International Harvester Co. of America v. Pott

WHITING, P. J.

Respondent corporation is the manufacturer of a line of farming machinery, and the appellant is a co-partnership engaged in the retail sale of farm machinery at Mil-bank, S. D. The parties entered into a contract, of which the following parts are material to the questions involved herein:

“It is further agreed, by and between the parties hereto, that the title to, and the ownership, of all goods which may' be shipped under the terms of this contract shall remain in and their proceeds (in case of sale) shall be the property of International Harvester Company of America, and subject to the- order of the said company until full payment shall have been made by the purchasers to said company for said goods or of any notes taken for the purchase price thereof, but nothing in this clause shall release' the purchaser from making payments as above stipulated.

“Engines.

“Number Gas or Gasoline Engines Net Price

“Ordered Complete Each

“One $1400.00 20 H.P. Type ‘C’

25 “' 2-Cylinder Vertical

“If still on hand unsold ii-i-io, will accept note due ii-i-ii, 8 per cent, after due. Same discount to apply 1911.”

Gnder this contract the respondent shipped to appellants, and appellants accepted and received into their possession, the 20 H. P. type “C” engine therein mentioned, as well as other machinery. The engine remaining unsold, appellants executed and delivered to respondent under date of September 9, 1910, their promissory note for $1,400 due November 1, 1911, with interest at 8 per cent, from that date, the said note, as shown by the evidence received, being given in compliance with the above clause attached to the said contract. This note remaining unpaid, respondent brought an action to recover thereon, and the appellants defended upon the ground that, under the above contract and the facts as above stated, appellants were not liable on said note. Upon the trial, both parties having moved for a direction of verdict, the trial court took the cause from the jury, made finding's of fact and conclusions of law in favor of the respondent, and entered judgment thereon. Among other things found by the trial court was that upon the giving of the note the title to the engine in question passed to the appellants. The trial court seems to have based its judgment upon the ground -that by such passing qf title the conditional sale terminated — the sale became absolute — and appellants’ liability on the note became absolute. From said judgment and an order overruling motion for new trial this appeal was taken.

Appellants contend that the contract entered into between the parties was one for the conditional sale of personal property; that the giving of the note did not change the nature of said contract or create a new contract; that, the contract of conditional sale remaining in full force and effect, the title -to the engine remained vested in the respondent corporation; and that, therefore, this cause comes under, and is controlled by, the decisions of this court in the case of Dowagiac Mfg. Co. v. White Rock Lumber & Hardware Co., reported in 18 S. D. 105, 99 N. W. 854, and, upon rehearing, in 26 S. D. 374, 128 N. W. 334. Respondent contends that, while the original contract was one of conditional sale, the giving of the note terminated the conditional sale and passed title in said engine to the appellants, thus giving respondent the right to recover upon the note.

[1] Both parties concede that the contract entered into was one of conditional sale; this could hardly be otherwise under the authorities. Poirier Mfg. Co. v. Kitts, 18 N. D. 556, 120 N. W. 558; Bierce v. Hutchins, 205 U. S. 340, 27 Sup. Ct. 524, 51 L. Ed. 828; Alden v. Dyer & Bro., 92 Minn. 134, 99, N. W. 784; Freed Furniture & Carpet Co. v. Sorensen, 28 Utah, 419, 79 Pac. 564, 107 Am. St. Rep. 731, 3 Ann. Cas. 634; Monitor Drill Co. v. Mercer, 163 Fed. 943, 90 C. C. A. 303, 20 L. R. A. (N. S.) 1065, 16 Ann. Cas. 214.

[2] It is uniformly held that the giving of a note to represent the purchase price does not change a contract which would otherwise be one for conditional sale to one of absolute sale. This has even been held when such note was given upon a settlement had after the contract had been entered into and where such contract made no provision for such method of settlement. Freed Furniture & Carpet Co. v. Sorensen, supra, wherein the court held, as shown by the syllabus: The fact that subsequent to a sale of goods shown to be conditional by the note taken for the purchase price the parties ascertain and adjust their accounts, and the ven-dee makes a new note for the balance due, does not make the transaction an absolute sale with security for the debt. See note following above case. A reference to the contract involved in this action will show that a settlement by a note was contemplated by the contract itself, such contract providing that for machinery unsold the purchasers at their option might give the very note that they did give in this case; and such contract specifically provided that the title to the unsold property should remain in the vendors until the payment of the note so given. This brings this case directly in line with the facts in Monitor Drill Co. v. Mercer, supra, wherein the court said: ‘ ‘The taking of the notes for the purchase price, and the taking of collateral security, did not in any way qualify the conditional sale features of the contracts. This was expressly held in Bierce v. Hutchins, 205 U. S. 340, 27 Sup. Ct. 524, 51 L. Ed. 828. * * * But it is urged that the effect of the settlement in August was a novation of contract. Such contention has no force, as it was provided in the contract that a settlement should be had and notes given as was done. It would only be natural for the parties, even when the sale was conditional, to provide that at the close of the sale season a settlement should be made and an account taken to determine what portion of the goods had been sold by second party and an adjustment made with respect thereto.” It follows, therefore, that the trial court was in error in holding that, upon the giving of the note, title passed to the purchaser — the giving of such note effected no change except that it determined the balance due for the unsold engine.

[3] It is conceded that the possession of this engine was delivered to and accepted by the purchasers under and by virtue of such contract. It therefore follows that section 2303, Civ. Code, has no application to the facts of this case. Said section reads as follows: “The detriment caused by.the breach of a buyer’s agreement to accept and pay for personal property, the title to which is not vested in him, is deemed to be: (1) If the property has been resold, pursuant to section 2151, the excess, if any, of the amount due from the buyer, under the contract, over the net proceeds of the re-sale; or (2) If the property has not been resold in the manner prescribed by section 2151, the excess, if any, of the amount due from the buyer, under the contract, over the value to the seller, together with the excess, if any, of the expenses properly incurred in carrying the property to market, over those which would have been incurred for the carriage thereof, if the buyer had accepted it.” Appellants, relying upon the decisions of this court in the Dowagiac-White Rock Cases, supra, contend that, under such decisions — this contract still remaining a conditional sale — section 2303 is controlling as to the amount respondent was entitled to recover, and that, respondent having offered no evidence showing any damages under such section, verdict herein should have been directed for appellants. It is unfortunate that this court did not make clearer the grounds for its holding in the two Dowagiac-White Rock decisions. It seems perfectly clear to us that section 2303 applies as well in. cases where title has not passed for reasons other than that the contract was one of conditional sale as where it was such an one. Such statute would certainly apply under the facts found in McCormick Harvesting Mach. Co. v. Balfany, 78 Minn. 370, 81 N. W. 10, 79 Am. St. Rep. 393, and in the vast number of cases cited in notes to 17 R. R. A. (N. S.) 807. The one controlling and essential element, the existence of which is necessary in order for either section 2302 or section 2303 to apply, is that said contract shall still be executory, in that the purchaser has not accepted the property under the contract. If he has not accepted the property, 'but title has vested in him, section 2302 applies; if he has not accepted the property and title has not vested in him— no- matter why it has not vested — then section 2303 applies. It follows that the only theory upon which the views of the majority of the court in the two Dowagiac-White Rock Cases can be supported is that defendant became possessed of the goods under the prior commission contract, and that, although it entered into the subsequent conditional sale contract covering these same goods, yet that it had never accepted such goods under such contract. See Sioux Falls Adj. Co. v. Aikens, 142 N. W. 651, decided this term.

In those states where there is no statute controlling there will be found an irreconcilable conflict as to the proper rule of damages where there has been a breach of a buyer’s agreement to accept and pay for personal property, especially is this true in those cases wherein title, to the property had not vested in'the purchaser. Both 35 Cyc. 592, and 24 Am. & Eng. Ency. of Raw (2d Ed.) 1118, state the general rule to be that the measure of damages, when the buyer repudiates the contract and refuses to receive and accept the goods, is the difference between the contract price and the market value of the goods at the time and place of. delivery. That there is much conflict is noted by both the above 'authorities. One cannot but be impressed with the unsettled condition of the law on this matter by examining some of the authorities, among them the following: White v. Solomon, 164 Mass. 516, 42 N. E. 104, 30 L. R. A. 537; National Cash Register Co. v. Hill, 136 N. C. 272, 48 S. E. 637, 68 L. R. A. 100, and notes in 68 L. R. A., reviewing a vast number of the authorities upon this question; Morris v. Cohn, 55 Ark. 401, 17 S. W. 342, 18 S. W. 384. That there is a like conflict of authority in those cases where title has passed but the purchaser has refused to accept possession is well shown by the extensive notes following the case of Acme Food Co. v. Older, 64 W. Va. 255, 61 S. E. 235, 17 L. R. A. (N. S.) 807. For the purpose of settling the rules of damages in all cases where a sale had not been consummated by an acceptance of the goods under the contract, several of the states have enacted statutes. Thus the Territory of Dakota, by sections 1957 and 1958 of the Civil Code of 1877, prescribed the rules of damages now to be found in sections 2302 and 2303, supra, which sections are retained in our sister state as sections 4987 and 4988, Code of 1899, and in California as sections 33x0 and 3311, Civil Code. This court has properly applied section 2302, supra, in the case of Dowagiac Mfg. Co. v. Higinbotbam, 15 S. D. 547, 91 N. W. 330; and an illustration of the proper application of our section 2303, supra, will be found in the case of Habenicht v. Lissack, 77 Cal. 139, 19 Pac. 260. The case of Dowagiac Mfg. Co. v. Mahon, 13 N. D. 516, 101 N. W. 903, wherein, as in this case, it was sought by the purchaser to apply the rule of damages prescribed by their section 4988 (being our section 2303), is a case on all fours with this case, in that it was one where property had been sold under a contract for a conditional sale and the purchaser had accepted such property under said contract. The court said: “The defect claimed is that the proper measure of damages is not claimed; that the title to the machines having been retained by the plaintiff, he cannot recover for the purchase price, but is only entitled to damages as prescribed by section 4988, Rev. Codes 1899. As we construe that section, it has no application to the facts of this case * * * As we construe sections 4988, it applies to cases where there has been a refusal to accept the property purchased, or in cases where no delivery has followed the sale. At all events, the plaintiff may elect to: claim damages in this case the same as though there had been an unconditional sale and delivery of the property. Plaintiff might have taken another remedy, but such other remedy is not exclusive. The following cases sustain this doctrine: Alden v. Dyer, 92 Minn. 134, 99 N. W. 784; Campbell Mfg. Co. v. Hickok, 140 Pa. 290, 21 Atl. 362; Shepard v. Mills, 173 Ill. 223, 50 N. E. 709; Smith v. Barber, 153 Ind. 322, 53 N. E. 1014; Cooper v. Cleghorn, 50 Wis. 113, 6 N. W. 491.” That, under a conditional sale contract where possession of property has been accepted by purchaser, as noted in the above opinion, the seller has the election to sue for the purchase price, or to sue to recover the property, is held by the authorities without one single dissent. See upon this question Willis ton on Sales, § 579; Smith v. Aldrich, 180 Mass. 367, 62 N. E. 381; Bierce v. Hutchins, supra; Alden v. Dyer & Bro., supra; Poirier Mfg. Co. v. Kitts, supra; Turk v. Carnahan, 25 Ind. App. 125, 57 N. E. 729, 81 Am. St. Rep. 85; Haynes v. Temple, 198 Mass. 372, 84 N. E. 467; and particularly the following cases wherein this rule is upheld to the extent of holding that, even when the property has been injured or destroyed while in the possession of the purchaser and without his fault, he is holden, at the option of the vendor, for the purchase price; Hurley & Willis v. Stanley, 25 Okl. 89, 105 Pac. 188, 138 Am. St. Rep. 900, and vast number of cases cited in note following same; Marion Mfg. Co. v. Buchanan, 118 Tenn. 238, 99 S. W. 984, 8 L. R. A. (N. S.) 590, 12 Ann. Cas. 707, and many late cases in the note following same.

It follows from the above, first, that the contract entered into by the parties hereto was one for the conditional sale of -the engine in question; second, that-the giving of said note in no manner changed the nature of said contract; third, that, inasmuch as the purchaser had accepted the goods under and by virtue of said contract, the vendor had the right to elect to sue for and recover the purchase price of said engine as such purchase ’price was represented by said note.

The judgment and order appealed from are affirmed.