W.J. Holliday & Co. v. Highland Iron & Steel Co.

• Decision Date: 26 February 1909
• Docket Number: No. 6,536.,6,536.
• Court: Indiana Appellate Court
• Parties: W. J. HOLLIDAY & CO. v. HIGHLAND IRON & STEEL CO.

43 Ind.App. 342

87 N.E. 249

W. J. HOLLIDAY & CO.

v.HIGHLAND IRON & STEEL CO.

No. 6,536.

Appellate Court of Indiana.

Feb. 26, 1909.

Appeal from Superior Court, Marion County; Vinson Carter, Judge.

Action by the Highland Iron & Steel Company against W. J. Holliday & Co. Judgment for plaintiff, and defendant appeals. Affirmed.

Jameson, Joss & Hay, for appellant. Smith, Duncan, Hornbrook & Smith, for appellee.

RABB, J.

This action was brought by the appellee against appellant to recover damages for the breach of executory contracts entered into between the parties. Appellant's demurrer to each paragraph of the complaint was overruled. Issues were formed; a jury trial had, and verdict returned in favor of appellee; appellant's motion for a new trial overruled, and judgment rendered on the verdict against appellant.

The errors assigned call in question the ruling of the court below upon the demurrer to the complaint and the motion for a new trial. The complaint averred the making of the contract, and its breach. This was sufficient to make it good for at least nominal damages. The averments of the complaint, the evidence introduced, the instructions given by the court to the jury, and the verdict returned by the jury, all proceed upon the theory that the proper measure of damages for the breach of the contract sued upon was the difference between the cost of furnishing articles which were the subject-matter of the contract and the contract price. If this theory is correct, there is no error in the record. If it is not, the cause must be reversed. The contract which was the basis of the first paragraph of the complaint, was in the following terms:

“Terre Haute, Indiana, December 30, 1903.

“W. J. Holliday & Company, Indianapolis, Ind.-Gentlemen: We propose to furnish you six hundred fifty (650) tons bar iron, assorted hardware specifications, as follows: One hundred fifty (150) tons to be specified for and shipped promptly. Price on same to be $1.30 rates and half extras. F. O. B. Indianapolis, Ind., car load lots. Five hundred (500) tons to be specified for and delivered prior to July 1, 1904. Price on said to be $1.35 rates and half extras. F. O. B. cars Indianapolis, Ind., car load lots. The five hundred tons to be specified for so that it will not be necessary for us to ship over one hundred fifty tons in any one month. Direct shipments, less than car load lots, five tons and over, to be billed at the above-named prices, f. o. b. mill. Less than five ton lots, $1.00 per ton extra, f. o. b. mill. Terms: Net cash thirty days, less one-half of one per cent. Discount for cash on receipt of material. It is mutually understood that the full tonnage herein provided for, will be furnished by us, and specifications furnished and iron received by you at the price stated above, regardless of market conditions. Your acceptance hereof to constitute contract between us. [Signed] The Highland Iron & Steel Company.

“Accepted January 22, 1904. [Signed] W. J. Holliday & Co.”

The contract upon which the second paragraph of the complaint was based was in the same terms, except that the quantity of iron to be furnished was 500 tons, and the price was different, and the iron was to be ordered by appellant after the completion of the first contract, and up to September 1, 1904.

It is averred in the complaint that there was a breach of the contract on appellant's part, in that it failed to furnish the appellee with orders and specifications for a part of the iron contracted for under the first contract, and notified appellee that it would not order or accept any of the iron contracted for in the second contract, and that appellee was at all times willing, ready, and able to comply with the contracts upon its part. At the time the contracts sued upon were made appellee was the owner of rolling mills, and engaged in the manufacture of iron, and appellants were merchants engaged in the iron trade. The contracts expressly required that the appellant furnish the appellee with orders specifying the sizes and dimensions of iron desired. The evidence disclosed that both parties to the contracts had been engaged for many years in the business, and were each familiar with the customs of the trade. It was shown that they had previously had large dealings together, and justified the inference that the manner in which the appellee conducted its business was well known to appellant, and that the contracts were made with reference thereto, and to the customs and usages of the trade. It is disclosed that the contracts included within their terms a great many different sizes and dimensions of iron, which the appellant might select in making its specifications under the contracts; that in the manufacture of bar iron different rolls and machinery were used for the manufacture of different sized bars, and that changing from the manufacture of one sized bar to another required a change of the machinery, and that reasonable economy in the operation of rolling mills required that the machinery of the same should be kept employed in the manufacture of a given size for a considerable length of time, and that it was impracticable to manufacture a small quantity of each size as some particular customer might order; that appellee manufactured iron exclusively upon orders from its customers, and not for sale upon the open market; that it did not manufacture any specific lot of iron for any particular customer, but from the general product of its mills its customers' orders were filled in the order of their priority; that by the customs of the trade manufacturers of iron were entitled to a reasonable time, considering the manner in which the mills were operated, after their customers' orders were placed with them in which to fill the same. There was also abundant evidence from which the jury might have found that the goods contracted for had at all times a well-known market value.

It is contended by appellant that the contracts between the parties are contracts for the purchase and sale of the goods, which are its subject-matter; that it is not a contract requiring appellee to manufacture the goods which it contracted to furnish; that its terms call for no goods of a peculiar or special make, but for a common article of merchandise manufactured by every rolling mill in the country, and having a well-known market value; and that the rule invoked by appellee, and applied by the court below in the measurement of damages, that where a contract is made for the manufacture of an article not then in existence, and the contract is annulled by the buyer before its execution is entered upon, the measure of damages for the breach is the difference between the cost of production and the contract price does not apply. We agree with appellant's premises thus far that the contracts sued upon do not require that the appellee shall manufacture the goods called for by the contract, and that the terms of the contracts would allow it to furnish the goods from a stock already on hand if it had them, or from the product of some other factory. Conceding this much, the contracts, read in the light afforded by the evidence, while they did not require the appellee to manufacture the goods, yet they clearly contemplated that the goods contracted to be furnished by appellee would subsequently be manufactured by it to fill the orders the contracts required the appellant to give. The appellee was engaged in the manufacture of the kind of goods contracted to be furnished, not their purchase and sale. It carried on its business for the profits that were to be made in their manufacture, not for such profits as might be made in dealing in them. Appellant, when it entered into the contracts with appellee, knew that appellee was induced to make the contracts for the profits it expected to derive from the manufacture of the goods, and not otherwise, and that if there had been no breach of the contracts on appellant's part, such profits would have been appellee's legitimate fruit of its performance. Compensation is the true measure of damages in all cases. For the breach of a contract the injured party may recover what he loses by the breach, and no more. The recovery is limited to, and extends to the limits of, all damages that the parties to the contract could have reasonably contemplated, at the time it was entered into, would be sustained by its breach.

In the case of Kingman v. Western Manufacturing Co., 92 Fed. 486, 34 C. C. A. 489, the court lays down the rule for the measurement of damages for the breach of contracts for the purchase and sale of personal property. Where a contract for the purchase of goods, say the court, is made with a manufacturer, and the contract is annulled before entering upon its performance, the measure of damages is the difference between the amount it would cost the manufacturer to make and deliver them and their contract price, if that price is greater than the cost. While that case is not upon all fours with the case at bar, and does not exactly harmonize with some of the decided cases, we think it correctly expresses the rule for the measurement of damages in cases of this character. Here the goods contracted for were not in appellee's hands at the time of the breach complained of. At the time of the making of the contracts both appellee and appellant expected the appellee to subsequently manufacture them. Appellee expected to derive a profit from their manufacture, and appellant knew this. Of that profit appellee was deprived by appellant's annulment of the contracts; and, to truly compensate it for what it has lost by appellant's failure to carry out the terms of the contracts, it should be awarded the difference between the cost to it of manufacturing and delivering the goods and the price it was to receive for the same, if this can be ascertained with reasonable certainty.

Appellant complains that the court, in its instructions, applied a...