Walshe Mfg. Co. v. W. T. Smith Lumber Co.

59 So. 455, 178 Ala. 472, 1912 Ala. LEXIS 362

• Court: Supreme Court of Alabama
• Decided: April 18, 1912
• Status: Published

Opinion

SAYRE, J

In count 1 of the complaint, appellant sought to recover of appellee the agreed purchase price of a dry kiln apparatus// Count 2 may be laid out of view. [ In counts 3, 4, and 5 appellant sought damages for alleged breaches of a contract by which plaintiff was to sell to defendant the apparatus with a certain guaranty as to its efficiency; defendant undertaking on its part to observe certain conditions in testing the kiln and in returning it to plaintiff, if it proved less efficient than the plaintiff guaranteed it would. ^ The contract was in writing, and is set out at length in each count of the complaint. ( In each of these counts in question, plaintiff claims the liquidated damages stipulated in the contract together with interest thereon. The. so-called “liquidated damages” were fixed in the contract at a sum equal to the agreed purchase price of the apparatus. The question properly raised by the demurrers, and the contention óf leading importance on this appeal, is whether the stipulation for the payment of the sum of $1,750 in the event defendant should breach the contract, or fail to return the apparatus within the time limited, will be treated by the court as a provision for liquidated damages, as denominated in the bond, according to plaintiff’s claim, or as a penalty, the legal effect of which was to secure such actual damages as plaintiff might suffer, as defendant holds it was.

A number of artificial rules, which are considered to be of service on most occasions of this sort, were formulated by this court, in Keeble v. Keeble, 85 Ala. 552, 5 South. 149, in substantial consonance with their statement in the books generally. Of course, the object of all interpretation of written instruments is to determine the real intention expressed by the parties. In respect of whether the parties intend by an agreement for fixed damages to secure the pound of flesh, or only just compensation for a breach, the law courts, acting on that principle of equity which looks to intent, rather than outward form, have long denied conclusive effect to the terminology of the contract. Looking to the whole instrument and surrounding facts and circumstances, if it appears that the parties have, in good faith, contracted for the actual amount of the loss as estimated in advance, the contract is held to be one for liquidated damages; while, if they have contracted for an arbitrary sum, intended to coerce performance or punish default, they are held to have contracted for a penalty. — 2 Page, Contracts, § 1173; Williams v. Vance, 9 S. C. 344, 30 Am. Rep. 26, and note. Looking to the substantial parts of the contract in question, we find it to mean that plaintiff sold the apparatus with a guaranty that it would do a certain work, but that defendant’s acceptance was to depend upon the result of a practical test of its capacity, and that, in order that the test might be fairly conditioned for plaintiff’s apparatus, defendant assumed to do a number of things, among them to furnish steam to the kiln during the test at a pressure of 60 pounds. If the apparatus, on a test had under agreed conditions, failed to demonstrate its contract capacity for the work desired of it, defendant was to put it on its way back to plaintiff by loading the material of which it was constituted on the cars, in good condition, and within 10 days from its rejection for cause. The contract provided: Tt is agreed that, should you [defendant] violate any of the provisions of this agreement, then the right to return apparatus shall be forfeited and you [defendant] will pay to \us [plaintiff] as liquidated damages the sum of money herein specified under the heading Trice,’ the same as though you had volunteered your acceptance in writing.” It seems to be questioned whether this provision was intended as an alternative agreement by which defendant had a choice, either to afford the required conditions for a fair test, and to return the apparatus within a limited time in the event the apparatus failed to stand the test, or to pay. the' purchase price without regard to the result of the test, in the event of which interpretation no question would arise as to whether the sum stipulated was a penalty or liquidated damages, or whether, on the other hand, the intention was merely to coerce defendant’s compliance with its collateral agreements, in which event it Avould he necessary to determine the nature of the sum stipulated, whether penalty or. liquidated demages. But this was no alternative contract. “An alternative contract is one which gives to one of the parties the choice of doing one of two or more different acts as a performance of the contract. If one of the alternatives is the payment of money, a contract of this type has some resemblance to a contract for a penalty, or for liquidated damages; but it must be distinguished from both of them. The essential difference is that both penalties and liquidated damages are payable on breach of one or more covenants of a contract; whereas the payment provided for in the alternative contract is a performance of the contract — not a compensation for breach.” —2 Page, Contracts, § 1168. It would be anomalous and untrue to reason to hold that a party may perform a contract by breaching it and then paying for the breach. — Smith v. Bergenren, 153 Mass. 236, 26 N. E. 690, 10 L. R. A. 768. But that would be the effect of holding that payment of the sum stipulated in the quoted provision of the contract was intended as an alternative means of performing the contract. So it Avould seem clear that plaintiff’s purpose in exacting the collateral agreements required of defendant, and defendant’s intent in yielding them, Avas to secure a test of the apparatus under certain conditions, and a prompt return, in one event, of the test, by providing, in case of a breach, for damages in the way, either of a penalty, or liquidated damages. And so the plaintiff itself has considered in the counts in question; for it is claiming damages for a breach — not a sum due under the contract.

Apart from its undertaking to pay the agreed price upon a favorable issue of the test, defendant’s obligations under the contract are to be found in two different subsidiary and collateral stipulations incorporated into the writing to serve two distinct purposes, to wit: A test of the apparatus under agreed conditions; a prompt return of the material of the apparatus if it should fail. But the damages for a breach of either ivas fixed at a sum- specified, and called “liquidated.” The necessary effect of counts 3, 4, and 5 is to treat the contract as not having been so far executed as to vest in plaintiff a right to the agreed purchase price. That phase of plaintiff’s case was stated in count 1, as to which the ruling was favoiable to plaintiff. The counts now in question claim, as we have in effect said, not the agreed price of an apparatus delivered, tested, and found efficient according to agreement, but an equivalent sum as liquidated damages for alleged breaches of stipulations intended to secure immediately things other than the payment of the purchase price. It does not appear that the considerable consequences to plaintiff of a breach of either of the special collateral stipulations to furnish steam at the required pressure, a breach of which is alleged in count 3, or to load upon the cars in good order within 10 days after rejection, a breach of which is averred in counts 4 and 5, were different, or that they were wholly uncertain, or incapable of being ascertained save by conjecture. In either case, under the contract, defendant forfeited the right to return the apparatus, which means, of course, that plaintiff might treat it as the property of defendant, without regard to whether it would do the guaranteed work or not. And in either case the answerable damages to plaintiff would be the value of its apparatus, considered in respect of its usefulness in the business in which defendant was engaged, as distinguished from its agreed price, freight charges paid and to be paid, and the amount expended in sending its expert workman to-place the machine in position and superintend the test. There ought to be no difficulty in ascertaining the amount of either of these items, or the sum of them, with reasonable certainty.

In the cases on this subject, we find that* as against the term used in describing damages for a breach of contract, preponderant weight and influence has been given to the ease or difficulty of measuring the consequences of the breach. This court, in Henderson v. Murphree, 109 Ala. 556, 20 South. 45, quoted a note to Wood’s Mayne on Damages, to the effect that when the damages are certain and susceptible of ready ascertainment the sum fixed upon will be treated as a penalty. And again in the same case: “Where a sum of money, whether in the name of a penalty or otherwise, is introduced into a covenant or agreement merely to secure the enjoyment of a collateral object the enjoyment of the object is to be considered as the principal intent of the deed or contract, and the penalty only an accessary, and therefore only to secure the damages really incurred.” Prom test 5 laid down in Keeble v. Keeble, supra, may be extracted the converse proposition: Where the agreement is for the performance of an act, and the precise damage resulting from a breach is wholly uncertain, or incapable of being ascertained save by conjecture, the parties may agree on a fixed sum as liquidated damages, and the courts will so construe it, unless it is clear, on other- grounds, that a penalty was really intended. And this last was the rule which controlled the decision of that case, and the case of Henderson v. Murphree, supra. In the recent cases of Stratton v. Fike, 166 Ala. 203, 51 South. 874, and Cleveland Crane Co. v. American Cast Iron Pipe Co., 168 Ala. 250, 53 South. 313, our decisions, in holding the stipulations in those cases provided for liquidated damages, very clearly recognized the prime importance of the consideration that the damages secured were not of easy ascertainment. But in Mansur Co. v. Tissier Co., 136 Ala. 597, 33 South. 818, where damages for the breach alleged were said to- be of easy ascertainment, the court seems to have been entirely willing, for that reason alone, to hold, as it did for that and another reason, that the amount stipulated in the contract was a penalty and not liquidated damages. ÍAgreeably to the trend of our decisions, a number of cases from the courts of other states are cited in a note to Kelso v. Reid, 27 Am. St. Rep. 716, (s. c., 145 Pa. 606, 23 Atl. 323), Avhere the rule is thus stated: “In ascertaining whether a sum stipulated as payable for breach of a contract is a penalty or liquidated damages, the rule is that, if the damages resulting from the breach can be definitely computed, the stipulated sum must be construed as a penalty; but, where such damages are not susceptible of admeasurement by a pecuniary standard, then the sum stipulated must be regarded as liquidated damages.” Other cases to the same effect are cited from the courts of other states in a note to section 1175 of 2 Page on Contracts. In still other states this rule has been adopted by statute. It is an equitable rule — and from equity the whole modern doctrine on this subject has been imported into the law courts (Spencer v. Tilden, 5 Cow. [N. Y.] 150, note) —and seems to have come into very general favor. [J)n consideration of these authorities, and the merits of this particular case as disclosed by the whole contract, our conclusion is that the stipulation in question ought to be held for a penalty intended to provide for such actual damages as plaintiff might incur on a breach by defendant of its collateral covenants or agreements.! Other specific, equitable considerations which would conduce to the same view have been mentioned in the brief for appellee; but we place our opinion upon a proper construction of the particular stipulation for “liquidated damages,” and will not consider other more general equities for the purpose of modifying the contract.

. Appellant suggests that defendant also acquired a license to use the apparatus, which was patented, and that the damage to .plaintiff on this account could not be estimated. There is no merit in the suggestion. Whether it be considered that defendant, as a result of its alleged breaches of the agreement, was required to keep merely the material — as the parties considered would be the case in the event the apparatus failed to stand the test — or, in the event of no test, an organized apparatus, though, possibly, wholly worthless to the defendant for its purposes, plaintiff parted with nothing more than the machine; for, on whatever consideration defendant acquired the material or the machine, the necessary implication was that it had the right to make use of it.

No actual damages were alleged in the counts under consideration. We are therefore of opinion that the demurrers were properly sustained.

The trial being had on the case as stated in count 1, by agreement of the parties, as the judgment entry shows, defendant pleaded “the general issue, with leave to give in evidence any matter that could he specially pleaded, with like leave to plaintiff to reply the general issue in short, and also give in evidence any matter that could be set up by special replication.” Under issues thus framed, it was competent for defendant to show that it had furnished steam for the test as agreed, and that the failure of the apparatus was not due to any breach of the contract in that regard, but to inherent defects. The machine was to do certain work in a limited time; it was to dry green lumber in two days. Defendant’s evidence went to show that it required six days. This was clearly proper. But defendant was allowed to show that its old machine, under similar conditions as tó steam supply, did the work in five days, thereby in effect and purposely, as clearly appears, instituting a comparison between the two machines. We are unable to appreciate how this comparison was relevant to any proper issue in the cause; nor are we able, on the other hand, to say that its admission did not operate to plaintiff’s prejudice. Rathei*, it seems, this evidence held out to the jury a sort of invitation to decide the general issue involved for plaintiff or defendant as they might find the new or old machine more efficient. But defendant’s right under its contract could not be made to so depend. For this error the judgment is reversed.

The questions asked of Williams, to which the court sustained defendant’s objections, did not call for an expert opinion in a proper case. They sought to have the witness state to the jury his opinion that the failure of the apparatus furnished by plaintiff to stand the test was to be attributed to defendant’s failure to supply steam at the agreed pressure, rather than to the inefficiency of the apparatus. That was the very question the jury were called to decide. And, so far as it depended upon the question whether steam was supplied at the agreed pressure, it depended upon a question of fact to be determined upon the ordinary observation of witnesses. There was no call for expert testimony. And, further, they left it to the witness to construe the contract. That was for the court.

Appellant requested the affirmative charge on the case as a whole and on count 1. • The argument for these charges and for error in their refusal shows that they were intended to assert the proposition that, upon defendant’s failure to return the aparatus within 10 days after its rejection, it became bound to pay the purchase price as claimed in count 1. But, as we have seen, this notion is based upon a false construction of the contract. These charges were properly refused.

Charges 4 and 5, given to defendant, correctly construed the contract, and had support in the evidence.

Reversed and remanded.

All the Justices concur, except Dowdell, C. J., not sitting.

SIMPSON, J.

While the courts in England and in this country have formulated certain rules for determining whether the damages provided for the breach of contracts shall be construed as liquidated damages or “a penalty, yet the purpose of these rules is to ascertain what the parties intended ; and when their intention is clearly and explicitly expressed no court has the power to change the contract and make it express something that the parties did not intend. It is true that many courts have gone very far, in taking into consideration all the facts and circumstances, and in construing contracts to provide for penalties, where there are strong-expressions indicative of liquidated damages; and it is true that the mere use of those expressions does not always govern the construction of the contract, but no court has ever gone so far as to hold that it could set aside a contract clearly and unequivocally made, and substitute for it one which the parties did not make. In some cases it has been held that to construe the contract as providing for liquidated damages would be so oppressive and unreasonable that the court will seize upon slight circumstances in order to determine that the parties did not intend such a contract, and in other cases the equitable doctrine in regard to unconscionable bargains has been invoked to relieve parties from such contracts.

But, aside from these principles, I hold that all men have the inalienable right to contract as they please, and when a contract is fairly and clearly made it is binding on both parties. ( “The contract is to govern; and the true question is, What was the contract? Whether it was folly or wisdom for the contracting parties thus to bind themselves is of no consequence, if the intention is clear. If there be no fraud, circumvention, or illegality in the case, the court is bound to enforce the agreement.” — 13 Cyc. 90, 91, and notes.

]_ This matter had the consideration of this court at an early day; and, while the able Chief Justice (Collier) made extensive reference to the English cases and the rules laid down, yet he shows clearly that all of those rules were for the purpose of ascertaining what was the intention of the parties. He says: “The first general principle in the construction of all contracts is that they should be so expounded as to carry into effect the intention of the parties.” — Watt’s Ex’rs v. Sheppard, 2 Ala. 425, 434, 444, 446.

In the other leading case of Keeble v. Keeble, 85 Ala. 552, 5 South. 149, this court, speaking through Somerville, J., said: “(1) The court will always seek to ascertain the true and real intention of the contracting parties, giving due weight to the language or words used in the contract, but not always being absolutely controlled by them, when the enforcement of such contract operates with unconscionable hardship, or otherwise works an injustice. * * * (8) Whether the sum agreed to be paid is out of proportion to the actual damages, which will probably be sustained by breach, is a fact into which the court will not enter on inquiry, if the intent is otherwise made clear, that liquidated damages, and not a penalty, is in contemplation. * " * (10) In applying these rules, the controlling purpose of which is to ascertain the real intention of the parties, the court will consider the nature of the contract, the terms of the whole instrument, the consequences naturally resulting from a breach of its stipulations, and the peculiar circumstances surrounding the transaction,” etc.

This court also said on this subject (Henderson v. Murphree, 109 Ala. 556, 20 South. 45) : “But it is agreed on all hands that, where the true intention of the parties, who are legally competent to contract, is clear and unmistakable, the courts will give it effect; *' * and courts will not relieve them from the hardships of hard or improvident bargains, if made.”— 109 Ala. 559, 20 South. 46. And, after stating certain rules, added: “But when the purpose is clear it is said there seems to be no reason to hesitate to give it effect.” —109 Ala. 561, 20 South. 47.

I think this court lost sight of these fundamental principles of law in the case of Mansur & Tebbetts Implement Co. v. Tissier Arms & Hardware Co., 136 Ala. 597, 33 South. 818.

This court also, in a recent case, said: “The first general principle in the construction of all contracts is that they shall be so expounded as to carry into effect the intention of the parties.” Also: “The parties were competent to contract. Neither was the ward of the court. The stipulation is clear and certain, and we cannot know or say that it was unreasonable, oppressive, or unconscionable. We think it should be enforced as it was written.”- — Stratton v. Fike, 166 Ala. 203, 208, 212, 51 South. 874, 876, 877.

I think the contract in the present case is clear and definite, and there is no room for construing it to mean anything other than that which it states. I think, also, that it is not oppressive or unconscionable, but reasonable to the effect that the plaintiff sells the goods under a guaranty, but protects itself by providing that the defendant shall test the goods within a certain time, and, if they fail to come up to the guaranty, he is to reload them on the cars within 10 days thereby releasing himself entirely from the contract of sale; bnt if he does not do so he forfeits the right to return the goods, which means that he retains them on the contract of sale and pays the regular price for them.

It matters not whether it he called liquidated damages or a mere compliance with his contract, I think the defendant has bound himself to pay the amount claimed, and the court should so have declared. The court erred in sustaining the demurrers to the third, fourth, and fifth counts of the complaint.

I therefore concur in the reversal of the case; but, as some of the positions taken in the opinion are not in accordance with my views, I have thought proper to express them.

McClellan and Mayfield, JJ., concur.