Interstate Iron & Steel Co. v. Northwestern Bridge & Iron Co.

278 F. 50 | 7th Cir. | 1922

ACSCIIUFER, Circuit Judge

(after stating the facts as abone). [1] The judgment is assailed upon various grounds, but the one which goes to the root of action is the contention that the contracts are not enforceable because of the clause:

“It is understood that il the tonnages are not specified as called for in this contract they shall be automatically canceled.”

Plaintiff in error insists that this left it entirely optional with defendant in error to take or not to take any or alb of the tonnage, and, no consideration appearing' for the agreements to sell, neither party became obligated by the contracts. Contracts with provisions more or less similar, but involving substantially the same principle, have been by this court in a number of cases held to be Unenforceable. In American Cotton Oil v. Kirk, 68 Fed. 791, 15 C. C. A. 540, the memorandum of sale of 10,000 barrels of oil provided “deliveries to be made per week as Kirk & Co. (buyers) desire.” Passing on the validity of this contract, the court said:

“Suppose Kirie & Co. had not desired and had not ordered any such Quantities as would require 100 years to complete the delivery — is there any way open to the defendant to put plaintiffs in default? We think not, and that there is no mutuality of promises for the sale of a definite or ascertainable quantity of oil.”

Oakland Motor Car Co. v. Indiana Auto Co., 201 Fed. 499, 121 C. C. A. 319, dealt with an agreement for sale of automobiles, wherein it was provided that no order shall be binding unless accepted by the manufacturer at least 30 days prior to date of delivery, and for cancellation by either party for just cause. There was no question but that the provision for cancellation alone would have rendered the contract unenforceable. But it was contended that the qualification “for just cause” saved the contract from the operation of the rule. The court held that the addition of these words did not exempt the contract from the application of the rule requiring the mutuality of obligation as a necessary element of a binding contract for future sale and delivery. To like general effect are Crane v. Crane & Co., 105 Fed. 869, 45 C. C. A. 96, Velie Motor Car Co. v. Kopmeier Motor Car Co., 194 Fed. 324, 114 C. C. A. 284, and Tweedie Trading Co. v. Parlin & Orendorff Co., 204 Fed. 50, 122 C. C. A. 364, all decided by this court. See, also, Pocatello v. Fidelity, etc., Co., 267 Fed. 181 (9 C. C. A.), and Cold Blast, etc., Co. v. Kansas City, etc., Co., 114 Fed. 77, 52 C. C. A. 25, 57 L. R. A. 696.

[2] A provision in a contract requiring a buyer to make periodical specifications of his requirements of substantially equal quantities is not a mere formality, to be at the will of the buyer observed or not. This is particularly true in a case where, as here, the seller is a manufacturer, and the articles to be made for the buyer are of various dimensions, which the manufacturer cannot know until the buyer specifies them. Such a provision in a manufacturing contract is material, and parties will be held to its observance. Alwart Bros. Coal Co. v. Royal Colliery Co., 211 Fed. 313, 127 C. C. A. 599; Id., 234 Fed. 20, 148 C. C. A. 36; American Steel Foundries Co. v. Indian Refining Co., 275 Fed. 800, No. 2854, decided by this court April 26, 1921.

[3-5] But it is urged that, because in the formal part of the contracts there is recited a sale and purchase of the commodity, in order to give effect to this part of the contracts they should be held to be sales rather than only options to purchase. It is elementary that every part of a written instrument should be given effect so far as possible. But where there is irreconcilable difference between formal printed portions of - an instrument and other parts of it which are written in, the latter will prevail. Lipschitz v. Fruit Co., 223 Fed. 698, 139 C. C. A. 228. If the effect of this special clause is to make it optional with the buyer whether he will take any of this tonnage, this is inconsistent with the recited sale and purchase, and the special clause would prevail. But, after all, the employment of the,terms “buy” and “sell” express a conclusion which must be controlled by the particular things contracted for. If, notwithstanding the employment of these terms, the things actually agreed upon fall short of making a contract of purchase and sale, then no such contract is effected. When from the contract itself it appears that these parties were dealing with reference to something which had no existence, and could therefore not be the subject of a present sale, but that the subject-matter of the contract had first to be manufactured after the buyer made timely requisition therefor as in the contract provided, the terms “buy” and “sell” cannot in any event be given their significance as applied to things existent and capable of immediate sale and delivery.

[6] It is further urged that these contracts fall within the rule announced in Western Union Tel. Co. v. Brown, 253 U. S. 101, 40 Sup. Ct. 460, 64 L. Ed. 803, where it was decided that in a contract for purchase and sale of certain shares of mining stock, on which a payment was made, and the stock delivered to a bank for delivery to the purchaser on payment of the full purchase price, and which contained provision that, in case of default in the further payments, whatever had been paid should be forfeited, and the certificates of stock redelivered, and the rights of the parties forever cease and terminate, this was not to be considered an option terminable at the will of the buyers by their declining to make the further payments, but that the sale was absolute, and that such provision was for the protection of the sellers, to be exercised by them at their option. In our view this case does not fall within that rule. It .can scarcely be said that this special provision in the contracts here under consideration was for the protection of the seller only. The buyer may well have desired to protect himself against a situation wherein it would not for a time need the materials. If it had no orders or contracts for bridges and other structures, it might not .know what kinds and sizes of materials to specify, and, if it specified in advance of its actual needs, it might have materials which it could not use. Indeed, this was upon both sides a manufacturing contract, the seller being obliged to manufacture the articles as and when specified, and the buyer specifying when its particular requirements were known.

This was evidently so regarded by the parties themselves, since, under conditions prevailing for over three months after the contracts were executed, the buyer did not see fit to make any specifications whatever, notwithstanding the provision for substantially equal monthly tonnage during the contract period. It does not appear that during this period any communications passed between the parties. The buyer bad every reason to believe that the special provision for automatic cancellation operated to cancel each month’s tonnage, where no specification was given. As has been seen, it surely could not expect to wait until the end of the contract period, and then, if deemed advantageous, order out the entire 400 tons. Not only does the situation of the' parties, as well as the subject-matter of the contracts, forbid the application of the rule in the Western Union Case, but also the nature of the clause itself. If in these contracts, as in that one, there were read in the words “at option of seller,” we would have a provision that the tonnage called for should be automatically canceled at option of seller. The two expressions would be quite inconsistent with each other. If the term “automatically,” which the parties saw fit to employ, is given any force, it precludes the exercise of an option on the part of anybody as a prerequisite, or any cause or condition, other than the one stated in the clause, viz. the failure to specify the tonnage as called for in the contracts. When, therefore, the parties chose to say that this condition shall automatically cancel such tonnage, they agreed that, upon the occurrence of the condition, the cancellation of such tonnage would be ipso facto effected. The fact that in another part of these same contracts there is provision for cancellation by seller “at his option” would tend further to indicate that the omission of the optional feature from the clause here in question was intentional, and not inadvertent.

[7] This brings us to the claim that there was waiver of the cancellation clause through the subsequent conduct of the parties, largely in that the seller did not in subsequent correspondence state that it would regard the omitted monthly specifications or the contracts themselves as canceled under the clause in question, and that it expressed willingness to supply the tonnage in the material of smaller widths than those which the buyer for most part demanded. Subsequent disputes and negotiations as to what the contracts were intended to cover would not give the contracts validity. If specifications presumably under the contracts are made, and the seller by words or by conduct accepts them, it might be bound thereby, even though of tonnage which under the terms of the contracts might have become canceled. This, however, would not be by reason of waiver of the cancellation, but the effecting of a new contract through the ordering of merchandise and acceptance of the order. It is true that, when the specifications for greater widths than 6 inches were given, the seller did not say, “you are entitled to no material at all, because the contracts are invalid,” but it disputed the right of the buyer to specify greater widths than 6 inches.

This was not an acceptance of any of the specifications or orders, and the fact that it disputed the right to supply these widths, rather than to assert the invalidity of the contracts, did not waive or bar its right thereafter to set up invalidity. Notwithstanding the invalidity, the seller might have been entirely willing to have supplied the full, tonnage of the smaller widths; In its letter of July 31, which was long before the specification of the large bulk of the tonnage, it stated to buyer that the contracts provide for automatic cancellations, and its final letter of October 3, referring to the specification of September 5 for the 265 tons, was merely a proposal to supply the entire tonnage in the lesser widths, and it was stated that this was without prejudice to seller’s legal rights, if the buyer did not within five days from that date approve the suggestion. This waived nothing, but was merely a proposal to enter into another agreement to supply at the contrast prices tonnage which, -had the agreements been valid, would at that time have been largely canceled. Even though subsequent transactions might give validity to such contracts, or effect a waiver by the seller of their invalidity^ no facts which this record discloses would justify such conclusion here.

There appears here no such. situation as was present where contracts seemingly somewhat similar have been upheld, such as contracts to supply a buyer’s entire season’s requirements, to take a manufacturer’s entire output, to sell to the buyer alone all the seller may . acquire of a particular article for a definite time. But the contracts here left the buyer with the unqualified right', and with entire impunity, to cancel the contracted tonnage from month to month until at the end of the time fixed none of it remained; both parties being free to buy or sell elsewhere as they saw fit.

These views make it unnecessary to consider the question whether under the contracts widths beyond 6 inches were contemplated, and whether there was error in the admission of seller’s handbook, and of conversations of its alleged agents respecting the handbook, and the different dimensions of materials which might be specified under the contracts.

Concluding, as we do, that the contracts are unenforceable, the judgment is reversed, and the cause reminded for further proceedings in consonance - herewith.