Schoolnick v. Gold

The considerations to be observed, and tests to be applied, in determining whether the provision in this contract touching the $2,000 payment should be regarded and enforced as one for liquidated damages, or treated as a nonenforceable penalty, have been under review in two recent cases. Dean v.Connecticut Tobacco Corporation, 88 Conn. 619,92 A. 408; Banta v. Stamford Motor Co., 89 Conn. 51,92 A. 665. In these cases the subject was so fully discussed, and our conclusions so fully stated, that it is unnecessary to repeat what was then said in affirming and elaborating previous utterances of this court, beyond recalling the governing principles laid down. In the case last named, we stated the law, as established by repeated decisions, to be that a provision in a contract for the payment of a stipulated sum will be regarded and enforced, in the event of its breach, as one for liquidated damages, when three conditions co-exist, to wit: (1) that the damages to be anticipated as resulting from the breach are uncertain in amount or difficult to prove; (2) that there was an intent on the part of the parties to liquidate them in advance; and (3) that the amount stipulated was a reasonable one, that is to say, not greatly disproportionate to the presumable loss or injury. Banta v. Stamford Motor Co.,89 Conn. 51, 92 A. 665.

In the present case the first of these conditions was satisfied in a pre-eminent degree. It would be difficult to conceive of a situation which would present greater uncertainty and difficulty, in the way of both the ascertainment of the extent of the damage resulting from a breach of contract and of its measurement in dollars and cents, than that covered by this agreement.

The parties expressed their intention to liquidate the anticipated damage too distinctly to leave a doubt upon that subject.

Was the amount agreed upon unreasonable? The trial court held that it was. But it is manifest, upon reference to that part of the finding which states the court's conclusions, that it misconceived the nature of the tests to be applied. It there appears that the question of the reasonableness of the stipulated sum was passed upon in its relation to damages actually suffered and shown, and that, even in that view, the court confined its consideration to the four months already elapsed of the five-year period, unmindful that the stipulated sum had its basis in an agreement for such a period of noncompetition.

In Banta v. Stamford Motor Co., 89 Conn. 51,92 A. 665, we said that the standard of measurement in these cases is not furnished by the plaintiff's actual loss or injury as the event may prove, but by the loss or injury which might be reasonably anticipated at the time the contract is made, or, in other words, the "presumable loss"; and added that it is the look forward and not backward that the courts are called upon to take in such cases, and that a party, in order to support the validity of such stipulation, is under no obligation to show actual damage suffered substantially commensurate with the amount fixed. In determining whether or not the agreed amount is a reasonable one, the court is to put itself in the place of the parties at the time of the execution of the agreement and, looking forward, attempt to discover what loss they might reasonably have anticipated in view of the conditions presented.

Making application of this principle to the agreement before us, we find that the purchase and sale of the business was made upon the basis of one from which the weekly receipts were at least $200. That means annual gross sales of $10,000, or $50,000 for five years, if the business should not be increased. The plaintiff was looking forward to five years of this business free from the defendant's competition, and the defendant was encouraging him to do so. It was no mean business, and a damage of approximately $400 a year to it, and to its increase from the defendant's competition in its neighborhood, might well be anticipated.

It is true, as the trial court observed, that the amount paid for the business was not large, and doubtless the value of the stock and fixtures did not amount to any considerable figure. Its truer measure, however, is to be found in the volume of its receipts. That which the plaintiff was protecting himself against, and which the defendant covenanted to protect him against, was the defendant's competition with the productive business purchased, with its possibilities of continuance, growth and expansion. The agreement looked to a freedom from that competition for a period of five years. It certainly cannot fairly be said that the parties might not reasonably have measured the value of that protection, and the presumable loss from its withdrawal, at the figure incorporated in the instrument of sale.

Where contracts not to engage in some particular business or profession in a particular locality have provided for the payment of a stipulated sum in case of breach, the courts have generally construed them as liquidated damages, and have taken the contrary position only where it was manifest either that the stipulated sum was unreasonable, or that the parties had intended to fix a penalty. Holbrook v. Tobey,66 Me. 410, 413; Barry v. Harris, 49 Vt. 392, 399; Jaquith v. Hudson, 5 Mich. 123, 140; Stafford v. Shortreed,62 Iowa 524, 526, 17 N.W. 756; 1 Sutherland on Damages (3d Ed.) § 290; 1 Sedgwick on Damages (9th Ed.) § 418.

This disposition to leave the matter, under such conditions, to the decision and agreement of the parties, save in instances of clear abuse, finds its logical justification in the well-nigh insurmountable difficulties in the way of estimating in advance, or of ascertaining afterward, the damages to be suffered or suffered by reason of a breach. These difficulties inhere in the situation created by such breaches, and render it impracticable, on the one hand, to determine in the ordinary case what a reasonable advance arrangement would be, and, on the other, to do justice to the parties apart from such arrangement. The chief significance of these cases, in so far as the one at bar is concerned, lies in their lesson of extreme caution in holding unreasonable a provision in which the parties have undertaken to fix in advance the damages recoverable in case of breach of a covenant not to engage in competitive business or professional activity, without something more definite and decisive to act upon than here appears.

The defendant voluntarily entered into the agreement. He speedily broke it, and thereby destroyed the purchaser's prospects held out in the terms of sale. He is not in a position to command sympathy, and we fail to discover a substantial foundation for his plea that he be relieved from the obligation he in terms took upon himself, upon the ground of its unreasonableness.

There is error, the judgment is set aside and the cause remanded for the rendition of a judgment for the plaintiff in the sum of $2,000.

In this opinion the other judges concurred.