Jackson v. Baker

2 Edw. Ch. 471 | New York Court of Chancery | 1835

The Vice-Chancellor:

The great point in this cause Is, whether the five thousand dollars, stipulated to be paid for any violation of the agreement, is in the nature of a penalty or to be understood as liquidated damages 1 The words are “ for any violation of this agreement or any part thereof, the parties hereby mutually agree to forfeit and pay to each other the sum of firm thousand dollars as liquidated damages, to be paid by the party who shall violate this agreement or any part thereof to the Other party.”

If this be a penalty introduced only for the purpose of securing a performance of the covenants, then all that either party can recover for a non-performance or breach is the actual damage sustained, and this would be the result in a court of law as well as here. But if it enter into and form a part of the contract to pay so much money as a fixed and ascertained amount for any violation of the articles of agreement, then neither this court nor a court of law can have any right to interfere with it.

It is to be observed, that the contract provides for the performance of a number of things on both sides—some of greater and others of less importance—and the non-performance of any one act within the time specified would be, in terms, a violation of the agreement and subject the delinquent party to the payment of the whole sum of five thousand dollars damages. There might be a trifling omission producing no actual injury or inconvenience: and yet the same consequence would follow as if the loss or damage were sustained to thousands of dollars. In such cases the rule appears to be established, to consider the sum, stated to be paid upon a breach, as a penalty; but where it is agreed that if the party fail to perform a particular thing, then such a sum shall be paid by him, having reference to the particular act, the non-performance of which is thus to be compensated for, there the sum stated will be treated as the amount of damages already liquidated. This principle was laid down by Heath J. in Astley v. Weldon, 2 Bos. & P. 346, when Lord Eldon presided in the Common Pleas ; and it has been approved and acted upon repeatedly since.

In Kemble v. Farron, 6 Bing. 141, the words used in the agreement were as precise and explicit as they could be to show, not only affirmatively that the sum of one thousand pounds should be taken as liquidated damages, but negatively also that it should not be considered a penalty or in the nature thereof—and yet, upon the principle above stated, on the authority of Astley v. Weldon, Ch. J. Tindal held, and it was the unanimous opinion of the court, that as the agreement contained various stipulations of various degrees of importance and the clause fixing the sum was general and applied to the whole, it must be considered in the nature of a penalty and could not be deemed liquidated damages, unless the agreement had specified the particular stipulations to which the sum fixed upon as damages was to' apply. In Lowe v. Peers, 4 Burr. 2225; Reilly v. Jones, 1 Bingh. 302; Barton v. Glover, Holt’s N. P. Cas. 43; Farrant v. Olmius, 3 Barn. & Ald. 692, and Crisdee v. Bolton, 3 Carr. & P. 240, the contracts had either one specific object or the agreements for liquidated damages were all confined to some specific breach. In Davis v. Penton, 6 Barn. & Cress. 216, the agreement was for the sale of a good will of a business, with a variety of special provisions inserted in the agreement, and then this clause “ and for the true performance, each party binds himself to the other in the penal sum of five hundred pounds to be recovered for any breach of the agreement in any court or courts of law as and by way of liquidated damages.” Here, the court said, it could not be both penalty and liquidated damages ; and Bayley J. observed : “ we must look at all parts of the instrument, in order to ascertain whether it was the intention of the parties that the five hundred pounds should be a penalty or liquidated damages.” Now, where the sum which is to be the security for the performance of an agreement to do :everal acts will, in cases of breach of the agreement be, in some instances, too large and in others too small a compensation for the injury thereby occasioned, the sum is to be considered a penalty. Holroyd J. expresses himself to the same effect ¡ and Mr. Justice Littledale remarks : “ Since the statute 8 and 9 Will. 3, parties, in framing agreements, have frequently changed the word penalty for liquidated damages, but the mere alteration of the term cannot alter the nature of the thing ; and if the court see, upon the whole agreement, that the parties intended the sum to be a penalty, they ought not to allow one party to deprive the other of the benefit to be derived from the statute.”

These are the principles upon which the English Common Law Courts have dealt with this question; and it is quite apparent that the inclination there is in favor of construing a sum specified to be paid upon any breach of the contract rather as mere form than conventional. A note from the pen of the reporter, in 5 Cowen, 150, contains some very valuable hints on this subject, corresponding, in principle, with the views which the judges in England have since taken in several of the cases above referred to; and in addition to all this, I think the case of Dennis v. Cummins, 3 J. Ca. 297, from its analogy, is an authority for considering the present a case of a penalty. There, the covenant was that in case either party failed to fulfil the agreement, the party failing to perform should forfeit and pay to the other the sum of two thousand dollars as damages ; and the Supreme Court, judging from the whole instrument and the nature of the transaction, construed the sum to be a penalty and nothing more. Here, the like words were used—“ forfeit and pay ” so much; and whether as “ damages ” or as “ liquidated damages ” can make little or no difference in the meaning and certainly not enough to justify an entirely different legal construction of the expressions.

Some reliance is placed upon the evidence, which it is said the defendant’s answer furnishes, of the parties mutual understanding at the time of reducing their agreement to writing, namely, that the sum inserted was not a mere penalty, but an amount actually agreed to be paid as damages in case of any breach of the agreement. The answer gives the conversation which took place at the time ; and the suggestion, to insert something by way of damages for breach of the agreement, appears to have come from the person employed to write it and while he was in the act of doing so—and there is nothing to show that the parties had previously, in their negociation or in settling the terms of the contract, thought of the matter. The answer states, that when it was asked if there were to be any damages for violating the agreement, each party replied “ yes and on again enquiring what amount should be inserted, the defendant said “ three, four or five thousand dollars,” and the complainant said, “ yes, five or ten thousand dollars—any sum Mr. Baker is willing I agree to—I am willing to pay any amount if I don’t fulfil it on my part and Mr. Baker must do so on his part”—and then the writer put in the sum of five thousand dollars. This, to my mind, does not look much like liquidated damages—or adjusting or settling an amount of damages, when it was a matter of perfect indifference to the parties whether the sum should be three thousand or ten thousand dollars; and, however it may appear in words, it comports much better with the manner in which that clause happened to be inserted in the agreement to give to it the character of mere form than of absolute substance. There is, besides, some testimony to show that the parties had not any very distinct idea beyond that of its being a penalty, for they spoke of it afterwards as a penalty which the complainant was under to get up the outstanding mortgage which had been given by the defendant. I think it is to be considered in no other light.

The next question then is, whether the complainant is entitled to any and what relief in this court ? In the suit at law, which this bill was filed to restrain, the question of penalty or liquidated damages could as well be determined there ; and in suits for penalties, courts of law permit plaintiffs to recover no more than their actual damage. Still, the complainant, being sued at law, had a right to resort to this court for an injunction and for relief against the penalty; and this court having jurisdiction, can, where it is necessary, ascertain the damages by7 an issue of quantum damnificatus: Sloman v. Walter, 1 Bro. C. C. 418, or can ascertain the damages by reference to a master. At most, the damages would seem to be merely nominal—no other breach of the contract is alleged than the mere delay (until about the first of September) in taking up the bond and mortgage which the defendant had given and which the complainant had assumed to pay and discharge by the first day of June preceding, and from which delay the defendant sustained no perceivable actual injury or inconvenience. I consider' the defendant was clearly wrong in taking the ground, as declared by his attorney, that he meant to exact every cent of that five thousand dollars as damages and by refusing to discontinue the suit at law on tender of his costs. The complainant appears to have been willing also to pay any damages which the defendant or his attorney could point out he had sustained. Hence, I am of opinion this controversy should not have been prolonged.

If the defendant desire it, I will direct a reference to give him an opportunity of proving the damages, if any, which he has actually sustained; and all further directions can then be reserved until the master’s report comes in: but further proceedings will probably be at the peril of costs against the defendant. If he now chooses to waive his pretension to damages, I shall at once decree a perpetual injunction against any further proceedings at law for breach of the covenant; and leave each party to bear his own costs.