Myers v. Steel Machine Co.

Grey, V. C. Some portion of the argument has been devoted to an ascertainment of the rights of the parties by construction of the contract of December 21st, 1901. The defendant contends that the contract by its express terms provides for the failure of the defendant to build the machines and furnishes to the complainants the exclusive remedy for such a failure. This is found in the clause which declared that “in case the party of the first part [the defendant company] shall fail for three consecutive months to deliver two machines per month, then the complainants shall be at liberty to have such machines built by a responsible concern, paying the said party of the first part the difference in its costs and the aforesaid selling price.” The defendant insists that this clause protects the defendant company against conducting the business at a loss; that under this provision the defendant may build the machines or not at its option; that so long as it is profitable to' build machines at the stated schedule of prices the defendant would be likely to furnish the machines, but as soon as the business was conducted at a loss it would most likely quit. The defendant refers to the cases of — 308 — O’Connor v. Tyrrell, 53 N. J. Eq. (8 Dick.) 15, and Crane v. Peer, 43 N. J. Eq. (16 Stew.) 553, as sustaining -this view. The counsel for the defendant has, I think, correctly stated the results which would probably follow such a construction of the contract, but I cannot find that the clause referred to has any such meaning. There is a definite agreement on the part of the defendant company to do a certain act, and an option is given (not to the defendant but to the complainants) in case the defendant fails to do that act, to arrange with someone else to do the act at no greater cost to the complainants. The agreement binds the defendant to perform. The right to secure performance by some other person lies with the complainants alone and is for their protection and at their choice. Nothing in the agreement gives to the defendant an election to perform, or to refuse to do so, and take the difference between cost and the price named in the agreement. Nor does anything in the contract declare that if the complainants (under the circumstances named in the agreement) choose to have machines made by someone else that choice shall relieve the defendant company from its obligation to make and furnish the minimum number of machines required by the contract. This clause is intended for the protection of tire complainants in case the defendant fails to perform; it cannot justly be perverted into a waiting option under which the defendant may safely refuse to perform whenever it finds it profitable to do so. From this point of view the complainants are at liberty to hold the defendant company to its agreement not to sell to anyone else, while at the same time seeking to save themselves as far as may be by procuring the machines to be made elsewhere. The cases cited by the defendant do not support its contention. They do discuss the effect of alternative contracts, but they have no direct application to the case now under consideration. They hold in substance that an agreement to do an act with a provision that a named sum in liquidated damages may be recovered on non-performance does not, per se, render the contract an optional one, enabling the parties to choose between the performance and the payment of the liquidated damages; and that — 309 — whether the contract is alternative or not is to be ascertained from all its terms and their application to the subject-matter. This view, so far as it is applicable, disfavors the argument of the defendant, for, as is above shown, the phrasing of the agreement in this respect obliges the defendant company to perform and gives it no option whatever to take any alternative course. It is not denied that the contract on its face obliges the defendant company to make and deliver to the complainants at least two machines per month, beginning January 1st, 1902. The machines were by the terms of the contract to be “tested, inspected and in perfect order before being packed and crated and guaranteed to be in good working order when put up for running.” The testimony, while quite contradictory on many points, is entirely uniform in its showing that the defendant company, though constantly urged by the complainants to furnish the machines, did not in fact comply with its contract and the complainants’ solicitations for performance. The defendant does not claim that it either did or could furnish two perfected machines per month. The testimony shows that from January, 1902, when delivery should have begun, until June of that year (when- the bill of complaint in this cause was filed) the complainants were constantly demanding performance and the defendant company as constantly excusing itself. Two or three machines were furnished during the five months from January to May, 1902, but none appear to have been “in good working order when put up for running.” The oral testimony on this point is contradictory to some extent as to the “good working order” of the machines furnished, but no one claims that two- perfected machines per month were furnished or even that the defendant company could during January, February, March and April, 1902, turn out that number, as it had agreed to do. It is now claimed by the defendant company that the two or three machines which were supplied were accepted by the complainants, and that the reason of the differences between the parties was the failure of the complainants to pay for them. The oral testimony on this point, as on almost every other, is — 310 — quite contra dictorj1', but the letters exchanged between the parties at the time these events were taking place show that the real point of difference was based on the fact that none of the machines furnished were “in good working order when put up for running.” On the contrary, they constantly failed to meet the requirements of ordinary continued use, and the defendant company itself recognized this by a profession of efforts to better and improve them. 1 No question of failure to pay could, under the contract, properly have been raised until thirty days after the delivery of a machine in good working order when put up for running. No such machine was in fact delivered. The correspondence does not bear out the defendant’s claim that the complainants’ refusal to pay was the cause of the defendant’s failure to supply the machines. This excuse seems to be. an afterthought. There is testimony which goes to show that the defendant company’s officers deliberately planned a breach of its contract to supply the machines to the complainants in order that a higher than the contract price might be obtained by sales of the improved machines to other persons. This bad faith is strenuously denied. In the view I take of the matter I have not found it necessary to determine the contradictions of the witnesses on this question. Under the terms of the contract, two perfected machines should have been shipped in January, 1902; two more in each succeeding month. In fact, none were furnished in January, none in February, but one in March, and that was not “in good working order when put up for running,” and but one in April, which was open to the same criticism. The machines appear to have worked experimentally, but not to have been within the requirements of the contract that they should be in “good working order when put up for running,” which obviously means that the machine should be so perfected that when put in place to run for the purpose for which it was made it should be in good working order. The differences between the parties touching the failure of the defendant company to furnish a perfect machine continued, — 311 — as is shown by the correspondence, from January to May, 1902. On May 6th, 1902, the president of the defendant company wrote to the complainants that the defendant company “is pushing our new presses as rapidly as possible. * * * I will be able to show you a press complete and in perfect working order next Monday; something entirely new, and which I know you will be delighted over, and think there is no doubt that we will be able to complete four this month and two others to follow in a couple of weeks.” This letter was written by the defendant company to the complainants after four months of failure on the part of the defendant to fulfill its contract by supplying a good working machine, notwithstanding the complainants’ constant solicitations that the defendant should perfect and deliver the machine. The letter is plainly written from the point of view of one who feels himself to have been at fault in the past towards the party to whom the letter is written, and who seeks to remove previous cause of complaint by the showing that he had now attained the object sought — “a press complete and in perfect working order.” The fact that it was written to the complainants, who held the defendant’s contract to furnish a press- in good working order, and the reference to the defendant’s ability to complete a number of the new presses in the near future, also indicate that the writer understood that the so-called new presses were the perfected machines which would thereafter enable the defendant company to fulfill its contract. Kothing in the above-mentioned letter of May 6th, or in any of the previous correspondence, raised any question about the complainants’ failure to pay for the machines, or suggested that the defendant’s new press was outside the operation of the contract of December 21st, 1901. The complainants evidently so understood the situation, for on May 21st they insisted, by letter, on the delivery of the press under the contract. The defendant company, by telegrams, declined to ship the press until arrangements were made with them, thus ignoring the terms of the contract which arranged for payments for the machines to be made in thirty days after they were delivered. On May 26th, 1902, the — 312 — defendant company, for the first time, formally showed its purpose to deny that its perfected press was within the terms of its contract of December 21st, 1901. On that day the defendant company wrote the complainants, referring to a meeting of the company on the preceding Saturday night, stating, in terms, that it did not “hold itself under any obligation to forward this new press under the original contract,” but intimating that this matter could be arranged in the near future. About the same time Colonel Green, the president of the defendant company, intimated to the complainants that new terms regarding the furnishing of the perfected press could be arranged, and it is also shown that the complainants, who had never yet received from the defendant company a. single machine “in good working order when put up for running,” as required by the contract, insisted that the defendant was bound to furnish a perfected press. No basis of settlement was reached and the bill of complaint was filed on June 23d, 1902. The evidence shows that the defendant company failed, and I think that it intended to fail, to perform its contract of December 21st, 1901. Several suggestions are made by the defendant company to avoid the enforcement of its contract in this suit. It is claimed that the complainants’ partnership has been dissolved and its assets, including the contract now in dispute, transferred to a new company. The defendant company’s answer admits that it entered into the contract with the complainants, and sets up no claim that they had dissolved and had assigned or transferred the contract, or were in any way incapable of enforcing it. On the contrary, the defence, as pleaded, is that the defendant company had always recognized the complainants as entitled to performance of the contract and had in fact performed it to them. The defendant also contends that the contract of December 21st, 1901, was obtained from the defendant by false representations made by Mr. Kavenaugh, one of the complainants, concerning the financial standing of his partners — Meyers and — 313 — Howard. This contention is open to the same objection that it has not been put in issue. The defence must stand on the issues made by the pleadings and not on argument based on matters suggested from the evidence only and not even referred to in the pleadings. Riddle v. Keller, 61 N. J. Eq. (16 Dick.) 521, collating cases on this point. The weight of the evidence, if it should be considered, also fails to support these claims of the defendant company. The defendant also contends that the defendant company ought not to be restrained from breach of its contract, because, looking at the contract from the standpoint most favorable to the complainants, the construction of the contract is doubtful. In my judgment the contract itself is expressed with sufficient certainty to enable the court to declare what the parties intended. Whatever doubts there are have come into the cáse not because of the terms of the contract, as it is expressed, but by reason of subsequently happening circumstances and of questions whether the contract is applicable to those after incidents. The contract shows that the defendant company agreed to furnish a certain number and kind of automatic presses, with feeds attached, at certain times for a named price, exclusively to the complainants, and the proof shows that the defendant has not only not furnished those machines, as it agreed to do, but that it has sought to avoid the performance of that contract by manifesting a purpose to sell the machines to other persons than the complainants. It is also objected that the contract gives the complainants a monopoly on Johnston’s invention and is therefore against public policy. The rule regarding contracts in restraint of trade is based on the fear that an agreement which prevents a man from earning his living may deprive the public of the benefit of his labor and skill and compel him to depend upon the public for his support. This contract does not prevent the defendant company from producing the machines; on the contrary, the contract obliges it to produce them. It does not deprive the public pf their use, for the obvious purpose of the complainants in purchasing them is to sell them again to the general public. — 314 — While by the terms of the contract the defendant may not sell to any other persons than the complainants, this condition, by the same contract, exists only so long as the complainants purchase all of the machines which the defendant may manufacture. The right of the public to have the ultimate benefit of the production of the machines is therefore plainly secured on tire face of the contract itself. The circumstances of the case justify the allowance of an injunction restraining the defendant company from selling or attempting to sell Johnston automatic printing presses, with the Johnston patent feed, to any other person or persons than the complainants, contrary to the terms of the defendant’s agreement. The complainants insist that they are entitled to a) decree which shall compel the defendant company specifically to perform its agreement according to its terms. There is a class of cases in which the agreement sought to be enforced is sufficiently established and the obligation of the defendant is conclusively shown but in which courts of equity refuse to make a mandatory decree for specific performance. These decisions have been given on contracts which require the defendant to do some personal act, because of his artistic capacity or skill in that matter — as an engagement to sing at a theatre and not elsewhere (Lumley v. Wagner, 1 DeG. M. & G. 604), or to build a house. Errington v. Aynesly, 2 Bro. Ch. Cas. 343. In such cases equity will enforce a negative covenant and restrain the defendant from giving another than the complainant (whom he contracted exclusively to serve) the benefit of his skill, but it will not malee a mandatory decree to compel the defendant to exercise his art in the actual performance of the contract. Lumley v. Wagner, ubi supra; Montague v. Flockton, 16 Eng. Eq. 189. In the case at bar the defendant company has agreed to manufacture and sell to the complainants (and to no one else so long as the complainants take all that the defendant shall produce) certain machines, which shall be “in good working order when put up for running.” The evidence shows that a considerable degree of mechanical skill is required to produce the machine — 315 — in question in such perfection of performance that when put up for running it shall be in good working order. This court cannot compel the continued exercise of personal skill in the production and sale to complainants of a succession of perfectly-working machines. It will not, for this reason, make a decree requiring such acts to be done. It may and will, however, restrain the defendant company, which agreed to do those acts exclusively for the complainants, from doing them for or with any other person. For these reasons the complainants should have an injunction to enforce the negative covenants of the contract of December gist, 1901. I will advise a decree accordingly.