Morse v. Rathburn

• Decision Date: 31 October 1868
• Citation: 42 Mo. 594
• Parties: JOHN H. MORSE, Plaintiff in Error, v. GEORGE R. RATHBURN, Defendant in Error.
• Court: Missouri Supreme Court

42 Mo. 594

JOHN H. MORSE, Plaintiff in Error,

v.GEORGE R. RATHBURN, Defendant in Error.

Supreme Court of Missouri.

October Term, 1868.

Error to Second District Court.

Abner Green, for plaintiff in error.

I. The proviso of forfeiture in the bond goes to the whole contract--not to any trivial, unimportant stipulation or covenant therein. If it did, the sum, perhaps, might be regarded as a penalty. But the parties show by the very terms of their agreement that they intend to fix the amount to be paid for a failure to carry out and perform a stipulated act, viz: the whole contract. And this is in a case “where the damages resulting from the non-performance of the contract are uncertain, and cannot be admeasured with any degree of accuracy;” therefore (it has been decided) “such sum agreed to be paid by the party in default will be regarded as liquidated damages.” (Watts v. Sheppard, 2 Ala. 425; 2 Story's Eq. p. 774, § 1318; 1 U. S. Dig. p. 513, § 316.)

II. It is a rule in law that “it is not allowable to interpret what has no need of interpretation.” (Chitty on Cont. 99.) “Nor will the law make an exposition against the express words and intent of the parties.” (Broom's Leg. Max. 266.) In the contract before the court there can be no doubt as to the meaning and intent of the parties, and no court of law or equity can create a contract for them where there is no room for two constructions as to their meaning. (2 Story's Eq. p. 774, § 1318; id. §§ 1321, 1323, 1324; Pearson v. Williams, 24 Wend. 244; 26 Wend. 630; Kemble v. Farren, 6 Bing. 141.)

The following cases are submitted, as being precisely in point, to show that, in a contract like the one before the court, the sum agreed to be paid as a forfeiture is not to be construed as a penalty, but as liquidated damages. (Chamberlain v. Bagley, 11 N. H. 234, referred to in 1 U. S. Dig. p. 512, §§ 307, 308, 316, 319; Gammon v. Howe, 2 Shepley, 250.)

J. L. Thomas, and Fisher & Rowell, for defendants in error.

I. The sum of money specified in the written agreement read in evidence by plaintiff is a penalty, and not liquidated damages. If damages, the parties would have said so. See the case of Dennis v. Cummins, 3 Johns. Ch. Cas. 297, a case exactly like the one at bar. This was also a contract for the sale of land, and contained the following clause: “And it is further covenanted, in and by the said agreement by and between the said parties, that, in case of failure to fulfill the aforesaid agreements or covenants on the part of either of said parties, the party not fulfilling the said agreement shall forfeit and pay to the other party who shall fulfill the said agreement the sum of two thousand dollars damages.” The court decided that the two thousand dollars was a penalty, and not liquidated damages. The law is very clear that, where the damages are of such a nature that they can be ascertained by a jury, the amount stated by the parties as damages shall be considered as a penalty, and the aggrieved must declare and prove the damages he has sustained. And this is so although the parties state that the amount specified is “liquidated damages.” (2 Story's Eq. Jur. p. 540, § 1318; Kemble v. Farren, 6 Bing. 141; Bagley v. Reddis, 5 Sandf. 192; Moore & Hunt v. Platte County, 8 Mo. 467; Gower v. Saltmarsh, 11 Mo. 271; Basye v. Ambrose, 28 Mo. 39.) In this last case the court reviewed the law at great length, and laid it down as stated in the proposition above.

WAGNER, Judge, delivered the opinion of the court.

On the 7th day of February, 1867, by an agreement in writing, Morse sold to Rathburn his farm in Jefferson county for the sum of twenty-one thousand dollars. By the terms of the agreement nine thousand dollars was to be paid on the 1st day of April, 1867, at the office of Bogy & Fry, in the city of St. Louis, and for the remainder of the purchase-money Rathburn was to execute his two several promissory notes for six thousand dollars each, payable in one and two years respectively, with six per cent. interest from date.

The payment of the notes was to be secured by the execution of a deed of trust on the land. Upon the payment of the money and the execution and delivery of the notes and deed of trust, Morse was to make, execute, and deliver a good and sufficient warranty deed for the real estate. The agreement contained this further stipulation: “And the said parties to this agreement bind themselves that either party failing to comply with its provisions shall forfeit and pay to the other the sum of two thousand dollars.” Morse, at the appointed time, presented his deed and tendered a compliance with his part of the contract, but Rathburn refused to comply or execute it on his part, and this action was instituted to recover the two thousand dollars--the plaintiff contending that it was agreed on between the parties as liquidated or stipulated damages. The Circuit Court refused to give it this construction, and held that it was a penalty, and that the plaintiff could only recover such damages as he could show by evidence that he was entitled to by reason of the breach. This view of the subject was also entertained by the District Court, and the plaintiff has brought the case here by writ of error.

It is perfectly competent for parties, when entering into an agreement, to avoid all controversy as to the amount of damages which may result from a violation of the contract, and to agree upon a fixed, certain, and definite sum which shall be paid by the party in default. The damages in such a case are termed liquidated, stipulated, or stated damages. But in such cases great difficulty has been experienced in giving the contract a practical application and construction in determining whether the damages should be regarded as liquidated, or as a mere penalty only. The question is environed with doubt and contradiction, and the decisions are conflicting and inharmonious. Mr. Sedgwick, the learned author of the Treatise on Damages, says: “The subject matter of the contract and the intention of the parties are the controlling guides. If, from the nature of the agreement, it is clear that any attempt to get at the actual damage would be difficult, if not vain, then the courts will incline to give the relief which the parties have agreed on. But if, on the other hand, the contract is such that the strict construction of the phraseology would work absurdity or oppression, the use of the term liquidated damages will not prevent the courts from inquiring into the actual injury sustained and doing justice between the parties.”

Judge Story says that “the general principle adopted is that whenever a penalty is inserted merely to secure the performance or enjoyment of a collateral object, the latter is considered as the principal intent of the instrument, and the penalty is deemed only as accessory, and therefore as intended only to secure the due performance thereof, or the damage really incurred by the nonperformance. In every such case the general test by which to ascertain whether relief can or can not be had in equity is to consider whether compensation can be made or not. But the writers all concur that, where the parties have agreed that in case one party shall do a stipulated act, or omit to do it, the other party shall receive a certain sum as the just, appropriate, and conventional amount of damages sustained by such act or omission, courts will not interfere to grant relief, but will deem the parties entitled to fix their own measure of damages; provided that the damages do not assume the character of gross extravagance, or of wanton and unreasonable disproportion to the nature and extent of the injury.

Where an agreement was entered into by the defendant to perform for the plaintiff at his theater, and attend all rehearsals, or pay the established fines for all forfeitures of any kind whatsoever, with a clause that either of the parties neglecting to perform the agreement should pay the other £>>>>>>200, and the declaration averred a refusal to perform-- plea, non-assumpsit--on trial, a verdict was had for £20, with leave to the plaintiff to enter a verdict for £200 if the court should consider the agreement one in the nature of liquidated damages. Here it will be seen that the phrase liquidated damages was not used, and that if the sum of £200 was not construed as a penalty merely, the non-payment of any one of the fines would have forfeited the whole amount. Lord Eldon, then Lord Chief Justice of the Common Pleas, in delivering the judgment of the court, said that he “had felt much embarrassment in ascertaining the principle of the decisions,” and that “this appeared to him the clearest principle: that where a doubt is stated, whether the sum inserted be intended as a penalty or not, if a certain damage less than that sum is made payable upon the face of the same instrument in case the act intended to be prohibited be done, that sum shall be construed to be a penalty, though the mere fact of the sum being apparently enormous and excessive would not prevent it from being considered as liquidated damages.” He added further: “ Prima facie, this certainly is contract, and not penalty, but we must look to the whole instrument,” and it was held a penalty. (Astley v. Weldon, 2 Bos. & Pul. 346.)

The doctrine laid down in Astley v. Weldon was applied in a subsequent case (Kemble v. Farren, 6 Bing. 141) to a very similar state of facts. The defendant had agreed with the plaintiff to act as principal comedian at Covent Garden, and to conform to its rules; the plaintiff to have £3 6s. 8d. every night that the theater should be open. And the agreement contained a clause that if either party failed to fulfill his agreement, or any part thereof, or any stipulation therein contained, such party should pay the other the sum of £1,000; to which sum it was agreed that the damages should amount, and which sum was declared by the parties to be liquidated and ascertained damages, and not a...