Lyman v. Babcock

40 Wis. 503

• Court: Wisconsin Supreme Court
• Decided: August 15, 1876
• Status: Published

Opinion

Ryan, C. J.

I. Tbe objections seriously urged against tbe respondent’s right of recovery, as we understand them, resolve themselves into three.

First. It was claimed that tbe only consideration to support tbe appellant’s agreement was tbe respondent’s payment of bis own debt to tbe appellant; and that payment of a debt is not a valid consideration for a new promise to tbe debtor. But, assuming for tbe present tbe appellant’s construction of tbe contract, tbe nature of tbe respondent’s liability to tbe appellant does not appear: whether legal or equitable; whether before or then only liquidated; whether presently due or not; whether founding a present or future action at law, or a present or future equitable suit. And /the respondent’s liability, of whatever nature it may have been, does not appear to have been secured or to have borne interest; while tbe appellant’s debt to tbe respondent appears to have been secured and to have borne interest. Tbe respondent, on tbe appellant’s own construction, was not bound to apply tbe former on tbe latter, by way of credit or offset; bis doing so was voluntary, and a sufficient consideration for tbe agreement. In tbe appellant’s own view, tbe contract was one of mutual benefit: tbe credit on .the moi'tgage on tbe appellant’s side, and tbe appellant’s agreement on tbe respondent’s side. Such mutual agreements are always upheld as sufficient consideration for each other.

Second. It was claimed that tbe appellant’s first agreement was a guaranty of Smith’s contract with tbe respondent, and that the appellant’s second agreement was dependent iipon Smith’s performance; that therefore tbe respondent’s release of Smith’s contract put it out of the appellant’s power to perform either of his agreements, and operated as an extinguishment or release of them. We might perhaps think so too, if the respondent had not been led to release Smith by the appellant himself.

It appears that there was some contract or dealing between the appellant and Smith, by which Smith expected to receive title from the appellant to the lands which he agreed to convey to the respondent; the title or right to the title being in the appellant himself, and Smith’s expected title resting solely on the appellant’s transfer to him. Before the respondent cancelled his contract with Smith, the appellant positively and solemnly assured the respondent that he, the appellant, would not make title to Smith, so as to enable Smith to convey to the respondent; thus authorizing the respondent to assume that the appellant had put it out of Smith’s power to perform the very contract which the appellant himself had guarantied, and authorizing the respondent to deal with Smith upon that assumption. The price which the respondent was to pay to Smith for the lands was to apply primarily on Smith’s promissory notes held by the respondent. And, upon the appellant’s definite assurance that it would not be in Smith’s power to comply with his contract, the respondent was not bound to continue his reliance on Smith’s contract, as security for the payment of the notes. The respondent appears to have acted on 'the appellant’s assurance, in cancelling Smith’s contract. And the doctrine of estoppel applies too clearly for discussion.

It is wholly immaterial to the question, that the appellant refused to make title to Smith because Smith failed to pay him for the lands. When the appellant guarantied Smith’s contract to the respondent, he assumed the alternative risk of Smith’s breach of his agreement with himself to pay for the lands, or his own breach of his agreement with the respondent that Smith should convey them. The appellant had his election between tbe two difficulties, in wbicb be bad voluntarily placed bimself; be made bis election, and must abide by it.

Thwd. It was claimed that, though Smith bad failed to make tbe conveyance guarantied by tbe appellant, yet tbe appellant bad offered to convey tbe same lands for a less price to tbe respondent; tbat tbe respondent bad refused to accept tbem from him at any price; tbat tbe appellant bad thus absolved bimself from all liability on bis first agreement; and tbat tbe respondent’s refusal of tbe lands put it out of tbe appellant’s power to keep bis second agreement. Tbe respondent’s counsel replied to tbis position, tbat his client bad an interest in taking title from Smith, which might have been bis principal or sole object in making tbe contract with Smith, and wbicb tbe appellant’s offer did not reach: that is to say, payment of Smith’s notes. And we cannot but regard tbis as a complete answer. Had tbe appellant desired to exonerate bimself from bis guaranty of Smith’s contract, by performing it bimself, be was bound to put bimself absolutely in Smith’s place, not only to convey tbe same title to tbe same lands, but also to receive tbe same payment for tbem. Had be offered to accept Smith’s notes in payment pro tanto, with no liability of tbe respondent over, it might have raised a grave question, whether tbe respondent could recover on tbe agreement, if at all, more than nominal damages. But be made no such offer; and tbe respondent could well reject tbe offer wbicb tbe appellant did make, without impairing his right of recovery.

II. Tbe measure of the respondent’s right of recovery is a much more difficult question than tbe right itself.

Had tbe pleadings and proofs disclosed tbe circumstances under wbicb tbe contract between tbe parties was made, their respective relations to tbe subject matter and to each other respecting tbe subject matter, we might have been better able to put a construction on tbe contract, and tbe construction might have been more satisfactory to ourselves. Such evidence is always admissible, not to vary tbe terms of a written contract or to explain patent ambiguities in it, but to facilitate the construction of terms obscure in themselves, in relation to the subject matter, on the face of the contract. The rule is well stated by Prof. Greenleaf. “ As it is a leading rule, in regard to written instruments, that they are to be interpreted according to their subject matter, it is obvious that parol or verbal testimony must be resorted to, in order to ascertain the nature and qualities of the subject to which the instrument refers. Evidence which is calculated to explain the subject of an instrument, is essentially different in its character from evidence of verbal communications respecting it. Whatever, therefore, indicates the nature of the subject, is a just medium of interpretation of the language and meaning of the parties in relation to it, and is also a just foundation for giving the instrument an interpretation, when considered relatively, different from that which it would receive if considered in the abstract.” And again: “It is only in this mode that parol evidence is admissible (as is sometimes but not very accurately said), to evyplavn written instruments; namely, by showing the situation of the party in all his relations to persons and things around him, or, as elsewhere expressed, by proof of the surrounding circumstances.” 1 Greenl. Ev., §§ 286, 288. See Ganson v. Madigan, 15 Wis., 144; Prentiss v. Brewer, 17 id., 635; Rockwell v. Ins. Co., 21 id., 548; Sawyer v. Ins. Co., 37 id., 503.

But in reference to the Fox and Weston lands and to the balance of the credit for them for which ten thousand dollars is credited upon the appellant’s notes and mortgage held by the resj>ondent, and to the previous relations of the parties thereto, and to the previous relations of the parties to each other in respect thereof, the record before us is wholly silent. The language used is more or less obscure; but we must put the best construction we are able upon it, as it appears nakedly upon the face of the contract.

The contract recites that the respondent has given credit to tbe appellant on tbe appellant’s notes and mortgage, for $10,000, being tbe balance of credit for certain lands conveyed to tbe respondent by Fox and "Weston. As we bave already endeavored to explain, we are without any light, dehors tbe contract itself, as to tbe nature of tbe credit for tbe Fox and Weston lands, or bow tbe credit arose, or why tbe appellant should bave credit for lands conveyed to tbe respondent by Fox and Weston, or as to tbe appellant’s relation to Fox and Weston in tbe premises, or as to tbe mutual relations of tbe parties in respect of tbe Fox and Weston lands and tbe consideration payable by tbe respondent for them. Tbe word credit appears to be repeated in tbe same sense in which it is first used; and appears to imply that, for some unexplained cause, upon some unexplained relation of the parties to each other in respect of tbe Fox and Weston lands, the respondent recognized some unexplained right of tbe appellant to credit for a balance of $10,000, for those lands. Tbe word credit, in this use, implies a right of tbe person credited, to that for which be receives credit. One does not receive credit for what is due to a stranger. Tbe recital implies some privity of tbe appellant to tbe lands conveyed by Fox and Weston, or to tbe consideration payable for them. Surely tbe appellant would not be credited by tbe respondent for money payable to Fox and Weston, unless tbe respondent recognized some legal or equitable right of tbe appellant to tbe credit. The credit on tbe notes and mortgage was certainly a credit going to tbe appellant; and so, by all rules of construction,, we must bold tbe credit for the Fox and Weston lands to-be. Tbe two credits are concurrent and dependent; tbe credit on tbe notes and mortgage being given because of tbe credit on tbe lands; tbe credit on tbe lands being satisfied by the- credit given on tbe notes and mortgage. It appears to be- a wholly unwarranted construction to divorce tbe two credits;;- or to- reject tbe credit for tbe lands, and to assume that the- credit- on tbe notes and mortgage operated as a payment of tbe sum mentioned, by way of original and independent consideration for tire contract; the appellant’s agreements being the solo consideration for the credit given to him on his notes and mortgage. Had such been the case, we can see no purpose in any mention of the credit for the Fox and Weston lands, except to obscure what would have been otherwise clear; except to give to the recital a meaning which it was not intended to bear, a meaning inconsistent with the transaction. The credit for the Fox and Weston lands could not well have entered into the minds of the parties, in framing the contract, unless it was within their intention and the subject matter of their contract. Had it not been so, the recital would naturally have been confined to the payment of the $10,000, by credit on the notes and mortgage, as the consideration of the appellant’s contract; and it is inconceivable that the parties should have intruded into the recital a matter irrelevant to the transaction, and inconsistent with it.

It is true that the contract goes on immediately to recite that the $10,000 will be due to the respondent upon contingencies stated; but the contingencies stated are the failure of the appellant in his agreements; the recitals substantially covering the whole of the agreements to which they lead. The contract recites the transaction, consideration and agreements, and then proceeds to the formal agreements themselves; connecting the recitals with the formal part of the contract by the words, “now therefore.” So that the recital that the sum will be repayable to the respondent upon the contingencies stated, does not aid the construction of the consideration, but merely anticipates by recital the appellant’s agreement to repay.

It was argued by the respondent’s counsel, that the proper construction of the recital is, that there was controversy between the parties, the appellant claiming, and the respondent denying, credit for the balance of the Fox and Weston lands; and that the agreement was a settlement of the controversy. We cannot say that such was not the case. We can only say that there is nothing on the 'face of the contract indicating any such controversy or settlement; and that if such, was the truth of the transaction, the contract was effectually drawn to hide it. It is useless to consider what would be the effect upon our judgment of the construction suggested by counsel. It is enough to say that it is wholly conjectural and unwarranted by the language of the contract.

We have given the only construction which we are able to the language of the contract. And' we cannot hold that the sum was credited to the appellant, solely as consideration for his agreements. On the contrary, we must hold that the credit to the appellant on his notes and mortgage extinguished another credit to which he appears to have been entitled; and that his agreements were collateral to the credit given to him, and to the time and manner of giving it; the credit itself resting on another and independent consideration.

Had the respondent paid or credited the $10,000 solely as consideration for the appellant’s contract, it would certainly have been most reasonable that the appellant should repay the $10,000, upon his total failure to comply with his contract. Yenner v. Hammond, 36 Wis., 277. But such does not appear to be the case; and we have to determine whether the $10,000 which the appellant agrees to pay or repay, is to be held as a penalty or as liquidated damages. The contract itself is silent on the subject; and perhaps its- silence is immaterial. Yenner v. Hammond, supra. But certain it is that the appellant positively agrees that, either upon the respondent’s failure to obtain title to the undivided 12,000 acres of land from Smith, or, obtaining it, upon the respondent’s failure in the right of selection, the credit given to him on his mortgage should be cancelled, or the sum repaid.

It may be assumed that the respondent’s damages would be uncertain, either upon his failure to obtain title from Smith, or, obtaining it, upon his failure in the right of selection. But it is very difficult to believe tbat Ms damages in both cases would be equal; for tbat would assume tbat be bad no substantial interest in bis contract made with Smith some months before this contract with the appellant, and apparently not in view of it, for the purchase of the undivided interest for $21,000. The lands may not have been worth the price. But they must be taken to have been worth something; and if the respondent had agreed to pay Smith more than they were worth, he had still the interest upon which his counsel insisted, in the payment of Smith’s notes. If by reason of the price or otherwise he had no substantial interest in the contract with Smith, it appears impossible that he could suffer damage of $10,000, upon Smith’s failure to fulfill it. If he had such an interest in it, it appears impossible that he should suffer equal damage by Smith’s total failure to fulfill it, and by his own failure in the right of selection only, upon Smith’s fulfilling it. In either case, it is perhaps difficult to believe that $10,000 is a reasonable liquidation of his damages in respect to lands which he bought from Smith at $24,000, and after-wards refused to buy from the appellant at $12,000.

But this is not all. The sum payable by the contract, upon either of these two contingencies alike, is, by the terms used, equally payable upon Smith’s total or partial failure to convey, and upon total or partial failure in the right of selection. There is perhaps a little uncertainty in the contract, whether the right of selection applies to the whole 12,000 acres or to 6,000 only. But this does not not affect the principle. Indeed, if the right of selection be limited to 6,000 acres, that would increase the inequality of the rule of damages in the eon tract, in the two contingencies. But certain it is that, if we should hold the $10,000 to be liquidated damages, they would be equally recoverable upon Smith’s total failure to convey, and upon his failure to convey any part of the lands; and upon the respondent’s failure in the right of selection, under the appellant’s contract, either of the whole or of any part of the lands.

It appears very manifest that, if tbe $10,000 be not considered as a penalty, tire measure of damages under tbe contract is equal upon any failure, total or partial, of tbe appellant’s contract, without regard to tbe unequal damages of tbe respondent, in different contingencies of failure; and that if might well have operated as a gross oppression of tbe appellant, by applying equally to tbe least measure of failure, and to total failure, on bis part. So tbe contract provides. Kemble v. Farren, 6 Bing., 141. Doubtless tbe contract might have well given the whole sum as liquidated damages for the breach of tbe whole contract, and some designated part of it, or some rule of distribution, for each partial breach. Tbe difficulty is that it does not. As it is, it appears to us that it would be great injustice and violation of sound principle to bold the sum designated as liquidated damages for any breach of tbe contract, and not as a penalty. This, nothing short of a uniform current of authority would probably induce us to do.

“ The subject matter of the contract, and the intention of the parties, are the controlling guides. If, from the nature of the agreement, it is clear that any attempt to get at the actual damage would be difficult, if not vain, then the courts will incline to give the relief which the parties have agreed on. But if, on the other hand, the contract is such that the strict construction of the phraseology would work absurdity or oppression, the use of the term liquidated damages will not prevent the courts from inquiring into the actual injury sustained, and doing justice between the parties.” Sedgwick on Dam., 493.

Where the sum is agreed to be paid for a single breach of the contract, and the damages are wholly uncertain in amount, and the sum is not apparently disproportionate to the injury, all the cases agree that the sum should be recovered as the damages liquidated by the parties themselves for the breach.

Where the sum is agreed to be paid for any of several breaches of the contract, and the damages resulting from any are certain in amount, or tliere is a fixed rule for measuring them, all the eases agree that the sum should he held as a penalty, and the recovery limited to actual damages.

"Where the sum is agreed to he paid for any of several breaches of the contract, and the damages resulting from all of them are uncertain, and there is no fixed rule for measuring them, but the breaches are apparently of various degrees of importance and injury, the cases are conflicting in the rule, whether the sum should be held as a penalty or as liquidated damages.

On principle, we are very clear that in such a case the sum should be held as a penalty. For it appears to us that it would be as unjust to sanction a recovery of the sum agreed to be paid, alike for any one trivial breach, or for any one important breach, or for breach of the whole contract, as it would be to sanction such a recovery equally for damages certain and uncertain in their nature. The rule holding the sum to be a penalty in the latter case, goes upon the injustice of allowing such a recovery for a less amount of actual damages ascertained or readily ascertainable. And we cannot but think that there is like injustice in allowing such a recovery equally, in cases of damages uncertain indeed, but manifestly and materially different in amount; equally for breach of part of the contract, and for breach of the entire contract. Such a rule would not only put the same value on a small part as on a large part, but would put the same value on any part as on the whole.

It would be unprofitable to review the cases upon this point. They are very numerous, and are fairly collected and stated by Fir. Sedgwick, Prof. Parsons and other text writers. The two authors named appear to differ materially in the conclusions drawn from them.

Says Prof. Parsons: “ Let us suppose a contract between parties, one of whom, for good consideration, promises to the other to do several things, and then it is agreed that the promisor shall pay, by way of liquidated damages,' a large sum, if the promisee recover against Mm in an action for a breach of this contract. It must be supposed that this sum is intended a,nd regarded as adequate compensation for a breach of the whole contract; for it is all that the promisor is to pay if he breaks the whole. It would, of course, be most unjust and oppressive to require of him to pay this whole sum for violating any one of the least important items of the contract. But such would be the effect, if the words of the parties prevailed over the justice of the case. The sum to be paid would, therefore, be treated as a penalty, and reduced accordingly, unless the agreement provided that it should be paid only when the whole contract was broken, or so much of it as to leave the remainder of.no value; or unless the sum agreed upon was broken up into parts, and to each breach of the contract its appropriate part assigned; and the sum or Sums payable came in other respects within the principles of liquidated damages.” 1 Parsons on Con., 161.

This view of the rule seems to have been originally suggested by Heath, J., in the leading case of Astley v. Weldon, 2 Bos. & Pul., 346. “ "Where articles contain covenants for the performance of several things, and then one large sum is stated at the end to be paid upon breach of performance, that must be considered as a penalty. But where it is agreed that, if a party do such a particular thing, such a sum shall be paid by him, there the sum stated may be treated as liquidated damages.” Many years later, the same view of the rule was repeated by Tindal, C. J., in Boys v. Ancell, 5 Bingham’s N. C., 390: “ This brings the case within the principle of Davies v. Penton and Kemble v. Farren, where the rule was laid down, that liquidated damages could not be reserved on an agreement containing various stipulations, of various degrees of importance, unless the agreement specified the particular stipulation or stipulations to which the liquidated damages were to be confined.”

We are not unmindful that this application of the rule has been severely criticised and often disregarded both in England and this country. But its eminent justice and soundness of principle commend it none the less to us. Surely a court of equity would not feel justified in specifically enforcing the contract before us, by canceling the whole credit given on the appellant’s mortgage, if it should be made to appear that the respondent had suffered no damage by the appellant’s breach; that the lands were not worth the price fixed in Smith’s contract; that Smith’s notes had been otherwise paid or secured; and that the appellant’s breach of contract was a positive gain, not loss, to the respondent. Tet the rule of holding fixed sums as penalties, and limiting recovery under them to actual damages, is derived from courts of equity. 1 Parsons’ Con., 157. And we take it to be now universally recognized, that what a court of equity will hold as a penalty, a court of law will also.

The rule, as we have stated it, not only appears to us necessary to prevent injustice and oppression, but to have been already adopted by this court.

In Pierce v. Jung, 10 Wis., 30, on a general review of the doctrine of penalty and liquidated damages, the court uses this language: “Thus, in Kemble v. Farren, the agreement contained some provisions upon the breach of which the damages would have been wholly uncertain, and incapable of any definite ascertainment. But it also had others of a, comparatively unimportant character, one of which was that the plaintiff should pay the defendant £3 6s. 8d., every night the theatre was open. And there. was a clause that, upon the failure of either party to fulfill his agreement, or any jgrnt thereof, he should pay to the other £1,000, which was expressly declared to be ‘ liquidated damages, and not a penalty, or in the nature thereof.’ Tet, notwithstanding this language, which the court admitted tobe as explicit as language could be, they held it to be a penalty; because, by the very terms of the agreement, it applied as well to a breach of the most unimportant provisions, where the actual damages were clearly ascertainable, as to those of a different character. As for instance, if the plaintiff had failed to pay the £3 6s. 8d., on any one night, he would, by the agreement, have forfeited the one thousand pounds; from which the court held that, notwithstanding the positive language to the contrary, the intention was to provide for a penalty. But this case, and all those of a similar character, lay great stress upon the point, whether, upon a breach of the agreement, the damages are capable of being readily and certainly ascertained. And they all admit that where such is not the case, that fact will have a control-ing influence in determining that the intention was to provide for stipulated damages, and not for a penalty.”

The precise question before us in this case came directly before the court in Fitzpatrick v. Cottingham, 14 Wis., 219; and the rule is thus authoritatively held: “The authorities upon this question are examined in Pierce v. Jung, 10 Wis., 30. It was there held, that where the damages were uncertain and incapable of definite ascertainment, the damages fixed in the contract would not be considered in the nature of a penalty, but might be recovered. But it was also stated, as the result of the authorities, that where, from the very nature of the provisions of the contract, it appeared that the actual damage might be accurately ascertained, and that it might be of trifling importance as compared with the amount fixed as-stipulated damages, there it would be considered as a penalty. This case comes within that rule, and is very similar to that of Kemble v. Farren, 6 Bing., 141, which is commented on in Pierce v. Jung.

“ By the terms of the agreement, as set forth in the complaint, the defendant was liable to pay the $1,000 on his failure, to ‘ perform all and cmy of the terms, conditions and agreements by him to be performed,’ etc. Mow the principal thing to be performed by the defendant was the payment of money. By the terms of the agreement, he would have been liable to pay the $1,000 damages, if he had not paid the last 15 per cent, of the consideration as agreed. But the doctrine of liquidated damages is not applicable to agreements for the payment of money only. Sedgwick on Damages, 400, and cases cited.

“ So the defendant was required to furnish materials as fast as they were needed, etc. If he had delayed one day beyond a reasonable time to furnish any part of the materials, he would, by the terms of the agreement, have been liable to pay the $1,000. The reasoning in Kemble v. Farren seems entirely applicable to this contract, and shows that it should be regarded as in the nature of a penalty. The court below should have instructed the jury, as requested, that the plaintiff could recover only his actual damages.” See also Laubenheimer v. Mann, 19 Wis., 519, and Yenner v. Hammond, supra.

The rule as we have stated it, must therefore be taken as the settled law of this court; and is conclusive of the case before us. The court below charged the jury that if the appellant had not performed his contract, the respondent was entitled to recover the $10,000; that is, as liquidated damages. "We hold that he was entitled to recover such actual damages only as he could prove.

By the Oourt. — The judgment of the court below is reversed, and the cause remanded for a new trial.