Kunkel v. Wherry

Opinion by

Mb. Justice Fell,

The defendant was the contractor for the construction of a large ten-story building which he was required to complete in eleven months. By the terms of his contract with the owner he was to receive $100 for each day less than the time limit, and to pay $1,000 for each day that he should exceed it in the completion of the work. He entered into a contract with the plaintiffs for the stone and granite work. They agreed to furnish the materials and to finish the work to the top of the second story ready for the bricklayers in six weeks’ time after three stories of iron work had been erected, and bound themselves “ to pay the sum of $150 per day as a penalty for each and every day thereafter that the said work remains unfinished, as and for liquidated damages.”

The learned judge held that this stipulation should be regarded as a penalty, and not as liquidated damages, and that the defendant could set off against the plaintiffs’ claim such damages only as he proved to have been actually sustained by him because of the delay of the plaintiffs in completing the work.

The rule that in actions ex contractu, where the broach of an agreement admits of compensation, the recovery may be limited to the loss actually sustained, notwithstanding a stipulation for a penalty, is founded upon the principle that one party should not be allowed to profit by the default of the other, and that compensation and not forfeiture is the equitable rule. Equity will regard a penalty or forfeiture as intended to secure the fulfilment of a contract, and it may preclude the injured party from recovering more than a just compensation, or from obtaining a collateral advantage: Notes to Peachy v. Duke of Somerset, 2 Lead. Cas. Eq. 2044; Bispham’s Eq. 178. Whether a sum named as compensation for the breach of a contract is to be considered as a penalty to secure its fulfilment, from which equity will relieve, or as damages liquidated by the parties themselves, is a question which cannot be answered by the application of axxy general rule. The question is always one of construction, and any rule upon the subject is a mere guide to the intention of the parties. The grounds on which each case is to be considered and determined are clearly stated by our Brother Mitchell in Keck v. Bieber, 148 Pa. 645: “ The general principle upon which the law awards damages is compensation for the loss suffered. The amount may be fixed by the parties in advance, but where a lump sum is named by them, the court will always look into the question whether this is really liquidated damages or only a penalty, the presumption being that it is the latter. The name by which it is called is of but slight weight, the controlling elements being the intent of the parties and the special circumstances of the case.” And he quotes with approval March v. Allabough, 103 Pa. 335: “The question .... is to be determined by the intention of the parties drawn from the words of the whole contract, examined in the light of its subject-matter and its surroundings; and in this examination we must consider the relation which the sum stipulated bears to the injury which may be caused by the several breaches provided against, the ease or difficulty of measuring a breach in damages and such other matters as are legally or necessarily inherent in the transaction.”

From the nature of this case the actual damages which would result from a breach of the contract would not readily be susceptible of ascertainment, and it seems to us that it was the manifest intention of the parties not to leave them to the uncertain estimate of a jury, but to fix them by express agreement. “ Uncertainty as to the extent of the injuries which may ensue,” was said in Powell v. Burroughs, 54 Pa. 329, and Wolf Creek Co. v. Schultz, 71 Pa. 180, “to be a criterion by which to determine whether it is a case of liquidated damages or a penalty.” The damages named were for the breach of a single stipulation, and were not disproportionate to the loss which would probably result to the defendant from the failure of the plaintiffs to complete their work in time.

The fifth and seventh assignments of error are sustained, and the judgment is reversed with a venire facias de novo.