Loudenback Fertilizer Co. v. Tennessee Phosphate Co.

• Decision Date: 13 March 1903
• Docket Number: 1,124.
• Citation: 121 F. 298
• Parties: LOUDENBACK FERTILIZER CO. v. TENNESSEE PHOSPHATE CO.
• Court: U.S. Court of Appeals — Sixth Circuit

121 F. 298

LOUDENBACK FERTILIZER CO. v. TENNESSEE PHOSPHATE CO.

No. 1,124.

United States Court of Appeals, Sixth Circuit.

March 13, 1903

This is an action to recover damages for a breach of a contract. The plaintiff in error, hereafter styled the 'plaintiff,' is an Ohio corporation, engaged in making fertilizers at its factory in Ohio. The defendant in error, hereafter referred to as the 'defendant,' is a Tennessee corporation engaged in mining phosphate rock at Attilla, Tenn. The plaintiff and defendant entered into a written contract, by which the defendant agreed to sell to the plaintiff its entire 'consumption of phosphate rock' for a term of five years beginning January 1, 1897, at a stipulated price per ton. This contract, among other things provided:

(1) That the rock should be shipped as ordered by defendant.

(2) Shipments to commence as soon as 500 tons previously contracted for should be consumed, and thereafter the plaintiff agreed to buy its entire consumption from defendant.

(3) The plaintiff to have the right to demand as much as 3,000 tons annually. But the contract recited: 'It is understood that your present annual consumption is estimated at something like 1,500 tons under normal conditions.'

(4) Rock to be settled for on the 10th of each month for all rock received during the preceding month.

The breach alleged is that the defendant refused to comply with the orders of the plaintiff given between January 25, and July 10, 1899, for the shipment of rock aggregating 3,000 tons.

In lieu of a general averment that the plaintiff had not itself previously breached the agreement, the pleader sets forth the circumstances surrounding the making of the contract, and precisely what had been done by each party under the agreement. Thus it is averred that the plaintiff was engaged in making and selling two grades or qualities of fertilizer one styled a 'complete' and the other an 'incomplete' fertilizer. The 'incomplete fertilizer,' otherwise called 'acid phosphate' or 'acidulated phosphate,' is made by treating the crushed rock with sulphuric acid, and then grinding the dried mass into powder. The resulting product is called 'acid phosphate,' and is itself sold and used as a fertilizer; and the business of plaintiff at the time this agreement was made was in part the manufacture and sale of this grade of fertilizer. Plaintiff's factory was equipped for the manufacture of this acidulated phosphate, and plaintiff informed the defendant that it proposed to enlarge its facilities for making acid phosphate, and to increase its output of that product. It is also averred that this acidulated phosphate was the principal constituent in the making of a more complete fertilizer.

The declaration then avers that between August, 1897, and January, 1899, it did not order any phosphate rock from the defendant, nor did it buy any from any other producer. To explain this, it is averred that the makers of sulphuric acid so advanced the price by a combination as to make it cheaper for plaintiff to buy the acidulated phosphate, both to supply its customers for that grade of fertilizer and as the basis for the higher grade of fertilizers made and sold by it. The declaration proceeds as follows: 'So that the plaintiff found it absolutely necessary for its economic life, and therefore it was, by these abnormal conditions, driven to cease the manufacture, temporarily, or acid phosphate, either for use in plaintiff's own factory of complete fertilizers, or for sale for use as a direct, though incomplete, fertilizer. ' It is then averred that in the latter part of 1898 the promise for a much larger demand for fertilizers, together with a great decline in the price of sulphuric acid and a rise in the price of crude rock, induced the plaintiff to enlarge its capacity for producing this acid phosphate, and for extending its sale, and to meet this increased capacity it ordered the maximum amount of crude rock admissible under the contract. It is then averred that plaintiff gave notice that it would be obliged to buy acid phosphate if defendant did not ship the crude rock as ordered, and would look to it for the difference between the price paid and the cost of manufacture, but that the defendant had refused to carry out its agreement, claiming that plaintiff had first breached the agreement by buying acid phosphate as aforesaid. It is further averred that plaintiff had bought about 3,000 tons of acidulated phosphate to supply its contracts for that product and to carry on its manufacture of the complete fertilizer. The defendant demurred. The demurrer was sustained by Judge Clark, and the plaintiff has sued out this writ of error.

Ernst, Cassatt & Mcdougall, F. C. Maury, and Thomas E. Matthews, for plaintiff in error.

George T. Hughes and William L. Granbery, for defendant in error.

Before LURTON, DAY, and SEVERENS, Circuit Judges.

LURTON Circuit Judge, after stating the above facts of the case, .

The only consideration upon which this contract rests is the mutual obligation to perform. It is not an agreement for the sale and purchase of a definite quantity of phosphate rock. But that is not fatal. If the agreement had been to supply to the plaintiff 1,500 tons of rock each year, no one would question the definiteness of the agreement. That amount was the estimated annual consumption of such rock by the plaintiff under ordinary conditions. But in a particular year it might be more or it might be less than this estimated average consumption. Now, in this situation the seller, in effect, says: 'You say your usual consumption is 1,500 tons per year, but that the demand for the rock is dependent on the demand for fertilizers, and that the latter demand is dependent on agricultural conditions, which are variable; that one year you may need more than that amount, and another less. Very well, let us contract with regard to this. I, too, must know something about the amount I may be called upon to supply. We will fix a maximum on that side of 3,000 tons. You, on your part, instead of agreeing to take each year a definite number of tons, must agree to take all of your consumption of rock from me at the stipulated price, and I will agree to hold myself in readiness to furnish you all of your rock as you may order same. But you must take your entire supply from me, for, if you are to take it only as you choose to buy from me, you may choose to buy none if the price goes down and a great deal if the price goes up. ' Now, such a contract would not be unilateral. The plaintiff would be bound to take its entire supply from the defendant. The amount which is to bought is made as definite as possible under the circumstances. The quantity is to be measured by the requirements of the factory in a business which necessarily requires a very large amount if it shall continue to be operated in the future as in the past. Though the quantity to be bought and sold was indefinite, it was ascertainable by the terms of the agreement, and therefore certain. 'Certum est quod certum reddi potest. ' A contract to buy all that one shall require for one's own use in a particular manufacturing business is a very different thing from a promise to buy all that one may desire, or all that one may order. The promise to take all that one can consume would be broken by buying from another, and it is this obligation to take the entire supply of an established business which saves the mutual character of the promise. Manhattan Oil Co. v. Richardson Lubricating Co., 51 C.C.A. 553, 113 F. 923; National Furnace Co. v. Keystone Mfg. Co., 110 Ill. 427; Wells v. Alexandre, 130 N.Y. 642, 29 N.E. 142, 15 L. R. A. 218; Brawley v. U.S., 96 U.S. 168, 172, 24 L.Ed. 622; Staver Co. v. Park Steel Co., 43 C. C. A. 471, 104 F. 200; Smith v. Morse, 20 La.Ann. 220.

The contract, thus interpreted, is distinguishable from a class of cases where the agreement was held to be a mere option. Thus, in Railroad v. Dane, 43 N.Y. 240, an offer to receive and transport railroad iron from New York to Chicago, not to exceed a certain number of tons, during a specified period, at a definite rate, was accepted without any agreement to deliver any iron for transportation. This contract was held not to be binding on either party for want of mutuality. In Petroleum Co. v. Coal, Coke & Mfg. Co., 89 Tenn. 381, 387, 18 S.W. 65, a lease was upon consideration that, if the lessee should 'deem it advisable' to test for and work mines discovered thereon, he should pay a royalty upon the output. The lease was held void, the lessee not being required to make any test or operate any mine if discovered. In American Cotton Oil Co. v. Kirk, 15 C.C.A. 540, 68 F. 791, a contract to sell 10,000 barrels of oil at an agreed price, in such quantities per week as the buyer might desire, and to be paid for as delivered, was held void, because the buyer was held not to be under obligation to take or receive any particular quantity per week, or the whole in a definite number of weeks. In Crane v. Crane, 45 C.C.A. 96, 105 F. 869, a contract by a wholesale dealer to sell a retailer, during a certain time, at stated prices, so much lumber as the latter 'should require for his trade,' was held void for want of mutuality, as there was no approximation of what might be the trade of the retailer. If prices should go down, he would naturally make no sales at a price below what he was to pay; but, if prices went up, he would be in a situation to drive his rivals from business by increasing his trade at the expense of the vendor. In Davis v. Mining Co., 93 Mich. 491, 53 N.W. 625, 24 L.R.A. 357, a contract by which the plaintiffs agreed to work an ore bank for $1.50 per ton of ore produced 'as long as we can make it pay' was held void for...