Opinion
October 3, 1939.
November 15, 1939.
Contracts — Modification — Suspension — Construction of terms — Attending circumstances — Purpose of parties — Construction giving effect to all terms of contract — Interpretation of parties — Restatement, Contracts.
1. In a proceeding in equity for an accounting of the business of defendant, based on a contract between plaintiff and defendant, which, in effect, provided that defendant would pay plaintiff a commission on all its top-icing business in return for plaintiff's aid in soliciting such business and also for his advice; in which it appeared that the parties to the contract each performed for about six months; that at that time a competitor entered into the top-icing business and the price of ice fell sharply to $5 per ton, at which price defendant could not profitably continue to do business if it was required to pay the commission to plaintiff; that, after a conference between the agents of plaintiff and defendant, plaintiff's agent wrote to defendant stating that "because of temporary price war now existing between ice companies" they would "consider our agreements suspended until this temporary condition is overcome, and prices become stabilized," and defendant wrote to plaintiff "agreeing to the temporary suspension of our contracts"; and that thereafter the price of ice remained constant at $5 per ton, and neither party performed under the original contract, and plaintiff made no attempt to enforce his alleged rights for more than two years; it was held that the letters exchanged by the parties constituted a valid agreement, supported by good consideration, to suspend the original contract until the prevailing price of ice should rise above $5 per ton.
2. Where the original contract, for a three year term, contained a provision that it was to be automatically renewed for a similar period unless specified written notice was given before the expiration date, and neither party to the contract gave the required notice, the contract was renewed automatically at the expiration of the original term for an additional term of three years, subject to the agreement of suspension.
3. The parties to a contract may at any time rescind it, either in whole or in part, by mutual consent, and the surrender of their mutual rights is sufficient consideration.
4. Evidence of the conditions and circumstances surrounding the formation of a contract may be considered, if helpful, in interpretating ambiguous words or terms of a contract having a special meaning.
5. Restatement, Contracts, section 235(d), cited.
6. The apparent purpose of the parties in entering into a contract may be considered as an aid to interpretation.
7. Restatement, Contracts, section 236(b), cited.
8. An interpretation which gives a reasonable, lawful and effective meaning to all manifestations of intention is preferred to an interpretation which leaves a part of such manifestations unreasonable, unlawful or of no effect.
9. Restatement, Contracts, section 236(a), cited.
10. The interpretation given by the parties themselves to a contract as shown by the acts or declarations may be referred to as an aid in construing the contract.
11. Ambiguity or indefiniteness may be supplied by the extrinsic circumstances under which a term of a contract was employed.
Equity — Jurisdiction — Determination of whole cause.
12. Where equity acquires jurisdiction, it will proceed to determine the whole cause, although in so doing it may decide questions which, standing alone, would furnish no basis of equitable jurisdiction.
Appeal, No. 169, Oct. T., 1939, from decree of C.P. No. 4, Phila. Co., June T., 1938, No. 2357, in case of M.H. Rothstein, to use of H. Rothstein Sons, Inc., v. Jefferson Ice Mfg. Co.
Before KELLER, P.J., CUNNINGHAM, BALDRIGE, STADTFELD, PARKER, RHODES and HIRT, JJ. Decree affirmed.
Bill in equity.
The facts are stated in the findings and discussion of the chancellor, FINLETTER, P.J., in part, as follows:
This is a bill in equity for an accounting of the business of the defendant corporation, the prayer being based on a contract between the legal plaintiff and the defendant for the rendition of services by the former and the payment of commissions by the latter. The defendant, besides denying liability under the contract, claims, by way of New Matter, a sum due for ice supplied to the use plaintiff; liability for substantially all of this sum was admitted by counsel for plaintiff, at bar.
From the proofs and the admissions in the pleadings, the facts are found to be as follows:
FINDINGS OF FACT
1. H. Rothstein Sons, Inc. and Jefferson Ice Mfg. Co. are corporations, with their principal places of business in Philadelphia.
2. On or about September 15, 1934, M.H. Rothstein and the Jefferson Ice Mfg. Co. entered into a written contract, a copy of which is attached to the bill as Exhibit A. This contract provided, inter alia, that, in return for Rothstein's cooperation with defendant in securing top-icing business and acting in an "advisory capacity," the defendant would give him a statement of all car icing business and pay him twenty per cent of the gross revenue of all such business, accounts and remittances to be made on a weekly basis. A three-year term was stipulated, the contract to be automatically renewable for a similar period "unless one party shall give written notice to the other at least ninety (90) days before expiration date."
3. The aforesaid contract was performed by both parties up to March 15, 1935. Defendant rendered accounts to Rothstein weekly up to and including June 28, 1935. These accounts were of receipts by defendant on business done prior to March 15, 1935, and payments of commission were made on such business. No accounts have been rendered for any business done after March 15, 1935. Neither party has performed its duties under the contract since March 15, 1935.
4. On or about March 13, 1935, a competitor entered into the top-icing business, and the price of ice fell from $6.63 per ton to $5 per ton.
5. On March 13, 1935, Charles A. Reed, agent of defendant, and Joseph G. Scott, agent of both the legal and use plaintiffs, conferred concerning the aforesaid drop in price and the possibility of suspending the contract of September 15, 1934. As a result of that conference, Scott wrote the defendant the following letter, on March 14, 1935:
"H. ROTHSTEIN SON Receivers and Distributors Fruits and Vegetables, Produce Exchange Building, Philadelphia.
Jefferson Ice Co., March 14, 1935. American Cumberland Sts., Philadelphia, Pa.
Attention: Mr. Reid.
Dear Mr. Reid:
Referring to conference of this morning, it is agreed that because of temporary price war now existing between ice companies interested in the icing of cars, we will consider our agreements suspended until this temporary condition is overcome, and prices become stabilized.
Acknowledgment of this letter will be considered as sufficient to comply with contracts.
Very truly yours,
H. ROTHSTEIN SON By J.G. SCOTT (signed)" JGS:ES
6. On March 15, 1935, defendant answered the above letter, as follows:
"JEFFERSON ICE COMPANY, American and Cumberland Streets, Philadelphia.
March 15, 1935.
H. Rothstein Son, Produce Exchange Building, 3rd Walnut Streets, Philadelphia, Pa.
Gentlemen:
Attention: Mr. J.G. Scott.
We thank you for your letter of the 14th inst., agreeing to the temporary suspension of our contracts with H. Rothstein Son and Mr. M.H. Rothstein as requested by us.
The writer expects to have a conference with the Manufacturers and Dealers interested in local car icing today and will keep you posted on developments.
Yours very truly,
Jefferson Ice Manufacturing Company, Charles A. Reed, Manager."
Both letters are included as Exhibits A and B to defendant's answer.
7. Joseph G. Scott was the lawful agent of M.H. Rothstein in negotiating with Charles A. Reed as to the suspension of Rothstein's contract with the defendant, and in writing the letter of March 14, 1935.
8. Since March 14, 1935, the price of ice in the top-icing business has remained constant at $5 per ton.
9. Following March 15, 1935, M.H. Rothstein, or his agents, accepted the accounts and checks rendered by the defendant up to June 28, 1935, which did not credit Rothstein for commission on any top-icing business done below the price of $6.63 per ton, and on one of which for the period of March 9 to March 15, 1935, there was noted the statement that "M.H. Rothstein does not receive commission on these accounts billed at $5 per Ton."
10. At a conference attended by Rothstein, Scott, Reed and J. Hibbs Buckman, Esq., some time during the spring or fall of 1937, Buckman told Rothstein that the Jefferson Ice Co. was not under contract with him, and Rothstein made no reply.
11. From March 15, 1935, until April 23, 1937, M.H. Rothstein made no attempt to enforce his rights under the contract of September 15, 1934.
12. On April 23, 1937, March 24, 1938, and June 24, 1938, Rothstein wrote defendant letters demanding an accounting and payment of commissions.
13. M.H. Rothstein has assigned all his right, title and interest to any sums of money due him from defendant, as of June 30, 1938, to H. Rothstein Sons, Inc., the use plaintiff.
CONCLUSIONS OF LAW
1. The contract of September 15, 1934, is complete and cannot be varied or augmented by parol evidence of any concurrent oral understanding.
2. The letters of March 14 and March 15, 1935, constitute a valid agreement, supported by good consideration, to suspend the original contract until the prevailing price of ice should rise above $5 per ton.
3. Joseph G. Scott was M.H. Rothstein's agent in entering into the aforesaid agreement to suspend the original contract.
4. The contract of September 15, 1934, has been suspended continuously since March 15, 1935.
5. The contract of September 15, 1934, was renewed automatically on September 15, 1937, for a three-year term, subject to the agreement of suspension.
6. The bill for an accounting is dismissed.
7. In accordance with the agreement of counsel at side bar, H. Rothstein Sons, Inc., use plaintiff, is indebted to the defendant in the sum of $1802.50 with interest from an average due date of October 10, 1937.
8. The plaintiff should pay the costs.
DISCUSSION
On September 15, 1934, Rothstein and the defendant entered into a contract which, in effect, provided that the defendant would pay Rothstein a commission on all its top-icing business in return for Rothstein's aid in soliciting such business, and also for his advice. . . . . .
The parties performed the contract for several months. During this period, the defendant apparently had no competition and the price of ice remained constant at $6.63 per ton. About March 13, 1935, however, a competitor entered into the business, and the price immediately fell to $5 per ton. At this price, the defendant could not profitably continue to do business if it was required to pay a twenty per cent commission to Rothstein. Rothstein was not available at this time, and defendant's agent therefore conferred with Scott concerning the drop in price of ice. Scott was "office manager" of H. Rothstein Sons, Inc., a corporation of which M.H. Rothstein was an active member. The corporation had entered into a contract with defendant for the supply of ice, at the same time as the contract now in question was consummated. Scott appears to have acted as agent for both the corporation and Rothstein. He had been told by Rothstein to "cooperate" with defendant. In Rothstein's absence, he seems to have taken care of all negotiations with defendant. He admitted that he conducted the business of the firm generally, "subject to their approval." We find, therefore, that Scott was Rothstein's agent in negotiating with defendant and in writing the letter of March 14, 1935, which was the product of those negotiations, and which referred to "our agreements."
Scott's testimony, that he had no authority to rescind or suspend the contract, and that Rothstein, on hearing of the aforementioned letter, told him to write another letter to defendant, asking if the price had been "settled", is not credible in the face of the rest of the testimony as to his authority, and the other circumstances surrounding the transactions. It is also to be noted that the subsequent letter, although referred to several times, was never placed in evidence. Nor is it significant that the letter of March 14, 1935, was written on the corporation's stationery and was signed by the corporation per Scott. It seems obvious that the relations between the corporation and Rothstein were very informal, and that one acted for the other almost indiscriminately, although the outward appearance of a separate corporate entity was maintained. Scott referred to the corporation as "the firm of M.H. Rothstein, I. Rothstein and H. Rothstein"; apparently this was a close, family corporation. Equity demands that form yield to substance, and we find no substance in the contention that the form of the letter of March 14, 1935, was such as to preclude any binding effect on Rothstein.
The letter of March 14, 1935, and defendant's reply of March 15, 1935, control the final disposition of this case. There is no question that these letters constituted an effective suspension of the original contract. In Flegal v. Hoover, 156 Pa. 276, Mr. Justice MITCHELL said (at page 280):
"The parties to a contract may at any time rescind it, either in whole or in part, by mutual consent, and the surrender of their mutual rights is sufficient consideration."
See also: Magazine Digest Publishing Co. v. Shade, 330 Pa. 487, 492; Anstead v. Cook, 291 Pa. 335, 339; Himeles v. Rose, 84 Pa. Super. 363, 366.
We come, then, to an interpretation of this contract of suspension, as embodied in the two letters set forth in full in the fifth and sixth findings of fact. . . . . .
It will be helpful . . . . . . to consider the conditions and circumstances surrounding the formation of this contract of suspension. That evidence of such conditions is admissible and should be considered, if helpful, in interpreting the terms of a contract has been amply established. It is stated in 3 Williston on Contracts (Rev. ed. 1936) pp. 1805-1806:
". . . . . . to put the court in the same position as the parties, the circumstances under which the contract was made should always be admissible so far as they tend to show the local meaning of the language of the contract, whether or not that language is ambiguous if judged by the normal or ordinary meaning of the words; and the prevailing rule permits this. The court will put itself in the position of the parties."
To the same effect, see: Miller v. Fichthorn, 31 Pa. 252, 257; Swarthmore Boro. v. Philadelphia Rapid Transit Co., 280 Pa. 79, 84; Louck v. Orient Ins. Co., 176 Pa. 638, 644; Restatement, Contracts, sec. 235(d).
In addition, as an aid to interpretation, it is permissible to consider the apparent purpose of the parties in entering into the contract. Bangor Peerless Slate Co. v. Bangorvein Slate Co., 270 Pa. 161, 165; Advance Industrial Supply Co. v. Eagle Metallic Copper Co., 267 Pa. 15, 21; Restatement, Contracts, sec. 236(b).
Finally, we must bear in mind the rule of interpretation stated in the Restatement of Contracts, sec. 236(a), and quoted in Armstrong v. Standard Ice Co., 129 Pa. Super. 207, at 211, that:
"An interpretation which gives a reasonable, lawful and effective meaning to all manifestations of intention is preferred to an interpretation which leaves a part of such manifestations unreasonable, unlawful or of no effect."
With these principles in mind, let us resume our chronological account of the dealings between the parties. We have seen that, immediately upon the entrance of a competitor into the top-icing business, the price dropped from $6.63 to $5 per ton. It was because of this "price war", and the resulting fact that at the new price the defendant could not afford to continue doing such business if it was necessary to pay Rothstein's commission, that the agreement of suspension was entered into. In his letter of March 14, 1935, Scott referred to the previous conference, and to the "temporary price war", and continued "we will consider our agreements suspended until this temporary condition is overcome, and prices stabilized." Counsel for both parties have dwelt unduly upon the single word "stabilized". We must look at the whole letter, and, in particular, at the entire portion just quoted. So doing, we are aided in interpreting the word "stabilized" by what precedes it, i.e. "until this temporary condition is overcome." What was the condition that was thought to be temporary? Not a fluctuation of prices, for no such fluctuation was shown to have occurred. Rather, it was shown that the price fell to $5 per ton and stayed at that level. The "temporary condition" must have been, therefore, the drop in price to $5.
In his answer of March 15, 1935, defendant's manager said that he expected to confer with those interested in local car icing and would keep Scott posted on developments. It seems reasonable to infer, in view of the circumstances, that this conference was to be held in an effort to reach an agreement to establish a price higher than $5, and Reed testified that this was attempted, but in vain. From the testimony, it seems clear that both parties expected the $5 price to be temporary. That they were mistaken in their belief cannot affect our interpretation of the contract.
Even if the price had been fluctuating at the time of the agreement, it is difficult to see what purpose would have been served by suspending the original contract until the price became fixed at a figure below that at which defendant could profitably operate. And it may be noted that the plaintiff did not even attempt to prove any definite time at which prices became "stabilized" and the agreement of suspension was terminated.
In any case, if we were to interpret the contract as agreeing to the suspension of the original contract only until prices become fixed, at any figure whatever, we should be nullifying the agreement. We must reject such an interpretation in favor of one "which gives a reasonable, lawful and effective meaning" to the contract, and which effectuates the apparent purpose of the parties.
Although this interpretation may not be in accordance with dictionary definitions of the word "stabilized", it is not so fantastic that we must refuse to adopt it. It is understandable that, because a fluctuation in prices in the normal concomitant of a depression and a general fall in prices, the latter conditions should be popularly referred to as "unstable", and a return to former, more favorable conditions to be termed a "stabilization".
Furthermore, for over two years Rothstein acquiesced in this construction of the contract of suspension. Not until April 23, 1937, did he demand recognition of his rights under the original contract, although in the intervening period, he was clearly informed that the defendant was not observing the original terms. During this period, also, Rothstein himself did not perform his duties under the contract of September 15, 1934, although he insisted that he had solicited some business and given some advice since the agreement of suspension was entered into, his testimony in this regard was so vague, evasive and contradictory that we cannot credit it. Thus, the interpretation which we have given to the disputed terms of the agreement of suspension was concurred in by both parties for a period of over two years. "The interpretation given by the parties themselves to the contract as shown by their acts or declarations will ordinarily be adopted by the court," and should certainly be referred to as an aid in construing the contract. See also Armstrong v. Standard Ice Co., supra, 213; Philadelphia v. Lehigh Valley Coal Co., 290 Pa. 87; Birdsall-Friedman Co. v. Globe Rutgers Ins. Co., 326 Pa. 404, 408.
It is true that the interpretation of the parties will not be permitted to "change the actual to the supposed or the desired," or to create an ambiguity where none existed. State Line Sullivan R.R. Co. v. Lehigh Valley R.R. Co., 277 Pa. 227, 233; Blough v. Lochrie, 275 Pa. 491, 495.
We do not believe, however, that the terms of this agreement were entirely unambiguous. Ambiguity or indefiniteness may be supplied by the extrinsic circumstances under which a term of a contract was employed: see Brown v. Brooke, 25 Pa. 210, 213; and "an ordinary word may from the context (or surrounding circumstances) be given an unusual meaning." 3 Williston on Contracts, p. 1778.
Having decided that the agreement of suspension is still in force, we are unable, at the present time, to state when it will be terminated. Certainly, the original contract will continue to be suspended until the price of ice rises above the present level of $5 per ton. Further than this we cannot say in the present state of the proofs.
It is also plain that the original contract of September 15, 1934, is still in existence, though in a state of suspension. That contract provided for a three-year term, and was automatically renewable for a similar term in the absence of written notice by either party at least ninety days before the expiration date. The letters which formed the agreement of suspension did not constitute such notice, and there was no proof of other express notice. The term, therefore, was renewed on September 15, 1937, subject, of course, to the agreement of suspension. We do no more, at present, than to hold that the contract is still suspended, pending a rise in the price of ice.
In consequence of the foregoing reasoning, the bill for an accounting must be dismissed.
We have referred to a contract for the supply of ice, entered into by H. Rothstein Sons, Inc., and the defendant, simultaneously with the contract on which the present bill is brought. Under the heading of New Matter, the defendant, referring to an action which it has instituted against the use plaintiff in the Municipal Court, has claimed that $1807.50, with interest from an average due date of October 10, 1937, is due to it on this supply contract. At side bar, counsel for plaintiff admitted that $1802.50 was due. Although the bill was dismissed, equity, having acquired jurisdiction, will "proceed to determine the whole cause, although in so doing it may decide questions which, standing alone, would furnish no basis of equitable jurisdiction." Bispham's Principles of Equity (10th ed. 1922) p. 57. Accordingly, we find that the use plaintiff is indebted to the defendant in the sum of $1802.50, with interest from an average due date of October 10, 1937, and should pay this amount.
Use plaintiff appealed.
Errors assigned related to the action of the court below in dismissing use plaintiff's exceptions and in entering the final decree.
Ned Stein, for appellant.
Robert B. Ely, 3d, with him Buckman Buckman, for appellee.
Argued October 3, 1939.
A review of the record in this case satisfies us that no error was committed by the court below in dismissing the exceptions filed by the appellant to the findings of fact and conclusions of law and the rulings of President Judge FINLETTER, sitting as Chancellor, and entering the final decree appealed from.
The decree is affirmed, at the costs of the appellant, on the findings of fact, conclusions of law and discussion of the Chancellor.