274 F. 30 | 6th Cir. | 1921
(after stating the facts as abové).
The further provision of that paragraph, that “the Edison Company may deduct such damages from any moneys due to the coal company,” con in no way change or alter the terms of the contract in reference to liquidated damages. The intention and purpose of the parties to ascertain and determine by agreement a sum certain as liquidated damages for a breach of the conditions of this contract by either party further appears by the provisions of paragraph 3 of the conditions written therein, in ^rhich paragraph it is provided that, upon the failure of the Edison Company to accept the full tonnage, it would pay to the coal company liquidated damages in the sum of 20 cents per ton for such tonnage as it fails to accept. Under this provision of the contract, if it is not invalid for other reasons, the coal company would be bound to accept 20 cents a ton in full of its damages. There is nothing in this contract to indicate that these two provisions as to liquidated damages in case of default by either were not correlative, and equally bind: ing on each of the parties thereto.
In the construction of this contract it must also be remembered that these contracts were on printed forms or order contracts used by the Edison Company in Idle conduct of its business, and must therefore be construed more strongly against the contracting party, that prepared and used these printed forms for this purpose. Texas & Pacific Ry. Co. v. Reiss, 183 U. S. 626, 22 Sup. Ct. 253, 46 L. Ed. 358; Bank v. Employers’ Liability Ins. Co. (C. C. A.) 270 Fed. 567. However, recourse to this rule of construction is hardly necessary in this case. The language of the contract in this respect is sufficiently clear to indicate the intent and purpose of the parties to fix by agreement, binding on both parties, a fixed and definite amount as liquidated damages in case of default by either of the contracting parties. It is not to be presumed that the Edison Company, studiously and adroitly, so framed this contract that any part of its terms and provisions should be optional as to it, but binding on the coal company. In any event, it must be held ' to the terms of the contract as written, and, construing this contract as a whole, the conclusion follows that the provision as to 20 cents a ton as liquidated damages necessarily means that such liquidated damages have been determined by agreement between the parties, which agreement, if valid, is mutually binding upon both parties to this contract.
Upon the question as to the validity of this provision for liquidated damages, it is insisted on the part of the defendant in error that these
In the case of Jaquith v. Hudson, 5 Mich. 123, Christiancy, J., discussed at great length contracts of this character applying to cases where actual damages might be readily ascertained, and in conclusion, at pages 136, 137, said:
“The foregoing remarks are all to be confined to that class of eases where it is clear, from the sum mentioned and the subject-matter, that the principle of compensation has been disregarded.”
Then he proceeds to discuss a second class of cases, m which actual damages are not easily ascertainable, and concludes with this statement:
“In all such eases, the law permits the parties to ascertain for themselves, and to provide in the contract itself, the amount of the damages which shall be paid for the breach”
■ — but further says that, even in this class of cases, the law does not lose sight of the principle of compensation, but merely accepts the estimate of damages fixed by the parties as the best and most practicable mode of ascertaining the sum which will produce just compensation. The contract before the court in that case was such a contract, so that what the learned judge said in reference to provisions in other contracts for liquidated damages, where the damages are easily ascertainable, is wholly obiter; nevertheless in subsequent Michigan cases the Supreme Court of that state has discussed the opinion of Judge Christ-iancy at great length, especially in the case of Calbeck v. Ford, 140 Mich. 56, 103 N. W. 516, and Ross v. Loescher, 152 Mich. 386, 116 N. W. 193, 25 Am. St. Rep. 418, in each of which cases the contract under consideration was one within the second class named by Judge Christiancy.
It is, however, expressly stated in the opinion in Jaquith v. Hudson, supra, that—
“The court will apply tbis principle, and disregard tbe express stipulation of parties, only in those eases where it is obvious from the contract before them, and the whole subject-matter that the principle of compensation has been disregarded.”
“The violation or disregard of this principle of compensation may appear to tiio court in various ways — from the contract, the sum mentioned, and the subject-matter. Thus, where a large sum (say $1,000), is made payable solely in consequence of the nonpayment of a much smaller sum (say $100) at a certain day, or where the contract is for the performance of several stipulations of very different degrees of importance, and one large sum is made payable on the breach of any one of them, even the most trivial, the damages for which can, in no reasonable probability, amount to that sum, * * * yet as the contract exacts the same large sum for the breach of a trivial or comparatively unimportant stipulation as for that of the most important, or of all of them together, it is equally clear that the parties liave wholly departed from the idea of just compensation, and attempted to fix a rule of damages which the law will not recognize or enforce.”
These illustrations, as to the various ways in which a violation or disregard of the principle of compensation may appear to the court, are very well exemplified in the case of Davis v. Freeman, 10 Mich. 191, where one party agreed to draw for another a quantity of timber at $1.50 per thousand, $1 per thousand of which was to be paid defendant, and the remainder to be “settled, fixed, and liquidated damages” in case the contract was not completed. It was held that the sum so fixed was to be regarded as a penalty, since otherwise the nearer the contract was completed, the greater the damages to be recovered, while, if the party should fail to draw^any of the timber there could be no recovery. The court in the opinion in that case said:
“If the contract had provided for the payment of 50 cents per thousand feet as liquidated damages for timber not drawn, the case would be altogether different.” .
Christiancy, J., in a concurring opinion, said:
“It is very clear that 50 emits per thousand feet was never estimated by the parties as the actual or probable damages to result from a breach, ana that in fixing upon this sum they liad no reference to the idea of compensation.”
In the contract now under consideration the provision as to stipulated damages is not a fixed sum in gross, regardless of the extent of the breach; but, on the contrary, it is a specific amount for each ton that defendant failed to deliver, so that if the breach is trifling the damages will be trifling. In this respect it does not contain the objectionable feature in the contract under consideration by the Supreme Court of Michigan in Davis v. Freeman, supra, but, on the contrary, is just such a contract as meets the suggestion in the opinion of Manning, J., that—
“If the contract had provided for a payment of 50 cents per thousand feet as liquidated damages for the timber not drawn, the case would be altogether different.”
It would therefore appear that the Michigan rule as to contracts for liquidated damages is not substantially different from the modern federal rule, further than that the. Michigan Supreme Court has declared that, where damages are not difficult of ascertainment, the court is inclined to treat the stipulated damages as a penalty and inquire into actual damages. Noble v. Sturm, 210 Mich. 462, 178 N. W. 99. Notwithstanding this statement as to the attitude of the court toward con
The later Michigan cases are all based upon Jaquith v. Hudson, supra, announced May 26, 1858, which opinion was at that time consistent with the decision of other courts upon the same question. The Supreme Court in the case of Wise, Trustee, v. U. S., 249 U. S. 361-365, 39 Sup. Ct. 303, 63 L. Ed. 647, calls attention to the fact that that court in the case of Sun Printing & Publishing Ass’n v. Moore, 183 U. S. 642, 22 Sup. Ct. 240, 46 L. Ed. 366, applied in U. S. v. Bethlehem Steel Co., 205 U. S. 105, 27 Sup. Ct. 450, 51 L. Ed. 731, stated:
“The result of the modern decisions was determined to be that in such eases courts will endeavor, by a construction of the agreement which the parties have made, to- ascertain what their intention was when they inserted such a stipulation for payment, of a designated sum or upon a designated basis, for a breach of a covenant of their contract, precisely as they seek for the intention of the parties in other respects. When that intention is clearly ascertainable from the writing, effect will be given to the provision, as freely as to any other, where the damages are uncertain in nature or amount or are difficult of ascertainment or where the amount stipulated for is not so extravagant, or disproportionate to the amount of property loss, as to show that compensation was not the object aimed at, or as to imply fraud, mistake, circumvention, or oppression. There is no sound reason why persons competent and free to contract may not agree upon this subject as fully as upon any other, or why their agreement, when fairly and under standingly entered into with a view to just compensation for the anticipated loss, should not be enforced.”
The court then calls attention to the fact that the cases in which courts had refused to enforce contracts for liquidated damages were decided at a time when courts were disposed to look upon such provisions in contracts with disfavor, and to construe them strictly, if not astutely, in order that damages, even though termed liquidated, might be treated as penalties, so that only such loss as could be definitely proved could be recovered. Following this statement, the court says:
“The later rule, however, is to look with candor if not with favor upon such provisions in contracts when deliberately entered into between parties who have equality of opportunity for understanding and insisting upon their rights as promoting prompt performance of contracts.”
This is not substantially different from the statement of Judge Christ-iancy in Jaquith v. Hudson, supra, that contracts for liquidated damages will not be sustained “where it is clear from the sum mentioned and the subject-matter that the principle of compensation has been disregarded.” Even if the Michigan rule were different from the federal rule, the decision of a state court of last resort is not controlling upon the federal courts on questions of general jurisprudence. Insurance Co. v. Moore, 231 U. S. 543, 34 Sup. Ct. 186, 58 L. Ed. 356.
It also appears from the evidence that the Edison Company was operating a public utility in the city of Detroit, that its coal requirements were very large, and that it was absolutely essential that it should have a large supply of coal on hand at all times, in order that it might be in position to render proper service to the public, and therefore the possible failure of the coal company to make deliveries might easily result in special damages to it. In the construction of this contract, this court must not overlook the fact that the contracting parties were both familiar with the coal business in all its details. The Edison Company bought and consumed large amounts of coal each year; the coal company was engaged in selling coal in equally large quantities. The conditions of the coal trade from year to year were fully known and understood by each of the contracting parties. They may not have fully appreciated the disturbance of the coal market by reason of the World War, for this nation had not yet entered into that conflict. Nevertheless, the premonitions were ominous; the war had already affected the price of some commodities in this country, and these were things to be taken into consideration by these experienced managers of the respective corporations, parties to these contracts, and, while it is true that in the construction of these contracts, we must take the situation as it then existed and as it then appeared to them, and not in the light of later developments, nevertheless, from these facts, and particularly the range of the fluctuation of prices within the preceding year, the then present tendency to a rising market, considered in connection with the delay, annoyance, inconvenience, and expense of finding and purchasing other coal, the practical difficulty of proving specific damages, the nature of plaintiff’s business, and the absolute necessity of its maintaining an ample supply of fuel at all times, it does not appear that the amount stipulated in this contract as liquidated damages is so extravagant or
The conclusion reached by this court as to the validity of the provision in each of these contracts for stipulated damages is based entirely upon the assumption that in this case the plaintiff’s damages may be measured by a pecuniary standard, but that, notwithstanding that fact, the amount named by the parties as liquidated damages is not so excessive or disproportionate to the probable property loss as to indicate that in fixing this amount the principle of compensation was disregarded. Yet, even though the rule as to the measure of damages in cases of this character is fixed and certain, nevertheless it fully appears by the record in this case, and particularly the conflicting claims of the respective parties, that the application of that rule is not so easily accomplished in this particular class of cases where the great bulk of the business, at least 65 per cent, of the output of the mines, is usually controlled by contracts, which vary not only in price as to contract coal, but differ materially from the market price of spot coal. Laundry Co. v. Carney, 88 Wash. 327, 153 Pac. 5. It further appears that these contracts provide for the purchase and sale of a very large quantity of coal, and if, as contended on the part of the Edison Company, the contract on the part of the coal company to deliver is absolute and unconditional, regardless of car shortage, embargoes, or any other hindrance to deliveries beyond the control of the coal company, it would seem only fair, reasonable, and right that the coal company should insist that’a limitation of its liability for failure to deliver should be written into this contract.
Consideration should also be given to the fact that the coal company, against whom this recovery for damages is sought, is not contending that the provisions in this contract as to liquidated damages is void, because the amount is so large that it amounts to a penalty and not compensation. On the contrary, it is the Edison Company that is making this contention, and is making it in view of the uncontradicted evidence that by reason of later developments this provision is wholly inadequate to cover compensation for actual loss. While it is perhaps true that, if this contract is invalid, the courts, will wholly disregard it and award actual damages (Noble v. Sturm, 210 Mich. 462, 178 N. W. 99), yet a court will not disregai'd the express provisions of a contract in reference to liquidated damages upon the theory that the amount named is too small, but rather only for the reason that the amount named is so
Naturally the plaintiff does not attack this agreement as to liquidated damages, because the amount named is so excessive as to imply fraud, mistake, circumvention, or oppression; but it does ask the court to disregard this provision in the contracts it prepared on its own printed blanks, and in which it inserted, or caused to be inserted, the amount stipulated as liquidated damages, and as so prepared presented the same to the other contracting parties for its acceptance and signature, for the reason, as it now contends, the sum agreed upon as liquidated damages is so excessive as to amount to a penalty and not compensation. The presumption obtains that the plaintiff acted in good faith when if insisted, upon this provision being written into the contract for its own protection; that it arrived at the amount it deemed ought to be paid as damages for breach of this contract from the then situation of the coal trade and its past large experience as a purchaser of coal. Certainly the conditions that had developed since these contracts were written could have no tendency to induce plaintiff to believe that it had, at the time the contracts were written, demanded such as extravagant sum that it should now be construed as a contract for penalty and not for compensation. The underlying principle upon which courts grant relief from contracts of this character is-based upon the theory that the party seeking to recover the damages stipulated in the contract drove a harsh and unconscionable bargain with the other contracting party, and for that reason courts o£ equity first, and later courts of law, refused to lend aid in the enforcement of such harsh provisions, where it was apparent, from the sum mentioned and the subject-matter of the contract, that the contract was for penalty and not for compensation.
In tías case the plaintiff is now asking to have this contract set aside, because this -provision in its interest and for its protection names a sum as liquidated damages so extravagant and excessive that it amounts to a penalty, and at the same time is asking for damages largely in excess of the amount it agreed to accept in full satisfaction of any loss or damage it might' suffer by reason of a breach of this contract by the coal company. Under such circumstances a court will be slow to accept the present opinion of a plaintiff that may be influenced by the hope of a larger recovery, as against its former opinion, deliberately reached and solemnly written into the contracts, and, at its instance and request, set aside this contract because it provided for extravagant and excessive damages and awarded it damages in a much larger sum. The position is necessarily an inconsistent one. Nevertheless, if the contract was void when written, it could not operate" to the advantage or disadvantage of either party thereto.
There is, of course, no question but that the coal that was “put over the tipple and into the cars” was mined as run of mine coal; but the question here is whether 2" nut and slack was mined when it was not screened and put into a separate car, so that it could be marketed as such. It is clear from these contracts and the evidence in this case that there is a distinct and substantial difference recognized in the trade between run of mine coal and 2” nut and slack; that run of mine coal, although it contains 2" nut and slack, does not come within the designation of nut and slack, but that it is only when this nut and slack is separated from the run of mine coal and deposited in separate cars that it answers to that description. It would seem that the screening of this coal and separating it into the different sizes known to the trade'is a part of the mining operations, yet if this coal company had been the owner and operator of this mine, and had authority to control the screening of the same, it could not be heard to say in its own defense that, because it did not screen the coal-and separate the 2" nut and slack from the run of mine, that therefore the 2" nut and slack had not been mined. But this defendant coal company was not the owner of or in control of the mining operations at the Harvey and Varilla mines. It had no authority whatever to dictate to the owners and operators of these mines what -coal they should screen and what coal they should not screen. Therefore the question of whether sufficient nut and slack was mined from the Harvey and Varilla mines to fill this second contract was a question of fact to be determined by the jury, and ought to have been submitted to it under proper instruction, if there was any conflict whatever in the evidence, either as to how much was actually produced or as to what constituted mining of nut and slack within the contemplation of this contract. The failure of the court to do this was prejudicial error.
‘■I went up and saw Mr. Brennan about the contract with the Paige coal. That would, I imagine, mine about eO.OOO to 60,000 tons a year. I told him I had appreciated that we had fallen down on the contract for the delivery of coal, which wo could not help. I told him by purchasing this coal he could make up any losses that he was in for on this present contract, and I not only told Mr. Brennan that once, ‘but I told him three or four times, and the contract was decidedly under the market price at that time.”
In answer to the question why he was offering this contract under the market price, Mr. Jewett answered:
“Why, to make up the shortage on our present contract.”
Mi-. Jewett further testified that he had two or three conversations with Mr. Brennan covering a period of two or three weeks, and urged him to sign this contract, and that eventually the contract came back-signed by Mr. Brennan, as purchasing agent for the Detroit Edison Company. The court, however, excluded this evidence, and charged the jury in reference thereto as follows:
“I charge you as a matter of law that under the undisputed proof in this case the so-called Paige-Jellico contract was not a settlement of this contract. The language used in connection with that, in entering into that contract by the plaintiff with another corporation, although it was closely re-laten! to this defendant, that the language used there, and what occurred, doew not amount to a settlement of these differences.”
This charge, in view of the testimony of Mr. Jewett, to which attention has just been called, was clearly erroneous and prejudicial to plaint iff in error. If the jury believed this testimony of Mr. Jewett that lie tendered this contract for the Paige-Jellico coal to Mr. Brennan at less than the market price, upon the condition stated, and that ah hough Mr. Brennan did not then accept his proposition, but later signed and returned this contract and received the benefits thereof, it might very properly reach the conclusion that the contract was signed and accepted and the benefits received by the Edison Company under the terms and conditions proposed by Mr. Jewett. Even if the jury had not found that the Paige-Jellico contract was accepted by the plaintiff as a full accord and satisfaction of the damages it sustained by reason of the failure of the defendant to deliver coal under its con
Both the contract for the 6" run of miné coal and the contract for the 2" nut and slack expressly provide that the amount of coal named therein shall be shipped to the Edison Company, “if during any month or months covered by this contract period there shall have been mined the amount scheduled or more tons of coal at the mines mentioned herein.” A custom that would permit the prorating of cars among the various customers of the plaintiff in error would be in direct conflict with this provision of the contract that the Edison Company was to have all of the coal of the character named, mined at these mines, if such total output was necessary to meet the contract requirements, and that,.if less coal were mined during any one month than the amount named in the schedule, then the defendant would not be liable in damages, provided it shipped the entire output to the Edison Company. Eor this reason, this custom of prorating cars, no matter how well known to the parties, cannot be permitted to vary of alter the express terms of these contracts that are clearly in conflict therewith. The Gazelle and Cargo, 128 U. S. 474-486, 9 Sup. Ct. 139, 32 L. Ed. 496; Jenkins S. S. Co. v. Preston, 186 Fed. 609-612, 108 C. C. A. 473.
The shortage of cars is important only in its effect upon the production of the character of coal named in the contract, at the mines mentioned therein. This contract fully protected the defendant in case sufficient coal was not mined, regardless of the reason for the failure to mine the same.
It is further claimed by the plaintiff in error that the performance was rendered impossible by reason of the embargo placed by the Louisville & Nashville Railroad Company upon all shipments of its cars to points off its own line. It is wholly unnecessary to consider whether the impossibility of performance arising from such a cause would relieve this plaintiff in error from the obligations of its contract, for the reason that it clearly appears from the evidence that this embargo did not render performance impossible. On November 1, 1916, the coal company wrote the Edison Company a letter in reference to the danger of the railroad company declaring such an embargo. The following paragraph is a part of that letter:
“I think that we had better do all we can now to get cars from other lines here that we can send to designated mines, and have them loaded promptly for your contract. I hope you will do everything you can along this line to see if equipment cannot be gotten.”
“Which moans it will be impossible for us to ship any more coal to yon until this restriction has been lifted.”
.Nevertheless, from the statement in its letter of November 1, 1916, the plaintiff in error cannot now be heard to say that it was not possible to procure cars from other lines, or that it was not fully advised of such possibility. Therefore the evidence in this record presents no question of impossibility of performance.
In view of this court’s construction of the provisions in these, contracts as to liquidated damages, the charge of the court in reference to the duty of the plaintiff to mitigate its damages becomes wholly unimportant.
For the reasons above stated, the judgment of the District Court is reversed, and the cause remanded for further proceedings in accordance with this opinion.
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