The defendant agreed, in writing, to purchase from the plaintiff
rails to be rolled by the latter, "and to be drilled as may be
directed," and to pay for them $58 per ton. He refused to give
directions for drilling, and at his request, the plaintiff delayed
rolling any of the rails until after the time prescribed for their
delivery, and then the defendant advised the plaintiff that he
should decline to take any rails under the contract.
Held:
Page 121 U. S. 265
(1) The defendant was liable in damages for the breach of the
contract.
(2) The plaintiff was not bound to roll the rails and tender
them to the defendant.
(3) The proper rule of damages was the difference between the
cost per ton of making and delivering the rails and the $58.
It was not improper to admit evidence which was unnecessary and
which could not affect the merits of the case or evidence from
which it appears no prejudice resulted.
This is an action at law brought in the Circuit Court of the
United States for the Northern District of Illinois by the
Pittsburgh Bessemer Steel Company, Limited, a Pennsylvania
corporation, against Francis E. Hinckley to recover damages for the
breach by Hinckley of a written contract for the purchase by him
from the company of 6,000 tons of steel rails. The contract was as
follows:
"
Memorandum of Sale"
"The Pittsburgh Bessemer Steel Company, Limited, have sold and
hereby agree to make and deliver to the order of F. E. Hinckley,
Esq., 204 Dearborn St., Chicago, Ills., and the said Hinckley has
purchased and agrees to pay for, six thousand gross tons of
first-quality steel rails, to weigh fifty-two (52) pounds to the
yard, and to be rolled true and smooth to the pattern to be
furnished by the said Pittsburgh Bessemer Steel Company, Limited,
pattern No. 5."
"Said rails are to be made of the best quality of Bessemer
steel, and to be subject to inspection as made and shipped, and to
be well straightened and free from flaws, and to be drilled as may
be directed. At least ninety percent shall be in thirty (30) feet
lengths, with not over ten (10) percent of shorter lengths,
diminishing by one foot differences, none to be less than
twenty-four (24) feet."
"All second-quality rails, or excess of shorts which may be
made, not exceeding five (5) percent of each month's shipments, to
be taken at the usual reduction of ten (10) percent in price, and
to be piled and shipped separately (painted white on both ends) as
may be ordered by the inspector. Deliveries to begin in May, 1882,
in which month one
Page 121 U. S. 266
thousand tons shall be delivered, and to continue at the rate of
twenty-five hundred tons per month after July 1, 1882, until
finished, strikes and accidents beyond ordinary control of said
steel company, and acts of Providence preventing or suspending
deliveries alone excepted, in which case deliveries are to be
delayed for a corresponding length of time only."
"Price to be fifty-eight dollars net per ton of 2,240 pounds of
finished steel rails, ex. ship or f.o.b. cars at Chicago, Ills.,
seller's option."
"Terms of payment, cash on delivery of inspector's certificate
for each five hundred tons as fast as delivered. If shipment is
delayed without fault of said steel company, payment is to be made
in cash upon completion and delivery of each five hundred tons at
Chicago and inspector's certificate. Rails to be inspected at mill
as fast as completed and ready for shipment."
"In witness whereof the said Hinckley has hereto set his hand
and seal, and the Pittsburgh Bessemer Steel Company, Limited, by
its duly authorized officers, hath signed and affixed its corporate
seal, the day and year aforesaid."
"It is further agreed that the Pittsburgh Bessemer Steel
Company, Limited, are not to be responsible for delays resulting
from failure of railroads to furnish cars, proper efforts having
been made to procure them, nor for detentions after shipment has
been made."
"It is understood that the purchaser shall have the right to
make one-half of the order fifty-six (56) pounds per yard, pattern
No. 4 of said steel company, notice to be given thirty days before
the time for the delivery of the rails."
"Chicago, Ills., February 18, 1882."
"F. E. HINCKLEY"
"C. H. ODELL,
Broker"
One copy of the contract was signed by Hinckley, and a duplicate
of it was signed by the company.
The defendant pleaded the general issue, and the case was tried
by the court on the due waiver of a jury. The court made the
following special finding of facts:
Page 121 U. S. 267
"1. That the written agreement set out and described in the
declaration was duly executed by the plaintiff and defendant in
said cause, as alleged in said declaration."
"2. That immediately after the making of said contract, and
before the time to begin the execution thereof, the plaintiff
purchased the requisite amount of material from which to
manufacture the six thousand tons of steel rails called for by said
contract, and that after the purchase of said supplies by
plaintiff, there was a decline in the value thereof, before the
time for the delivery of any portion of said rails, and that lower
prices for such supplies ruled during the months of May, June,
July, and August, 1882."
"3. That it appears from the parol proof heard on said trial,
aside from the provision in said written contract in regard to
drilling directions, that it was usual and customary for the
purchaser of steel rails to give directions as to the drilling
thereof, and that each railroad company has its own special rules
for drilling, and the drilling of such rails is considered in the
trade as a part of the work of manufacture and a part of the duty
of the manufacturer in order to fully complete the rails for
use."
"4. That by letters dated April 3 April 20, April 26, and April
28, from plaintiff's agents to defendant, and which letters were
duly received by defendant before May, 1882, defendant was request
ed to furnish drilling directions for the rails to be delivered in
May under said contract, and defendant not only neglected to comply
with such request and furnish such directions, but defendant also
notified plaintiff in reply to such request that he, defendant, was
not then prepared to receive the rails which were to be delivered
under said contract in the month of May."
"Again, about the 15th of June, defendant informed plaintiff
that he was becoming discouraged about being able to take the
rails. That, about June 23, plaintiff notified defendant that it
was ready to commence rolling the rails for the July deliveries, as
well as to cover the thousand tons specified in the contract for
delivery in May, of which plaintiff had postponed
Page 121 U. S. 268
delivery at defendant's request, and asked for drilling
directions from the defendant, but defendant wholly neglected to
give such drilling directions."
"That about the 26th of July, defendant in substance informed
plaintiff's agents that his financial arrangements for money to pay
for said rails pursuant to said contract had failed, and that he
could not take said rails unless plaintiff would sell them to him
on six and twelve months' credit, for which the notes of the
railroad company for which defendant was acting would be given,
which defendant would endorse, and also further secure with first
mortgage bonds, as collateral at fifty cents on the dollar, but
unless he could secure the rails on such terms, he could not take
them, and that plaintiff declined to accept said proposition for
the purchase of said rails on credit, and I further find that, on
the 30th of August, 1882, plaintiff notified defendant that the
time for the completion of his contract for the purchase of said
rails had expired, and requested defendant to advise it whether he
would accept the rails or not. To this request defendant made no
reply."
"I further find that while plaintiff did not expressly agree
with defendant to postpone the time for the delivery of the rails
to be made and delivered under said contract, yet plaintiff did in
fact delay the rolling and delivery of the rails to be delivered in
May, and that, by reason of the repeated statements of defendant
that he was not ready to give drilling directions, not ready to use
said rails, and not ready to accept them, plaintiff did postpone
rolling said rails, and in fact never rolled any rails to be
delivered on said contract, but that plaintiff was at all times
during the months of May, July, and August ready and able, in all
respects, to fulfill said contract and make said rails, and the
same would have been ready for delivery, as called for by said
contract, if defendant had furnished drilling directions, and had
not stated to plaintiff's agents that he was not ready to furnish
said drilling directions, and not ready to accept said rails."
"I further find that on or about the 15th day of September,
1882, defendant was formally requested to furnish drilling
Page 121 U. S. 269
directions and to accept said rails, and that he replied to such
request that he should decline to take any rails under said
contract, and that he had made arrangements to purchase rails of
others at a good deal lower price."
"I therefore find, from the testimony in this case, that
defendant, by requesting plaintiff to postpone the delivery of said
rails, and by notifying the plaintiff that he was not ready to
accept and pay for said rails, excused the plaintiff from the
actual manufacture of said rails and a tender thereof to
defendant."
"And I further find that defendant's statement to plaintiff, on
the 26th of July, that he could not pay cash for said rails, as
called for by the contract, and that we wished to buy them on
credit, was in fact a notice that he would not be able to pay for
said rails if rolled and tendered to him by plaintiff."
"I therefore conclude, and so find as a matter of fact, from the
evidence in the case, that said plaintiff in apt time requested
defendant to furnish directions for the drilling of said rails, and
that defendant neglected and refused to do so, and that although
plaintiff was ready and able to fully perform said contract, and
make and deliver said rails to defendant as required by said
contract, defendant refused to accept and pay for said rails."
"5. That plaintiff manufactured and sold to other persons 4,000
tons of steel rails, from the materials so purchased, with which to
perform said contract with defendant, for which said rails
plaintiff received $54.60 per ton, delivered at a port on Lake
Huron, and that plaintiff made a profit of $1.60 per ton on said
4,000 tons; that by reason of defendant's refusal to accept said
rails, the plaintiff had no employment for its mill for a time, and
was obliged to stop its mill for about three weeks in the month of
August, 1882."
"6. That it would have cost plaintiff $50 per ton to have
manufactured and delivered the rails called for by said contract to
defendant, according to the terms of said contract, so that
plaintiff's profits, if it had not been prevented from fulfilling
said contract by the conduct of defendant, would have been $8.00
per ton on each ton or rails called for by said contract. "
Page 121 U. S. 270
"And because of said facts, I find that defendant was guilty of
a breach of said contract, and that plaintiff hath sustained
damage, by reason of such breach, in the sum of $42,400."
On these findings, a judgment was entered for the plaintiff for
$42,400 damages, and for costs. 17 F. 584. To review that judgment
the defendant has brought this writ of error. After the record was
filed in this Court, it being discovered that there was an error in
computation in entering the judgment for $42,400, instead of
$41,600, the circuit court allowed the plaintiff to remit the
difference, $800, and an order was entered accordingly, as of the
date of the judgment.
Page 121 U. S. 272
MR. JUSTICE BLATCHFORD after stating the case as above reported,
delivered the opinion of the Court.
On the special findings, the only question open for review is
whether the facts found are sufficient to support the judgment.
There can be no question that, on those facts, the defendant is
liable in damages for a breach of the contract. It is provided in
the contract that the rails are "to be drilled as may be directed."
The circuit court finds that it appears from the proof, aside from
the provision in the written contract in regard to drilling
directions, "that it was usual and customary for the purchaser of
steel rails to give directions as to the drilling thereof," that
each railroad has its own special rules for drilling, that the
drilling of the rails is considered in the trade as a part of the
work of manufacture, and a part of the duty of the manufacturer, in
order to fully complete the rails for use, that by four letters,
written in April, 1882, by the agents of the plaintiff to the
defendant, and which letters were duly received by the defendant
before May, 1882, he was requested to furnish drilling directions
for the 1,000 tons of rails to be delivered in May under the
contract, that he neglected to comply with that request, and also
notified the plaintiff that he was not then prepared to receive the
rails which, by the contract, were to be delivered in May, that in
June, the plaintiff again asked for drilling directions from the
defendant in respect both to the 1,000 tons and to the 2,500 tons
to be delivered in July, but the defendant neglected to give such
drilling directions, and that, in the latter part of July, he
notified the plaintiff in substance that he would not
Page 121 U. S. 273
perform the contract. The circuit court further finds that by
reason of the repeated statements of the defendant that he was not
ready to give drilling directions, not ready to use the rails, and
not ready to accept them, the plaintiff postponed the rolling of
them, and never rolled any rails to be delivered on the contract,
but was at all times during May, July, and August, 1882, ready and
able to fulfill the contract and make the rails, and the same would
have been ready for delivery as called for by the contract if the
defendant had furnished drilling directions and had not stated to
the agents of the plaintiff that he was not ready to furnish the
drilling directions and not ready to accept the rails, and that, on
or about the 15th of September, 1882, he was formally requested to
furnish drilling directions and to accept the rails, and replied to
such request that he should decline to take any rails under the
contract, and had made arrangements to purchase rails of others at
a lower price.
The circuit court also finds that the defendant, by requesting
the plaintiff to postpone the delivery of the rails and by
notifying the plaintiff that he was not ready to accept and pay for
them, excused the plaintiff from actually manufacturing them and
tendering them to the defendant. This conclusion is entirely
warranted by the facts found, and on those facts the defendant must
be held liable in damages. The only other question open on the
findings is as to the proper rule of damages.
The circuit court finds that it would have cost the plaintiff
$50 per ton to have manufactured and delivered the rails called for
by the contract according to its terms, that the profits of the
plaintiff if the conduct of the defendant had not prevented it from
fulfilling the contract would have been $8 per ton on each of the
6,000 tons, being $48,000, and that the plaintiff manufactured and
sold to other persons 4,000 tons of rails from the materials
purchased by it with which to perform the contract with the
defendant, and received for such rails $54.60 per ton, and made a
profit of $1.60 per ton on the 4,000 tons, being a profit, in all,
of $6,400. Deducting this $6,400 from the $48,000 leaves $41,600,
for which amount the judgment was finally entered.
Page 121 U. S. 274
The defendant contends that the plaintiff should have
manufactured the rails and tendered them to the defendant, and,
upon his refusal to accept and pay for them, should have sold them
in the market at Chicago and held the defendant responsible for the
difference between what they would have brought on such sale and
the contract price. But we think no such rule is applicable to this
case. This was a contract for the manufacture of an article, and
not for the sale of an existing article. By reason of the facts
found as to the conduct and action of the defendant, the plaintiff
was excused from actually manufacturing the rails, and the rule of
damages applicable to the case of the refusal of a purchaser to
take an existing article is not applicable to a case like the
present. The proposition that after the defendant had, for his own
purposes, induced the plaintiff to delay the execution of the
contract until after the 31st of August, 1882, and had thereafter
refused to take any rails under the contract, the plaintiff should
still have gone on and made the 6,000 tons of rails and sold them
in the market for the defendant's account in order to determine the
amount of its recovery against the defendant can find no
countenance from a court of justice.
It is found by the circuit court that immediately after the
making of the contract and before the time to begin its execution,
the plaintiff purchased the requisite amount of material from which
to manufacture the 6,000 tons of rails, that, after the purchase of
such supplies, there was a decline in their value before the time
arrived for the delivery of any part of the rails, and that lower
prices for such supplies ruled during May, June, July, and August,
1882. It is also to be inferred from the price at which the 4,000
tons of rails were sold by the plaintiff that the market price of
rails declined below the price named in the contract, and the
reason assigned by the defendant in September, 1882, for not taking
any rails under the contract was that he had made arrangements to
purchase rails of others at a lower price. Under these
circumstances, the defendant is estopped from insisting that the
plaintiff should have undertaken the risk and expense of actually
making and selling the rails. These considerations also show
that
Page 121 U. S. 275
the rule of damages adopted by the circuit court was the proper
one. It was in accordance with the rule laid down by this Court in
Philadelphia, Wilmington &
Baltimore Railroad Co. v. Howard, 13 How. 307. In
that case, a contractor for the building of a railroad sued the
company for its breach. On the question of damages, this Court
said, p.
54 U. S.
344:
"It must be admitted that actual damages were all that could
lawfully be given in an action of covenant, even if the company had
been guilty of fraud. But it by no means follows that the profits
are not to be allowed, understanding, as we must, the term
'profits' in this instruction as meaning the gain which the
plaintiff would have made if he had been permitted to complete his
contract. Actual damages clearly include the direct and actual loss
which the plaintiff sustains
propter rem ipsam non
habitam. And in case of a contract like this, that loss is,
among other things, the difference between the cost of doing the
work and the price to be paid for it. This difference is the
inducement and real consideration which causes the contractor to
enter into the contract. For this he expends his time, exerts his
skill, uses his capital, and assumes the risks which attend the
enterprise. And to deprive him of it when the party has broken the
contract and unlawfully put an end to the work would be unjust.
There is no rule of law which requires us to inflict this
injustice. Wherever profits are spoken of as not a subject of
damages, it will be found that something contingent upon future
bargains or speculations or states of the market are referred to,
and not the difference between the agreed price of something
contracted for and its ascertainable value or cost.
See
Masterton v. Mayor of Brooklyn, 7 Hill 61, and cases there
referred to. We hold it to be a clear rule that the gain or profit
of which the contractor was deprived by the refusal of the company
to allow him to proceed with and complete the work was a proper
subject of damages."
In
United States v.
Speed, 8 Wall. 77, where the defendant agreed to
pack a specified number of hogs for the plaintiff and made all his
preparations to do so and was ready to do so, but the defendant
refused to furnish the hogs to be packed, this
Page 121 U. S. 276
Court, citing with approval
Masterton v. Mayor of
Brooklyn, held that the measure of damages was the difference
between the cost of doing the work and the price agreed to be paid
for it,
"making reasonable deduction for the less time engaged, and for
release from the care, trouble, risk, and responsibility attending
a full execution of the contract."
These views were again approved by this Court in
United
States v. Beham, 110 U. S. 338.
In the present case, the ability of the plaintiff to fulfill the
contract at all times is found as a fact by the circuit court, as
also the fact that by reason of the defendant's refusal to accept
the rails, the plaintiff was obliged to stop its mill for about
three weeks in August, 1882. The defendant received the benefit of
all the mitigation of damages which, upon the facts found, he was
entitled to claim, and the benefit of all the profits made by the
plaintiff which could properly be regarded as a substitute for the
profits it would have received had its contract with the defendant
been carried out.
The defendant objects that within the statement of the rule in
United States v. Speed, there was no deduction made in
this case for the time saved and the care, trouble, risk, and
responsibility avoided by the plaintiff by not fully executing the
contract; but there are no findings of fact which raise any such
question. The finding is that it would have cost the plaintiff $50
per ton to have manufactured and delivered the rails called for by
the contract according to its terms. Under this finding, it must be
held that every proper element of cost entered into the $50, and it
was for the defendant to have requested findings which would
authorize an increase of that sum as cost.
There is a bill of exceptions in the case on which two questions
are raised by the defendant as to the admission of testimony. The
contract between the parties was negotiated by C. H. Odell, who
signed it as broker, between whom and the defendant the
correspondence thereafter, down to and including the first of May,
1882, was carried on, Odell acting for the plaintiff. He made the
contract under special instructions, his authority being limited to
that of a sales agent. On his examination
Page 121 U. S. 277
as a witness at the trial, he testified that all of his
communications with the plaintiff in regard to the business with
the defendant were in writing or by telegram. He also testified
without objection that he kept the plaintiff fully advised of his
correspondence with the defendant concerning the rails. H. P.
Smith, the business manager of the plaintiff, was then called as a
witness for the plaintiff and was asked if the plaintiff was
advised of the correspondence between Odell and the defendant,
which had been read in evidence, and if Odell's actions were
approved by the witness as manager of the plaintiff. To this the
defendant objected on the ground that the communications between
Odell and the plaintiff consisted of letters and telegrams, which
were the only competent evidence of the contents thereof. The court
overruled the objection, and the witness stated that the company
was advised of the correspondence and actions of Odell, and fully
approved and ratified the same. The defendant excepted to the
decision admitting the evidence. We see no objection to the
admission of this evidence independently of the fact that Odell
had, without objection, testified to substantially the same thing.
The defendant, in his correspondence with Odell, all of which is
set forth in the bill of exceptions, treated Odell as representing
the plaintiff, and cannot now be heard to question his authority to
do so or to demand further evidence of such an authority, or of the
adoption by the plaintiff of what Odell was doing, saying, and
asking on behalf of the plaintiff. The question asked of Smith as
to whether he, as manner of the plaintiff, approved of Odell's
actions and the answer he made were therefore unnecessary, and
could not affect the merits of the case.
Smith was further asked to state in detail the elements of the
cost of rolling the rails in question. He produced a memorandum
showing items taken from the plaintiff's books, which, added
together, exhibited the cost, in August, 1882, of manufacturing one
ton of such rails as those described in the contract, and, on being
asked by the plaintiff's attorney to testify to those items, the
court, under the defendant's objection, allowed him to read the
items from the memorandum.
Page 121 U. S. 278
He further testified, under an objection and exception by the
defendant, that the actual cost to the plaintiff of making and
delivering the rails in Chicago would have been $48.25; that he
stated the elements of such cost from a memorandum prepared by
himself, the elements being taken from the books of the plaintiff;
that he knew the purchased price of all material which went into
the manufacture, because he purchased all of it himself; that the
statement was prepared by him from his personal knowledge of the
cost; that he called off the items from a penciled memorandum to
the bookkeeper, who wrote them down; that he (the witness) knew the
items to be correctly stated, and that the information as to the
items was made up from records running through a series of four of
five months, and representing an average as to the cost per
ton.
The defendant contends that this evidence was inadmissible in
the absence of an opportunity for him to examine the plaintiff's
books with a view to a cross-examination of the witness as to the
mode of computation adopted by him, to memorandum being, as
contended, the result of the conclusions of the witness from the
examination of a large number of entries in the books of the
plaintiff. It is a sufficient answer to this objection that the
cost of the rails was not taken by the court at the sum of $48.25,
the sum fixed by Smith, but the bill of exceptions shows that the
cost was taken at $50 a ton, from the testimony of Richard C.
Hannah, another witness, so that even if the testimony was
erroneously admitted (which it is not necessary to decide), the
defendant suffered no prejudice from its admission.
The judgment of the circuit court is affirmed.
