Beiser v. Kerr

• Decision Date: 02 May 1939
• Docket Number: 15997.
• Citation: 20 N.E.2d 666,107 Ind.App. 1
• Parties: BEISER et al. v. KERR.
• Court: Indiana Appellate Court

20 N.E.2d 666

107 Ind.App. 1

BEISER et al. v. KERR.

No. 15997.

Appellate Court of Indiana, in Banc.

May 2, 1939

Noel Hickam, Boyd & Armstrong, of Indianapolis, Christian & Waltz, of Noblesville, and R. Niven Stall, of Indianapolis, for appellants.

Russell I. Richardson and Neal, Williams & Ullum, all of Indianapolis, for appellee.

LAYMON Judge.

This is an action by appellee to recover from appellants the sum of $2,250, with interest, as liquidated damages for the alleged breach of a written contract entered into by appellants and appellee in the sale to appellee of an orange juice stand and restaurant situated at 29 East Market Street, in the city of Indianapolis, Indiana.

The complaint alleged that the restaurant, including fixtures etc., was sold by appellants to appellee for the purchase price of $2,240, upon certain terms which were afterwards complied with; that the contract of sale was in writing and contained the following provision: "7. The vendors hereby agree, in consideration of the initial payment aforesaid and the execution of said chattel mortgage, and do hereby covenant with the said purchaser, that they will not either individually or as part owners in any firm, partnership or corporation, engage in any business similar to the business enterprise which is the subject of this agreement of sale, within a distance of five (5) blocks of said 29 East Market Street, Indianapolis Indiana, within a space of five (5) years from date hereof. It is expressly understood and agreed that should said vendors so engage in a similar business competitive to said business establishment now being sold, that the said vendors shall pay to said purchaser herein the sum of $2250.00 as liquidated damages for the breach of this covenant."

The complaint further alleged that appellants breached said agreement by conducting a similar and competitive business at 444 Massachusetts Avenue in the city of Indianapolis, within 8 months after the execution of said contract and within a distance of less than 5 blocks from the restaurant purchased by appellee at 29 East Market Street. Appellants answered this complaint in general denial. There was a trial by jury, resulting in a verdict for appellee in the sum of $2,250, with interest, upon which the court rendered judgment accordingly. In due time appellants separately and severally moved the court for a new trial upon the grounds that the verdict is not sustained by sufficient evidence, that the verdict is contrary to law, that the assessment of the amount of recovery is erroneous, being too large, and that the court erred in the giving and refusal of certain instructions. This motion was overruled and excepted to and this appeal prayed and perfected.

Appellants contend that the sum of $2,250, designated in the provision of the contract as liquidated damages, should be treated as a penalty, and not as liquidated damages, and as such is not enforceable, and that recovery under this provision of the contract must necessarily be limited to the actual damages suffered; that since appellee introduced no evidence showing that she had suffered any damage or loss by reason of a breach, appellee should not be permitted to recover.

Appellants urge that the sum specified in the contract as liquidated damages should be treated and considered by the court as a penalty for the reasons: (1) It is for a sum greater than the total consideration of the contract; (2) The provision bears no relation to possible damages to be sustained by reason of the breach; and (3) It is for a sum absolutely fixed, whether the breach be trivial or not-whether it be committed soon or just one day before the end of the 5 years.

It is appellee's contention that the amount specified in the contract is to be considered as liquidated damages. The trial court adopted this theory and instructed the jury accordingly.

Counsel for appellants and appellee have, in their briefs and in oral argument, conceded that it was incumbent upon the trial court, and not the jury, to determine whether the sum referred to in the contract was to be treated as liquidated damages or as a penalty; that, if liquidated damages, appellee was entitled, upon proof of the breach of said contract, to the full amount of said sum, together with interest, without proof of any actual damages or loss; that, if a penalty, appellee could only recover, upon proof of the breach of said contract, the actual damages or loss suffered and proved.

As oftentimes stated, the courts have found difficulty in drawing the line distinctly between penalties and liquidated damages. Some of the rules for determining whether a sum shall be considered a penalty or liquidated damages, however, have been well settled, while others have been the subject of doubt and questioned by the courts as to their soundness.

In the instant case we must give full force and effect to those rules upon which there seems to be no conflict of authority, particularly of the courts of this state, to aid us in determining whether the amount should be treated as liquidated damages or as a penalty.

This court, speaking through Judge McMahan, in the case of Tudor v. Beath, 1921, 76 Ind.App. 526, 131 N.E. 848 849, after reviewing a number of authorities upon the question as to whether a designated sum in a contract was to be treated as liquidated damages or as a penalty, quoted with approval Pomeroy, Equity Jurisprudence (2d ed.) §§ 441-444, who, 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 nonperformance 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 nonperformance 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 different form, as follows: Where the agreement contains provisions for the performance or nonperformance of acts which are not measurable by any exact pecuniary standard, and also of one or more other acts in respect of which the damages are easily ascertainable by a jury, and a certain sum is stipulated to be paid upon a violation of any or of all these provisions, such sum must be taken to be a...