A & H FINANCE CORPORATION vs. LEWIS A. GOLDMAN.

PIERCE, J. This is an action upon a promissory note in the sum of $150, upon which the plaintiff claims there is still due the unpaid balance of $112.50. The plaintiff further claims attorney's fees in the sum of $16.87, which represents fifteen per cent of the unpaid balance as a reasonable attorney's fee. The defendant's answer consists of a general denial; denial of signature and demand for proof; denial that the plaintiff is a holder in due course; and allegations that there was failure of consideration, that the value of the automobile repossessed was greater than the balance due, and that the clause in the conditional sales contract offered in evidence constitutes a forfeiture or penalty.

The case was heard in the Municipal Court of the City of Boston upon the agreed statement of facts which follows: "The defendant purchased an Auburn Convertible Coupe, subject to the terms and conditions of a conditional sales

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contract signed by him [the material parts of which are printed in the margin] [Note p114] and in connection with the transaction, signed, executed and delivered a promissory note in the sum of $150.00 payable at the rate of $12.50 per month, the first payment being due on September 29, 1933. The plaintiff is a holder in due course of said note and an assignee in writing of the conditional sales contract accompanying said note. On or about February 15, 1934, the automobile was repossessed for non-payment of the installment due on December 29, 1933. It is agreed that no credit was given the defendant for the value of the repossessed motor vehicle. It is also agreed that the balance due was $112.50 at the time of repossession; that there was a default in the payments due on December 29, 1933, and thereafter; and that

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this sum is claimed by the plaintiff with other charges in accordance with the provisions of the contract of conditional sales and note, put in evidence, annexed hereto, and made a part of this agreed statement of facts. It is agreed that the value of the car when repossessed was equal to the unpaid balance."

The plaintiff duly presented numerous requests for rulings, but now challenges the court's action only on such as are pertinent to two issues, (1) whether the provisions of the contract relating to liquidated damages constitute a penalty, and (2) whether the defence of a penalty, if it be established, is available against a holder in due course. In passing on the plaintiff's requests relating to the first issue the trial judge in effect ruled that the provision in the contract referring to liquidated damages constituted a "forfeiture" (penalty), and found for the defendant. The plaintiff claimed to be aggrieved by the failure of the judge to rule as requested and by the denial of its requests. The trial judge reported the case to the Appellate Division of the Municipal Court of the City of Boston. Upon hearing the Appellate Division entered the order: "Finding for the defendant vacated; Finding for the plaintiff in the sum of $112.50." The case is before this court on the appeal of the defendant from the final decision of the Appellate Division.

In the absence of special provision in the contract to the contrary, in this Commonwealth the general rules relating to the remedies of conditional sellers of personal property are as follows: (1) If a conditional vendor brings an action for the purchase price or for the entire balance unpaid of the purchase price, the same being due and payable, he thereby elects to treat the sale as absolute and he cannot afterwards repossess the article so sold. Whitney v. Abbott, 191 Mass. 59. Bailey v. Hervey, 135 Mass. 172. Frisch v. Wells, 200 Mass. 429. (2) If such a vendor repossesses the article he disaffirms the sale and is thereafter precluded from maintaining an action to recover the purchase price or any part of it remaining unpaid. Russell v. Martin, 232 Mass. 379. Schmidt v. Ackert, 231 Mass. 330. (3) The retaking of the property sold will not preclude the vendor from collecting

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by action any part or the whole of the purchase price unpaid and due if such action is consistent with the express or implied terms of the contract of sale, and the resulting hardship on the buyer, if such there be, cannot be urged as a defence to the enforcement of such a contract. Bedard v. C. S. Ransom, Inc. 241 Mass. 74; 25 Am. L. R. 1488. See now G. L. (Ter. Ed.) c. 255, § 13A, added by St. 1935, c. 348. These rules and the exception to them are not founded on public policy but arise out of the contract itself and they carry out the intent and purpose of the parties to the contract. Bailey v. Hervey, 135 Mass. 172. Russell v. Martin, 232 Mass. 379. Bedard v. C. S. Ransom, Inc. 241 Mass. 74. Viking Automatic Sprinkler Co. v. Teele Soap Manuf. Co. 286 Mass. 13. The parties to this contract had a right to agree to a course of conduct for the computation of damages if the course was legal and the result was not a penalty. The method agreed upon might be productive of profit or loss to one side or the other and not be illegal. The real issue involved is "a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach." 2 Williston on Contracts, § 784; § 777. It has been stated that the courts should not overrule , any clearly expressed intention, which is not clearly contrary to public policy, on the ground that judges know the business of the people better than the people know it themselves. In Guerin v. Stacy, 175 Mass. 595, at 597, Holmes, C.J. said: "There is no doubt that a sum which is to be paid upon the breach of a primary undertaking may be treated as a penalty in some cases, notwithstanding the fact that it is called liquidated damages in the contract... that so far as precedent permits the proper course is to enforce contracts according to their plain meaning and not to undertake to be wiser than the parties, and therefore that in general when parties say that a sum is payable as liquidated damages they will be taken to mean what they say and will be held to their word."

The instant contract contains numerous stipulations, in addition to the agreement to pay the purchase price, introduced

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to protect the vendor against contemplated contingencies, the damage from which would vary very much in importance according to when the breach occurred. They appear in the record and it is not necessary to particularize them. The contract expressly provides that notwithstanding repossession following a breach or default the entire unpaid balance may become due and payable as liquidated damages for the breach at the option of the vendor. The principle of liquidated damages has been applied to conditional sales contracts in this Commonwealth, to contracts similar in every essential respect to the case at bar in Bedard v. C. S. Ransom, Inc. 241 Mass. 74, 77, and reaffirmed in Viking Automatic Sprinkler Co. v. Teele Soap Manuf. Co. 286 Mass. 13. We think the agreement is not obnoxious to the objection that the provision for "liquidated damages" is a cover for the imposition of a penalty. It results that the order of the Appellate Division, "Finding for the defendant vacated; Finding for the plaintiff in the sum of $112.50", is

Affirmed.