Kuter v. State Bank

The opinion of the court was delivered by Porter, J.: The plaintiff sued to recover the sum of $2000 which he alleged the bank received of him to his use. The petition alleged a demand for repayment and the bank’s refusal to comply. The defendant answered with a general denial. The court gave judgment in plaintiff’s favor, from which defendant appeals. At the trial the plaintiff called one of the bank’s officers as a witness who testified that plaintiff left the $2000 with the *486 bank; that he was not indebted to the bank; and that he had demanded the return of the money. On cross-examination the witness stated that the deposit was made in accordance with the terms of a written contract which the defendant thereupon offered in evidence. The witness stated further that the bank had no claim or right to hold the money except as the contract provides. The plaintiff was also a witness and testified that the money was sent to the bank about December 1, 1912, and that the demand was made about December 28, 1912. On cross-examination he stated that the money was sent to the bank under the terms of the contract. No further testimony was offered by either side. The court overruled defendant’s demurrer to the evidence and gave judgment in favor of the plaintiff. The contract was dated November 29, 1912. By its terms plaintiff agreed with one Richards to exchange a farm, a gasoline engine and a feed-grinder for a stock of merchandise in Holton. The exchange was to be completed and the contract complied with on or before January 10, 1913. To set forth the entire contract would require almost five pages of this volume. It contains more words than would have been necessary for the consolidation of two railroads. It bound the parties to perform many things in connection with the exchange of properties, such as requiring plaintiff to furnish an abstract, Richards to take an invoice of the stock in a particular manner and assign the insurance; and divers and sundry other things of more or less importance were required of the parties. It provided that the contract should be placed in the bank and that each of the parties should deposit at the same time $2000, which sum should be the measure of damages suffered by either party by reason of the failure of the other fully to perform his part; and it expressly directed the bank, in the event of such failure, to pay to the other the $2000 deposited by the delinquent party. If the contract meant what it said, the failure of the plaintiff to pay the interest upon certain mortgages until the delivery of the deed, or his failure to furnish an abstract, or to deliver the gasoline engine, authorized the bank to pay his $2000 to Richards. If Richards purchased any new merchandise while the invoice was in progress, or failed to assign the insurance, or was delinquent in any one of a half- *487 dozen other matters mentioned in the contract, his $2000 was to be paid at once and forthwith to the plaintiff. The trial court correctly ruled that the $2000 deposited by the plaintiff is a penalty and not liquidated damages. (Condon v. Kemper, 47 Kan. 126, 27 Pac. 829; Land Co. v. Barton, 51 Kan. 554, 33 Pac. 317; Railroad Co. v. Gaba, 78 Kan. 432, 97 Pac. 435; Cunningham v. Hill 80 Kan. 706, 102 Pac. 1102; Evans v. Moseley, 84 Kan. 322, 114 Pac. 374; Benfield v. Croson, 90 Kan. 661, 136 Pac. 262.) The court further held that, in so far as it authorized the bank to pay the money to Richards, the contract is void and constitutes no defense to an action by plaintiff to recover the money. In this respect the court was in error. While the provision attempting or purporting to liquidate the damages is void, the contract is not void, and before plaintiff could recover from the bank it was incumbent upon him to show that Richards had no claim upon the bank for actual damages occasioned by plaintiff’s default. This might have been shown by evidence that the contract was fully performed on his part or that it had been mutually abandoned. The bank, by the terms of the contract under which it accepted the deposit, had the right to hold it so long as Richards had any claim upon it, for it was placed in the bank for his benefit as well as that of the plaintiff. The plaintiff could have joined Richards as a defendant and required him to set up any claim he had to the fund. In such case if Richards had made no defense the bank could have had none. In Condon v. Kemper, 47 Kan. 126, 27 Pac. 829, upon which plaintiff relies, the party injured by the breach of the contract was permitted to recover, in an action on the contract, $100, his actual damages, although the stipulation in the contract that the delinquent party should pay $500 was held void as a penalty. In this case the bank had the right to retain the whole sum as security for any damages Richards sustained by any default of the plaintiff. It would be liable to the plaintiff for any balance remaining in its hands; but until the plaintiff showed full performance or a release or abandonment of all claims to the fund by Richards, no action could be maintained by plaintiff to recover the -money. *488 “The distinction between a penalty and liquidated damages, briefly stated, has been said to be that the former is a security for, and the latter an amount to be paid in lieu of, the performance of the act to be done.” (19 A. & E. Encycl. of L. 396.) Richards has a right to look to this $2000 to reimburse him for any damage he has sustained on account of the plaintiff’s failure to comply with the contract. Until it is established that he was not damaged, or if he was, that such damage has been satisfied, the bank has a right to retain the money. On the other hand, when it is established that Richards has sustained no damage or that any he sustained has been satisfied the fund must be returned to the plaintiff. The trial court erred in refusing to sustain the demurrer to plaintiff’s evidence, and the judgment is reversed with directions to render judgment in defendant’s favor.