Shields v. Early

Appellant, Mrs. Ollie Shields, sued appellee, W. R. Early, in the circuit court of Sunflower county for damages claimed to have been suffered by appellant on account of an alleged breach of contract for the sale of land by appellant to appellee. The contract in question was in writing and was exhibited with the declaration. The appellee demurred to appellant's declaration, assigning several causes. The court sustained the demurrer and appellant declining to amend her declaration final judgment was entered dismissing the suit, from which appellant prosecutes this appeal.

The contract which is the foundation of this suit is in this language:

"This contract, made and entered into by and between Mrs. Ollie Shields, party of the first part, and W. R. Early, party of the second part, witnesseth: That for and in consideration of the sum of two hundred fifty dollars to the party of the first part this day paid, the receipt whereof is hereby acknowledged, the party of the first part hereby agrees to sell and convey by warranty deed to the party of the second part, the following described land situated in Sunflower county, Miss., to-wit: All of section 5, township 17, range 5 west, containing 637.84 acres, together with the buildings and improvements thereupon situated, and the appurtenances thereunto belonging, except the merchantable timber on said land, all of which is reserved to the party of the first part, and none of which is to be conveyed to the said W. R. Early, provided, however, that the party of the first part agrees to remove said timber by August 1st, 1920, the price to be paid for said land shall be thirty-five dollars and fifty cents per acre, or a total of twenty thousand seven hundred twenty-nine dollars and eighty cents, the same to be paid as follows: One-fourth of the purchase price to be paid in cash, upon the delivery of the deed; one-fourth to be paid twelve months after the first payment is made; one-fourth to be paid twenty-four months after the first payment is made; and one-fourth to be paid thirty-six months after the first payment is made, all of said payments except the first to be represented by promissory notes, payable to party of the first part, and bearing six per cent. interest from their dates.

"It is understood that there is a lien upon said land held by M. Tonkel, which lien shall be canceled before the delivery of the deed or the payment of any part of the purchase money. It is further agreed that the lien held by H. C. Newman shall be paid also, but in case the notes held by them shall become due and payable before the sale of this land is consummated under the terms of this contract, that the said W. R. Early will take said notes up and carry them for the party of the first part, until the sale of the above-described land is completed between them, but not later than January 1, 1920, then the amount so taken up by the said Early shall be applied as a part of the first or cash payment on said land. The possession of the property is to be delivered to the party of the second part, upon the delivery of the deed to him, and the party of the second part is to pay the taxes on said land for the year in which the deed is delivered, provided the same shall be delivered prior to July 1^st.

"It is agreed and understood that the two hundred fifty dollars cash payment, above referred to, is to be considered a part of the purchase price of the said land, and deducted therefrom provided the party of the second part shall carry out the provisions of this contract; otherwise, it shall be considered as liquidated damages accruing to the party of the first part. It is agreed that the party of the first part shall furnish to the party of the second part, an abstract of title to said land, showing the good merchantable title thereto free from encumbrances, except as may be assumed by party of the first part."

Appellant averred in her declaration a compliance on her part with the contract according to its terms, and failure and refusal on the part of appellee to perform. The view taken by the court renders it necessary to notice only one of the grounds of demurrer, the fourth, which is in this language:

"A cash payment of two hundred fifty dollars was made, which it was agreed between the parties to said contract, should be considered as, and was, liquidated damages to accrue to the plaintiff, should the said contract be breached by the defendant, and there is, and could be, no further liability on the part of said defendant."

The question is whether the stipulation in this contract for the surrender by the appellee of the cash payment on the purchase price of the land of two hundred fifty dollars in case the appellee should breach the contract provides for a penalty or liquidated damages.

If it was a penalty to insure the performance of the contract by appellee, and was not intended as compensation to appellant for any damages she might suffer on account of a breach of said contract by appellee, then appellant is not barred from recovering the damages she may have suffered on account of such breach. On the other hand, if the said sum is to be treated as liquidated damages intended by the parties to compensate appellant for any breach of said contract by appellee, then appellant has no cause of action, because she has already received, by retaining said cash payment of two hundred fifty dollars, compensation for any damage she has suffered. It should be borne in mind in considering this question that a penalty imposed by the terms of a contract on the party committing a breach thereof is not enforceable either in equity or at law. A penalty is provided for, for the purpose of terrorizing a party to a contract into complying with its terms. The English courts and the courts of this country have generally held that such penalties are unenforceable. There is an interesting discussion of the origin and history of the development of this principle by the English and American courts in 2 Williston on Contracts, chapter 25, sections 773 to 776, inclusive. An example of the enforcement of the principle will be found in Coker v. Brevard, 90 Miss. 64, 43 So. 177.

The main difficulty attending a decision of this question is that many of the courts have given very little weight to the agreement of the parties to the contract with reference to whether the sum of money to be received or retained by one party as the result of the breach of the contract by the other was intended as a penalty or liquidated damages. In fact, they seem to have given very little weight to the language of the agreement with respect to that. The fact that the parties to a contract used the words therein "penalty" or "liquidated damages" mayprima facie be supposed to mean what they say, yet the expression used is not conclusive. The court should ascertain whether the payment stipulated was in truth a penalty or liquidated damages. The courts lean in favor of an interpretation that such a stipulation is a penalty. The essence of a penalty is a payment of money stipulated as interrorem of the party breaching the contract; while the essence of liquidated damages "is a genuine covenanted pre-estimate of damages." Whether a sum stipulated is a penalty or liquidated damages is a question of construction "to be decided upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract, not as at the time of the breach." Various tests are used to assist in the construction of the contract. The stipulation will be held to be a penalty if the sum agreed on is extravagant and unconscionable in amount in comparison with the greatest loss that could reasonably follow the breach. If the cash payment or deposit is made in part performance of the contract, it will generally be regarded as liquidated damages if not excessive provided the actual damages are uncertain or difficult of computation. Williston on Contracts, vol. 2, sections 783 and 784; 8 R.C.L., p. 576, section 125; Wilson v.Mayor, 83 Md. 203, 34 Atl. 774, 55 Am. St. Rep. 339; Bright v.Rowland, 3 How. 398; Jones v. Miss. Farms Co., 116 Miss. 295,76 So. 888. The tendency of the modern decisions is toward construing the contract as written.

It was held in Jones v. Miss. Farms Co., 116 Miss. 295, 76 So. 880, that in construing a contract to determine whether a clause calls for liquidated damages or a penalty the intention of the parties is the thing the court is anxious to ascertain and give effect to, and that such intention must be drawn from the words of the whole contract, and if viewing the language used it appears clear and explicit the contract should be construed as written unless it contravenes some public policy; that if the contract is doubtful the court will look to the surroundings of the parties and the construction placed upon the contract by the parties during its existence in order to ascertain their intention; that in considering whether the sum stipulated for was intended as liquidated damages, if such sum is not out of proportion to the damages that might probably result from a violation of the contract it will be treated as liquidated damages; that 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. Applying these principles to the case at bar, we are of opinion that the cash payment of two hundred fifty dollars in this case was intended not as a penalty but as liquidated damages. In the very nature of the transaction the damages resulting from a breach of this contract are so uncertain and difficult of computation that the parties must have intended the two hundred fifty dollars in question here as compensation to the appellant in the event of a breach of the contract by appellee. The contract simply so stipulates in so many words. We do not think this is a case where the parties have said one thing in their-contract, and the court would be justified in holding that they meant another and a different thing.

Affirmed.