10.2.4.2 Notes - City Stores Co. v. Ammerman | Kessler, Gilmore & Kronman | November 01, 2012

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10.2.4.2 Notes - City Stores Co. v. Ammerman

by Kessler, Gilmore & Kronman
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NOTE

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1. The situation involved in the City Stores case has, in recent years, accounted for a considerable amount of litigation with results surprisingly (in the light of traditional doctrine) favorable to plaintiffs seeking specific performance decrees. There are collections of cases in various sections of 11 Williston, ch. 43; the principal case is cited in §1422A and analyzed at length in §1425A. For a case taking the other side of the argument, see Besinger v. National Tea Company, 75 Ill. App. 2d 395, 221 N.E.2d 156 (1966).

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2. In a footnote to his opinion in the City Stores case, Judge Gasch digested the 1960 New York case of Grayson-Robinson Stores, Inc. v. Iris Construction Co., 8 N.Y.2d 133, 202 N.Y.S.2d 377, as follows:

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[T]he Court granted specific performance of an arbitration award to construct a store in a shopping center. This contract was in the form of a written agreement between Grayson and Iris whereby Iris undertook to build on its shopping center tract a building to be rented to Grayson for use as a retail department store for a term of 25 years. The contract contained a clause providing for arbitration of disputes and, when Iris refused to construct the building, Grayson submitted the matter to arbitration. The arbitrators ordered Iris to proceed with construction. Iris refused to obey the award and Grayson took the matter to court. Iris argued that specific enforcement of the award would be contrary to public policy because it would amount to the granting of specific performance of a building contract requiring long-continued supervision of the court. In affirming the decree awarding specific performance, the Court said: "Clearly there is no binding rule that deprives equity of jurisdiction to order specific performance of a building contract. At most there is discretion in the court to refuse such a decree."

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266 F. Supp. at 777 n.5.

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The Grayson-Robinson case followed Staklinski v. Pyramid Electric Co., discussed supra p. 1079, in Note 3 following Lumley v. Wagner. Like Staklinski, the Grayson-Robinson case concerned the validity of an arbitrator's award of specific performance. And, again like Staklinski, Grayson-Robinson also confirmed the award by a bare majority of the court over a vigorous dissent. In Grayson-Robinson, however, all seven judges agreed that the award ordered Iris to go out and construct the building; the dissenting opinion pointed out that Iris, whose duty to go forward was apparently contingent on its being able to obtain the necessary financing, had applied to 27 lending institutions and been turned down by all of them.

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In both Staklinski and Grayson-Robinson the prevailing faction of the court emphasized that the parties, by agreeing to arbitration under the rules of the American Arbitration Association, in effect agreed to specific enforcement of their contracts. It is, of course, unlikely in the highest degree that any court would, on its own, have ordered specific performance of the employment contract in Staklinski. Burke, J., dissenting in Staklinski, wrote: "We conclude that the confirmation of an award compelling reinstatement of a non-resident official in a foreign corporation in the form of specific performance of a. contract for personal services should not be made by this court even though the parties may have provided for it." 6 N.Y.S.2d at 167.

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Can the majority view in Staklinski and Grayson-Robinson be reconciled with Stokes v. Moore and the authorities cited in the Note following that case, all of which state that the parties to a contract cannot create a right of specific performance by mutual agreement? See also Garrity v. Lyle Stuart, Inc., reprinted infra p. 1212.

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3. In Northern Delaware Industrial Development Corp. v. E. W. Bliss Co., 245 A.2d 431 (Del. Ch. 1968), the plaintiffs sought specific enforcement of a provision in a construction contract under which the defendant had agreed to supply the labor and materials needed to modernize the plaintiffs' steel processing plant. Though its meaning was disputed, the provision in question apparently required the defendant to put extra workers on the job during the period that one of the plaintiffs' processing mills would have to be closed down to allow for its modernization. The defendant refused to hire the additional workers called for by the contract, and the plaintiffs sought an injunction compelling defendant to do so. The court refused to grant the injunction on the grounds that it should not "become committed to supervising the carrying out of a massive, complex, and unfinished construction contract," a result it feared "would necessarily follow as a consequence of ordering defendant to requisition laborers as prayed for." Id. at 432. City Stores v. Ammerman was noted, but distinguished: the plans for the shopping center involved in the City Stores cases "were quite definite" and the court in that ease "was obviously impressed by the fact that unless the relief sought were to be granted, plaintiff would lose out on a promised opportunity to share in the expected profits of a shopping center in a burgeoning North Virginia suburb." Id. at 433. The court in the Northern Delaware case concluded by stating that

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to grant specific performance, as prayed for by plaintiffs, would be inappropriate in view of the imprecision of the contract provision relied upon and the impracticability if not impossibility of effective enforcement by the Court of a mandatory order designed to keep a specific number of men on the job at the site of a steel mill which is undergoing extensive modernization and expansion. If plaintiffs have sustained loss as a result of actionable building delays on defendant's part at the Phoenix plant at Claymont, they may, at an appropriate time, resort to law for a fixing of their claimed damages.

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Id. at 433.

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On reargument, the court reaffirmed its position and added an additional reason in support of its refusal to issue the requested injunction.

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Plaintiffs, in seeking specific performance of what they now term defendant's ministerial duty to hire a substantial number of additional laborers, run afoul of the well-established principle that performance of a contract for personal services, even of a unique nature, will not be affirmatively and directly enforced, Lumley v. Wagner, 1 De G.M. & G. 404. See also Vol. 4, Pomeroy's Equity Jurisprudence §1343. This is so, because, as in the closely analogous case of a construction contract, the difficulties involved in compelling performance are such as to make an order for specific performance impractical.

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Id. at 434.

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Do you find the reasons offered for denying the plaintiffs' request for specific performance convincing? Which reason seems to you the strongest? Should the court in the Northern Delaware case have followed City Stores v. Ammerman, instead of distinguishing it? If the plaintiffs in Northern Delaware had subsequently sued the defendant for damages due to the delayed reopening of the steel mill, their damages would probably have been determined by applying the famous "rule" of Hadley v. Baxendale, reprinted supra p. 106. Under this rule, which governs the recovery of lost profits, the plaintiffs would be awarded damages only for those losses that were foreseeable by the defendant, given the defendant's general knowledge of the world and its more particularized knowledge of the plaintiffs' affairs. Does this help to explain why the plaintiffs in the Northern Delaware case sought to compel the other party's performance, rather than relying upon their remedy at law?

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4. As the City Stores case suggests, the problem of accurately measuring the damages caused by breach becomes acute when the parties' relationship is intended to be a long-lasting one, continuing for a period of months or even years. Generally speaking, the longer the term of the contract, the more speculative any judicial effort to estimate the extent of the promisee's damages is likely to be, and hence the greater the risk that the promisee will not be fully compensated by whatever damages he receives. In cases of this sort, therefore, the pressures to grant a request for specific performance will be strong, despite the administrative difficulties that may be involved in the court's supervision of the parties' ongoing relationship. One situation in which this problem has arisen with great frequency is the long-term output or requirements contract, where the difficulties caused by the duration of the contract are made even more severe by the indefiniteness of the volume of goods to be bought or sold. Not surprisingly, in such cases courts have for some time been willing to compel specific performance of the contract despite the length of its term and the indefiniteness of the promisor's obligations.

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The case of Eastern Rolling Mill Co. v. Michlovitz, 157 Md. 51, 145 A. 378 (1929) is illustrative. Michlovitz and his partners were wholesale dealers in scrap iron. Eastern was a manufacturer of sheet steel. Its manufacturing process left large quantities of scrap. Since 1920, Eastern had been in the habit of selling this scrap exclusively to Michlovitz. The contracts involved in the litigation became effective in October 1927. They were output contracts for a five-year period, prices to be fixed at the beginning of each quarter. In November 1927, Eastern's president died. His successor attempted to obtain a rescission of the contracts, which he wanted replaced with similar ones for shorter time periods. Michlovitz refused. Deliveries continued until June, 1928, and then ceased. Michlovitz brought suit for specific performance, which was granted in the court below. Eastern appealed. The Maryland Court of Appeals found Eastern in breach and went on to consider the proper remedy.

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Under the cases, the right to specific performance turns upon whether the plaintiffs can be properly compensated at law. The plaintiffs are entitled to compensatory damages, and, if an action at law cannot afford them adequate redress, equity will specifically enforce the contracts, which would not impose upon the court any difficulties in enforcement, as the subject-matter of the contracts is the accumulated scrap at the plant of the defendant. The defendant relied upon the case of Fothergill v. Rowland, L.R. 17 Eq. 132, but there the contract was one whose performance involved the working of a coal mine, which required personal skill, and this with its different facts distinguishes that case from the one at bar. The goods which the parties here had bargained for were not procurable in the neighborhood, and moreover, they possessed a quality and concentrated weight which could not be secured anywhere within the extensive region covered by the "Philadelphia Market." In addition, the delivery of the scrap at Baltimore was one of the valuable incidents of the purchase. It follows that the right to these specific goods is a consideration of great importance, and this and the difficulty of securing scrap of the same commercial utility are factors making for the inadequacy of damages.

The scrap is not to be delivered according to specified tonnage, but as it accumulates, which in the past has been at the rate of one and two, and occasionally three, carloads of scrap a day, so the quantities vary from quarter to quarter. If the plant should cease to operate or suffer an interruption, there would be no scrap accumulating for delivery under the contracts, and its deliveries would end or be lessened. Neither are the prices for the scrap constant during the period of the contracts, but change from quarter to quarter according to the quotations of two specified mate- rials on the Philadelphia market whose quarterly prices are accepted as the standards upon which the contract prices are quarterly computed. The contracts run to September 30, 1932. By what method would a jury determine the future quarterly tonnage, the quarterly contract price, and quarterly market price during these coming years? How could it possibly arrive at any fair ascertainment of damages? Any estimate would be speculative and conjectural, and not, therefore, compensatory. It follows that the defendant's breach of its contracts is not susceptible of fair and proper compensation by damages; and that to refuse to compel the defendant to do merely what it bound itself to do, and to remit the plaintiffs to their action at law, is to permit the defendant to relieve itself of the contracts and to force the plaintiffs to sell their profits at a conjectural price. To substitute damages by guess for due performance of contract could only be because "there's no equity stirring."

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Id. at 66-67, 145 A. at 384. Other output and requirements cases are collected and discussed in 5A Corbin §1142, and 11 Williston §1419B.

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5. A widely cited recent case dealing with the same problem is Laclede Gas Co. v. Amoco Oil Co., 522 F.2d 33 (8th Cir. 1975). The parties in the Laclede case had entered into an agreement which provided that Amoco would supply Laclede with "propane gas distribution systems to various residential developments in Jefferson County, Missouri, until such time as natural gas mains were extended into these areas" (a period estimated to be between 10 and 15 years). The contract stated that "[i]f Laclede determined that such a [propane] system was appropriate in any given development, it could request Amoco to supply the propane to that specific development." The price Laclede was to pay for the propane was fixed at four cents a gallon above the price posted at Amoco's Wood River refinery. Two and a half years after the contract was entered into, Amoco notified Laclede that it intended to terminate their agreement Laclede sued for specific enforcement. The District Court denied relief, on the grounds that the contract was void "for lack of mutuality" since Laclede had certain cancellation privileges that Amoco did not also enjoy. On appeal, the Eighth Circuit reversed, holding the contract to be enforceable, and granted Laclede's request for specific performance. In the course of its opinion, the court had this to say:

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It is axiomatic that specific performance will not be ordered when the party claiming breach of contract has an adequate remedy at law. Jamison Coal & Coke Co. v. Goltra, 143 F.2d 889, 894 (8th Cir.), cert. denied, 323 U.S. 769, 65 S. Ct. 122,89 L. Ed. 615 (1944). This is especially true when the contract involves personal property as distinguished from real estate.

However, in Missouri, as elsewhere, specific performance may be ordered even though personalty is involved in the "proper circumstances." Mo. Rev. Stat.  §400.2-716(1); Restatement, Contracts, supra, §361. And a remedy at law adequate to defeat the grant of specific performance "must be as certain, prompt, complete, and efficient to attain the ends of justice as a decree of specific performance." National Marking Mach. Co. v. Triumph Mfg. Co., 13 F.2d 6, 9 (8th Cir. 1926). Accord, Snip v. City of Lamar, 239 Mo. App. 824, 201 S.W.2d 790, 798 (1947).

One of the leading Missouri cases allowing specific performance of a contract relating to personalty because the remedy at law was inadequate is Boeving v. Vandover, 240 Mo. App. 117, 218 S.W.2d 175, 178 (1949). In that case the plaintiff sought specific performance of a contract in which the defendant had promised to sell him an automobile. At that time (near the end of and shortly after World War II) new cars were hard to come by, and the court held that specific performance was a proper remedy since a new car "could not be obtained elsewhere except at considerable expense, trouble or loss, which cannot be estimated in advance."

We are satisfied that Laclede has brought itself within this practical approach taken by the Missouri courts. As Amoco points out, Laclede has propane immediately available to it under oilier contracts with other suppliers. And the evidence indicates that at the present time propane is readily available on the open market. However, this analysis ignores the fact that the contract involved in this lawsuit is for a long-term supply of propane to these subdivisions. The other two contracts under which Laclede obtains the gas will remain in force only until March 31, 1977, and April 1, 1981, respectively; and there is no assurance that Laclede will be able to receive any propane under them after that time. Also it is unclear as to whether or not Laclede can use the propane obtained under these contracts to supply the Jefferson County subdivisions, since they were originally entered into to provide Laclede with propane with which to "shave" its natural gas supply during peak demand periods.[16] Additionally, there was uncontradicted expert testimony that Laclede probably could not find another supplier of propane willing to enter into a long-term contract such as the Amoco agreement, given the uncertain future of worldwide energy supplies. And, even if Laclede could obtain supplies of propane for the affected developments through its present contracts or newly negotiated ones, it would still face considerable expense and trouble which cannot be estimated in advance in making arrangements for its distribution to the subdivisions.

Specific performance is the proper remedy in this situation, and it should be granted by the district court.[17]

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Id. at 39-40

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[16] During periods of cold weather, when demand is high, Laclede does not receive enough natural gas to meet all this demand. It, therefore, adds propane to the natural gas it places in the distribution system. This practice is called "peak shaving."

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[17] In fashioning its decree the district court must take into account any relevant rules and regulations promulgated under the Federal Mandatory Allocation Program.

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June 02, 2014

10.2.4.2 Notes - City Stores Co. v. Ammerman

10.2.4.2 Notes - City Stores Co. v. Ammerman

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