Eastern Rolling Mill Co. v. Michlovitz

Parke, J., delivered the opinion of the Court. The plaintiffs,' Simon Miehlovitz, Abram Miehlovitz, and David Furman, aré copartners trading as Miehlovitz & Co., and carry on an extensive wholesale business in buying and selling iron, steel, and other scrap at Harrisburg, Pennsylvania, where their office and two of their yards are located. They have two other yards at Lebanon, which is in the same state and twenty-five miles from Harrisburg. The defendant, the Eastern Rolling Mill Company, an incorporation of the State of Maryland, with its principal office in Baltimore and its plant either in that city or in its environs, is a manufacturer of sheet steel, and its processes leave for disposal a large quantity of what is known to the trade as “crop end ⁵³ scrap” and “bundled steel scrap.” Tbe first is tbe ends of steel bars, which are the raw material of the industry; and the second is the ends of steel sheets, which the defendant hydraulically compresses into bundles for sale as scrap.

The steel sheets constitute ninety-eight per centum of the gross money value of the corporate business, and the other two per centum is, practically, the two kinds of scrap mentioned. Since the defendant began operation in 1920, the defendant had exclusively disposed of this scrap to the plaintiffs. The yearly output of scrap was large, the transactions between the parties satisfactory, but periodic contracts for more than three months for the entire accumulation of both kinds of scrap began, apparently, on December 1st, 1922, when the parties agreed to a sale and purchase of an entire thirteen months’ production at a flat rate per ton for each kind as delivered by the defendant on gondola railway cars at its plant, when it was to be removed without delay by the plaintiffs. However, the prices agreed did not remain in force throughout the period, as they were voluntarily increased by the plaintiffs, after a conference, for the deliveries during the second and third quarters of that year.

On November 30th,, 1923, the parties again agreed in writing. The contracts were similar to those for 1923,' except that the term was for five years, beginning on January 1st, 1924, and ending on December 31st, 1928; and that the prices were not specified but were to be agreed upon by the parties at the beginning of every period of three months during the life of the contract. Before the expiration of these contracts, the parties cancelled them on September 15th, 1927; and superseded them by two new written contracts, each for the period of five years from the 1st day of October, 1927, to the 30th day of September, 1932, inclusive. The only practical difference between the two contracts is that the subject matter of one is crop end scrap and of the other is bundle steel scrap, so only the terms of one need be stated.

By these contracts, the defendant agreed to sell its entire accumulation of the two kinds of scrap during the period of five years at prices to be fixed at the beginning of every ⁵⁴ •quarter for the next succeeding three months in the following manner: The plaintiffs were to accept delivery .of the scrap as it accumulated, and its price, when loaded by defendant •on gondola cars at its plant, was, (a) with respect to the pressed bundled sheet steel scrap, three dollars a ton less than what was quoted in the “Iron Age,” a trade publication, at the beginning of every quarter, as the Philadelphia market for bundled steel sheets; and, (b) with respect to the crop •end scrap, three dollars a ton less than what was quoted in said journal, at the beginning of every quarter, as the Philadelphia market for No. 1 heavy melting steel. The contracts required the plaintiffs to pay $5,000 on account of both contracts at the time of their formation; and the defendant agreed to give credit to this amount on the scrap to be delivered, the plaintiffs promising to pay whatever was in •excess of this sum in accordance with the terms then in force between the parties. These contracts went into effect according to their stipulations; the plaintiffs paid to the defendant the required •$5,000; the prices for bundled sheet steel scrap and for crop end scrap were fixed on September 29th, 1927, in accordnace with the provisions of the contracts, for the ensuing-last quarter, October, November and December, 1927; and. the scrap for this quarter was regularly delivered by the defendant and paid for by the plaintiffs. No controversy of any kind arose until the death of John M. Jones, who had been the president and general manager of the defendant from its inception, and who-, in these capacities, had made with the plaintiffs all the contracts for the sale of scrap to the plaintiffs.

Jones died about November 1st, 1927, and in the following month, under the direction of A. J. Hazlett, the new president, an effort was made to induce the plaintiffs to agree to a rescission of the contracts. The defendant’s objection to the contracts was their duration and the prices, but it was willing- to enter into new contracts for not •over a year, upon the other terms, including the prices, of the original contracts. The defendant charges, but the plaintiffs deny, that the plaintiffs assured the defendant of ⁵⁵ their willingness to1 rescind the subsisting contracts and to enter into similar ones for a short period. The defendant’s, contention is not supported by the weight of the evidence; and there can be no doubt that there never was any agreement between the parties for any modification of the contracts in controversy.

In performance of these contracts,, the defendant and plaintiffs agreed in December, 1927, upon the prices for scrap for the- ensuing first quarter of the year, and, similarly, agreed in March, 1928, upon the price basis; for the second quarter, and, accordingly, the defendant delivered, and the plaintiffs received and paid for, all the scrap which accumulated during the first six months of 1928. Since the June, 1928, deliveries, the defendant has refused to comply with its contracts, although the plaintiffs have demanded their performance, and the defendant does, not question plaintiffs’ willingness and ability to complete and discharge fully their obligations. Under these circumstances, and because of the alleged irreparable loss and injury to the plaintiffs resulting from the defendant’s refusal to fulfill its continuing contracts, the plaintiffs brought a bill to enforce specifically the contracts. After answer, and the taking of proof by the parties in open court, the chancellor decreed the relief prayed for, and this appeal raises the question of the right of the plaintiffs to relief.

When the defendant determined, in November or December, 1927, to obtain a termination of the contracts by cancellation or by the reduction of their term, it was aware of all the grounds, upon which it now relies to avoid the contracts, so all the successive acts of performance on the part of the plaintiffs and of the defendant, respectively, were alike referable to the subsisting contracts; and, even if it be conceded that these acts were done- pending an abortive effort to- cancel the contracts or to secure a modification of the period of the contracts by way of compromise, it is nevertheless difficult to see how — under the evidence and in the absence of any agreement between the parties to the contrary —these facts did not amount to an election on the part of the defendant to abide by and perform the contracts, there ⁵⁶ being no conduct nor other circumstances which would estop the plaintiffs from asserting the election to have been then made. The defendant, however, makes the first point that the contracts sought to be enforced are ultra, vires and void, and, if this contention be sound, the corporate defendant could not make the contracts intro, vires by electing to perform them. It will, therefore, be necessary to consider the theory that the contracts were ultra, vires, and with it all the other defences interposed will now be examined. The defendant’s argument involves the maintenance of a number of propositions.

In the first place, the right to a specific performance is denied because the contracts of September, 1927, are either (a.) ultra, vires, or (&) are not within the authority of the defendant’s president and general manager to make; or (c) are fraudulent; or (d) so unconscionable as hot to be specifically enforceable. And, secondly, the defendant asserts (e) that the plaintiffs have an adequate remedy at law, and (/) that the defendant would be harmed more by being required to perform the contracts than the plaintiffs would be benefited. In the defendant’s certificate of incorporation, the first of the declared corporate objects and business is the manufacture and sale and dealing in any way in “steel sheets and .all by-products resulting from the manufacture thereof.” So there can be no question that the sale of not only the steel sheets, but also the scrap, a by-product of the manufacture of steel sheets, is fulfilling one of the prime purposes of the incorporation of the defendant, and, therefore, wholly and irrefutably intro, vires. Nor is there any limitation in the charter of the defendant with respect to the period its contracts may run, nor any prescription as to their content.

It follows that the duration and other terms of a contract of sale by the defendant of a product of its business will not generally render the contract ultra, vires, although it is conceivable that, under special circumstances, the length or other terms of a particular contract of sale might make it ultra, vires. But certainly lack of judgment in writing a ⁵⁷ contract for a period of five years instead of less, and in agreeing on one price, instead of a higher, for the period, will not render a contract ultra vires. And any contract which is intra vires as to the corporation is assuredly none the less so when made by its duly constituted agent within the scope of his authority, whether expressly given or duly implied. The general management and control of the affairs of the corporation were vested by the certificate of incorporation in its board of directors, who exercised all of the powers of the corporation except such as are expressly limited by law to the stockholders.

The corporate by-laws provided for a president and that he should be the chief executive officer of the corporation, having general and active control of its affairs and business, subject to the authority of the board of directors. The by-laws specified that the general manager of the corporation should perform such duties as may be prescribed by the board of directors or executive committee, or as might be fixed by special contract, and that he, as well as the other corporate officers, should perform such duties and exercise such further powers as may be delegated to him by the board of directors or by the executive committee. There was a further provision of the by-laws that all contracts, made in the conduct of the ordinary business of the company, for purchases and sales, may be signed by the officer having authority to transact the business, or within the scope of whose duty the transaction may in each particular instance fall. Erom its beginning, the president and general manager of the defendant was J. M. Jones, whose services began under a contract of employment which ran for eight years, and which imposed upon him, subject only to the direction of the board of directors, the initiation, operation and general management and control of the organization and business of the company.

Jones successfully launched and managed the corporate affairs in accordance with this contract, which expired on July 2nd, 1927, and, before its expiration, he and the defendant entered into another contract for a ⁵⁸ like period of eight years from July 2nd, 1927, whereby he continued in the corporation’s service and agreed to assume as theretofore full charge of the business of the defendant .and the operation and control of its plant, and of its organization as president and general manager thereof, subject •only to the direction of the board of directors of the company. In the performance of 'his duties, the board of directors imposed neither restrictions nor limitations upon the sales of its products; neither did the board require that any contract of sale should be subject to1 the condition of its approval, nor did it abridge in any particular the manager’s general and universal power of sale. Prom the time the defendant began its operations, the general manager had sold and delivered to the plaintiffs all of the scraps here involved under successive contracts', whose length was, at first, for periods of three months, then for thirteen months, and next for five years. The prices agreed to be paid for the scrap iff these several contracts was usually fixed at a constant figure for every ton, but, in the first contract for five years, it was stipulated that the price should be agreed upon by the parties, at the beginning of every quarter, for the ensuing three months.

Go far as the defendant was concerned, the .agreement with respect to the duration, the price of the scrap, and all the other terms of qvery contract were not submitted to the directors of the company but were left exclusively to the judgment, discretion and decision of the president and general manager, who, after agreeing on the stipulations of the contracts, executed them in the name of the company; .and any change or modification of their provisions was recognized to be his province. When, therefore, the president and general manager proposed to the plaintiffs that the defendant enter into' the two contracts here in question for a like period of five years at prices which were to be determined, at the beginning of every quarter, for the ensuing three months, by deducting three dollars from the prices for the Philadelphia market, as quoted in the Iron Age, for bundled steel sheets and for heavy melt ⁵⁹ ing steel, as determinative of the contract prices; respectively, of defendant’s production of hydraulic compressed bundled steel scrap and crop- end scrap, the proposition was apparently a normal transaction within the scope of a general manager’s-authority. The new contract superseded a contract of five years (Williston on Sales [2nd Ed.], see. 167), which would soon expire and under which the prices paid by the plaintiff to the defendant for its scrap averaged $3.37 less than the specified quotations on the Philadelphia market, so there ■was nothing in the duration or prices of the proposed contracts, or the manner of their submission and execution, which was unusual, or which would put the plaintiffs on notice that this new contract must be negotiated and executed in any manner different from those of the past. As was said in Carrington v. Turner, 101 Md. 437, 443 ; “It is well settled that a corporation may confer upon its officers or agents larger power than ordinarily belongs to them by holding them out to the public as possessing such powers by habitually permitting them to exercise them.” Santa Clara Mining Assn. v. Meredith, 49 Md. 389 , 400 ; Equitable Endowment Assn. v. Fisher, 71 Md. 439 ; Hadden v. Linville, 86 Md. 210, 230-233 ; Maryland Trust Co. v. Mechanics’ Bank, 302 Md. 608, 634, 635 .

So, under the facts and circumstances of this case, it is plain that the president and general manager, in making the assailed contracts, was acting within the scope of his duties, and for the benefit of the defendant, in a matter which arose in the course of the ordinary business of the corporation. The following quotation in the ease of Eastern Shore Brokerage Co. v. Harrison, 141 Md. 91, at p. 100 , is- apposite to the facts of this record: “Unless his authority is specially restricted, the authority and power of a general or managing officer or agent are co-extensive with the powers of the corporation itself, and he has authority to do any act on its behalf which is usual and necessary in the ordinary course of the company’s business, or which he is held out to' the public as having authority to do, and may exercise all the powers which the board of directors could exercise or authorize under ⁶⁰ the same circumstances in the general management of the corporation business.” As has been seen, the board of directors gave the general manager no direction, and placed upon him no limitation, with respect to the contracts of sale for its products, but customar- ■ ily left these matters to- his sole discretion -and decision, without ever exercising 'any supervision, much less control. Under these circumstances, the corporation is not in a position to set up a want of authority in its general manager. It was charged with the knowledge of the extent of the power commonly exercised by its: general manager in the conduct and management of its business, even though such power had not been expressly delegated to the manager.

Supra, and Buchwald Transfer Co. v. Hurst, 111 Md. 577 ; Sun Printing & Publishing Assn. v. Moore, 183 U. S. 642, 650 ; Hagerstown Brewing Co. v. Gates, 117 Md. 348, 358-361 ; Md. &. Del. R. R. Co. v. Porter, 19 Md. 458, 469 ; Northern Central Ry. Co. v. Bastian, 15 Md. 494, 500, 501 ; Singer Const.

Co. v. Goldsborough, 147 Md. 628, 632, 633 ; Williston on Contracts, sec. 277. Since the general manager, while acting within the scope of his authority, made the contracts in the name of the principal, and in its behalf, the latter is bound to perform the contracts according to their terms, unless the contracts were fraudulent, as the defendant now maintains. The reason for this rule is expressed in the maxim qui facit per alium facit per se. So, no matter if the terms of the contracts be improvident, the principal is bo-und as if the errors of judgment of the agent had been made by the principal, unless the agent were guilty of fraud in making the contracts.

The evidence is clear and convincing that there was no fraud. The direct testimony is that the general manager, Jones, had no ulterior interest in the formation of the contracts, and that he derived no personal benefit from their making or performance other than which inured to him as a large stockholder in the company. It was not until after his death that defendant attempted to annul the contracts. Ror a number of years, and until his death, he had been ⁶¹ the defendant’s trusted and efficient chief executive officer, •and his conduct of its affairs had been thoroughly satisfactory and profitable; and it is no more than just to- state that this record presents no facts affecting his integrity.

In the absence of direct evidence, tbe defendant relies upon an inference of fraud from what is claimed to be the patent unfairness of the contracts, so far as the defendant is concerned. The charge of fraud rests, in last analysis, upon