
    DAMAGES FLOWING FROM BREACH OF CONTRACT.
    Common Pleas Court of Montgomery County.
    Great Lakes Engineering Works v. Ice & Cold Storage Co.
    Decided, February 9, 1907.
    
      Breach of Contract — Measure of Damages — Expenditures Necessitated Thereby not Speculative — Loss Naturally Resulting and in Contemplation of the Parties — Sales—Pleading—Counter-claims.
    1. A construction company which has contracted to complete a building for a manufacturing company within a certain time is liable, on failure to fulfill its agreement, for such damages as naturally follow the breach and may reasonably be supposed to have been within the contemplation of the parties at the time the contract was made, and keeping in view the character of the building and the use for which it was desired.
    2. When an ice company, by reason of the failure of contracting builders to complete its plant within the stipulated time, is compelled to purchase ice in a distant market and at a cost in excess of the cost of manufacture had the plant been completed at the time agreed upon, a set-off for such excess in cost plus freight charges is good against a demurrer of the builders, based on the claim that such damages are speculative.
   Brown, J.

(orally.)

Heard on demurrer of plaintiff to item one of second cause of defense set forth in answer and cross-petition of defendant;

This action is one for a balance due on the construction of defendant’s plant in the village of Miamisburg. To the petition the defendant files an answer and cross-petition, admitting the contract, admitting there was a balance claimed of the amount specified, but claims under a second defense certain counterclaims and set-offs as enumerated in the second defense, and the question here raised is by demurrer to the first item of this answer and cross-petition. The item is not long and I will read it. ■ It is as follows:

“Second. For a second and further defense and by way of counter-claim or set-off to plaintiff’s alleged cause of action, defendant says that plaintiff is indebted to defendant on an account in the sum of $2,229.09; that the same is due and owing defendant with interest from September 23, 1903. Defendant says said counter-claim and the items thereof are accounted for as follows” [Item 1 is the one in which the question which we are to consider is concerned] :
“1. • That under and by virtue of the terms of the said contract between plaintiff and defendant, plaintiff agreed to complete said ice plant not later than fifty-four working days after the roof of the building was completed; that the roof of the building referred to was completed March 17, 1903, and that the time said ice plant should have been completed was May 19, 1903.
“Defendant says said ice plant was not completed by plaintiff until August 21, 1903. Defendant further says that in the early spring of 1903 it entered into a number of contracts to furnish ice to its customers; that by reason of the failure of plaintiff to have said ice plant completed on May 19, 1903, the defendant was compelled to and did purchase ice from various parties between that date and August 21, 1903, in order to fulfill its said contracts and furnish ice to its customers. Defendant says that the amount it was compelled to pay for the ice so purchased by it, including freight charges on the same, from May 19, 1903, to August 21, 1903, exceeded the cost to defendant; had it manufactured the same, to the amount of $1,671.18; and that by reason of the failure of plaintiff to have said ice plant completed on May 19, 1903, defendant has sustained a loss and has been damaged on account of furnishing ice to its customers as aforesaid, in the sum of $1,671.18. Defendant says it entered into said contracts with its customers, relying on the promise of plaintiff to have said ice plant completed by May 19, 1903.”

The demurrer to this item in the cross-petition is claimed to be good, by the plaintiff, on the ground that it was speculative damages and damages by way of prospective profits, which are so uncertain as not to come within the rule. The question is a very interesting one and there are many decisions upon the subject of the question of the measure of damages and the items which constitute a damage in such a case as this.

There is one case, Gaar v. Snook, 1 C. C., 259, which is a sawmill case. In this case it says that the defendant bought a sawmill of the plaintiff, who warranted the saws were free from seams, etc., and that the mill and saws were to be delivered at a certain time; and in an action to recover the purchase price the defendant claimed damages resulting from a loss occasioned by the failure of the plaintiff in error to furnish suitable saws according to-the terms of his warranty, whereby the defendant was prevented from fulfilling a contract made after the delivery of said mill for the sawing of a lot of logs and was deprived of the profits therefrom.

On a demurrer to this, it is held that the claim for damages in the nature of a loss of future profits has such a remote and uncertain character as would not authorize a recovery.

In this case the authorities are reviewed to a considerable extent, and it shows that the law in this state upon this subject is'as stated in the syllabus here — that if it is- a claim for future profits, that is, for profits plaintiff would have derived from having sawed this lot of logs, it was so remote and contingent and uncertain that it ought not to be given to the jury to be considered, and therefore it is not good.

The ease of Griffin v. Colver, 16 N. Y., 489, was “upon a breach of contract to deliver at a certain day a steam engine built and purchased for the purpose of driving' a planing mill and other definite machinery, and for the ordinary rent or hire which could have been obtained for the. use of the machinery whose operation was suspended for want of the steam engine, may be recovered as damages.

“The general rule is, that the party injured by a breach of contract is entitled to recover all his damages, including gains prevented as well as losses sustained, provided they are certain and such as might naturally be expected to follow the breach. It is only uncertain and contingent profits, therefore, which the law excludes; not 'such as, being the immediate and necessary result of the breach of contract, may be fairly supposed to have entered into the contemplation of the parties when they made it, and are capable of being definitely ascertained by reference to established market rates.”

In this case Judge Selden, in rendering-the decision, reviews the matter quite fully and very learnedly and arrives- at the decision as stated in the syllabus from very sound reasoning. He says, page 490:

‘ ‘ The only point made by the appellants is, that in estimating their damages on account of the plaintiff’s failure to furnish the engine by the time specified in the contract, they should have been allowed what the proof showed they might have earned by the use of such engine, together with their other machinery, during the time lost by , the delay. This claim was objected to, and rejected upon the trial as coming within the rule which precludes the allowance of profits, by way of damages, for the breach of an executory contract.
“To determine whether this rule was correctly applied by the referee, it is necessary to recur to the reason upon which it is founded. It is not a primary rule, but is a mere deduction from that more general and fundamental rule which requires that the damages claimed should in all cases be shown, by clear and satisfactory evidence, to have been actually sustained. It is a well-established rule of the common law that the damages to be recovered for a breach of contract must be shown with certainty, and not left to speculation or conjecture; and it is under this rule that profits are excluded from the estimate of damages in such cases, and not because there is anything in their nature which should per se prevent their allowance. Profits which would certainly have been realized but for the defendant’s default are recoverable; those which are speculative or contingent are not.”

The cases are commented upon and he follows out the reasoning as contained finally in the syllabus, and says, page 496:

“The rent of a mill or other similar property, the price which should be paid for the charter of a steamboat, or the use of machinery, etc., are not only susceptible of more exact and definite proof, but in a majority of cases would, I think, be found to be a more accurate measure of the damages actually sustained— * * * Held, as indicated in the syllabus, that, “The proper rule for estimating this portion of the damages in the present case was, to ascertain what would have been a fair price to pay for the use of the engine and machinery, in view of all the hazards and chances of the business; and this is the rule which I understand the referee to have adopted.” And therefore there was no error.

But in this case Judge Selden does not cite the leading case upon this subject, which is the case of Hadley v. Baxendale, 9 Exch., 341. This was decided by the court of exchequer in 1853, and has been a leading case ever since.

This case was an action brought for damages against a common carrier. The facts are, that the plaintiffs in the case below were mill owners and operators. A shaft of their mill was broken, and they employed the defendants to convey this shaft to the foundry immediately, and the defendants undertook it and agreed to convey it immediately under their direction, but instead of conveying it that day as they were directed to do and as they assumed to do under the contract the defendants waited for eight days. In' the meantime the mill was closed down, and they sued for damages by reason of that failure to convey the mill-shaft for those days which were lost in the operation of the mill. This case was very fully gone into, in the arguments of counsel, and was decided by Alderson, B., who was one of the judges. A new trial was granted. The judge in rendering the opinion of the court said:

“We think that there ought to be a new trial in this case; but we deem it to be expedient and necessary to state explicitly the rule which the judge, at the next trial, ought in our opinion to direct the jury to be governed by when they estimate the damages.
“It is, indeed, of the last importance that we should do this; for, if the jury are left without any definite rule to guide them, it will, in such cases as these, manifestly lead to the greatest injustice. * * * ‘ There are certain established rules, ’ this court says, in Alder v. Keighley, 15 Mees. & Wels., 117, ‘accord-ding to which the jury ought to find.’ And the court, in that ease, adds: ‘and here there is a clear rule — that the amount which would have been received if’the contract had been kept is the measure of damages if the contract is broken. ’
“Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, i. e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the, contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the- damages resulting from thé breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances as known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have in his contemplation the amount of injury which would arise generally, and in the great multitude of eases not affected by any special circumstances from such a breach of contract. ’ ’

This gives the substance of the decision in Hadley v. Baxendale, supra, and that is the leading ease and has been followed ever since.

The case of Champion Ice Mfg. Co. v. Iron Works Co., 68 Ohio St., 229, which was a suit for damages by reason of a failure of the iron works company to furnish a shaft for an ice plant in accordance with the following telegram (page 220) : ‘ ‘ Shaft complete with' cranks and pins four ninety-eight dollars f. o. b. cars here; finish three weeks. Penna. Iron "Wks. Go.” This was an acceptance of the written request for price and time of delivery of this shaft written by the Cincinnati company to the defendant company in Philadelphia. There was a failure to furnish the shaft within three weeks and a suit for damages by reason thereof.

Judge Shauek in rendering the decision, on page 233, says:

"The request of the ice company for a proposition for furnishing the shaft gave prominence to its desire for a definite understanding as to the time when it could be furnished. The iron company’s proposition to furnish it in three weeks, when accepted, had the force of a stipulation; and no reason appears why there should not be a recovery for its breach. The reasons for the delay which were given upon the trial might well serve to relieve the iron company from- culpability, but not from the obligation of its unconditional undertaking to furnish the shaft at the time specified.” * * *
"The celebrated ease of Hadley v. Baxendale, 9 Exch., 341, has been generally accepted as defining correctly the principles upon which damages should be assessed, for a breach of contract. It has been so. accepted in this state. They are such damages as arise naturally from the breach of the contract, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Later decisions show that there has been difficulty in the application of these principles to particular cases, and that case has been many times interpreted and its statements paraphrased, through the correctness of the principles which it defines has been generally, if not universally, accepted. It does not appear that such view has ever been taken of the case as would justify the assessment of damages for the deprivation of the use of property by the computation of interest upon its value [which was done in the common pleas court in this case],
“Nor upon the other hand would it justify the recovery by the ice company in the present case of the large profits which, as Jits testimony .tended to show, were probably lost by reason of the delay. In that respect the case should be regarded as within the rule as familiarly stated, that profits or speculative damages are not recoverable; but which would give the result of a much larger number of cases, and be much less liable to misconstruction, if it were said the law does not permit the recovery of damages which can be ascertained only by speculative methods. . The recovery of lost profits in the present case would involve the local condition of the markets, peculiarities of the ice company’s business, its ability to substitute other machinery for the disabled machine, and other elements of injury not arising' naturally from the breach of the contract, nor presumably within the contemplation of the parties as the result of a breach. By the terms of the correspondence and the circumstances in which it was conducted, the iron company was admonished .that the loss of the use of the disabled machine would result from its failure to furnish the shaft at the time agreed upon, and the loss of such use results naturally from the breach. The value of the use of the machine for the time intervening between the day stiprdated for its delivery and the day of its actual delivery should, therefore, be ascertained and awarded as damages. Evidence of the capacity of the machine and the extent and character of the ice company’s business was properly admitted to aid in assessing damages under the rule stated. In language used so frequently as to be well understood: ‘ It was to be considered in arriving at the rental value, though not constituting the measure of damages.’ ”

This shows us that this Hadley v. Baxendale, supra, as reported in 1853, has been followed in this state very closely.

Now, applying the rule as laid down by Hadley v. Baxendale, .and the rule as laid down by the Supreme Court in Champion Ice Co. v. Iron Works Co., supra, to the question before us, the allegation of damages consists in a breach of the contract in failing to furnish the machine in May, 1903, whereby it lost the use of its plant until the latter part of August, 1903. In contemplation of the parties, a failure to furnish the ice plant in accordance with its contract would certainly be damages arising out of such failure to the defendant, which necessarily would have meant, in order to start its ice plant in May, that it would obtain customers in the spring of 1903. This certainly was in the contemplation of the parties and would naturally flow from that contract.

Now,.there was a failure to furnish it for the entire summer of 1903, and there were damages to the defendant by reason of such failure. Now, the question is: What constitutes the damages, the measure of damages, the items to make up these damages in accordance with the rule as laid down by our Supreme Court, following the case of Hadley v. Baxendale? Prospective profits that it might have made by reason of the operation of its plant in Miamisburg have been eliminated by that case because they are speculative and can not be determined; but in this,case what is the allegation? It is, that, relying upon the contract with the plaintiff the defendant obtained its customers, and entered into a contract by reason thereof to furnish ice to its customers during the summer of 1903. What would be the necessary thing for the defendant to do under those circumstances? To say to its customers, the ice plant is not finished as we expected it would be, therefore you obtain your own ice? No. It did the natural and proper thing, the right thing under the circumstances; it bought the ice at the nearest market, and was compelled to pay a price, a certain price, a fixed price by the market and the freight charges upon the ice to Miamisburg. There was a certain obligation which it had to pay by reason of the failure of the plaintiff to furnish this ice plant in accordance with the contract in May.

Now, where is there any uncertainty as to the amount of damages in this case ? It is not alleged that there was a loss of profits but it is said in this item that the amount of this- payment, these charges which it paid for ice and freight, exceeded the amount which the ice would have cost if its plant had been in operation in accordance with the contract by May 1, 1903, and was a definite sum, and that the difference paid by the Miamisburg ice plant by reason of this breach of contract was a definite sum. The cost of the ice and the freight are determined and certain. The cost of the manufacture of the ice by the ice plant when completed is a matter certain and easily determined. There is no such indefinite price, no such speculative damages as are considered in these other eases, as for instance the prospective profits which it might derive.

L. J. Dolle, for plaintiff.

W. A. Reiter, for defendant.

If it had claimed in its answer, as the plaintiffs did in the sawmill case and others, that it lost its customers and lost its profits which it might have had from these customers, then it would not have been within the rule clearly, and would have been subject to demurrer. But under all the circumstances, after a very careful consideration of this case and the reading of many authorities, I hold that the allegation in item l is within the rule, and that statement of damages, if proven, may be recovered; and therefore, the demurrer to this item" will be overruled.  