Summary
In Kemp v. Knickerbocker Ice Co. (69 N.Y. 45) it was stated that "The fundamental rule as often announced is that the construction of these stipulations depends in each case upon the intent of the parties as evinced by the entire agreement construed in the light of the circumstances under which it was made."
Summary of this case from Brownold v. RodbellOpinion
Argued February 8, 1877
Decided March 20, 1877
S.P. Nash, for the appellant.
Joseph H. Choate, for the respondents.
The plaintiffs were, for many years, retail dealers in the city of New York in ice, and the defendant was a wholesale dealer. In February, 1864, the defendant entered into contract with the plaintiffs to deliver to them 2,000 tons of ice yearly for nine years, commencing on the first day of January, 1864, at two dollars per ton. The ice was to be delivered daily, Sundays excepted, to be sold by the plaintiffs, in their retail business, at such prices as the defendant might establish for each year. In October, 1869, the same parties made another contract, whereby the defendant agreed to deliver to plaintiffs 2,000 tons of ice in each of the years 1870, 1871 and 1872, and 4,000 tons in each of the years 1873 and 1874, at two dollars and fifty cents per ton. The contracts were, in other respects, alike, except the latter provided that if the plaintiffs should, in any year, need any further quantity of ice than they had thus contracted for, they should take it from the defendant at the price which it was charging persons with whom it had no contracts. Each of these contracts contained the following clauses, which present the main difficulties to be solved upon this appeal: "It is, however, provided, and so understood by the parties to this agreement, that in case of the inability of the parties of the first part to lay up a full supply of ice, or other casualties, then, and in that case the parties of the first part are bound only to deliver and supply to the parties of the second part such proportion of the above amount of ice, during such year, as the quantity of ice laid up, be to their full supply." "And the parties of the second part hereby agree to pay to the parties of the first part one dollar per ton for each and every ton that they fail to take according to the terms of this agreement; and the parties of the first part also agree to forfeit one dollar per ton for each and every ton that they fail to deliver according to the terms of this agreement."
In 1870 there was a mild winter, and a short supply of ice, and the defendant delivered to the plaintiffs under each contract only 587 tons of ice, claiming that that quantity was all they were entitled to under the first clause above set out; and they, claiming that they were entitled to the whole 2,000 tons under each contract, brought this action to recover damages for the non-delivery of the balance.
It is important first to determine what is meant in the contracts by a "full supply of ice." Each of these contracts was to run for a long period of time, and the question is, what meaning did the parties attach to these words? At the time the contracts were made, the defendant had ice houses for storing ice along the Hudson river, and at Rockland Lake. It increased the number and capacity of its houses so that in the year 1870 it had a storage capacity of 500,000 tons. These houses were for the storage of the ice required to supply the demands of its trade. As its trade from year to year increased, new houses were erected, and thus all the storage capacity needed and requisite was provided. These houses were conveniently located, and it had facilities for placing the ice in them at small expense. In ordinary seasons they could be filled, the chief item of expense being the cost of labor. Hence in a contract to run for years at a fixed price, which in ordinary times afforded but a fair profit, it is reasonable to suppose that the parties in treating of a full supply had reference to the capacity of the houses thus located. When they were full, the common understanding would be that the company had a full supply; when half full, a half supply.
The court below held that a full supply, as used in these contracts, meant a supply sufficient to meet and satisfy the demands of defendant's ordinary trade and custom as established by existing contracts or orders. This construction furnishes a very uncertain rule for ascertaining in any year how many tons constituted a full supply. It would not be easy to determine what was ordinary and what extraordinary trade and custom; and why confine the trade to that established by "existing contracts or orders?" The last contract contemplates a trade with persons not having contracts, and it appears that by far the larger part of defendant's trade was with such persons; as in the year 1870 it had contracts for only 71,000 tons, and sold to persons not having contracts upwards of 100,000. Then again, at what time must the contracts and orders be "existing?" There is no proof that contracts for ice are all made and orders given at the commencement of the year. The court below must have meant any contracts or orders existing during the year, so as to cover the whole quantity of ice sold by the defendant to its customers during the year. This quantity would always be uncertain until the close of the year; and, as the plaintiffs were entitled to daily delivery during the year, how could the amount be ascertained to which they would be entitled in any day or week or month until the year was closed, and the period for delivery was passed? Such a variable and impracticable rule to be used in ascertaining the quantity of ice to be demanded and delivered under the contracts could not have been contemplated by the parties. The contracts speak of "their full supply," as if the parties had in mind some definite ascertainable quantity. The plaintiffs plainly understood the words "full supply," as we have construed them, for in the spring of 1870, when they consented to accept 587 tons as their due under each contract, they asserted that the quantity was to be ascertained by measurements then made. They evidently had no idea that they were to wait, before they could ascertain what was a full supply and how much ice they would be entitled to, until it could be ascertained how much ice the defendant would be able to sell during the year in its ordinary trade; that is, in filling its contracts and supplying all customers who should call.
We have thus ascertained one of the factors, 500,000 tons, to be used in ascertaining the quantity of ice to which the plaintiffs were entitled. The only other uncertain factor is the quantity of ice "laid up," within the meaning of the contract. What did the parties mean by these words? During the season of 1870 the defendant had stored in its ice-houses, on the Hudson river and Rockland lake, 147,064 tons of new ice, cut and secured in the ordinary way; it had in the same houses and in barges 18,088 tons of old ice carried over from the previous year; it had placed in its houses, on the Hudson river, 25,548 tons, cut and taken from ponds some miles distant from the river; it had stocked, at various points on the Hudson river, 10,500 tons, and in Saratoga county, the Adirondack region, and at other distant points, on joint account with the Washington Ice Company, 60,000 or 70,000 tons, to two-thirds of which it was entitled, and during the season it purchased large quantities of ice transported from Massachusetts, Maine and other distant points. In these various ways it obtained ice sufficient to fill all its contracts and supply all its customers, and the court below held all this ice "laid up" within the meaning of the contracts, and that defendant had, therefore, laid up a full supply, and was obligated to deliver the full 2,000 tons under each contract. That this view of the rights and obligations of the parties is erroneous, I cannot doubt. That this view of the rights and obligations of the parties is erroneous, I cannot doubt.
Both parties were well acquainted with the ice trade and with the contingencies upon which a full supply of ice for the trade depended. They knew that ice for the New York market was ordinarily supplied from the Hudson river, and from lakes and ponds near by where it could be obtained, and whence it could be transported at small expense, and that the prices in the contracts were inserted in reference to these ordinary conditions. They knew that at intervals of time, sometimes long and sometimes short, there would be mild seasons when there would be a short supply of ice at the usual places, and that to supply the demand, ice would have to be procured at distant points, and transported at great expense; and that the market price would thus be greatly enhanced. They had reason to expect that such a season would occur during the running of the contracts; hence it was clearly the intention that the defendant should not be absolutely bound to deliver the quantity mentioned in each year, and any construction which practically binds them to do so, as the one given by the court below did, should be discarded. It is always practicable to supply the market with ice at some price. It may be brought from the Adirondack region, from Maine, Canada, Halifax, or some other distant land, and the demand fully met. As the price is enhanced the demand will diminish, and such demand as is left will be supplied at such prices as will remunerate those who take extraordinary measures to procure the ice. When there is a short supply and an enhanced price, these extraordinary measures will always be resorted to, and they are the ordinary measures of such a season. It is clear that the parties did not intend that the defendant should be bound to deliver ice procured under such extraordinary circumstances.
Ordinarily the measure of the defendant's obligation to deliver ice would be governed by its obligation to lay up ice, and what was that obligation? It was not absolutely bound to lay up a full supply. The inability to lay up was not an absolute inability. It was bound only to use reasonable and practical means to lay up a supply according to the well known usage and practice of those engaged in similar business and such as the plaintiffs might be presumed to have expected from the defendant at the time and under the circumstances in which the contracts were made. ( Del., L. W.R.R. Co. v. Bowns, 58 N Y, 573.)
There is no proof that the defendant did not make reasonable and prudent efforts to lay up its supply from the Hudson river and Rockland lake. It was not bound to procure ice from distant and unusual places at an expense many times greater than the contract prices. Hence the defendant would not have been in default to the plaintiffs if it had purchased no ice and procured none elsewhere except upon the river and lake mentioned.
The ice purchased and brought at great expense from distant places was not laid up. Such ice could not have been intended by the parties, and is not within any fair meaning of the words "laid up" as used in the contracts. The ice procured on joint account with the Washington Ice Company was in a broad sense "laid up." But in the construction of contracts, words are not always to be taken literally, but in the sense in which they were used. To me, for reasons above stated, it is clear that the parties did not understand by these terms that ice was to be regarded as laid up which, in exceptional years of short supply, was procured at distant points and which delivered in New York would cost several times the contract prices. But the old ice carried over from the prior year, and the ice stacked on the banks of the Hudson river, may be regarded as "laid up." There is more doubt about the pond ice brought from ponds several miles from the ice-houses on the river and placed therein. But as it was placed in the ice-houses at no very extraordinary expense, the doubt should be solved in favor of the plaintiffs, and it should be regarded as laid up within the meaning of the contracts.
We have then 201,200 tons of ice laid up; and now having all the factors to solve the problem, we find that the plaintiffs were entitled under the clause first above set out to 1,609.60 tons under both contracts. Having delivered only 1,174 tons, the defendant was obligated to deliver 435.60 tons more, and for its refusal to deliver them the plaintiffs were entitled to damages unless barred by circumstances now to be alluded to. On the 25th day of May, 1870, it was known that there was a short supply of ice, and the defendant represented to the plaintiffs that it had measured its ice, and that they were entitled under each contract to only 587 tons. The plaintiffs believing this, signed a writing endorsed upon each contract agreeing to accept that quantity as the proportion of ice to which they were entitled. In their complaint they asked to have these agreements set aside as procured by fraud, and the courts below set them aside on that ground. There is very little if any evidence of the fraud. It seems to have been mainly if not wholly a mistake on the part of the defendant in its construction of the contract; that construction being that it had laid up only the 147,064 tons of ice within the meaning of the contracts. It is too much to say that such a view of the contracts could not be honestly entertained. But these agreements were the result of either fraud or mistake, and without closely scrutinizing the evidence, as the plaintiffs were justly entitled to be relieved from them upon one ground or the other, we will not disturb the decision in reference to them.
The next question to be determined is the amount of damages which plaintiffs were entitled to recover, and this depends upon the construction of the clause of the contracts secondly above set out. The court below held that the one dollar per ton stipulation is a penalty, and does not limit the amount of damages to which plaintiffs were entitled, and allowed them the market price, sixteen dollars per ton, less the contract price, for every ton not delivered. In this I cannot doubt the court erred. The question whether a sum named in a contract, to be paid for a failure to perform, shall be regarded as stipulated damages, or a penalty, has been frequently before the courts, and has given them much trouble. The cases cannot all be harmonized, and they furnish conspicuous examples of judicial efforts to make for parties wiser and more prudent contracts than they had made for themselves. Courts of law have, in some cases, assumed the functions of courts of equity, and have relieved parties by forced and unnatural constructions from stipulations highly penal. Where an amount, stipulated as liquidated damages, would be grossly in excess of the actual damages, they have leaned to hold it a penalty. Where the actual damages were uncertain and difficult of ascertainment, they have leaned to hold the stipulated amount to have been intended as liquidated damages. No form of words has been regarded as controlling. But the fundamental rule, as often announced, is that the construction of these stipulations depends, in each case, upon the intent of the parties, as evinced by the entire agreement construed in the light of the circumstances under which it was made. (Addison on Contracts, 1161; Main v. King, 10 Barb., 59; Richards v. Edick, 17 id., 266; Cotheal v. Talmage, 9 N.Y., 551; Bagley v. Peddie, 16 id., 469; Colwell v. Lawrence, 38 id., 71; Noyes v. Phillips, 60 id., 408; Lea v. Whitaker, 8 Com. Pleas [L.R.], 70; Sparrow v. Paris, 7 H. N., 594; Shute v. Taylor, 5 Met., 61; Lynde v. Thompson, 2 Allen, 456.)
What was here intended by the parties? The one dollar was certainly intended at least to limit the extent of damages to be paid in case of breach, else there could have been no purpose for inserting it; and effect should be given to this intention if it can be consistently with the rules of law. There is nothing decisive in the language used. In case of failure by the plaintiffs they agreed "to pay" the one dollar; in case of failure by the defendant it agreed "to forfeit" the same sum. The words "to pay" and "to forfeit" were evidently used in the same sense, and might be used in case the sum was intended either as liquidated damages or as a penalty. Considering the length of time these contracts were to run, and the contingencies of the ice trade, and the great fluctuations in the price of ice which might be occasioned by a short supply, it is natural and probable that the parties should desire in advance to fix the amount to be paid for a failure to perform on either side. The damages which would be occasioned by a breach on the part of the defendant would always have to be ascertained by the conflicting evidence and varying judgments of witnesses ( Cotheal v. Talmage, supra), and hence a motive for fixing the amount. This contract was made in reference to the ordinary conditions of the ice trade, and the amount fixed would ordinarily be a reasonable sum to be paid by the failing party. It would always cover any actual loss which the plaintiffs would incur by defendant's failure. In this case the plaintiffs lost nothing by the failure of the defendant except the large profits they could have made if the ice had been delivered at the contract prices. They received the 1,174 tons, and upon that made large profits. They obtained the balance of their supply at the wholesale market prices, and upon that undoubtedly made at least the usual profit, as the retail price, which was at all times under the control of the defendant and other wholesale dealers, was enhanced so as to leave at least the usual margin between the retail and wholesale prices. A construction which would throw the whole loss, serious, if not ruinous, upon the defendant, and give the plaintiffs profits about seven times greater than the whole purchase price of the ice, would cause the contracts to operate contrary to the intention of the parties, and should not be adopted unless the language and circumstances of the contracts demand it; and that they do not I think has been sufficiently shown.
The extent of plaintiffs' recovery should therefore have been $435.60, and interest from January 1, 1871, unless the further claim made by the plaintiffs, which will now be considered, is well founded.
After the plaintiffs had agreed to accept 587 tons under each contract, they received from the defendant 1,180 tons of ice for which they paid the market prices, and on this quantity the court below allowed the plaintiffs to recover what they had paid therefor in excess of the contract prices. They had paid for this less than the average market prices upon which the damages for the balance of ice not received by them was estimated. They recovered the excess paid for this ice, not as an independent cause of action; but as the price paid was less than the average market price, that was taken as the measure of damages giving plaintiffs a complete indemnity rather than the market price. The claim is still made on the part of the plaintiffs that they were entitled to recover the excess paid for so much ice as they were entitled to receive under their contracts which is now determined to have been 435.60 tons. It is impossible for me to perceive upon what ground such a claim can rest. In their complaint the plaintiffs allege that the defendant delivered under each contract only 587 tons, and refused to deliver the balance, and the court at Special Term so found, and such are undoubtedly the facts. The action is brought to recover damages for a breach of the contracts to deliver 2,000 tons, and for nothing else. It is true, that under the latter of the two contracts, plaintiffs were also bound to take of the defendant any additional quantity of ice which they should need. But no breach of that portion of the contract is complained of. If it may be held that the 1,180 tons were delivered under that clause, there is no claim that the plaintiffs did not obtain all they needed, or that the prices charged were not the proper prices. They were not damaged by being induced by fraud, or otherwise, to take ice under that clause, because they did not pay more than the market price for it. The defendant had the right, or, more properly speaking, the power to refuse to deliver the whole or any portion of the 2,000 tons. It thereby incurred the liability to pay the one dollar per ton, and this liability could not be increased, because it was subsequently willing to deliver plaintiffs ice at the market price. The plaintiffs are in the same position as they would have been if they had obtained the additional ice of other parties. So long as the defendant refused to deliver more than the 587 tons on each contract, it matters not that both parties supposed that that was all plaintiffs were entitled to, and it matters not whether the refusal was based upon fraud or mistake. The rule of damages I have adopted gives the plaintiffs all the indemnity they are entitled to.
But while all my brethren concur in all the views above expressed, except as to the claim of plaintiffs last discussed, a majority of them are of opinion (inasmuch as the plaintiffs were entitled to the 435.60 tons under the contracts for 4,000 tons, and were, by fraud or mistake, induced to take the same under the other clause in the contracts, and pay for the same what defendant was charging other parties with whom it had no contracts, both parties professing and assuming to act in compliance with the contracts) that they are entitled to recover what they paid for the 435.60 tons in excess of the contract prices of two dollars and two dollars and fifty cents per ton. Such excess is $5,531.77, and it was paid on and shortly before September 1, 1870.
The judgment must, therefore, be reversed and new trial granted, costs to abide event, unless plaintiffs will reduce the damages entered in the judgment to that sum, with interest thereon from September 1, 1870, to the date of the judgment; in which event the judgment, as reduced, must be affirmed without costs to either party upon the appeal to this court.
All concur, save as stated in opinion.
Judgment accordingly.