Stillwell v. Paepcke-Leicht Lumber Co.

McCulloch, J., (after stating the facts.) The court, in its instructions to the jury, treated the sum of $100 named in the contract and designated a forfeit as liquidated damages for nonperformance of the contract by appellee, and limited the damages of appellant to that amount. The contract provides that “in case the party of the first part shall fail in any part of the agreement as set forth in this contract, they shall forfeit the above $100, which shall at once become the property of the party of the second part, and they shall also forfeit all the rights under this contract, and quit and leave said land, and also leave all timber that has not been run.” Was 'this a provision for a penalty, or a stipulation for damages? If the former, it is not enforcible; but if the latter, it is enforcible, and both parties are concluded by it. This question is one generally somewhat difficult of solution, and there is no fixed rule by which all cases may be governed, as each case is established by its own particular facts. There are, however, some general rules well established by which a test may be applied. These are pointed out by Judge Mansfield in Nilson v. Jonesboro, 57 Ark. 168, and we refer to the tests therein laid down and the authorities cited in support of them. Usually the surest test of liquidated damages is where the actual damages caused by the breach would be uncertain and difficult of proof, and the sum stipulated appears to be reasonable compensation for the injury occasioned by the failure to perform the contract. The purpose in permitting such stipulation for damages as compensation is to render certain and definite that which appears to be uncertain and not easily susceptible of proof. But the damages so stipulated for must be such as to amount to compensation only, and not so excessive or unreasonable as to amount purely to a penalty, without being confined to the elements of fair compensation. 19 Am. & Eng. Enc. Law, p. 399; Jaquith v. Hudson, 5 Mich. 123; Willson v. Baltimore, 83 Md. 203; Gower v. Carter, 3 Iowa, 244; Monmouth Park Assn. v. Wallis Iron Works, 55 N. J. L. 132. The stipulation in the contract under consideration in this case is wholly lacking in the elements of certainty necessary to indicate an agreement for liquidated damages, and its uncertainty stamps it as a stipulation for a penalty. By its terms, the amount to be paid by the obligor in the event of his failure to perform the contract depended upon his ability and disposition to remove from the land the timber cut down before the expiration of the time allowed. If he removed all that he had cut, the other party would get nothing more than the $100 for his damage, though he may have failed in the greater part of his contract, whereas, on the other hand, by reason of some accident or misfortune, he might be unable to remove a large quantity of the timber cut down and hauled to the river, and thereby forfeit it, though he had performed the greater part of his contract. Eor these reasons, the stipulation was manifestly a penalty. This being true, no forfeiture, either of the timber in the river taken by appellant, or the $100, could be enforced, further than the actual damage sustained, 1 Sutherland on Dam. § 283; Glasscock v. Rosengrant, 55 Ark. 376; Watts v. Camors, 115 U. S. 353. Nor could the stipulation be. separated, and a part discarded as a penalty, and the remainder treated as liquidated damages. This being true, the court should have permitted proof as to the actual damage sustained by the appellant by reason of appellee’s failure to perform the contract in refusing or failing to take all the timber on the land if that be proved.' The measure of damages in that event would be the difference between the market value of the timber left standing on the land and the contract price at the time of the breach. The court erred in refusing to allow appellant to prove such actual damages, as well as in its instruction to the jury on that question. The appellant should also have been permitted to testify concerning the difference between the value of the logs converted, when floating in the water and when lodged in the sand, as such testimony tended to establish the value in the condition when converted. For the errors indicated the cause must be reversed, and remanded for a new trial, and it is so ordered.