Smith & Furbush MacHine Co. v. Johnston , 102 S.C. 130 ( 1915 )

August 19, 1915. The opinion of the Court was delivered by Plaintiff brought this action to recover $4,150, the balance of the purchase price of machinery sold to defendants, with interest from March 1, 1907. Defendants denied any liability, and set up a counterclaim for damages on account of defects in the machinery and a breach of warranty of its capacity. The jury found for plaintiff $4,255.32, which is a little over $2,000 less than the amount due under the contract, showing that defendants' counterclaim was sustained to that extent.

On September 24, 1906, plaintiff wrote defendants, in reply to their inquiry, offering to furnish them "the most up-to-date and successful machinery on the market for handling jute bagging scrap, opening and reweaving same into new bagging, the same having strength equal to the original" — the outfit to cost $6,880. Later, plaintiff's representative called on defendants, and, after they had discussed the matter with him, and explained to him that the outfit offered would not produce sufficient output to meet the necessary fixed charges of the business and allow a margin for profit, and that their going into the business depended upon the production, as compared with the fixed charges of operation, he offered them a larger outfit for $9,150. This offer was made in the form of a letter, dated October 8, 1906, addressed to defendants. It was formally accepted by defendants, and became the contract between the parties. The relevant portions of it read as follows: "Dear Sirs: In complying with your request to furnish you with our best price on the necessary machinery for a complete plant for manufacturing jute bagging from scrap bagging, the outfit machinery to have the capacity of thirty (30) rolls of bagging, fifty (50) yards to the roll, to be of the standard width and weight when rolled, beg to submit the following proposition: * * * The above price includes the time of man to erect and start machinery, * * * our man is to remain for a period of two weeks after the plant is in operation, and to give all the information and assistance in instructing their men how to operate the machinery. * * * The above machinery will have all the improvements brought out by actual experience, to be built in a first-class manner and guaranteed to be as represented. * * * In connection with the above machinery will say that we guarantee the same to be of first-class quality in every respect, and also agree to cover any latent defects that may arise in the machinery that can be in any way attributed to any neglect on the part of our man."

According to their testimony, defendants discovered, within two weeks after operations began, which appears to have been about March 1, 1907, that the outfit was deficient in capacity, and also in other respects of which they notified plaintiff, who insisted that the deficiency in production was due to the lack of skill and experience of defendants' help, and that, if the machines were properly operated, they would turn out the production guaranteed.

On March 14, 1907, defendants wrote plaintiff: "We expect to send you a check tomorrow for $5,000 (which they did) to be applied to our account, but this is not to be construed as an acceptance of the outfit, as we expect you to carry out your part of the contract, before we complete payment." In the same letter, as in previous and subsequent letters, complaint of alleged defects and breaches of warranty were made, which defendants insisted plaintiff should make good. In response to these complaints, plaintiff's representative visited and examined the plant and its operation, and according to his testimony, the deficiency in production was due to the lack of skill and experience in its operation. Defendants' testimony tended to prove their contentions.

Defendants denied any liability to plaintiff, on the ground that the outfit was worth less than the amount they paid, and alleged, as the basis of their counterclaim, besides some less important defects in the machines, that plaintiff represented and warranted that the daily capacity of the outfit would be thirty rolls of bagging, fifty yards to the roll, of standard width and weight, and of strength equal to the original, and that the machinery would successfully work sugar sacks. varying proportions of which are found in the jute scrap bagging sold by the cotton mills, and purchasers of such scrap bagging have to buy the sugar sacks along with the jute scrap to get the latter at profitable prices; that the machines would not produce the quantity guaranteed — the average output being about twenty-four rolls a day — and that they would not make bagging of the same strength as the original, and that they would not work sugar sacks. The items of the counterclaim are as follows: Seven thousand six hundred dollars, increased cost of production from the time they began operations, on account of what are called "overhead charges;" that is, the fixed charges of the business, — such as salaries of manager and superintendent, rent, power, insurance, taxes, etc., which would have been no more, if the production had been as guaranteed; $1,650, loss sustained in the depreciation in value of raw material purchased in 1907, for the first season's operations, and carried over because of the failure of the machinery to work it up, the price declining in the meantime; $10,000, on account of the necessary reduction in price of the bagging made, because it was not of the weight and strength which the machines were guaranteed to make; $10,014.32, on account of the failure of the machines to work sugar sacks.

The Court excluded evidence offered to prove damages growing out of the alleged failure of the machines to work sugar sacks, and instructed the jury that defendants were not entitled to recover anything on that item of their counterclaim. This ruling was correct, because there was no warranty that the machines would work sugar sacks. The written warranty is that they would work "jute bagging," and this cannot be enlarged by parol testimony.McLaughlin v. Norton, 19 S.C.L. (1 Hill) 383; Stuckey v. Clyburn, 25 S.C.L. (Chev.) 186; Gazoway v. Moore, 16 S.C.L. (Harp.) 400; Wood v. Ashe, 32 S.C.L. (1 Str.) 407; Railway v. Seigler, 24 S.C. 128; Lagrone v. Timmerman,46 S.C. 372, 24 S.E. 290; Lumber Co. v. Evans,69 S.C. 100, 48 S.E. 108.

For the same reason there was no error in omitting from the statement of the warranty to the jury any reference to the strength of the bagging made. The letter of September 24th did contain a warranty that the bagging made would be of the same strength as the original, but the letter of October 8th, which became the contract of the parties, does not contain such a warranty. The cases above cited show that the letter of October 8th is conclusively presumed to embody the whole contract between the parties. See, also, 2 Page on Contracts, sec. 1189, et seq., and especially section 1190, in which the author says: "While the written contract usually acts substantially as a merger of prior or contemporaneous oral negotiations, it also operates as a merger of prior written negotiations, as where it merges prior letters between the parties, or a prior written instrument not made part of the subsequent contract."

Nor was there error in excluding evidence of an offer of settlement. The policy of the law is to encourage parties to settle out of Court. Therefore, they are not to be prejudiced in subsequent litigation by proof of unsuccessful efforts to settle. Besides, there was no proof that the offer was made by one having authority to make it.

The damages sought to be recovered as "overhead charges" are thus estimated by defendants: Allowing six weeks in each year for interruptions from all causes, such as holidays, breakdowns, etc., the guaranteed production for five and three-fourths years would have been 47,610 rolls. The actual production was 36,257, making a shortage of 11,353. The "overhead charges" were $4,450 per annum, or $25,537.50 for the whole time. This amount divided by the actual production makes a cost of 70 cents per roll for the fixed charges, which, divided by the guaranteed production, would make a cost of 53.5 cents per roll, the loss being, therefore, 16.5 cents per roll, which, multiplied by the actual production, shows a total loss or extra cost of $5,982.40. The Court instructed the jury that defendants could not recover such damages, because they were not a proximate result of the alleged breach of warranty, nor within the contemplation of the parties to the contract.

In view of the testimony that the size of the plant was increased, with the knowledge of plaintiff, to insure production sufficient to meet "overhead charges," and a surplus for profit, and plaintiff's express warranty of the production which was estimated to be necessary for that purpose, the parties may well be supposed to have contemplated damages arising from the failure of the outfit to make the production guaranteed. But the testimony shows that defendants had to begin operations with unskilled and inexperienced help, no other being available, and, therefore, the parties did not, and could not in reason, expect the best results, until the help had been trained to properly operate the plant. Before this was done, defendants discovered that the machines would not make the output guaranteed. Under these circumstances, they should have rescinded the contract, and returned or offered to return the machinery; or, retaining it, they should have made such repairs to the machines and additions to the plant as were necessary to remedy the deficiency and rely upon the warranty to recover or recoup for the expenses incurred in reasonable efforts to do so, and for such losses as were sustained during such reasonable time as would be required for that purpose. Parker v. Pringle, 33 S.C.L. (2 Str.) 242. They were required to do this under the rule that one injured by the breach of a contract must exert himself by reasonable effort and expense to minimize his damages. Reason and justice forbid that defendants should be allowed to go on operating the plant and increasing their damages for years at plaintiff's expense in the face of knowledge that it was not turning out the production guaranteed.

In awarding damages for breach of contract, in the absence of fraud or oppression, the Courts look to the natural and direct rather than to remote consequences, and adopt the most certain rather than conjectural and speculative standards of ascertaining them, and exclude such as could have been avoided by reasonable effort and expense; and the burden is upon him who claims them to prove with reasonable certainty the nature and extent of his loss. Aside from the length of time for which defendants claim damages so estimated, after they knew of the alleged defects in the machinery, it will be seen that their estimation depends upon a number of contingencies, such as skill and diligence in operating the plant, thrift and economy in the conduct of the business, and others as uncertain and difficult to ascertain.

The Court adopted the more certain and satisfactory standard for the admeasurement of the defendants' damages in the following instructions to the jury: "If the machinery in question, when properly operated, failed to fulfill such guaranty, then the defendants would have the right to recover from plaintiff by way of counterclaim any damages, actual and reasonable, natural and proximate, resulting from such failure. That is to say, such damages as were within the actual contemplation of the parties at the time, or so far as the same should have been reasonably within the contemplation of the parties at the time, as damages which would probably result from such failure; but such damages would be limited to such actualloss as might so accrue during such time as would reasonablybe necessary to remedy such defects or to ascertain thatsame could not be remedied by exercise of due care." The italicized part of this instruction shows that defendants were allowed to recover for their losses and expenses in remedying the defects during such reasonable time as was necessary to discover and remedy them. The jury was also instructed that the measure of damages for other defects in the machines was the difference between the actual value of the machines and their value, if they had been as warranted, and that defendants were entitled to recover reasonable expenses incurred in their efforts to remedy such defects and reasonable compensation for their trouble. Standard Supply Co. v. Carter, 81 S.C. 181, 62 S.E. 150; 2 Sedg. on Damages, 767. The charge fairly and substantially met the justice of the case, and it was favorable enough to defendants in that the Court gave the jury wide latitude in finding what were the natural and proximate results of the alleged defects and breach of warranty, and what damages were in the contemplation of the parties, and what defendants actually sustained.

Judgment affirmed.