Hudson Canal Company v. Pennsylvania Coal Company

ERROR to the Circuit Court for the Southern District of New York. The case was this:

The Pennsylvania Coal Company, being engaged in mining coals from land in the northeast corner of Pennsylvania, for which they wished to get means of easy transportation to New York, and the Hudson Canal Company having a canal whose capacity was not fully employed, and which would afford the transportation desired, provided a railroad could be made from the Coal Company's lands to the western end, comparatively near them, of the canal, the two companies entered, under their corporate seals, into long and technically drawn articles of agreement, with recitals in the beginning, and each party's covenants contained in separate parts of the instrument subsequently.

1. The recitals recited that an existing road, which brought coal to the canal, was not sufficient to employ the full capacity of the canal.

2. That if the canal should be enlarged, as it might be, its unemployed capacity would be still greater.

3. That it was for the interest of the canal company, that in either event its surplus capacity should not remain unemployed, but that it should be allowed to be used at a reasonable rate of toll by any other company which might hold lands for the purpose of mining coal, and should connect such lands by railroad or otherwise, with the said canal for the purpose of transporting coal thereon.

The canal company then covenanted and agreed with the coal company to furnish, at all times thereafter, to the boats of said coal company, all the facilities of navigation afforded by the canal to boats used by others, or by the canal company itself, charging only a certain toll per ton [a reduced toll], to be regulated each year by the market value of coal; provided, however, that the plaintiffs should not be bound to allow the quantity transported in pursuance of the agreement to exceed, in any one season, 400,000 tons, unless the canal should be enlarged, and in that case, one-half its capacity of transportation.

The coal company, 'in consideration of the premises, and of acts done and investments made, with a view to the transportation of coal on the canal of the said canal company, as well as of the mutual undertakings herein contained, and of one dollar paid by the managers of the said coal company,' promised and agreed with the canal company to use all its influence to cause the speedy construction of a railroad from its coal land to the canal, at or near the mouth or the Wallenpaupack River, and that if the construction of such road should not be commenced within one year, and finished within three, the plaintiffs might declare the agreement null and void.

The coal company built and put in operation the railroad, the canal company enlarged their canal so as to be sufficient for the transportation of all the coals which the coal company could mine, and the coal company put on the canal its boats, which were allowed to pass at the reduced toll agreed on. But the price of coals rising greatly during the war, and after it, and the tolls on the canal (adjusted as, under the articles of agreement, they were, on a sliding scale) becoming very high, the coal company induced the New York and Erie Railroad Company, whose road led to New York, to make a branch road, connecting it with the railway of the coal company at the point where this latter connected with the canal, and on this railway the coal company now carried a large quantity of its coal.

Hereupon the canal company sued the coal company in covenant for damages, declaring on the articles and facts as above set forth, and averring, moreover, that when the contract was made there were no means, either existing or contemplated, by which the coal company's coal, after being brought to the canal, could be sent to market except on the canal. And the question was whether, by those articles of agreement, the coal company was bound to carry on the canal, all its coal brought to it by the connecting railroad; in other words, and more technical form, whether the declaration was sufficient and any cause of action shown.

It was conceded by the canal company that there was no express covenant by the coal company to transport even a pound of coal by the canal. The suit was founded, therefore, on the assumption that, according to the true construction of the agreement, there was imposed upon the coal company, in consideration of the obligations of the canal company, a correlative obligation on the coal company to send its coal by the canal alone, and that the obligation of the coal company in this respect was so plainly to be perceived in the contract that the court would enforce it as an implied covenant, and as fully as though it were expressed in words.

The court below was of the opinion there was no covenant, express or implied, on the part of the coal company, that it would transport on the canal all the coal brought over their railroad connecting with the canal, and judgment being given accordingly for the coal company, a writ of error was taken hence.

Mr. Nash, for the plaintiff in error:

The rule is settled that though a contract may in terms bind but one party, yet the law will imply corresponding and correlative obligations when that is necessary to carry out the intention of the parties and prevent the contract from being ineffectual. Thus, 'if a man engages to work and render services which necessitate great outlay of money, time, and trouble, and he is only to be paid by the measure of the work he has performed, the contract necessarily presupposes and implies on the part of the person who engages him an obligation to supply the work; so when there is an engagement to manufacture some article, a corresponding obligation on the other party is implied to take it, for otherwise it would be impossible the party bestowing his services could claim any remuneration.'

Now, upon the recitals of the contract, after incorporating all the matters referred to in them, the parties may be considered as making a dialogue in this wise:

Canal Company.-We have more canal capacity than we can use, and are likely to have more than we have now; if you will use it we will take your coal at a reduced rate, the rate to be a sliding scale, according to the market price of coal each year, but this shall not apply to more than half the capacity of the canal.

Coal Company.-But we can't avail ourselves of your offer without building a road to connect our coal lands with your canal.

Canal Company.-The induce you to build the road we'll agree that the rate which we shall fix upon shall be made permanent.

It is apparent, then, that the mutual stipulations were on the one part, to use the canal; on the other to allow it to be so used at a reduced rate. The inducement to build the road was the undertaking of the company never to repudiate the arrangement.

The consideration clause recites 'the mutual undertakings herein contained.' The undertakings of the canal company were plain enough, but unless the coal company was bound to carry on the canal the coal brught to it on the railroad, there was no mutual undertakings in the matter. The contract of the canal company would be void as wanting a consideration. The contract, therefore, requires balancing; and when balanced, the considerations arrange themselves thus: reduced rate of tolls, as against the agreement to transport a large amount of coal. Permanent reduction as an inducement to enter into the arrangement and to build the road, without which, as a prerequisite, the contract could not go into effect at all.

In interpreting contracts which seem not fully to express the obligations on both sides, the question is what each party supposed the other party understood by the contract. In other words, the interpretation is to be according to the equity and fair meaning of the whole arrangement, if this does not conflict with the positive provisions of the agreement.

Now here there were, when this contract was made, no means existing or thought of by which the coal after being brought to the canal could be sent to market except on this canal. In addition the canal was primarily for the transportation of coal. It ran into the coal region and was connected with the coal mines by railroads. There was little miscellaneous freight. The building of the railroad therefore tended to the benefit of the canal, not by bringing a general traffic to it, but simply by making a new connection with the coal fields. The mere building of the railroad, therefore, except as it might secure the use of the canal by the coal that came over the road, was no inducement to the canal company to subject themselves to the onerous obligations imposed by the contract.

The contract substantially requires of the canal company to reserve for use of the coal company one-half of the capacity of the canal, and this obligation prevents the canal company from multiplying their own connections with the coal fields or inviting others to invest in such enterprises, because the coal company may at any time, though they substantially cease to use the canal, resume its use and claim all their contract rights.

If the coal company has found a route to market more profitable than our canal, let them notify to us that they shall abandon the contract, and claim no further benefits under it. Then the contract falls. The ground of their refusal to send the coal on our canal is, that at the market price of coal, the toll becomes a high one. But with the increased rate of wages which makes the market price of coal high, the expense of keeping up the canal is in like manner increased. Still the defendants insist on holding the plaintiffs bound. This is unjust. For we are tied up from making any engagements for the use of the canal, which may interfere with the shifting purposes of the coal company, and we are even required, in order to collect any toll at all, to go through every spring with the formality of ascertaining under the contract the rate of tolls on coal which the coal company will send by the canal, if the rate suits them, while if the rate does not suit them they will send it by the New York and Erie road.

Messrs. Evarts and Southmayd, contra:

The plaintiffs' claim rests wholly upon the notion that a covenant to the effect which he would have is raised by implication of law.

Strictly speaking, there are no implied covenants in law save those which arise according to fixed legal rules, by the use in instruments of a certain character, of certain words, which when thus used, have a fixed technical signification, beyond their natural or ordinary meaning; or which by fixed rules import a particular obligation, or have a specific legal result-as where the word 'give' is used in a deed, or 'grant,' and 'demise' in a lease-or those which by fixed legal rules result from particular acts or relations.

But in construing an agreement, the court will have regard to the real intent and meaning of the parties as ascertained from the entire instrument, and by reference to the circumstances attending the making of it, and wherever the language of the writing leaves in doubt its meaning upon the particular point, it shall be so construed, in so far as the language will possibly permit, as to effectuate the real intent and meaning thus ascertained. In the application of this principle of construction, it is held, that where the language of an instrument expresses imperfectly or obscurely an obligation, which it plainly appears to the court, the party intended thereby to assume, his obscure or imperfect language shall be construed to impose upon him the obligation which he intended it should impose upon him; and in some cases, this principle of supplying defects or imperfections in the language used in an instrument for the purpose of expressing or defining an obligation intended to be assumed by it, has doubtless been pushed pretty far-sometimes, perhaps, unwarrantably so.

Where a party has been held bound to an undertaking or obligation under a sealed instrument which was thus obscurely or imperfectly expressed upon its face, the case is sometimes spoken of as one of implied covenant; but it is submitted that the expression applied to such a case is an inaccurate one. We take note of its inaccuracy, because its use tends to an idea which misleads as to the extent to which the practice of supplying defects in language may be legitimately carried.

The cases in which parties have been held subject to the obligation of a covenant, not in terms expressed in the instrument (excepting the cases of technical words which import a covenant in law), all rest upon this principle of construing the language to effectuate the intent with which it appears to have been used. If any case be found going beyond the due application of this principle, we submit that it is not good law.

If the question raised by the plaintiffs upon this agreement, is to be determined by reference to this standard, the plaintiffs must inevitably fail.

This instrument contains no language having any reference whatever to any such stipulation on the defendants' part, as is now claimed to exist. There is no language which either party, however careless or illiterate, could have supposed to bear any such meaning, or which could have been used with any idea of expressing or defining any such obligation on the defendants' part. And surely a court has no warrant for charging the defendants with such a covenant as is here alleged, not because they have ever made it or ever intended to make it, but upon the ground of its being a covenant which it would have been reasonable for them to make.

Most, if not all, of the cases-it is to be observed-in which courts have so construed the language of an instrument as to amount to a covenant not distinctly expressed upon its face, have arisen upon agreements, brief in their terms, and loosely and inartificially drawn, and in the preparation of which it was manifest that no considerable time or care had been bestowed.

The instrument now under consideration is drawn with most elaborate care. The stipulations on each side, with the considerations moving the parties to enter into them, are technically expressed in very full detail, each party's covenants are contained in a separate portion of the indenture; and the design is plainly apparent that whatever was intended to be agreed to at all, should be expressed at large in unmistakable language, and not left to inference.

Yet, as we have already said, the instrument contains not one word which can be supposed to have been inserted for the purpose or with the idea of expressing any undertaking on the defendants' part, of the nature of that with which they are now sought to be charged.

If, upon an instrument thus planned and drawn, the court should hold the defendants chargeable with such an undertaking as the plaintiffs claim, it would not be construction of the instrument actually executed, but the mere interpolation, by the will of the court, of a covenant which was not at all in the minds of the parties.

[The learned counsel then analyzed the articles of agreement to show that thus examined they showed that such an agreement as it was sought to imply, was not intended to be made, and that they sustained the view above taken on general principles.]

Mr. Justice CLIFFORD delivered the opinion of the court.