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Krauss v. Greenbarg

July 16, 1943


Appeal from the District Court of the United States for the Eastern District of Pennsylvania; William H. Kirkpatrick, Judge.

Author: Goodrich

Before MARIS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

On July 30, 1940, the defendants who used the business name of King Kard Overall Company, received an award and contract from the War Department of the United States to supply 698,084 pairs of leggings. The contract called for deliveries of certain quantities of leggings at stated intervals and provided for a sum as liquidated damages for each day of delay. By a memorandum of the same date the defendants placed an order with the plaintiff, whose business was carried on under the name of American Cord and Webbing Company, for the webbing to be used in making the leggings. The order provided for certain quantities of webbing to be delivered at given dates.

On March 11, 1941, the webbing company started suit in the Eastern District of Pennsylvania to recover $15,326.13 for the webbing sold and delivered to the overall company pursuant to the latter's order. The buyers admitted nonpayment but filed a counterclaim for $22,740.99. The jury returned a verdict in favor of the overall company for the counterclaim and judgment was entered for the difference less $2,000. (See footnote 3.) The webbing company filed this appeal.

The issues raised on this appeal concern the counterclaim. The theory of the counterclaim is that the webbing company did not maintain the scheduled deliveries of the webbing and as a result thereof the overall company could not meet its schedule with the Government.Because of this it incurred the per diem penalty provided for in the government contract for each day's delay in deliveries which amounted to $22,740.99. These special damages it seeks to charge to the webbing company. The latter admits that it failed to deliver the webbing as per schedule. It denies, however, liability on its part for the special damages sought.

The first question for us is to determine the law applicable to the controversy. The webbing company formally acknowledged the order by a letter sent from its New York office, all the prior negotiations having taken place in Philadelphia, where the overall company had its factory. We do not need to determine where the contract was consummated, however, for applying the Pennsylvania conflict of laws rule, as we must, Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477, we find that the right to and measure of damages is governed by the law of the place of performance. See cases cited in Restatement, Conflict of Laws; Penna. Annot. (1936) §§ 372, 413. Here, the place of performance was at Philadelphia and the Pennsylvania rule of damages controls.

The rule governing special damages in contract cases applied in the Pennsylvania decisions has been that laid down in the leading English case of Hadley v. Baxendale, 9 Ex. 341 (1854). It is that special damages for breach of a contract are not recoverable unless they can fairly and reasonably be considered as arising naturally from the breach or as being within the contemplation of the parties, at the time the contract was made, as the probable result of the breach. See Fleming v. Beck, 1865, 48 Pa. 309; Wolf v. Studebaker, 1870, 65 Pa. 459; Billmeyer, Dill & Co. v. Wagner, 1879, 91 Pa. 92; Raby, Incorporated v. Ward-Meehan Company, 1918, 261 Pa. 468, 104 A. 750, all citing Hadley v. Baxendale.*fn1 Where the consequential damages claimed were within the contemplation of the parties at the time of the contracting as the probable result of the breach, their recovery has been allowed. Pittsburg Coal Co. v. Foster, 1869, 59 Pa. 365; Wolstenholme, Inc., v. Jos. Randall & Bro., Inc., 1929, 295 Pa. 131, 144 A. 909; F. P. Weaver Coal Co. v. Maryland Casualty Co., 1929, 295 Pa. 486, 145 A. 595; Stevenson v. Smith, 1924, 82 Pa.Super. 539; Siegel v. Struble Brothers, Inc., 1942, 150 Pa.Super. 343, 28 A.2d 352. The question stressed as ultimately determinative in all these cases is whether at the time of making the contract the party who broke his promise knew that his breach would probably result in the kind of special damages claimed and thus could be said to have foreseen them. If he did, then he was liable for the consequential damages.

On this question in the case at bar we have a special finding by the jury. At the trial of the case the court submitted three questions to the jury. One asked whether Krauss [the webbing company] knew, at the time he made his contract with Greenbarg [the overall company], that the latter's contract with the Government provided that delay in delivery would subject it to a penalty. The jury answered yes. This finding, which is unassailed, establishes definitely that the webbing company knew and could have foreseen that if the webbing, which it undertook to furnish, was not delivered as scheduled in the contract and as a result the leggings could not be delivered on time, the overall company would incur the special damages it now claims.

The appellant makes the argument that mere contemplation of future harm is not sufficient to impose liability for that harm as special damages. There must have been virtually a tacit agreement to assume the risk of whatever harm was foreseeable. There is some judicial authority for this view in the highest court of this land. Globe Refining Company v. Landa Cotton Oil Company, 190 U.S. 540 (1903). There is likewise some support for the view in the native home of Hadley v. Baxendale. B. C. Saw-Mill Co. v. Nettleship, L.R. 3 C.P. 499 (1868); Horne v. The Midland Railway Company, L.R. 7 C.P. 583 (1872); L.R. 8 C.P. 131 (1873). The merits of this subsequent restriction on Hadley v. Baxendale have been argued at length. 5 Williston on Contracts (1937) § 1357; McCormick, The Contemplation Rule as a Limitation Upon Damages for Breach of Contract (1935) 19 Minn.L.Rev. 496, 511 et seq.; Bauer, Consequential Damages in Contract (1932) 80 U. of Pa.L.Rev. 687. However, as this Court has said many times since Erie Railroad Co. v. Tompkins, 1938, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, our duty is to apply state law as we find it in the state decisions irrespective of what we may regard as its merits. Pennsylvania decisions have clearly held, we think, that knowledge of facts which makes special damages foreseeable imposes liability therefor.

The webbing company, as part of its argument as to foreseeable consequences, urges that it must be shown that the vendor knew at the time the contract was made that there was no available market where the vendee could procure the merchandise in event of a failure of performance by the vendor. As to this, there was some testimony that the webbing company, when in default for delay, gave assurances that it would procure the webbing for its customer. To that extent, "Consequences that might have been avoided may form the basis for recovery if the plaintiff's failure to avoid them was due to defendant's promises or representations." 5 Williston, supra, § 1353. Aside from this, however, is the vendor's failure to bring the point to the attention of the trial judge and through him to the jury if there was thought to be merit in it. The judge charged the jury fully, and as we have said above, correctly, regarding the rule of foreseeable consequences in recovery of special damages. He charged them also, and correctly, as to an injured party's duty in mitigating damages after breach, raising the question and leaving to them the answer, whether the buyers could have procured webbing elsewhere following the seller's default. The seller submitted certain requests for instructions to the jury, none of them mentioning the point under consideration. At the close of the charge he was given the opportunity to present further requests if he had any to make. If he wanted this specific point further elaborated this was his opportunity to ask for it. He may not raise it for the first time now. Federal Rules of Civil Procedure, rule 51, 28 U.S.C.A. following section 723c; Palmer v. Hoffman, 1943, 318 U.S. 109, 119, 63 S. Ct. 477, 87 L. Ed. .


The webbing company asserted at the trial, and introduced evidence tending to prove that its delay in furnishing webbing was not the sole cause for the overall company's delay in performance. It claimed as other contributing causes a landlord's distress and eviction at the buyers' factory, a removal by the overall company of its plant, a shortage of eyelets necessary to the manufacture of the leggings, and excessive delay by the manufacturer even after all the webbing had been delivered. Assigned as error, in view of this evidence, is the judge's charge to the jury that although there may have been other contributing causes, if the "primary" "real" "main" "chief" cause of the overall company's delay was the webbing company's failure to deliver on time, then the loss was chargeable to it. That delay, he charged, had "to be sufficient in itself to have delayed his [overall company's] contract with the Government."*fn2 It is contended that in order to charge the penalty to the webbing company, its failure to deliver on time had to be the sole cause of the damage claimed.*fn3

We think the trial judge's charge was not open to attack by the appellant. One of the legal tests which must be met in order for something which is a cause in fact to be a "legal cause" is that it shall have been a substantial factor in bringing about the harm. As thus used substantial denotes "the fact that the defendant's conduct has such an effect in producing the harm as to lead reasonable men to regard it as a cause, * * * ".*fn4 If a number of factors are operating one may so predominate in bringing about the harm as to make the effect produced by others so negligible that they cannot be considered substantial factors and hence legal causes of the harm produced. In that event liability attaches, the requisites of legal cause being shown, only to the one responsible for the predominating, or substantial, factor producing the harm.*fn5 The trial judge in charging the jury, required no less than ...

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