W. W. Yetter et al. v. W. T. Hudson et al., 57 Tex. 604

Walker, P. J. Com. App. The legal effect of the exclusion of the testimony which the plaintiffs offered, and of the refusal to give the instructions numbered two and three, asked by the plaintiffs, was for the court to deny to them, under the pleadings and evidence, the right to recover any damages for the breach of the contract sued on, other than the money paid out, with legal interest upon the amount ($7,000) which the plaintiffs had advanced to the defendant at the time of entering into the contract.

The measure of damages for a breach of the contract by the defendant was established by the express stipulation and terms of the contract itself; the contract, evidenced by three several instruments of writing, being set forth in the petition as exhibits, it appeared therefrom, as a matter of law, that the parties themselves had fixed the sum of $1,600 as the compensation for the failure or refusal of the defendant to deliver the cattle embraced by the contract.

The plaintiffs in their petition undertake to contradict the effect and terms of these instruments of writing on which they bring their suit, by alleging that the obligation of $1,600 as a forfeiture was not accepted by them as a measure of the damages they might sustain by a breach of the contract on the part of Hudson, and claim, therefore, that they are not limited in their damages to the recovery of that sum as liquidated damages, but that they are entitled to that sum as so much specific and agreed on damages, and also to $5,600 as the difference to which they are entitled on account of the advance in value of such cattle at the date when they ought to have been delivered, making, together with the $7,000 advanced, the total of $14,200.

They allege neither fraud nor mistake in the written contract, and they cannot impugn in this manner the solemn contract which they themselves set forth as containing all that was agreed to in its formation; the contract, as the same is written, speaks for itself; and the instruments of writing which evidence it declare what were the terms upon which it was made and delivered. It is not pretended that any other written instruments than these were made between these parties, whereby the contract is to be varied or explained, and most certainly parol evidence will not be permitted to vary or alter its terms.

The true construction of the instruments set forth as forming the contract is that the collaterals or notes deposited, together with these instruments sued on, in the bank, were intended to secure whatever liability was stipulated to be met by the defendant under his agreements and undertakings, including therein the obligation to pay $1,600 as a forfeit or stipulated damages; and that the latter instrument was not referred to nor its effect and operation meant to be qualified, by the use of the expressions contained in exhibit “ A,” to the effect that by the acceptance of the obligations with the securities therefor, the plaintiffs “ in no wise waived or surrendered any rights ” against the defendant Hudson “ for any breach of contract that might occur.” The clause referred to is contained in the third paragraph of the contract, and in terms refers to those securities and notes which in the preceding portion of the instrument had been described, viz., the defendant’s note for the cattle, or, in default of their delivery, the payment of $7,000, and the securities, viz., the Winfield Scott notes.

Evidently the clause in question contemplated in its scope the exclusion of doubt, if possible, as to the construction to be given' to taking the note and securities, so far as it might suggest the idea that the security for the mere repayment, if necessary, of the $7,000 should or might operate to prejudice the plaintiffs’ right to recover damages as well as the $7,000 for the breach of the contract.

Such was the province, we think, of the provision referred to, and which the plaintiffs attempt to extend so far as to enable them to annul the provision agreed to for a stipulated amount as damages, and to claim, if possible, the advantages of both the one and the other.

The succeeding paragraph of the contract then proceeds to provide as to what shall be the forfeit or measure of damages; stipulating, as before stated, for $1,600 as liquidated damages, to which more positive and definite effect still is given by a separate instrument, which, in terms the most explicit and pertinent practicable, makes the obligation to pay $1,600 as liquidated damages not only absolute, but in terms confers upon the instrument the characteristics of a negotiable instrument, by providing that it shall be, in case of his (defendant’

s) failure, his negotiable promissory note for $1,600, to become absolute and payable at once. Whilst the plaintiffs’ petition disclaimed the true construction of the contract, and asserted pretensions for a measure of damages which a proper

interpretation of the contract clearly denied to them, yet they did not relinquish their claim for damages under the defendant’s obligation to pay $1,600; they simply urged that they did not accept the same as an obligation which limited them to that amount, if, in fact, their damages from a breach of contract could be established at a greater amount; and, indeed, they distinctly claimed judgment for said specified amount as a portion of the damages alleged to be due them.

It being a question of law, therefore, under the allegations of the petition, as to what damages they were entitled to recover, the defendant’s demurrer, which specially excepted to such part of the petition as claimed special damages over and above the amount of $1,600, ought to have been sustained; and because it appeared from the record alike that the plaintiffs were entitled to recover said sum as stipulated damages in case the defendant failed to comply with his contract, the court ought to have given the defendant’s instructions which were refused, numbered one and two.

The charge of the court erroneously confined the plaintiffs’ right of recovery to $7,000, and eight per cent, interest thereon from the date of the contract. The measure of compensation has been agreed upon by the parties, and the plaintiffs are entitled to no more, and can be restricted to no less, than $7,000 and $1,600, with legal interest on the sum of those two amounts from the 1st day of May, 1881. The parties had the right, if they chose to do so, by mutual agreement, to settle the amount of damages, uncertain in their nature, at any sum on which they might agree.

In attempting to make provisions of this nature, it often happens that the law will construe as a penalty an agreement which in its terms stipulates for liquidated damages, but whether the sum stipulated to be paid on breach of an agreement is to be taken as liquidated damages, or as a penalty, will depend upon the intention of the parties, to be ascertained by a just

interpretation of the contract. Moore v. Anderson, 30 Tex., 230. And see Durst v. Swift, 11 Tex., 281-2, where the rules respecting stipulations for penalties and liquidated damages are discussed.

It is laid down in 2 Wait’s Act. and Def., 436, “that whether a smn agreed to be paid as damages for the violation of an agreement shall be considered as liquidated damages, or only a penalty, is held to depend upon the meaning and intent of the parties as gathered from a full view of the provisions of the contract, the terms used, to express such intent, and the peculiar circumstances of the subject matter of agreement.” Dakin v. Williams, 17 Wend., 447; S. C., affirmed, 22 id., 201; Shule v. Hamilton, 3 Daly (N. Y.), 462; Perkins v. Lyman, 11 Mass., 76; Streeper v. Williams, 48 Pa. St., 450; Chase v.

Allen, 13 Cray, 42. “ The contract in such cases, as in every other, is to govern, and the true inquiry is, what was the undertaking. Whether it was folly or wisdom for the contracting parties thus to bind themselves is of no consequence, if the intention is clear.” 2 Wait’s Act. and Def., 436, citing 19 Barb., 106; 97 Mass., 445; 16 N. Y. (2 Smith), 469. “ But the mere use of the term ‘ penalty,’ or the term liquidated damages,’ does not determine this intention, if, on the whole, the instrument discloses a different intent.” Id., p. 436, citing 12 Moore’s P. C., 199; 11 N.

H., 234; 6 B. & C., 216, 224; 10 Mich., 188. In this case the defendant, by the terms of the contract, not only provided in terms that he would pay $1,600 as “ stipulated damages,” but he made the same due and payable on the day of the default on his part at the bank, and secured its payment with the same collaterals Avhich were deposited there to secure the repayment of the $Y,000 which he had received from the plaintiffs.

In fact, the defendant, in effect, executed two instruments of writing Avhich were to be paid on his default, at the bank, for the sum, in the aggregate, of $8,600, both of Avhich he designated as his notes, and characterized them as negotiable, and they covered, in a form the most definite and absolute, his valid promise to pay said sum as the damages which he recognized as due from himself to the plaintiffs in case of his failure to comply Avith his contract. Ho room, in a contract like this, is left for construction as to Avhat Avas the intention of the parties in regard to the question of liquidated damages.

Further consideration need not be given to the errors assigned; on another trial the plaintiffs will be able to so frame their pleadings and proof as to obtain such judgment and decree as they may be entitled to, in respect both to the amount of damages and the appropriate relief as to the enforcement of whatever lien they have on the securities alleged to have been .deposited with the bank.

The prayer of the petition for relief in respect to the enforcement of the lien upon the notes of Scott was indefinite and general; and the evidence showed no fact in regard to the securities further than that they were deposited at the time of making the contract with the bank along with the contract papers, all of which were to be held by the president of the bank for the parties.

It would seem, from the facts of the case, that if the plaintiffs had alleged and proved a demand for and refusal by the bank to deliver the collateral notes deposited, together with the deed of trust securing them, a basis would have been laid for relief; but it is not apparent, under the pleadings and proof, that the plaintiffs can complain that the court made no decree in respect to the said notes. We conclude that there was error, and the judgment ought to be reversed and the cause remanded. Bevebsed and bemanded. [Opinion delivered December 21, 1882.]