Opinion
May 2, 1960 —
June 7, 1960.
APPEAL from a judgment of the circuit court for Waukesha county: WILLIAM E. GRAMLING, Circuit Judge. Modified and, as modified, affirmed.
For the appellant there was a brief by Poss, Toelle Schuler and oral argument by John H. Ames, all of Milwaukee.
For the respondent there was a brief and oral argument by A. Warren Cahill of Waukesha.
Action to recover the reasonable value of materials furnished and labor performed by the plaintiff at the request of the defendant.
The plaintiff is engaged in the business of manufacturing and selling fabricated sheet-metal products and has its office and plant at the city of Menomonee Falls. The defendant is engaged in the manufacture and sale of water bubblers at the city of Waukesha. In May, 1955, one Ross was employed by the defendant to promote the sale of its portable water bubblers. These bubblers are mounted on rubber-tired wheels and the principal purchasers of the same are schools and colleges. Such bubblers are used to supply drinking water to students participating in football and other athletic events.
Ross brought a sample portable water bubbler to the plaintiff's plant and requested plaintiff to submit a quotation for manufacturing such bubblers exclusive of the faucets, pump, and wheels, which latter parts the defendant would assemble and install. Such negotiations took place between Ross and Erdman, plaintiff's sales engineer. Ross represented that the defendant would supply the plaintiff with the tools and dies for making these bubblers and explained that the bright finish of the sample was produced by a "pickling" process. On June 2, 1955, the plaintiff in writing quoted a price of $24.50 each for manufacturing such bubblers in lots of 100, in accordance with the sample furnished. The defendant on June 21, 1955, submitted a written purchase order to the plaintiff for 100 of such bubblers which stated that the unit was to be "made like sample submitted" and to be "pickled to remove all discoloration." The purchase order further stated that the tooling was to be furnished by the defendant "as discussed with your Mr. G. C. Erdman." The delivery date specified was not earlier than August 5, 1955, and not later than August 15, 1955. The plaintiff acknowledged such purchase order by order acknowledgment dated June 28, 1955, which described the bubbler as an "8" x 25 1/4" water bubbler."
Also on June 28th, the defendant caused the dies for making the bubblers to be delivered to the plaintiff, which dies covered the parts necessary for the plaintiff to manufacture such units except the stainless-steel cylindrical tanks, the dimensions of which tanks were stated on plaintiff's order acknowledgment, and were obtained by plaintiff's measuring the sample bubbler.
The plaintiff made a sample run with the dies to determine whether they would fit in the plaintiff's presses and to obtain the size of metal sheets required for stamping out the various parts in order that the plaintiff might order the necessary materials. In a letter of June 24, 1955, the plaintiff explained to the defendant that it proposed to fabricate the entire quantity of 100 component parts before doing the assembling.
Sometime in August, plaintiff, in attempting to assemble and weld the bubblers, discovered that the heads and bottoms of the bubblers, as turned out by the defendant's dies, were one eighth of an inch larger than the eight-inch diameter of the cylindrical tanks. This required that these heads and bottoms be machined down to a size that would fit into the ends of the cylindrical tanks. This work of machining down the size of the heads and bottoms was sent out by the plaintiff to another plant to have done. The defendant was informed of the delay caused thereby and consented to extend the delivery date until August 25th.
Another cause of delay to the plaintiff was the providing of the required bright finish of the sample bubbler. The sample had been made by a Waukesha company and the plaintiff contacted such company to do the "pickling" to produce such finish. This latter company claimed it had too much business to take on this work and informed the plaintiff that the pickling process, by which the finish on the sample had been produced, was a secret process possessed by such Waukesha company. The plaintiff then took the matter of producing a satisfactory finish up with Behrens, president of the defendant, who came to plaintiff's plant on September 13th, to discuss the matter with Erdman. Plaintiff in the meantime had produced a sample finished by the electropolishing method and Behrens agreed to accept this substitute finish produced by such method. Erdman, in such conversation, informed Behrens that the cost of the unit would have to be increased by plaintiff $4.50 each, but there is no direct evidence that the defendant ever agreed to such increase in price.
On September 21st, Ross picked up four of the finished bubblers at the plant of the company which the plaintiff had engaged to do the electropolishing. Upon installing the pumps and faucets, Ross discovered that these four units leaked. Ross then contacted one Hauk, a Waukesha tool and die maker, who had originally made the bubbler dies for the defendant in 1953. Hauk accompanied Ross to the plaintiff's plant on September 23d, and found that the bubbler "necks," which were welded onto the bubbler heads, were being improperly made by the plaintiff due to its failure to use one of the dies necessary in the manufacturing operation. Hauk discovered such die was still in the box in which the dies had been delivered to the plaintiff on June 28th. This necessitated that the plaintiff scrap the 100 neck pieces already made and make new ones, which further delayed operations. The plaintiff was able to repair three of such first four delivered bubblers and such three were retained by the defendant.
Ross left the employ of the defendant on September 30, 1955. On October 7th, Behrens went to the plant of the plaintiff and gained possession of the dies under the false pretense that he was temporarily removing them so that they might be repaired and polished. The defendant immediately turned such dies over to one Schmall who had accompanied Behrens to plaintiff's plant, and placed an order with Schmall for 50 of the bubblers.
Schmall operated a small metal-working plant at Elkhorn. In making the 50 bubblers ordered for the defendant he paid no attention to the tank-diameter size of the sample, but merely made cylindrical stainless-steel tanks of a size which would fit the bottoms and heads stamped out by the dies. By this method he avoided the difficulty experienced by the plaintiff, but the tanks were obviously not of the same size as the sample submitted by Ross to the plaintiff.
Erdman testified that a day or two before October 17th he had a telephone conversation with Behrens in which he attempted to negotiate a new price of $34.50 per unit because of the additional machining expense to which the plaintiff had been subjected. Behrens in his testimony did not recall any such conversation. In any event, any conversation on Erdman's part after October 7th had no effect upon the defendant's decision to rescind, because such course of action had already been determined upon when the dies were removed on October 7th. Furthermore, Behrens was asked this question and gave this answer thereto:
" Q. The Stolper Company at all times indicated to you, even though the machining processes were necessary, that it was ready, and willing to finish the product and deliver the units to you, isn't that correct? A. Yes, they showed a willingness to do it."
On October 17, 1955, the defendant mailed the following letter to the plaintiff:
"This is to advise that as of this date we are canceling our order No. SS-1-55 for 100 stainless-steel bubbler tanks due to the fact that they were not delivered by August 15th.
"You realize of course that this product is used mostly by football teams during the football season and due to your failure to deliver on time we have had numerous cancellations, and consequently we cannot use the tanks at this late date.
"We will, however, be willing to negotiate this matter in order that neither party will be materially harmed financially."
The plaintiff replied to such letter under date of October 20, 1955, in a letter written by Erdman reading as follows:
"We are in receipt of your letter of October 17th advising that you are canceling your order SS-1-55 which calls for 100 stainless-steel bubbler tanks. The present status of this order is such that we have ready for shipment 18 units and another 25 units which are all welded and ready for the pickling operation. These 43 units plus those that we have already shipped to you represent approximately 50 per cent of the order, the balance of which are well advanced in the various stages of welding and assembly. This will result in a cancellation charge almost equal to the value of the total order less the plating charges, of course.
"I have asked our cost department to figure cancellation charges, and will submit them to you for payment as soon as we can. Upon payment of the cancellation charges, if you will advise us disposition on the material, as to whether we should scrap it or forward it to you, we will be happy to do so."
In the meantime, on October 18th, the plaintiff had shipped 17 units to the defendant. of these 17 units the defendant retained six and returned the other 11, claiming the same were defective. On October 31, 1955, the plaintiff, pursuant to its letter of October 20th, sent an invoice stating the amount of its cancellation charges to be in the sum of $2,971.66. At the trial the vice-president and comptroller of plaintiff testified to a breakdown of such cancellation charges as follows:
Cost of material ........................... $1,924.00 Cost of labor .............................. 299.10 Cost of overhead ........................... 598.20 Paid to Jormas Company for spinning down the heads and bottoms to size ....... 171.10 Such witness further testified as to the reasonableness of such charges, and the defendant offered no testimony in dispute of the same. However, the above breakdown of plaintiff's costs aggregates $2,992.40, and there is no explanation in the record to explain the small discrepancy between such figure and that of $2,971.66 for which plaintiff invoiced defendant on October 31st.The action was tried to the court without a jury. The trial court filed a memorandum decision which also embodied its findings of fact. In such memorandum decision the court pointed out that the portable bubbler is a seasonable product sold primarily before the commencement of the football season and that the plaintiff was aware of such fact. His decision further stated:
"Behrens no doubt, by his action, assented to an extension date beyond August 15th. However, the court can find nowhere in the record an assent to an extension of delivery date beyond September 28th, except perhaps the subterfuge by which Behrens procured the dies. The plaintiff now claims more in damages than if the original contract had been completed. While there is testimony in the record that Behrens was advised that the product would cost more, nowhere in the record is there any testimony that he ever assented to this increase in price.
"The court will find that the contract was canceled on October 17th, 1955. The plaintiff has proved no damages except in the admitted amount of $220.50 [such being the contract price of $24.50 each for the nine bubblers accepted and retained by defendant]."
Judgment accordingly was entered under date of September 10, 1958, in favor of the plaintiff and against the defendant in the sum of $220.50, together with costs and disbursements. From such judgment the plaintiff has appealed.
The principal issue on this appeal is whether the defendant purchaser was required to give the plaintiff manufacturer notice, which would have fixed a reasonable time within which the plaintiff must have completed performance on its part, as a condition precedent to the defendant's canceling the contract.
The plaintiff knew when it accepted the defendant's order that the portable bubbler was a seasonable item, the principal sale of which took place just prior to the football season. Time, therefore, was of the essence of the contract. However, the evidence clearly establishes as a matter of law that the defendant by its conduct did waive performance beyond the agreed extension date of August 25th and consented to the plaintiff's continuing its operations under the contract beyond such date.
The conduct of the defendant evincing such waiver and consent consists of the following: On September 13th, Behrens, defendant's president, came to the plaintiff's plant and agreed to the substitution of the electropolish finish. Defendant's agent Ross on September 21st picked up four of the bubblers from the place of business of the electropolisher, and the defendant retained and accepted three of the same. Ross took Hauk, the maker of the dies, to plaintiff's factory on September 23d so that Hauk could inspect the plaintiff's operations and straighten out difficulties in performance encountered by the plaintiff. On October 7th Behrens in behalf of the defendant picked up the dies at plaintiff's plant and stated to plaintiff that he wished to repair and polish them, thus intentionally inducing the plaintiff to believe that such dies would then be returned to the plaintiff for its operations under the contract.
The rule of law which we deem governs this case is set forth in 1 Black, Rescission and Cancellation (2d ed.), p. 623, sec. 219:
"Even where time is made the essence of the contract, this provision may be waived by the party for whose benefit or protection it is inserted, either expressly or by extending the time for payment or performance or by granting indulgence to the other party in this regard; and when such a waiver has been made, he cannot arbitrarily and summarily declare a forfeiture of the contract for delay, but must first demand payment or performance and give the other party a reasonable time and opportunity, after such demand, to comply."
This same principle is stated in 17 C.J.S., Contracts, p. 918, sec. 435, as follows:
"So, where time for performance has been extended with no intention manifested to hold to literal performance, or a provision wherein time is made of the essence is waived, notification and a reasonable time for compliance are necessary."
Both of the foregoing extracts from Black and Corpus Juris Secundum were quoted with approval by this court in its opinion in Guentner v. Gnagi (1951), 258 Wis. 383, 392, 46 N.W.2d 194. Although the facts in the Guentner Case do not parallel those of the instant case, the court by quoting such extracts placed its stamp of approval thereon. They apply particularly to a situation where time was made of the essence by the original contract, which is the situation that here confronts us.
In D'Onfro v. State (1945), 270 App. Div. 9, 59 N.Y. Supp. 2d 205, the plaintiff contractor had entered into a highway-construction contract with the state of New York which called for completion on December 15, 1936. By its conduct the state led the plaintiff to think that the completion date would not be insisted upon and waived past delays. On December 29, 1936, the state gave the plaintiff notice that he was required to complete performance in ten days' time. At the expiration of such ten days' period the state gave notice of cancellation. The court held that under the circumstances ten days was not a reasonable time in which to require complete performance by the plaintiff and permitted, recovery of damages by the plaintiff. In its opinion the court stated ( 270 App. Div. 12, 59 N.Y. Supp. 2d 208):
"The conduct of the state amounted to a waiver of the time of completion as fixed by the contract; to that extent time ceased to be an essential element, and it could only be restored by notice fixing a reasonable time within which the contract was to be completed. Lawson v. Hogan, 93 N.Y. 39; Schmidt v. Reed, 132 N.Y. 108, 30 N.E. 373; Taylor v. Goelet, 208 N.Y. 253, 101 N.E. 867, Ann. Cas. 1914D, 284."
In view of the foregoing authorities, we determine that the defendant had no right to cancel the contract on October 17, 1955, without first having given the plaintiff notice fixing a final date of completion which would have afforded the plaintiff a reasonable time in which to complete performance on its part. Because of such wrongful termination of contract, the plaintiff is entitled to recover as damages its reasonable costs for labor and materials incurred by it until the date of cancellation, or the contract price for the 100 units, whichever is lower. Bishop v. Price (1869), 24 Wis. 480, and Manning v. School Dist. (1905), 124 Wis. 84, 105, 102 N.W. 356. In this case the contract price of $24.50 per unit, or $2,450 in all, governs the amount of the plaintiff's damages even though its actual costs were more than $500 in excess thereof.
An additional defense to the plaintiff's cause of action is advanced in defendant's brief. Such defense is that the plaintiff's request for an increase in price constituted an anticipatory breach on its part that justified the defendant in canceling the contract on October 17, 1955.
In order to constitute an anticipatory breach of a contract based upon a request for a modification of terms, such request must be coupled with an absolute refusal to perform unless such request is granted. Restatement, 1 Contracts, p. 475, sec. 318 (a); 12 Am. Jur., Contracts, p. 972, sec. 393; 17 C.J.S., Contracts, p. 912, sec. 428. For a case in which a demand for a price increase was coupled with a refusal to perform unless the same was granted, see Trowbridge v. Jefferson Auto Co. (1918), 92 Conn. 569, 103 A. 843. In the instant case the plaintiff did not threaten nonperformance if the requested price increase was not granted.
The defendant cites the cases of Wausau Canning Co. v. Woodruff (1926), 189 Wis. 184, 207 N.W. 421; Amberg Granite Co. v. Marinette County (1945), 247 Wis. 36, 18 N.W.2d 496; and Hubbard Steel Foundry Co. v. Federal Bridge Structural Co. (1919), 169 Wis. 277, 171 N.W. 949, in support of its anticipatory-breach contention. The Wausau Canning Co. Case is distinguishable from the instant one because the seller, who there demanded a modification of contract, coupled such demand with a threat to sell the contracted goods to others if the buyer failed to accede to such demand. In the Amberg Granite Co. Case there was a request for a price increase, but a close reading of the opinion discloses that the court attached little, if any, importance to this request in finding an anticipatory breach. The rationale of the decision was that Marinette county was justified in rescinding the contract because it clearly appeared that the plaintiff was not going to be able to perform. The Hubbard Steel Foundry Co. Case involved no request for a price increase, but the contractor, like the plaintiff in the Amberg Granite Co. Case, had demonstrated complete inability to perform the contract which justified rescission by the other party.
However, there is a more-potent reason why the defendant cannot prevail on the theory of anticipatory breach. This is because it never elected to treat the plaintiff's request for a price increase as such an anticipatory breach. Such request for a price increase is not mentioned by the plaintiff in its letter of cancellation of October 17, 1955, as a ground for rescission. Neither does the defendant's answer to the complaint plead anticipatory breach as a defense.
1 Black, Rescission and Cancellation (2d ed.), p. 569, sec. 202, states:
"To warrant a rescission on this ground [anticipatory breach], the refusal to perform must be distinct, unequivocal, and absolute, and must be acted upon as such by the party to whom the broken promise was made." (Emphasis supplied.)
In its opinion on rehearing in Woodman v. Blue Grass Land Co. (1905), 125 Wis. 489, 495, 103 N.W. 236, 104 N.W. 920, this court gave recognition to the necessity of a party's electing to treat conduct of the other party as constituting an anticipatory breach. Mr. Justice WINSLOW in such opinion declared (p. 495):
"The law with regard to an anticipatory breach of an executory contract doubtless is that the other party must treat it as a breach, and that if he do not do so, but continue to demand performance, he will be held to have kept the contract alive for the benefit of both parties."
See also syllabus 1 of Washburn-Crosby Co. v. Kubiak (1921), 175 Wis. 291, 185 N.W. 162, which states:
"The effect of an expression by the buyer, prior to the time of performance of his contract, of an intention not to perform, is to give the seller an opportunity to then treat the contract as thereby canceled, or to elect to hold and consider the contract still in force and insist upon performance, and thereafter seek the appropriate remedy for either, but there must be an election in some manner of one or the other alternative; . . ."
We deem that the acts of the defendant in accepting deliveries after the plaintiff's request for a price increase and in assigning as its sole reason for rescission, plaintiff's failure to complete performance by August 15, 1955, amount to an election not to treat such request for a price increase as an anticipatory breach. Furthermore, the issue is not properly before us because not pleaded.
By the Court. — The judgment is modified by increasing the amount of the plaintiff's damages from $220.50 to $2,450, exclusive of costs, together with interest thereon from September 10, 1958, and, as modified, is affirmed.