Jackson v. Washington, Baltimore, & Annapolis Electric Railway Co.

Mr. Justice Robb

delivered the opinion of the Court:

There are but two assignments of error, both relating to the court’s instruction to the jury as to the measure of damages. Since the question as to whether the appellee was guilty of a breach of the contract was submitted to the jury at the instance of the appellee, it is estopped to deny the propriety of such submission. Capital Traction Co. v. Brown, 29 App. D. C. 473, 12 L.R.A. (N.S.) 831, 10 A. & E. Ann. Cas. 813; Steven v. Saunders, 34 App. D. C. 321. We are here concerned, therefore, with the single question of the correctness of the court’s instruction as to the measure of damages.

As to the rule of damages to be applied to the ties actually in possession of the contractor when the breach occurred, there is no controversy. The contractor admits that, as to them, damages based on the difference between the contract price and the market value would be proper. Our inquiry, therefore, narrows to the ties not in the possession of the contractor at that .time.

The Supreme Court of the United States appears squarely to have met this issue in Roehm v. Horst, 178 U. S. 1, 44 L. ed. 953, 20 Sup. Ct. Rep. 780. In that case, the plaintiff had contracted with the defendant to supply him with hops for a period of five years, at a fixed price.- There was a breach by the defendant after partial performance by the plaintiff. The plaintiff introduced evidence showing at what prices he could have made subcontracts for the sale of the hops which defendant refused to take, these prices being considerably lower than those named in the.original contract. After reaffirming the prevailing and undoubted doctrine that after refusal to perform by one party to a contract, the other party need make no further attempt to carry out its provisions, but may consider it at an end, the court said: “As to the question of damages, if the. action is not premature, the rule is applicable that plaintiff is entitled to compensation, based, as far as possible, on the ascertainment of what he would have suffered by -the continued breach of the other party down to the time of complete performance, less any abatement by reason of circumstances of which he ought reasonably to have availed himself. If a vendor is to manufacture goods, and, during the process of manufacture, the contract is repudiated, he is not bound to complete the manufacture,. and estimate his damages by the difference between the market price and the contract price, but the measure of damage is the difference between the contract price and the cost of performance. Hinckley v. Pittsburgh Bessemer Steel Co. 121 U. S. 264, 30 L. ed. 967, 7 Sup. Ct. Rep. 875. Even if, in such cases, the manufacturer actually obtains his profits before the time fixed for performance, and recovers on a basis of cost which might have been increased or diminished by subsequent events, the party who broke the contract before the time for complete performance cannot complain, for he took the risk involved in such anticipation. If the vendor has to buy instead of to manufacture, the same principle prevails, and he may show what was the value of the contract by showing for what price he could have made subcontracts, just as the cost of manufacture in the case of a manufacturer may be shown. Although he may receive his money earlier in this way, and may gain or lose by the estimation of his damages in advance of the time for performance, still, as we have seen, he has the right to accept the situation tendered him, and the other party cannot complain.

“In this case, plaintiffs showed at what prices they could have made subcontracts for forward deliveries according to the contracts in suit, and the difference between the prices fixed by the contracts sued on and those was correctly allowed.”

In the recent case of River Spinning Co. v. Atlantic Mills, 155 Fed. 466, the plaintiff contracted to sell, and the defendant to buy, a quantity of wool. It was contemplated that plaintiff would manufacture same at its mills, but there was no limitation to that effect, and the court found that “its [plaintiff’s] obligation would have been fully performed by the tender of yarn of like quality, spun at other mills.” When the breach took place, the plaintiff had manufactured and had on hand but a portion of the undelivered yarn. As to this yarn, the court held that the measure of damages “should he the difference between the contract price and the value of the yarn in plaintiff’s hands.” But, as to yarn not manufactured and on hand, the court said: “While this is a just rule to determine a loss of profits on goods ready for delivery at the time of the breach, as was pointed out in Kingman & Co. v. Western Mfg. Co. 34 C. C. A. 489, 92 Fed. 486, 490, it is not the true rule as to goods not then made and ready for delivery. It is a just rule for the buyer in a suit by him, because, on the breach, having the money in hand, he may procure the goods on the market, and charge the seller- with the difference. But to measure the damages of a seller who has not the goods on hand by the difference between the contract price and the market price is often impractical, and would often be unjust. ■ It would be equally unjust in a case where the seller was to make the goods himself, and in a case where he was to procure the goods from other manufactures or jobbers. If the vendor can make his goods for less than the market price, he is entitled to his actual profit. If his goods are to be bought, or to be made for him by other contractors, above the market price, then his profit would be smaller than the difference between the contract price and the market price. Only if the cost of production and the market price at the breach were the same would the rule be just, and this is practically to say that the rule would seldom be a just mode of determining the loss of profits.

“That there is in a suit by the seller no proper basis for a distinction between goods which he is to manufacture (whether bound to manufacture or-not) and goods which he is to buy, instead of to manufacture, is apparent from the reasoning of the Supreme Court in Roehm v. Horst, 178 U. S. 1, 21, 44 L. ed. 953, 961, 20 Sup. Ct. Rep. 780.” See also: Tufts v. Weinfeld, 88 Wis. 647, 60 N. W. 992; Olyphant v. St. Louis Ore Steel Co. 28 Fed. 729; Eckenrode v. Chemical Co. 55 Md. 51.

The decisions cited leave no room for doubt as to the rule to be applied here in determining damages. We therefore hold that the contractor is entitled to recover the difference between the contract price of the ties which the company refused to take, but which the contractor .did not have on hand when the breach occurred, and the amount which it would have cost the contractor to supply them. As to the ties actually on hand at the date of the breach, we have already stated that the measure of damages should be the difference between the contract price and the market value.

The unjustness of the rule contended for by appellee is obvious. Its adoption would tend seriously to hamper business transactions, because of the clanger of financial loss to which one contracting party might be exposed by a breach which the other could often make with impunity. The purpose of the law is to discourage, rather than invite, the repudiation of contractual obligations. When a party to a contract elects to break it, he does so at his peril; he can derive no advantage from his own misconduct. The damages are to be determined with reference to what the purchaser actually has done, and not with reference to what he agreed to do. In cases where the purchaser refuses to take goods which the seller actually has on hand, the seller, if there be a market for the goods, can usually dispose of them with no serious inconvenience or loss; but where the seller has not the goods in possession at the time of the breach, a far different situation is presented. As pointed out above, the manner in which the seller expected to acquire the goods is immaterial in this connection, that is, the seller is no less entitled to relief because he was to obtain the goods from subcontractors or jobbers, rather than manufacture or produce them himself. The manner of acquisition employed affects merely the profits realized or expected, not the rule of law which makes those profits allowable as damages. After the purchaser has refused to accept more goods under the contract, the seller not only may, but must, treat the contract as at an ond. In other words, while he may be entitled to damages under the contract, he cannot, after breach thereof, increase those damages by a failure to heed the warning given by the purchaser. It often happens in contracts of this sort that the seller, especially where he does business on limited capital, which consists mainly of the security or credit created by the contract, is so crippled by the breach that he is forced out of business or to heavy sacrifice. To compel him to go ahead and acquire the undelivered goods in an attempt to avert the consequences of an act for which he was not responsible would be so manifestly unjust that it merits no further consideration. It is but equitable that the purchaser should be accountable for a situation which he has produced; he is estopped to claim any advantage thereby.

As above stated, the just and true rule is to visit upon the party responsible for a situation not contemplated in the contract the embarrassment and damage occasioned by his own conduct. He has agreed that the contract shall cover a certain period, and without reason he has abruptly terminated that contract.' We see no reason in law or in equity why the damage occasioned by the breach should not be adjusted as of that date. If the seller has part of the goods on hand, the damages as to those goods will be the difference between the contract price and the market price. As to the goods not on hand, the damages will be the difference between the contract price and the cost of performance;, that is, the difference between what the purchaser had agreed to pay for the goods and what it would have cost the seller to supply them. This rule, as previously pointed out, discourages the repudiation of contractual obligations, protects the innocent party, and visits upon the offending party the natural consequences flowing from his misconduct.

The company has placed much reliance on the case of Yellow Poplar Lumber Co. v. Chapman, 20 C. C. A. 503, 42 H. S. App. 21, 74 Fed. 444. The incompleteness of the report of that case leaves the facts in some doubt. Whether Chapman owned or was in possession of all or only a part of the timber which the company refused to accept after having contracted therefor is somewhat uncertain. At all events, even if the case were in point, and authority for the contention of the com.pany, it would be contrary to the decided weight of authority on this question, as already indicated.

The company now contends that even though it did break the contract, the contractor had all the undelivered ties on hand when the breach occurred; hence, as the contract price and the market price of those ties were the same, he suffered no damage. We have examined the record with care, and find no evidence to substantiate the contention that the contractor had all the undelivered ties on hand when the breach took place. On the contrary, the testimony tends strongly to a conclusion that he had but a portion of them, which testimony the company, at the trial, made no effort to overcome. In fact, the trial appears to have proceeded upon the theory that he did not so possess them, for at no time did he contend that, as'to the ties actually on hand at the date of the breach, the measure of damages allowed by the trial court was unjust.

The decision is therefore reversed with costs and the case remanded with directions to grant a new trial. Reversed.

A motion by the appellee to restore certain words stricken from the opinion was overruled April 18, 1910.