Westbay v. Terry

Wood, J. (after stating -the facts.) The only issue in the case is whether or not the amount specified in the contract for which the note was executed was intended by the parties to the contract as a penalty or as liquidated damages. In the early case of Williams v. Green, 14 Ark. 315, this court treated the subject under -consideration most exhaustively. We could not hope to elucidate the question more thoroughly than has been done by Chief Justice Watkins in that case. Among, other things he said: “Where the damages are at -all uncertain o.r unliquidated, the parties ought to be allowed to -anticipate and stipulate them if they chose to do so. Whenever courts attempt to make a distinction among contracts of this class, where no uniform or intelligible rule can be laid down to govern the distinction, they not only assume a most vexatious jurisdiction to reform the contracts of -weak or sanguine men, but it tends to impair the confidence which all men ought to have in the obligation of contracts.” “The truth is,” says the court, through Judge Watkins, “the real object -of -every stipulation for consequential damages is to secure the performance of the contract, itself, and, but for the confusion of terms, it would be proper to say that covenants to pay a certain .amount of damages for breach of any undertaking .have, to the extent that they are allowable, taken the place of penalties.” The fact that the contract stipulated that “each binds himself to the other in the penal sum of one hundred dollars” can not determine that the sum was intended as a penalty. The fact that it is called a “penal sum” does not malee it so in legal contemplation. The fluctuations in the market values of lands, and the contingencies likely to arise in almost every negotiation concerning real estate, which might cause or hinder the sale thereof, render the question of the damages caused by a failure to perform a contract for the exchange of same so indeterminable and uncertain as to be a proper subject for the parties in advance to liquidate by contract. The note, in this case, assuming that the parties are solvent, is analogous to a deposit of money for the faithful performance of the contract. It was signed by Gazzola as security. Where there is a deposit of' money in pursuance of a stipulation in a contract that the amount so deposited shall be retained by the party who is not in default, such a provision and arrangement is generally construed to be a liquidation of damages. Lea v. Whitaker, L. R. 8 C. P. 70, 21 W. R. 230; Wallis v. Smith, L. R. 21 Ch. Div. 243; 19 Enc. Law (2nd Ed.) 413. But this doctrine does not apply where a sum of money is deposited or stipulated to be .paid ih the event of failure to pay a smaller sum contracted to be paid. In such cases the inflexible rule is to treat the sum deposited, or stipulated to be paid, in case of failure to pay the lesser sum, as a penalty. Haldeman v. Jennings, 14 Ark. 330. Applying the principles announced in Williams v. Green, supra, and other cases, we are of the opinion that the court correctly construed the contract concerning the subject-matter of the controversy, and did not err in its ruling upon the instructions. See Lincoln v. Little Rock Granite Co., 56 Ark. 405; Wilson v. Jonesboro, 57 Ark. 169; Stillwell v. Paepcke-Leicht Lumber Co., 73 Ark. 432. Judgment affirmed.