CHAPTER XVI.

OF PENALTIES; LIQUIDATED DAMAGES; AND THE ACTION OF DEBT.

Debt and Covenant-Debt on Bond-Amount of recovery within the Penalty-Assignment of Breaches-Liquidated Damages-Ne Exeat Bonds-Bonds to resign Livings-Recovery beyond the Penalty.

WE have just terminated the consideration of a large class of cases, in which the damages are in no wise determined by the agreement of the parties. We now come to another class, where the contracting parties fix or liquidate the amount that shall furnish the measure of compensation in case of non-fulfillment of the agreement, either in the shape of a penalty, or of stipulated damages. The questions arising under this branch of our subject are generally presented in one of the two common law actions known as debt and covenant; but we shall endeavor to consider the matter at large, without confining ourselves strictly to either of these technical forms.

At the same time it is impossible altogether to dismiss them from view. The action of debt is applicable in all cases where a sum certain is due, whether the contract be by parol, under seal, or of record; while covenant is the remedy for breaches of all contracts under seal, whether for sums certain or uncertain. And owing to this arbitrary division of actions, the rules of damages conform in many cases rather to the remedy than the right; we must therefore not lose sight of this technical distinction.

Of all forms of debt, that of debt on is bond now the most frequent. In the early periods of our jurisprudence debt was the common action for goods sold and delivered, and for work and labor done; but it has been to a great extent superseded by

the proceeding in assumpsit.* It is true, as a general rule, that in the action of debt which is brought for the recovery of a sum certain, no damages can be claimed on account of the debt itself, this being recoverable in numero; but damages are given on account of the detention of the debt. In an action of debt on bond, therefore, only nominal damages are assessed; nor is it in general necessary to have them assessed to the amount even of what is due for interest, because as under the verdict the plaintiff is entitled to the whole penalty: this, which is double the sum mentioned in the condition, is usually sufficient to cover what is due for interest. But this subject will be more fully noticed in another part of this chapter.

The form of the obligation, or bond of the English Law, is technical and peculiar. The obligor binds, or obliges himself to pay a certain sum of money at a certain time, to the obligee. This, if under seal, would be a single bond, or simplex obligatio; and would only differ from a note, in being under seal, and not negotiable. But in the bond we find a clause appended, declaring that the previous obligation shall be void on the payment of some lesser sum of money, or the performance of some particular act. The latter part, or condition of the bond, is that which discloses the real nature of the contract and contains its essence; the former part is the penalty.† Penal obliga tions are well known to other systems of law besides our own ;+ but the precise form of contract, by which an absolute obligation is at first declared, and this converted into a mere penalty by the addition of a subsequent condition, is, I believe, entirely peculiar to the English law.

From this form of obligation or contract, various results, flowing from the technical rules of the common law, were deduced by the founders of our jurisprudence. If the condition was not strictly complied with, as in regard to the payment of money on a day certain, the moment the day was passed the penalty became the debt, and was at law recoverable; and neither payment nor tender after the day would avail, because a condition once broken was gone forever. If the condition were to do any thing other than pay money, and were not fulfilled,

* Supra, 225. Rudder vs. Price, 1 H. Bl., 547.

+ Black. Com., II., Ch. 20, 340.

Pothier, Traité des Obligations, Part II., Chap. V., des Obligations Pénales.

the penalty again became the debt, and was recoverable without any reference whatever to the actual damages incurred. Hence many difficulties arose. Lord Kaims says,* that the bond was introduced originally to evade the common law of England, which prohibited the taking interest for money. Whatever reason led to its introduction, certain it is, that its peculiar form has occasioned infinite doubt and contradiction. In regard to our present subject, we shall first consider what sum can be recovered under or within the penalty. Secondly, how by assigning breaches, that sum is arrived at. Thirdly, when the penalty is considered as liquidated damages. And lastly, what can be recovered beyond the penalty.

And first, as to the damages that may be recovered under or within the penalty.

The action of debt, as has been said, is the usual remedy provided by the common law for the recovery of a sum certain. And in an action of debt for condition broken, the amount of the plaintiff's recovery was originally, as has also been said, the penalty; nor could the action be relieved against, either by payment or tender; no defense would avail but a release under seal. And this severe rule of the common law was only mitigated by the practice of the courts of chancery, which interposed, and would not allow a man to take more than in conscience he ought.+

It became early settled in equity that the condition of the bond was the agreement of the parties, and as such the obligor was relieved from the penalty. Lord Somers said, "that where the party might be put in as good a plight as where the condition itself was literally performed, there the Court of Chancery would relieve, though the letter of it were not strictly performed, as payment of money, &c. But where the condition was collateral and in recompense, and no value could be

*Prin. of Equity, Book iii., ch. ii., 279.

+ Black. Com., book ii., ch. 20, 841. For cases of this description in Chancery, see Hale vs. Thomas, 1 Vern., 849, and Steward vs. Rumball, 2 Vern., 509; also, Show. Par. Cas., 15. Bond and Penalty, Abr. Eq., 91, 92.

Acton vs. Peirce, 2 Vern., 480. Cannel vs. Buckle, 2 P. Wms., 248. Watkyns vs. Watkyns, 2 Atk., 97. Bishops vs. Church, 2 Ves., 871. Parks vs. Wilson, 10 Mod., 515. Hobson vs. Trevor, 2 P. Wms., 191. Chilliner vs. Chilliner, 2 Ves., 528. Collins vs. Collins, 2 Burr., 82. See Pothier by Evans, on Penal Obligations, Appendix; and Fonblanque's Treatise on Equity.

Prec. in Ch. 487.

put on the breach of it, then no relief could be had for the breach of it."

This practice was followed by the common law tribunals, which ordered the proceedings to be stayed upon bringing into court the principal debt, interest, and costs.* Finally, this discretionary power was confirmed by a statutory regulation, which provided that in actions on bonds with penalties, the defendant might bring in the principal debt, interest, and costs, and be discharged.+

This legislation has been followed in this country. In New York, it is declared that in actions on penalty bonds, the plaintiff may plead payment of the debt made before suit brought, though not according to the condition; and that after suit brought, the defendant may bring debt, principal and costs, into court, and that thereupon the action shall be discontinued. Speaking of the English original of this statute, Lord Mansfield said,§

"That it was made to remove the absurdity which Sir Thomas More unsuccessfully attempted to persuade the judges to remedy in the reign of Hen. VII.; for he summoned them to a conference concerning the granting relief at law, after the forfeiture of bonds, upon payment of principal, interest, and costs, and when they said they could not relieve against the penalty, he swore by the body of God he would grant an injunction."

And in another case, he said,

"It was extraordinary, that after it was settled in equity that the forfeiture might be saved by the performing the intent, and that this was the nature of a bond; the courts of law did not follow equity, but still continued to do injustice as of course, and put the parties to the delay and expense of setting it right elsewhere as of course."¶

Notwithstanding this statute, however, it is apparent that

* Greggs's Case, 2 Salk., 596. Anon., 6 Mod., 11. Butler vs. Rolfe, ib., 25. Anon., ib., 29. Burridge vs. Fortescue, ib., 60; and Ireland's Case, ib., 101. In Burridge vs. Fortescue, the court said, "It is an equitable motion to be relieved against the penalty."

+4 Anne, c. 16, §§ 12 and 18.

Rev. Stat., Vol. 2, 353, §§ 26 and 27.

Wyllie vs. Wilkes, Doug., 519.

Bonafous vs. Rybot, 3 Burr., 1870, 1374.

In this last case it was held that bonds conditioned for payment of money by installments, were within the Act of 4 Anne.

great injustice might be committed; because the plaintiff was still entitled to judgment for the whole amount of the penalty, and the defendant could only be discharged by addressing himself to the equitable consideration of the court. Hence was imposed the obligation to assign breaches.

By a statute enacted at nearly the same time, it was declared "that in all actions, &c., upon any bond or bonds, or on any penal sum for non-performance of any covenants or agreements in any indenture, deed, or writing certain, the plaintiff or plaintiffs may assign as many breaches as he or they shall think fit, and the jury upon trial of such action or actions, shall and may assess, not only such damages and costs of suit as have heretofore been usually done in such cases, but also damages for such of the said breaches so to be assigned as the plaintiff, on the trial of the same, shall prove to have been broken." The language here is, that the plaintiff may assign breaches; but it has been settled that the statute is compulsory,† and that a judgment obtained under the former practice of the common law, is bad in error. In the case last cited, Lord Kenyon and Mr. J. Buller said:

"It is apparent to us that the law was made in favor of defendants, and is highly remedial, calculated to give plaintiffs relief up to the extent of the damage sustained, and to protect defendants against the payment of further sums than what is in conscience due; and also to take away the necessity of proceedings in equity to obtain relief against an unconscionable demand of the whole penalty in cases where small damages only have accrued."

And it was accordingly held, that the plaintiff must assign breaches, and that the jury must assess the damages.

The principles of this act have been engrafted upon the legislation of this country. In New York it is provided:‡

"When an action shall be prosecuted in any court of law, upon any bond, for the breach of any condition other than for the payment of money, or shall be prosecuted for any penal sum for the non-performance of any covenant or written agreement, the plaintiff in his declaration shall assign the specific breaches for which the action is brought.

* 8 and 9 Will. III., C. 11, § 8.

+ Roles vs. Rosewell, 5 T. R., 588, and Hardy vs. Bern, ib., 686.

Revision of 1813 (R. Laws, Vol. I., 518), and Revised Statutes, Vol. II., 300, 2d ed., 378, 1st ed.