Court Opinion

ID: 9730322
Source: CourtListenerOpinion
Date Created: 2023-08-26 15:08:33.564973+00
Date Added: 2024-06-11T18:26:05.818890
License: Public Domain

Clifford, J.,
dissenting in part. While I am in complete accord with so much of Justice Schreiber’s lucid opinion as holds plaintiff’s claim on the book account subject to defendant’s set-off arising out of a breach of the drop-in-price agreement with Remeo, I see no justification for the Court’s substitution of what it perceives to be an equitable measure of damages where the contractual language touching damages is clear — unmistakably so.
The clause in question provides that should there be, within 12 months from the date of shipment, a drop in price of an item purchased by Corenzwit, the latter thereupon becomes *314entitled to reimbursement “at once” for the “total gross purchases * * Defendant made “total gross purchases” from Remco in the amount of $65,842 beginning on February 27, 1973 and ending on September 11, 1973; hence the contractually-protected time period ran from February 27, 1973 to February 26, 1974. Plaintiff, as assignee of Remco, activated the drop-in-price clause when, on February 11, 1974, it sold Remeo’s inventory at prices substantially below those at which Corenzwit had purchased its goods. The specific guarantee against such price reduction having been breached, Corenzwit thereupon became entitled to reimbursement for its total gross purchases back to February 27, 1973, or $65,842.
Despite the contract language, which could scarcely be clearer on the damage qxiestion, the Court chooses to intrude its notion of equity into a sensitive area of commercial practice, thereby limiting defendant’s set-off to $15,150. Assuming, as the majority apparently does, that this represents the purchase price only of those toys bought by Corenzwit from Remco within the protected time period which remained unsold at the commencement of the litigation, the Court has thus substituted for the plain and unmistakable contract language of “total gross purchases” something quite different, namely, “total unsold gross purchases.” It thereby trespasses on the fundamental proposition that a court will not rewrite a contract in order to create an agreement more to its liking — one which while perhaps “better” than the contract the parties themselves have seen fit to execute, nevertheless varies its terms in an important respect. E. g., Brower v. Glen Wild Lake Co., 86 N. J. Super. 341, 346 (App. Div.), certif. den., 44 N. J. 399 (1965).
As a general proposition, where the contractual language is facially unambiguous, it seems to me that a court should be most hesitant to reach beyond that language’s plain meaning for further evidence of the parties’ intention. See, e. g., New Wrinkle, Inc. v. Armitage & Co., 238 F. 2d 753, 757 (3d Cir. 1956) (applying New Jersey law); 4 Willis-*315ton on Contracts § 609 at 402 (3d ed. 1961). The majority, however, implies that Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N. J. 293 (1953), authorizes an excursion beyond the plain language of the contract in order to ascertain the intent of the parties. Reliance on Schwimmer is misplaced. That case involved the interpretation of a broadly-worded contract provision which, although semantically unambiguous, became unclear in its application to the facts of the case. Consequently, the Schwimmer court of necessity had to look beyond the plain meaning of the language to ascertain the parties’ intentions. Here, however, the drop-in-price clause is not only semantically unambiguous but is narrowly tailored to the factual situation before the Court. Hence there is no need to look beyond the contractual language. Nor does the majority “look” to anything outside the contract — it simply rewrites the document.
Even were it appropriate to examine other factors bearing upon the intent of the parties, as the majority suggests is necessary here,' it seems to me that the contract language aptly expresses the likely intention of those who signed it. The obvious purpose of the drop-in-price clause was to protect against the disastrous consequences which would be visited upon a distributor should the manufacturer make the product available at a reduced price to other distributors — and they, in turn, to retailers who might be customers of this distributor or competitors of those customers. Although this purpose alone supports the view that the plain language of the clause reflects the intent of the parties, further support may he derived from the potential liability faced by Corenzwit to its “downstream” buyers. More specifically, the contracts with those buyers contain the same protective drop-in-price clause as is involved in the instant case. In light of the potential liability which Corenzwit would face as a result of Remco’s “dumping” of the items in question, at the time of the execution of the contract these experienced commercial parties clearly intended that the drop-in-price clause should guarantee total gross purchases.
*316The majority concludes, however, that regardless of any intention of the parties to permit Corenzwit to recover an amount equal to the total gross purchases, the clause as interpreted herein constitutes an unenforceable penalty. It reasons that awarding Corenzwit a set-off equal to the amount of total gross purchases “in effect constitutes a sanctioning of a liquidated damage provision which is not reasonably related to actual loss.” Ante n. 3 at 312. But the very case relied upon by the majority and from which it extracts a significant quotation supports the view that the drop-in-price clause is not an unenforceable penalty. Westmount Country Club v. Kameny, 82 N. J. Super. 200, 207 (App. Div. 1964), instructs us that “[a] provision in a contract * * * which provides that the full contract price is recoverable in the event of a breach —- absent evidence that the parties fixed the amount as a reasonable forecast of just compensation for the harm caused by a breach and that such harm is incapable or very difficult of accurate estimation — bears no reasonable relation to actual damages and cannot be considered as liquidated damages.” [Emphasis added]. See N. J. S. A. 12A:2-718(1) (common law view adopted by the New Jersey codification of the Uniform Commercial Code). The emphasized portion of the quote fits snugly into this case. The estimation of damages resulting from any breach of the drop-in-price clause can hardly be viewed as unreasonable, particularly when examined as of the time the contract between Remco and Corenzwit was executed; and no accurate estimation of the actual damages could be made at that time, given the speculative nature and extent of any liability that might be incurred.
One need look no further than D. H. M. Industries v. Central Port Warehouses, Inc., 127 N. J. Super. 499 (App. Div. 1973), aff’d o. b., 64 N. J. 548 (1974), for the proposition that the clause as interpreted herein does not represent an unenforceable penalty. There the question presented was whether a security deposit provision in a large commercial lease was intended to serve as liquidated damages in the *317event of a breach by the tenant. The Appellate Division looked to (1) the intent of the parties, (2) whether the extent of damages would be difficult to evaluate if a breach were found to have occurred, and (3) “whether the amount posted as security represented a good faith effort to estimate in advance the foreseeable and probable loss which might ensue from a breach.” 127 N. J. Super. at 503. In concluding that the clause in question constituted an enforceable liquidated damage claim, the court pointed out that
[t]he modern tendency of the courts has been to look with favor upon provisions in agreements which fix specified amounts as damages in the event of a breach, preferring to consider them as liquidated damage clauses rather than penalties. 22 Am. Jur. 2d, Damages, § 214, p. 301 (1965); Williston, Contracts, 3d ed. § 214. As indicated in Priebe & Sons v. United States, 332 U. S. 407, 68 S. Ct. 123, 92 L. Ed. 32, 109 Ct. Cl. 870 (1947)
Today the law does not look with disfavor upon “liquidated damages” provisions in contracts. When they are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach of contract, they are enforced, (citations omitted) They serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable, as is the case in many government contracts, (citations omitted) And the fact that the damages suffered are ' shown to be less than the damages contracted for is not fatal. These provisions are to be judged as of the time of making the contract, (at pp. 411-412, 68 S. Ct. at 126).
[127 N. J. Super, at 503-04 (emphasis added).]
The reasons cautioning restraint in disregarding, under the guise of equity, the carefully selected language of the parties to a contract were aptly set forth by Justice Wachenfeld twenty years ago. They still apply.
“Hard cases make bad law.” Nevertheless the majority refuses to uphold the contract as written and grants the relief it thinks is equitable under the circumstances, thus creating for the plaintiff a new contract foreign to the one agreed to by the parties.
If written contracts are not to be upheld as written, then contractual rights and obligations will never be stabilized and certain and the business and financial world will face chaos. Every party who makes an agreement which subsequently proves to be econom*318ieally undesirable can still hope to receive judicial relief upon the theory that the unexpected development was not within the contemplation of the parties at the signing of the agreement.
The solemnity of a written contract, the cornerstone of our commercial law, is thereby jeopardized and partially destroyed. The majority has, in my view, ventured beyond the grounds of “interpretation” or “construction” and into the realm of “creation” and “substitution.”
[Crewe Corp. v. Feiler, 28 N. J. 316, 330-31 (1958) (Wachenfeld, J., dissenting).]
Apart from the sanctity which ought to be accorded a contract freely arrived at, there are other persuasive reasons counseling against meddling with this agreement. First, the parties before us (including plaintiff’s assignor, Remeo) quite plainly are anything but babes in the commercial woods. The record gives no indication that any of them was unaware of what it was doing, nor is there any discernible need for a court’s protection of and indulgence towards some innocent and unwary party to these transactions. And as has already been pointed out, while Corenzwit has succeeded in selling approximately eighty per cent of the goods purchased from Remeo, it remains subject to claims by its retail customers based on the same drop-in-price clause in its contracts with them, and the applicable statute of limitations has not yet run on these potential claims. So far as the record discloses, the drop-in-price provision is one not uncommon in the toy manufacturing business or, for that matter, other enterprises where distributors seek to discourage competitors’ price slashing by prohibiting manufacturers from undercutting the market.
I would reverse and remand to the trial court for entry there of judgment for defendant.
Hughes, C. J., joins in this opinion.
For modification and remandment — Justices Sullivan, Pashman, Schkeiber and Handler and Judge Coneoed — 5.
For reversal and remandment — Chief Justice Hughes and Justice Clifford — 2. ¡