52 F. 37 | 2d Cir. | 1892
This is an appeal from a final decree rendered by the circuit court for-the southern district of New York, which
“Ninth. If at any time the pecuniary responsibility of the party of the second part becomes so impaired as not to be sufficient to enable the party of the first part to safely transact their business in said territory through them, then this contract may be abrogated, provided that the question of the aforesaid pecuniary responsibility of the party of the second part must first be determined by the board of arbitration hereinafter named.”
If the Cleveland Company sold its machinery within the specified territory, it was to pay the Brush Swan Company the stipulated discount or commission thereon, which thus became, as a rule, the exclusive purchaser from the manufacturer of its apparatus for use within such territory. It and the manufacturer had the exclusive right to sell, and it could be therefore styled an agent, but it was not an agent upon a delcredere commission; its contracts with its customers were contracts to furnish an entire plant, and it bought like any other purchaser from the Cleveland Company upon its own credit. On October 27, 1887, the Cleveland Company declared the contract abrogated and annulled, and refused to deliver apparatus to the Brush Swan Company, or to fill its orders. To compel a specific performance of the contracts this suit .was thereafter instituted by the Brush Swan Company.
The decision as to the propriety of the defendant’s act in annulling the contract turns upon questions of fact, which relate to the extent of a modification of the conditions of the original agreement in regard to the
When the Brush Swan Company entered into its contract relations with the Cleveland Company, it did so with high expectations of commercial success from a new storage battery to be brought out by the Cleveland Company, which it was expected would be efficient both in arc and in incandescent lighting. These expectations were based upon the confidence and the prophecies of the Cleveland Company; contracts were entered into upon faith therein, but the battery was commercially a failure, and Mr. Brush turned his attention to other mechanism for incandescent lighting, which was not perfected until June 1, 1885. Meanwhile, the Brush Swan Company’s business had waned in consequence of this failure, and its debts had increased until it owed the Cleveland Company about $107,000, and about $7,600 to other creditors. Its assets were nominally about $176,000. Their real value did not appear. The two corporations, on June 15, 1885, agreed upon a settlement by which the Cleveland Company took these assets and the Brush Swan’s notes for $17,500, which were subsequently paid, discharged its own debt, and agreed to pay the other outstanding debts. This left the Brush Swan Company with a debt of $17,500 and its material of about $4,000 in value on hand, and its contracts with the Cleveland Company, which were unaltered.
In the summer and fall of 1885, friction took place between the two companies in regard to the amount of discount and the time of payment for purchases. The Brush Swan Company was in a limping financial condition, as sufficiently appears from the letter dated November 4,1885, of Col. Strong, its president. An interview between the presidents of the two companies took place on December 5, 1885, which resulted in a verbal modification of the contract. The terms of this alteration are in dispute. Mr. Spear, the bookkeeper of the Brush Swan Company, who is conceded to be an honest witness, and to whom the alleged modification was orally communicated by the two presidents, says that, as to all apparatus furnished by the Cleveland Company for the erection of new plants, it was to wait for payment until the Brush Swan’s customer had actually paid, though the customer’s term of credit might have expired. The Cleveland Company claims that the terms of payment were to be modified only in special instances, each case to be separately considered upon its merits. Mr. Spear is the only person who testifies on the subject; the deposition of the president of the Cleveland Company was taken, but he was not examined on this point. The subsequent correspondence of the parties does not sustain Mr. Spear’s recollection. For example,
During the summer of 1887, the Cleveland Company was in a state of great irritation, in consequence of nonpayment on the part of the Brush Swan Company, from which it received from May 26, 1887, to September 15, 1887, only the sum of $1.50. It received no promise of money,' except that, in July, the general manager of the Brush Swan Company said he thought he would send $1,000 upon the existing indebtedness, which was not done. During this summer, payment of two large orders for machinery to be furnished by the Brush Swan Company to a company in Scranton and to the Erie Railroad Company was guarantied by the Brush ‘Illuminating Electric Company, which owned a large portion of stock of the complainant. In July and August interviews were had with the president and vice president and secretary of the Brush Swan Company, in which security for the payment of its orders was requested, and the absolute unwillingness of the Cleveland Company to fill orders without security or definite prospect of payment was stated, but without avail, until on September 24th the Brush Swan Company was informed by letter in a positive manner that the Cleveland Company must know that payment would be made, and must ask for security in view of the insolvency of the complainant, or it would not fill orders which had not theretofore been accepted.
The facts in regard to the financial condition of the complainant are as follows: In June, 1885, it owed $17,500. In June, 1887, it owed $56,578.26, of which $24,395.36 was due to the Cleveland Company. Its deficiency was $12,473.67. On September 1, 1887, its whole liabilities were $66,554.82, of which it owed the Cleveland Company $32,-873.94. On November 5, 1887, it owed the Cleveland Company $31,-389.92, of which $22,715.29 was for plants, payment for which had not been made to the Brush Swan Company. In this state of things, the letters of the Cleveland Company of August 13, 25, September 6, 16, 19, 24, 29, October 1, 3, 11, and 15, 1887, show its persistent attempts to induce the Brush Swan Company to make exertions in regard to payment. This urgency was met with both apparent indifference and inability to gain financial strength. It is perfectly true that unless aid from outside sources or increased capital should be furnished to the Brush Swan Company, its capacity to pay its liabilities ■depended entirely upon the amount it should receive from its own debtors, and that those payments were probably delayed from various causes beyond its control; but, on the other hand, the Cleveland Company, unless it had modified the contract, was reasonably unwilling to fill orders from an insolvent companjr, which was unable to pay its overdue debts, and without substantial hopes of ability in the future. An arbitration was called for by the Cleveland Company, in technical compliance with the conditions of the ninth article of the contract, by letters of October
The fact that the call for an arbitration was placed by the Cleveland Company upon the refusal of the other party to furnish security is criticised by the complainant, upon the ground that the contract did not compel the complainant to give security for the performance of its undertaking. This criticism would be a just one if the conduct of the Brush Swan Company in the violation of its agreement had not been such as to fully justify the Cleveland Company in declaring the contract at an end. The correspondence shows that the Cleveland Company’s claim, that the Brush Swan Company had broken its contract respecting the terms of payment for the amount due upon its purchases, had been reiterated, and the request for security was made in the hope that a total cessation of contract relations might be avoided. Inasmuch as the Brush Swan Company is in a court of equity asking for a specific performance of a contract which it has broken, and which it cannot promise to observe in the future, it is useless to rely upon the point that the other party had made a technical slip in the reason it gave for abrogation. As the circuit court truly said, “a clearly defined failure to perform on the part of the complainant would have made proceedings under this [9th] clause wholly unnecessary, as the contracts could then have been terminated by reason of the complainant’s breach, although its financial condition at the time might have been good beyond all question.” The circuit court having found that the Brush Swan Company had committed no breach of its contract, as modified, reasonably thought that the request for an arbitration on the ground of failure to furnish security was an improper request. Inasmuch as we are of opinion that the company had broken its contract, which was not modified, and that it is therefore not in a position to ask for a specific performance by the other contracting party, the particular phraseology in which that party placed its final demand for arbitration seems unimportant.
In our view of the testimony, the complainant is asking a court of equity to compel the specific performance of a contract, which it has not kept, which it cannot truthfully assert that it will keep, and which apparently it cannot help violating, and desires to compel the defendant to furnish it with merchandise which it cannot pay for, and the ultimate payment for which it cannot attempt to secure.
The decree of the circuit court is reversed, and the bill is directed to be dismissed, with costs in the circuit court and in this court.