American Trading Co. v. National Fiber & Insulation Co.

Rice, J. (delivering the opinion of the court). At the argument the defendant grouped the ten causes of demurrer as follows: (a) This agreement is void for uncertainty and want of mutuality, (b) It does not appear from the declaration that the vulcanized fibre therein referred to was ordered by the plaintiff for its own consumption during the period of one year from May 7, 1915, to May 7, 1916. (c) It does not appear from the declaration that the defendant ever sold or agreed to sell to the plaintiff any vulcanized fibre, (d) It does not appear from the declaration that the vulcanized fibre therein referred to was ordered by the plaintiff for the markets of China, Japan, the Philippines, Australia and South Africa, or any of said markets, (e) The schedule of orders attached to the declaration is insufficient to inform the defendant as to the nature and amount of the damages claimed by the plaintiff. [l,2] A very strict rule was declared in Bailey v. Austrian, 19 Minn. 535 (Gil. 465), and other early cases, respecting mutuality and certainty in contracts involving all of the buyer’s requirements or consumption of goods purchased. But this rule has been somewhat modified on account of the growth and exigencies of business, and the later cases are rather uniform in holding that such contracts are not void for lack of mutuality and certainty, if -in the light of surrounding circumstances the quantity contracted for can reasonably be ascertained or is capable of being approximately ascertained at the time of making the agreement. If the buyer has an established business which will require the commodities contracted for it is presumed the business will continue and under such circumstances the seller can approximately estimate the quantity of goods that will be required by the purchaser in his business. In such cases the law holds that there is mutuality of obligation and sufficient certainty respecting the quantity of goods that will be required by the buyer. In the case of Bailey v, Austrian, and in many other cases, it has been held in contracts where the purchaser agrees to buy such quantity of goods as he [85] may “want” in his business, that it is a mere option and as the purchaser is not required to take any of the goods contracted for the contract is void for want of mutuality or certainty. In a few cases the word “want” has been construed to mean require and in the latter cases the contracts have been upheld if the purchaser has an established business normally requiring commodities of the kind contracted for, and the quantity required in the business can be reasonably reduced to a certainty. From an examination of the cases bearing upon the point, it may be stated that when the engagement of the buyer is merely to receive the goods he may want or order, or when his business is not established, and there is no reasonable probability that the business will contnue, or will require any substantial quantity of the goods covered by the agreement, the law holds that the engagement of the buyer is not an obligation but an option to take or not take any goods only as he may desire, and the contract is void for want of mutuality or certainty. In Cold Blast Transportation Co. v. Kansas City Bolt & Nut Co., 114 Fed. 77, 52 C. C. A. 25, 57 L. R. A. 696, the court said: “A promise to furnish, deliver, or receive specified articles at certain prices without any agreement to order or to accept any amounts or quantities of the articles, is without binding force or effect, because neither party is thereby bound to deliver or to accept any quantity or amount whatever. Such promises are void, because they lack one of the essential elements of an agreement, certainty, in the thing to be done. Contracts for the future supply during a limited time of articles which shall be required or needed or consumed by an established business, or used in the operation of certain steamships or other machinery, are no exceptions to this principle, because they fall under the rule, Id certum est quad certum reddi protest. But an accepted promise to furnish goods, merchandise, or other property, at certain prices, during a limited time, in such quantities as the acceptor shall require or want in his business, is without consideration and void, because the acceptor is not bound thereby to require or take any articles whatever under the supposed agreement. The line of demarcation between valid and invalid contracts here runs between the requirements of machinery, or of an established business, and the wants, desires, or requirements of the tentative vendee; and that because the former are either reasonably certain; or may be made so by evidence, while the latter are conditioned by the will of the tentative vendee alone, and are both uncertain and capable of infinite variation.” And in Loudenback Fertilizer Co. v. Tenn. Phosphate Co., 121 Fed. 298, C. C. A. 220, 61 L. R. A. 402, the court used the following language: [86] “The only consideration for the promise of the defendant to sell is the obligation of the plaintiff to take its entire consumption of rock, and if the plaintiff is in fact at liberty to carry on its business by buying its acidulated rock when its price was less than the cost of making it, and thereby avoiding any actual consumption of crude rock, the contract is one which it may perform or not, as it pleases. ‘The mutuality of the obligation is the very essence of all contracts founded upon mutual promises. Hence it follows, observes Pothier, ‘that nothing can be more contradictory to such an obligation than an entire liberty in either of the parties making the promise to perform it or not, as he may please. An agreement giving such liberty would be absolutely void for want of obligation.’ Addison on Contracts, 18. But we do not accept the plaintiff’s interpretation of the agreement as correct. From all the surrounding circumstances it was intended to make the amount of rock which the plaintiff was bound to take as definite as possible by the statement of the average or normal consumption in the manner in which the factory was operated and by the agreement to take the entire consumption for a definite time at a stipulated price. Undoubtedly, there is a margin of allowance to be made for the contraction or expansion of the business incident to the varying conditions to which it is ordinarily subject. These conditions may be said to be within the contemplation of the parties when, instead of contracting for a definite amount, deliverable each year, the contract was made for 'all of the consumption’ of the rock during a definite period of time. This contract gave the plaintiff liberty to use more or less, so long as it did not reduce or increase its consumption beyond the requirements of the usual fluctuations incident to the character of manufacturing carried on by it. This diminution or increase according to the reasonable fluctuations of such a business, if the result of the carrying on of the business with good faith in view of the obligations of the plaintiff to the defendant, constitutes the limit of the liberty allowed by the contract, and it is only in this respect that the question of good faith has any bearing upon the rights of the parties under the agreement.’’ And in T. B. Walker Manf. Co. v. Swift & Co., 200 Fed. 529, 119 C. C. A. 27, 43 L. R. A. (N. S.) 730, it was said: “But where the buyer has an established business, it is competent for the seller to contract with him to furnish him with such supplies as may be needed by him during a certain period; for in such case both parties would be bound, the one to furnish and the other to take what was needed. * * * Business necessities require contracts of this class, though more or less indefinite, to be upheld. Thus a hotel keeper could purchase his necessary supply of ice, a foundry all the coal needed for the season, or a furnace company its requirements of iron. * * * In such cases it can be ascertained with some degree of certainty the quantity needed, and the intention of the parties, it is presumed, was to contract in reference to such quantity. The business being established the purchase is an incident to it, and the purchase would be reasonably necessary, whether the prices of the article rose or fell. Such con-being established the purchase is an incident to it, and the purchase would be reasonably necessary, whether the prices of the article rose or fell. Such contracts, are, therefore, held valid.” In the present case in the declaration the agreemerit in full is set out but the quantity contracted for is uncertain and there is no averment of surrounding circumstances, which may [87] make the quantity certain. It does not appear from the declaration what business the plaintiff is engaged in, or that it was engaged in any business. It is impossible to tell from the declaration whether the plaintiff is a manufacturer, retailer, factor, middleman or distributer. As the validity of agreements, such as in this case, depends on the probable permanence or nature of purchaser’s business, and the ability and opportunity of the seller to make a reasonably correct estimate of the quantity of goods bargained for, the declaration in the present case cannot stand for there is nothing in the present declaration to even indicate the existence of such necessary facts. It is a recognized principle of law that the declaration must state a good cause of action, and it is hardly arguable that the averment of a written agreement which is not enforceable without proof of other facts not averred in the declaration does not constitute a good cause of action. It must necessarily appear from the declaration that both parties to the agreement were bound. In T. W. Jenkins & Co. v. Anaheim Sugar Co., 247 Fed. 958, 160 C. C. A. 658, L. R. A. 1918E, 293, the court said: “ The complaint charges that the contract was made with the knowledge on the part of the defendant of how plaintiff’s business was conducted, and that plaintiff made contracts with customers for sale and delivery of sugar to be acquired under the contract with defendant, and knowing what the probable requirements of plaintiff would be.” And in Berry v. Harper, 4 Gill & J. (Md.) 467, it was said by the court: “It is certainly necessary to set out in the declaration a contract binding on both parties, when a suit is instituted, to recover damages for the non-performance of the contract.” It is contended by the plaintiff that the agreement must be regarded as valid and the defendant bound thereby because the defendant accepted orders for goods under the terms of the agreement. But the weight of authority seems to be that— “Accepted orders for goods under such void contracts constitute sales of the goods thus ordered at the prices named in the contracts, but they do not validate the agreements as to articles which the one refuses, to purchase or the other refuses to sell or deliver under the void contract, because neither party is bound to take or deliver any amount or quantity of the articles thereunder.” [88] Cold Blast Transportation Co. v. Kansas City Bolt & Nut Co., 114 Fed. 77, 52 C. C. A. 25, 57 L. R. A. 696, and the many cases there cited in support of this principle. Assuming that the agreement was not void for lack of mutuality and certainty, there can be no doubt that under the contract the defendant agreed to sell and was bound to sell and deliver to the plaintiff such amounts of fibre as it should require, for its consumption. Such was clearly the intention of the parties. The contract is set out in full in the narr. and it is further alleged that the “American Trading Company sent to the National Fibre & Insulation Company numerous orders to be filled by the- National Fibre & Insulation Company according to its aforesaid agreement” and we think it was not incumbent on the plaintiff to more specifically aver that the fibre was ordered by plaintiff for its own consumption during the year covered by the contract or that it was for the markets of China, Japan, the Philippines, Australia, or South Africa. We are also of the opinion that the declaration sufficiently informs the defendant of the damages claimed by the plaintiff. For the reasons stated in holding that the plaintiff has failed to plead a good cause of action against the defendant, in that he has not pleaded the facts and circumstances necessary to show the existence of a good and valid contract with the the defendant, we sustain the demurrer.