Wilhelm v. Eaves

BeaN, J. The decision of the question, as to whether a given sum provided in a contract to be paid on a breach thereof shall be considered as liquidated damages or a penalty, is often inherently difficult, and there is much apparent conflict in the adjudged cases. The words liquidated damages are not at all conclusive as to the character of the stipulation. Compensation for breach of a contract is always desirable, and the courts are not bound by the language used by the parties, and if the construction is at all doubtful, the tendency of the courts is in favor of the interpretation which makes the sum a penalty. (Cushing v. Drew, 97 Mass. 445.) While it is usually said that the intention of the parties, as gathered from the subject matter of the contract, the language used and surrounding circumstances, are to govern in cases of this kind, “such intention,” says Mr. Sutherland, “under the artificial rules that have been adopted, is determined by very latitudinary construction. To be potential and controlling that a stated sum is liquidated damages, that sum must be fixed as the basis of compensation, and substantially limited to it; for just compensation is recognized as the universal measure of damages not punitory. Parties may liquidate the amount by previous agreement; but where a stipulated sum is evidently not based on that principle, the intention to liquidate damages will either be found not to exist or will be disregarded, and the stated sum treated as a penalty.” (1 Suth. Dam. 480.) In Jacquith v. Hudson, 5 Mich. 133, ChkistiaNCY, J.,says: “The law, following the dictates of equity and natural [200] justice in cases of this kind, adopts the principle of just compensation for the loss or injury actually sustained, considering if no greater violation of this principle to confine the injured party to the recovery of less than to enable him by the aid of a court to extort more. * * * This principle of natural justice, the courts of law, following courts of equity, have, in this class of cases, adopted as the law of the contract; and they will not permit the parties by express stipulation or any form of language, however clear the intent, to set it aside.” From the confused array of individual cases upon this question, there may be deduced certain general rules that are recognized and enforced by the courts, and the apparent conflict in-the cases arises rather from the application of these rules to the facts of the individual case than in the principles themselves. One of these rules is, that when .a contract, specifying one certain sum as liquidated damages, contains various stipulations of different degrees of importance, and the damages from a breach of some of which would be easily ascertainable, though the remainder might belong to that class which justifies such arrangement as to damages, and by the terms of the contract such sum would be payable equally on the failure to perform the least as of that to perform the most important, or equally on the failure to perform that one, the damage from the violation of which would be easily ascertainable, as to that from the breach of whieh the loss would be difficult of ascertainment, the stipulated sum will be regarded as a penalty, and not liquidated damages, though the language of the parties be the strongest which could be employed to evince a contrary intent. (Kemble v. Farren, 6 Bing. *141; Carter v. Strom, 41 Minn. 522; Lampman v. Cochran, 16 N. Y. 275; Dailey v. Litchfield, 10 Mich. 29; Cheddick v. Marsh, 1 Zab. 463; Trower v. Elder, 77 Ill. 452; Lyman v. Babcock, 40 Wis. 503; Niver v. Rossman, 18 Barb. 50; 3 Parsons on Contracts, 161; 2 Pom. Eq. § 443; 1 Sutherland on Damages, 521; 19 Cent. L. J. 282.) [201] This rule is decisive of this case. The contract provides in effect that in default of any of the covenants, promises or agreements contained therein, the sum of two hundred dollars shall be paid by the failing party to the other. If, then, this be regarded as liquidated damages, that precise sum would be recoverable for the breach of any of the covenants however unimportant or however easily the damages for a breach thereof could be ascertained; such as the failure by defendants to pay the fifty or one hundred dollars per month as agreed upon, or of the plaintiff to keep the market clean and in a wholesome sanitary condition, or to keep it open during the stipulated hours, or not to observe the prohibition against contracting bills, ordering labor performed, or collecting money, or any other of the numerous stipulations on his part to be performed, even though the damages for such breach might be no more than a very small fraction of the stipulated damages. The contract when analyzed contains some sixteen different stipulations of varying degrees of importance, the damages for a breach of some of which would be easily ascertainable, and yet it is provided that two hundred dollars shall be paid as stipulated damages for a breach of any of them, even the most unimportant. It is not to be supposed the parties intended their agreement to have any such effect; and following the above well-established rule in such cases, the stipulated sum must be construed as a penalty, and the judgment of the court below reversed and a new trial ordered.