Hutchinson Gas & Fuel Co. v. Wichita Natural Gas Co.

267 F. 35 | 8th Cir. | 1920

Lead Opinion

SANBORN, Circuit Judge

(after stating the facts as above). The relief sought by the Hutchinson Company in this case is an injunction against the violation of any of the'terms of the contract'of June 9, 1906, and of any of the terms of any contract resulting from the supplemental contract of January 2, 1912.

[1] An injunction against the breach of a contract is a negative decree of a specific performance thereof, and the general rule is that the power and duty of a court of equity to grant the former are governed by the same principles, rules, and practice as are its power and duty to grant the latter relief. Shubert et al. v. Woodward et al., 167 Fed. 47, 53, 92 C. C. A. 509, 515; Pantages v. Grauman et al., 191 Fed. 317, 323, 112 C. C. A. 61, 67; 2 Pomeroy’s Equity Jurisprudence (3d Ed.) § 1341; General Electric Co. v. Westinghouse Electric & Mfg. Co. (C. C.) 144 Fed. 458, 463. The question here is, therefore: Was the court below in error in its conclusion that, under the rules and principles of equity applicable' to suits for the specific performance of contracts, it was not its duty, in view of the two contracts in issue, to compel the Wichita Company to continue to supply the Hutchinson Company until December 31, 1926, with natural gas for two-thirds of the 30 cents per 1000 cubic feet named in the contracts ?

The contract of 1906, if it was not violative of the anti-trust laws of Kansas (Keene Syndicate v. Wichita Gas, Electric Light & Power Co., 69 Kan. 284, 76 Pac. 834, 67 L. R. A. 61, 105 Am. St. Rep. 164, 2 Ann. Cas. 949; Landon v. Public Utilities Commission of Kansas [D. C.] 245 Fed. 954, 955), was' a valid and enforceable agreement. But, if it is not obnoxious to the anti-trust legislation, when it is read with the supplemental contract of 1912, and their provisions are carefully studied and compared, the question of the mutuality of the new agreement which resulted from the adoption of the agreement of 1912 arises, persists, and will not down; for “qn agreement, when changed by the mutual consent of the parties, becomes a new agreement, which takes the place of the old, and consists of the new terms and as much of the old agreement as the parties have agreed shall remain unchanged.” 13 C. J. § 615.

[2, 3] It is the general rule that specific performance of a contract will not ordinarily be decreed by a court of equity in favor of a party against whom that court cannot efficiently compel its performance. The obligation and the remedy must be mutual. Shubert v. Woodward, 167 Fed. 47, 55, 92 C. C. A. 509, 517; Marble v. Ripley, 10 Wall. 339, 358, 19 L. Ed. 955. So the question becomes: Can a court of equity efficiently compel the Hutchinson Company to perform the contract which counsel for that company contend exists between it and the Wichita Company, in view of the established rule that “a contract for the future delivery of personal property is void, for want of consideration and mutuality, if the quantity to be delivered is conditioned by the will, wish, or want of one of the parties; but it may be sustained if the quantity is ascertainable otherwise with reasonable certainty”? Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., 114 Fed. 77, 81, 52 C. C. A. 25, 29, 57 L. R. A. 696; Wells v. Alexandre, 130 N. Y. 642, 29 N. E. 142, 15 L. R. A. 218; Woerheide v. Barber Asphalt Paving Co., 251 Fed. 196, 204, 163 C. C. A. 352, 360; Northern Iowa Gas & Elect. Co. v. Inc. Town of Luverne (D. C.) 257 Fed. 818, 821; Transcontinental Petroleum Co. v. Interocean Oil Co., 262 Fed. 278, 280 (C. C. A., dated December 12, 1919).

The answer to this question must be found in the true meaning of the terms of the new agreement. Counsel for'the Hutchinson Company in their reply brief write that the law is correctly stated in Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., 114 Fed. 77, 81, 52 C. C. A. 25, 29, in these words:

“An accepted offer to furnish or deliver, such articles of personal property as shall be needed, required, or consumed by the established business of the acceptor during a limited time is binding, and may be enforced, because it contains the implied agreement of the acceptor to purchase all the articles that shall be required in conducting his business during this time from the party who makes the offer. * * * But an accepted offer to sell or deliver articles at specified prices during a limited time in such amounts or quantities as the acceptor may want or desire in his business, or without any statement of the amount or quantity, is without consideration and void, because the acceptor is not bound to want, desire, or take any of the articles mentioned.”

And counsel add:

“If plaintiff’s construction is proper, .the first sentence of the foregoing quotation applies; if defendant’s construction is correct, then the second sentence is in point.”

They insist that the new agreement brings this case under the first sentence of the quotation. They rely upon these terms of the contract of 1906 to establish this position. The second paragraph of that contract contains a covenant of the Wichita Company to supply during the term of the contract—

“natural gas in a volume sufficient to maintain a pressure not to exceed four to eight ounces to the square inch on the low-pressure lines of the said system in the said city, and at all times fully meet the demand for all purposes of domestic consumption as provided for in this contract.”

The third paragraph provides that the Wichita Company shall not be liable for any loss or damage to the Hutchinson Company from any shortage or interruption in the supply of gas—

“arising from any cause whatever; but the gas company agrees to use diligence in furnishing an adequate supply of merchantable gas for all the domestic consumers the party of the second part may secure within the corporate limits of the said city of Hutchinson.”

The fourth paragraph contains the grant to' the Hutchinson Company of the exclusive agency to distribute, sell, and deliver the Wichita Company natural gas in Hutchinson, and the covenant of the latter not to distribute or sell to other agents any gas for domestic purposes therein. In the fifth paragraph the Hutchinson Company agrees that it—

“will actually begin to receive the said gas from the said gas company and distribute and sell the same through his said system to domestic consumers thereof within the said city on or before December 31, 1906.”

Paragraph 11 contains a covenant of the Hutchinson Company that it will not, “during the term of this agency, handle, distribute, market, or sell the natural gas of any” party other than the Wichita Company, in the city of Hutchinson. The supplemental contract contains five sentences of recitals whicji precede the terms of the agreement. One of them is that by the fourth paragraph of the contract of 1906 the Wichita Company granted the exclusive agency to the Hutchinson Company to distribute and sell its natural gas in Hutchinson, and another is that in the eleventh paragraph the Hutchinson Company covenanted not to sell in the city of Hutchinson the natural gas of any one but the Wichita Company. TJie supplemental contract of 1912 provided: (1) That the exclusive agency of the Hutchinson Company should cease on January 2, 1912, and the Wichita Company might thereafter appoint other agents to distribute and sell its gas in Hutchinson; (2) that the covenant of the Hutchinson Company not to sell, market, or distribute the natural gas of anybody except the Wichita Company in Hutchinson should cease on January 2, 1912, and thereafter it might handle, market, distribute, and sell the natural gas of others therein; and (3) that nothing in the supplemental agreement “is intended or shall be construed to change, alter, or modify any or other of the terms of the said contract” of June 19, 1906.

[4] Counsel for the Hutchinson Company present an ingenious argument that the effect of the new contract resulting from the agreement of 1912' is (1) a covenant of the Wichita Company to use due diligence to furnish'the Hutchinson Company as its agent such natural gas as shall be needed, required, and consumed by the established business of that company during the remainder of the term; and (2) a covenant of the Hutchinson Company to receive, distribute and sell that gas during the term. They contend that the provision of the supplemental agreement that it shall not be construed to alter or modify “any or other of the terms” of the contract of 1906 means any other paragraphs of the latter, contract than the fourth and .the eleventh; which treat of the exclusive agency and are specifically referred to in the preamble of the supplemental agreement. But the court is unable to find anything of that nature in the body of the agreement itself. That agreement is now a part of the new contract, which supersedes the old one, and it is the new part of that new agreement, which, 'as the evidence of the last meeting of the minds of the parties, must prevail over any inconsistent part of the new agreement which was taken from the old one. The agreement of 1912 was made for the express purpose of modifying the old one in this case, and it must be given that effect. It expressly provides that the Wichita Company may sell and deliver its gas through other agents than the Hutchinson Company to the inhabitants of the city of Hutchinson. Under that provision it may, through other agents, sell and deliver its gas to any or to all its inhabitants, and thus .supply the demands of a part or of all of them for natural gas for domestic purposes, and its contract to deliver to the Hutchinson Company its gas in sufficient quantities to supply the demand for domestic purposes, or to use diligence so to do, is rendered so indefinite as to be futile.

Again, the old contract contained the provision that the Hutchinson Company would begin December 31, 1906, and continue as long as the gas field and supply line of the Wichita Company was capable of supplying the gas, not exceeding 20 years, to receive the gas of the Wichita Company, and to sell and distribute it to domestic consumers in Hutchinson. But the supplemental agreement provides that after January 2, 1912, it may handle, distribute, market, and sell to the inhabitants of Hutchinson the natural gas of any person, party, or corporation other than the Wichita Company. It may therefore, under the present contract, sell and deliver to its consumers, the inhabitants of Hutchinson, the natural gas of others than the Wichita Company to an amount sufficient to supply a part or all of the demand of its established business 'in that city. The quantity it may take of the Wichita Company is conditioned by the wish or will of the Hutchinson’Company, is neither certain nor ascertainable, and it is not bound by the new agreement to take any. To be more specific, in paragraph 3 of the old contract, now a part of the new agreement, the Wichita Company agrees to use diligence “in furnishing an adequate supply of merchantable gas for all the domestic consumers the party of the second part may secure within the corporate limits of the city of Hutchinson,” while by the second paragraph of the supplemental agreement the parties expressly contract that the Hutchinson Company may, after January 2, 1912, “handle, distribute, market, and sell” to its consumers, or any others in Hutchinson, the natural gas of others than the Wichita Company. It may therefore, by the express terms of the new agreement, lawfully take any or all the gas for its consumers from other than the Wichita Company; and after January 2, 1912, it has not been' and is not legally bound to take any of it from the Wichita Company.

[5] This review of the specific provisions and relations of the two contracts leaves no doubt that the effect of the agreement of 1912 was not limited to the modification of the paragraphs 4 and 11 of the contract of 1906. The purpose and the intended and actual effect of that agreement was to release the Wichita Company from its contract to furnish to the Hutchinson Company, and the Hutchinson Company from its agreement to take from the Wichita Company all the natural gas requisite to supply the demand for such gas for domestic consumption in the city of Hutchinson, and to leave the Wichita Company free to sell its gas to other agencies to supply that demand, and the Hutchinson Company free to purchase its gas. to supply that demand from other owners than tire Wichita Company. It could not and cannot have that effect without modifying many of the provisions in other paragraphs of the old contract than the fourth and eleventh. It did have that effect, and when it produced that effect the amount of gas the Wichita Company was to supply to the Hutchinson Company was conditioned by its will and wish, the amount the Hutchinson Company was to receive was conditioned by its will and wish, neither amount was certain or ascertainable, the Hutchinson Company was not legally bound to take, and cannot be lawfully compelled to take, under the new contract, any amount whatever from the Wichita Company, and the new agreement was void for want of mutuality. As to the future, the new contract fell under the rule that accepted orders for goods under such void contracts constitute sales of the goods thus ordered at the prices named in the contracts, but they do not validate the contracts as to articles which the one refuses to purchase or the other refuses to sell or deliver under the void contracts, because neither party is’bound to take or deliver any amount or quantity of these articles thereunder. Cold Blast Transp. Co. v. Kansas City Bolt & Nut Co., 114 Fed. 77, 81, 52 C. C. A. 25, 29, and cases there cited.

With enviable ability, industry, and patience counsel have sought out and cited many cases which they deem exceptions to the general rules (1) that a suit for an injunction against the breach of a contract should be determined by the same rules that cover a suit for the specific performance thereof, and (2) that a court of equity will not ordinarily decree specific performance of an agreement for one against whom it cannot efficiently enforce such performance, and have argued that this. case should be ruled by the opinions in these exceptional cases. They have cited, and the court has read and considered, the. opinions in Guffey v. Smith, 237 U. S. 101, 35 Sup. Ct. 526, 59 L. Ed. 856; Singer Sewing Machine Co. v. Union Button-hole & Embroidery Co., 22 Fed. Cas. 220, No. 12,904; Joy v. St. Louis, 138 U. S. 1, 11 Sup. Ct. 243, 34 L. Ed. 843; Texas Co. v. Central Fuel Oil Co., 194 Fed. 1, 5, 22, 24 114 C. C. A. 21, 25, 42, 44; Franklin Telegraph Co. v. Harrison, 145 U. S. 459, 12 Sup. Ct. 900, 36 L. Ed. 776; People’s Natural Gas Co. v. American Natural Gas Co., 233 Pa. 569, 82 Atl. 935, 938, 939; Columbus Ry. Co. v. Columbus, 249 U. S. 399, 408, 39 Sup. Ct. 349, 63 L. Ed. 669, 6 A. L. R. 1648; Western Union Telegraph Co. v. Union Pacific Ry. Co. (C. C.) 3 Fed. 423, 425, 427; City of Moorehead v. Union Light, Heat & Power Co. (D. C.) 255 Fed. 920, 923; Mobile Electric Co. v. City of Mobile, 201 Ala. 607, 79 South. 39, 43, L. R. A. 1918F, 667; Great Northern Ry. Co. v. Sheyenne Telephone Co., 27 N. D. 256, 263, 145 N. W. 1062; Marble Co. v. Ripley, 10 Wall. 339, 359, 19 L. Ed. 955, and in many other cases; but for various reasons neither these opinions nor the arguments of counsel regarding them have persuaded that this case should not be determined in accordance with the general rules.

[6] For example, counsel invoke the conceded rule that, where the entire consideration for the agreement of a defendant in a suit for the specific performance of a contract executory on his part was paid by the plaintiff before the commencement of the suit, a court of equity will enforce performance by the defendant, and then contend that, because before this suit was commenced the Hutchinson Company laid its mains and pipes in the city of Hutchinson and received and paid for the gas that was delivered to it, the court below should have compelled the Wichita Company to continue to deliver gas at the 30-cent rate during the remainder of the term of the contract. But the answer to this contention- is that the complete performance of a part of the consideration for an executory agreement while another substantial part thereof remains executory, and so indefinite and shadowy as to be unenforceable, is fatal to a suit for the specific performance of it. Woerheide et al. v. Barber Asphalt Paving Co., 251 Fed. 196, 204, 163 C. C. A. 352, and cases there cited. And in the case at bar the agreement of the Hutchinson Company to take and pay for the gas after January 2, 1912, was and is a substantial part of the consideration of the new contract, and is so indefinite as to be unenforceable and void. Moreover, when the new agreement was made in January, 1912, the parts of the consideration of the old contract which counsel cites as paid had been fully performed, and not only the substantial, but practically the entire, consideration for the covenant of the Wichita Company to deliver gas after January 2, 1912, was the unenforceable and imaginary contract of the Hutchinson Company to receive and pay for it thereafter.

Counsel cite cases in which suits for specific performance brought by holders of options to discontinue their performance at will, which inhered in the agreements or were expressly granted to them thereby when the contracts were made, were sustained by the court; hut in those cases neither the continuance - of performance by the optionees for a fixed term nor their covenant to so continue was any part of the consideration of the agreements by the defendants to continue performance, - while in the case at bar it is plain that the supposed covenants of the respective parties to continue performance constituted the real considerations each for the other of the new contract, and a decree for the performance by one of the parties while performance by the other cannot be enforced by the court, would work inequity, instead of equity.

[7] Counsel insist that the Wichita Company should be decreed to furnish and deliver gas at the 30-cent rate during the remainder of the term of the contract, because it and the Hutchinson Company are engaged in the enterprise of supplying the public with gas, and because their relation to each other is in the nature of a partnership. They are not partners, and, whatever their relation to the public or to each other may be called, the new agreement fixes the rights and measures the liabilities of the Wichita Company; in the absence of any attempt by proper authority to exercise the police power of city, state, or nation to modify or affect their agreement. \

And the conclusion is that this suit should be determined in accordance with the general rules set forth in the opening of this opinion, that the new agreement is, and has been ever since it was made on January 2, 1912, unenforceable and void for lack of mutuality as to the furnishing and delivery of any gas which the Wichita Company declines to -deliver or the Huchinson Company to receive, that a court of equity ever since that date has been and is without jurisdiction or power to compel the Hutchinson Company to receive from tire Wichita Company any natural gas or to pay for any natural gas which it does not wish to receive, and that therefore a court of equity ought not to enforce specific performance of this agreement against the Wichita Company. The conclusion of the court below that there was no.equity in the bill and its dismissal thereof was just and equitable.

[8] There is another reason why there was no error in the decree of the court below. That part of the old agreement which became a part of the new one contains a recital that “whereas, the gas company controls an acreage of gas leases, with a number of gas wells thereon, in the gas belt of Kansas, and desires to market the gas therefrom,” a covenant that the gas company will lay a pipe line on or before December 31,1906, for conveying natural gas from the said gas fields of Kansas to a, point at the city limits in the city of Hutchinson, and a covenant that as long as the wells and gas fields in Kansas mentioned therein are capable of producing it, not exceeding 20 years, the Wichita Company will—

“supply and deliver through its said pipe line, and through its said reducing and regulating station, natural-gas in a volume sufficient to maintain a pressure not to exceed four to eight ounces to the square inch on the low-pressure lines of the said system in the said city, and at all times fully meet the demand for all purposes of domestic consumption as provided for in this contract. However, as the production of gas from wells and the conveying of it over long distances is subject to accidents, interruptions, and failures, the gas company does not by this contract undertake to furnish an uninterrupted supply of gas for the period named herein, but only to furnish such a supply for such a period of time as the wells and pipe line of the gas company are capable of supplying.

“It is expressly understood and agreed, however, that the gas company shall not be liable for any loss, damage, or injury to-the party of the second part resulting directly or indirectly from any shortage or interruption in the supply of gas arising from any cause whatever; but the gas company agrees to use diligence in furnishing an adequate supply of merchantable gas for all the domestic consumers the party of the second part may secure within the corporate limits of the said city of Hutchinson as the said limits now exist or may hereafter bé established by law.”

The written notice of the Wichita Company, served on the Hutchinson Company, that it would not continue to supply its natural gas for two-thirds of 30 cents per 1000 cubic feet, contains a notice:

That the contract “substantially provided that the supply of gas to be furnished by the pipe line company should come from a certain gas belt then situated in the state of Kansas,” that “for some time thereafter the gas supply did come from said wells.” that “this local field constituted a limitation of the pipe line as to furnishing a supply of gas,” that “since these years the gas belt alluded to in the contract has been exhausted,” and that “the contract is void and unenforceable on account of the exhaustion of the supply involved therein.”

The complainant has pleaded this contract and this notice — has attached them to its complaint and made them a part thereof. It has alleged in that complaint:

“That by the terms of said contract the defendant agreed to furnish only such a. supply for such a period of time as the wells and pipe line of the defendant were capable of supplying, but the defendant agreed to nse diligence in furnishing an adequate supply of merchantable gas for all domestic consumers the said .1. O. Davidson might secure within the corporate limits of said city of Hutchinson as the said limits existed or might thereafter be established by law.”

It alleged:

“That on account of the provisions of said contracts the defendant is obligated to use due diligence in supplying natural gas to the said city [of Hutchinson] and its inhabitants at not exceeding the rates fixed by said franchise. That the defendant now has available and is supplying said city and its inhabitants with an adequate quantity of natural gas.”

The quotations which have been made embrace all the provisions in the contract pertinent to the extent of the Wichita Company’s obligation to procure and supply natural gas to the Hutchinson Company. A careful consideration of the circumstances surrounding and the situation of the parties when the contract of 1906 was made, the known uncertainty of the amount of gas in the Kansas field, of the usual exhaustion of such fields in a few months or years, of the possible length of the term of the contract, of the purpose of the parties in making the agreement, of the express terms of that contract which have been quoted, of the context in which they stand in the agreement and of the entire body of the contract, have thoroughly satisfied that the intention of the parties in, making the agreement and the true meaning and effect of it was and is that the Wichita Company agreed that as long as, not exceeding 20 years from December 31, 1906, the wells and the Kansas field in the Kansas belt described in the contract should be capable of furnishing a supply of natural gas sufficient to meet the demand for domestic consumption in the city of Hutchinson, it would furnish that supply and use diligence in furnishing from those wells and that field an adequate supply of merchantable gas for all the domestic consumers of Davidson and his successors in interest in the city of Hutchinson, but that it should not be liable for any loss or injury to them or either of them “resulting directly or indirectly from any shortage or interruption in the supply of gas from any cause whatever.”

[9-11] If the suggestion should occur that the Wichita Company has continued to deliver and the Hutchinson Company to receive under the contract natural gas derived from other and more distant fields after the exhaustion of the Kansas field, and the rule should be invoked that courts incline to follow the interpretation of contracts which the parties thereto have adopted, the answers are: (1) This rule is advisory,, not mandatory, it is inapplicable where the terms of the contract and the meaning of the agreement are clear and certain, and the terms of this contract leave no doubt of their meaning; (2) the conclusion that the parties adopted the construction that required the Wichita Company to furnish natural gas to the Hutchinson Company from other fields more distant than, that specified in the agreement is not established by the fact that it has been furnishing such gas and the Hutchinson Company has been receiving it on the terms of the contract since the Kansas field was exhausted; and (3) the fact that a party to a contract has continued to do the same acts after its term has expired that he agreed to do during its term in no way obligates him to continue' so to do. . .

The contract of the Wichita Company then was that it would furnish the gas as long as the Kansas field and wells and the pipe line were capable of supplying it. By the terms of this agreement their capability to furnish this supply was a condition precedent to the existence of the Wichita Company's obligation to furnish gas at every moment after the original contract was made. If at any time that capability existed at that time the obligation existed. If at any time the capability did not exist at that time the obligation did not exist. The complainant appealed to the court of equity below to compel the Wichita Company to perform that obligation in October, 1919, and thenceforth until December 31, 1926; 'but it did not allege that the capability of the wells and gas field of Kansas which conditioned that obligation then was or thereafter would be in existence, and for that reason the bill stated no equity against the Wichita Company, and it was rightly dismissed.

[12] The arguments of counsel and the authorities they cite, to the effect that the incapability of the wells and the Kansas field was a matter of defense, and that it was not necessary for the complainant to allege their capability, have been read and carefully considered; buk they have failed to convince that, after the complainant had set out and made the contract-which shows the capability of the wells and field to be a condition precedent to the existence at any time of the obligation it seeks to enforce, and had set out and made a part of its complaint the notice of the Wichita Company which shows .'that it claims that the capability did not and does not exist, its complaint stated any cause of action in equity against the defendant without an averment of the existence of the Condition precedent without the existence of which the obligation it sought to enforce was not.

Bet the decree below be affirmed.

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Concurrence Opinion

CARLAND, Circuit Judge.

I concur in the judgment of affirmance on the ground of want of mutuality of the contract. I dissent from the reasoning whereby the affirmance of the judgment below is sought to be sustained on account of the alleged exhaustion of gas in the Kansas •field.