Fellows v. National Can Co.

• Decision Date: 08 April 1919
• Docket Number: 3207.
• Citation: 257 F. 970
• Parties: FELLOWS v. NATIONAL CAN CO.
• Court: U.S. Court of Appeals — Sixth Circuit

257 F. 970

FELLOWS v. NATIONAL CAN CO.

No. 3207.

United States Court of Appeals, Sixth Circuit.

April 8, 1919

W. H Foucar, of Chicago, Ill., for plaintiff in error.

N Calvin Bigelow, of Detroit, Mich., for defendant in error.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

On July 6, 1905, plaintiff in error (plaintiff below) leased to defendant, in writing, eight of plaintiff's patented solder-saving machines and their respective accessories and supplies, at a rental (subject to a minimum hereinafter stated) of one-third of the value of the solder saved by the machines (100 pounds of 'solder savings' being taken as equal in value to 95 pounds of original solder), during the life of either of the patents thereon (the last of which would expire in 1920); the lessee having, however, the absolute right to cancel the lease at any time by returning to plaintiff the machines and their supplies. Payment of rental for each month, accompanied by written returns of the number of cans treated and the solder saved, were to be made to plaintiff within the first 10 days of the following month with express provision that the minimum amount of rent in any one calendar year (after the year in which the machines should be installed) should be $300 for each machine. There was further provision for an increase of 10 per cent. each month upon the amount of rentals due in case of failure to make payment within the required time. Four machines had been installed under a former contract, which was superseded by the one in suit. These were retained under the new contract and two more were received by defendant by or about January 1, 1906. The remaining two machines called for by the contract were never installed or asked for, and they are not involved in the claims of either party. Four of the machines were surrendered by defendant during 1909, and the remaining two in 1913. Monthly payments (without reference to the annual minimum) were made by defendant during the time the respective machines were in its possession, aggregating for 1906 $580.56, for 1907 $511.53, for 1908 $1,117.41, for 1909 $412.03, for 1910 $61.25, for 1911 $130 and for 1913 $116.17-- a total of $2,929.05. In July, 1908, on defendant's representation that the 5 per cent. shrinkage in solder savings was less than actual experience, it was agreed (and carried out) that settlements thereafter should be upon a 90 per cent. basis, instead of 95 per cent.

In 1914, after the last machine was returned, plaintiff for the first time called on defendant for payment of the annual minimum rental of $300 per machine, less the $2,929.05 actually paid on monthly statements of savings; the claimed deficiency being $6,670.95, exclusive of interest. This suit, brought June 14, 1915, is to recover the amount of that deficiency, together with the 10 per cent. increase for failure to make payments when due, amounting to the further sum of $14,482.41, exclusive of interest thereon.

Defendant pleaded that the 10 per cent. clause was void and unenforceable, that the suit was entirely barred by limitation, that the 1908 savings percentage arrangement amounted to a novation, that the rental payments were made and received in full settlement and satisfaction of defendant's now asserted liability, and that by such acceptance of such payments plaintiff waived the claims now made and is estopped to assert them. On the trial, the petition was amended to allege fraud in procuring the contract.

The trial judge held that the statute of limitations did not apply, that the 10 per cent. provision was void as a penalty, and (a jury having been waived), while declining to hold that the contract was obtained by plaintiff's fraud, held that the minimum provision was ambiguous, concluding from its language, the statements of the parties prior to and at the time of its making, and by their dealings thereafter, that it should be construed as merely giving plaintiff the right to cancel the contract for failure to make the one-third net savings equal $300 per year. In that connection the court found as facts that while (a) the plaintiff himself always believed that he was entitled by the strict terms of the contract to the minimum annual rental, yet (b) that defendant supposed it was required to make only the monthly payments of one-third of the solder savings, and that, had it thought itself liable for the annual minimum rental, it would not have signed the contract in the first instance, or, having signed it, would have returned the machines and canceled the contract; (c) that plaintiff represented to defendant, at the time the lease was signed, that under the contract 'there were savings certain to result to defendant, and that the terms of the contract were such that it could not result in any loss to defendant, because it provided only for a rental to be measured by a portion of the savings of solder'; (d) that plaintiff knew that defendant would cancel the contract if he asserted the minimum provision, knew that defendant believed all rentals claimed were being settled in full each month, knew that defendant was retaining the machines under such belief, and intended that defendant should so believe. The judge concluded, as matter of law, that plaintiff was thereby estopped from recovering.

1. The District Judge was clearly right in denying relief under the clause for an increase of 10 per cent. per month. If regarded as interest, the provision was usurious and void under the applicable Michigan law. If intended as stipulated damages, it was under the present case equally void. In the normal case, damages for delay in payment of money are measured by interest. Assuming, however, that it was competent for the parties to agree upon a higher measure, it is clear that the provision in question bears no relation whatever to actual compensation or actual damages, and was thus a mere penalty and void. Manhattan Life Ins. Co. v. Wright (C.C.A. 8) 126 F. 82, 85, 61 C.C.A. 138; McCall v. Deuchler (C.C.A. 8) 174 F. 133, 98 C.C.A. 169.

2. The District Judge was right in not holding that the contract was obtained by fraud; actual fraud would not be the natural inference from the record. There was no dispute in the testimony as to what was actually said and done by the parties throughout their relations, both before and after the contract was made. The trial judge thought the witnesses on both sides testified truthfully. Plaintiff was the only witness on his side; defendant had but two witnesses.

The contract which the one in suit superseded contained the same annual minimum provision; there is no testimony that this previous contract was not read over by defendant; on the contrary, its sales manager who signed it (at the manager's direction), while not remembering reading it over, or that anything was said about the annual minimum when the contract was signed, 'infers' that he read it over. It was on a printed form; the minimum provision immediately followed the solder-savings provision and in the same type; it was signed for plaintiff by his agent, who procured it; a copy was retained by defendant, which attached thereto plaintiff's letter, stating his agent's report that the contract was closed, and advising defendant of the ordering of four machines and their equipment. Defendant's manager says he signed the new contract without reading it, and did not recall the signing of the earlier contract. The only reason assigned for making the new contract is that the former one called for but four machines, while the new one contemplated eight.

The only differences between the two contracts relate to the number of machines and the ratio of original solder to solder savings, which was 97 to 100 in the former, as compared to 95 to 100 in the later contract. Plaintiff did not remember calling defendant's attention to the minimum clause, and admits that, when the later contract was signed, he told defendant's manager 'the saving capacity of the machines, and that he would be expected to pay him one-third of the value of the savings. ' Plaintiff testified, however, that he 'certainly supposed they (defendant's representatives) had read the contract and knew' its conditions. We find nothing in the record discrediting this statement of plaintiff's belief. The testimony which comes nearest to sustaining the charge of fraud is that of defendant's manager, who says that when the later contract was signed 'there was no further talk than the percentage basis. My recollection is that it was one-third and two-thirds. He did not state anything at any time about any compensation to be paid to him for the use of these machines other than the percentage basis,' and, in another connection, that at one time (possibly before the earlier contract was signed) plaintiff told him with reference to the saving of solder by the use of his machines that 'he got a certain percentage, and we would get a certain percentage, and there was no chance of losing. He never said anything to me in these conversations with reference to a contract in which there was a minimum clause of $300 per year minimum per machine.'

There is no room for more than mere suspicion of fraud in the fact that in September, 1905, two months after the contract was made (but to which year the annual minimum did not apply) plaintiff in a letter offering to help in getting the machinery to work properly said, 'I am interested in your making cans, as otherwise I get no returns, and possibly my experience might be of use to you;' nor by the fact that in July, 1906, a year after the contract in question was made, but about six months before an annual minimum would be payable (if ever) he wrote, 'I trust that you will soon install this machine for I...