76 Ind. App. 526 | Ind. Ct. App. | 1921
Complaint by appellee in two paragraphs for damages by reason of an alleged breach of a contract for the sale and exchange of certain real estate. Appellee in each paragraph of complaint seeks to recover as liquidated damages the amount named in the contract. Neither paragraph can be construed as a complaint for actual damages.
Both paragraphs are in substance the same, and allege that the parties entered into a contract whereby appellant agreed to sell and convey a 120-acre farm to appellee for $13,200, appellant to accept a certain lot in Hartford City in lieu of $1,200 cash, the remaining $12,000 to be paid in cash on or before February 1, ■1918, with the provision that appellee might postpone the cash payment not later than March 1, by giving a good bankable note. The conveyance of said lot was to be considered as an advance payment on the farm and if appellee failed or refused to carry out the terms of the contract, said lot was to be forfeited to appellant as liquidated damages, and appellant agreed to forfeit $1,200 in cash, to appellee as liquidated damages for failure to carry out his part of this contract. It also alleged that appellee made the first payment according to the terms of the contract by delivering a deed to appellant for said lot, and when the last payment was due he tendered appellant a good bankable note for
From a judgment in favor of appellee for $1,200 appellant appeals, and insists that the court erred in overruling his demurrer to each paragraph of the complaint, on the ground that the provision in the contract relative to damages on account of failure to carry out the contract must be considered as a penalty and not as liquidated damages. In this contention appellant says: That the word “forfeit” as employed implies a penalty; that the words “liquidated damages” must yield to the word forfeit; and that arbitrarily fixing damages by contract in advance of an injury actually sustained, where the subject-matter is such that if injury should follow, the damages would not be uncertain nor difficult of proof, runs counter to the justice of the law, and in order to work out justice in this class of cases each contract will be construed, if possible, as calling for a penalty. As said in Walker, Adrar., v. Bement (1911), 50 Ind. App. 645, 94 N. E. 339, “It is not always easy to distinquish between a penalty and liquidated damages, but it has been generally held by the courts that when the damages likely to be occasioned by the breach are uncertain, and the sum fixed to be recovered on such breach is not grossly excessive or unjust, it will be treated as liquidated damages, but if the damages likely to be occasioned by the breach are susceptible of certain proof, and the amount stipulated to be paid on such breach is in excess of that amount, it will be treated as a penalty.”
Pomeroy, Equity Jurisprudence (2d ed.) §§441-444," in discussing the subject of penalties and forfeitures, says the following are the rules which have been established by judicial authority: “First. Whenever the payment of a smaller sum is secured by a larger, the larger sum thus contracted for can never be treated as liquidated damages, but must always be considered as a penalty. Second. Where an agreement is for the performance or non-performance of only one act, and there is no adequate means of ascertaining the precise damage which may result from a violation, the parties may, if they please, by a separate clause of the contract, fix upon the amount of compensation payable by the defaulting party in case of a breach; and a stipulation inserted for such purpose will be treated as one for ‘liquidated damages,’ unless the intent be clear that it was designated to be only a penalty. Third. Where an agreement contains provisions for the performance or non-performance of several acts of different degrees of importance, and then a certain sum is stipulated to be paid upon the violation of any. or of all such provisions, and the sum will be in some instances too large and in others too small a compensation for the injury thereby occasioned, that sum is to be treated as a penalty, and not as liquidated damages. This rule has been laid down in a somewhat
Mr. Clark in his work on contracts, page 411, says: “In determining whether the sum named is a penalty or liquidated damages, the rules may be stated: (a) The court will not be guided by the name given it by the parties, (b) If the matter of contract is of certain value, the sum in excess of that value is a penalty, (c) If the matter is of uncertain value, the sum fixed is liquidated damages, (d) If the debt is to be paid by installments, it is no penalty to make the whole debt due on nonpayment of an installment, (e) If some terms of the contract are of certain value, and others are not, and the penalty applies to any of them, it is not recoverable as liquidated damages.” Clark, Contracts 411.
“The real question in this class of cases will be found to be, not what the parties intended, but whether the sum is, in fact, in the nature of a penalty; and this is to be determined by the magnitude of the sum,' in
This doctrine was in effect recognized in Jaqua v. Headington (1888), 114 Ind. 309, where it is said: “The form of the instrument does not control, for the courts will look beyond that to the subject of the contract and to the consequences that will probably flow from a breach of its terms or conditions.” •
But when the damages can be assessed almost as easily and as accurately as in the case of a bond for the payment of money, and they are fixed by the contract itself at an unconscionable sum, it is the plain duty of a court exercising equity powers to relieve against such injustice and treat the sum named as a penalty merely. Clements v. Railroad Co. (1890), 132 Pa. 445, 452; Heard v. Bowers (1839), 40 Mass. 455; Fish v. Gray (1865), 93 Mass. 132; Guerin v. Stacy (1899), 175 Mass. 595.
As early as Hamilton v. Overton (1842), 6 Blackf. 206, 38 Am. Dec. 136, the Supreme Court of this state said: “Courts, not unfrequently, have found difficulty in drawing the line distinctly between penalties and liquidated damages. The intention of the parties must govern the construction of contracts in this particular, as well as in all other respects; and it may be laid down
In Carpenter v. Lockhart (1849), 1 Ind. 434, where the contract contained a number of stipulations, damages for the breach of some being uncertain, and of others certain and which provided if either party should fail in any particular to perform, the party failing should pay the other “$10,000 and no greater or smaller sum, as and for the damages occasioned by such failure,” it was said: “Some of the rules for determining whether a sum shall be considered a penalty or liquidated damages are well settled. They are stated with precision in Hamilton v. Overton, 6 Black. 206, and the cases establishing them are there cited. One of those rules we understand to be, that where an agreement contains various stipulations of different degrees of importance,- the damages for the breach of some of which
In Dill v. Lawrence (1887), 109 Ind. 564, Dill had entered into a contract with Lawrence to complete certain ditching by a fixed date according to certain plans or to “forfeit one hundred dollars thereon.” The court construing the contract said: “The terms used in stating the contingency in which Dill shall pay one hundred dollars, constitute the stipulation a penalty, and it can not, therefore, be regarded as an agreement that the sum specified shall be taken as a provision for liquidated damages. The word ‘forfeit’ very clearly shows, as does the entire theory of the contract, that the one hundred dollars was stated as a penalty.”
In Streeper v. Williams (1865), 48 Pa. 450, where the contention was as to whether the words “forfeit the sum of $500—say five hundred dollars, in case either party fail to comply with the terms of this agreement,” was a penalty or liquidated damages, the court said: “Upon no question have the courts doubted and differed more. It is unnecessary to examine the numerous authorities in detail, for they are neither uniform nor consistent. No definite rule to determine the question is furnished by them, each being determined more in direct reference to its own facts than to any general rule. In the earlier cases, the- courts gave more weight to the language of the clause designating the sum as a penalty or liquidated damages. The modern authorities attach greater importance to the meaning and intention of the parties. Yet the intention is not all-controlling, for in
This statement was approved by the court in Wilkinson v. Colley (1894), 164 Pa. 35, where it was said: “No definite rule to determine whether the stipulated sum is a penalty or liquidated damages, is or can be laid down, without, in many cases, disregarding the principles on which equity is administered. * * * The sum of the authorities in our own state is, that the intent of the parties in most cases, but not in all, will determine whether the sum stipulated is a penalty or liquidated damages. Calling it a penalty is some evidence that it was so intended, but this is overcome, if equity demands it shall be treated as liquidated damages. And that, in determining the equities of the particular case, the relation which the sum bears to the extent of the injury provided against, will be considered. That where a number of covenants, and the sum ■named would be payable for a breach of any one of them, even the least, it is a penalty.” This rule is applied in Boulware v. Crohn (1907), 122 Mo. App. 571, 585, where it is said: “If there are several covenants in the contract of different degrees of importance, and the same sum is stipulated to be paid for a breach of either, the courts incline to treat the sum as a penalty, and in case of the breach of a covenant to assess no greater damage than will compensate the obligee.”
So in Watt’s Exrs., v. Sheppard (1841), 2 Ala. 425, 445, it is said: ' “Where articles covenant for the performance of several things, and stipulate for the payment of a sum is gross in the event of a breach, the sum expressed must be considered as a penalty. And, if the parties would stipulate the damages in such a case, they would express the sum to be paid upon each distinct breach.” See also, Guerin v. Stacy, supra; Fisk
In Chicago House-Wrecking Co. v. United States (1901), 106 Fed. 285, 53 L. R. A. 128, the court quoting from Beale v. Hayes (1851), 5 Sandf. 640 says: “ ‘When consequences so unreasonable would follow, the law presumes that they must have been overlooked by the parties, and therefore mercifully gives to their language an interpretation which excludes them. When it would be plainly unconscientious to exact a large sum for a trivial breach, even a court of law, acting upon a principle of equity, will release the parties from the literal obligation which their language imports.’ ”
In Condon v. Kemper (1891), 47 Kan. 126, 13 L. R. A. 671, 27 Pac. 829, Condon had entered into a contract to build a wall, etc., or at his election to remove a certain house three feet, and put it in as good condition as it was before, and on failure of Condon to perform as he agreed, Kemper should be' entitled to $500 as liquidated damages. The court held that the $500 must be treated as a penalty saying: “But suppose that Con-don had removed the building, and then have failed to put the same in as good condition as it was before the contract, but the actual damage might not have been $25. Then, should the plaintiff, Kemper, recover the sum of $500? Or suppose that Condon had removed the house, and attempted to put it in as good condition as it was before, but had failed to repair the lock, or some portion of the plastering, or broken a window, which repairing might not have cost $1; then should Kemper have the right to recover the said sum of $500 ? All this shows that the parties did .not have in contemplation the matter of actual compensatory damages when they stipulated that Kemper might-recover $500
In harmony with the authorities heretofore cited, we hold that the sum named in the contract as liquidated damages, is a penalty and that the court erred in overruling the demurrer to each paragraph of complaint.
Judgment reversed with direction to sustain the demurrer to each paragraph of complaint and for further proceedings, not inconsistent with this opinion.