American Surety Co. v. Woods

105 F. 741 | 5th Cir. | 1901

SHELBY, Circuit Judge,

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

The question to be considered is the charge of tbe court on the measure of damages. The instruction, in effect, was that the measure of damages was the difference between the contract price and what ir. would have cost to finish the sewers, and that, to recover this difference, it was not necessary for the sewerage company to complete the work. “Where the object of the contract is anything but the payment of money, the damages due to the creditor for its breach are the amount of the loss he has sustained and the profit of which he has been deprived,” under certain exceptions and modifications not material to this case. Rev. Civ. Code La. art. 1934. This statute merely undertakes to secure full indemnity to the aggrieved party. Reading v. Donovan, 6 La. Ann. 491. Article 2709 is the same in legal effect. To authorize recovery under the statute, two things must concur, — the inexecution of the obligation, and damages to the party complaining. This statute does not conflict with the common law, for by its rule there must be, to authorize a recovery, a breach of the contract, which causes damages. If the breach only is shown, there could be only a verdict for a nominal sum. Sedgw. Meas. Dam. (8th Ed.) § 98. When a contractor is discharged unlawfully, he can, in a suit for damages, recover his outlay and the probably certain profits he would have made if he had been permitted to proceed with the work. His profits in such case would have been a gain he would have received but for the unlawful act of his employer. The courts uniformly sustain the right to recover profits in such cases. U. S. v. Behan, 110 U. S. 338, 4 Sup. Ct. 81, 28 L. Ed. 168; Railroad Co. v. Howard, 13 How. 307, 14 L. Ed. 157; Masterton v. Mayor, etc., 7 Hill, 61. It is argued from this proposition that, if the contractor wrongfully abandons the contract and refuses to do the work he has contracted to do, the employer, in a suit for damages for breach of the contract, may recover the difference between the contract price and the sqm which it would have cost the employer to have the work done, although the employer in fact does not have the work done. To apply the principle to this case, the contention is that, as Stewart & McDermott agreed to finish the sewers for sums aggregating $739,500, and then abandoned the work, and as it would have cost'the sewerage company $912,099.09 to complete the work, the receiver of the sewerage company is entitled to recover the difference between the contract price and what it would-have cost to finish the work, to wit, $172,599.09, though in fact the work was riot finished, and no money actually expended to finish it. By the terms of the contract sued on, the contractors were to furnish all necessary labor to excavate and build the sewers. The sewerage company was to furnish at its own cost all material of every kind required to construct the sewers. We must keep in mind, therefore, that the contract on the part of the contractors was one to labor or to furnish labor. The question involved here can be made clear by an illustration of a suit on a short contract to do wprk. A merchant employs a clerk, by written contract, to work for one year at $50 a month, payable monthly. The clerk works two months, and without causé repudiates the contract and quits, receiving only the two months’ pay. The merchant sues for damages for breach of the contract. The proof shows that he could not get another clerk to do the same work for the succeeding 10 months for less than $100 a month. But it also appears that he did not employ any one to take the clerk’s place. Can the merchant recover $500, — the difference between the contract price and the cost of securing another clerk, that he never employed? Does the fact, if it be conceded as a fact, that the clerk would have lost $500 by working for less than his services were worth, show that the contract was worth that sum to the employer, and entitle him to recover a sum not paid, but which would have been paid if he had employed a substitute?

It is contended that as the contractor, in the case of a breach of the contract by the employer, can recover his lost profits, and that-he would be permitted to prove what it would cost to complete the work he was prevented from doing, and, where it cost less than the contract price, could recover the difference, as the profit which he would have made; that, in all fairness, the same rule should apply when a breach of the contract is made by the contractor. There are several considerations making differences in the two cases. When the contractor is stopped from work by the owner or employer who is to furnish tne iriaterials, he cannot go on and finish the work. He cannot, by completing the work himself or by others, show just what his profit, if any, would be. When he sues for damages, therefore, he must,-to recover.profits, prove, if he can, what he would have made had he not been' stopped. He is prevented from finishing the work, and such evidence is necessary to show what gain or profit to him was in the contract. On the other hand, when the contractor abandons the work the owner or employer is left in possession. He is free to employ others to finish the work. The contract often, as in this case, provides that he may employ others to finish it if the contractor quits. He therefore usually has it in his power by employing others to complete the work and ascertain exactly the amount of his damages. The contractor, when' stopped or unlawfully discharged by the breach of the contract by the employer, has not this power. For the breach of a contract the in-, jured party is entitled in a suit for damages to receive compensation-for his loss, — compensation and nothing more. “Damages are given as a compensation, recompense, or satisfaction to the plaintiff for any> injury actually received by him from the defendant. They should be precisely commensurate with the injury, — neither more nor less, — and this whether it be to his person or estate.” Dow v. Humbert, 91 U. S. 294, 299, 23 L. Ed. 370; 2 Greenl. Ev. § 253. The contractor or builder stopped from his work by the breach of the contract committed by his employer has clearly lost the profit that he would certainly have made by the completion of the work. Can it be said that the employer who has obtained a contract securing services at cheap rates, when the contractor refuses to do the work, has certainly lost the difference between the contract price and the cost of having the work finished, when the employer does not have the work finished? Is this difference a certain gain or profit or value that the employer has lost?. His loss would be certain, we think, only in the event he had the work-done at a cost greater than the contract price. The contention that the measure of his damages is the difference between the contract-price and a greater price which he has never paid must be based on-the erroneous theory that the contract is necessarily worth to him the sum above the contract price that it would cost the contractor to finish-the work. The fact that the contractor would lose a fixed sum by-completing the work does not show that the employer loses that sum by the failure of the contractor to finish it. If thie contractor stops' the work, and the employer does not complete it, it cannot be said he has been damaged what the former would harm lost had he not stopped the work. When the contractor breaks his contract he' is liable to Ms employer for the amount the employer is damaged, but it does not follow that he is liable for the amount that the contractor saved by his abandonment of the contract. It is a mistake, we think, to assume that whatever the contractor saved by stopping the work was lost by the employer who does not complete it.

The precise legal question under discussion was decided in the case, of Hunt v. Railroad Co. (C. C.) 36 Fed. 481. In that case a counterclaim was filed in which it was claimed that the defendants will be compelled to pay out large sums of money in excess of the contract price to complete the work that the plaintiff undertook, and in so doing would be put to a large amount of trouble and expense, to defendant’s damage ¶100,000. In deciding the motion to strike out this item of damages from the counterclaim, Judge Deady said:

“The damages claimed on account of the estimated difference in the cost of constructing the road by the defendant and the contract price are, in my judgment, too uncertain to -be allowed. It can only be conjectured what the cost of constructing the road some time in the future will be. Owing to the fluctuations in the price of labor and materials, it may cost more or less to construct the road in 1888-89 than in 1887-88. Besides this, they are contingent. The defendant may never construct the road, and until it does, and necessarily at a greater cost than the contract price, it cannot be said to have sustained any damage by the breach.”

It seems to us that the conclusion of the court in this case was correct, and that, whatever other damages may have been sustained, it cannot be said, before the work has been completed at a greater cost, that the injured party has sustained damages to the amount of the difference between the contract price and the cost of completing the work. In the absence of legal defense the employer can, of course, recover damages for a breach of the contract of employment by the employé. Where the employé or contractor without legal cause abandons the work, unfinished, the right of the employer to sue for the breach of the contract is not dependent on his completing the abandoned work. He may sue at once and recover of the employé or contractor such damages as under legal rules he can show he has sustained. But when the employer does not incur the expense of completing the abandoned work, and determines not to finish it, the sum that the contractor would have lost had he complied with the agreement and finished the work, or the difference between the contract price and the cost of completion, cannot be taken as the measure of damages.

Counsel for the defendant in error have shown great industry and ability in presenting argument and precedents claimed to be analogous; but, with all their research, no case is found where an employer who had not completed the work was allowed, in a case like this, to recover the difference between the -contract price and what it would have cost to finish the work. The case mainly relied on to sustain the charge of the court as to the measure of damages is Kidd v. McCormick, 83 N. Y. 391. That case, we think, does not sustain the contention of the defendant in error. Kidd sold to McCormick certain lots,-and took a mortgage on them for the purchase money; McCormick agreeing to build specified houses on the lots within a fixed time. McCormick began to build the houses, but failed to build them within the time agreed upon in the contract. He finally abandoned the work altogether. Kidd then foreclosed the mortgage, and there was a deficiency of several thousand dollars. For this deficiency he sued McCormick and other defendants. We understand from the opinion that in fact the plaintiff completed the houses after the work was abandoned by the defendants. We find this statement in the opinion, on page 399:

“It was the duty and the interest of the plaintiff to mitigate the damages therefrom as much' as he could. To that end he took possession of the work and finished it to availability.”

The part of the opinion which is quoted as sustaining the contention of the defendant in error is as follows:

“He has a right to a house as good: as that, which the defendants agreed to furnish, and Ms damages is the difference between the value of the house furnished and the house as it ought to have been furnished. One kind of testimony by which that difference may be known is that of experts, saying what would have been the value of the one, and what is the value of the other. Another kind of testimony is that of experts, — what it would cost to complete the unfinished house up to the mark of the contract. Another kind is, when the house has been in fact finished up to that mark, what it did in fact cost to finish it. But these ways all lead to the same end, — what is the difference in value between the unfinished house and a house had it been finished as agreed upon. And this is to be observed of the last-named kind of testimony: First, that the plaintiff is not under obligation to go on and finish the house.”

It will he observed that the court states that “his damages is the difference between the value of the house furnished and the house as it ought to have been furnished.” It is not held that the measure of damages is the difference between the contract price and what it would have cost to finish the house. It is stated, however, that the testimony of experts would be admissible to show what it would cost to complete the unfinished house up to the mark of the contract. As the houses were in fact completed, the observation that the plaintiff was under no obligation to go on and finish them was unnecessary to the decision of the case. And this remark is not used as controlling the question of the measure of damages, but it is made in reference to the admissibility of evidence to prove damages.

There are other reasons for our conclusion, based on the nineteenth section of the contract, “the substance of this section is that, if the contractors delayed or failed to do the work, the sewerage company could take charge of it and finish it. The company is authorized to charge the expense of labor to the contractors. Bueh cost is to he paid out of the money due to the contractors or to become due by the contract. If the expense of doing the work was less than the sum that would he due and payable under the contract, the contractors were to receive the difference; and, if the expense was greater, the contractors should pay the amount of such excess. It is clear, therefore, that the parties to the contract anticipated that the contractors might not finish the work, and provided for the measure of damages on the completion of the work by the sewerage company at a cost greater than the contract price. In article 1934 of the Revised Civil Code of Louisiana it is declared that, “when the debtor lias been guilty of no fraud or bad faith, he is liable only for such damages as were contemplated, or may reasonably be supposed to have entered into the contemplation of the parties at the time of the contract.” In discussing the question of damages the common-law authorities frequently speak of them as either proximate or remote, and it is only the former that are allowed to be recovered, because it is said they are such as were in the contemplation of the parties to the contract. Hadley v. Baxendale, 26 Eng. Law & Eq. 398. In Goodloe v. Rogers, 10 La. Ann. 631, construing this statute, the court said that “when there is no:l>ad faith or fraud the obligor is liable only for damages that may reasonably be supposed to have been contemplated by the parties at the time of the contract.” In this respect, as was said in tbe case last ‘cited, “the doctrine of the civil and common law is not materially different.’? Tbe case of Hunt v. Railroad Co. (C. C.) 36 Fed. 481, involved tbe construction of a contract containing a similar provision. On this point Judge Deady said:

“The contract gave the defendant the right whenever, in the judgment of its general manager, the work was delayed so as ‘to imperil’ its completion within the time limited, ‘to assume entire control of the work’ and complete it, and ‘any outlay so incurred by the defendant in excess of the contract price of the work shall be a charge against any balance’ due to the contractor for '¡work done under the contract. This provision in the contract indicates plainly that the parties did not contemplate the payment of any damages for the delay or failure to construct the road until it was ascertained by the completion of .the same what amount, if any, it cost in excess of the contract price.”

i This provision of the contract cannot be ignored in deciding this .question. The provision seems to have been made for the benefit of both parties. It gave to the sewerage company the right and power to take charge of the sewers and finish them on account of the delay ‘or failure of the contractors. On the other hand, it secured to the contractors any sum that might be left of the unpaid contract price after the sewerage company had paid for the completed work. It also fixed and limited their liability for damages on account of their failure to finish the work, so far as this item of damages is concerned, to such excess as the sewerage company would have to pay over the contract price. This clause of the contract, conceding a different rule to prevail in its absence, rescued the case from the uncertain and speculative control of expert witnesses, and applied to it the practical test 'of actual cost. This secured to the contractors and their surety a valuable right. , They should not be deprived of it. From the contract in this case, having due regard to section 19 of it, we do not think it can “reasonably be supposed” that the parties contemplated that for a failure by the contractors to finish the work they were to be held liable for any outlay which might be required to complete it, before the sewerage company was at any expense on that account. The judgment of the circuit court is reversed, and the case remanded, with direction to grant a new trial.