Kelley, Maus & Co. v. La Crosse Carriage Co.

97 N.W. 674, 120 Wis. 84, 102 Am. St. Rep. 971, 1903 Wisc. LEXIS 178

• Court: Wisconsin Supreme Court
• Decided: December 11, 1903
• Status: Published

Opinion

Dodge, J.

The rule of law is general that he who breaks ■■a, contract is liable to compensate the other party for all damages occasioned by the breach, which might reasonably be expected to flow therefrom, under either ordinary circumstances, or peculiar circumstances of which the contractor is informed at the time of contracting. Such damages are deemed to hare been contemplated by the parties. Hadley v. Baxendale, 9 Exch. 341; Griffin v. Colver, 16 N. Y. 489; Shepard v. Milwaukee G. L. Co. 15 Wis. 318; Quetzkow B. Co. v. A. H. Andrews & Co. 92 Wis. 214, 66 N. W. 119. Snch liability is, of course, limited to damages which reasonable diligence of the other contracting party could not avert; hence results that, in case of failure to deliver a commodity purchasable in the open market, the general damages are limited to the difference between the market price and the contract price, for reasonable diligence will in such case obtain the contracted article at the market price. Another limitation upon special damages is that they must not be so uncertain and conjectural that they cannot, with practical safety, be ascertained. Griffin v. Colver, supra; Shepard v. Milwaukee G. L. Co. supra; Wright v. Mulvaney, 78 Wis. 89, 46 N. W. 1045; Treat v. Miles, 81 Wis. 280, 50 N. W. 896. It is under this last limitation that prospective profits have in many cases been held not a proper measure of damages. If, however, the contemplated result of breach of a contract is to deprive the innocent party of profits, the defaulting party ought to compensate him therefor. Otherwise complete justice is not done, and" the contract, which in ultimate analysis is the foundation of commerce, is robbed wholly or partially of its sanction. Only when the estimate of prospective profits involves such degree of speculation and uncertainty that it is likely to work injustice, rather than justice, should courts reject it if loss of profits is the result of the breach of the contract. Richardson v. Chynoweth, 26 Wis. 656; Poposkey v. Munkwitz 68 Wis. 322, 32 N. W. 35; Treat v. Hiles, supra; Shadbolt & B. I. Co. v. Topliff, 85 Wis. 513, 55 N. W. 856; Schumaker v. Heinemann, 99 Wis. 251, 74 N. W. 785.

Attempting to apply these principles to the damages in the present case, some rules for ascertaining the damages recoverable become obvious: First, if tbe defendant, upon ascertaining tbe breach of tbis contract, with ordinary diligence, that is, tbe diligence which the ordinarily prudent and diligent man, or the great mass of mankind, under like circumstances, would have exercised, could have promptly obtained springs such as those specified in the contract in the open market, he can recover, as general damages, only the difference between the price at which he could so have obtained them and the contract price, together with such special damages as he must nevertheless have suffered, such as necessary expenses in finding and procuring such other springs, or in his efforts, consistent with reasonable prudence and diligence,, to expedite delivery of contract springs. Of course, defendant’s acts in omitting to make purchases of springs which had to be manufactured before they could be furnished must be viewed in the light of all the circumstances, including the frequent assurances from plaintiff that it would ship soon, and probably earlier than the springs could be made elsewhere. Plaintiff cannot complain because defendant relied on such assurances and pretermitted efforts to buy elsewhere, if such would have been the conduct of ordinarily prudent persons under those circumstances. If, on the other hand, the evidence shall disclose that springs such as defendant contracted for were not purchasable in the open market, or were of designs specially adapted for defendant’s vehicles and obtainable only by special order to some manufacturer, so that they were not obtainable by such diligence as above defined, and that, by plaintiff’s failure to deliver at the time agreed, defendant was prevented from producing from its factory the number of vehicles which, but for the plaintiff’s delay in delivering, that factory would, with reasonable certainty, have produced, and that defendant, with reasonable certainty, would have been able to sell all of such output during the them current season, in such case it is clear the defendant would have lost the difference .between the cost of manuf act-lire and tbe net selling price of tbe vehicles it was so prevented from manufacturing and selling. Such sum, then, it would be entitled to recover from plaintiff, if tbe latter bad knowledge of such facts with reference to defendant’s business, or to tbe vehicle manufacturing business generally, that its officers or agents, as reasonable men, should have contemplated that such injury might probably result from failure to supply springs at tbe time required by tbe contract. This is in effect allowing defendant tbe value of tbe use of its factory so far as that use was prevented by tbe breach of tbe contract, a method of measuring damages approved in Hinckley v. Beckwith 13 Wis. 31. This method of measuring tbe damage is greatly more certain and comprehensive than that contended for by defendant, consisting of numerous elements. Thus tbe attempt to prove that defendant bad orders for certain vehicles of which a part were canceled because of its delays in filling them, and to predicate thereon damages to tbe amount of tbe profits included in tbe price of tbe countermanded vehicles, involves tbe fallacious assumption that tbe profit on any such vehicles left on band has been lost. Any •such vehicles may afterwards have been, or may yet be, sold to others at tbe same or greater price. Again, tbe attempt, uncertain at best, to estimate tbe extent to which men in tbe ■several departments of tbe factory were kept in idleness by failure of seasonable delivery of springs, in order that their ■lost time might be recovered as a specific element of damage, is rendered wholly unnecessary, for that element will be included in tbe lost use of tbe factory and plant. Further, it is notable that allowance of both tbe last mentioned elements of damage would involve some measure of duplication. Still further, it appeared that defendant diminished its force somewhat, both in its factory and in its selling department. Now, if profits on countermanded orders were adopted, we see no reason why savings resulting from reduction of expenses must not be ascertained and deducted. That necessity disappears if we ascertain the value of the lost use of the whole establishment as measured bj comparison of its output according, to its capacity under usual circumstances and its output as impaired by plaintiffs default. That, in the case of a long-established business, past experience may establish with sufficient certainty what would have been the course and results of that business during a certain period of interruption, has-support from Hinckley v. Beckwith, supra; Shepard v. Milwaukee G. L. Co. 15 Wis. 318; Shadbolt & B. I. Co. v. Topliff, 85 Wis. 513, 55 N. W. 854; Schumaker v. Heinemann, 99 Wis. 251, 74 N. W. 785. It is also held that the events which do in fact occur may serve to render sufficiently certain the damages, if they are not so extraordinary or beyond expectation that they would not have been reasonably within the contemplation of the contracting parties. Treat v. Hiles, 81 Wis. 280, 50 N. W. 896; Guetzkow B. Co. v. A. H. Andrews & Co. 92 Wis. 214, 66 N. W. 119; McCall Co. v. Icks, 107 Wis. 232, 83 N. W. 300.

In addition to the element of damage already discussed,, denominated “lost use of factory,” the defendant is also entitled to recover the expenses of any efforts made by it, consistent with due and reasonable diligence, to avert such general damages, in the way of certain journeys of officers and employees to Racine and to Chicago to expedite the shipment of springs under this contract, after plaintiffs default became-apparent; also in the way of some other trips to find and purchase springs from others to supply the place of those plaintiff had failed to deliver on time, together with the necessary increased cost of any springs so purchased. This class of damage results from the duty of the defendant already mentioned to exercise due diligence to minimize its damages after learning that plaintiff would default. The expense of such efforts is directly attributable to the breach of the contract, and, being but the legal duty of defendant, was, of course, within the contemplation of the parties at the time of contracting.

As we have already intimated, the liability of tbe plaintiff for any damages depends on whether it ought reasonably to have contemplated that damages of the general character anight probably result from a failure to deliver springs at the time agreed. This does not require that it must have exact knowledge or information in detail. One who sells to a merchant necessarily contemplates that he will resell in the ordinary way, and at profits not unreasonably variant from the ■customary ones. One who sells to a manufacturer parts of vehicles, with a fixed time of delivery, must of necessity contemplate that their nondelivery at the time specified will inconvenience and disarrange the system of manufacturing. Especially is this true if he is familiar with the conduct of such factories generally. Hence it was entirely proper for -defendant to have proved knowledge of the plaintiff’s officers or agents as to the operation of such manufacturing plants, resulting either from its years of contact with such business, ■or from specific information given as to defendant’s own situation or as to its sales, either made or expected, and the like, although the information did not extend to all the details, ■such as the persons to whom, or the prices at which, sales had been or were expected to be made. Factories are ordinarily operated at a profit, therefore a reasonable man may be assumed to contemplate that an interruption of the operation will cause loss to its owners. He need not know in detail just what loss, provided it be reasonable and within usual experience. Guetzkow B. Co. v. A. H. Andrews & Co. supra.

We have now indicated, at least generally, the elements which, in the light of the counterclaim and the evidence offered, may go to make up the damages recoverable under the third counterclaim, if the jury shall find the facts to warrant them. In so doing, we have by implication shown that very many of the exclusions of evidence assigned as error were ■erroneous, and we may dispense with discussion of most of such assignments, which are very numerous. Such rulings on evidence resulted from primary errors as to the rule of damages and of the extent to which plaintiff must have had knowledge, in all the details, of the effects which its delay in delivery of springs would have on defendant. We may, however, briefly mention some of the classes of evidence which the court excluded:

As already said, the court should have admitted any evidence tending to prove even general knowledge on the part of the plaintiff of how the wagon business was carried on, either in manufacturing, selling, or obtaining the necessary supplies of material; whether such knowledge was derivable from its general familiarity with the wagon business, or from facts communicated to it at or prior to the time of the making of the contract.

Evidence of the custom of operating the factory, tending to show the manner in which, and extent to which, nonsupply of springs interrupted its operation and diminished its efficacy, was admissible.

Also evidence of the actual effect of absence of springs after the time at which the respondent was bound by contract to make delivery. This may involve the extent to which men were kept in idleness or the efficiency of their labor impaired, and the nonutility or lessened utility of any springs received from the plaintiff after the contract period, and especially after the alleged close of the season.

Also proof of the capacity of the shop during the period of complete or partial interruption after the springs were due, confined, however,.to that which was ordinary and usual.

We are unable to discover the relevancy,, however, of the money value of the time of men lost by reason of want of springs,, as it is not a proper specific element of recovery.

Another class of evidence which was clearly admissible was that tending to show that def endant had sufficient supply of materials and parts of wagons — other than springs — and' of labor to keep its factory running to an extent not exceeding that which was usual and customary.

Also evidence to prove the fact of sales in excess of what the factory was able to produce with the shortage of springs. To this end the orders received, either before or after the contract, were relevant, provided they did not exceed such as-should have been within the reasonable contemplation of the-parties.

We, however, do not deem admissible proof of the profits-on the specific vehicles included in these orders, for reasons-already stated.

Another class of evidence which, generally, should have been admitted, was that bearing upon whether a market existed from which the defendant, with reasonable diligence,, could have supplied itself promptly enough to have avoided other damage by merely paying some enhanced price for springs. In this is involved testimony which was offered that springs in quantity sufficient for factories such as this-were ordinarily obtained and obtainable only by contract long enough in advance to enable their manufacture; also-description of the springs contracted for, to the extent at least of showing whether they were peculiar in any of their details, so as to be especially adapted to the types of vehicles-manufactured by defendant.

Evidence was also admissible to show the diligence exercised by the defendant, after it had reasonable ground to believe that plaintiff would default in seasonable delivery, ra-the way of attempting to obtain springs elsewhere or to expedite the shipments from plaintiff’s place of manufacture,, and therein to show representations and promises on the part of the-plaintiff which might have induced it to forego efforts-which it might otherwise have made; as, for example, in the-release or partial release of its former contract with the Lewis-Company of Michigan.

Defendant should also be permitted to prove expenses incurred in such reasonably diligent efforts to obtain springs after it ascertained that the plaintiff could not furnish them within the time limit of the contract.

Various letters between the defendant and the Higgins Spring Company, at whose factory plaintiff was having the contract springs manufactured, were offered in evidence. Possibly the fact of the writing of some of these letters might have been admissible as bearing upon the defendant’s diligence, but of course they are res inter alios acta, and could not be received as evidence of any facts stated in them.

Evidence having been given of the receipt of a letter from the plaintiff, referred to in a letter received in evidence, and that diligent search had been made for that letter, but that it could not be found, offer was made to prove its contents by the testimony of a witness who had seen it. This was excluded, on what theory we do not understand. If the letter itself was material and its loss was established, the foundation for secondary evidence of its contents would seem to-have existed. Notice to the plaintiff to .produce it was not essential, for there was no reason to suppose that it was in plaintiff’s custody, having been written to and received by the defendant.

The court rightly excluded evidence offered to show wilfulness of the plaintiff in its breach of the contract. Such fact was wholly irrelevant. Motive could neither create nor increase its liability in this action, founded upon breach of ‘contract.

A special contention is made that, although plaintiff might not have had knowledge of such facts as to make it contemplate all the results of its breach at the time of the making of the contract in December, still on February 23d following it entered into a new agreement, upon consideration that defendant should refrain from supplying itself with springe elsewhere, that it would deliver all the springs mentioned in tbe former contract witbin thirty days from that date, and tbat at tbat time it received certain additional and specific information of tbe predicament in which failure of delivery would plunge tbe defendant. Doubtless, if a new and valid agreement was made at tbat time, it would be material to establish tbe knowledge which tbe plaintiff bad as affecting its liability for a breach of tbat agreement, provided any counterclaim bad been .pleaded for such damages. We find no such counterclaim, however. There is no allegation of a contract later than and different from tbat confessedly made on December l^tb, hence the fact of tbe communications to plaintiff on February 23d was not relevant, and was 'rightly excluded.

From tbe foregoing it is of course obvious tbat tbe court also erred in directing a verdict in favor of the plaintiff, denying tbe defendant all recovery upon its third counterclaim. Evidence bad been introduced or offered to establish tbe breach of tbe contract, to establish, at least, various efforts on tbe part of tbe defendant to minimize tbe damages resulting from tbat breach, in tbe way of seeking to obtain springs both from tbe plaintiff and from others, and tbat it bad succeeded to some extent. Evidence bad also been admitted of certain expenses in so doing, although tbat as to other expenses bad been excluded. There was also evidence certainly tending to establish general damages in the line of impairment of tbe output of tbe factory, as above discussed, and tbe long experience of plaintiff in dealing with factories of this general character, so tbat, even from tbe evidence actually admitted, tbe jury might have found facts to warrant some recovery.

By the Gowrt. — Judgment reversed, and cause remanded for a new trial.