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Alaska
Packers' Association v. Domenico
17
F. 99 (9th Cir. 1902)
ROSS,
Circuit Judge. The libel [See note
at end of case] in this case was based upon a contract alleged to have been
entered into between the libelants and the appellant corporation on the 22d day
of May, 1900, at Pyramid Harbor, Alaska, by which it is claimed the appellant
promised to pay each of the libelants, among other things, the sum of $100 for
services rendered and to be rendered. In
its answer the respondent denied the execution, on its part, of the contract
sued upon, averred that it was without consideration, and for a third defense
alleged that the work performed by the libelants for it was performed under
other and different contracts than that sued on, and that, prior to the filing
of the libel, each of the libelants was paid by the respondent the full amount
due him thereunder, in consideration of which each of them executed a full
release of all his claims and demands against the respondent.
The evidence shows without conflict that on March 26, 1900, at the city
and county of San Francisco, the libelants entered into a written contract with
the appellant, whereby they agreed to go from San Francisco to Pyramid Harbor,
Alaska, and return, on board such vessel as might be designated by the
appellant, and to work for the appellant during the fishing season of 1900, at
Pyramid Harbor, as sailors and fishermen, agreeing to do “regular ship's duty,
both up and down, discharging and loading; and to do any other work whatsoever
when requested to do so by the captain or agent of the Alaska Packers’
Association.” By the terms of
this agreement, the appellant was to pay each of the libelants $50 for the
season, and two cents for each red salmon in the catching of which he took part.
On the 5th day of April, 1900, 21 of the libelants signed shipping
articles by which they shipped as seamen on the Two
Brothers, a vessel chartered by the appellant for the voyage between San
Francisco and Pyramid Harbor, and also bound themselves to perform the same work
for the appellant provided for by the previous contract of March 26th; the
appellant agreeing to pay them therefor the sum of $60 for the season, and two
cents each for each red salmon in the catching of which they should respectively
take part. Under these contracts, the libelants sailed on board the Two
Brothers for Pyramid Harbor, where the appellant had about $150,000 invested
in a salmon cannery. The libelants
arrived there early in April of the year mentioned, and began to unload the
vessel and fit up the cannery. A
few days thereafter, to wit, May 19th, they stopped work in a body, and demanded
of the company's superintendent there in charge $100 for services in operating
the vessel to and from Pyramid Harbor, instead of the sums stipulated for in and
by the contracts; stating that unless they were paid this additional wage they
would stop work entirely, and return to San Francisco. The evidence showed, and the court below found, that it was
impossible for the appellant to get other men to take the places of the
libelants, the place being remote, the season short and just opening; so that,
after endeavoring for several days without success to induce the libelants to
proceed with their work in accordance with their contracts, the company's
superintendent, on the 22d day of May, so far yielded to their demands as to
instruct his clerk to copy the contracts executed in San Francisco, including
the words “Alaska Packers’ Association” at the end, substituting, for the
$50 and $60 payments, respectively, of those contracts, the sum of $100, which
document, so prepared, was signed by the libelants before a shipping
commissioner whom they had requested to be brought from Northeast Point; the
superintendent, however, testifying that he at the time told the libelants that
he was without authority to enter into any such contract, or to in any way alter
the contracts made between them and the company in San Francisco.
Upon the return of the libelants to San Francisco at the close of the
fishing season, they demanded pay in accordance with the terms of the alleged
contract of May 22d, when the company denied its validity, and refused to pay
other than as provided for by the contracts of March 26th and April 5th,
respectively. Some of the
libelants, at least, consulted counsel, and, after receiving his advice, those
of them who had signed the shipping articles before the shipping commissioner at
San Francisco went before that officer, and received the amount due them
thereunder, executing in consideration thereof a release in full, and the others
being paid at the office of the company, also receipting in full for their
demands.
On the trial in the court below, the libelants undertook to show that the
fishing nets provided by the respondent were defective, and that it was on that
account that they demanded increased wages.
On that point, the evidence was substantially conflicting, and the
finding of the court was against the libelants, the court saying:
The contention of libelants that the nets provided them
were rotten and unserviceable is not sustained by the evidence. The defendant's interest required that libelants should be
provided with every facility necessary to their success as fishermen, for on
such success depended the profits defendant would be able to realize that
season from its packing plant, and the large capital invested therein.
In view of this self‑evident fact, it is highly improbable that
the defendant gave libelants rotten and unserviceable nets with which to fish.
It follows from this finding that libelants were not justified in
refusing performance of their original contract.
The evidence being sharply conflicting in respect to these facts, the
conclusions of the court, who heard and saw the witnesses, will not be
disturbed. ...
The
real questions in the case as brought here are questions of law, and, in the
view that we take of the case, it will be necessary to consider but one of
those. Assuming that the appellant's superintendent at Pyramid
Harbor was authorized to make the alleged contract of May 22d, and that he
executed it on behalf of the appellant, was it supported by a sufficient
consideration? From the foregoing
statement of the case, it will have been seen that the libelants agreed in
writing, for certain stated compensation, to render their services to the
appellant in remote waters where the season for conducting fishing operations is
extremely short, and in which enterprise the appellant had a large amount of
money invested; and, after having entered upon the discharge of their contract,
and at a time when it was impossible for the appellant to secure other men in
their places, the libelants, without any valid cause, absolutely refused to
continue the services they were under contract to perform unless the appellant
would consent to pay them more money. Consent
to such a demand, under such circumstances, if given, was, in our opinion,
without consideration, for the reason that it was based solely upon the
libelants' agreement to render the exact services, and none other, that they
were already under contract to render. The case shows that they willfully and
arbitrarily broke that obligation. ...
Certainly, it cannot be justly held, upon the record in this case, that
there was any voluntary waiver on the part of the appellant of the breach of the
original contract. The company
itself knew nothing of such breach until the expedition returned to San
Francisco, and the testimony is uncontradicted that its superintendent at
Pyramid Harbor, who, it is claimed, made on its behalf the contract sued on,
distinctly informed the libelants that he had no power to alter the original or
to make a new contract; and it would, of course, follow that, if he had no power
to change the original, he would have no authority to waive any rights
thereunder. ...
It results from the views above expressed that the judgment must be
reversed, and the cause remanded, with directions to the court below to enter
judgment for the respondent, with costs. It
is so ordered.
Note: A civil
action today begins with the plaintiffs filing a complaint. In admiralty law actions were begun by the filing of a
“libel;” and the person or persons seeking relief were called
“libelants.” Since 1966 the Federal Rules of Civil Procedure and Supp. Admiralty Rules have governed admiralty actions so that they
are now, like civil actions, commenced by complaint.
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Allegheny
College v. National Chautauqua Bank of Jamestown
246 N.Y. 369, 159 N.E. 173 (1927).
CARDOZO,
C.J. The plaintiff, Allegheny
College, is an institution of liberal learning at Meadville, Pa.
In June, 1921, a "drive" was in progress to secure for it an
additional endowment of $1,250,000. An
appeal to contribute to this fund was made to Mary Yates Johnston, of Jamestown,
New York. In response thereto, she signed and delivered on June 15,
1921, the following writing:
Estate Pledge, Allegheny College Second Century Endowment
Jamestown, N.Y., June 15, 1921.
In consideration of my interest in Christian education, and in
consideration of others subscribing, I hereby subscribe and will pay to the
order of the treasurer of Allegheny College, Meadville, Pennsylvania, the sum of
five thousand dollars: $5,000.
This obligation
shall become due thirty days after my death, and I hereby instruct my executor,
or administrator,
to pay the same out of my estate. This pledge shall bear interest at the rate of ____ per cent
per annum, payable annually, from ____ till paid.
The proceeds of this obligation shall be added to the Endowment of said
Institution, or expended in accordance with instructions on reverse side of this
pledge."
Name: Mary Yates Johnston
Address: 306 East 6th St., Jamestown, NY
Dayton
E. McClain, Witness
T.R.
Courtis, Witness, To
authentic signature.
On
the reverse side of the writing is the following endorsement:
In loving memory this gift shall be known as the Mary Yates Johnston
memorial fund, the proceeds from which shall be used to educate students
preparing for the ministry, either in the United States or in the Foreign Field.
This pledge shall be valid only on the condition that the provisions of
my will, now extant, shall be first met.
Mary Yates Johnston.
The subscription was not payable by its terms until 30 days after the
death of the promisor. The sum of
$1,000 was paid, however, upon account in December, 1923, while the promisor was
alive. The college set the money
aside to be held as a scholarship fund for the benefit of students preparing
for the ministry. Later, in July,
1924, the promisor gave notice to the college that she repudiated the promise.
Upon the expiration of 30 days following her death, this action was
brought against the executor of her will to recover the unpaid balance.
The
law of charitable subscriptions has been a prolific source of controversy in
this state and elsewhere. We have
held that a promise of that order is unenforceable like any other if made
without consideration. .
. If A promises B to make
him a gift, consideration may be lacking, though B has renounced other
opportunities for betterment in the faith that the promise will be kept.
The
half truths of one generation tend at times to perpetuate themselves in the law
as the whole truth of another, when constant repetition brings it about that
qualifications, taken once for granted, are disregarded or forgotten.
The doctrine of consideration has not escaped the common lot.
As far back as 1881, Judge Holmes in his lectures on the Common Law (page
292), separated the detriment, which is merely a consequence of the promise from
the detriment, which is in truth the motive or inducement, and yet added that
the courts "have gone far in obliterating this distinction."
The tendency toward effacement has not lessened with the years.
On the contrary, there has grown up of recent days a doctrine that a
substitute for consideration or an exception to its ordinary requirements can
be found in what is styled "a promissory estoppel" . .
. Certain, at least, it is
that we have adopted the doctrine of promissory estoppel as the equivalent of
consideration in connection with out law of charitable subscriptions.
So long as those decisions stand, the question is not merely whether the
enforcement of a charitable subscription can be squared with the doctrine of
consideration in all its ancient rigor. The
question may also be whether it can be squared with the doctrine of
consideration as qualified by the doctrine of promissory estoppel . . .
The
promisor wished to have a memorial to perpetuate her name.
She imposed a condition that the "gift" should "be known
as the Mary Yates Johnston Memorial Fund."
The moment that the college accepted $1,000 as a payment on account,
there was an assumption of a duty to do whatever acts were customary or
reasonably necessary to maintain the memorial fairly and justly in the spirit of
its creation. The college could not
accept the money and hold itself free thereafter from a personal responsibility
to give effect to the condition . .
. By implication it
undertook, when it accepted a portion of the "gift," that in its
circulars of information and in other customary ways when making announcement of
this scholarship, it would couple with the announcement the name of the donor.
The donor was not at liberty to gain the benefit of such an undertaking
upon the payment of a part and disappoint the expectation that there would be
payment of the residue. If the
college had stated after receiving $1,000 upon account of the subscription, that
it would apply the money tot he prescribed use, but that in its circulars of
information and when responding to prospective applicants it would deal with the
fund as an anonymous donation, there is little doubt that the subscriber would
have been at liberty to treat this statement as the repudiation of a duty
impliedly assumed, a repudiation justifying a refusal to make payments in the
future. Obligation in such circumstances is correlative and mutual .
. .
We
think the duty assumed by the plaintiff to perpetuate the name of the founder of
the memorial is sufficient in itself to give validity to the subscription within
the rules that define consideration for a promise of that order.
When the promisee subjected itself to such a duty at the implied request
of the promisor, the result was the creation of a bilateral agreement.
. .
The subscriber does not say: I hand you $1,000, and you may make up your
mind later, after my death, whether you will undertake to commemorate my name.
What she says in effect is this: I hand you $1,000, and if your are
unwilling to commemorate me, the time to speak is now.
. .
[The
judgment of the lower court in favor of the defendant is reversed.]
KELLOGG,
J. (dissenting). The Chief Judge
finds in the expression, "In loving memory this gift shall be known as the
Mary Yates Johnston Memorial Fund," an offer on the part of May Yates
Johnston to contract with Allegheny College.
The expression makes no such appeal to me.
Allegheny College was not requested to perform any act through which the
sum offered might bear the title by which the offeror states that it shall be
known. The sum offered was termed a
"gift" by the offeror. Consequently,
I can see no reason why we should strain ourselves to make it, not a gift, but a
trade. Moreover, since the donor
specified that the gift was made, "In consideration of my interest in
Christian education, and in consideration of others subscribing,"
considerations not adequate in law, I can see no excuse for asserting that it
was otherwise made in consideration of an act or promise on the part of the
donee, constituting a sufficient quid pro quo to convert the gift into a contract obligation.
To me the words used merely expressed an expectation or wish on the part
of the donor and failed to exact the return of an adequate consideration.
But if an offer indeed was present, then clearly it was an offer to enter
into a unilateral contract. The
offeror was to be bound provided the offeree performed such acts as might be
necessary to make the gift offered become known under the proposed name.
This is evidently the thought of the Chief Judge, for he says: "She
imposed a condition that the 'gift' should be known as the Mary Yates Johnston
Memorial Fund." In other words, she proposed to exchange her offer of a
donation in return for acts to be performed.
Even so, there was never any acceptance of the offer, and therefore no
contract, for the acts requested have never been performed at a time to
convert the offer into a promise. This
is so for the reason that the donation was not to take effect until after the
death of the donor, and by her death her offer was withdrawn .
. .
It
seems clear to me that there was here no offer, no acceptance of an offer, and
no contract. . .
Therefore I can see no ground for the suggestion that the ancient rule
which makes consideration necessary to the formation of every contract is in
danger of effacement through any decisions of this court.
To me that is a cause for gratulation rather than regret.
However, the discussion may be beside the mark, for I do not understand
that the holding about to be make in this case is other than a holding that
consideration was given to convert the offer into a promise.
With that result I cannot agree and, accordingly, must dissent."
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Batsakis
v. Demotsis
226
SW2d 673 (Court of Civil Appeals of Texas, 1949)
[We
used the following case in the first and second editions of Law and Economics
to illustrate he classical or bargain theory -- specifically, to introduce the
classical elements of a bargain: offer, acceptance, and consideration.
In this case, the order in which the facts are presented is confusing, so
here is a summary to help you get started.
Demotsis, finding herself in difficult circumstances in Nazi-occupied
Greece, borrowed money from Batsakis. The
Greek currency she borrowed was worth about $25 on the international market at
the time, but she signed a promissory note to repay the loan in United States
currency, specifically, to pay $2,000 plus interest.
After the war the two parties met in America, and Batsakis sought
repayment of the full amount of the note, whereas Demotsis offered to pay $25
plus interest. At the trial the
jury awarded Batsakis $750 plus interest, [How
the jury computed this odd award is not explained in the opinion.]
and
the case was appealed by Batsakis.]
McGILL, JUSTICE. This is an appeal from a judgment of the
57th judicial District Court of Bexar County. Appellant
was plaintiff and appellee was defendant in the trial court.
The parties will be so designated.
Plaintiff sued defendant to recover $2,000 with interest
at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a
translation from the original, which is written in the Greek language:
"Piraeus
April 2, 1942
Mr. George Batsakis
Konstantinou Diadohou #7
Piraeus
Mr. Batsakis:
I
state by my present (letter) that I received today from you the amount of two
thousand dollars ($2,000.00) of United States of America money, which I borrowed
from you for the support of my family during these difficult days and because it
is impossible for me to transfer dollars of my own from America.
The
above amount I accept with the expressed promise that I will return to you again
in American dollars either at the end of the present war or even before in the event you might be
able to find a way to collect them (dollars) from my representative in America
whom I will write and give him an order relative to this.
You understand until the final execution (payment) to the above amount
an eight per cent interest will be added and paid together with the principal.
I thank you and I remain yours with respects.
The recipient,
(Signed) Eugenia The. Demotsis."
Trial to the court without the intervention of a jury
resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2,
1942 to the date of judgment, totaling $1163.83, with interest thereon at the
rate of 8% per annum until paid. Plaintiff has [brought this appeal.]
[The
principal contention on appeal regards the allegations of the following
paragraph from the defendant's answer to the plaintiff's complaint:]
Plaintiff
avers that on or about April 2, 1942 she owned money and property and had credit
in the United States of America, but was then and there in the Kingdom of Greece
in straitened financial circumstances due to the conditions produced by World
War II and could not make use of her money and property and credit existing in
the United States of America. That
in the circumstances the plaintiff agreed to and did lend to
defendant the sum of 500,000 drachmae, which at that time, on or about April
2, 1942, had the value of $25.00 in money of the United States of America.
That said plaintiff knowing defendant's financial distress and desire to
return to the United States of America, exacted of her the written instrument
plaintiff sues upon, which was a promise by her to pay to him the sum of
$2,000.00 of United States of America money.
Defendant testified that she did receive 500,000 drachmas
from plaintiff. It is not clear
whether she received all of 500,000 drachmas or only a portion of them before
she signed the instrument in question. Her
testimony clearly shows that the understanding of the parties was that plaintiff
would give her the 500,000 drachmas if she would sign the instrument. She
testified:
Q ... .Who suggested the figure of $2,000.00?
A.
That was how he asked me from the beginning.
He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00
American money.
The
transaction amounted to a sale by plaintiff of the 500,000 drachmas in
consideration of the execution of the instrument sued on, by defendant.
It is not contended that the drachmas had no value. Indeed, the judgment
indicates that the trial court placed a value of $750.00 on them or on the other
consideration which plaintiff gave defendant for the instrument if he believed
plaintiff's testimony. Therefore
the plea of want of consideration was unavailing.
A plea of want of consideration amounts to a contention that the
instrument never became a valid obligation in the first place ...
Mere
inadequacy of consideration will not void a contract ...
Nor
was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to
her own testimony. The court should
have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the
instrument sued on, with interest as therein provided.
We construe the provision relating to interest at the rate of 6% per
annum from April 2, 1942. The
judgment is reformed so as to award appellant a recovery against appellee of
$2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942.
Such judgment will bear interest at the rate of 8% per annum until paid
on $2,000.00 thereof and on the balance interest at the rate of 6% per annum.
Reformed and affirmed.
Questions:
a.
The court states that "[m]ere inadequacy of consideration will not
void a contract" and that is said to be the controlling rule in this famous
case. What function did this rule
serve in common law?
b.
The sum of 500,000 drachmae supposedly had the wartime exchange value of
$25 U.S. And yet the borrower
agreed to pay the lender $2,000 in exchange for something objectively worth only
$25. Can you think of reasons why
the borrower might have knowingly been willing to make this extraordinary
exchange? That is, suppose that she
knew that the value of the loan was incredibly one-sided in favor of the lender.
Under the circumstances given in the opinion, might she have agreed anyway?
c.
Would your answer change if the borrower did not know the 1942 exchange
rate between dollars and drachmae? Suppose
she could have known, if only she had taken the time to ask someone.
What then?
d.
What might you do if the testimony had revealed that Batsakis was the
only person in 1942 Athens who had money to lend?
Is that likely to have been the case?
e.
Did the borrower expect to be held to the loan?
Should she have expected to be held to the loan's terms?
Does she appear to be capable of repaying it?
Why should we care about her expectations, or those of the lender, and
her capability to repay?
f.
Suppose that the Court of Civil Appeals of Texas had upheld the trial
court's finding that the loan was worth only $750.
What effect might that holding have had on future contractual exchanges
in Texas?
g.
What effect might there be on future contractual exchanges of the court's
holding that it will not inquire into the adequacy of consideration?
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BMW
v. Gore
517
U.S. 539, 116 S.Ct. 1589 (1996)
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Campbell
Soup Co. v. Wentz
172
F.2d 80 (3d Cir. 1949)
GOODRICH,
Circuit Judge. …
The transactions which raise the issues may be briefly summarized.
On June 21, 1947, Campbell Soup Company (Campbell), a New Jersey
corporation, entered into a written contract with George B. Wentz and Harry T.
Wentz, who are Pennsylvania farmers, for delivery by the Wentzes to Campbell of
all the Chantenay red cored carrots to be grown on fifteen acres of the Wentz
farm during the 1947 season. Where
the contract was entered into does not appear.
The contract provides, however, for delivery of the carrots at the
Campbell plant in Camden, New Jersey. The
prices specified in the contract ranged from $23 to $30 per ton according to the
time of delivery. The contract
price for January, 1948 was $30 a ton.
The Wentzes harvested approximately 100 tons of carrots from the fifteen acres
covered by the contract. Early in
January, 1948, they told a Campbell representative that they would not deliver
their carrots at the contract price. The
market price at that time was at least $90 per ton, and Chantenay red cored
carrots were virtually unobtainable. The
Wentzes then sold approximately 62 tons of their carrots to the defendant
Lojeski, a neighboring farmer. Lojeski
resold about 58 tons on the open market, approximately half to Campbell and the
balance to other purchasers.
On January 9, 1948, Campbell, suspecting that Lojeski was
selling it contract carrots, refused to purchase any more, and instituted these
suits against the Wentz brothers and Lojeski to enjoin further sale of the
contract carrots to others, and to compel specific performance of the contract.
The trial court denied equitable relief.
We agree with the result reached, but on a different ground from that
relied upon by the District Court. …
We think that on the question of adequacy of the legal remedy the case is one
appropriate for specific performance. It
was expressly found that at the time of the trial it was “virtually impossible
to obtain Chantenay carrots in the open market.”
This Chantenay carrot is one which the plaintiff uses in large
quantities, furnishing the seed to the growers with whom it makes contracts.
It was not claimed that in nutritive value it is any better than other
types of carrots. Its blunt shape
makes it easier to handle in processing. And
its color and texture differ from other varieties.
The color is brighter than other carrots.
The trial court found that the plaintiff failed to establish what
proportion of its carrots is used for the production of soup stock and what
proportion is used as identifiable physical ingredients in its soups. We do not think lack of proof on that point is material.
It did appear that the plaintiff uses carrots in fifteen of its
twenty-one soups. It also appeared that it uses these Chantenay carrots diced in
some of them and that the appearance is uniform. The preservation of uniformity in appearance in a food
Article marketed throughout the country and sold under the manufacturer's name
is a matter of considerable commercial significance and one which is properly
considered in determining whether a substitute ingredient is just as good as the
original.
The trial court concluded that the plaintiff had failed to establish that the
carrots, “judged by objective standards,” are unique goods.
[According to prevailing understanding, specific performance is the
appropriate remedy, as compared to an award of compensatory money damages, only
for unique goods.] This we think is not a pure fact conclusion like a finding
that Chantenay carrots are of uniform color.
It is either a conclusion of law or of mixed fact and law and we are
bound to exercise our independent judgment upon it. That the test for specific performance is not necessarily
“objective” is shown by the many cases in which equity has given it to
enforce contracts for articles -- family heirlooms and the like -- the value of
which was personal to the plaintiff.
Judged by the general standards applicable to determining the
adequacy of the legal remedy we think that on this point the case is a proper
one for equitable relief. There is
considerable authority, old and new, showing liberality in the granting of an
equitable remedy. We see no reason
why a court should be reluctant to grant specific relief when it can be given
without supervision of the court or other time-consuming processes against one
who has deliberately broken his agreement.
Here the goods of the special type contracted for were unavailable on the
open market, the plaintiff had contracted for them long ahead in anticipation of
its needs, and had built up a general reputation for its products as part of
which reputation uniform appearance was important.
We think if this were all that was involved in the case specific
performance should have been granted. …
The reason that we shall affirm instead of reversing with an order for specific
performance is found in the contract itself.
We think it is too hard a bargain and too one‑sided an agreement to
entitle the plaintiff to relief in a court of conscience [i.e., a court
that may award equitable relief]. For
each individual grower the agreement is made by filling in names and quantity
and price on a printed form furnished by the buyer. This form has quite obviously been drawn by skilful draftsmen
with the buyer's interests in mind.
Paragraph 2 provides for the manner of delivery.
Carrots are to have their stalks cut off and be in clean sanitary bags or
other containers approved by Campbell. This
paragraph concludes with a statement that Campbell’s determination of
conformance with specifications shall be conclusive.
The defendants attack this provision as unconscionable. We do not think that it is, standing by itself.
We think that the provision is comparable to the promise to perform to
the satisfaction of another and that Campbell would be held liable if it refused
carrots which did in fact conform to the specifications.
The next paragraph allows Campbell to refuse carrots in excess of twelve tons to
the acre. The next contains a
covenant by the grower that he will not sell carrots to anyone else except the
carrots rejected by Campbell nor will he permit anyone else to grow carrots on
his land. Paragraph 10 provides
liquidated damages to the extent of $50 per acre for any breach by the grower.
There is no provision for liquidated or any other damages for breach of
contract by Campbell.
The provision of the contract which we think is the hardest is paragraph 9, set
out in the margin. It will be noted
that Campbell is excused from accepting carrots under certain circumstances.
But even under such circumstances the grower, while he cannot say
Campbell is liable for failure to take the carrots, is not permitted to sell
them elsewhere unless Campbell agrees. This
is the kind of provision which the late Francis H. Bohlen would call “carrying
a good joke too far.” What the grower may do with his product under the
circumstances set out is not clear. He
has covenanted not to store it anywhere except on his own farm and also not to
sell to anybody else. …
We are not suggesting that the contract is illegal. Nor are we suggesting any excuse for the grower in this case
who has deliberately broken an agreement entered into with Campbell.
We do think, however, that a party who has offered and succeeded in
getting an agreement as tough as this one is, should not come to a chancellor
and ask court help in the enforcement of its terms.
That equity does not enforce unconscionable bargains is too well
established to require elaborate citation.
The judgments will be affirmed.
Question:
What do you think the more appropriate remedy was in this case -- compensatory
money damages or specific performance?
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The Case
of the Speluncean Explorers
“The
murder case that came before the Supreme Court of Newgarth in the fall of the
year 4300 presented problems that had not arisen within anyone’s memory and
for which not even the dustier volumes of the law reports offered any precedent.
The four defendants had been tried and convicted in the Court of General
Instances of the County of Stowfield for the murder of their traveling companion
Roger Whetmore. In accordance with Newgarth’s very succinct murder
statute—”Whoever shall willfully take the life of another shall be punished
by death” (N.C.S.A. [N.S.] Sec. 12-A)—they had been sentenced to death by
hanging. They had appealed to the Supreme Court, and it was now up to the five
justices to affirm or reverse the trial court.
The four defendants and Roger Whetmore were all members of the Speluncean
Society, a group of amateur cave explorers and archaeologists. In May, 4299, the five set out to explore the interior of a
limestone cavern located in the Central Plateau. While the five men were probing the remote inner reaches of
the cave, a powerful landslide shook the area.
A barrage of massive boulders rained down in front of the cave and
blocked its only exit. Although
physically unscathed, the five explorers found themselves hopelessly immured in
the rubble, with little more than a meager supply of water, wine, and dates to
last them through the indefinite future.
The absence of the five men was soon noticed.
Their families grew alarmed and called on the secretary of the society to
undertake a search. It turned out that the explorers had left at the society’s
headquarters fairly exact indications of their whereabouts, and a rescue party
was immediately sent out for them. But
freeing them proved far from easy. The
society’s rescue party was no match for the primordial boulders.
Heavy machinery had to be moved in from far away.
A whole army of workmen, engineers, geologists, and other experts had to
be assembled. Fresh landslides
repeatedly intervened to make working conditions hazardous and progress slow. Ten workmen ultimately died in the rescue effort.
As the days wore on, the rescuers grew increasingly anxious that
starvation might kill the explorers long before a passageway could be cut
through the detritus. Though considered hardy souls, the explorers were known to
have taken only scant provisions along, and limestone caverns rarely, if ever,
contain any nourishing vegetable or animal matter. On the twentieth day,
however, the rescuers learned by accident that the explorers had with them a
portable wireless machine capable of sending and receiving messages. A similar
machine was installed in the rescue camp and communication established with the
imprisoned men. The prisoners turned out to be unexpectedly alert and remarkably
rational and detached about their predicament. Roger Whetmore, the most
experienced among them, did most of the talking.
He asked how long it would take to liberate them. The engineers estimated
it would take at least ten more days, provided no new landslides occurred.
Whetmore then asked whether any physicians were present and was immediately put
in touch with a committee of medical experts.
He described to them with precision what was left of the sparse rations
they had taken with them into the cave. Taking
turns, each of the prisoners then described his physical condition.
Finally, Whetmore asked for a medical opinion whether they were likely to
survive the next ten days. Despite
some initial reluctance to answer, the committee chairman admitted that there
was little likelihood of that. The
wireless machine then remained silent for eight hours.
Finally, Whetmore’s voice reappeared; he asked to speak once more to
the physicians. His voice
unnaturally loud and quavering ever so slightly, he inquired of the chairman
whether they would be able to survive if they ate the flesh of one of their
number. The chairman refused to answer.
When Whetmore continued to press him, he finally agreed that they
probably would. Whetmore then asked
whether it would be advisable for them to cast lots to determine who among them
should be sacrificed. The chairman
again refused to answer; this time he remained adamant.
None of the other physicians [was] willing to respond either.
Whetmore asked if there were among the party a judge or other government
official who could answer his question. No one responded, not even the secretary
of the society who was, in fact, a justice of the peace. Whetmore asked if there
were a minister or priest who would answer his question but no one stepped
forward, although a priest had only recently performed the last rites on a dying
workman. The wireless machine then went dead, and it was assumed—erroneously,
as it turned out—that the batteries had been exhausted.
Conscious that time was running out, the rescuers speeded up their
efforts. They took risks they would ordinarily have avoided; as a result, six
more workmen were killed by another unexpected landslide. Eight days after the
exchange with Whetmore, they finally laid bare the cave’s exit. Four of the
men were still alive, although close to expiration. The fifth, Roger Whetmore,
was dead. His skeletal remains told
most of the story, but the survivors made no secret of what had happened. On the
twenty-third day of their captivity the defendants had killed and eaten their
companion.
Ironically, Roger Whetmore had been the first to propose such a
sacrifice. Not only would this ensure that at least some of them survived, he
said, but even the victim had reason to be grateful for being spared the agony
of a slow death by starvation. He for one, should the lot fall on him, would
prefer it that way. Although at first repelled by the idea, his colleagues
acquiesced in Whetmore’s proposal when they heard the dire predictions of the
medical experts. Whetmore happened to have a pair of dice with him; hence that
was the method adopted for choosing the victim. But just before the dice were
cast, Roger Whetmore had a change of heart and suggested that they wait another
week before resorting tot so awesome a remedy. The others disagreed. They
charged him with a breach of faith and proceeded to roll the dice. When
Whetmore’s turn came, he refused to participate. Someone else rolled the dice
in his behalf. They asked Whetmore if he had any objections to the fairness of
the throw; he said he did not. The roll went against him.
The defendants were treated at length for malnutrition and shock and
finally were put on trial. The trial was one of the least contentious in
Newgarth’s history, since there was little disagreement on the facts. Still,
the jury deliberated for a long time. At one point, the foreman—as it
happened, a lawyer—asked the court whether the jury might be allowed simply to
issue a special verdict finding all the facts and leaving it to the trial judge
to determine whether under those facts the defendants were guilty. Both sides
agreed to this proposal; and the court acquiesced. Then, having examined the
jury’s rather unsurprising findings, he held the defendants guilty of murder
and, as required, sentenced them to death. This done, he added his name to a
petition drawn up by the defendants’ supporters and carrying the signature of
hundreds of citizens, including the twelve jurors, requesting the chief
executive to pardon and release the defendants. The chief executive, however,
let it be known that he would not consider the petition before the Newgarth
Supreme Court had passed on the defendants’ appeal.”
From Leo Katz, Bad Acts and
Guilty Minds 8 - 10 (1987). See also David L. Shapiro, "Foreword:
A Cave Drawing for the Ages," 112 Harv. L. Rev. 1834 (1999) (in
"The Case of the Speluncean Explorers: A Fiftieth Anniversary
Symposium") and the Opinions by Judge Alex Kozinski, Professor Robin
West, Professor Alan M. Dershowitz, Judge Frank Easterbrook, and Professor Paul
Butler.
Question:
Assume that you are the Chief Justice of the Supreme Court of Newgarth.
Write a one-page opinion resolving this case.
(See "The Queen v. Dudley and Stephens" below.)
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Carnival
Cruise Lines, Inc. v. Eulala Shute, et vir.
499 U.S. 585, 111 S.Ct. 1522
(1991)
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Colfax
Envelope Corp. v. Chicago Graphic Communications International Union
20 F.3d 750 (7th Cir. 1994)
POSNER, Chief Judge.
This appeal in a suit over a collective bargaining agreement
presents a fundamental issue of contract law, that of drawing the line between
an ambiguous contract, requiring interpretation, and a contract that, because it
cannot be said to represent the agreement of the parties at all, cannot be
interpreted, can only be rescinded and the parties left to go their own ways.
Colfax, the plaintiff, is a manufacturer of envelopes.
It does some printing of its envelopes, and the seventeen employees who
do the printing are represented by the defendant union.
Colfax has two printing presses. One
prints 78-inch-wide sheets in four colors.
The other prints 78-inch-wide sheets in five colors, but most of the time
Colfax prints only four-color sheets on it.
Colfax
has so few printing employees that it does not bother to participate in the
collective bargaining negotiations between the union and the Chicago
Lithographers Association, an association for collective bargaining of the other
Chicago printing companies whose employees are represented by this union.
Instead, whenever the union and the CLA sign a new collective bargaining
agreement, the union sends Colfax a summary of the changes that the new
agreement has made in the old one. If
Colfax is content with the changes, the union sends it a copy of the complete
new agreement, which Colfax signs and returns.
If Colfax doesn't like the terms negotiated by the CLA, it is free to do
its own bargaining with the union.
The
collective bargaining agreements specify minimum manning requirements for each
type of press used by the printers. The
agreement in force between 1987 and 1991 fixed those minima as three men for
four-color presses printing sheets 45 to 50 inches wide and four men for four-color
presses printing sheets wider than 50 inches.
Five‑color presses printing sheets more than 55 inches wide
required five men unless only four colors were printed, in which event only four
men were required. The upshot was
that under these agreements, all of which Colfax had signed, Colfax had to man
each of its presses (which were 78-inch presses) with four men except on the
rare occasions when it printed five-color sheets on its second press, and then
it had to add a man.
In 1991
the union negotiated a new agreement with the CLA and sent a summary of the
changes to Colfax. The letter
enclosing the summary asked Colfax to indicate whether it agreed to the terms in
the summary. (This may have been a
departure from past practice, in
which Colfax signed the complete agreement rather than the summary, but if so
neither party makes anything of it.) In
a section on manning requirements, the summary lists "4C 60-inch Press -- 3
Men" and "5C 78-inch Press -- 4 Men."
Believing (in part because union members who claimed to be familiar with
the new agreement had told Colfax that Colfax would really like the changes in
it) that this meant that all presses operated as four-color presses would now
require only three men to man them, Colfax's president and majority shareholder,
Charles Patten, signed the union's letter, indicating acceptance of the terms in
the summary. Later a copy of the actual agreement arrived, but it
contained a crucial typo, which supported Patten's understanding of the summary.
When a corrected copy of the agreement finally arrived, the manning
requirements stated in it were different from what Patten had understood from
the summary. Four-color presses
between 45 and 60 inches required three men, but all four-color presses over 60
inches required four men. The changes had not benefited Colfax at all, and because it
was under competitive pressure, it would have liked to negotiate better terms.
Patten refused to sign the agreement but the union took the position that
Colfax was bound to it by its acceptance of the summary.
Colfax
brought this suit under section 301 of the Taft-Hartley Act,
29 U.S.C. § 185, for a declaration that it has no collective bargaining
contract with the union because the parties never agreed on an essential term --
the manning requirements for Colfax's printing presses.
The union counterclaimed for an order to arbitrate.
The union's position was that Colfax had accepted the new agreement,
which requires arbitration of all disputes "arising out of the application
or interpretation of this contract." The
district judge granted summary judgment for the union, concluding that the
reference to the new manning requirement for a four-color 60-inch press in the
summary of changes that Colfax had accepted referred unambiguously to 60-inch
presses and had no application to any other presses, such as Colfax's 78-inch
presses. Colfax has appealed.
One way to describe the issue that divides the
parties is that they disagree about the meaning of the term "4C 60-inch
Press -- 3 Men." Colfax
believes that it means four-color presses printing sheets 60 inches and over,
while the union believes that it means four-color presses 60 inches and under
(down to 45 inches). Remember that
the previous agreement had allowed the use of three-man crews on four-color
presses between 45 and 50 inches. The union interprets the change as extending the upper bound
of the three-man range to 60 inches. Ordinarily a dispute over the meaning of a
contractual term is, if the contract contains an arbitration clause, for the
arbitrator to decide. But sometimes
the difference between the parties goes so deep that it is impossible to say
that they ever agreed -- that they even have a contract that a court or
arbitrator might interpret. In the
famous though enigmatic and possibly misunderstood case of Raffles v.
Wichelhaus, 2 H. & C. 906, 159 Eng.Rep. 375 (Ex. 1864), the parties made
a contract for the delivery of a shipment of cotton from Bombay to England on
the ship Peerless. Unbeknownst
to either party, there were two ships of that name sailing from Bombay on
different dates. One party thought
the contract referred to one of the ships, and the other to the other.
The court held that there was no contract; there had been no "meeting of the minds."
See generally A. W. Brian Simpson, "Contracts for Cotton to Arrive:
The Case of the Two Ships Peerless," 11 Cardozo L. Rev. 287
(1989).
The premise -- that a "meeting of the
minds" is required for a binding contract -- obviously is strained.
... Most contract disputes
arise because the parties did not foresee and provide for some contingency that
has now materialized -- so there was no meeting of minds on the matter at issue
-- yet such disputes are treated as disputes over contractual meaning, not as
grounds for rescinding the contract and thus putting the parties back where they
were before they signed it. So a literal meeting of the minds is not required for an
enforceable contract, which is fortunate, since courts are not renowned as mind
readers. Let us set the concept to one side, therefore, and ask how (else) to
explain Raffles v. Wichelhaus and cases like it.
It seems to us as it has to other courts that a contract ought to be
terminable without liability and the parties thus allowed to go their own ways
when there is "no sensible basis for choosing between conflicting
understandings" of the contractual language, as the court said in an
American Raffles-like case, Oswald v. Allen,
417 F.2d 43, 45 (2d Cir.1969), quoting William F. Young, Jr., "Equivocation
in the Making of Agreements," 64 Colum. L. Rev. 619, 647 (1964).
In Oswald the misunderstanding arose because the parties did not
speak the same language (literally). In
Balistreri v. Nevada Livestock Production Credit Association, 214
Cal.App.3d 635, 262 Cal.Rptr. 862 (1989), the parents of an aspiring farmer
thought they had pledged property they owned in Sebastopol to secure a loan to
their son, and indeed the lender's cover letter described the property as
"your Sebastopol residence." But
the actual deed of trust listed the parents' home in Petaluma as the collateral.
The court held that there had been no meeting of the minds.
Raffles and Oswald were cases in
which neither party was blamable for the mistake;
Balistreri a case in which both were equally blamable, the parents
for having failed to read the deed of trust, the lender for having drafted a
misleading cover letter. It is all
the same. ... If neither party can be assigned the greater blame for
the misunderstanding, there is no nonarbitrary basis for deciding which party's
understanding to enforce, so the parties are allowed to abandon the contract
without liability. ...
The clearest cases for rescission on the ground
that there was "no meeting of the minds" (or, better, that there was a
"latent ambiguity" in the sense that neither party knew that the
contract was ambiguous) are ones in which an offer is garbled in transmission.
The cases we have cited are all of that character, if
"transmission" is broadly construed.
Vickery v. Ritchie, 202 Mass. 247, 88 N.E. 835 (1909), provides a
further illustration. A landowner
and a contractor signed what they believed to be duplicate copies of a contract
for the construction of a Turkish bath house.
Because of a fraud by the architect for which neither the contractor nor
the landowner could be blamed, the copy signed by the landowner stated the price
as $23,000 and the copy signed by the contractor stated it as $34,000. Through no fault of their own, the parties had signed
different contracts. Or consider Konic
International Corp. v. Spokane Computer Services, Inc., supra.
The seller quoted a price of "fifty-six twenty," which the
buyer thought meant $56.20. In fact the seller had meant $5,620. In both cases rescission was permitted, the first being a
case in which neither party was at fault, the second one in which both were
equally at fault, being careless in their utterance and interpretation,
respectively, of an ambiguous oral formula.
Our case
is superficially similar. The
actual terms of the 1991 agreement were muddied in the summary that the union
gave Colfax and that Colfax signed, making it possible that the parties had
different understandings. The
difference between this case and the others is that Colfax, unlike the hapless
promisors in the cases we have cited, should have realized that the contract was
unclear. The buyer in Konic
thought -- really thought -- that he was being quoted a price of $56.20, and no
doubt fell off his stool when he discovered that the price was a hundred times
greater than he thought. But the
expression "4C 60-inch Press" does not on its face speak to the
minimum manning requirement for a 4C 78-inch Press.
The union's interpretation, that
the phrase merely extended the upper bound of the old range for three-man
four-color presses from 50 to 60 inches, may or may not be correct.
The fact that the union restated and clarified the interpretation in the
corrected agreement that it sent Colfax is not decisive on the question, because
it is the summary rather than the corrected full agreement that is the contract
between these parties. But Colfax,
if reasonable, could not have doubted from reading the summary that
interpretations of the kind that the union and the district judge later placed
upon it would be entirely plausible. Colfax
had a right to hope that its interpretation would prevail but it had no right to
accept the offer constituted by the summary on the premise that either its
interpretation was correct or it could walk away from the contract. "Heads I win, tails you lose," is not the spirit
that animates the principle that latent ambiguity is a ground for rescission of
a contract.
It is common for contracting parties to agree --
that is, to signify agreement -- to a term to which each party attaches a
different meaning. It is just a
gamble on a favorable interpretation by the authorized tribunal should a dispute
arise. Parties often prefer to
gamble in this way rather than to take the time to try to iron out all their
possible disagreements, most of which may never have any consequence.
Colfax gambled on persuading an arbitrator that the reference in the
summary to the four-color 60-inch press meant what Colfax believes it means.
The union gambled on the arbitrator's adopting the meaning that the union
later made clear in the full agreement -- but, to repeat, if there is a contract
it is (the parties agree) the summary, read in light of the collective
bargaining agreement that was being modified, that is the contract between these
parties.
When
parties agree to a patently ambiguous term, they submit to have any dispute over
it resolved by interpretation. That
is what courts and arbitrators are for in contract cases -- to resolve
interpretive questions founded on ambiguity.
It is when parties agree to terms that reasonably appear to each of them
to be unequivocal but are not, cases like that of the ship Peerless where the
ambiguity is buried, that the possibility of rescission on grounds of mutual
misunderstanding, or, the term we prefer, latent ambiguity, arises.
A reasonable person in Colfax's position would have realized that its
interpretation of the term "4C 60-inch Press -- 3 Men" might not
coincide with that of the other party or of the tribunal to which a dispute over
the meaning of the term would be submitted.
It threw the dice, and lost, and that is the end of the case.
It cannot gamble on a favorable interpretation and, if that fails,
repudiate the contract with no liability. ...
We would
have a different case if the ambiguity were over whether the parties had agreed
to arbitrate their disputes. The
duty to arbitrate is contractual, and the interpretation of the contract that
creates the duty is for the court. ...
But courts will not allow a party to unravel a contractual arbitration
clause by arguing that the clause was part of a contract that is voidable,
perhaps because fraudulently induced. ...
The party must show that the arbitration clause itself, which is to say
the parties' agreement to arbitrate any disputes over the contract that might
arise, is vitiated by fraud, or lack of consideration or assent[;]
that in short the parties never agreed to arbitrate their disputes.
... Colfax and the union had
in a long course of dealing always agreed to submit their contractual disputes
to arbitration, so the only question is whether their dispute in this case was a
dispute over the meaning of their contract.
It was, so it had to be arbitrated, for that was the parties' chosen
method of resolving disagreements, whether or not Colfax would have signed on to
the 1991 agreement had it realized
what the agreement actually meant or could be interpreted to mean.
...
We go
further: Even if, contrary to our
earlier analysis, there was no "meeting
of the minds" (in the artificial sense in which the law of contracts uses
the term) on the manning requirements in the 1991 agreement, there was a meeting
of the minds on the mode of arbitrating disputes between the parties arising
from any collective bargaining contract (including a summary of changes in a
previous contract) that Colfax signed. Under the Supreme Court's decision
in Prima Paint, a contract dispute is arbitrable even if one party argues
that the contract should be rescinded because it does not express an actual
agreement of the parties, for example because it was induced by fraud.
All that is important is that the parties have agreed that arbitration
rather than adjudication would be the mode of resolving their disputes.
A different view would in many cases deprive the arbitrator of an
important contract remedy -- rescission. This
point has implications for the scope of the arbitrator's responsibilities, of
which more presently.
We thus
affirm the district judge's decision, but point out that her conclusion that the
disputed term unequivocally bears the meaning that she assigned to it (which
incidentally is not identical to the union's interpretation, for she thought it
a point -- 60-inch presses, period -- while the union thought it a range --
60-inch presses and down) does not bind the arbitrator. His is the responsibility, subject to the excruciatingly
limited right of judicial review of arbitral decisions, to interpret the
agreement. It will therefore be
open to Colfax to argue to the arbitrator that, under a proper interpretation of
the contract, there really was no meeting of the minds over the manning
requirements and therefore that the contract should be rescinded after all. The only essential point at this stage of the litigation is
that whether or not there was (as we believe, without meaning to bind the
arbitrator) such a meeting of minds, there was sufficient mutual understanding
to create an enforceable contract to submit the issue to arbitration.
AFFIRMED.
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Davis
v. Gage
106 Idaho 735, 685 P.2d 1282
(Idaho Ct. Appeals, 1984)
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Dolan
v. Tigard
__
U.S. __, __ S.Ct. __ (1994)
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Evra
Corp. v. Swiss Bank Corp.
673
F.2d 951 (7th Cir. 1982)
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Groves
v. Wunder
205
Minn. 163, 286 N.W. 235 (Minn. 1939)
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Hadley
v. Baxendale
9 Ex. 341, 156
Eng. Rep. 145 (1854).
[As with most old English
Appellate cases the account begins with a "headnote" by the Court Reporter
describing the "facts" as they are revealed by the pleadings, and
summarizing the proceedings below.]
At the trial
before Crompton J., at the last Gloucester Assizes, it appeared that the
plaintiffs [Joseph and Jonah Hadley, whose firm was known as "City Flour
Mills"] carried on an extensive business as millers at Gloucester; and
that, on the 11th of May, their mill was stopped by a breakage of the crank
shaft by which the mill was worked. The
steam-engine was manufactured by Messrs. Joyce & Co., the engineers, at
Greenwich, and it became necessary to send the shaft as a pattern for a new
one to Greenwich. The fracture
was discovered on the 12th, and on the 13th the plaintiffs sent one of their
servants to the office of the defendants, who are the well-known carriers
trading under the name of Pickford & Co., for the purpose of having the
shaft carried to Greenwich. The
plaintiffs' servant told the clerk that the mill was stopped, and that the shaft
must be sent immediately; and in answer to the inquiry when the shaft would be
taken, the answer was, that if it was sent up by twelve o'clock any day, it
would be delivered at Greenwich on the following day.
On the following day the shaft was taken by the defendants, before noon,
for the purpose of being conveyed to Greenwich, and the sum of [2 pounds
sterling 4 shillings] was paid for its carriage for the whole
distance; at the same time the defendants' clerk was told that a special entry,
if required, should be made to hasten its delivery.
The delivery of the shaft at Greenwich was delayed [for one week, till
Saturday the 21st, because the shaft was sent by canal rather than by rail]; and
the consequence was, that the plaintiffs did not receive the new shaft for
several days after they would otherwise have done, and the working of their mill
was thereby delayed, and they thereby lost the profits they would otherwise have
received.
[The Hadleys brought an action against Pickfords and named Joseph Baxendale, the
London-based managing director of the firm, as the defendant.
Pickfords was unincorporated and, therefore, Baxendale was personally
liable for any judgment against the firm. Originally
the Hadleys contended that they had lost five days of milling and 300 pounds
sterling in lost profit because of Pickford's delay. At trial they
claimed only 200 pounds sterling in losses, and witnesses testified as to
120 pounds sterling in lost profits. The case was given to the jury, and they awarded the Hadleys
50 pounds sterling in damages. The
defendants believed that these damages were too remote, that they were
"consequential" and not a direct result of their delay in delivery and
that, therefore, the judge below should have instructed the jury to limit their
award only to the direct result of the breach. They appealed to the Court of Exchequer, presided over by
Barons Alderson, Martin, and Parke.]
ALDERSON,
B. We think that there ought
to be a new trial in this case; but, in so doing, we deem it to be expedient and
necessary to state explicitly the rule which the Judge, at the next trial,
ought, in our opinion, to direct the jury to be governed by when they estimate
the damages. .
.
Now we think the proper rule in such a case as the present is this: Where two
parties have made a contract which one of them has broken, the damages which the
other party ought to receive in respect of such breach of contract should be
such as may fairly and reasonably be considered either arising naturally, i.e.,
according to the usual course of things, from such breach of contract itself, or
such as may reasonably be supposed to have been in the contemplation of both
parties, at the time they made the contract, as the probable result of the
breach of it. Now, if the special
circumstances under which the contract was actually made were communicated by
the plaintiffs to the defendants, and thus known to both parties, the damages
resulting from the breach of such a contract, which they would reasonably
contemplate, would be the amount of injury which would ordinarily follow from a
breach of contract under these special circumstances so known and communicated.
But, on the other hand, if these special circumstances were wholly
unknown to the party breaking the contract, he, at the most, could only be
supposed to have had in his contemplation the amount of injury which would arise
generally, and in the great multitude of cases not affected by any special
circumstances, from such a breach of contract.
For, had the special circumstances been known the parties might have
specially provided for the breach of contract by special terms as to the damages
in that case; and of this advantage it would be very unjust to deprive them.
Now the above principles are those by which we think the jury ought to be
guided in estimating the damages arising out of any breach of contract.
...
Now, in the present case, if we are to apply the principles above laid down, we
find that the only circumstances here communicated by the plaintiffs to the
defendants at the time the contract was made, were, that the article to be
carried was the broken shaft of a mill, and that the plaintiffs were the millers
of that mill. But how do these
circumstances shew reasonably that the profits of the mill must be stopped by
an unreasonable delay in the delivery of the broken shaft by the carrier to the
third person? Suppose the
plaintiffs had another shaft in their possession put up or putting up at the
time, and that they only wished to send back the broken shaft to the engineer
who made it; it is clear that this would be quite consistent with the above
circumstances, and yet the unreasonable delay in the delivery would have no
effect upon the intermediate profits of the mill.
Or, again, suppose that, at the time of the delivery to the carrier, the
machinery of the mill had been in other respects defective, then, also, the same
results would follow. Here it is
true that the shaft was actually sent back to serve as a model for a new one,
and that the want of a new one was the only cause of the stoppage of the mill,
and that the loss of profits really arose from not sending down the new shaft in
proper time, and that this arose from the delay in delivering the broken one to
serve as a model. But it is obvious
that, in the great multitude of cases of millers sending off broken shafts to
third persons by a carrier under ordinary circumstances, such consequences
would not, in all probability, have occurred; and these special circumstances
were here never communicated by the plaintiffs to the defendants.
It follows, therefore, that the loss of profits here cannot reasonably be
considered such a consequence of the breach of contract as could have been
fairly and reasonably contemplated by both the parties when they made this
contract. For such loss would
neither have flowed naturally from the breach of this contract in the great
multitude of such cases occurring under ordinary circumstances, nor were the
special circumstances, which, perhaps, would have made it a reasonable and
natural consequence of such breach of contract, communicated to or known by the
defendants. The Judge ought,
therefore, to have told the jury, that, upon the facts then before them, they
ought not to take the loss of profits into consideration at all in estimating
the damages. There must therefore
be a new trial in this case. ...
Note:
See the discussion of this case in Richard Danzig, "Hadley
v. Baxendale: A Study in the Industrialization of the Law," 4 J.
Legal Stud. 249 (1975).
Note, too, that the facts as reported in the headnote are not exactly the same
as those used by Baron Alderson in deciding this case. Specifically, it appears to be the case
that the Hadleys' agent did mention to the carrier that there was a
special urgency attached to getting the shaft back as quickly as possible.
Questions:
1. What
is the default rule announced in Hadley? Is that rule
efficient? Why is it a default rule and not a mandatory rule?
2.
What would the state of the world be if the default rule announced in Hadley
were the opposite way around? That is, would it be less efficient if the
default rule were that the breacher was routinely liable for all the
innocent party's losses?
Back to Index of
Cases
Hamer
v. Sidway
124
N.Y. 538, 27 N.E. 256 (Court of Appeals of New York, 1891)
[At
a family celebration and in the presence of family and invited guests, William
E. Story, Sr., the uncle of William E. Story, 2d, promised his nephew that if
the nephew would refrain from drinking, using tobacco, swearing, and playing
cards or billiards for money until he was 21 years old, the uncle would pay him
$5,000. The nephew agreed and
abided by the terms of his uncle's promise.
When the nephew asked for his money, the uncle replied that he fully
intended to hand over the $5,000, but that he felt that he should keep the money
until the nephew got his feet on the ground.
The nephew never received the money; eventually he transferred his right
to receive the $5,000 plus interest to another person named Hamer. Presumably
Hamer was willing to give him immediate cash, say, $4,000. Before Hamer could collect the $5,000 plus interest from the
uncle, the uncle died. So, in the
opinion excerpted below, Hamer is suing Sidway, who is the executor of the
uncle's estate, to recover $5,000 plus interest.
On his 21st birthday the nephew William E. Story, 2d,
wrote to his uncle, William E. Story, Sr., to tell him that he had performed his
part of the promise and thought he was entitled to the $5,000.
The uncle shortly thereafter wrote the following letter to his
nephew:
"Buffalo, Feb. 6, 1875, W. E. Story, Jr.--
Dear Nephew; Your letter of the 31st ult. came to hand all right, saying
that you had lived up to the promise made to me several years ago.
I have no doubt but you have, for which you will have five thousand
dollars, as I promised you. I had the money in the bank the day you was [sic] twenty one
years old that I intend for you, and you have the money certain.
Now Willie, I do not intend to interfere with this money in any way till
I think you are capable of taking care of it, and the sooner that time comes the
better it will please me. I would
hate very much to have you start out in some adventure that you thought all
right and lose this money in one year. The
first five thousand dollars that I got together cost me a heap of hard work ...
This money you have earned much easier than I did, besides, acquiring good
habits at the same time, and you are quite welcome to the money.
Hope you will make good use of it. I
was ten long years getting this together after I was your age ... Truly yours,
W. E. Story.
P. S. You can consider this money on interest."
The
nephew received the letter, and thereafter consented that the money should
remain with his uncle in accordance with the terms and conditions of the letter.
The uncle died on the 29th day of January, 1887, without having paid over
to his nephew any portion of the said $5,000 and interest.
Sometime after February, 1875, the nephew had transferred his entitlement
to Hamer, who has presented the claim for the money to Sidway, the executor of
the uncle's estate.]
PARKER,
J. ... The defendant contends that the contract was without consideration to
support it, and therefore invalid. He
asserts that the promisee, by refraining from the use of liquor and tobacco, was
not harmed, but benefited; that that which he did was best for him to do,
independently of his uncle's promise,--and insists that it follows that, unless
the promisor was benefited, the contract was without consideration,--a
contention which, if well founded, would seem to leave open for controversy in
many cases whether that which the promisee did or omitted to do was in fact of
such benefit to him as to leave no consideration to support the enforcement of
the promisor's agreement. Such a
rule could not be tolerated, and is without foundation in the law ...
"Consideration' means not so much that one party is profiting as that the
other abandons some legal right in the present, or limits his legal freedom of
action in the future, as an inducement for the promise of the first."
Now, applying this rule to the facts before us, the promisee used
tobacco, occasionally drank liquor, and he had a legal right to do so.
That right he abandoned for a period of years upon the strength of the
promise of the testator that for such forbearance he would give him $5,000.
We need not speculate on the effort which may have been required to give
up the use of those stimulants. It
is sufficient that he restricted his lawful freedom of action within certain
prescribed limits upon the faith of his uncle's agreement, and now, having fully
performed the conditions imposed, it is of no moment whether such performance
actually proved a benefit to the promisor, and the court will not inquire into
it; but, were it a proper subject of inquiry, we see nothing in this record that
would permit a determination that the uncle was not benefited in a legal sense.
Questions:
a.
The court held that the nephew should be paid the sum promised, even
though the promise appeared to have been made informally at a family gathering
where toasts and other gestures of goodwill were part of the celebration.
How will courts decide which promises are made in earnest and which
promises are frivolously made?
b.
In this case the parties to the promise were uncle and nephew.
Should courts be more reluctant to enforce promises between family
members than between strangers?
c.
The court indicates that its decision turns on the fact that the nephew
had relied on the uncle's promise. Would
any type of reliance make the promise of a gift into an enforceable promise?
Or must the reliance be "reasonable" under the circumstances?
d.
The court in this case indicates that the nephew's abstinence from liquor
and tobacco was something of value foregone by the nephew in reliance upon the
uncle's promise.