Pennypacker v. Jones , 1884 Pa. LEXIS 181 ( 1884 )

Mr. Justice Green

delivered the opinion of the court,

We find ourselves unable to agree with the learned referee in this case in holding that there could be no recovery by the plaintiffs for the reason that the damages were liquidated by the contract. The provision of the agreement upon which this conclusion is founded is in the following words: “We further agree that this shall be no experiment, and in proof of same we hereby agree that our machines shall be retained without any price being paid by you in case results are not as promised.”

The machines put up by the defendants having remained with the plaintiffs, the referee held that the damages sustained by the plaintiffs, by reason of the breach of contract by the defendants, were liquidated by force of the foregoing stipulation, and that no other or different damages could be recovered. The referee found as a fact that the plaintiffs had paid the sum of $980.79 by way of advance payments under the contract. We are quite clear that to this extent, at least, the plaintiffs were not compensated by retaining the machines, since they were to pay nothing for them, if the results produced were not as promised. The referee also found that the defendants did not fulfill their contract in important and essential particulars, to wit, that their machines did not have a capacity to produce two hundred barrels per day, as the contract required; that they would not produce full modem percentages of high grade flour; that the machines were not shipped within the time fixed by the contract; that the plaintiffs’ mills were stopped more than six days from the time the defendants commenced work on them, and that clean feed was not produced. Pie also found, however, that the delay of more than six days in starting the mill was not the fault of the defendants; that the cleaning and separating machinery was not to be, and was not, furnished by the defendants, but the plaintiffs, and that the defect in the quality of flour produced was due in part to defects in the cleaning machinery, partly to defects in the bolting system, and partly to defects in the purifiers.

The damages actually sustained by the plaintiffs were classified, and represented in figures, as follows:

Amount paid in advance,.....$930 79

One half of loss sustained in running the mill from September 12th to October 15th, 1881, . . 1,096 75

Cost incurred by the plaintiffs in repairing their mill after October 15th, and putting into condition to produce 200 barrels daily, . . . 2,030 95

There was also a computation of loss of possible profits which might have been realized if the mill had been running during the whole period of repairs from August 25th to November 1st, 1881, amounting in the whole to $12,411.

None of these actual damages, or unmade profits were allowed for the reason already stated, and, as to the profits, for the additional reasons that their loss was not due solely to defects in the defendants’ machines, but to lack of capacity in the cleaning machinery, and that they were too speculative to furnish a proper measure of damages. As to the refusal of the referee to allow the possible profits, we concur in his conclusions. Of course, if they were not realized because the plaintiffs were partly in fault, they could not be recovered. This is a question of fact, and we are bound by the finding of the referee in relation to it. No attempt is made to show that his finding was contrary to the evidence on this subject. We agree, also, that such possible profits are too remote and speculative to constitute a proper measure of damages.

Profits may be recovered where they are “ part and parcel of the contract itself, entering into and constituting a portion of its very elements; something stipulated for, the right to the enjoyment of which is just as clear and plain as to the enjoyment of any other stipulation: ” Hoy v. Gronoble, 10 Cas., 11; Adams Express Co., v. Egbert, 12 Cas., 364.

It was no part of this contract that the plaintiffs should make profits, or even have the opportunity of doing so, by carrying on a business with the machinery which the defendants agreed to erect. It is not like the sale of chattels or of land, where the difference between the contract value and the actual or market value of the property sold represents directly and immediately the measure of the party’s loss or gain in the transaction. There the possible profit is the very object of the contract, and is necessarily in the contemplation of the parties. But when a machinist furnishes machinery to a mill owner'it is no part of his engagement that a profitable business shall be carried on with the machinery furnished. Of course if it is defective he is responsible for the damage resulting directly from such defect; but that is a very different thing from the uncertain, remote and speculative profits which may or .may not be made in the business to be done.

As to the remaining items of damage, however, in this case, we do not think they were liquidated by the contract. Ordinarily the question of liquidation arises upon agreements which provide for the forfeiture or payment of a fixed sum, and the contention turns upon the point whether the sum is to be regarded as a penalty or as a liquidation of the damages to be specifically paid by the party in default. Even in such cases, however, the sum named is not necessarily to be regarded as the amount to be paid upon a breach, unless an intent that it shall be so determined is clearly derived from the instrument itself, and also from a consideration of the surrounding circumstances. Thus we said in Streeper v. Williams, 12 Wr., on p. 454: “Upon the whole, the only general observation we can make is, that in each case we must look at the language of the contract, the intention of the parties as gathered from all its provisions, the subject of the contract and its surroundings, the ease or difficulty of measuring the breach in damages, and the sum stipulated, and from the whole gather the view which good conscience and equity ought to take of the case.”

In Shreve v. Brereton, 1 P. F. S., on p. 185, Read, «L, quotes as follows: “The general leaning, says Judge Coulter, however, is, that such agreements shall be considered as penalties, so that a party shall recover such damages only as he shows that in justice and fairness he ought to recover. The gen eral.rule of law is that the remedy shall be commensurate with the injury sustained. A scrutiny of the American cases leaves every agreement of the kind pretty much at large to stand on its own peculiarities.” In that case the parties bound themselves for the faithful performance of the contract “ in the sum of §10,000, not as a penalty, but as stipulated damages.” Nevertheless, it was held upon the special circumstances of the whole case that the sum named was not to be regarded as stipulated damages, and a verdict was rendered and sustained for more than §25,000. One of the leading principles recognized and adopted, both by the court below and this court, in that case, was thus stated: “ So where the sum which is to be a security for the performance of an agreement to do several acts, will, in case of breaches of the agreement, be in some instances too large, and in others too small a compensation for the injury thereby occasioned, that sum is to be considered a penalty.” In Mathews v. Sharp, 3 Out., on p. 564, Mr. Justice Trunkey said, referring to Streeper v. Williams, supra, “ In an elaborate opinion it was ruled that to determine whether the sum named as a forfeiture for non-compliance is intended as a penalty, or as liquidated damages, it is necessary to look at the whole contract, its subject matter, the ease or difficulty in measuring the breach in damages, and the magnitude of the stipulated sum, not only as compared with the value of the subject of the contract, but in proportion to the probable consequences of the breach.” There are numerous authorities on this subject, but probably their best expression is found in the foregoing citations.

Applying these doctrines to the case at bar the solution of the question is not difficult. In the contract between these parties nothing is said to the effect, either that for any "breach the entire machinery may be retained without payment for it, or that for a gross breach it shall be retained as stipulated damages. No sum is fixed either as a penalty or as liquidated damages. It is manifest that if the defendants produced all the results agreed upon except a deficiency of one or two barrels in the daily product, the forfeiture of the entire contract price of the machinery would be entirely out of proportion to the damage sustained. Again the letter of this provision of the contract is that the machines may be retained if the resulta are not as promised. This ,relates only to the non-production of the results contracted to be produced, that is, that the mill should have a capacity of two hundred barrels daily, with full modern percentage of high grades flour equal in quality to best in market. It makes no provision for damages for other breaches of contract which may occur consistently with the production of the results stated. One of the items of .damage sustained by the plaintiffs was that it took a greater quantity of grain to produce a barrel with the defendants’ machines than with the ordinary process, and the referee has found especially that from this source alone, there was a positive loss to> the plaintiffs of $1,096.75 in the actual running of the machines from September 12th to October 15th, 1881. This is a species of direct loss for which we think there can be a recovery. The cost to which the plaintiffs were subjected in repairing the mill after the defendants ceased work, is also a direct loss arising from the defective machinery furnished, and is not provided for in the contract. We think it clear that none of these items comes within the terms of the stipulation for the retention of the machines, and that it was not within the contemplation of the parties that they should. We therefore consider that the provision for the retention of the machines was only in the nature of a penalty, and that the true measure of damages is the loss actually sustained, flowing directly from the defects in the defendants’ machines. But as the machines, or some of them, were retained by the plaintiffs and used by them in the re-arrangements made, equity requires that their just value should be deducted from the aggregate of the items of damage found by the referee, and to be allowed according to this opinion. As the report of the referee contains no finding of the value of the machinery thus retained and used by the plaintiffs, the case must be referred back to the referee for that purpose. When this is done the referee will allow as damages to the plaintiffs the three items of $930.79, $1,096.75 and $2,030.95, and will deduct therefrom the just value of the machines retained and used by the plaintiffs, rendering judgment in favor of the plaintiffs for the resulting sum, if any, and with such allowance of interest as may be proper and just in view of all the circumstances of the ease.

The judgment is reversed and record remitted to the referee for further proceedings in accordance with this opinion.