Illges v. Congdon

^* Motion for rehearing denied, with $25 costs, on February 15, 1946. Action commenced July 1, 1943, by George M. Illges, plaintiff, against J. E. Congdon, Jr., defendant, to recover damages sustained as a result of breach of contract. John Hamm was interpleaded as a necessary party to the action and by counterclaim claims damages for breach of the same contract by defendant J. E. Congdon, Jr. J. E. Congdon, Jr., by cross complaint, claims damages from George M. Illges, plaintiff, and John Hamm, interpleaded defendant, for breach of contract. Judgment was entered February 20, 1945, in favor plaintiff Illges and interpleaded defendant Hamm, against defendant Congdon, from which defendant Congdon appeals. Plaintiff Illges and interpleaded defendant Hamm seek a review of the award of damages.

J. E. Congdon, Jr., defendant and appellant, was in active charge of Camp Aurora, a camp maintained by the Presbyterian church of Aurora, Illinois, near Lake Geneva, Wisconsin, and was the owner of land adjoining this camp, known as "Ayer Park," which he desired to develop for summer-camp purposes of religious bodies. A portion of said property contained timber suitable to be logged and cut into lumber. George M. Illges, plaintiff and respondent, was engaged in the real-estate business and at times had financed logging operations. John Hamm, interpleaded defendant and respondent, was engaged in the business of logging and lumber sawing with a portable sawmill.

During the fall of 1941, Congdon and Hamm met and talked about cutting some of the timber and sawing it into lumber. Neither party was able to finance the project and Hamm suggested they might be able to interest Illges in financing it. Hamm contacted Illges and conferences were held beginning the latter part of November, 1941. Just how many conferences they had and when they were held is not very clear. All parties agreed they were attempting to work out some method whereby Illges would furnish necessary funds for logging operations and Hamm would do the logging and lumber sawing, Illges to sell the finished product.

After a conference held during the latter part of December, 1941, where a memorandum of certain headings was made by one of the parties attending the conference, Illges was going to have a contract prepared and submit it to the other parties. The memorandum did not contain sufficient information to permit the drafting of a contract, and on December 27, 1941, Illges wrote a letter to Congdon, outlining generally some of the provisions to be incorporated in the contract, asking for the views of Congdon. Congdon claims that after receiving this letter he drafted a reply in pencil form, dated January 7, 1942, and before he had an opportunity to have it typed he had a conference with Illges and went over the contents of the letter, and that at a later date, at a conference between Congdon, Illges, and Hamm, the pencil draft of the letter was discussed and given to Hamm to read. Congdon's letter of January 7th demanded that many changes be made in the agreement proposed by Illges. Both Hamm and Illges deny ever having received or seen Congdon's letter of January 7th.

A meeting was held at Hamm's residence on February 6, 1942, at which time Illges gave Congdon a check for $1,000 and Hamm a check for $700. Congdon at that time gave Illges an instrument dated February 6, 1942, which read as follows:

"Received one thousand dollars ($1,000) from George M. Illges to be returned on demand until satisfactory agreement entered into relative to lumber which is at Ayer Park."

which was signed by Congdon and in the handwriting of Hamm. The parties disagree as to the conversation at that time. Congdon claims that it was understood he was to submit in writing the terms and conditions under which he would be willing to proceed, and if this was acceptable to Illges they would proceed. Illges at that time was leaving for the south, to be gone for about two months. Illges claims that everything was agreed upon when he gave the checks to Congdon and Hamm. Shortly thereafter Hamm moved his portable sawmill into Ayer Park and began logging and sawing lumber. On May 15, 1942, Illges gave Congdon a check for an additional $500. Illges advanced money to Hamm in February, May, June, July, August, September, and October, 1942, in the total amount of $2,525, for which Hamm executed notes for each sum received.

During this time Hamm logged and sawed into lumber for Congdon a number of trees for which he billed Congdon at nine different times at $18 per thousand, and in August he raised this price to $24 per thousand. Congdon claims it was part of the agreement that he was to have trees logged and sawed into lumber at $18 per thousand, and stated there had been no accounting, and stopped operations the latter part of September until there could be an accounting. Conferences were held and there was disagreement as to whether the scale was to be on the basis of board measure or log scale, there being a variation of about twenty-eight per cent between the two methods of scaling. Nearly seventy thousand board feet of lumber had been sawed. No statement had been prepared and furnished to Congdon of the operations. Slabs had been cut into firewood and sold by Hamm, which Congdon claims was contrary to the agreement, claiming that he and Illges were each entitled to one half of the slabs. Congdon claims that all proceeds from sale of lumber were to be placed in a separate bank account, and that payments were not to be made from the fund except upon the signatures of Illges and himself. Hamm, by a statement prepared after operations were stopped, showed that he had sold and received payment for lumber in the sum of $1,385.41, which money he had used for operating, and that he had turned over to Illges $768.50 received from lumber sold.

Congdon claims that under the terms of their agreement he was to receive $15 per thousand for the timber and the next $30 per thousand was to go to Illges and Hamm in payment for their services and equipment which they furnished, and the balance, if any, was to be divided three ways between the parties. It is agreed the contract was limited to five hundred thousand feet.

Congdon also claims it was agreed that he was to have one half the slab wood and Illges one half; that he was to have the tree tops; that Hamm was to log trees and saw lumber for him for $18 per thousand; together with some other items not material here.

Hamm claims that Illges was to provide necessary funds and that he was to receive seventy-five cents per hour for his services and all costs of operations were to be paid first, including repayment to Illges of any money advanced for operating expense, and that thereafter Congdon was to receive $15 per thousand log scale for the logs, and any balance was to be divided equally between the three of them. From the funds advanced by Illges and receipts for lumber sold, during the time he was operating, Hamm had paid himself seventy-five cents per hour and had paid all labor, oil, compensation insurance, and other operating expenses which, according to his figures, amounted to $3,875.07 for approximately seventy thousand board feet of lumber, claiming a cash advancement due him of $650.66.

The testimony does not show just how much lumber had been sold, but it appears there were about forty thousand feet on hand when Congdon stopped operations about the 1st of October, 1942. An action was then started by Illges to recover the money advanced to Hamm and Congdon and for damages for breach of contract, setting forth in his complaint a contract similar to the contract claimed by Congdon as to distribution of the funds, alleging that the contract was entered into between the 1st day of December, 1941, and the 6th day of February, 1942, but made no reference to sawing of lumber for Congdon by Hamm. When Hamm was interpleaded he counterclaimed, alleging the contract to be in accordance with the terms hereinbefore described as claimed by him, demanding judgment against Congdon for the sum of $650.66 for money advanced over and above the amount received, claiming that Illges was to be reimbursed for money advanced by him to Hamm, and for damages for breach of contract on the part of Congdon. On May 17, 1944, Illges served an amended complaint, alleging an entirely different contract from the one set up in the original complaint. In the original complaint, after alleging that John Hamm was to log and manufacture for market not less than five hundred thousand board feet of timber, and that he, plaintiff, was to sell at his own expense the said products at such prices as appeared to be in the best interests of the parties, he alleges the parties agreed that the proceeds of the sales were to be distributed:

"(a) First, plaintiff to be reimbursed for any investments and expenditures, except selling expenses, that may become necessary to carry the enterprise through advantageously.

"(b) The defendant above named [Congdon] to receive 5 per thousand board feet as sold, delivered and collected for.

"(c) Plaintiff [Illges] and one John Hamm, logger, were to divide equally the next $30 per thousand board feet as sold, delivered and collected for.

"(d) All proceeds of sales in excess of the amounts contemplated to be expended under (a), (b), and (c) to be equally divided between the plaintiff above named, the defendant above named and one John Hamm."

In the amended complaint, which was served after the counterclaim of interpleaded defendant Hamm was served, Illges alleges that it was agreed between the parties that Illges would advance necessary money for the initial cost of logging and manufacturing of said logs into lumber until such time as the project was self-sustaining; that Hamm was authorized to employ such labor as might be necessary and to use and employ such power as in his judgment might be required for the proper operation of said enterprise, and should receive for his own wages the sum of seventy-five cents per hour, and was authorized to pay from said advances and moneys received in the course of said operation the necessary expenses in connection therewith, Hamm to furnish such machinery and equipment as he had on hand. As to distribution of receipts, Illges alleges that (a) he was to be reimbursed for the advances made; (b) defendant Congdon was to receive $15 per thousand for log scale, and (c) the balance, regarded as profit, was then to be divided equally between the three parties, one third to each.

The court found as the fourth finding of fact:

"4. That on or about the 28th day of December, 1941, George M. Illges, plaintiff, J. E. Congdon, Jr., defendant, and John Hamm, interpleaded defendant, entered into a contract under and by virtue of the terms of which it was mutually agreed:

"1. That John Hamm was to move his sawmill onto the premises owned by J. E. Congdon, Jr., and be responsible for logging, sawing and piling of lumber.

"2. That J. E. Congdon, Jr., was to have the tops and limbs of trees cut and agreed to keep them cleaned up so as not to interfere with the logging and skidding operations.

"3. That George M. Illges was to be sales agent and dispose of the finished product irrespective of the degree to which it had been processed.

"4. Slab wood was to be equally divided between J. E. Congdon, Jr., and George M. Illges.

"5. If a dry kiln was to be installed, it was to be financed by George M. Illges.

"6. From the proceeds of sales there was to be paid:

"(a) To George M. Illges any expenses, other than selling, referring especially to dry-kiln installation or expenses other than the cost of production, sale, etc.

"(b) $15 per M. board feet to J. E. Congdon, Jr., for timber.

"(c) $30 per M. to George M. Illges and John Hamm for logging, sawing and selling or for converting timber into lumber products and disposing of the same.

"7. The profits, if any, above were to be divided three ways between George M. Illges, plaintiff, J. E. Congdon, Jr., defendant, and John Hamm, interpleaded defendant.

"8. At least five hundred thousand feet, log scale, were to be cut within a five-year period."

The court also found that there was no agreement between the parties obligating the plaintiff or interpleaded defendant or the joint enterprise, to saw lumber for the defendant Congdon at $18 per thousand, or at any other price, and that the $15 per thousand which Congdon was to receive for timber was by board measure, ordering judgment for the plaintiff and interpleaded defendant for damages for breach of contract on the part of the defendant, in the sum of $3,993.66 each, together with other items. No party to the action questions the terms of the contract as found by the court. We have some difficulty finding there was a mutual assent by the parties to such an agreement so as to make a binding contract, and no doubt the court had some difficulty on this same subject. However, no question being raised and the parties agreeing this is the contract that Congdon terminated, we will examine the findings which defendant objects to, which are as follows:

"18. That plaintiff and defendant have done everything within their power to carry out the contract in good faith.

"19. That the defendant had no substantial cause for complaint as to the performance of the plaintiff and the said interpleaded defendant."

Other findings which may be material are:

"21. That none of the reasons assigned by defendant in justification of his termination of the contract went to the heart of the contract or constituted a material breach by either the plaintiff or the interpleaded defendant.

"22. That defendant wrongfully terminated the contract and prohibited further performance when only about one tenth of the logs agreed upon had been cut."

Appellant contends that refusal of plaintiff and interpleaded defendant to recognize the terms and conditions of the contract, which the trial court found they had entered into, and their attempt to enforce a new and different contract, gave the defendant a legal right to withdraw and abandon the work. Respondents contend that disputes over the conduct of the operations and alleged breaches of the contract by respondents were incident to and did not go to the heart of the contract, and that it was purely a question of accounting.

"As a general rule, rescission of a contract is not permitted for a casual, technical, or unimportant breach or failure of performance, but only for a breach so substantial as to tend to defeat the very object of the contract." Gedanke v. WisconsinEvaporated Milk Co. (1934) 215 Wis. 370, 375, 377,254 N.W. 660.

"The determining question is whether the buyer was refusing to live up to the terms of the contract, whether he is in effect making a new contract. The courts will not force upon the parties contractual obligations into which they have not entered voluntarily. Thus, in such cases it is the intention of the party, not the extent of his default, which is all-important.Murphy v. Sagola Lumber Co. 125 Wis. 363, 103 N.W. 1113;Ambler v. Sinaiko, 168 Wis. 286, 170 N.W. 270; GeneseeFruit Co. v. Barrett, 67 Ill. App. 673; Quarton v. AmericanLaw Book Co. 143 Iowa, 517, 121 N.W. 1009, 32 L.R.A. (N.S.) 1; 29 Law Quarterly Review, 61, 75; 5 Page, Contracts, p. 5326, sec. 3013." Gedanke v. Wisconsin EvaporatedMilk Co., supra.

Under the terms of the contract as found by the trial court, there were no expenses for which Illges was entitled to reimbursement from the proceeds of the lumber sold. Paragraph 6 (a) of the findings refers especially to dry-kiln installation, which they agreed not to install, or to expenses other than the cost of production or sale. As the lumber was sold, Congdon was to receive $15 per thousand board feet, which was the first money to be paid from receipts. In place of Congdon's receiving this money, it was used for expenses of operation by Hamm and Illges. Likewise Congdon was to receive one half of the slabs, which it appears he intended to use for firewood. Hamm, in violation of the contract, sold the slab wood and converted the money to his own use for operating expense, Hamm paid to himself seventy-five cents per hour, contrary to the terms of the contract as found by the court. This was a joint enterprise and no one had any right to appropriate the receipts to his own use. The only way the purpose of the contract could be carried out was for the receipts to be placed in a general fund and disbursed in accordance with the terms of the contract, which was $15 per thousand board feet to Congdon for timber, and $30 per thousand board feet to Illges and Hamm thereafter for the expense of logging, manufacture of lumber, and sale of the lumber, any balance to be paid one third to each. It was the duty of Hamm and Illges to arrange their own finances if any additional money was needed. This money was to be provided by Illges and not from the joint funds. Payments were due to Congdon immediately when the lumber was sold and money received in payment for it.

According to respondents' figures the cost of manufacturing seventy thousand feet of lumber was $3,875.07, or $55.30 per thousand. The trial court in his opinion states he "takes judicial knowledge of the fact that in establishing any industrial enterprise the cost of getting started, machinery set up, etc., as well as initial general overhead, makes the cost of the first production higher than the cost when produced in considerable quantities." While we can agree with this as a general proposition, it must be remembered this was a portable saw rig, and according to the pay roll the average number of men employed daily was two, outside of Hamm. An examination of the pay roll and expense items shows this was spread quite uniformly over the entire period of operations from February 6th to October 1st, which would mean it would vary but little, if at all, during the entire operations, if all items were permitted to be included in the cost of production. The average value of the lumber produced, as found by the court, was approximately $67 per thousand. To permit respondents to carry on under what was in effect the making of a new contract and disburse all of the receipts for their own purpose would be such a breach so substantial as to defeat the very object of the contract. "Under different situations, different tests of what constitutes a material and substantial default may be used. That which under one set of circumstances may be considered too trivial to justify rescission, under other circumstances may be held to be so material as to prevent substantial performance.Dudley v. Wye, 230 Mass. 350, 119 N.E. 790." Gedanke v.Wisconsin Evaporated Milk Co., supra.

The conduct of respondents was not a technical or unimportant breach or failure of performance due to mere inadvertence, but was an attempt on the part of respondents to enforce the terms of a new contract which had never been agreed to or entered into between the parties. It was a deliberate violation of the terms of the contract and respondents, by their conduct, renunciated the contract as found by the court. Whether the refusal of plaintiff and interpleaded defendant to carry out the terms of this contract was such material breach as to warrant rescission is a question of whether it is more conformable to justice to permit the defendant to rescind it or on the other hand to require him to perform his promise and bring an action for damages. The wilfulness of the refusal on the part of the wrongdoer is a matter that can properly be taken into consideration in determining this question, as the law is less inclined to require the injured party to perform and sue for damages if a breach is wilful. Restatement, 1 Contracts, p. 403, sec. 275. "A breach of an express or implied condition going to the essence of the contract justifies its termination." 17 C.J.S., Contracts, p. 911, sec. 425. A renunciation by a party of the terms of a contract is a breach of contract which justifies the opposite party in treating it as broken and rescinding it at his election. Chess Wymond Co. v. La Crosse BoxCo. (1921) 173 Wis. 382, 181 N.W. 313. It is considered that the conduct of the respondents constituted a material breach of the contract, which permitted the appellant to rescind in the manner in which he did.

By the Court. — Judgment reversed, and cause remanded for further proceedings in accordance with this opinion, appellant to have full costs.

The following opinion was filed February 15, 1946:

BARLOW, J. (on motion for rehearing). From the briefs filed on the motion for rehearing it is evident that the use of the words "rescind" and "rescission" in the opinion has caused some confusion as to the law applicable. 5 Williston, Contracts (rev. ed.), p. 4061, sec. 1454A, in discussing the meaning of the words "rescind" and "rescission" says:

"`Rescind' and `rescission' are words in ordinary use, and should have no different signification in legal terminology than they have in other connections. `Rescind' means to abrogate or annul, and may be applied to a variety of transactions such as a vote, a transfer of property, or a contract. When and how such transactions may be rescinded is not part of the definition of the resulting rescission. There are other words by which the result may be described, and whether a contract is spoken of as terminated, abrogated, annulled, avoided, discharged, or rescinded is not in itself important. There are, however, several sources of unnecessary confusion in the use of these common words `rescind' and `rescission.'"

In the same subsection, quoting from Restatement, Contracts, we have the following:

". . . In many cases where a partly performed contract is rescinded by the act of one party for the fault of the other, restoration of what has been received, or its value, is not a condition qualifying the right to rescind."

What we said in this opinion was that the plaintiff Illges and interpleaded defendant Hamm had breached the contract to such an extent that the defendant Congdon had a right to terminate the contract, which he did. Plaintiff Illges and interpleaded defendant then brought an action for damages alleged breach of contract. Defendant Congdon counterclaims for damages for alleged breach of contract on the part of Illges and Hamm. We hold he had a right to do this, and it did not constitute an election of remedies as he had already terminated the contract.

The only questions left to be determined are what damages, if any, Congdon suffered by reason of the breach of the contract on the part of Illges and Hamm, and the rights of the parties in the remaining assets of the joint enterprise in accordance with the terms of the contract which the court found had been entered into.

By the Court. — Motion denied with $25 costs.