H.J. McGrath Co. v. Wisner

• Court: Maryland Supreme Court
• Writing for the Court: HENDERSON, Judge.
• Citation: H.J. McGrath Co. v. Wisner, 189 Md. 260, 55 A.2d 793 (Md. 1947)
• Decision Date: 14 November 1947
• Docket Number: 9.
• Parties: H. J. McGRATH CO. v. WISNER.

55 A.2d 793

189 Md. 260

H. J. McGRATH CO. v. WISNER.

No. 9.

Court of Appeals of Maryland

November 14, 1947

Appeal from Superior Court of Baltimore City; Emory H. Niles, Judge.

Action by G. Herbert Wisner against H. J. McGrath Company to recover under the common counts and under a special count for the balance due on the price for sale and delivery of tomatoes wherein defendant interposed a special plea of set-off. Judgment for plaintiff, and defendant appeals.

Reversed and judgment of non pros. entered.

Z Townsend Parks, Jr., of Baltimore (Howard C. Bregal and Leroy H. List, both of Baltimore, on the brief), for appellant.

Charles C. Lyons, of Baltimore (Michael Paul Smith, of Baltimore, on the brief), for appellee.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, HENDERSON and MARKELL, JJ.

HENDERSON Judge.

G Herbert Wisner, a farmer, brought an action at law in the Circuit Court for Baltimore County against the J. H. McGrath Co., a Maryland corporation operating a cannery in that county, to recover under the common counts and under a special count for the sale and delivery of 10.99 tons of tomatoes at an agreed price of $28 per ton, of which a balance of $300 was alleged to be due and unpaid. The defendant filed general issue pleas, and a special plea of set-off, alleging that delivery was made pursuant to a written contract to deliver the whole crop; that the plaintiff delivered only a part thereof; and that under the contract the plaintiff became liable to pay $300 as liquidated damages for the breach. A demurrer to the special plea was sustained. Thereafter, the case was removed to the Superior Court for Baltimore City and tried before the court without a jury. From a verdict and judgment for the plaintiff in the sum of $300, the case comes here on appeal.

It is undisputed that on March 7, 1944, the parties entered into a written contract whereby Wisner agreed to grow tomatoes on six acres of his farm in Baltimore County, and to sell and deliver all the tomatoes grown thereon during the season of 1944 (except those used domestically) to the cannery of the McGrath Company at a price of $28 per ton. Clause 12 of the contract read as follows: 'It is understood by Grower that the Company, depending upon the performance of this and numerous similar agreements, has entered into and intends to enter into agreements for the sale of its products, and that if Grower shall fail to deliver to the Company any part or all of the Tomatoes herein contracted for, except as aforesaid, the Company will sustain substantial damages, uncertain in amount, and not readily susceptible of proof under the rules of evidence, and great and irreparable damage to the Company will result from a breach of this agreement on the part of Grower, and Grower hereby covenants and agrees with the Company that in case of such failure on Grower's part Grower shall and will pay to the Company the sum of $300.00 as liquidated damages and not as a penalty, and in such case the Company may deduct and retain the said sum or any part thereof from any moneys due or to become due to Grower under this agreement, but the failure of the Company to do so shall not be construed as a waiver by the Company of such damages. This provision shall not be construed as rendering this agreement an alternative one, or as giving Grower an option to perform this agreement, or to refuse to perform the same and pay the damages as specified.'

Wisner testified that he delivered two loads aggregating 10.99 tons of tomatoes to the Company on August 31 and September 1, 1944. The third picking, 2 1/2 loads of about 14 tons, he sold in the Baltimore market at a price of $1 per bushel or $33.33 per ton. He did this because he 'got more money for it.' The Company learned of his action and entered suit against him. Thereafter, Wisner sold 6 or 7 more loads, about 30 to 35 tons, on the open market at a price of $1.10 per bushel, or $36.63 per ton. He testified that the Company paid him $7.70 on account of the tomatoes he delivered to it, claiming the right to deduct liquidated damages of $300 from the contract price.

Robert W. Mairs, a vice-president of the Company, testified, over objection, that from past experience the Company estimated that it would normally be advantageous to a grower, during the 'glut' period when market prices were low, to deliver one-third of his crop under the contract, and sell two-thirds on the open market. Taking into account the average yield per acre and the range of prices in the previous year, the prospective loss to the Company in the event of default was estimated at about $50 per acre. The $300 figure was arrived at in this way. On motion, the trial Judge struck out this testimony. We find no error in this ruling.

Mairs also testified, without contradiction, that the quoted market price of tomatoes, on the dates when Wisner delivered tomatoes to the Company, was 50 cents per bushel, or $16.66 per ton. At the conclusion of the case the Court struck out all the testimony as to the sale of tomatoes on the open market by Wisner, and entered judgment for the plaintiff in the sum of $300, the balance of the contract price.

The appellant contends that the sole question on this appeal is the correctness of the Court's ruling on demurrer. He maintains that the plea of set-off was proper, in that clause 12 of the contract was for liquidated damages, and not a penalty. We take a different view.

Whether a particular clause in a contract should be construed as liquidated damages or a penalty is a question of law. Hammaker v. Schleigh, 157 Md. 652, 667, 147 A. 790, 65 A.L.R. 1285; Tayloe v. Sandiford, 7 Wheat. 13, 20 U.S. 13, 5 L.Ed. 384. Clauses fixing damages per diem for delay in the performance of building contracts have frequently been sustained, where not out of proportion to the damages that might reasonably be anticipated. Baltimore Bridge Co. v. United Rys., 125 Md. 208, 93 A. 420; United Surety Co. v. Summers, 110 Md. 95, 72 A. 775. The tendency of the more recent cases has been to sustain agreements for liquidated damages where actual damages are difficult of ascertainment. Compare Boston Iron & Metal Co. v. United States, 4 Cir., 55 F.2d 126. But where the sum fixed is the same for a total as for a partial breach, such a clause is generally construed as a penalty. Mt. Airy Milling Co. v. Runkles, 118 Md. 371, 379, 84 A. 533, 535, L.R.A. 1915E, 373. And it was said in that case: 'Where the agreement has been partially performed, it is the policy of the courts to regard the damages as a penalty, and allow the plaintiff to recover only such damages as he has actually sustained.' Compare Poinsettia Dairy Products v. Wessel Co., 1936, 123 Fla. 120, 166 So. 306, 104 A.L.R. 216, and Greenblatt v. McCall & Co., 1914, 67 Fla. 165, 64 So. 748.

The Maryland cases seem to be in accord with the rule announced in the Restatement, Contracts, § 339: '(1) An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless (a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation'. Compare Willson v. Baltimore, 83 Md. 203, 34 A. 774, 55 Am.St.Rep. 339. See also Sutherland, Damages, 3d Ed., § 283. In comment b of the Restatement it is said that where a contract 'promises the same reparation for the breach of a trival or comparatively unimportant stipulation as for the breach of the most important one or of the whole contract, it is obvious that the parties have not adhered to the rule of just compensation'.

The appellant relies strongly upon the case of Colma Vegetable Association v. Bonetti, 1928, 91...