Producers' Coke Co. v. McKeefrey Iron Co.

WOORRRY, Circuit Judge. McKeefrey Iron Company, a Delaware corporation (plaintiff below), operated a furnace at Reetonia, Ohio. Producers Coke Company, a Pennsylvania corporation (defendant below), was a dealer in coke at Uniontown, Pennsylvania. The Coke Company had no ovens of its own and therefore did not produce coke; it bought coke from producers and sold it to coke users both on commission and its own account. The character of its business has a decisive bearing on this controversy. In 1916 the parties made three contracts for the sale of Standard Connellsville Furnace Coke, differing in no important respect except as to quantity, price and periods of delivery. The Coke Company made monthly deliveries throughout the life of the contracts and the Iron Company made monthly payments. During the running of the contracts several things happened: First, a car shortage; second, a. substantial rise in the price of coke; and third, reduced deliveries by the Coke Company. After the expiration of the last contract, the Iron Company brought this suit to recover from the Coke Company damages for its failure to deliver the full quantity contracted for. The verdict was for the Iron Company. To the judgment entered, the Coke Company sued out this writ of error. [1] This action arose out of opposite interpretations which the parries placed upon the contracts and is brought here to review still another construction which the trial judge gave them in his rulings on evidence and instructions to the jury. As the controlling provisions of the three contracts are in the main alike, a recital of the first contract will serve all purposes of this discussion. It is as follows; Producers’ Coke Company First National Bank Building Contract No. 654. ' Uniontown, Pa., July 26th, 1916. McKeefrey Iron Company, Leetonia, Ohio, Agrees to Buy; and Producers’ Coke Company, Sales Agents, Uniontown, Pa., Agrees to Sell: Material — Standard Connellsville Furnace Coke in open top self-clearing cars. Quantity — Eight to Nine Thousand Tons per month August and September, 1916, and Four to Five Thousand Tons per month October, November and December, 1916. Bate of Shipments — Approximately equal daily. Price — Two Dollars and Fifty Cents ($2.50) per net ton f. o. b. open top cars ovens. — 24 — Terms — Net'cash the 20th of month for preceding month’s shipment. Kailroad weights at shipping point to govern settlement. ■Ship to MeKeefrey Iron Company, Leetonia, Ohio. Each month’s delivery is to be considered and treated as a separate and independent contract. In case of strike or combination of workmen, accidents or any other cause or causes unavoidable or beyond their control, causing a stoppage or partial stoppage of the works of either the producer or of the consumer of the coke hereby contracted for, or unavoidable delay in shipment, delivery of material hereby contracted for may be partially or wholly suspended (as the case may be) during the continuance of such interruption; such suspension, however, shall not in any wise invalidate this contract, but on resumption of work the delivery shall be continued at the specified rate, and no liability shall be incurred by either buyer or seller for damages resulting from such suspension of shipments. It is understood and agreed that if there should be a shortage of cars, shipments shall be divided from time to time in fair proportion on all orders. In Duplicate. Accepted: MeKeefrey Iron Company, By N. J. MeKeefrey, Secy. Accepted: Producers’ Coke Co., Sales Agents, By C. E. Lenhart, Vice President. It seems from the course of this litigation that these contracts contain controversial elements in considerable number and variety. Indeed, counsel for both sides evidently regarded this case, as bearing upon transactions between purchaser and coke dealer, to be of importance to the industry equal to the- case of McKeefrey v. Connellsville Coke & Iron Co., 56 Fed. 212, 5 C. C. A. 482, bearing upon transactions between purchaser and coke producer, and helieved that the decision in this case will, as between purchaser and dealer, constitute an authoritative rule of conduct as decisive as that pronouncement was of transactions between purchaser and producer. Upon first view we too so regarded the case, but upon second view it appears that this case is not of that rare and exceptional kind which arises but occasionally, in which radically new principles are found to be involved and from which new rules emerge; but is like most cases in that its decision rests upon its own facts and extends little beyond its own area. Therefore, in order that the precise scope of this decision may not be misunderstood, we shall endeavor very carefully to state the true questions involved. To do this we find it necessary first to rid the case of some confusion by stating what questions are not involved. The Iron Company claimed under its interpretation of the contracts that the Coke Company’s promise to make' monthly deliveries of coke in named amounts required it to make up by increased deliveries in one month any shortage in deliveries of a previous month and -in the end to deliver the full tonnage contracted for, notwithstanding the clause in the contracts that “Each month’s delivery is to be considered and treated as a separate and independent- contract.” The trial court ruled against this construction, and as the Iron Company did not appeal, that question is not before this court. The Iron Company further contended that the undertaking of the Coke Company to deliver coke in the quantities and periods named — 25 — was absolute and unconditional; and that, being a dealer in coke, not a producer of coke, the Coke Company’s liability to make full deliveries, monthly and in the aggregate, was not limited or otherwise affected by the car shortage clause of the contracts. The court did not siistain this contention. As the Iron Company did not appeal, that construction also is not before us for decision. What the court did was not to construe the contracts with reference to the absolute unconditional liability of the Coke Company to make deliveries, or with reference to the Coke Company’s liability to make deliveries as its supply was curtailed, by car shortage, but simply to hold the Coke Company liable to divide all coke it had actually in its possession or actually within its control (except coke it handled as agent) “in fair proportion on all orders” according to the letter of the contracts; that is, on all contracts on hand when the critical car shortage situation arose and during its continuance. It is this construction of the contracts which is the main question brought here for review, and which, accordingly, limits the range of our inquiry and the scope of our decision. Whether error is involved in this construe • tiou depends not upon the words of the contracts alone hut upon the conduct of the parties under them. What the Coke Company did was this: When it entered into the three contracts with the Iron Company, it at once entered into covering contracts with three coke producers for coke sufficient, if delivered, to meet all contract requirements. Being a large dealer in coke, buying and selling indiscriminately throughout the trade, the Coke Company did not intend to restrict its deliveries to the Iron Company to coke received under its covering contracts. In fact, it delivered to the Iron Company only about 5,000 tons of coke procured under such contracts; its remaining deliveries being made of coke gotten from twenty-five other plants. In the beginning conditions were normal and deliveries full. Presently there developed a car shortage and a consequent reduction in deliveries to the Coke Company on its covering contracts, and reduced deliveries by the Coke Company to the Iron Company under the contracts in suit. The Coke Company excused its reduced deliveries because of the shortage in cars and justified them under the car shortage clause of the contracts upon the representation that its deliveries corresponded with the car supply as indicated by the percentages daily given out by the carriers. 'Whether deliveries by a dealer as distinguished from deliveries by a producer on the percentage of car shortage is or is not a valid compliance with a dealer’s contract containing a car shortage clause is still another question not in this case, because the Coke Company did something more. When die shortage in cars came, the Coke Company, procuring coke not by production but always by purchase, continued to receive some coke on its covering purchases and to buy coke wherever it was available just as before. But instead of dividing among its existing contracts coke thus newly purchased, it sold it to others in the open market for cash and immediate delivery. For its right to do this, the Coke Company claimed that, under car shortage conditions, it bought — 26 — coké and sold it “spot”; that coke which it bought for spot sales was not available for apportionment among and delivery under its running contracts; and that coke applicable to these contracts was only such as was otherwise available under the conditions. Hence the pertinency of the court’s ruling that what coke the Coke Company had — howsoever gotten and without regard to its proposed disposition, — was available for delivery and should have been delivered in part upon the contracts in suit under the car shortage clause which required coke, in such event, to “be divided from time to time in fair proportion on all orders.” Realizing some force in these words of the contracts, the Coke Company maintained that spot sales of coke were in substance sales on orders, and in estimating the “fair proportion” of coke deliverable under the contracts in suit spot sales or orders for immediate delivery should be included. But the court ruled that the words “all orders” include all contracts for delivery except spot sales made after the stringency of car shortage arose, and of course except sales made as agents for producers; and that, if thé jury found the Coke Company had in its possession or control coke which could have been delivered to the Iron Company under the contracts in suit but was diverted to deliveries upon spot sales, they should render a verdict for the Iron Company based on the difference between what would have been a ratable distribution of the coke in hand on running orders and the distribution actually made. Whether the court committed error in so charging the jury depends upon the true construction of the contracts, not in their entirety, but to the extent involved in the instructions. What the parties meant by their contracts is, under familiar canons of construction, to be' gathered from the words they used, the subject matter with which they were dealing, and the situation, present and prospective, which they contemplated. If these were contracts between purchaser and producer for the sale of coke, we apprehend all would agree that the contracts would be interpreted and conduct under them would be controlled by the decisions in McKeefrey v. Connellsville Coke & Iron Co., 56 Fed. 212, 5 C. C. A. 482; Jessup & Moore Paper Co. v. Piper (C. C.) 133 Fed. 108; Haff v. Pilling (C. C.) 134 Fed. 294. But these are contracts by a dealer for the sale of coke to a purchaser; that is, contracts by one, who, not producing coke, had to purchase it from producers in order to deliver it under sales to others. Analyzing the contracts discursively, without construing any part of them not involved in the rulings of the trial court assigned as error, it would seem that down to the clause providing against strikes and other contingencies (with which we are not here concerned) they constitute an absolute and unconditional sale of coke at fixed prices and fixed periods of delivery. As the Coke Company did not have the coke when it sold it, and as it did not produce coke, it had to buy it before it could deliver it. So far as the contracts show the Coke Company was free to procure coke to meet these contracts in any way it chose; that is, by entering into covering' contracts, thereby establishing once and for all its profit in the transaction; or by postponing purchases until the periods of delivery approached and then buying it — 27 — from the market, thereby speculating as to its profit. Whether the Coke Company covered immediately or deferred its purchases was its affair; and whichever it did, it also would seem, would not change its liability to malee deliveries according to the terms of its contracts. This would appear to be the meaning of the parties as disclosed by their agreement down to the strike clause; or, for our purpose, down to the car shortage clause. By this clause — the last in the contracts— the parties said : “It is understood and agreed that if there should be a shortage of cars, shipments shall be divided from time to time in fair proportion on all orders.” This clause in the contracts had a meaning when written; it also had a bearing on all that happened afterward. If the Coke Company covered (as it did in this case), or if it did not cover and had to go upon the market in a period of car shortage to get coke with which to carry out the contracts in suit, the car shortage clause would, doubtless, require construction in order accurately to determine whether the Coke Company had made deliveries according to its undertakings. In either instance the Coke Company’s ability to get coke under its covering contracts or on the market as limited by the car supply might conceivably affect its liability to make full deliveries under its contracts, and might, accordingly, reduce its liability to correspond with the car shortage percentages announced from time to time by the carriers. But however that may be, it is not involved in this case. The Coke Company got coke during a car shortage. It got it from two sources: First, under its covering contracts; and second, on the market. Having coke, the learned trial judge said in effect: It is not necessary to construe the car shortage clause in order to exonerate the Coke Company for failure to make full deliveries, for there is here involved no question of the Coke Company’s inability to get coke because of lack of cars. It had coke; it had it in large quantities; and it had it in cars. Therefore, having coke and having it on wheels, the learned trial judge limited his construction of the car shortage clause to the Coke Company’s liability as declared therein to divide the coke which it actually had “in fair proportion on all erders,” But the Coke Company said (favorable to it as this instruction was), the words “all orders” in the contracts contemplated spot sales as orders, quite as well as running contracts, among which such coke on hand should be divided. The trial judge found no expression in the clause that denoted this intention and declined to find such intention by implication, holding that an agreement so interpreted would put it within the power of the Coke Company, by increasing its spot sales and making deliveries thereupon from its fixed supply, to pare down deliveries tinder the contracts in suit to negligible amounts, conduct clearly not contemplated by the parties and clearly inhibited in like transactions between purchaser and producer under the decisions in Jessup & Moore Paper Co. v. Piper and Haff v. Pilling, supra. Turning to the evidence giving by tabulation all coke shipments of the Coke Company during the car shortage period in controversy, — 28 — we take one item as illustrative of the others. For one month the table shows the following: 1916 Contract Coke Shipped Spot Coke Shipped September 112,024.21 tons 11,384.20 tons The total of these items -is 123,408.41 tons 'of coke. Therefore, in that month the Coke Company had in cars coke in the amount of this total. By selling and shipping 11,384.20 tons spot, the Coke Company diverted that tonnage from contract deliveries and in the same measure reduced deliveries on the contracts in suit. In other words, if the Coke Company had not sold this tonnage spot, it would have had it to apply to its running contracts; hut by selling and delivering it spot, it to that extent diminished its capacity to make deliveries on its running contracts. Such action we find, in accord with the learned trial judge, was not intended or agreed upon either expressly or impliedly by the contracting parties. The ruling of the learned trial judge on offers of evidence and his instructions to the jury in this regard were without error. The evidence of deliveries made on spot sales was quite sufficient to sustain the verdict of the jury under the instructions given. [2] The remaining assignments of error of sufficient substance to merit comment are three: The first relates to the provision of the contracts: “Price — Two Dollars and Fifty Cents ($2.50) per net ton f. o. b. open top ears ovens,” —and is directed to the court’s refusal to charge the defendant’s point that: “Under each of the contracts in suit it was the duty of the plaintiff to furnish cars for the shipments of the coke thereby purchased, and if you believe from the evidence that the plaintiff furnished no such cars, your verdict must be for the defendant.” In support of this contention, the Coke Company relies upon a construction which a number of courts, particularly those of Pennsylvania, have placed upon the words “f. o. b cars.” It claims that by settled judicial construction this phrase imposes the duty to furnish cars upon the vendee. That such is the general rule was recognized by this court in Davis v. Alpha Portland Cement Co., 142 Fed. 74, 73 C. C. A. 388. Of course, the meaning of the phrase is what the parties intended, and it follows, as recognized in the Davis Case, that where their intention can be gathered from the terms of the contract, or from the interpretation which the parties themselves have given it, or from other circumstances indicating the parties intended something dse, the courts will, as of course they must, construe the contract accordingly. Regarding the contracts as the parties contemporaneously interpreted them, it is clear that neither the Coke Company nor the Iron Company expected cars to be. furnished by the latter, for throughout the entire life of the three contracts the Coke Company supplied the cars and made no request of the Iron Company for cars. True, an officer of the Coke Company did say to an officer of the Iron Company in explaining — 29 — the short deliveries, that the plants couldn’t get the cars and if the Iron Company could get cars, it could have the coke. But this was not a request for cars nor an indication that the Coke Company regarded it to be the duty of the Iron Company to supply cars. Rooking at the situation generally, it is clear that such was not the Iron Company’s undertaking. The Iron Company knew that the Coke Company was not a, producer and that it had to buy and did buy coke from many different plants (in number actually twenty-five) to carry out its contracts. The Iron Company, it may be assumed, did not know from what plants the coke was coming. Certainly it was not told to send cars to any particular plants. We are satisfied that in this situation the parties did not intend when entering into the contracts to impose a duty upon the Iron Company impossible for it to perform. Regarding the words of the contracts alone, it is equally clear that the duty to supply cars devolved on the Coke Company, for if it was the duty of the Iron Company to supply them, then the undertaking of the Coke Company to divide shipments in fair proportion on all orders in time of car short age wottld be superfluous and meaningless. If the Iron Company had to furnish all cars, there would be nothing for the Coke Company to divide so far as the Iron Company was concerned, because the Coke Company’s obligation then would be to deliver only so much coke as the Iron Company would supply cars for. [3] Referring to the terms of the contracts calling for daily shipments and monthly settlements, and providing that each month’s delivery shall constitute an independent contract, the Coke Company presented the following point: “Tyon 'bid from the evidence that the plaintiff had notice from the defendant, that defendant claimed the contract fully filled by shipment of a reduced amount, occasioned by a shortage of cars, and refused to ship the remaining tonnage named in the contract, due in any one month, and the plaintiff thereafter paid for coke shipped, such payment was voluntary and cannot be recovered back.” The court refused the point. The evidence to which this point relates would have sustained the finding prayed, had the court charged the point. It is conceded that the Iron Company made monthly payments for previous monthly deliveries and that the Coke Company claimed the contracts filled by the reduced shipments and refused to ship the remaining tonnage, not because of a difference of views as to the terms of the contracts which we regard to be the main question in this case, but because of a claim then asserted by the Iron Company, and later denied by the court, that the contracts were absolute undertakings for full deliveries and were continuing contracts requiring short deliveries in one month to he made up by large deliveries in another. The Iron Company while conceding the rule relied upon (set out in Armstrong v. Latimer, 165 Pa. 398, 30 Atl. 990, and other cases) holds that it is not applicable here because one of the elements of the rule is, that money thus paid must have been paid with .full knowledge of all the facts and without any fraud, duress, or extortion. That this is the general rule there can be no doubt. 38 Cyc. 1298, — 30 — aüd cases there cited. But the evidence shows that the Iron Company made its contract payments upon the Coke Company’s assurance that because of car shortage'the Iron Company was receiving a fair proportion of shipments as provided in the contracts. This involved not the reduction of coke deliveries because of car shortage alone but the division of coke in fain proportion on all orders. It did not come to the knowledge of the Iron Company until after all payments had been made, — indeed, it developed for the first time at the trial of the case,— that the Coke Company had diverted a portion of its coke supply to spot sales and had divided only the balance on orders' of the class of the contracts in suit. On this evidence tire rule falls, and the Iron Company is not precluded by what otherwise might have been voluntary payments to assert and recover on a breach of the contracts properly construed. The remaining "assignment of error concerns the ruling of the court on an offer of evidence which in turn involves the particular construction of the contracts we have already discussed. Counsel for the Coke Company asked a witness the following question: “I want to ask you if you have prepared a schedule showing the percentage of contracts with these other people that you filled during the life of the contracts, including the percentages shipped to McKeefrey.” In support of this question, counsel, addressing the court, said: “I offer to prove by the witness the amount of the percentage of coke shipped by the Producers Ooke Company on these various contracts from any evidence, for the purpose of showing that the distribution going to the McKeefrey Plant on the McKeefrey contract was a fair proportion on all contracts. In other words, they got as large a percentage as they were entitled to get on their contracts out of the total that we had; to show that we kept that provision of the contract by which we agreed to make a fair distribution on all orders.” Under objection, the court said: “In the present state of the proofs, I will have to exclude the offer. I sustain the objection and note an exception for the defendant.” Upon first view this looked like error; but a careful examination of the question asked and offer made, read in connection with the rest of the testimony, shows that what counsel offered to prove, and all he proposed to prove, was the percentage of deliveries made on running contracts without reference to deliveries made on spot sales. As there was no colloquy between counsel and the court, — or, as none appears in the record — we can only surmise the reason which moved the court to exclude the testimony. It is, that, if- admitted, the testimony would prove nothing. The offer begged the question; because the evidence if admitted would only show the percentages of shipments made during the car shortage period without showing at all whether the percentages were properly arrived at by dividing shipments “in fair proportion on all orders,” excluding spot sales. Hence, this ruling was not affected by error. After giving this case deliberate and careful consideration, we are of opinion that the learned trial judge had a correct grasp of its intricacies and committed none of the errors charged to him. The judgment below is affirmed.