Case Name: Jones v. Mississippi Farms Co.
Court: Mississippi Supreme Court
Jurisdiction: Mississippi
Decision Date: 1917-10
Citations: 116 Miss. 295
Docket Number: 
Parties: Jones v. Mississippi Farms Co.
Judges: 
Reporter: Mississippi Reports
Volume: 116
Pages: 295–341

Head Matter:
Jones v. Mississippi Farms Co.
[76 South. 880,
In Banc.]
1. Damages. Provisions for liquidated damages.
Under a contract for the sale of a railroad providing, that time was of the essence of the contract, that it was to be taken strictly and literally, that on the event of failure to make installment payment strickly and promptly, the contract should be null and void, the rights of the purchaser to cease at once ipso facto, that the property should revert and immediately reinvest in the seller, without any declaration of forfeiture or act of reentry and without any other act, as fully and perfectly as if the contract had never been made, and that the moneys paid should be held absolutely as liquidated damages for the purchaser’s breach. In such case the moneys paid under the contract by the purchaser before his refusal to continue were liquidated damages and not a penalty.
2. Constitutional Law. Bight to contract. Fourteenth amendment.
It is fundamental that the right to make contracts pertaining to business is one of the rights guaranteed by the law of the land, and especially the fourteenth amendment to the Constitution of the United States.
3. Contracts. Absence of modification. Enforcement.
Unless tbe parties dealing with the subject-matter by their conduct modify or change the contract originally made, or so act in reference to it as to make it inconsistent for a party td claim or rely upon the contract contrary to its agreement and stipulations, it must be enforced as written.
4. Damases. Liquidated damages or penalty.
In construing a contract to determine whether a clause calls for liquidated damages or a penalty, the intention of the parties ia the thing the court is anxious to ascertain and give effect to.
5. Same.
The general rule is that the intention of the parties must be drawn from the words of the whole contract, and if viewing the language used, it is, clear and explicit, then the court must give effect to the contract unless it contravenes public policy. If the language is doubtful, the court will look to the surroundings of the parties and to the construction placed upon the contract by the parties during its existence in order to learn the intention of the parties.
6. Damages. Liquidated damages or penalty.
In considering whether or not damages stipulated for as liquidated damages was intended by the parties really to be paid, if not disproportionate to the damages that might probably result from a violation of a contract, it will be held to be liquidated damages. If the contract is for the performance of a specific act for the nonperformance of which damages could easily be ascertained, then it may be treated as a penalty.
7. Specific Performance. Contract requiring superintendance of court.
Equity will not' direct a specific performance of a contract where it would require constant superintendance of the court from day to day for an indefinite time in order to enforce the carrying out of its decrees.
8. Contracts. Breach. Recovery by corporation not party.
A corporation not a party to a contract cannot recover for its breach the damages it may have suffered therefrom; if it can recover anything, it is only as assignee of a party to the contract.
9. Corporations. Exceeding charter powers. Recovery of damages.
A foreign corporation which had no charter power to make a contract for the development of cut over timber lands cannot maintain a suit for damages for breach of a contract to purchase a railroad from it, ancillary to the development scheme, except as the damages are stipulated in the contract.
Appeal from the chancery court of Harrison county.
Hon. W. M. Denny, Jr., Chancellor.
Suit by the Mississippi Farms Company against J. T. Jones. From a judgment for plaintiff, both sides appeal.
On the 8th day of May, 1909, Finkbine Lumber Company, a corporation of Iowa, doing business at Wiggins, Miss., and owning a lumber railroad extending from Wiggins about twenty-four miles southeast, entered into a contract with J. T. Jones for the sale of the logging railroad; J. T. Jones being the owner of the majority of the capital .stock of the Gulf & Ship Island Railroad, which said railroad was intersected by the logging railroad at Wiggins, Miss. The- contract provided for the sale of the road at and for the sum of two hundred and twenty-five thousand dollars, thirty thousand dollars of which was paid in cash, and fifteen thousand dollars to be paid on the 10th day of - January, 1910, and fifteen thousand dollars on the 10th day of January of each and every year thereafter until the full purchase price had been paid. The contract consisted of twelve paragraphs, but in substance the contract provided: That the Finkbine Lumber Company should have the use of the said road free of toll in the transportation of its commodities, supplies, officers, servants, and employees with its own engines and cars and train crews as long as it should maintain its sawmills and planing mills or any of them upon the main line of the road and until all the timber then owned or thereafter acquired by the said Finkbine Lumber Company was exhausted, and to make and maintain connections, spurs, and laterals at such places as it might find needful or convenient in the conduct of its business, and that, as the operation of the logging road might not be begun by Jones for some time after the execution of the contract, the Finkbine Company should maintain at its own cost and keep the main line with bridges, culverts, etc., in repair, but that, whenever Jones began to use the main line road for the op eration of trains, then the cost of maintaining and'repairing the bed and track of the main line, other than the cost of steel, shall be paid by the parties in proportion to the amounts- of tonnage carried by each, but provided that the Finkbine Company should not be bound to maintain and repair the main line after it had discontinued the use thereof, but that such use should not be discontinued until it had given Jones at least six months’ notice of its purpose to do so; that from the time Jones began the use of the said main line for the operation of trains the Finkbine Company should be under the reasonable direction of the train dispatcher or other officer of Jones in the operation of its trains and that, if Finkbine Company disobeyed any such reasonable rules and regulations made by Jones after such use was begun by Jones, it should be liable for any injuries caused thereby and that each of the parties should, when using said roads, exercise due care in the selection of engines, cars, equipment, and servants, and that Jones should be liable to the Finkbine Company for all negligent and tortious acts of Jones’ employees, and should hold Finkbine Company harmless from such negligence of such. employees; that no interest should be charged upon the deferred installments of the consideration until Jones began the use of the road but thereafter such deferred payments should bear four per cent, per annum interest. The contract also provided for a system of accounting between the parties, and that when Jones paid the purchase money the Finkbine Company should execute conveyances for the said logging road. Then follows clause 11 of the contract, which reads as follows:
. “11. In event the party of the second part shall fail to make payments to the party of the first part, as above provided, or any of them punctually and upon the times above limited strictly and literally, the said times of payments and each of them being the essence of this contract, then and in any such event this contract shall be null and void, and thereupon all rights and interest thereby granted to or then existing in favor of the party of the second part shall utterly cease and determine, and the property hereby sold, together with all improvements and betterments thereof shall immediately revert and reinvest in the party of the first part, without any declaration or forfeiture or act of re-entry and without any other act of the party of the first part to he performed, and without any right of the party of the second part of reclamation or compensation for moneys paid or improvements made hereunder or upon said property as absolutely and perfectly as if this contract had never been made. It being the intention that said payments and improvements shall be held by the party of the first part absolutely as liquidated damages for the breach of this contract. ’ ’
By section 12 of the contract it is provided that the term “party of the first part” shall be applied to and include the successors and assigns of the Finkbine Company, and that the party of the second part should include the assigns, heirs, and legal representatives of Jones. This contract seems to have been in furtherance of a scheme of colonization and development of the territory contiguous to Wiggins-, Miss., ánd contemplated that the Finkbine Company should sell and develop cut-over lands owned by it along and contiguous to the logging railroad and to the Gulf & Ship Island Railroad. Considerable correspondence passed and also personal conferences concerning the development project between J. A. Jones, the son of J. T. Jones, and the manager o-f the Finkbine Company.
On March 9,1911, a supplemental contract was entered into between J. T. Jones and the Finkbine Company, in which it was provided that, whereas the contract of May 8, 1909, had fixed no time for the commencement of the operation of the said road by Jones, in consideration of the other contract and of one dollar each to the other'in hand paid and receipt acknowledged, it was agreed that Jones shall within six months after receiving written notice from the Finkhine Company of its discontinuance of the operation of the main-line logging road, and upon the vacation of the road by the Finkhine Company, Jones will within six months equip, maintain, and operate said main line road from Wiggins to Tiger Branch for a period of three years, and during the said time run at least one train each way daily, except Sunday, carrying passengers, and furnish such facilities for the transportation of freight as in the judgment of Jones may he required, and that the Finkhine Company was not hound to maintain the roadbed, ties, culverts, or any portion thereof after it should cease to use said road, and provided that, whereas Finkhine Company has ceased to use the east twelve miles of the main line of the logging road, and it was desirable to maintain thereafter until such times as Jones could enter upon the operation, the Finkhine Company would employ such labor and furnish such material as may he necessary to maintain the east twelve miles of such line, keeping an account'thereof, and that the same would he paid by Jones in monthly sums not to exceed two hundred and fifty dollars per month. And it was further provided that this contract shall not alter or affect in any respect any of the provisions of the said contract of May 8, 1909, except as specifically stated. The Finkhine Company not having abandoned the use of said road, and Jones not having begun the operation thereof on the 5th day of September, 1913, Jones wrote to Finkhine Company giving notice that on the next period for payment he would default and decline to make any further payment on the contract, having paid at that time a total amounting to one hundred and two thousand dollars. This letter,' in full, is as follows:
“It will he some time until the payment becomes due, the failure to meet which would, by the terms of the contract rend er it null and void, hut thinking that you aré entitled to notice of my intention in that respect I wish to advise you that I will make no further payments upon the contract executed on the 8th day of May, A. D. 1909, and that consequently you may now consider that contract, together with the agreements supplementary thereto, dated respectively the 8th day of Mairch, A. D. 1911, and October 26, A. D. 1911, canceled and henceforth inoperative. Of course the property about which the agreements were made now reverts to you.”
To this letter Finkbine Company replied as follows:
“Your letter of September 23d came, duly to hand, but inasmuch as our Mr. W. E. Guild was absent from the city we have withheld answer to same until his return.
“We are sorry that you do not look at this matter the same way as we do, as we feel assured. that our view of it is correct. We realize that you have a perfect right to stop payment on the road that you bought, but we are sure that you have not a right to refuse to operate the road for three years from the time we gave notice of turning it over to you as stated explicitly in the secondary contract, and we must reiterate what we said in a previous letter in regard to your operating the road.”
Jones refused to make the payment, and the Finkbine Company insisted that he should make the payment. The Finkbine Lumber Company after the execution of the contract of May 8, 1909, and before the operating contract of 1911, caused the Mississippi Farms Company to be organized for the purpose of carrying out a development scheme contemplated by the parties; the Finkbine Lumber Company having no charter power to engage in buying and selling lands generally aind in farming and developing them. It sold its entire holdings to the Mississippi Farms Company at an average price of six dollars per acre. The Mississippi Farms Company wais created by declaring a stock dividend of the Finkbine Company and organizing the stockholders, to whom his' stock dividend was given, into a corporation called the Mississippi Farms Company. After the refusal of Jones to carry out the contract, Finkbine Lumber Company assigned- its contracts with J ones to' the Mississippi Farms Company, and the Mississippi Farms Company filed suit in the chancery court of Harrison county on the 1st day of August, 1914, setting out the contracts between the Finkbine Lumber Company and J. T. Jones and the assignment of said contracts to it, and for damages incurred or sustained by the Mississippi Farms Company by reason of its buying the lands from the Finkbine Company, and also from other parties, in undertaking to carry out the development scheme contemplated by the Finkbine Company and J. T. Jones. It appears that the Mississippi Farms Company at considerable expense advertised farm lands and induced certain. Slavs and Poles residing in the north to move to Mississippi, selling lands along the lines .of the logging road to such people at an average price of twenty-six dollars per acre. It appears that the colonization scheme was a failure, and that the Slavs and Poles failed to make good and abandoned their contracts for the payment of the land and moved away.
On the hearing the chancellor declined to decree specific performance except to render a judgment against J. T. Jones for the balance of the purchase money under the contract of May 8, 1909, and the supplemental contract or contract involving an additional two miles of the road, but decreed in lieu of specific performance damages in the sum of sixty thousand dollars. From this judgment both complainant and defendant in the court below appeal.
R. E. Eaton, Mayes, Wells, May & Sanders and Mayes & Mayes, for appellant.
Green & Green and White & Ford, for appellee.

Opinion:
Ethridge, J.,
delivered the opinion of the court.
(After stating the facts as above.) The direct appeal is prosecuted by J. T. Jones, and he contends that under clause 11 above set out he was not compelled to perform the contract, but had the option of retiring at any time he saw proper, and that clause 11 at all events fixed the damages which should be paid for a default in the contract. He contends further that the Mississippi Farms Company, not being a party to the contract,' can recover no damages suffered by it by reason of the failure of Jones to carry out the contract to buy and operate the railroad. The Farms Company claims that it is not only entitled to a decree for the balance of the purchase money of the road, but that it is entitled to damages for moneys expended, and profits lost, by it in carrying out the development scheme or undertaking to do so contemplated by Jones and the Finkbine Company.
It appears to us that clause 11 of the contract was made with the view of fixing damages for the failure to carry out this contract, and that the moneys'paid under this contract are to be considered as liquidated damages and not as a penalty. Under this clause, it is declared by the parties that time is the essence of this contract, and that it is to he taken strictly and literally; and that, upon the event of the failure to make the payment strictly and promptly as of the date, the contract is to be null and void and the rights of J ones were to cease at once ipso.facto, and the property should revert and immediately reinvest in the Finkbine Company without any declaration or forfeiture or act of re-entry and without any other act to be performed by it, as fully and as perfectly as if the contract had never been made; and that the moneys paid should be held absolutely as liquidated damages for the breach of the contract. It is difficult to conceive of how any stronger contract could be made than the one that is here made bearing upon this matter.
It is fundamental that the right to make contracts pertaining to business is one of the rights guaranteed by the law of the land, and especially the fourteenth amendment to the Constitution of the United States. Unless the parties dealing with the subject-matter by their conduct modify or change the contract originally made, or so act in reference to it as to make it inconsistent for a party to claim or rely upon the contract contrary to its agreement and stipulations, it must be enforced as written. To quote from the United States supreme court in Cheney v. Libby, 134 U. S. 68, 10 Sup. Ct. 498, 33 L. Ed. 818:
"The parties in this case, in words too distinct to leave room for construction, not only specify the time when each condition is to be performed, but declare that 'time and punctuality are-material and essential ingredients ' in the contract; and that it must be ' strictly and literally' executed. However harsh or exacting its terms may be, as to the appellee, they do not contravene public policy; and therefore a refusal of the court to give effect to them, according to the real intention of the parties, is to make a contract for them which they have not chosen to make for themselves"- — citing authorities.
In the headnotes to this case in the Law Edition report these principles are stated as follows:
"Time may be made of the essence of the contract by the express stipulations of the parties, or it may arise by implication from the very nature of the property, or Die avowed objects of the seller or the purchaser.
"Where the parties specify the time of performance, and declare that 'time and punctuality are material and essential ingredients' in the contract, and that it must be 'strictly and literally' executed, however harsh or exacting its terms may be, a refusal of the court .to give effect to them is to make .a contract which the parties have not made for themselves."
The United States supreme court has recognized these principles in numerous other oases, among which I cite the following: Taylor v. Longworth, 14 Pet. 172, 10 L. Ed. 405; Secombe v. Steele, 20 How. 94, 15 L. Ed. 833; Waterman v. Banks, 144 U. S. 394, 12 Sup. Ct. 646, 36 L. Ed. 479. See also Slater v. Emerson, 19 How. 224, 15 L. Ed. 626, Bank of Columbia v. Hagner, 1 Pet. 455, 7 L. Ed. 219, Heppurn & Dundas v. Colin Auld, etc., 5 Cranch, 262, 3 L. Ed. 96. That time will he regarded as the essence of the contract when stipulated hy the parties by distinct agreement is well settled in numerous state authorites. Davis v. Isenstein, 257 Ill. 260, 100 N. E. 940, 45 L. R. A. (N. S.) 52; Heckman's Estate, 236 Pa. 193, 84 Atl. 689; Hahn v. Concordia Society, 42 Md. 460; Bodina v. Glading, 21 Pa. 50, 59 Am. Dec. 749; St. Mary's Church v. Stockton, 8 N. J. Eq. 520; Webster v. Bosanquet, Ann. Cas. 1912C, 1019; Phelps v. I. C. R. R. Co., 63 Ill. 468; Stow v. Russell, 36 Ill. 18; Heckard v. Sayre, 34 Ill. 142; Steele v. Biggs, 22 Ill. 643; Chrisman v. Miller, 21 Ill. 227; Ewing v. Crouse, 6 Ind. 312; Foot v. Rush, 100 Iowa, 522, 69 N. W. 874; Carter v. Walters, 91 Iowa, 727, 59 N. W. 201; Garcin v. Pennsylvania Furnace Co., 186 Mass. 405, 71 N. E. 793; Judd v. Skidmore, 33 Minn. 140, 22 N. W. 183; Jewett v. Black, 60 Neb. 173, 82 N. W. 375; Brown v. Ulrick, 48 Neb. 409, 67 N. W. 168; Patterson v. Murphy, 41 Neb. 818, 60 N. W. 1. In the case of Webster v. Bosanquet, supra, we quote from the headnote as follows:
"Where a contract provides that on breach thereof a specified amount should be paid 'as liquidated damages and not as a penalty, ' its true construction must have regard to the particular circumstances of the case, and not be such as to render it unconscionable and extravagant. Where it is impossible at the date of contract to foresee the extent of uncertain injury which might be sustained by its beach, or the cost and difficulty of providing it, and the amount is reasonable, it should be recovered as liquidated damages."
Are there any such surroundings and circumstances in the present case as would warrant ns in construing the stipulation of the contract contained in clause 11 as a penalty and not as liquidated damages within the meaning of the rule laid down in this case ? When we take the surroundings of the parties into consideration and consider the uncertainty of the venture about which the parties were contracting and the extreme difficulty of proving damages in the case of a failure, it becomes manifest that the parties were themselves fixing what the damages should be. In the case of Jones' failure to pay for the logging road, the Finkbine Company would have all the property which it had conveyed to Jones, and, in addition thereto whatever Jones had paid to it, the cash payment being thirty thousand dollars, and fifteen thousand dollars, additional accruing each year thereafter as the payments were made. Both Jones and the lumber company were persons experienced in business matters and well knew the uncertainty of a venture of this kind. They» took particular pains to make their intentions manifest that the contract was to be terminated at once in case of default, and that this amount so paid would he the exact amount of damages that would be suffered from such breach.
Of course, the intention of the parties is the thing the court is anxious to ascertain and give effect to. The general rule is that the intention of the parties must be drawn from the words of the whole contract, and if, viewing the language used, it is clear and explicit, then the court must give effect to this contract unless it contravenes public policy, if the language is doubtful, the court will look to the surroundings of the parties and to the construction placed upon the contract by the parties during its existence in order to learn the intention of the parties.
In considering whether or not damages stipulated for as liquidated damages was intended by the parties really to be paid if not disporportionate to tbe damages that might probably result from a violation of a contract, it will be held to be liquidated damages. If tbe contract is for tbe performance of a specific act for tbe nonperformance of which damages could easily be ascertained, then it may be treated as a penalty. The whole subject is treated in a case note to Ann. Cas. 1912C, 1021-1028. See, also, Selby v. Matson, 137 Iowa, 97, 114 N. W. 609, 14 L. R. A. (N. S.) 1210; Morrison v. Ashburn (Tex. Civ. App.) 21 S. W. 993; Lightner v. Menzel, 35 Cal. 452; Dakin v. Williams, 17 Wend. (N. Y.) 447; Holmes v. Holmes, 12 Barb. (N. Y.) 137; Welch et al. v. McDonald, 85 Va. 500, 8 S. E. 711; Pettis v. Bloomer, 21 How. Prac. (N. Y.) 317; Barnwell v. Kempton, 22 Kan. 314; Geiger et al. v. West Maryland R. R. Co., 41 M. D. 4; K. P. Mining Co. v. Jacobson, 30 Utah, 115, 83 Pac. 728, 4 L. R. A. (N. S.) 755.
On tbe proposition of compelling tbe operation for three years in tbe supplemental contract, our own court has held, in Sims v. Vanmeter Lumber Co., 96 Miss. 449, 51 So. 459, that equity will not direct a specific performance of a contract where it would require constant superintendence of tbe court from day to day for an indefinite time in order to enforce tbe carrying out of its decrees. This case refused specific performance of a contract for tbe construction of a logging road. See, also, Bomer et al. v. Canaday, 79 Miss. 222, 30 So. 638, 55 L. R. A. 328, 89 Am. St. Rep. 593.
On the proposition of allowance of damage in lieu of specific performance, we think that tbe appellees cannot recover because tbe Mississippi Farms Company, not being a party to tbe contract, cannot recover from the appellant tbe damages it may have suffered in Its dealings in this respect. If it could recover anything, it would be limited to the recovery of such damages as were suffered by tbe Finkbine Lumber Company under assignment of Finkbine's contract to tbe Mississippi Farms Company. Tbe Finkbine Company has not suffered damage, because it sold its property at an average of six dollars per acre, when the proof shows that its real value is approximately two dollars per acre. The Finkbine Company will be precluded from maintaining suit for damages as to the development project independent of clause 11, because it had no charter power to make a contract as to the development proposition. Central Transportation Co. v. Pullman's Palace Car Co., 139 U. S. 24, 11 Sup. Ct. 478, 35 L. Ed. 55; McCormick v. Market National Bank, 165 U. S. 538, 17 Sup. Ct. 433, 41 L. Ed. 817.
The case is therefore reversed, and bill and cross-bill dismissed. '
Reversed and dismissed.