March v. Allabough

Mr. Justice Clabk

delivered the opinion of the court,

By the terms of the agreement dated June 20th 1877, George W. March sold to Benjamin V. Allabough, his store in Norristown, consisting of groceries, notions, &c., with all the fixtures and good will, at a valuation to be put thereon as provided in the contract, payments to be made as follows, viz.: $1,000 on the 4th July 1877, $1,000 in thirty days after possession given, and the balance in sixty days. The terms of sale, the manner of making a proper valuation, and the delivering of possession having first been fully provided for, the agreement contains the following clause :

“ And the said March hereby binds himself not to engage in or open a store doing the same kind of business in that part of Norristown, lying northwest of Stony Greek, or any where above, said Stony Creek being the line, under a penalty of one thousand dollars, and in case either party fail to comply with the terms and conditions of this agreement, he shall forfeit and pay to the other the sum of one thousand dollars. And the said March also further binds himself hereby not to let or lease the new store building which he is now about erecting on the opposite side of Marshall street, to any person or persons to carry on the same kind of business, viz.: that of groceries, notious, «feo., «fee., as are now kept at the store stand herein-before named at the west corner of said Marshall and Chain streets, under the same penalty of one thousand dollars, as above stated.”

Are the several sums of $1,000 in which the parties bound themselves, each to the other, in this clause of their contract, to be treated as penalties or as liquidated damages, respectively ? To avoid confusion of expression, we will first determine the inquiry as • to the “ penalty ” of $1,000, first mentioned in the agreement. This is a question of construction, and is to be determined by the intention of the parties, as that may be found in tlie language of the agreement itself, and in the subject matter out of which the agreement came. There has been some inconsistency or conflict in the decisions, on the question raised here, but the later cases in this court, when properly understood, we think, have to a great extent, reconciled these differences. It is true, that every such contract, as indeed almost any other contract, must stand for its construction upon its own peculiar facts, and the conflict in principle is oftentimes more in appearance merely than in reality.

It is competent for persons entering into an agreement, to avoid all future questions as to the amount of damages which may result from its violation, and to agree upon a definite sum, as that which shall be paid, to the party who alleges and establishes the violation, but such an agreement should either be plainly éxpressed in the writing, or exist by necessary implication fromthe true nature of the transaction. .Forfeitures are not favored in the law, and the intention of the parties should therefore somehow plainly appear in the contract, its subject-matter or its surroundings.

As stated by Chief J ustice Marshall in the case of Tayloe d. Sandiford, 7 Wheaton 13, “ In general a sum of money, in gross, to be paid for the non-performance of an agreement, is considered as a penalty. It will not, of course, be considered as liquidated damages. Much stronger is the inference in favor of its being a penalty, when it is expressly reserved as one. The parties themselves denominated it a penalty, and it would require very strong evidence to authorize the court to say that their own words do not express their own intention.”

In the case of Robeson v. Whitesides, 16 S. & R. 320, it was held that “ stipulated damages can only be, when there is a clear unequivocal agreement which stipulates for the payment of a certain sum as a liquidated satisfaction fixed and agreed upon between the parties for the doing or not doing certain acts particularly expressed in the agreement. The contract should be expressed, or it should be a necessary implication from the nature of the transaction itself. When, however, the non-performance can be compensated with money, of which a jury may judge it is most consonant to reason, and best comports with the understanding'of the parties, that the damages should be commensurate with the loss actually sustained.”

In Burr v. Todd, 5 Wright 212, where the bond in suit was a penal bond, conditioned for conveyance of certain titles, the court, Woodward, J., say : “ It is impossible to regard it as a liquidation of damages for' breach of condition.' There is nor a word to import an agreement of the parties to that effect. The reasons assigned in Robeson v. Whitesides, 16 S. & R. 320, for not treating a similar bond as an agreement for liquidation of damages, apply with all their force to this bond. The distinction between a penal bond and stipulated damages cannot be better stated than in that case.”

In Streeper v. Williams, 12 Wright 450, the court, Agnew, J., say : “ Upon the whole the only general observation we can make is, that in each case we must look at the language of the contract, the intention of the parties as gathered from all its provisions, the subject of the contract and its surroundings, the ease or difficulty of measuring the breach in damages, and the sum stipulated, and from the whole gather the view which good conscience and equity ought to take of the case.”

In the case of Shreve v. Brereton, 1 P. F. Smith 175, the parties bound themselves each to the other in $10,000, not as a penalty but as stipulated damages, and it was held that under the circumstances this sum was a penalty ; that where parties bind themselves in a specified sum, not as a penalty, but as stipulated damages, if by the whole agreement it appears that they did not intend the entire sum should be paid for any breach, however minute, it must be held as a penalty merely. In this case of Shreve v. Brereton, the court recognizes the rule laid down in Bagley v. Peddie, 5 Sandf. 192, that where the covenant is for the performance or omission of various acts, which are not measurable by any exact pecuniary standard, together with one or more acts, in respect of which, the damages on a breach' of the covenant are certain or readily ascertainable by a jury, and there is a sum stipulated as damages, to be paid by each party to the other, for a breach of any one of the covenants, such sum is held to be a. penalty merely, and not stipulated damages. The same rule is given in Sedgwick on Damages 493, and is repeated in the case of Gillis v. Hall, 2 Brewster 342.

From this reference to the recently adjudicated cases, in this state, therefore, we may safely conclude, that the question whether the amount stated in a conditional bond or contract is to be taken as a penalty or a liquidation of damages arising from a breach of the condition, 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 that in this examination we must consider the relation which the sum stipulated bears to the extent of the injury which may be caused by the several breaches provided against, the ease or difficulty of measuring a breach of damages, and such other matters as are legally or necessarily inherent in the transaction. The concurrent declarations of the parties are inadmissible,except to show mistake or fraud, and neither is here alleged. Evidence, extra the contract, may in some cases, therefore, be required to explain the subject matter and exhibit the surroundings, and in the investigation of the transaction in its various phases the testimony of witnesses may be admitted for other purposes affecting the inquiries already stated; the truth of the facts thus shown is for the jury, but their effect is for the court.

Nothing more than this was intended by this court in the case of Bigony v. Tyson, 25 P. F. Smith 157. That was an action of debt upon a bond given by Bigony to Tyson, dated 17th April 1861, in the sum of $1,000, conditioned that Bigony would '• never practice medicine within five miles of Skippackville, in which place he has this day deeded certain property to the said Andrew B. Tyson.” The consideration of the obligation was not stated in the writing, nor was there any other writing shown in evidence disclosing the consideration ; the bond was in the ordinary form, and the condition was in the words above stated ; the seal, of course, technically imported a consideration sufficient to enable the plaintiff to recover, but upon its face it was a penal bond, the sum stipulated was, prima facie, onty a penalty, and it therefore devolved upon the plaintiff to show actual damage, or that from the nature and circumstances of the transaction, the face of the obligation was to be treated as an adjudication. The plaintiff testified that he paid a full consideration, that he agreed to give, and did give the defendant $1,100 over what the property was worth, as a consideration for the bond ; this the defendant denied, and as the fact wras most material, it should have been submitted to the jury. The truth or falsity of the plaintiff’s- statement was for the jury ; if true, its effect was for the court. There was no fact found, except such as appeared upon the face of the bond; nothing was submitted, the' court instructed the jury that the sum designated in the bond was to be deemed and treated as liquidated damages, and not as a penalty. The court either usurped the function of the jury, by assuming the truth of the facts alleged by the plaintiff, or regarded them as immaterial. If it were true that Tyson paid a full consideration for the bond, a consideration equal to the amount expressed upon its face, it would certainly have justified the conclusion that the sum set down in the bond was an adjustment of the damages for its breach, but of this the court was not informed, and could only be informed through the instrumentality of the jury.

Thus the construction of an agreement is, in all cases, a matter of law for the court; the truth of the facts bearing, on that construction is for the jury, whilst the force and effect of those facts upon the construction, are for the court in their instruction to the jury.

In the case in hand, $1,000 is denominated a penalty, and it is provided that “ in case either party fails to comply with the terms and conditions of the agreement, he shall forfeit and pay to the other the sum of $1,000.” It is improbable that they meant to set up two penalties or forfeitures of the same or different character, for the same violation, therefore, we assume that the sum denominated “ a penalty of $1,000 ” and the $1,000 which “either party” is to forfeit and pay, are the same, and that the clause quoted was merely intended to apply the penalty to both parties to the agreement.

The terms of the agreement, on one side, required of Allahough the payment of the money only, on the other they required of March, delivery of the goods sold, and the performance of the covenants recited in the clause quoted at the opening of this opinion. It will be observed, therefore, that the damages for breach of the agreement by Allabough were necessarily certain and easily and readily ascertainable by calculation, and that the damages for breach of the sale and delivery of the goods by March were also capable of easy adjustment. And although the damages for violation by March, of that part of the agreement in which he bound himself not tc engage in, or open a store in Morristown, noith-west of Stony Creek, are altogether uncertain, are not susceptible of definite proof or capable of any easy adjustment, yet the facts are controlling, that the parties denominated the sum in the bond as a penalty, and that the stipulations of the agreement were various, to some of which the damages might be considered liquidated, and to others necessarily unliquidated, the stipulated sum being made payable on a breach of any of them.

The testimony as to the declaration of the parties prior to, and at the time of the execution of the bond, even if they had been admissible, established nothing more than appeared upon the face of the bond, but they were clearly inadmissible.

We are clearly of opinion that this sum of $1,000, under the evidence before the court, should have been held to be a penalty and not liquidated damages.

We are also well satisfied that the second sum of $1,000, under which March bound himself, not to lease the new store building, on the corner of Marshall and Chain streets, to any person carrying on the same business, was also a penalty. It was not only denominated as such, but March bound himself “under the samé penalty of $1,000.” The word, “same,” clearly refers to the previous sum which we have found to be a penalty merely. If, therefore, he binds himself with reference to the store room “ in the same penalty,” the latter sum must necessarily be taken as a penalty also.

This disposes of the question raised by the let, 2d, 6th and 8th specifications of error.

Owing to the views we have already expressed on other questions involved in the case, we regard the third specification as unimportant. In the 4th, 5th and 7th specifications we find no error.

Judgment reversed, and venire facias de novo awarded.