant's letters, but it merely re-stated in its replies that the meter and the readings therof had been found to be accurate, and that the electricity billed for had actually been consumed. The letters made no mention of and completely ignored the paragraphs advising about the checks. Five checks in the amount of $35.00 each were mailed by defendant to the address designated by Con Edison for the payment of bills. Each check bore the legend previously stated on the back thereof. On the face of each check the words "paid in full" were written, together with an identification of the bill to which it related, the defendant's account number, and a reference to the letter of either December 6, 1969 or September 25, 1970. All five checks were received and deposited and Con Edison has retained the proceeds thereof. Con Edison now seeks the difference between the payments received and the full amounts of the bills rendered. The customer's defense is accord and satisfaction.

After considering all of the competent and credible evidence presented, I am satisfied that the meter and the readings taken thereof by Con Edison were accurate, and that the electricity billed for was actually consumed, since defendant failed to submit any evidence to the contrary. I find, therefore, that the disputed bills reflected the proper charges for defendant's use of electricity. We are concerned, however, with whether or not the defense of accord and satisfaction has been established in the light of the facts and circumstances described.

The law is well settled that where an amount due is in dispute, and the debtor sends a check for less than the amount claimed, and clearly expresses his intention that the check has been sent as payment in full, and not on account or in part payment, the cashing or retention of the check by the creditor is deemed an acceptance by the creditor of the conditions stated, and operates as an accord and satisfaction of the claim (Fuller v. Kemp, 138 N.Y. 231, 33 N.E. 1034; Nassoiy v. Tomlinson, 148 N.Y. 326, 42 N.E. 715; Schuttinger v. Woodruff, 259 N.Y. 212, 181 N.E. 361; Carlton Credit Corp. v. Atlantic Refining Co., 12 A.D.2d 613, 208 N.Y.S.2d 622, aff'd 10 N.Y.2d 723, 219 N.Y.S.2d 269, 176 N.E.2d 837). Con Edison's contention that there was no Bona fide dispute as to the amount due has no merit. As the Court stated in [322 N.Y.S.2d 423] Schuttinger v. Woodruff, supra, in order for the rule to [66 Misc.2d 819] apply, "the debtor must honestly hold the opinion either that he owes nothing or that he is bound only to the extent of paying less than his adversary seeks to exact. * * * The dispute need not rest upon factors arising from sound reasons. The debtor may be wrong in his contention. That he honestly believes in the correctness of his position is enough."

(See also Simons v. Supreme Council American Legion of Honor, 178 N.Y. 263, 70 N.E. 776). It is evident, and I so find, from the testimony and the documents and correspondence offered in evidence, that the defendant honestly and in good faith believed that he owed less than the amount Con Edison claimed. Under the circumstances it cannot be said that a Bona fide dispute did not exist.

In view of the exercise of an honest dispute as to the amount of electricity consumed, a settlement by way of accord and satisfaction would not violate Sections 65(2) or 66(12) of the Public Service Law, which prohibit the electric company from granting preferences to customers.

This brings us to the question as to whether the retention of the proceeds of the checks by Con Edison bound the company to an accord and satisfaction. Evidence was presented by Con Edison that the address designated for mailing payment of bills was a post office box from which all payments were picked up directly by employees of the bank in which the company maintained its account. The company argues that the nature and volume of its operations does not allow for an examination by bank employees of each and every check it receives for language written thereon which could bind it to an accord and satisfaction. What Con Edison is really saying is that because it conducts such a large operation, it should be exempted from the application of well settled principles of law which would bind individuals and all smaller business organizations. I cannot accept this conclusion. To permit Con Edison to follow one set of rules which everyone else is following another would cast an intolerable burden on the orderly functioning of the community. The fact remains that Con Edison accepted the benefits of defendant's checks. Con Edison cannot, by arranging for someone else to accept payment of bills for its own convenience, avoid the consequences of the law.

It should be noted that even if Con Edison had written to defendant and expressly rejected the condition that the checks were to be accepted as full payment, the depositing and retention of the proceeds of the checks would nevertheless operate as an accord and satisfaction. As the court stated in Carlton [66 Misc.2d 820] Credit Corp. v. Atlantic Refining Co., Supra,

"The plaintiff could not accept the payment and reject the condition (citations omitted). It was fully aware of the attempt to satisfy the amount claimed with a lesser payment but despite that it accepted the [322 N.Y.S.2d 424]check with the condition imposed. True, it is stated that there was no intention to accept the check in full satisfaction and protest was registered. However, such protest is unavailing."

(See also Rosenblatt v. Birnbaum, 16 N.Y.2d 212, 264 N.Y.S.2d 521, 212 N.E.2d 37). It is not the creditor's intent that controls. "What is said is overridden by what is done, and assent is imputed as an inference of law” (CARDOZO, Ch. J., in Hudson v. Yonkers Fruit Co., 258 N.Y. 168, 179 N.E. 373).

There is no question that Con Edison was given sufficient notification that the checks were to be considered as payment in full. Defendant's letters to Con Edison's president clearly indicated defendant's intent. In Carlton Credit Corp. v. Atlantic Refining Co., supra, a case quite similar to this one, it was said that:

"The acceptance and negotiation by the plaintiff of the defendant's check constituted an accord and satisfaction. The covering letter to which the check was annexed, itemizing in detail the deductions claimed, makes it clear that the payment made was conditioned upon its acceptance as payment in full for the larger amount claimed by the plaintiff to be due it from the defendant."

The affirmative defense of accord and satisfaction is sustained. Judgment for defendant.

258 N.Y. 168

GEORGE C. HUDSON, Appellant,
v.
YONKERS FRUIT COMPANY, INC., Respondent.

Hudson v. Yonkers Fruit Co., 233 App. Div. 884, reversed.

(Argued December 2, 1931; decided January 5, 1932.)

APPEAL from a judgment, entered July 10, 1931, upon an order of the Appellate Division of the Supreme Court in the third judicial department, reversing a judgment in favor of plaintiff entered upon a verdict and directing a dismissal of the complaint.

Andrew Wright Lent and A. D. Lent for appellant. The facts do not warrant a finding of accord and satisfaction. (Nassoiy v. Tomlinson, 148 N.Y. 326; Schnell v. Perlmon, 238 N.Y. 362; Newburger-Morris Co. v. Talcott, 219 N.Y. 505; Fuller v. Kemp, 138 N.Y. 231; Komp v. Raymond, 175 N.Y. 102; Eames Vacuum Brake Co. v. Prosser, 157 N.Y. 289.)

Albert C. Jordan for respondent. There was an accord and satisfaction and the judgment should be affirmed. (Nassoiy v. Tomlinson, 148 N.Y. 326; Hills v. Sommer, 53 Hun, 392; Whitaker v. Eilenberg, 70 App. Div. 494; Daley v. United States Metal Co., 76 Misc. Rep. 574; Gibble v. Raymond Supply Co., 124 App. Div. 829; Wisner v. Schopp, 34 App. Div. 202; Jones v. Keeler, 40 Misc. Rep. 224; Cleveland v. Toby, 36 Misc. Rep. 320; Chicago Ry. Co. v. Clark, 178 U. S. 367; Schweinler v. Earl, 183 App. Div. 673; Van Almkerk v. National Surety Co., [170] 208 App. Div. 464; Fuller v. Kemp, 138 N.Y. 231; Eames Vacuum Brake Co. v. Prosser, 157 N.Y. 289.)

CARDOZO, Ch. J. Plaintiff, then the owner and in possession of a quantity of apples, requested the defendant to procure a purchaser. This the defendant did, and collected the price. The plaintiff says that the service was to be rendered without charge, a friendly accommodation. The defendant says that there was an express agreement for the payment of a commission at the rate of ten per cent.

The defendant after collecting the proceeds of the sales, sent a statement of the account to the plaintiff, in which items amounting in their total to $1,017.60, ten per cent of the price, were deducted for commissions. With this statement there was sent a check for $3,184.50, the balance ,then due if the deduction was correct. The plaintiff kept the check, but made protest at once that the deduction was erroneous. In an action to recover the amount withheld the jury returned a verdict in favor of the plaintiff, finding thereby that the defendant's service was to be gratuitous. The Appellate Division reversed and dismissed the complaint, holding that the acceptance by the plaintiff of the balance conceded to be his was an accord and satisfaction.

We discover nothing in the record to give support to that conclusion.

The defendant had in its custody money belonging to the plaintiff, collections made by the defendant upon a sale of the plaintiff's apples. It had no lien upon the money, for it had not acted as a factor intrusted with possession. At most it had a counterclaim for the recovery of a commission at the rate of ten per cent. What remained after the deduction of that commission was due to the plaintiff absolutely and at all events. In taking it, he was not taking anything belonging to the defendant. He was taking his own money, his in any [171]  event, whether the deduction of a commission was proper or erroneous. The defendant was more than a debtor. It was an agent holding in its possession the moneys of its principal, and guilty of a tort if it kept them for itself (Baker v. New York Nat. Exchange Bank, 100 N.Y. 31).

Two forms of, accord and satisfaction of unliquidated claims are to be discovered in the books. One is where there is a true assent to the acceptance of a payment in compromise of a dispute, or in extinguishment of a liability uncertain in amount (1 Williston on Contracts § 135; 3 id. § 1851; Am. L. Inst., Restatement of Contracts, draft No. 9, § 36-A; Fuller v. Kemp 138 N.Y. 231, 237; Wahl v. Barnum, 116 N.Y. 87). The other is where the tender of the payment has been coupled with a condition whereby the use of the money will be wrongful if the condition is ignored. Protest will then be unavailing if the money is retained what is said is overridden by what is done, and assent is imputed as an inference of law (3 Williston on Contracts, §§ 1855, 1856; Am. L. Inst., Restatement of Contracts, draft No. 9 § 38-A).

Accord and satisfaction falling within the first of these classes, there plainly was not upon the facts of the case at hand. There had been no dispute between the parties and there was no assent by the creditor, but prompt and emphatic protest. There was not even any compromise. The amount deducted in the accounting did not involve an abatement by the defendant of anything, large or small, from the maximum commission due for its services, if it was entitled to anything. It kept the full commission of ten per cent due according to its witness by force of an express agreement. Such cases as Schnell v. Perlmon (238 N.Y. 362) and Hettrick Mfg. Co. v. Barish (120 Misc. Rep. 673; 209 App. Div. 807) are thus beside the point. A compromise may result where something is abated from a demand which exists, if it musts at all, for a liquidated sum. A compromise may [172] result where a demand, previously unliquidated, is fixed at a given figure, for the right is thus surrendered to make the figure higher. None of these elements of detriment is present in the case at hand. The defendant did not abate a dollar from a liquidated claim. It did not surrender the opportunity to add to the amount of an unliquidated claim. The conclusion is inescapable that there was no genuine assent to an accord and satisfaction, and that the debt was not discharged unless the situation is one in which the law imputes assent, irrespective of the state of mind accompanying the receipt.

The question then is whether the acceptance of the check without approval of the deduction is to be viewed as the breach of a condition lawfully imposed. A debtor paying his own money may couple the payment with such conditions as he pleases (Nassoiy v. Tomlinson, 148 N.Y. 326, 331; 3 Williston, supra, § 1854). The mere fact that he is a debtor does not deprive him of that privilege. If he has the title to the money, he may pick and choose among his creditors, or refusing to pay anyone until coerced by legal process, may keep the money for himself. From this the rule has grown up in connection with the satisfaction of unliquidated demands that one who sends a check to another upon a condition explicitly declared that the demand shall be extinguished or the check sent back unused, may hold the creditor to the condition, however embarrassing the choice (Nassoiy v. Tomlinson, supra; Am. L. lnst., Restatement of Contracts, § 38-A). "Always the manner of the tender and of the payment shall be directed by him that maketh the tender or payment and not by him that accepteth it." (Pinnel's Case, 5 Co. 117, quoted in Nassoiy v. Tomlinson, supra). The use of the check in violation of the condition would be an act of conversion. What is said or written by the creditor may be a refusal to assent. The law imputes to him an assent on the basis of his acts (Williston, supra; Restatement of Contracts, Am. L. lnst., supra).

[173] In the case at hand the condition was not lawfully imposed, if we assume provisionally that it was imposed at all. The defendant was not merely a debtor, paying its own money, which it would have been free to retain or to disburse according to its pleasure. It was an agent, a fiduciary, accounting for money belonging to its principal. No matter whether the deduction of a commission was proper or improper, the balance represented by the check was due in any event. The law will not suffer an agent to withhold moneys collected for a principal's account by the pressure of a threat that no part of the moneys will be remitted to the owner without the approval of deductions beneficial to the agent. Such conduct is a flagrant abuse of the opportunities and powers of a fiduciary position (Britton v. Ferrin 171 N.Y. 235; Morris v. Windsor Trust Co., 213 N.Y. 27). We do not need to determine whether a condition would be lawful if the tender by the agent were to involve some abatement of deductions that might otherwise be his. Sufficient for the decision of this case is the ruling that the condition is unlawful when what is paid is no more than must certainly be due. A payment so made is not within Nassoiy v. Tomlinson and other cases of that type. There, as the court was careful to point out (p. 331), "the money tendered belonged to them [i. e., to the makers of the tender], and they had the right to say on what condition it should be received." The payment in this case is within the doctrine of such cases as Mance v. Hossington (205 N.Y. 33, 36) and Eames Vacuum Brake Co. v. Prosser (157 N.Y. 289). What was paid had no connection with what was disputed and reserved. "The payment of an admitted liability is not a payment of or a confideration for an alleged accord and satisfaction of another and independent alleged liability" (Mance v. Hossington, supra; cf. Hettrick Mfg. Co. Barish, supra, at p. 684, and cases there cited). The doctrine of accord and satisfaction by force of an assent that is merely con [174] structive or imputed assumes as its foundation stone the existence of a condition lawfully imposed. The rationale of the doctrine fails if submission to the alternative would be submission to a crime. A principal does not put himself in the wrong by repudiating a condition where the agent by withholding payment would be guilty of embezzlement.  

Another difficulty confronts the defendant if all the objections thus far considered are overcome. The difficulty remains. that nothing in the form of the account rendered or in the accompanying check amounts to the imposition of a condition that the check must be rejected If any Item of the account is thereafter to be questioned by the creditor. All that the account does is to enumerate the debits and the credits (among which are items of commission) and strike a balance. The creditor is not informed that the deductions claimed by the debtor, the accounting agent, will be deemed to be finally approved by the acceptance of the check. He is not informed that the tender is in settlement of a dispute, for none had yet arisen. He is informed of nothing more than the readiness of his debtor to account to him for money admittedly his own, without the suggestion of a purpose to foreclose controversy as to the deductions if any are disputed. An accord and satisfaction is not so easily established (Eames Vacuum Brake Co. v. Prosser, 157 N.Y. 289; Komp v. Raymond, 175 N.Y. 102; Gaston & Co. v. Storch, 253 N.Y. 68, 71). "The debtor must make it clear * * * that it is taken in full payment" (3 Williston on Contracts, § 1856, p. 3181; Gaston & Co. v. Storch, supra; Rose v. American Paper Co., 83 N.J.L. 707). An accord and satisfaction results only where the act of the creditor in "taking the check would be tortious except on the assumption of a taking in full satisfaction" (Williston, supra; Lovekin v. Fairbanks, Morse & Co., 282 Penn. St. 100, 103). Surely no one would urge that upon any showing here made the acceptance by this principal [175] of his own money, owing from his agent whether the deductions stand or fall, would constitute a tort except on the assumption that the deductions stand approved and would never be assailed.

The trial judge did not err in holding that the burden of proof was on the defendant to establish its right to the allowance of a commission. The plaintiff made out a prima facie case when he showed a sum of money in the possession of his agent, the proceeds of the sale that had been made for his account. If the defendant was at liberty to retain a portion of such fund as compensation for its service, the right to make such a deduction was to be enforced through the medium of a counterclaim. There was no lien upon the fund, for the defendant in this transaction was not intrusted with possession and was not acting as a factor. At the end of the whole case, whatever may have been the inferences to be drawn at intermediate stages from the uncontradicted evidence of a service rendered at request, the defendant was under the burden of satisfying the triers of the facts that the service was not gratuitous, but was to be rendered for a price (1 Williston on Contracts, § 36).

The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed with costs in the Appellate Division and in this court.

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

Judgment accordingly. 

248 N.Y. 86

JENNIE PETTERSON, as Executrix of JOHN PETTERSON, Deceased, Respondent,
v.
GEORGE PATTBERG, Appellant.

Petterson v. Pattberg, 222 App. Div. 693, reversed.

(Decided February 20, 1928; decided May 1, 1928.)

APPEAL from a judgment of the Appellate Division of the Supreme Court in the second judicial department, entered November 18,1927, affirming a judgment in favor of plaintiff entered upon a verdict directed by the court.

Harry G. Anderson and Louis J. Merrell for appellant. Inasmuch as the mortgage had been sold and plaintiff's testator had been apprised thereof before the tender of performance, the offer must be deemed to have been withdrawn; therefore, no contract resulted from such tender. (Butchers Advocate Co., Inc., v. Berkof, 94 Misc. Rep. 299; Lacelles v. Clark, 204 Mass. 362; Stensgaard v. Smith, 43 Minn. 11; Biggers v. Owen, 79 Ga. 658; Smith v. [87] Caughen, 98 Misc. Rep. 746; Levin v. Dietz, 194 N.Y. 376; Detlinfass v. Horsley, 177 App. Div. 143; 224 N.Y. 560; Dickinson v. Dodds, 2 Ch. Div. 463.)

Saul Levine for respondent. The plaintiff established a good cause of action against the defendant. (Lord v. Cronin, 154 N. Y. 172; Mason v. Decker, 72 N.Y. 595; Justice v. Lang, 42 N.Y. 493; Fox v. Hawkins, 135 N.Y. Supp. 245; Jones v. Barnes, 105 App. Div. 287; Willetts v. Sun Mutual Ins. Co., 45 N.Y. 45; White v. Baxter, 71 N.Y. 254; Marie v. Garrison, 83 N.Y. 14; Strong v. Sheffield, 144 N.Y. 395; Beck v. Bonwit, 153 N.Y. Supp. 888; Corn v. Bergmann, 123 N.Y. Supp. 160.)

KELLOGG, J. The evidence given upon the trial sanctions the following statement of facts: John Petterson, of whose last will and testament the plaintiff is the executrix, was the owner of a parcel of real estate in Brooklyn, known as 5301 Sixth avenue. The defendant was the owner of a bond executed by Petterson, which was secured by a third mortgage upon the parcel. On April 4th, 1924, there remained unpaid upon the principal the sum of $5,450. This amount was payable in installments of $250 on April 25th, 1924, and upon a like monthly date every three months thereafter Thus the bond and mortgage had more than five years to run before the entire sum became due. Under date of the 4th of April, 1924, the defendant wrote Petterson as follows:

"I hereby agree to accept cash for the mortgage which I hold against premises 5301 6th Ave., Brooklyn, N.Y. It is understood and agreed as a consideration I will allow you $780 providing said mortgage is paid on or before May 31, 1924, and the regular quarterly payment due April 25, 1924, is paid when due."

On April 25, 1924, Petterson paid the defendant the installment of principal due on that date. Subsequently, on a day in the latter part of May, 1924, Petterson presented himself at the defendant's home, and knocked at the door. The defendant [88] demanded the name of his caller. Petterson replied: "It is Mr. Petterson. I have come to pay off the mortgage." The defendant answered that he had sold the mortgage. Petterson stated that he would like to talk with the defendant, so the defendant partly opened the door. Thereupon Petterson exhibited the cash and said he was ready to pay off the mortgage according to the agreement. The defendant refused to take the money. Prior to this conversation Petterson had made a contract to sell the land to a third person free and clear of the mortgage to the defendant. Meanwhile, also, the defendant had sold the bond and mortgage to a third party. It, therefore, became necessary for Petterson to pay to such person the full amount of the bond and mortgage. It is claimed that he thereby sustained a loss of $780, the sum which the defendant agreed to allow upon the bond and mortgage if payment in full of principal, less that sum, was made on or before May 31st, 1924. The plaintiff has had a recovery for the sum thus claimed, with interest.

Clearly the defendant's letter proposed to Petterson the making of a unilateral contract, the gift of a promise in exchange for the performance of an act. The thing conditionally promised by the defendant was the reduction of the mortgage debt. The act requested to be done, in consideration of the offered promise, was payment in full of the reduced principal of the debt prior to the due date thereof. "If an act is requested, that very act and no other must be given." (Williston on Contracts, sec. 73.) "In case of offers for a consideration, the performance of the consideration is always deemed a condition." (Langdell's Summary of the Law of Contracts, sec. 4.) It is elementary that any offer to enter into a unilateral contract may be withdrawn before the act requested to be done has been performed. (Williston on Contracts, sec. 60: Langdell's Summary, sec. 4; Offord v. Davies, 12 C. B. [N. S.] 748.) A bidder at a sheriff's sale may revoke his bid at any time before the property [86] is struck down to him. (Fisher v. Seltzer, 23 Penn. St. 308.) The offer of a reward in consideration of an act to be performed is revocable before the very act requested has been done. (Shuey v. United States, 92 U.S. 73; Biggers v. Owen, 79 Ga. 658; Fitch v. Snedaker, 38 N.Y. 248.) So, also, an offer to pay a broker commissions, upon a sale of land for the offeror, is revocable at any time before the land is sold, although prior to revocation the broker performs services in an effort to effectuate a sale. (Stensgaard v. Smith, 43 Minn. 11; Smith v. Cauthen, 98 Miss. 746.)

An interesting question arises when, as here, the offeree approaches the offeror with the intention of proffering performance and, before actual tender is made, the offer is withdrawn. Of such a case Williston says: "The offeror may see the approach of the offeree and know that an acceptance is contemplated. If the offeror can say 'I revoke' before the offeree accepts, however brief the interval of time between the two acts, there is no escape from the conclusion that the offer is terminated." Williston on Contracts, sec. 60-b. In this instance Petterson, standing at the door of the defendant's house, stated to the defendant that he had come to pay off the mortgage. Before a tender of the necessary moneys had been made the defendant informed Petterson that he had sold the mortgage. That was a definite notice to Petterson that the defendant could not perform his offered promise and that a tender to the defendant, who was no longer the creditor, would be ineffective to satisfy the debt.

"An offer to sell property may be withdrawn before acceptance without any formal notice to the person to whom the offer is made. It is sufficient if that person has actual knowledge that the person who made the offer has done some act inconsistent with the continuance of the offer, such as selling the property to a third person."

(Dickinson v. Dodds, 2 Ch. Div. 463, headnote.) To the same effect is Coleman v. Applegarth (68 Md. 21). Thus, it clearly appears that the defendant's offer was [86] withdrawn before its acceptance had been tendered. It is unnecessary to determine, therefore, what the legal situation might have been had tender been made before withdrawal. It is the individual view of the writer that the same result would follow. This would be so, for the act requested to be performed was the completed act of payment, a thing incapable of performance unless assented to by the person to be paid. (Williston on Contracts, sec. 60-b.) Clearly an offering party has the right to name the precise act performance of which would convert his offer into a binding promise. Whatever the act may be until it is performed the offer must be revocable. However, the supposed case is not before us for decision. We think that in this particular instance the offer of the defendant was withdrawn before it became a binding promise, and, therefore, that no contract was ever made for the breach of which the plaintiff may claim damages. The judgment of the Appellate Division and that of the Trial Term should be reversed and the complaint dismissed, with costs in all courts.

LEHMAN, J. (dissenting). The defendant's letter to Petterson constituted a promise on his part to accept payment at a discount of the mortgage he held, provided the mortgage is paid on or before May 31st, 1924. Doubtless by the terms of the promise itself, the defendant made payment of the mortgage by the plaintiff, before the stipulated time, a condition precedent to performance by the defendant of his promise to accept payment at a discount. If the condition precedent has not been performed, it is because the defendant made performance impossible by refusing to accept payment, when the plaintiff came with an offer of immediate performance. "It is a principle of fundamental justice that if a promisor is himself the cause of the failure of performance either of an obligation due him or of a condition upon which his own liability depends, he cannot take advantage of the failure." (Williston on Contracts, [86] section 677.) The question in this case is not whether payment of the mortgage is a condition precedent to the performance of a promise made by the defendant, but, rather, whether at the time the defendant refused the offer of payment, he had assumed any binding obligation, even though subject to condition.

The promise made by the defendant lacked consideration at the time it was made. Nevertheless the promise was not made as a gift or mere gratuity to the plaintiff. It was made for the purpose of obtaining from the defendant something which the plaintiff desired. It constituted an offer which was to become binding whenever the plaintiff should give, in return for the defendant's promise, exactly the consideration which the defendant requested. Here the defendant requested no counter promise from the plaintiff. The consideration requested by the defendant for his promise to accept payment was, I agree, some act to be performed by the plaintiff. Until the act requested was performed, the defendant might undoubtedly revoke his offer. Our problem is to determine from the words of the letter read in the light of surrounding circumstances what act the defendant requested as consideration for his promise.

The defendant undoubtedly made his offer as an inducement to the plaintiff to "pay" the mortgage before it was due. Therefore, it is said, that "the act requested to be performed was the completed act of payment, a thing incapable of performance unless assented to by the person to be paid." In unmistakable terms the defendant agreed to accept payment, yet we are told that the defendant intended, and the plaintiff should have understood, that the act requested by the defendant, as consideration for his promise to accept payment, included performance by the defendant himself of the very promise for which the act was to be consideration. The defendant's promise was to become binding only when fully performed; and part of the consideration to be furnished [92] by the plaintiff for the defendant's promise was to be the performance of that promise by the defendant. So construed, the defendant's promise or offer, though intended to induce action by the plaintiff, is but a snare and delusion. The plaintiff could not reasonably suppose that the defendant was asking him to procure the performance by the defendant of the very act which the defendant promised to do, yet we are told that even after the plaintiff had done all else which the defendant requested, the defendant's promise was still not binding because the defendant chose not to perform.

I cannot believe that a result so extraordinary could have been intended when the defendant wrote the letter. "The thought behind the phrase proclaims itself misread when the outcome of the reading is injustice or absurdity." (See opinion of CARDOZO, Ch. J., in Surace v. Danna, 248 N.Y. 18.) If the defendant intended to induce payment by the plaintiff arid yet reserve the right to refuse payment when offered he should have used a phrase better calculated to express his meaning than the words: "I agree to accept." A promise to accept payment, by its very terms, must necessarily become binding, if at all, not later than when a present offer to pay is made.

I recognize that in this case only an offer of payment, and not a formal tender of payment, was made before the defendant withdrew his offer to accept payment. Even the plaintiff's part in the act of payment was then not technically complete. Even so, under a fair construction of the words of the letter I think the plaintiff had done the act which the defendant requested as consideration for his promise. The plaintiff offered to pay with present intention and ability to make that payment. A formal tender is seldom made in business transactions, except to lay the foundation for subsequent assertion in a court of justice of rights which spring from refusal of the tender. If the defendant acted in good faith in making his offer to accept payment, he could not well [93] have intended to draw a distinction in the act requested of the plaintiff in return, between an offer which unless refused would ripen into completed payment, and a formal tender. Certainly the defendant could not have expected or intended that the plaintiff would make a formal tender of payment without first stating that he had come to make payment. We should not read into the language of the defendant's offer a meaning which would prevent enforcement of the defendant's promise after it had been accepted by the plaintiff in the very way which the defendant must have intended it should be accepted, if he acted in good faith.

The judgment should be affirmed.

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

Judgments reversed, etc.

171 N.Y.S.2d 194
5 A.D.2d 230

Solomon GOLDBARD, Plaintiff-Appellant,
v.
EMPIRE STATE MUTUAL LIFE INSURANCE CO., Defendant-Respondent.

Supreme Court, Appellate Division, First Department.
March 4, 1958.

[171 N.Y.S.2d 197] [5 A.D.2d 231] Joseph B. Koppelman, New York City, for appellant.

Vincent N. Donatone, New York City, for respondent.

Before [5 A.D.2d 237] BOTEIN, P. J., and BREITEL, VALENTE, McNALLY and STEVENS, JJ.

BREITEL, Justice.

Plaintiff appeals from a determination of the Appellate Term modifying a judgment rendered in his favor against defendant after trial without a jury in the Municipal Court. The Appellate Term modification, one justice dissenting, reduced plaintiff's recovery from $2,800 to $800. That court granted leave for plaintiff to appeal to this Court.

Plaintiff is the insured under an accident and health insurance policy providing monthly indemnity; defendant is the insurer. There were a number of legal and factual issues [5 A.D.2d 232] passed upon by the trial court in a thoughtful and considered opinion. With one exception the Appellate Term affirmed these findings and conclusions of the trial court. It is with that exception alone that discussion is necessary. The other issues have been considered, but it is not necessary to discuss them, since this Court is in agreement, to that extent, with both the trial court and the Appellate Term.

The issue which divided the Appellate Term is whether plaintiff-insured settled and compromised his claims against defendant-insurer prior to suit, with finality, and, as a consequence, is limited in recovery to the settlement figure of $800. The trial court found that insured was not so limited, but a majority of the Appellate Term disagreed.

It is concluded that the settlement negotiations between insured and insurer did not constitute either a substituted agreement or an enforceable executory accord; and, that therefore, insured is not prevented from pursuing his original claim. Hence, the order of the Appellate Term should, in effect, be reversed and the judgment of the Municipal Court reinstated, except that the latter judgment should be modified by reduction to the sum of $2,600, based on the concession of insured as to when liability under the policy commenced.

[171 N.Y.S.2d 198] Insured is a barber by trade. Before his illness he ran his own one-man shop. In December, 1951 insurer issued its annually renewable policy to insured, who maintained his payments of premiums as required by the policy. In 1955 insured filed claims based upon a fungus hand infection from which he was suffering and which he asserted totally disabled him from engaging in his occupation. If true, he was entitled to monthly indemnity at fixed amounts under the policy. There then ensued a sequence of events in which some payments, vouchered as final, were offered by insurer, which insured refused to accept, believing they were less than that to which he was entitled. Insurer had misgivings concerning the nature of insured's illness and the extent of its disabling character. The parties remained in genuine dispute. In the early fall of 1955 insured made complaint to the State Insurance Department, and this triggered the occurrence upon which the main issue on this appeal is based.

While the disputants were before the department representative, insurer offered to settle the claims for $800, conditioned on a surrender of the policy, with consequent termination of its renewability. Insured, concededly, refused. He was willing to accept the $800, but not to surrender the renewable policy. However, later that day insured telephoned the department [5 A.D.2d 233] representative and asked him to advise insurer that he would accept the $800, without requiring that the policy be renewed. The department representative relayed the call. Insurer thereupon wrote insured a letter asking him to call at the office with his policy for surrender and advising, in effect, that he would then be paid the $800 upon signing a release. Insured ignored the letter, and in due time started this action.

Insurer contends that on the facts related there was a "settlement and compromise" which limits insured's right of recovery. Insured, on the other hand, contends that there was no more involved than a new offer by insurer, not accepted by insured, or, at best, an executory accord which is unenforceable for lack of a writing as required by section 33-a of the Personal Property Law.

There is no magic to the words "settlement" or "compromise" in deciding whether a disputed claim has been discharged with such finality that no action may be brought upon it, but only upon the later agreement. As a matter of fact, the words are used interchangeably to describe either a subsequent agreement which discharges an earlier agreement, that is, a substituted or superseding agreement (Morehouse v. Second Nat'l Bank, 98 N.Y. 503), or an executory accord which does not (Larscy v. T. Hogan & Sons, 239 N.Y. 298, 146 N.E. 430). Consequently, one does not advance the solution of any problem in this area by attaching either label, or presuming to conclude the discussion by making an initial determination that a negotiation has or has not achieved a "settlement" or a "compromise". (6 Corbin, Contracts, § 1268.)

[171 N.Y.S.2d 199] The question always is whether the subsequent agreement, whatever it may be, and in whatever form it may be, is, as a matter of intention, expressed or implied, a superseder of, or substitution for, the old agreement or dispute; or whether it is merely an agreement to accept performance, in futuro, as future satisfaction of the old agreement or dispute. The literature on the subject is voluminous. Restatement, Contracts, §§ 417-419; 6 Williston, Contracts, Rev. ed., § 1838, et seq., but esp., §§ 1841, 1846, 1847; 6 Corbin, Contracts, supra, § 1268, et seq., esp. § 1293, at pp. 148-149; 1937 Report N.Y.Law Rev.Comm., p. 210 et seq.; e. g., Yonkers Fur Dressing Co. v. Royal Ins. Co., 247 N.Y. 435, 446, 160 N.E. 778, 781; Moers v. Moers, 229 N.Y. 294, 128 N.E. 202, 14 A.L.R. 225; Kromer v. Heim, 75 N.Y. 574; Atterbury v. James F. Walsh Paper Corp., 261 App.Div. 529, 26 N.Y.S.2d 43, affirmed 286 N.Y. 578, 35 N.E.2d 928; Ostrander v. Ostrander, 199 App.Div. 437, 191 N.Y.S. 470. There is, then, no simple rule to be applied, as a matter of law, to determine in all given situations whether the subsequent agreement extinguishes the old.

[5 A.D.2d 234] Nevertheless, there are principles which occasionally assist in the determination of the question of intention where settlement negotiations have consummated in an agreement. The Restatement has described these as giving rise to presumptions. (See, Restatement, Contracts, supra, § 419, comment a.) The New York Law Revision Commission takes the same view (1937 Report, supra, p. 213). This Court recently followed a similar analysis (Blair & Co. v. Otto V., 5 A.D.2d 276, 171 N.Y.S.2d 203).

There has arisen, however, a certain class of cases which have given color to the view that some settlements, are, as a matter of law, superseding or substituted agreements discharging the old obligations, without involving the determination of intention. Nothing said, or held, in those cases, however, warrants such a conclusion. In each there were circumstances pointed to, at least impliedly, as grounding the findings of intention to supersede the old agreement with the new. See, e. g., Langlois v. Langlois, 5 A.D.2d 75, 169 N.Y.S.2d 170; cf. Matter of Shaver's Estate, 282 App.Div. 816, 122 N.Y.S.2d 578; Moers v. Moers, supra, 229 N.Y. 294, 128 N.E. 202, supra; Ostrander v. Ostrander, supra, 199 App.Div. 437, 191 N.Y.S. 470. The persistent principle to be applied is that of determination of the intention of the parties, as objectively manifested (Reilly v. Barrett, 220 N.Y. 170, 115 N.E. 453; Matter of Campbell's Estate, 256 App.Div. 693, 11 N.Y.S.2d 503, affirmed 281 N.Y. 685, 23 N.E.2d 17; Atterbury v. James F. Walsh Paper Corp., supra, 261 App.Div. 529, 26 N.Y.S.2d 43, affirmed 286 N.Y. 578, 35 N.E.2d 928, supra).

Sometimes, of course, the matter of intention may be determined from documents exclusively, in which event the conclusion may be drawn, as a [171 N.Y.S.2d 200] matter of law, by the court (e. g., Moers v. Moers, supra, 229 N.Y. 294, 301, 128 N.E. 202, 204). At other times, the determination of intention will depend upon conversation, surrounding circumstances, or extrinsic proof, in addition to documentation, if any exist, in which event the issue is one of fact, for the trier of the facts, be it court or jury (e. g., Katz v. Bernstein, 236 App.Div. 456, 260 N.Y.S. 13; 6 Corbin, Contracts, supra, § 1293, at pp. 148-9).

The complex of facts—conversations, circumstances and documents, if there be any—presents the basis for making inferences. Both experience and logic suggest that some recurring factors are more indicative of intention than others. These have given rise to what have been earlier described as presumptions. So it is that the courts hasten to find an intention to have a substituted or superseding agreement discharging the old where the settlement has resulted in formalized papers with unequivocal language (as in Blair v. Otto V., supra), or in formalized or deliberate proceedings in court during the pendency of an action (see, Langlois v. Langlois, supra, and the cases cited therein). These, of course, are not the only relevant recurring factors, or the only bases for presumptions; nor [5 A.D.2d 235] would it be true to suggest that the search for evidentiary inferences has not been influenced by various policy considerations. See, Restatement, Contracts, supra, §§ 418, 419, incl. comments; 6 Williston, Contracts, Rev. ed., supra, § 1847; 6 Corbin, Contracts, supra, §§ 1268, 1271, 1293.

When, however, it is concluded that the settlement negotiations have resulted in no more than in an agreement to accept a future performance, albeit by a promise presently made, in future satisfaction of the old obligations—in this state especially—another principle of law intervenes. In New York, an executory accord not fully performed was, prior to the enactment of section 33-a of the Personal Property Law, unenforceable. It was not even available as a defense. This was the rule at common law. 1937 Report, N.Y.Law Rev.Comm., supra, pp. 211-217; Restatement, Contracts, supra, § 417, N.Y. annotations. Since the enactment of section 33-a an executory accord may be enforced, provided it is in writing and signed by the party to be held. If it remain unperformed, the promisee may elect to sue on the accord or the original obligation.

On this analysis, one does not reach the requirements for a writing provided in section 33-a, unless one has first found that the subsequent agreement is not one that supersedes or substitutes for the old one, and, therefore, extinguishes it. Such a subsequent agreement need not be in writing, unless, of course, a writing is required by some independent statute, such as a statute of frauds. But, if it is determined that the intention of the parties, expressed by their conduct or words, is that the subsequent agreement was designed to do no more than result in [171 N.Y.S.2d 201] agreement that a future performance, albeit of a promise presently made, would be accepted as future satisfaction of the old obligations, then section 33-a comes into play and the subsequent agreement is unenforceable unless it is in writing and signed.^[1]

Applying these principles to the facts in this case, the question is whether there was a substituted agreement, an executory accord, or no contract at all.

[5 A.D.2d 236] In the first place, we have a series of distinctly informal conversations with bargaining give and take. At no time are the bargainers, and the intermediary, agreeing on one occasion and in one place as to what the settlement should be. Instead, there was a triangular operation the purportedly final terms of which were never expressed in the presence of all. Secondly, at no point do the conversations and communications converge on the precise terms, time or place for consummation. These were the facts that impelled the trial court to find no contract at all.

Thirdly, and crucially, there is nothing in the record which would support an inference that insured ever intended, let alone agreed, to accept only a promise of $800 to be paid in the future (as distinguished from an actual payment here and now) as a present discharge and satisfaction of the insurer's obligations.

Taking the three enumerated elements outlined above, they do not suggest the finality, the deliberateness, or the occasional formalization with which one associates substituted agreements and the specific intention to discharge pre-existing obligations. They do not attain the considered resolution of the entire dispute between the parties that moved the court in Moers v. Moers, supra, 229 N.Y. 294, 128 N.E. 202, or in Langlois v. Langlois, supra, 5 A.D.2d 75, 169 N.Y.S.2d 170, to find a superseding agreement. Indeed, they fall far short of the circumstances which the court held insufficient to infer a superseding agreement in cases like Atterbury v. James F. Walsh Paper Corp., supra, 261 App.Div. 529, 26 N.Y.S.2d 43 affirmed 286 N.Y. 578, 35 N.E.2d 928.

Generally, it is assumed that one does not surrender an existing obligation for a promise to perform in the future (Moers v. Moers, supra, 229 N.Y. 294, 300, 128 N.E. 202, 203; see 6 Williston, Contracts, Rev. ed., supra, § 1847, where it was said: "it is not a probable inference that a creditor intends merely an exchange of his present [171 N.Y.S.2d 202] cause of action for another. It is generally more reasonable to suppose that he bound himself to surrender his old rights only when the new contract of accord was performed"; 6 Corbin, Contracts, supra, §§ 1268, 1271, 1293). The Restatement would seem to have taken a somewhat more advanced position (Restatement, Contracts, supra, § 419^[2]), but it is explicitly stated to be merely a guide for interpretation in case of doubt. So treated it is akin [5 A.D.2d 237] to a canon of construction, rather than a presumption that a court is bound to follow in the absence of proof to the contrary. Considering the inchoate and staccato negotiations that ensued in this case, culminating in a relayed telephone call, there is no warrant for inferring the making of a superseding agreement which thereby discharged insured's claims and his renewable policy.

Assuming then, although the trial court found to the contrary, that there was a contract, the factors present in this case, whether subsumed under some rule of interpretation or examined on an ad hoc basis, suggest that if any settlement was reached it was not a superseding or substituted agreement but at best only an executory accord. (Actually there is still another possibility applicable to this case, but it is not one urged here: the conversations which took place may have never achieved the finality of concluding a settlement. All negotiations in which parties verbally, and especially, if orally, concur on a settlement are not necessarily intended, instanter, to be binding. Just as often, in quite informal settings, the parties do no more than agree to agree, and consummation awaits some degree of implementation. This, of course, is also merely a matter of intention. 17 C.J.S. Contracts § 49; cf. Sanders v. Pottlitzer, Bros. Fruit Co., 144 N.Y. 209, 39 N.E. 75, 29 L.R.A. 431.

And, of course, on the principles earlier discussed, if all that resulted from the telephone conversations and the letter written by insurer was an executory accord, it was not cognizable under New York law for lack of a writing as required by section 33-a of the Personal Property Law.

Accordingly, the determination of the Appellate Term modifying the judgment rendered in favor of plaintiff against defendant in the Municipal Court by reducing the recovery from $2,800 to $800 should be modified, on the law and on the facts, to reinstate the judgment of the Municipal Court, except as modified, in accordance with the concession of plaintiff, by reduction to the sum of $2,600, together with costs and disbursements of this appeal to plaintiff-appellant.

[171 N.Y.S.2d 203] Determination of Appellate Term unanimously modified on the law and on the facts to reinstate the judgment of the Municipal Court, except as modified, in accordance with the concession of plaintiff, by reduction to the sum of $2,600, together with costs and disbursements of this appeal to plaintiff-appellant. Settle order.

[1] Rationalists have been disturbed by the distinction in enforceability between a substituted contract and an executory accord, and, more recently, by the requirement for a writing in order to enforce an executory accord and the absence of such a requirement for a substituted agreement. The reasons are historical, and the demarcation remains clear. 1937 Report, N.Y. Law Rev. Comm., supra; 6 Williston, Contracts, supra, Rev. ed. § 1838, et seq.; 6 Corbin, Contracts, supra, § 1271; Langlois v. Langlois, supra, 5 A.D.2d 75, 169 N.Y.S.2d 170. The distinction, perhaps, can be supported, today, by the differences in deliberateness and extent of negotiation that may be expected to occur before the conclusion of an executory accord and a substituted agreement. This case may be illustrative of occasion for the distinction.

[2] "Where a contract is made for the satisfaction of a pre-existing contractual duty, or duty to make compensation, the interpretation is assumed in case of doubt, if the pre-existing duty is an undisputed duty either to make compensation or to pay a liquidated sum of money, that only performance of the subsequent contract shall discharge the pre-existing duty; but if the pre-existing duty is of another kind, that the subsequent contract shall immediately discharge the pre-existing duty, and be substituted for it."

For applications of this rule in New York, see Restatement, N.Y. Annotations, to this section. See also 6 Corbin, Contracts, supra, § 1271.

77 S.W.2d 642

BOSHART
v.
GARDNER et al.

No. 4-3630.
Supreme Court of Arkansas.
January 7, 1935.

Appeal from Howard Chancery Court; Pratt P. Bacon, Chancellor.

Action by Lewis H. Boshart against Joe B. Gardner and others for foreclosure. From a decree limiting plaintiff's recovery to 50 per cent. of the debt and interest, plaintiff appeals.

Modified and affirmed conditionally.

E. L. Carter, of Little Rock, for appellant.

Geo. R. Steel, of Nashville, for appellees.

JOHNSON, Chief Justice.

On December 1, 1919, appellees Gardner and wife executed and delivered to the Conservative Loan Company their note for the sum of $1,500 and interest and to secure the due payment thereof executed a real estate mortgage upon certain lands situated in Howard county, Ark. Thereafter, the note and mortgage securing same, in regular course of business, was transferred and assigned to appellant, Boshart. Subsequently, in 1929, a renewal agreement was effected between the mortgagors and the holder and owner of said mortgage and note whereby the maturity of the debt was extended until 1931 and subsequent years. Neither the principal sum nor the interest thereon was paid by appellees at maturity, as provided in the renewal agreement. On May 8, 1933, appellant submitted to appellees, by letter, a proposition of settlement of the debt as follows:

"Mr. Joe B. Gardner,

"Dear Sir: I am sending Mr. E. L. Carter the mortgage note which I hold on your place and in order to get this settled up I will take fifty per cent of the face of the mortgage if you can get a Federal loan and pay it up, or from some other source. Please let me know what you wish to do. Trusting you will find it convenient to do this, I am.

"Sincerely yours, L. H. Boshart."

And on May 17, 1933, appellees wrote appellant the following letter in response to his proposition of settlement:

"Center Point, Ark. 5-17-33

"L. H. Boshart, Esq., Lowville, N.Y.

"Dear Sir: Your very kind letter of recent date has been received and contents noted. In answer will state that I thank you for the kind offer to discount my paper fifty per cent for the cash. I intend trying for a Federal Loan at once. Do not see why I should not be successful in securing a loan unless the laws of Ark. regarding deficiency judgments should preclude my getting a loan. If the Supreme Court which is soon to pass on the Act passed by the Legislature of 1933 [643] forbidding deficiency judgments in foreclosure suits does not declare the Act invalid, then in that event, the Gov. will call a special session of the Legislature to repeal the Act. In any event I intend to make a great effort to meet your generous offer. I will advise you.

"Yours truly, Joe B. Gardner."

On July 5, 1933, appellant instituted this action in foreclosure, and a receiver was prayed and appointed thereby putting at an end the negotiations heretofore adverted to. Appellees answered appellant's complaint in foreclosure by asserting the novation of the contract as heretofore stated, and, upon trial of the cause, the chancellor found the facts to be as contended by appellees, and directed that appellant was only entitled to judgment against appellees for the sum of 50 per cent. of the debt and interest and denying any recovery for taxes paid. It was further decreed that, if this sum be not paid by July 1, 1933, the mortgaged lands should be sold in satisfaction thereof, and from this decree comes this appeal.

The testimony introduced in said cause is not in material conflict and may be summarized as follows: That immediately after the correspondence heretofore referred to appellees made oral application to the local federal agency for a loan sufficient to pay the amount submitted by appellant, but that, due to local conditions over which neither appellant nor appellee had control, the loan was not finally approved until the early part of 1934. Appellees expended a substantial sum of money in prosecuting the application for this loan before the federal agency. A redemption certificate was introduced by appellant showing that he had expended $19.12 for past-due taxes against the mortgaged lands prior to the decree.

Appellant's first contention is that appellees' letter of May 17, 1933, was not an acceptance of his proposition of May 8, 1933, but we cannot agree with this contention. The fair interpretation of this correspondence is that appellant offered to accept 50 per cent. of the face value of the mortgage, if paid in cash within a reasonable time thereafter, and that appellees accepted this proposition as outlined in appellant's letter. It is perfectly apparent that appellant knew that appellees had no ready funds when the offer was made; therefore, he suggested the course for appellees to pursue in procuring the money to pay the debt. This correspondence constituted an enforceable contract between the parties subject only to due performance by appellees within a reasonable time. Furthermore, this record reflects that appellant on July 5, 1933, instituted this foreclosure proceeding against appellees, thereby repudiating his offer of May 8, 1933, without giving appellees any notice or opportunity to pay the debt as theretofore agreed upon by the parties, and this action of appellant was amply sufficient to excuse appellees from further immediate negotiations in procuring a loan as contemplated by the parties.

Appellant next contends that, although his offer of settlement was accepted by appellees, such contract is not an enforceable contract because not supported by a sufficient consideration. The authorities are in accord on the proposition that contracts of novation are not different from other contracts and need be supported only by a good and sufficient consideration and even a loss or an inconvenience to the promisee may suffice. 20 R. C. L. 367. Moreover, the testimony shows, and the chancellor so found, that appellees, relying upon said contract of novation, expended a substantial sum of money in prosecuting his application for a loan in compliance with appellant's suggestions. Therefore, it would be inequitable to permit appellant to repudiate his offer of settlement when appellee is now ready for consummation.

It follows, therefore, that the chancellor was correct in determining that there was a valid contract of novation between the parties to this action, and his decree in this behalf must be affirmed. The chancellor was in error, however, in refusing to allow appellant judgment for the taxes paid by him on the mortgaged lands. The decree will be modified so as to allow appellant judgment for $19.12 additional for taxes paid.

The chancellor was also in error in treating appellant's offer and appellees' acceptance thereof as a consummated novation. The offer and acceptance should be treated as executory and continuing for such reasonable length of time as may afford appellees a reasonable opportunity of procuring a loan and paying the debt.

If appellees will pay into the registry of this court within sixty days from this date 50 per cent. of the mortgage debt and interest as decreed by the chancellor, plus $19.12 taxes, the decree will be affirmed; otherwise the cause must be reversed and remanded, with directions to enter a decree in favor of appellant for the full amount of his debt, interest and taxes paid.