Nilson v. Jonesboro ( 1893 )

MansEieed, J.

The only question to be decided in this case is, whether the sum mentioned in the third clause of the contract should be treated as a penalty or as liquidated damages. Such questions are regarded as exceptionally vexatious, and the courts have not been guided to their solution by any rule applicable alike to all cases. Streeper v. Williams, 48 Pa. St. 450; Savannah, etc. Railroad Co. v. Callahan, 56 Ga. 331; Jaquith v. Hudson, 5 Mich. 123. The authorities, however, show that where the intention to liquidate the damages is not obvious, the stipulated sum will usually be given the effect of a penalty if it exceeds the measure of a just compensation and the actual damage sustained is capable of proof. 1 Sedg. Dam. sec. 406; 1 Suth. Dam. 491; Pennypacker v. Jones, 106 Pa. St. 243; Watts v. Camors, 115 U. S. 353, 360; 5 Am. & Eng. Enc. Law, 25; Bisp. Eq. 234; Glasscock v. Rosengrant, 55 Ark. 376. But where the contract is of such nature that the damage caused by its breach would be uncertain and difficult of proof, the sum named by the parties is generally held to be liquidated damages, if the form and language of the instrument are not unfavorable to that construction and the magnitude of the sum does not forbid it. Streeper v. Williams, 48 Pa. St. 450, 454; 1 Sedg. Dam. sec. 416; 1 Suth. Dam. 492, 504, 507, 508; Pierce v. Jung, 10 Wis. 30; Studabaker v. White, 31 Ind. 211; Lincoln v. Little Rock Granite Co. 56 Ark. 405; Texas, etc. Ry. v. Rust, 19 Fed. Rep. 239; Haldeman v. Jennings, 14 Ark. 331.

1. Agt0 damans?

The facts in the present case do not, -we think, invoke any principle of law not applied by this court in the case of Williams v. Green, 14 Ark. 316. There the parties had entered into an agreement in writing by which Williams bargained to Green a tract of land of the value of $1600, for which Green was to make payment by delivering to Williams a stock of goods and certain mules. The concluding clause of the agreement was as follows: ‘ ‘ In witness of the above trade, we hereby set our hands and seals, and, on forfeiture of complying with it, on the part of either Green or Williams, we hereby bind ourselves, our heirs, etc., in the sum of five hundred dollars to be well and truly paid. ’ ’ Green having failed to perform the agreement, it was held that Williams was entitled to recover the sum of five hundred dollars as stipulated damages. In delivering the opinion of the court, Chief Justice Watkins said: “It is true the parties have not used the term, stipulated or liquidated damages, expressive of a clear intention to negative the idea of a penalty; but, outlie other hand, the instrument has not the form of a penal bond, where the sum specified would exceed, being usually double, the amount of value of the subject to which the contract related ; and on the whole, we think these parties intended that the sum of five hundred dollars was to be paid by either party to the other, as an agreed compensation for such damages as would result from a refusal to comply with the trade. * * * * 'pjjg plaintiff could not be expected to show by evidence what profits he might have made by the re-sale of the goods and the mules, or what other losses he may halve sustained by so entire a disappointment in his contemplated arrangements.” In a previous part of the opinion it is said that “where the damages are at all uncertain or unliquidated, the parties ought to’ be allowed to anticipate and stipulate them if-they choose to do so.”

2. construetract0* °011"

The case of Streeper v. Williams, 48 Pa. St. 450, involved the construction of an agreement for the sale of a hotel at the price of $14,000, “of which $3000 was to be paid at a specified time, when a deed was to be signed ; part possession to be delivered immediately.” The clause of the contract out of which the controversy arose was as follows: “The parties to the above agreement doth severally agree to forfeit the sum' of $500, say five hundred dollars, in case either party fail to comply with the terms of this agreement.” The court construed the word “ forfeit” as meaning “to pay,” and held that the sum fixed by the clause quoted was intended as liquidated damages and not as a penalty. The jury in that case found that the actual damages sustained amounted to only $50. But the Supreme Court said, this did not ‘ ‘ explain away the intention gathered from the contract. ’ ’ The court, however, in determining that a liquidation of damages was intended, looked' not only to the languag-e of the agreement, but considered also its subject matter and the difficulty of measuring the actual loss which would be suffered from the breach of such a contract.

In City of Indianola v. Railway, 56 Texas, 594, the city had granted to the railway company the right of way through certain streets, and in consideration of this-the company had agreed to extend the road a certain distance beyond the city, and executed a bond in the sum of $50,000, as stipulated damages, conditioned for the faithful performance of their agreement. The company failed to perform the agreement, and in a suit on the bond it was held that the sum named therein was stipulated damages. As in the other cases cited, the decision did not turn alone on the language of the bond, but was equally controlled by the consideration that no accurate computation of the real damages could be made.

In the case at bar the appellee is a municipal corporation, and could not in its corporate capacity suffer any injury by a breach of the contract. If an actual loss was contemplated by the stipulation in question, it could only therefore have been such as would, result to the public. And as the parties must have known that it was wholly impracticable to measure this by any rule of damag'es, it is reasonable to suppose that they intended to fix by the terms of the contract the precise sum recoverable for its breach. Clark v. Barnard, 108 U. S. 436, 460. The stipulated sum is not so large as to be suggestive of an intention to make it a penalty, and no argument in favor of treating it as such can be drawn from the form or language of the instrument. The phrase, “forfeit and pay,” found in the third clause, when construed with all the other provisions of the contract, cannot be reasonably taken to have any other meaning than that, in the contingency there mentioned, the appellants would become liable to pay and should pay to the appellee the sum of five hundred dollars. The separate oblig'ation executed by the appellants with Davis as their surety was expressly required, by the eleventh sub-division of the contract, as a security for the performance of the condition embraced in the third clause; and the only act the third clause binds the appellants to perform is the payment of the sum it specifies on their failure to complete the first line of the proposed railway within one year from the date of the contract. Although the collateral obligation thus taken is somewhat in the form and phraseology of a penal bond, its only effect is to bind the obligors to pay the sum specified in the third clause of the original contract on the condition in that clause stated. It does not therefore aid the appellants’ contention.

But it is argued that as the damage sustained by the appellee is shown by the agreed statement of facts, the case was not one in which the uncertainty of the damages would probably move the parties to a stipulation of the sum to be paid. To this it may be answered : First, that if the damag'es referred to in the agreed statement consisted, as sugg-ested by counsel, of the expenses incident to the making- of the contract, they did not in fact result to the appellee from its breach. Secondly, it cannot, as already stated, be supposed that the contract contemplated a compensation for any actual damag-e to the appellee. And thirdly, conceding that it was subsequently ascertained that the damages were capable of assessment, that fact could not be allowed to alter the intention or change the legal effect of the stipulation. Pierce v. Jung, 10 Wis. 30; Streeper v. Williams, 48 Pa. St. 450.

We conclude that the judgment of the circuit court is right, and affirm it.