Opinion
No. 487.
February 27, 1927. Rehearing Denied March 17, 1927.
Appeal from District Court, McLennan County; Sam R. Scott, Judge.
Suit by J. F. Thompson against Pippin Bros. and another. Judgment for plaintiff, and defendants appeal. Reversed and rendered.
Sleeper, Boynton Kendall, of Waco, for appellants.
S. J. T. Smith, of Waco, for appellee.
Suit by appellee to recover money deposited under a contract for the sale of land by appellants to appellee, each of said parties having deposited $500. Appellee alleged that appellants had breached the contract and that he was entitled to recover the entire deposits of $1,000 as liquidated damages, but alleged in the alternative that, in the event he was not entitled to recover the $1,000 as liquidated damages, he was entitled to recover the $500 deposited by himself, because the contract under which such deposits had been made was void for reasons set out by him, and, further, that said deposit was put up by him as a penalty only to cover whatever damages Pippin Bros. might sustain by reason of his breach of said contract, and that they sustained no damages, etc. Appellants pleaded a general denial, and pleaded, further, that appellee had agreed to purchase said land under a written contract and had deposited $500 as liquidated damages in case he failed to carry out his part of said contract, etc., and that appellee did breach said contract, by reason of which appellants were entitled to recover appellee's deposit of $500, etc. The case was tried before the court without a jury, resulting in a judgment for appellee for $435, the court holding that appellants had not breached said contract, but that appellee had done so; however, the court held further that the $500 deposit by appellee was not intended as liquidated damages, but as a penalty, and that the only damage sustained by appellants by appellee's breach was $65; hence appellee was awarded a recovery of the $500 deposited by him less said damage sustained by appellants.
Appellants present two assignments properly raising the contention that the trial court erred in holding that the $500 deposit by appellee was a penalty, and in refusing to hold that same was liquidated damages, and in refusing to render judgment for appellants for same. The contract is as follows:
"Waco, Texas, December 1, 1925.
"Mr. T. W. Glass: I will give $7,500 for 60 acres of land that is now owned by Pippin Bros., and being the same 60 acres that Pippin Bros. bought from the Goodnight estate. * * * Said Pippin Bros. are to convey this land and all improvements thereon to me by a general warranty deed, and furnish me an abstract showing a good and merchantable title to same. * * * I will give Pippin Bros. all the money that can be secured by a loan from the Joint-Stock Land Bank of Dallas, Tex., and $3,000 in cash upon passing of papers and completion of loan from the Joint-Stock Land Bank, which is to be as much as $4,000, and give Pippin Bros. a second vendor's lien note for the balance of their equity, said note due January 1, 1928, and is to bear 7 per cent. interest from January 1, 1926, until paid. * * * If any interest is due on loan from the Joint-Stock Land Bank before January 1, 1926, it is to be paid by Pippin Bros. Pippin Bros. are to pay all taxes up to and including the year 1925, and are to give possession on or before January 1, 1926. I hereby attach my check for $500 to be used as liquidated damages in case I fail to carry out my part of the above offer within 30 days from date. [Signed] J. F. Thompson.
"We accept the above offer and attach our check for $500. [Signed] Pippin Bros."
T. W. Glass was the real estate agent making said sale and with whom the deposits were made, and who still has same; hence he was made a party defendant and filed a joint answer with appellants.
The trial court filed the following findings of fact and conclusions of law:
"Findings of Fact.
"(1) That on the 1st day of December, 1925, plaintiff and defendant Pippin Bros. entered into the contract, copy of which is found in plaintiff's petition, and the original of which was introduced in evidence in this cause.
"(2) That the negotiations leading up to the execution of this contract were had between plaintiff and defendant Glass, and that defendant Glass undertook for himself to assist plaintiff in securing a loan for plaintiff on said land for $4,000 from the Joint-Stock Land Bank of Dallas, Tex.
"(3) That no agreement was had as to any particular joint-stock land bank of Dallas, by name, but it was agreed that the loan should be obtained from the Joint-Stock Land Bank of Dallas that was represented at that time in McLennan county by Mr. Schaffer as its agent; that application for the loan was made to said company; the land was inspected by Schaffer as to its value, and he rejected the loan in the sum of $4,000, but offered to make a loan thereon of $3,600; that Glass reported that fact immediately to the plaintiff Thompson, and advised Thompson that he could secure a loan from another joint-stock land bank engaged in loaning money in McLennan county at the time, and which was represented in McLennan county by Mr. Durham, who resided at Waco, Tex., and offered to take Thompson's application to that company for the loan and have the matter concluded without delay; that plaintiff declined to consider any loan from any other company than the company represented by Schaffer, referred to above; that the loan company represented by Mr. Durham, referred to above, was ready, willing, and able to make the loan of $4,000 on the security offered, provided the title was satisfactory to the company, and about which there is no issue in this case.
"(4) That defendants carried out and performed all of the duties incumbent upon them in the performance of said contract; and that the plaintiff, on the 17th day of December, 1925, and on the 23d day of December, 1925, before the time within which said contract was to be consummated, repudiated said contract and refused to carry same out.
"(5) That under and in accordance with the terms of said contract each of the parties to the contract deposited the sum of $500, by check, with T. W. Glass, which money is still held by said Glass.
"(6) That the only damages shown to have been suffered by defendant Pippin Bros. by reason of plaintiff's failure to perform said contract was in the sum of $65 paid for an abstract for the land to be sold.
"Conclusions of Law.
"(1) That there was no breach of said contract on the part of the defendants.
"(2) That the clause in said contract, which reads as follow: `I hereby attach my check for $500 to be used as liquidated damages in case I fail to carry out my part of the above offer within 30 days from date. [Signed] J. F. Thompson' — means that the money so deposited by plaintiff was deposited as a penalty, and not as liquidated damages to be paid to defendant Pippin Bros. in event of the failure of plaintiff to carry out said contract; and that, therefore, the only damage suffered by defendant Pippin Bros. on account of said failure by plaintiff to perform said contract being said sum of $65, plaintiff is entitled to a judgment for the sum of $435."
The correctness of the court's findings of fact is in no way challenged by assignment of error or otherwise, so their correctness is not here involved. As we view this case, there is only one question involved, and that is the proper construction of the last clause of said contract, copied in the court's second conclusion of law above. Appellee contends that the intention of the parties at the time they put up their money determines whether it is to be treated as liquidated damages or a penalty. This is true, but the question here involved is not a finding of fact, but is a conclusion of law, and said conclusion of law purports to be based alone upon the wording of the clause in controversy of the written contract, in that the court found, as a conclusion of law, the meaning of said clause. A conclusion of law by the trial court is not binding upon this court. It was the duty of the trial court and is the duty of this court to ascertain the intention of the parties in making the deposits in question, and, as there was no contention in the pleading that said contract was ambiguous, and as it does not appear so upon its face, it was the duty of the trial court and is the duty of this court to determine the intention of the parties from the written contract, as a matter of law. Farrar v. Beeman, 63 Tex. 175; Gillespie v. Williams (Tex.Civ.App.) 179 S.W. 1101; Langever v. Smith Co. (Tex.Com.App.) 278 S.W. 178.
We are aware of the fact that there are cases where the contract stipulated for liquidated damages to be paid by the defaulting party, yet it was held that the recovery should be limited to a just compensation for the loss suffered. In such cases the rule announced, in effect, is, we think, that the party, who seeks to defeat the terms of the contract providing for the payment of a stated sum as agreed damages, should make it appear that the damages which the parties contemplated might result from the breach were reasonably capable of ascertainment, and that there was no approximation between such contemplated actual damages and the agreed damages fixed by the contract. This conception of the decision in Collier v. Betterton, 87 Tex. 440, 29 S.W. 467, has been applied in several cases in some of which writs of error were denied by the Supreme Court. Halff v. O'Connor, 14 Tex. Civ. App. 191, 37 S.W. 241; Reinhardt v. Borders (Tex.Civ.App.) 184 S.W. 791; Kaufman v. Lumber Co. (Tex.Civ.App.) 184 S.W. 1048; Dilley Son v. Wise Hervey (Tex.Civ.App.) 160 S.W. 986; 8 R.C.L. 560. No other construction of the Betterton Case, supra, can harmonize it with the decision of the Supreme Court in the case of Eakin v. Scott, 70 Tex. 442, 7 S.W. 777, and the opinions of both these cases were written by Chief Justice Gaines, and in the case of Eakin v. Scott, supra, it was agreed on the trial that no actual damages were sustained from the breach, and yet the plaintiff was held to be entitled to recover the stipulated damages.
But if the disparity between the actual damages contemplated by the parties and that stipulated in this case could be considered in determining whether such damages were intended as liquidated damages or a penalty, such rule of law would be unimportant in this case, as, we think, there was no such disparity. Does the amount of damages it can reasonably be inferred the parties had in contemplation at the time of the execution of the contract, in case of a breach by appellee, bear some reasonable proportion to the amount stipulated? It was a farm, all fenced and improved, that was the subject-matter of the sale. The consideration was $7,500; $7,000 of said amount was to be paid cash, and $4,000 of said cash payment was to be obtained by appellee by procuring a loan on said farm. The contract was dated December 1, 1925, and was to be closed in 30 days. Appellants, without any restrictions or limitations, were obligated to give appellee possession by January 1, 1926. Appellee could have waited until January 1, 1926, and then repudiated his contract, and, if he had done so, appellants probably would not have been able to procure a tenant, at least a desirable tenant, for the year 1926, and thereby would probably have lost the use of said farm during said year. Or appellants might, by such action on the part of appellee, have been deprived of an advantageous sale, and thereby lost more than $500. Again, under the terms of said contract, appellee could have taken possession on January 1, 1926, even though he had not paid anything on the purchase money, and continued in possession, rent free, until he was dispossessed at the end of a long-drawn out lawsuit. We think there is no disproportion between the amount of damages it may reasonably be inferred the parties had in contemplation in case of a breach and the amount stipulated in the contract as liquidated damages. The rule, as announced by our Supreme Court in the Eakin Case and followed to the present time, is that where the parties expressly declare the sum named in the contract is intended as liquidated damages, and no other intention can be gathered from the contract, such intention should prevail. Durst v. Swift, 11 Tex. 281; Yetter v. Hudson, 57 Tex. 604; Moore v. Anderson, 30 Tex. 230; Eakin v. Scott et al., 70 Tex. 442, 7 S.W. 777; Norman v. Vickery, 60 Tex. Civ. App. 449, 128 S.W. 452; Witherspoon v. Duncan, 62 Tex. Civ. App. 361, 131 S.W. 660; Garrard v. Cantrell (Tex.Civ.App.) 232 S.W. 911, on motion for rehearing; Bowden v. Southern Rock Island Plow Co. (Tex.Civ.App.) 206 S.W. 124; Collins-Decker Co. v. Crumpler (Tex.Com.App.) 272 S.W. 772.
The trial court found as a conclusion of fact:
"That defendants carried out and performed all of the duties incumbent upon them in the performance of said contract; and that the plaintiff, on the 17th day of December, 1925, and on the 23d day of December, 1925, before the time within which said contract was to be consummated, repudiated said contract and refused to carry same out."
The court also found as a conclusion of law:
"That there was no breach of said contract on the part of the defendants."
There is a well-defined distinction between "liquidated damages" and a "penalty." and the parties are presumed to have understood this distinction. We think it clearly appears from the clause of the contract that the parties understood and intended that, in case of a breach of said contract, the $500 put up by the party guilty of such breach should be paid to the other not so guilty as "liquidated" or agreed damages. There is nothing in any other part of the contract and nothing in the record to indicate that their intention was otherwise than as expressed in the contract — nothing to indicate that said $500 was intended to secure or cover any damages that might be sustained in case of a breach. In fact, appellee in his pleading treated said deposit as liquidated damages and sought to recover the entire deposit of $1,000, alleging that appellants had breached said contract, but he pleaded in the alternative that, if he was not entitled to recover the entire deposit, then he be permitted to recover his own deposit, but not alone upon the ground that it was put up as a penalty, but also upon the ground that appellants had breached said contract, and that said contract was unilateral, had not been delivered, etc.
We think the trial court erred in refusing to hold that said $500, deposited by appellee, was intended as liquidated damages. The judgment of the trial court is reversed, and judgment is here rendered for appellants Pippin Bros., that appellee, J. F. Thompson, take nothing, and all costs are adjudged against appellee.