Hinckley v. Pittsburgh Bessemer Steel Co.
121 U.S. 264 (1887)

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U.S. Supreme Court

Hinckley v. Pittsburgh Bessemer Steel Co., 121 U.S. 264 (1887)

Hinckley v. Pittsburgh Bessemer Steel Company

Argued April 5, 1887

Decided April 18, 1887

121 U.S. 264

ERROR TO THE CIRCUIT COURT OF THE UNITED

STATES FOR THE NORTHERN DISTRICT OF ILLINOIS

Syllabus

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.

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