Opinion
13587
February 23, 1933.
In the original jurisdiction, July, 1931. Special referee's report recommending dismissal of the proceeding in counterclaim, affirmed.
Original proceeding in the nature of mandamus by Pennell Harley, Inc., against C.O. Hearon and others, as administrative officers of the State Highway Department, in which the Holston Quarry Co. of South Carolina was made a party respondent and filed a counterclaim against petitioner.
The report of A.G. Kennedy, Special Referee, is as follows:
The special referee, to whom the above-entitled case was referred, respectfully submits the following report to the honorable Supreme Court of South Carolina.
This was originally a proceeding in the nature of a mandamus, instituted in the original jurisdiction of the Supreme Court by the petitioner, who sought the issuance of a writ of mandamus against the administrative officers of the State Highway Department, who were the initial respondents in the cause, requiring them to deliver unto the petitioner the voucher of the Highway Department in payment of certain sums alleged to be due under the terms of a certain construction contract between the petitioner and the Highway Department.
By way of return to the petition, the respondents set forth that, during the course of the execution of the contract involved, the petitioner had breached its contract with the Holston Quarry Company of South Carolina, entered into in connection with the project in question, and, by reason of such breach, the quarry company had filed a claim with the Highway Department against the petitioner, which said claim had to be discharged or satisfied before the department could pay unto the petitioner the sums admittedly due under the contract described in the petition. Further, the respondents prayed that the quarry company be made a party respondent to the proceedings, that it might assert such rights as it might think proper to the protection of its interests in the premises.
Thereupon a consent order was signed herein, under which the quarry company was made a party respondent. In due course, this respondent filed its answer and counterclaim, by which it prayed damages for breach of contract against the petitioners in the sum of $13,499.60, payment of which was sought out of the sums due the petitioner by the Highway Department under the contract involved.
By the same consent order, to which reference was made in the preceding paragraph, the matter was referred to me, as special referee, "to hear the testimony, to determine the legality of the claim of Holston Quarry Company against the petitioner and/or State Highway Department of South Carolina, and, if legal, the extent of liability thereon, if any." Subsequent to the signing of this order, but previous to any reference thereunder, the parties herein entered into a stipulation under which the Highway Department paid over unto the petitioner the amount claimed to be due it by such department, and the petitioner deposited with said department $15,000.00 in Liberty bonds to guarantee the faithful payment by the petitioner of any sum adjudged in this proceeding to be due by it to the quarry company, if any.
As is thus evident, this proceeding early lost its character as one sounding in mandamus. The petitioner has been paid all the sums claimed to be due it by the Highway Department. The original object of the proceedings has been accomplished. Neither the Highway Department nor its administrative officials accordingly have any continued interest as litigants in this cause. The only immediate connection with this litigation now is as a disinterested stakeholder of $15,000.00 worth of Liberty bonds. The remaining litigants in interest to this cause thus are only the petitioner, on the one hand, and the quarry company, on the other. The issue between these parties in interest centers upon the quarry company's counterclaim to recover damages for an alleged breach of contract. What was originally a proceeding in mandamus is thus translated into a simple action for breach of contract, by and between the petitioner and the quarry company. And, as it is generally true of breach of contract suits, the issuable questions before the Court herein are: First, was there a contract between the petitioner and the quarry company? and, second, if there was such a contract, the quantum of recovery for the breach thereof, it being recognized that, if there was such a contract, it was breached?
An understanding of these issues requires somewhat of a marshaling of the pertinent facts to the controversy. In 1930 the Highway Department, by public advertisement as required by law, solicited bids for the construction of approximately nineteen miles of that part of State Highway No. 248, extending from Marietta, S.C. to the South Carolina-North Carolina boundary line. To enable the bidders upon this project to calculate more accurately upon the possible fluctuations in material prices, the proposed contract incorporated within its specifications the following provision: "In case the contractor is unable to secure coarse aggregate for the concrete pavement directly from some producer at a satisfactory price, the department will on the contractor's demand furnish the necessary coarse aggregate for the pavement at a price based on One Dollar and Fifteen ($1.15) per ton f. o. b. railroad cars at the quarry of the Saluda Crushed Stone Company, at Hellams, S.C. In case the department furnishes the stone, it will be purchased from a reasonable operating quarry which will make shipments directly to the contractor and the department will assume no responsibility whatever for delays in delivery. The contractor shall arrange his own schedule of shipments directly with the quarry designated by the department, pay all freight charges, and assume all responsibility for the course aggregate, except payment of the purchase price to the quarry. The department will make deductions from the contractor's estimates to cover the purchase of the coarse aggregate with due allowances for differences between the freight charges actually paid by the contractor and the charges that would have been paid for delivery at the same point for shipments from the quarry at Hellams."
The petitioner was duly awarded the contract; as the work progressed thereunder, it appeared to the petitioner that it would be unable to purchase its aggregate needs at the price of $1.15 per ton. At first, it called to the attention of the department that it would likely demand of the department to "furnish" it with the aggregate requirements. Accordingly, on March 28, 1931, the department prepared and submitted to the petitioner a proposed public advertisement, calling for bids for such aggregate to be presented to the department on or before April 21st. The petitioner suggested certain amendments in the advertisement. And, of date April 2nd, it formally notified the department that, in accordance with the provision which we quoted above, it was making demand upon the department to furnish it with the aggregate needed at the price of $1.15 per ton f. o. b. Hellams, S.C.
Although the purchase of the required aggregate involved an expenditure in excess of $40,000.00, the department, without publishing any public advertisement for bids, entered into a certain contract, bearing date April 8th, with the respondent quarry company to furnish such aggregate. Ascertaining that such contract and not been entered into after public advertisement pursuant to the positive mandates of Section 5975 of the Civil Code of 1932, the petitioner early notified the department that it would not accept any aggregate which had been furnished the department under this contract. Thereupon this litigation was precipitated.
We have already observed that there are but two issues or questions now involved in this case: First, was there a contract between the petitioner and the quarry company? Second, if there was such a contract, the measure of recovery for the breach of such contract?
The very crux of the case hinges upon the determination of whether there was any contract between the petitioner and the quarry company for the purchase of the aggregate in question. This issue lies at the very base of the quarry company's counterclaim, for it is elementary that there can be no action for the breach of a contract without a valid contract upon which to ground such action.
Now, it is the position of the quarry company that the contract of April 8th represented a valid contract between the petitioner and the quarry company, and that the same was executed on behalf of the petitioner by the State Highway Department as its agent. The only basis upon which the quarry company premises its argument that the highway department was the petitioner's agent in executing such contract is that the provision of the contract between the petitioner and the department, which we have previously quoted in full, invested the department with the authority to execute such contract as the agent of the petitioner. In short, the question of contract or no contract turns upon the interpretation of the aforesaid contractual provision. If that provision is not to be regarded as a contract of agency, then, under the quarry company's own argument, it is without a contract upon which to base its claim for damages.
In arriving at the proper construction of this provision, it seems well to bear in mind the injunction of our Court, so recently expressed that "where a `general intention to create an agency does not appear, the relation will not be created, although there exist some elements of agency.'" DeShields v. Insurance Co. (1923), 125 S.C. 457, 118 S.E., 817, 820. Indeed, in a decision from our sister state, it is phrased that agency must be "clearly established by the facts." O'Donnell v. Carr (1925), 189 N.C. 77, 126 S.E., 112, 114.
With a view to these settled rules of construction, it appears impossible to read into the provision an agency agreement. A careful analysis of its language impels the conclusion that, so far from creating an agency relationship, it is an agreement to "furnish," to sell, unto the petitioner such aggregate as may be needed at $1.15 per ton f. o. b. Hellams, S.C. In truth, it establishes a contract to sell as distinguished from a contract of agency.
If we were to yield to the construction urged by the quarry company, if the highway department in making purchases of aggregate after demand by the contractor under this provision were to be esteemed as acting as the agent of the contractor, then the purchase would bind the contractor, irrespective of whether the purchase price was $1.15 per ton or $1.40 per ton. This conclusion necessarily and logically follows from the contention of the quarry company. And yet it is clear that any such construction would be in flat contradiction of the real purpose and intent of the contracting parties in inserting such provision in the contract, for the provision specifically sets forth that, if the petitioner desires, the department will furnish his aggregate needs at a stipulated price of $1.15 per ton.
This conclusion is fortified by the construction which both contracting parties have themselves placed upon the provision under review. It is established that such construction may be looked to, whenever a contract is ambiguous or doubtful, "in order to ascertain its true meaning." Williamson v. Building Loan Ass'n (1899), 54 S.C. 582, 32 S.E., 765, 71 Am. St. Rep., 822; Herndon v. Wardlaw (1915), 100 S.C. 1, 84 S.E., 112. Thus, in the proposed public advertisement, which the highway department prepared under this provision, it was provided that each bidder should deposit, as prerequisite to bidding, a certified or cashier's check for $1,000.00, as evidence of good faith, and, upon failure of the successful bidder to execute a contract, said check was to become the property of the highway department as liquidated damages; that payments for the stone purchased was to be made by the department; that delivery of the stone was to be made upon the formal purchase orders of the department; and the right was reserved in the department to reject any and all bids. This advertisement omitted any mention whatsoever of the petitioner, and was signed, "Ben M. Sawyer, Chief Highway Commissioner."
It would seem clear from this that the department never regarded itself as the agent of the petitioner in purchasing aggregate under the instant provision. Had it done so, the liquidated damages for breach of contract by the seller should necessarily have gone to the petitioner instead of to the department, as the advertisement provided. Again, if the department had regarded itself merely as an agent in receiving such bids and accepting the same, it would seem that the advertisement would not have been silent as to the identity of its principal.
Indeed, in the contract upon which the quarry company rests its case, the same is signed by the State Highway Department, and is significantly stamped, "Approved: Ben M. Sawyer, Chief Highway Commissioner." Nowhere is there a statement that the department is executing the contract as agent for the petitioner; but that rather the contract reflects that it was between the highway department and the quarry company, and to that contract the petitioner was not a party,
To sum up, I am of opinion that the provision, upon which the quarry company relies to establish an agency agreement, is not such an agreement but that rather is an ordinary agreement to sell, an agreement by the highway department to sell unto the petitioner aggregate at a fixed price. And it does not appear that the contracting parties have ever regarded it as anything else.
Since the contract upon which the quarry company relies was not executed by any authorized agent of the petitioner, and the petitioner is thus not a party thereunto, it follows that the petitioner cannot be made to respond in damages for the breach of such contract. The counterclaim of the quarry company must accordingly fail, and the petitioner is entitled to the redelivery of its Liberty bonds deposited with the highway department.
Having arrived at this conclusion, it is unnecessary for me to enter upon the determination of the second question presented herein: i. e., the quantum of damages recoverable by the quarry company. However, if there had been a valid contract between the petitioner and the quarry company for the purchase of coarse aggregate, I think that the proper measure of damages for the breach of such contract by the petitioner would have been the difference between the contract price and the cost of manufacturing the aggregate. Yet the quarry company has, in my opinion, failed to make the necessary proof of the cost of manufacture. Thus, while the quarry company proved its plant costs, it omitted any evidence upon the important item of overhead and administrative expense. So, even if damages were recoverable in this case, it would be impossible, upon the evidence before me, to fix such damages.
In conclusion, while it may be aside the point, it seems proper, in view of the wording of the order of reference herein, to make clear that, although the contract of purchase herein was between the highway department and the quarry company, nevertheless the quarry company would have no cause of action against the department for the breach of that contract. So far as the department is concerned, the contract is unquestionably void, because it is admittedly in violation of Section 5975 of the Civil Code of 1932. The statute just referred to is, as such similar statutes have been repeatedly construed by other Courts, "mandatory." Colorado Springs v. Coray (1913), 25 Colo. App., 460, 139 P., 1031; Flinn v. Philadelphia (1917), 258 Pa., 355, 102 A., 24. Unless this statute is strictly complied with, any contract with the highway department is "void," 44 Corpus Juris, 325; Wright v. Hoctor (1914), 95 Neb. 342, 145 N.W., 704, 146 N.W., 997, 52 L.R.A. (N.S.), 728, Ann. Cas., 1917D, 967.
As has been previously stated, I am of opinion that the counterclaim of the respondent quarry company should be dismissed, that the petitioner should have redelivered unto it its Liberty bonds deposited with the highway department, and that this proceeding should be dismissed.
Messrs. Nicholls, Wyche Russell, for petitioner, cite: As to writ of mandamus: 81 S.C. 419; 62 S.E., 1100. Agency must be clearly established by the facts: 189 N.C. 77; 126 S.E., 112; 125 S.C. 457; 118 S.E., 817. As to relationship of principal and agent: 135 S.C. 123; 133 S.E., 205; 155 A., 687; 155 N.E., 137; 237 N.W., 659; 140 A., 694. Construction by parties may be looked to whenever contract is ambiguous: 54 S.C. 582; 32 S.E., 756; 71 A.S.R., 822; 100 S.C. 1; 84 S.E., 112. Measure of damages for breach of contract is difference between contract and market price: 68 S.C. 363; 47 S.E., 688; 102 A.S.R., 673; 132 S.C. 358; 209 P. 277; 44 A.L.R., 354; 81 S.C. 181; 62 S.E., 150; 36 F.2d 589; 135 S.E., 531; 148 N.Y., 382; 42 N.E., 982; 52 L.R.A., 225; 28 Fed., 557; 81 S.C. 10; 61 S.E., 1027; 94 S.C. 224. Profits to be computed upon basis of difference between contract price and cost of performance: 75 N.E., 219; 47 S.W.2d 647; 41 So., 332; 15 S.C. 501; 149 S.C. 246.
Messrs. Nelson Mullins, for Holston Quarry Co. and John M. Daniel, Attorney General and J. Ivey Humphrey, Assistant Attorney General for State Highway Department, cite: In construing statutes intention of Legislature should govern: 25 R.C.L., 960; 25 R.C.L., 1013; 186 Fed., 678; 23 C.C.A., 631; 78 Fed., 28; 37 L.R.A., 630. Mandamus largely controlled by equitable principles: 249 U.S. 367; 63 L.Ed., 650; 265 U.S. 86; 68 L.Ed., 912; 89 S.C. 482; 10 R.C.L., 398. Parties to contract must act bona fide between themselves: 114 S.C. 306; 34 A., 490. As to proper measure of damages: 94 S.C. 224; 121 U.S. 264; 178 U.S. 21; 24 R.C.L., 118; 114 S.C. 533; 131 S.C. 452; 1 L.R.A. (N.S.), 445; 107 N.Y., 669; 14 N.E., 291; 38 L.R.A. (N.S.), 366.
February 23, 1933. The opinion of the Court was delivered by
The issues involved in this cause, one in the original jurisdiction of this Court, were referred to the Honorable A.G. Kennedy as special referee. His report sets forth the facts, and his conclusions of law are entirely satisfactory to the Court. The report, which will be reported, is adopted as the opinion of this Court, and is affirmed in all respects.
MESSRS. JUSTICES STABLER, CARTER and BONHAM concur.