BONSACK MACH. CO. v. S. F. HESS & CO., 68 F. 119

HUGHES, District Judge (after stating the facts as above). The case will be considered principally on the merits. The suit below grew out of the use, by Hess & Go., of cigarette machines made exclusively by the Bonsack Company, at royalties per 1,000 cigarettes made by the machines, and rented to manufacturers. Hess & Co., after paying all royalties claimed by contract for several years, finally sued to recover back what they claimed to have been overpaid by them, under an alleged deception practiced upon them by the Bon-sack Company throughout the dealings.

The transactions between Hess & Co. and the Bonsack Company lasted from March, 1887, until September, 1890. The suit below was not brought until March, 1892. The charge of the plaintiff was that “a gross fraud was practiced on S. F.

Hess & Co., as part of a deliberate and systematic course of cheating in the matter of royalties paid; the Bonsack Company having declared and promised the plaintiff, Hess Co., that their royalties were uniform and invariable, not different in any case, when the fact was that those charged the Lone Jack Company were at that very time, and had been for near two years, about one-half of what was so quoted as the 'same to all’; and that those charged the Dukes were about 10 and 18 cents less than what they represented as uniform and invariable, with a sliding scale,' which gave the Dukes 25 per cent, less than any reduction to others.” As early as the 23d April, 1887, Hess & Co. wrote that they had information of better terms being given to others than had been offered themselves by the letter of Strouse, written on the 26th March preceding.

They were, therefore, on inquiry as to these terms as early as April, 1887, and remained so during all their dealing with the Bonsack Company. Whether inquiry was made or not, they ordered, a year afterwards,' a second machine, without allusion to better terms to others in requesting and accepting it, when delivered.

They wrote as late as September 9,1889, to Strouse, asking for a third machine, requesting to be allowed to pay 30 cents per 1,000 cigarettes with release from the requirement to pay $200 per month absolutely, and declaring to Strouse that “he had the right to make his own terms.” Thus Hess & Co., as long as 17 months after beginning to use the Bonsack machine, and after hearing of better terms to others, asked Strouse to change the terms alleged to be required of all in their own favor, and recognized Strouse’s right to make his own terms.

In doing so, they put the Bonsack Company off its guard, if it was really granting better terms to others, by giving assurance that no advantage would be taken of such departure from the usual terms by themselves. Strouse replied on the 13th September, granting the liberal terms ■requested; and Hess & Co. accepted these terms, which were such as they had assured Strouse he had the right to grant.

The dealings between the two concerns went on from that time on tbe new basis; Hess & Go. having been informed as long as 17 months before that better terms than 30 and 33 cents per 1,000, with $200 per month absolutely, had been given by Strouse to others, and themselves participating in the better terms which they had solicited and accepted in September, 1889. On the 7th March, 1890, all contracts that had arisen between the two concerns were merged, at the instance of Hess & Go., in the contract of that date, and Hess & Go. again accepted terms-still better than those they had enjoyed since September, 1889.

By this last contract they accepted a release from the payment of the three cents of .extra money for cigarettes in printed covers, all previous concessions being continued in the consolidated agreement. This last contract remained in force until the close of all dealings in August, 1890.

Here was not only knowledge that the Bonsack Company was not rigidly uniform in their terms to all who used their machines, but an express acknowledgment of its right to make its own terms with each manufacturer of cigarettes; they themselves being special beneficiaries of important modifications and better terms, solicited by themselves. A critical examination of the earlier correspondence between the two concerns will show that the contract for the first machine received by Hess & Co. was consummated before the matter of better terms to others became a subject of correspondence.

The contract was completed in the letters of the 22d March, 28th March, and the telegram of 23d April, 1887. In none of these had the idea of better terms to others found expression. Nothing had been said before the telegram of Hess & Go. ordering the first machine had been sent and received, relating to better terms. In tlie letter of Hess & Go. dated on the 23d and received by Strouse on tlie 23th April, 1887, two days after the first machine had been ordered by them, they first make mention of tlie subject. They had ordered the machine after hearing that better terms were enjoyed by other manufacturers.

Before receiving any assurance from Strouse that his terms were the same to all, and with the knowledge that this charge was current against Strouse, ¡hey ordered the first machine. It was in reply to the intimation in the letter of the 23d that Strouse said, on tlie 23th April: “Your information as to our giving manufacturers different terms from those I have given you is not correct. Our terms are the same to all.” Strouse does not say that the information is not true or is false; but he says it is not “correct,” — it is not an accurate account of thematter.

This declaration, positive as it is, and positively untrue as it is, so far as his using tlie phrase “different from” instead of “same to all” could make it so, could not have applied to the machine which had already been ordered. It could only apply to the two machines which were subsequently ordered. It is true that the order for tlie first machine, made on the 23d, was countermanded on the 26th, April, the evidence 'not showing whether or not it liad then been sent.

But the countermand was not because Hess & Go., as intimated by their counsel in their brief, were hesitating on the rumor of better terms to others, but because of what they call an “intimation” to them that the Bonsack machine might be an infringement on other patents. The temporary countermand for such a reason could not affect the contract for the first machine, which had been completed by the telegram of the 23d April. Does the expression “same to all,” used by Strouse on the 25th April, 1887, apply to the second and third machines subsequently ordered and received by Hess & Co.?

The second one was furnished some time in the spring of 188S, a year after Hess & Co. had made their suggestion of better terms to others, and without anjr mention again of that subject by Hess & Co. The contract on which this machine was sent and received was not written, either in correspondence or special writing. Whether it contained an implied stipulation, arising out of Strouse’s letter of April 25,1887, that the terms respecting it should be as favorable as were granted to any other manufacturer, is a question open to debate.

When this second machine was sent to Hess & Co., they had had the idea in their minds of better terms to others for a year, and they ordered and received it without objection on that score. The third machine sent to Hess & Co., was sent in response to their letter of September 9, 1889, and in compliance with Strouse’s reply to it four days afterwards. It was' sent and received under the contract embodied in those letters.

The terms stipulated in the correspondence had been solicited and granted upon an express assurance from the receivers that the owner of the machine had a right to make the terms solicited and conceded.

Hess & Co.’s letter of the 9th September in very words contained a concession that the Bonsack Company had a right to modify their terms at their own pleasure to particular manufacturers, and contained, by necessary implication an assurance that Hess & Co. would not object if it were or should be a fact that better terms than those stated in Strouse’s original letter of March 26, 1887, were given to other manufacturers.

Hess & Co. themselves received and became beneficiaries of better terms,1’ and by accepting them, and by the assurance given in their letter, waived all objection on that score to better terms to others. It may be concluded, therefore, we think, that this matter of better terms to others did not affect either the first machine received by Hess & Co. or the third one, and could only apply, if at all, to the second machine.

Be this as it may, hówever, and assuming, for the sake of argument, that the Bonsack Company had, before the 23d of April,. 1887,. and afterwards, given better terms to other cigarette manufacturers than they gave to Hess & Co., in respect to either or all of the machines, the question arises whether of not the latter are in position to be entitled to recover as they claim in the suit below; for no principle of law can be more obvious than that a plaintiff must recover on the strength and merits of his own case, and, these being wanting, cannot recover exclusively on the weakness and demerits of the defendant’s case.

From what has been said, it is plain that the averment in their declaration that Hess & Co. were ignorant of other contracts giving better terms to others, until after August, 1890, was a necessary one. It is, in fact, the crucial question in this litigation. Hess & Co. contend that the Bonsack Company were estopped by Strouse’s letters of March 26 and April 25, 1887, from receiving from themselves any greater royalties on the worlc of the machines sent them than the lowest that were accepted from any other manufacturers.

But they cannot claim a corresponding abatement from such royalties as they actually paid, unless they shorv that these latter were paid hv them in ignorance of the fact that lesser royalties were accepted by (he Bonsaclc Company from others. Such ignorance is a necessary ingredient of estoppel by conduct. Bigelow says (page 480) among other essentials of estoppel is the fact that the injured party must have been ignorant of the truth of the matter. We shall refer to another necessary ingredient in the sequel. The averment of this ignorance was therefore necessary in Hess & Co.’s declara lion.

TJnlilce a bill in chancery, the averments in which are sworn to as time by the complainant, a declaration at common law is merely the work of lawyers, the averments in which are strictly technical, and do not necessarily touch the conscience of the plaintiff. They are not taken to be true. They must be affirmatively proved by evidence, — evidence which, to be valid, must in general have the sanction of an oath, and be taken with opportunity for cross-examination. It was necessary, therefore, at the trial below, for the ignorance averred by the declaration to have been affirmatively proved.

This could have been done by the testimony of the members of Hess & Co., or either of them, or by other competent evidence. But the averment was left unproved at the trial, no evidence whatever having been offered in support of it. Neither of the plaintiffs was put on the stand. It is an inference of law, therefore, that the ignorance averred by the declaration did not exist, and was not, for that reason, proved. In point of fact, such ignorance was quite improbable.

During the'entire period of their operating the Bonsaclc machines these plaintiffs had had in mind the idea — ■ whether they believed it or not — -that better terms were enjoyed by other manufacturers. They went on, nevertheless, using the machines, without objection on this score, for two years and a half, making no complaint to the Bonsaclc Company. It was not until after the machines were withdrawn from them, in August, 1890, that they complained of the existence of contracts with others granting better terms.

All their payments of royalty throughout that long period had been made without protest,' and it was not until September, 1890, that they disclosed to the Bonsaclc Company a knowledge of such contracts in making their last remittance. This disclosure was contained in their letter of September 6th, in which they say: “We desire to inform you that we do not construe this payment to he a waiver on our part of any claim against your company for a breach of your agreement with us.

We have paid yon at the rate of 30 cents per thousand for all cigarettes made on your machines, and we shall ask you to make us good between that amount and the lowest rate given by you to other manufacturers while we were using your machines.” This letter, as before stated, was dated on the (5th September, 1890, and the averment in their declaration was that they were ignorant on this score “until long after the 1st of August, 1890.” The fact that Hess & Co. did not bring their suit for reclamation until March, 1892, — 18 months after the letter containing the language quoted, and inclosing the last remittance, — suggests that their delay and hesitation in bringing suit were due to their conscious doubtfulness of their ability to prove this ignorance.

The, fact was that they had not labored under this ignorance. They did become cognizant during the period - in which they were using Bonsack machines that the terms were not uniform, for they themselves, during that 2-¿ years, solicited and obtained several modifications in. their own favor of the “uniform” terms. And how could they suppose, when these modifications were granted-to themselves, that the Bonsack Company would immediately proceed, in consequence, to make similar modifications in the terms under which all other manufacturers using tlieir machines were operating?

Such a supposition would have been very strained. The fact that Hess & Co. solicited, obtained, and enjoyed better terms than those which Strouse had declared on the 26th March, 1887, to be “uniform,” and on the 25th of April following to be the “same to all,” shows that they were not ignorant of different terms having been accorded. The fact proves that they were cognizant of such terms during a large part of, if not throughout, the period of their use of the Bon-sack machines.

Being so, were they not giving the Bonsack Company reason to believe that they wittingly waived the alleged guaranty of uniform rates; and are not they themselves debarred by their own acceptance of different rates from claiming the drawbacks which they seek to recover by tlieir suit?

Moreover, when they declared that the Bonsack Company had a right to make its own terms, requested a change of the “uniform” terms in their own favor, and, this being granted, ‘accepted and enjoyed better terms solicited by themselves, making noi protest until after the business had come to an end, did they not impliedly guaranty the Bonsack Company that no reclamations would be demanded or expected by themselves? We think so, and that their waiver misled the Bon-sack Company.

The correspondence shows that, in the course of the dealings between these two concerns, Hess & Co. frequently requested favors modifying the “uniform” terms stated in detail by Strouse in his letter of March 26, 1887. They requested leave to keep a machine idle, they solicited a release from the payment absolutely of §200 each month, they asked for an abatement of 3 cents per 1,000 on printed1 cigarettes, and'they made other demands for modifications of the regular terms. These frequent requests were most of them granted, and Hess & Co. accepted the concessions, and profited by them.

This course of proceeding shows that Hess & Co. did not construe the terms “uniform” and “the same to all” as inexorably fixed rules of the Bonsack Company, and did not treat Strouse’s language as other than an approximate statement of the terms on which the company rented their machines. Hess & Co. themselves, for two years and a half, put a construction upon the language of Strouse which conceded to the Bonsack Company the liberty of partially modifying their terms to suit the changing exigencies of business and the varying circumstances of their customers.

Public policy requives that such, correspondence as transpired between tbe parties to ibis suit should be construed in the interests of active trade, and with more or less liberality in favor of a free coarse of business in dealings of this character. In tire case at bar the evidence shows That Hess & Co. did not act upon the rigid letter of Strouse's language. They frequently departed from it. It is an essential ingredient of estoppel by conduct that the parly claiming the benefit of this rule of law must have acted upon the declarations made to- him by the defendant. In the leading case of Cornish v.

Abington, 4 Hurl. & N. 549, the presiding justice said: “The rule oil estoni>el is that, if a party [say the Bonsack Company] uses language which, in the ordinary course of business, and the general sonso in which words are undoistood, conveys a certain meaning, lie cannot after-wards say he is not bound, if another [say Hess & Co.], so understanding it, has acted upon it.” The conduct of Hess & Co. throughout their dealings with the Bon-sack Company shows that they neither understood the language of strouse in the rigid sense, nor acted upon it, in soliciting and accepting the different terms of which they were the beneficiaries.

We do not think that the Bonsack Company, in a suit by Hess & Co., can be held to a rigid construction of the language which it employed in its letters of the 20th March and 25th April, 1887; Hess & Co. having themselves construed those letters liberally, in frequently requesting .better terms for themselves, and receiving advantage of better terms accorded themselves in their own dealings with the Bonsack Company.

Coming now to the particular specifications of breaches of contract relied upon by Hess & Co., we find that their declaration singles out only two instances of such violations, to wit, the contracts with Duke & Boris and with the Lone Jack Company.

Both of these contracts stipulated that the price required of the Lone Jack Company and of Duke & Sons, respectively, should, he 30 and 33 cents per 1,000, and they stipulated additionally that part of this price — half in one case and a third in the other — should be credited to certain services defined in the contracts which the other parties to them agreed to render, respectively, in paid payment of the regular charge of 30 and 33 cents per 1,000.

If these services were real, valuable, and adequate, and if the jiarties were contracting in good faith, then, ex aequo et bono, in conscience and fair dealing, these contracts did not falsify the statement of Strouse in his letter of April 25, 1887, that his terms of payment were the same to all. Whether or not the services stipulated for in the contract were real, valuable, adequate, and agreed upon bona, fide, was a question for the jury. Whether Strouse stated a moral and deceptive falsehood or merely a technical untruth in his letter of the 25th April, 1887, was also a question for a jury.

The averment that these stipulations with tbe Dukes and the Lone Jack Company were for services not real, not adequate in value, nor made bona fide, and that the statement of Strouse that the royalties paid by these two companies were 30 and 33 cents per 1,000 was false and misleading, was a necessary one in the declaration filed in the suit. The declaration itself put the bona fldes of these stipulations and the truth of Strouse’s statement directly in issue. Yet the defendant’s evidence on neither one of these issues was allowed to go to the jury.

The court below assumed that Strouse’s statement was untrue, and refused to allow evidence to be given to the jury on the question of the value of the services and the bona fides of the stipulations relating to them in the contracts. It is needless for us to express any opinion on these two questions put in issue by the pleadings. We are of opinion that they were both questions for the jury, and that the court below, erred in refusing to allow the defendant’s evidence on them to go to the jury.

Let it be observed that in his letters of the 26th March and the 25th April, 1887, Strouse, in detailing with precision the terms on which the Bonsaclc machines were let to Cigarette manufacturers, did not include in his statement of these terms a clause declaring that the royalties specified should invariably be paid in cash. He did not preclude his company from the right, in párticular instances, of accepting payment of the royalties, wholly or in part, in property of equivalent value. He virtually reserved that right.

If, in a case we shall suppose, the maker of a valuable machine were in the habit of informing his customers that his price, say $100 each, was uniform and the same to all, and jret should accept a winter’s supply of coal from one purchaser, worth at market rates $100, ánd should purchase a liorse at $100- from another person to whom he sold a machine, and should allow his dry-goods merchant, whose bill was $100, to take another machine in payment of the debt, and should buy a carriage at $200, and ask a credit on the price of $100, from the carriage maker, in payment for a machine, taken by the latter, we do not think that these transactions would constitute a breach of his guaranty to the public that he charged $100 invariably for all his machines.

We do' not think that a suit at law could avail in any court to recover damages under such a guaranty. Yet the case supposed differs little from the two contracts under consideration. Confidence in trade and activity in business would be impaired by construing the guaranty in such a manner. Public policy would forbid so rigid a construction, for such transactions! are of just the kind which most promote trade and facilitate business.

This important question was one of the issues in the case, — indeed the most prominent one, — and important evidence, directly bearing upon it. was withheld from the jury; that evidence being the depositions of James B. Duke and William H. Butler, and the testimony proffered by defendant of Edmund Schaeffer, president of the Lone Jack Company, and Stewart Walker. We think the court below erred in excluding this evidence. The exceptions taken at the trial by the defendants in the suit below are very numerous, and need not be considered in detail.

They relate chiefly to the instructions prayed for respectively by counsel' on either "side. Those prayed for by counsel for the plaintiffs below were given to the jury, en bloc, by the court. They embody a theory of the case which we think was radically erroneous. They seem to lose sight of the proposition that a plaintiff must recover on the strength and merits of his own case, and, if these are wanting, cannot recover exclusively on the weakness and demerits of the defendant’s case. They virtually put to the jury the question of the defendant’s delinquency, and no other.

They embodied directions to the jury which excluded from their consideration important evidence which the defendant below offered in their favor. We think the court below erred in granting them in the form in which they were framed. The instructions prayed for by defendant’s counsel contained propositions which we think ought to have been presented to the jury in some form or other. Some of the instructions were inadmissible, but we think several of I hem were proper. It is needless to discuss them in detail.

Sufficient has been said to show that the judgment below must be reversed, and the verdict found for the plaintiffs below be set aside.