Williams & Co. v. Vance & Moseley , 9 S.C. 344 ( 1878 )

The opinion of the Court was delivered by

Willard, C. J.

The solution of the various points of objection raised by the appeal depends on the construction of the contract set forth in the complaint. The transactions covered by the contract were those of merchants dealing together, in the course of their business, to promoté business objects, and when it becomes necessary to clear up any doubt arising on the face of the instrument resort may be had to the nature of the business transactions by the respective parties so far as it enters into the contract, in order to define its motives and objects, and thus to lay hold of the key of construction.

The plaintiffs appear in the transaction as merchants residing and doing business in Charleston, selling merchandise, making advances on cotton shipped to them for sale and making sales of cotton upon commission. The defendants, Vance & Moseley, appear as merchants in the interior of the State, purchasing goods in Charleston for resale, and shipping cotton for sale through that city, taking cash advances on consignments of cotton for sale.

The leading objects of the contract on the part of the plaintiffs appear to be, first, to obtain security, by way of mortgage, for a past debt due by Y. & M. individually and another assumed by Y. & M., but originally due from Yance, Moseley & Co., upon an extension of time for the payment of such debts ; second, to obtain security, by way of mortgage, for future sales of merchandise to V. & M., on time, to a limited amount; third, to procure consignments of cotton from V. & M., to be sold on commission, they making cash advances, secured in part by mortgage. The last named object was secured by stipulations on the part of V. & M. to ship a certain quantity of cotton, the plaintiffs agreeing as to the amount of the commissions to be charged for its sale, and also Y. & M. agreeing, in the event of their failure to ship the required amount of cotton, to pay for such default a stipulated sum per bale as liquidated damages for such failure.

The objects of the contract on the part of Y. & M. appear to have been to get time on account of their debt and that due on account of V., M. & Co.; second, to get a credit for merchandise to a limited amount; third, to obtain cash advances for a fixed amount and fixed time; and, further, to secure reduced commissions on sale of their cotton consigned to plaintiffs.

We have only to consider those features of the contract that provide a mortgage security for goods sold and cash advanced and those that relate to the mode of dealing with consignments of cotton, including the liquidated damages for failure of shipment, there being no question before us as affecting that part of the contract that provides for the payment of past debts. The contract, then, as it stands before us for construction, relates to future mercantile transactions between the parties.

Plaintiffs were bound to sell merchandise to a limited amount and upon certain conditions as to length of credit and interest on sales. They were also bound to make cash advances to a certain limited amount, for which they would hold the mortgage security. These secured cash advances would not be sufficient to cover the whole of the cotton agreed to be shipped, but it is to be presumed that both parties anticipated that, as the consignments of cotton went forward, the plaintiffs would make the customary advances on consignments, independently of the limit of the contract, holding, as the plaintiffs would in that case, the mortgage as security to the extent of the contract and the cotton as to any excess. The natural results of this course of dealing would be that the plaintiffs would not be at liberty to retain the proceeds of cotton sold for the account of V. & M. to any greater extent than would be necessary to keep the indebtedness of V. & M. within the limit agreed for cash advanced; the balance in their hands derived from consigned cotton, less commissions and expenses, the defendants, V. & M., would be entitled to receive in the ordinary course of business. In other words, the plaintiffs’ situation, as it regards the proceeds of cotton sold for the account of V. & M., would differ from that of ordinary consignments or commissions only in the respect that they would not be able to retain such proceeds to the full amount of current advances on the cotton, but only to the extent necessary to keep their cash advances within the limit of the contract. Thus plaintiffs would hold the mortgage as agreed security for advances up to the limit agreed upon and until that limit should be passed; as they realized proceeds of the sale of consigned cotton they would be required to hold such proceeds, less commissions and expenses, subject to the draft of the defendants, V. & M. This is the conclusion that would arise from considering the general objects of the contract; and the question arises whether it consists with the terms of the contract.

Before looking to the specific terms of contract, it will be convenient to refer to the views of the defendants as to its true construction.

They say, in the first place, that the plaintiffs agreed to advance cash to a prescribed amount, and to sell merchandise to a fixed amount; that, in point of fact, they advanced more money and sold less goods than the contract called for, and that the mortgage only stands for the security for cash advanced to the fixed amount, the excess of cash advances being unsecured, and that the plaintiffs cannot gain an advantage in this respect from the fact that the amount of goods sold was less than the contract called for, and that the difference should not be added to the amount of cash agreed to be advanced, giving security beyond the limited amount. The next point made by the defendants is that all moneys of the defendants, V. & M., that came into plaintiffs’ hands should have at once been credited as against the cash advances called for by the contract, so as to extinguish such cash advances and discharge the mortgage as it regarded them, — the result of which view would be that V. & M., instead of having a standing credit for a year, in addition to that arising from tbe value of the merchandise consigned, thus securing them valuable facilities for the transaction of their business, would be in the position to have that cash credit wiped out by the first receipts on sales of cotton, and after that would have no means of credit beyond the value of the cotton consigned. It is hardly to be supposed that Y. & M. would have advanced this proposition while the contract giving them a cash credit was outstanding.

The next point of objection is that the provisions stipulating as to liquidated damages import a penalty merely, and that recovery can only be measured by damage proved.

We will examine these propositions in the order stated. It is clear that the covenant of V. & M. covered by the mortgage security looks solely to the aggregate of cash advanced and merchandise sold, as it regards the amount agreed to be paid, and not to the relative amount of cash. Plaintiffs covenanted “ to advance to said Vance & Moseley, on their demand, the sum of $1,446.47 in cash, and to sell and deliver to them, upon their orders, groceries at the customary prices and terms, to the amount of $1,500.” Y. & M., on their part, agreed to pay plaintiffs the “sum of $2,946.57, the aggregate of the sums of cash to be advanced and groceries, to be sold and delivered to them” by the plaintiffs. The covenant of Y. & M., standing by itself, imports an obligation based on such advances of cash and sales of merchandise as should thereafter be made, not to exceed the prescribed amount. It would seem thus to support the conclusion that if V. & M. saw fit to diminish the quantity of goods purchased and to increase the amount of cash borrowed, they would be liable for the aggregate sum, provided it did not exceed the prescribed amount. This covenant must be read with those of the plaintiffs most nearly related as consideration to it and the proper sense derived from both taken together. Plaintiffs’ agreement imposed a limit to cash transaction separately. The benefit of this limit was intended for the plaintiffs. The defendants, V. & M., wanted credit, and accordingly that construction of their covenant which afforded the largest and the most flexible credit would be the object they would naturally pursue. It was evidently most favorable for Y. & M. that in case they did not need groceries to the amount stipulated their cash credit might receive a corresponding benefit. It may be assumed that the interest of the plaintiffs was to sell goods and not to lend money. The event showed that V. & M. were more concerned to borrow money than buy goods. There was nothing in the contract to prevent the plaintiffs at any time from waiving the limit of cash advanced in favor of a request from V. & M., and such a concession to V. & M. could not with propriety operate to defeat their covenant when clearly covered by its language.

There is no ground to narrow the terms of the covenant of V. & M., as it stands expressed, by any inference drawn from the terms of the covenant on the part of plaintiffs, and it must be enforced as it stands. The result of this conclusion is that the amount of cash advanced and groceries sold, not exceeding the sum of $2,946.57, with interest added, as prescribed by the contract, is properly chargeable as secured by the mortgage. The judgment below is, therefore, erroneous in this respect.

The next proposition relates to the mode in which cash advances and net proceeds on the sales of consigned cotton should be charged. The covenant of V. & M. was to pay the sums of cash advanced and groceries sold on the first day of April, 1877. It follows that payment of such amounts could not be demanded until that time, and it follows, also, that sums of money coming into the hands of the plaintiffs for the account of V. & M. over and above any amount in which V. & M. might be indebted on other account than that to which the contract related are to be considered as held subject to the draft of V. & M., the plaintiffs having no right to make any other appropriation of them whatever. It is not to be assumed that the parties intended that the whole yearly transactions of V. & M. with plaintiffs as it regards cotton should be tied up in the hands of the plaintiffs as security for debts due, groceries sold and cash advanced when otherwise fully secured. On the contrary, the very object of the mortgage must have been to render V. & M. free to transact their business in the most favorable method during the life of the credit given by the contract. Such is the clear reason and sense of the contract, and, while the transaction was current between the parties, they seem to have acted upon it. Now that V. & M. have reaped the benefit of the contract, they cannot properly deny such construction, patent on the face of the contract and carried out in the practical operation under it. It follows that the report of the Referee and the decree upon it are erroneous in charging the sums of cash advanced and amounts realized from consigned cotton against the amount secured by way of mortgage. On the contrary, the account should be made up by striking a balance between current debits and credits for cash and groceries and charging such balance, if it does not exceed the amount stipulated by the contract, namely, $2,946.57, with accumulations of interest, computed according to the contract, and that sum, added to the aggregate debts of V. & M. and V., M. & Co., with interest according to the contract, must be decreed as due under the mortgage.

The next question arises on the language of the contract immediately following the agreement to consign 500 bales of cotton, which is as follows: “And to pay as liquidated damages two dollars for each and every bale of cotton less than 500 bales which they might fail to consign and ship to them as stipulated.”

The right of parties to a contract to fix the amount of damages, in their nature unliquidated, by an agreed sum or rate of damages is fully recognized by all the authorities. This does not apply to cases where the damage is fixed by law, as in case of damages in failure to* pay money stipulated, because in these cases the damage is not in its nature unliquidated, but the rule of damages is fixed with regard to considerations of public policy. It will not be necessary to consider the various exceptions depending on the same general principle above stated, as they do not affect the present case.

In cases where the parties are at liberty to fix the measure of damages by an agreed sura or rate, the question is one of intent merely. When the parties declare that the sum or rate fixed shall be deemed liquidated damages, and the case is one in which they are at liberty so to declare, such declaration must stand unless inconsistent with other parts of the same instrument or unreasonable in itself.

In inquiring whether it is reasonable it is not necessary to ask whether it is wise or considerate, but whether it is in conflict with the principles and practices that govern transactions of a like nature. This certainly cannot be affirmed of the present stipulation. It does not fix a round sum incapable of adapting itself to the degree of failure to perform, but a rate by which a greater or less failure might be measured. We cannot say from anything before us that that rate is either more or less than the actual damage that could be proved. We have a measure of damage in part in the agreed rate of commissions, but we cannot say from the record that there was no other measurable element of value to the plaintiffs in the consignments of cotton than the commissions to be earned. General experience, if we could resort to it, would lead to an opposite conclusion.

It was perfectly reasonable, in providing for further mercantile transactions that might be interrupted by unforeseen circumstances, that the parties should fix a rule of liability by means of which, in case of failure to perform, their accounts might be adjusted without the necessity of a law suit.

When the contract, according to its intention, is one of liquidated damages, it becomes necessary, before applying such rule of damage, to inquire whether the breach and the damage in any particular case is of the kind in the contemplation of the parties in fixing the measure of liability. While many cases have arisen where the resulting damage has been found so essentially different from that contemplated by the parties as to defeat the apparent intent of the contract in that respect, [Higginson vs. Meld, 14 Gray, 156,] the present case is free from any such aspect. The case that has arisen is obviously the very case contemplated by the parties in fixing the measure of liability imposed. We find nothing to prevent the express declaration of the parties in this respect from having its full force and effect.

The plaintiffs are entitled to the sum stipulated in respect of each bale which the defendants V. & M. failed to ship in accordance with their contract in addition to the sum already referred to.

The decree and the report of the Referee must be set aside so far as they conflict with the foregoing determinations and the cause remanded for further proceedings conformable herewith.

Malver, A. J., and Haslcell, A. J., concurred.