Rabinowitz v. Apter

The plaintiff and defendant entered into a written agreement for the exchange of certain real estate on or before a named date. The plaintiff brought his action against the defendant alleging that he had been ready and willing to fulfil his part of the agreement, but the defendant had refused to fulfil his part of the agreement, and claiming that the defendant was liable for the damages specified in the agreement, which provided that "in case either party violate any of the terms herein he shall pay five hundred dollars liquidated damages and agent's commission."

With his answer the defendant filed a counterclaim alleging the making of the agreement, his readiness to perform, and the refusal of the plaintiff to perform, and claiming $500 damages, as provided in the agreement.

The trial court found the issues for the defendant and adjudged that he recover nominal damages assessed at $10.

Since the trial court found the plaintiff had broken the agreement while the defendant had been ready and willing to perform, the judgment for the defendant followed as a matter of course. The court held that in the absence of proof of actual damage the defendant was entitled to recover only nominal damages, and rendered judgment accordingly.

The plaintiff has not appealed, hence the validity of a judgment in favor of the defendant is not in issue. Upon the defendant's appeal the sole question is as to the amount of the judgment.

The agreement to pay $500 as liquidated damages determines it to be the intention of the parties to liquidate the damages in advance of breach. A provision "for the payment of a stipulated sum in the event of a breach of a contract will be regarded and enforced as one for liquidated damages," provided certain conditions exist, namely: (1) that the damages to be anticipated are uncertain in amount or difficult to prove; (2) that the parties intended to liquidate them in advance; and (3) that the amount stipulated is a reasonable one, that is, not greatly disproportionate to the presumable loss or injury. Banta v. Stamford Motor Co., 89 Conn. 51,55, 92 A. 665; Dean v. Connecticut Tobacco Corporation,88 Conn. 619, 92 A. 408; Schoolnick v. Gold,89 Conn. 110, 93 A. 124.

Under the agreement of exchange the plaintiff agreed to sell and convey to the defendant certain property subject to a first mortgage, and to a second mortgage payable in instalments accruing twice a year; and the defendant agreed to sell and convey to the plaintiff certain property subject to a first mortgage, and to give to him a third mortgage on the property he conveyed to defendant, payable in instalments accruing twice a year. The value of these properties is not found, but the amount of the incumbrances would indicate that the property to be conveyed by the plaintiff was worth upward of $14,000, while that of the defendant was worth upward of $2,200. In a transaction of this character, involving an exchange of properties of such values, the damages which might reasonably be anticipated from a breach of the contract might be difficult of proof, and uncertain in amount. It has not been found by the trial court that $500 is greatly disproportionate to the loss which might have resulted from a breach of the contract. Nor have facts been found from which this conclusion must necessarily follow as matter of law. So far as the finding goes the contrary appears. We cannot, in the absence of a finding that the sum stipulated is unreasonable, or of facts which make this conclusion the only permissible one, hold as matter of law the sum stipulated an unreasonable one. The test of unreasonableness is not by comparison between the actual damage suffered and the stipulated sum, but by comparison of the damage which might reasonably have followed a breach, with the sum stipulated. All of the conditions co-exist in this case which we have held requisite to make the stipulated sum a liquidated one and not a penalty.

The trial court erroneously held that the offer to perform after breach, and the absence of proof of actual damage, justified its judgment for nominal damages. The subsequent offer to perform had no relation to the damages which accrued upon the breach. The proof or nonproof of actual damage likewise had no relation to the damages recoverable. These were fixed at the time of the breach by the sum stipulated by the parties. Banta v. Stamford Motor Co., 89 Conn. 51, 56, 92 A. 665.

There is error, the cause is remanded with direction