Paola Gas Co. v. Paola Glass Co.

44 P. 621, 56 Kan. 614, 1896 Kan. LEXIS 69

• Court: Supreme Court of Kansas
• Decided: April 11, 1896
• Docket: No. 8150
• Status: Published

Opinion

The opinion of the court was delivered by

Johnston, J.

' books as : The principal inducement for establishing a glass factory at Paola was the cheap fuel which it was supposed could be obtained there, and which the gas company agreed to furnish. The manufacture of glassware was an untried enterprise in the West. It was unsuccessful, and the cause of the failure is the main subject of dispute. On.one side, it is contended, that it was due to an insufficient supply of gas, which the gas company had agreed to furnish ; and on the other side, the contention is that the supply was ample, but that the factory was defective in plan and faulty in construction, so that the gas supplied was not utilized. The findings of the referee, based as they are upon conflicting testimony, settle the contention in favor of the glass company. It must be assumed in this review that the sole cause of the failure was the violation of the contract by the gas company in refusing to furnish the quantity of gas that it had agreed and whs able to supply. The contract having been broken by the gas company, it must be held liable for all the direct and proximate damages which resulted from the breach. How shall the damages be measured? The allowance made by the referee was in two items: First, $9,000 for the expense incurred in the unsuccessful attempt to operate the factory; and, second, $10,000 for the anticipated profits of running the factory for a period of 10 months. As to the first item, there is no dispute except as to the amount of the allowance. It is conceded that the glass company is entitled to recover the actual loss incurred in the unsuccessful attempt to operate the factory. There is a controversy as to what constitutes actual expense of operation, and it is contended that the allowances made were not established by competent testimony. In an attempt to show that expense or loss, the president of the glass company was permitted to state the amount of the pay-rolls of the company and the contents of some of the books of account. He did not have the pay-rolls or books at hand, and it does not appear that he had prepared or kept them. It is clear from his testimony that he had not personally attended to the payments for labor, material, utensils, machinery, and repairs, and he did not pretend to have any definite knowledge as to either items or amounts, except as he obtained them from the books and accounts. In the absence of personal knowledge of the witness or other proof of actual payment, the expenses incurred could properly have been shown by the pay-rolls and books ; but before they could have been offered it was necessary that they should have been identified, and to show that they were kept in such a manner as to make their contents receivable in evidence. There was no showing as to what the books were — whether they contained a pay-roll, and under whose direction or supervision they were kept; whether the entries therein were correct, or made at or near the time when payments were made. Without having transacted the business, or having any recollection of the facts independently of rhe books, he was allowed to testify of losses amounting to $9,000, which were necessarily made up from a great number of items. The information which he had, however correct it may have been, was derived from others and from books and accounts of which it is not shown that he had any knowledge at all. His testimony as to what was shown by the pay-rolls and books is obviously incompetent. This was substantially all the testimony upon which the greater part of the allowance for the net cost .of the unsuccessful operation of the plant rested. His testimony was that the pay-rolls showed that over $7,000 was paid ,to operatives, while in. another part of his testimony he stated that the. cost of the product.made during the time of operation was between $5,000. and $6,000 ; and upon this incompetent and inconsistent testimony the referee found that the amount paid to operatives was $5,650.. . The testimony, upon this matter was incompetent. and wholly. insufficient to sustain ’the finding that was made.

workmen imported. Objection.is made to the allowance of the expenses in bringing operatives to Paola.-. It appears, that men skilled in the manufacture of glass could not.be found in. Kansas, and therefore the company was obliged to go to St. Louis and other points for skilled operatives. In order to manufacture glassware it was necessary to have men who were skilled in that business : and, if it was necessary to pay the cost of their transportation m order to induce them to come west, we think it may be treated as a part of the expenses of the actual operation of the factory.

officers— payment. The allowances made to the officers of the corporation are contested. The mere fact that they were officers of the corporation, or that they might have been entitled to salaries from the corporation, does not require that the salaries shall be treated as a part of the expenses of operation. If the services performed by them were necessary to the operation of the factory, the compensation which the ° company had agreed or was required to pay for such services should be treated as a part of the expense of operation for which the gas company is liable. The liability, however, should be confined to actual expenses, properly and necessarily incurred in the unsuccessful attempt to manufacture glass. Some of the testimony regarding the expenses of operation was incompetent, as we have seen, and some was weak in failing to show that the expenses allowed were reasonable and necessary, or necessarily and actually paid out; and the fact that the referee made an allowance of about $4,000 more than was claimed in the petition emphasizes the errors that were committed.

The main contention, however, in the case is over the allowance of prospective profits. The contract was doubtless made, and the enterprise undertaken, for the profits expected to be gained. The gas company must have been aware that that was the purpose of the venture, and if the failure was due to the fault of that company it cannot escape liability for the actual loss sustained. It is urged that damages cannot be measured by the anticipated profits, as the calculation is necessarily based on conjecture, rather than upon facts. It is the aim of the law to give a party injured by the breach of a contract all the damages which he may suffer from such breach ; and where the contract is made with a view to future profits, and such profits are within the contemplation of the parties, they may, where they can be established with certainty, form a just measure of damage. It has been said that, as a general rule with a few exceptions, anticipated profits prevented are not recoverable in the way of damages for the breach of contract; but it is well settled in this state that damages based on prospective profits which would have been realized had the contract been performed may be allowed, providing they are fairly within the contemplation of the parties, are the direct and natural consequence of the breach of the contract, and are susceptible of being ascertained with reasonable certainty. (Hoge v. Norton, 22 Kan. 374; Brown v. Hadley, 43 id. 267; Town Co. v. Lincoln, ante, p. 145, 42 Pac. Rep. 706.)

i. Breach oí contracts-proles — iTe Xagelof All the authorities agree that profits which are conjectural, and cannot be measured by the usual rules of evidence to a reasonable degree of certainty, are not recoverable. The manufacture of glass in Kansas was subject to many uncertain contingencies, and the profits that would have been realized if the business had continued are largely a matter of speculation and conjecture. No such business had ever been established in Kansas, the material found here had not been used for the making of glass, and whether the natural gas discovered at Paola could be successfully applied and utilized was a problem. In many respects the manufacture was only an experiment. It is estimated, however, that in the brief period of 10 months, and with only a small investment, the net profits would have reached the sum of $10,000. The success of the adventure depended not alone on the supply of fuel. If material could be obtained at fair prices, skilled and careful workmen employed at reasonable wages, and kept steadily at work, and if, with fuel, material, labor, and skill, the large product that was estimated by the referee could have been made, the enterprise might still fail. A market must be found for the product, and it would have to be sold in a new field for an amount in excess of the cost of production. That involves the advertising of the business and the company, which, as yet, had no standing in the business world, the building up of a credit and a reputation, the state of the glass trade in the country during the 10 months, including the fluctuations of the market, the competition that would have to be met, the railroad rates, and the cost of sale and distribution. There are other elements of uncertainty; and what assurance is there that any profit whatever could have been made during the continuance of the contract ? Then there are the mishaps which usually attend the establishing of a new industry— the delay or failure in obtaining suitable material, the breaking of machinery, accidents in the application of natural gas, which was an untried fuel, or resulting from the careless or unskilful acts of employees, a misfortune in the melt of the glass, which sometimes occurs, breaking utensils or appliances that would have caused both delay and expense. It will be conceded that only a small proportion of the industrial enterprises attempted are successful, and a much fewer number of them realize profits during the first 10 months of their existence. If it had been an established business, or if other manufactories of a like kind existed in Kansas under similar conditions, there would.be some basis of estimating profits; but we fail to find any safe guide in measuring the gains that would have been made by this factory if fuel had been supplied. Some of the parties connected with this enterprise had been engaged in the manufacture of glass at St. Louis, where coal was used for fuel; but the testimony discloses that its operation resulted in losses rather than gains. Who can say that there would have been a different result by the operation of a factory in Kansas for the short period of 10 months ? Where the expected profits x x depend upon so many contingencies and are so uncertain and speculative in character as in this case, a different measure of damages must be employed. (Town Co. v. Leonard, 46 Kan. 354.)

2- recovery^ Much reliance is placed upon the rulings of this court in the cases of Hoge v. Norton, supra ; Brown v. Hadley, supra; and Town Co. v. Lincoln, supra. All of these cases are close to the border line dividing profits which may be allowed from those which should be rejected. In each of them, however, the business upon which profits were allowed was not new or untried, but had been established and carried on to such an extent in the community that a safe basis of calculation could be found. In Hoge v. Norton, supra, profits were estimated on the cattle business, which is well established in Kansas, and is carried on to such an extent that the laws of feeding and growth are well understood, and the results reasonably certain. In Brown v. Hadley, supra, the business was dairying, which, it was said, has been extensively engaged in ever since the settlement of the state, and that therefore the gains could be estimated by men of experience in that business with reasonable certainty. In Town Co. v. Lincoln, supra, the breach of the contract resulted in breaking up an established business, and the profits that had been made for a reasonable period next preceding the time of the breach furnished a reasonably certain basis of calculating those that would have been realized if no breach had occurred. All of these cases recognize the rule that uncertain and contingent profits are excluded by the law, and in them there is nothing to support the allowance of profits on a business entirely new in this section of the country, and where there is no basis upon which to determine whether any profit whatever would have been made. We think a safer and better rule may be found for measuring the damages, and in cases where they may be estimated in a variety of ways, that rule should be adopted which is most definite and certain. A just measure, and one which is conceded by the plaintiff in error, is the rental value of the idle factory, and, if it has no rental value, then interest on the money invested in the same, together with interest on any idle working capital which could not be used by reason of the violation of the contract. Considering the uncertainties attending the manufacture of glass in this state, we think the measure suggested is a safer standard for measuring the loss than the anticipated profits could be. The view taken that profits are not allowed in a case of this character is in accordance with the current of authority, but only a few of the cases will be cited : Abbott v. Gatch, 13 Md. 314 ; Todd v. Railway Co., 39 Minn. 186 ; Poposkey v. Munkwitz, 68 Wis. 322 ; Griffin v. Colver, 16 N. Y. 489 ; Benton v. Fay, 74 Ill. 417; Railway Co. v. Howison, 86 id. 215 ; Pennypacker v. Jones, 106 Pa. St. 237 ; Allis v. McLean, 48 Mich. 428 ; Dixon-Woods Co. v. Glass Co., 32 Atl. Rep. 432; Iron Works v. Oatmeal Co., 55 N. W. Rep. 518 ; Bridges v. Lanham, 14 Neb. 369 ; Rhodes v. Baird, 16 Ohio St. 573 ; Mining Co. v. Fraser, 130 U. S. 611; Howard v. Manufacturing Co., 139 id. 199 ; Jones v. Call, 96 N. C. 337; Brownell v. Chapman, 84 Iowa, 504.

The judgment of the district court will be reversed, and the cause remanded for another trial.

All the Justices concurring.