CHAPTER II.

LIQUIDATED DAMAGES.

Rules of Construction.

MONMOUTH PARK ASS'N v. WALLIS IRON WORKS.

55 N. J. L. 132, 39 Am. St. 626. 1892.

Action to recover final payment under a building contract. Judgment for plaintiff, and the defendant prosecutes a writ of error to this court.

DIXON, J. The first exception to be considered took its rise from the fact that the structure was not completed within the time limited by the contract, nor until ninety-four days after the expiration of a month's extension of that time. The defendant claimed a deduction, or set-off, of one hundred dollars for each day's delay.

The plaintiff met this claim by insisting that the clause in the contract mentioning the one hundred dollars per day is unintelligible, and therefore nugatory, because in its opening line it reads: "In case the said party of the first part shall.... to fully and entirely," etc., omitting any effective verb.

We agree, however, with the trial judge in thinking that the context shows the verb which should be supplied. It makes the one hundred dollars payable for each day that "the party of the first part shall be in default." This plainly indicates the verb "fail" as the omitted word, to be supplied as an equivalent for the expression "be in default."

The right of a court of law to read an instrument according to the obvious intention of the parties, in spite of clerical errors or omissions which can be corrected by perusing the instrument, is sufficiently vindicated by the decision of this court in Sisson v. Donnelly, 36 N. J. L. 432; see, also, Burchell v. Clark, 2 C. P. Div. 88.

Taking the clause thus perfected, the plaintiff urged that the

one hundred dollars a day was a penalty, and so the trial judge rules, requiring that the defendant should prove the actual damages, and be allowed only for what was proved. To this ruling the defendant excepted.

In determining whether a sum, which contracting parties have declared payable on default in performance of their contract, is to be deemed a penalty or liquidated damages, the general rule is that the agreement of the parties will be effectuated. Their agreement will, however, be ascertained by considering, not only particular words in their contract, but the whole scope of their bargain, including the subject to which it relates. If, on such consideration, it appears that they have provided for larger damages than the law permits, e. g., more than the legal rate for the non-payment of money, or that they have provided for the same damages on the breach of any one of several stipulations, when the loss resulting from such breaches clearly must differ in amount, or that they have named an excessive sum in a case where the real damages are certain or readily reducible to certainty by proof before a jury, or a sum which it would be unconscionable to award, under any of these conditions the sum designated is deemed a penalty. And, if it be doubtful on the whole agreement whether the sum is intended as a penalty or as liquidated damages, it will be construed as a penalty, because the law favors mere indemnity. But when damages are to be sustained by the breach of a single stipulation, and they are uncertain in amount, and not readily susceptible of proof under the rules of evidence, then, if the parties have agreed upon a sum as the measure of compensation for the breach, and that sum is not disproportionate to the presumable loss, it may be recovered as liquidated damages. These are the general principles laid down in the text-books and recognized in the judicial reports of this state: Cheddick v. Marsh, 21 N. J. L. 463; Whitefield v. Levy, 35 N. J. L. 149; Hoagland v. Segur, 38 N. J. L. 230; Lansing v. Dodd, 45 N. J. L. 525.

In the present case the default consists of the breach of a single covenant to complete the grand-stand, as described in the approved plans and specifications, within the time limited. It is plain that the loss to result from such a breach is not easily ascertainable. The magnitude and importance of the grand-stand may be inferred from its cost-one hundred and thirty-three thou

sand dollars. It formed a necessary part of a very expensive enterprise. The structure was not one that could be said to have a definable rental value. Its worth depended upon the success of the entire venture. How far the non-completion of this edifice might affect that success, and what the profits or losses of the scheme would be, were topics for conjecture only. The conditions, therefore, seem to have been such as to justify the parties in settling for themselves the measure of compensation.

The stipulations of parties for specified damages, on the breach of a contract to build within a limited time, have frequently been enforced by the courts. In Fletcher v. Dycke, 2 Term Rep. 32, ten pounds per week for delay in finishing the parish church; in Duckworth v. Allison, 1 Mees. & W. 412, five pounds per week for delay in completing repairs of a warehouse; in Legge v. Harlock, 12 Q. B. 1015, one pound per day for delay in erecting a barn, wagon-shed, and granary; in Law v. Local Board of Redditch (1892), 1 Q. B. 127, one hundred pounds and five pounds per week for delay in constructing sewerage works; in Ward v. Hudson River Building Co., 125 N. Y. 230, ten dollars a day. for delay in erecting dwelling houses; and in Malone v. City of Philadelphia, 147 Pa. St. 416, fifty dollars a day for delay in completing a municipal bridge—were all deemed liquidated damages. Counsel has referred us to two cases of building contracts where a different conclusion was reached: Muldoon v. Lynch, 66 Cal. 536, and Clement v. Schuylkill River R. R. Co., 132 Pa. St. 445. In the former case a statutory rule prevailed, and in the latter the real damage was easily ascertainable, and the stipulated sum was unconscionable. In the case at bar we have no data for saying that one hundred dollars a day was unconscionable.

The sole question remaining on this exception, therefore, is whether the parties have agreed upon the sum named as liquidated damages.

Their language seems indisputably to have this meaning. They expressly declare the sum to be agreed upon as the damages which the defendant will suffer; they expressly deny that they mean it as a penalty, and they provide for its deduction and retention by the defendant in a mode which could be applied only if the sum be considered liquidated damages.

But it is argued that as the contract authorized the engineer

of the defendant to make any alterations or additions that he might find necessary during the progress of the structure, and required the plaintiff to accede thereto, it is unreasonable to suppose that the plaintiff could have intended to bind itself in liquidated damages for delay in completing such a changeable contract.

But this argument seems to be aside from the present inquiry, which is not whether the plaintiff became responsible for damages by reason of the non-completion of the grand-stand on the day named, but whether, if it did become so responsible, those damages are liquidated by the contract. On the question first stated, changes ordered by the engineer may afford matter for consideration; on the second question, they are irrelevant.

Certainly, the bills of exceptions do not indicate any alterations or additions which, as matter of law, would relieve the plaintiff from responsibility for the admitted delay, and consequently there may have been ground for considering the defendant's damages. If there was, the amount of the damages was adjusted by the contract at one hundred dollars per day.

We think the ruling at the circuit on this point was

erroneous.

Let the judgment be reversed, and a venire de novo be awarded.

Alternative Stipulations.

J. RANLETT SMITH v. FREDERICK W. A. BERGENGREN.

153 Mass. 236. 1891.

HOLMES, J. The defendant covenanted never to practice his profession in Gloucester so long as the plaintiff should be in practice there, provided, however, that he should have the right to do so at any time after five years by paying the plaintiff two thousand dollars, "but not otherwise." This sum of two thousand dollars was not liquidated damages, still less was it a penalty. It was not a sum to be paid in case the defendant broke his contract, and did what he had agreed not to do. It was a price fixed for what the contract permitted him to do if he paid. The defendant expressly covenanted not to return to practice in Gloucester unless he paid this price. It would be against com

mon sense to say that he could avoid the effect of thus having named the sum by simply returning to practice without paying, and could escape for a less sum if the jury thought the damage done the plaintiff by his competition was less than two thousand dollars. The express covenant imported the further agreement that if the defendant did return to practice he would pay the price. No technical words are necessary if the intent is fairly to be gathered from the instrument. See Pearson v. Williams, 24 Wend. 244, and 26 Wend. 630; Stevinson's case, 1 Leon. 324; St. Albans v. Ellis, 16 East 352; Deverill v. Burnell, L. R. 8 C. P. 475; National Provincial Bank of England v. Marshall, 40 Ch. D. 112.

If the sum had been fixed as liquidated damages, the defendant would have been bound to pay it. Cushing v. Drew, 97 Mass. 445; Lynde v. Thompson, 2 Allen 456; Holbrook v. Tobey, 66 Maine 410. But this case falls within the language of Lord Mansfield in Lowe v. Peers, 4 Burr. 2225, 2229, that if there is a covenant not to plough with a penalty in a lease, a court of equity will relieve against the penalty, "but if it is worded 'to pay £5 an acre for every acre ploughed up,' there is no alternative, no room for any relief against it, no compensation; it is the substance of the agreement." See also Ropes v. Upton, 125 Mass. 258, 260. The ruling excepted to did the defendant no wrong. In the opinion of a majority of the court, the exceptions must be overruled.

Exceptions overruled.

How the Question Is Solved.

JOSEPH LONGWORTH AND LARZ ANDERSON, EXECUTORS OF NICHOLAS LONGWORTH, DECEASED v. WILLIAM ASKREN, JAMES B.

RICORDS ET AL.

15 O. St. 370. 1864.

This was an action originally brought in the superior court of Cincinnati for a balance claimed to be due upon a certain promissory note executed by James B. Ricords to the order of Nicholas Longworth, being for the purchase money of a certain lot of ground in the city of Cincinnati, sold and conveyed by Longworth to Ricords; and to foreclose a mortgage given upon