In every case, either of penalty or of liquidated damages, the parties have manifested a clear intention that the sum stated in the contract shall be paid in the contingency which has occurred. If their intention is to be given effect, every penalty will be enforced. If, however, by intention of the parties is meant their intention that the particular provision in question shall be liquidated damages or shall be a penalty, it should be observed that most people who make contracts know nothing about these terms, nor what they connote. If they do know that there is a distinction made by the law, the surest way of indicating that they mean one or the other is to call it by its appropriate name; and when contracts are drawn by lawyers the sum stipulated for is usually called liquidated damages, but courts rightly pay little attention to the name given to a sum payable in terms on breach of a contract. Calling a sum to be paid under a contract liquidated or stipulated damages, will not prevent the court from treating it as a penalty.38 Nor will the use of the word "forfeit" 39 or "penalty" "40 prevent the court in a proper case from regarding as liquidated damages a sum named in a contract; though the use of words appropriate for liquidated damages 41 and especially the use of 7 S. W. 777; Seeman v. Biemann, 108 Wis. 365, 84 N. W. 490. Green v. Price, 13 M. & W. 695, 701; Betts v. Burch, 4 H. & N. 506, 511; Bignall v. Gould, 119 U. S. 495, 30 L. Ed. 491; Pacific Hardware & Steel Co. v. United States, 48 Ct. Cl. 399; Northwestern Terra Cotta Co. v. Caldwell, 234 Fed. 491, 496, 148 C. C. A. 257; Pogue v. Kaweah, etc., Co., 138 Cal. 664, 668, 72 Pac. 144; New Britain v. New Britain Telephone Co., 74 Conn. 326, 50 Atl. 881, 1015; Greenblatt v. McCall, 67 Fla. 165, 64 So. 748; Scofield v. Tompkins, 95 Ill. 190, 35 Am. Rep. 160; Ludlow Valve Mfg. Co. v. Chicago, 181 Ill. App. 388; Sanders v. McKim, 138 Ia. 122, 115 N. W. 917; Basye v. Ambrose, 28 Mo. 39; Wibaux v. Grinnell, etc., Co., 9 Mont. 154, 22 Pac. 492; Whitfield v. Levy, 35 N. J. L. 149, 155; Brownold v. Rodbell, 130 N. Y. App. Div. 371, 114 N. Y. S. 846; Eakin v. Scott, 70 Tex. 442, 444, 39 Merica v. Burget, 36 Ind. App. 453, 75 N. E. 1083; Ross v. Loescher, 152 Mich. 386, 116 N. W. 193, 125 Am. St. Rep. 418; Streeper v. Williams, 48 Pa. 450. 40 Sainter v. Ferguson, 7 C. B. 716; Parfitt v. Chambre, L. R. 15 Eq. 36; United States v. Bethlehem Steel Co., 205 U. S. 105, 120, 51 L. Ed. 731, 27 Sup. Ct. Rep. 450; Pierce v. Fuller, 8 Mass. 223, 5 Am. Dec. 102; Whitfield v. Levy, 35 N. J. L. 149, 154; Ward v. Hudson River B'g Co., 125 N. Y. 230, 26 N. E. 256; Stewart v. Turner, 67 Pa. Super. 255; Grant Marble Co. v. Marshall & Ilsley Bank, 164 Wis. 547, 165 N. W. 14. 41 Reilly v. Jones, 1 Bing. 302; Geiger v. Western Md. R., 41 Md. 4, 15; Makletzova v. Diaghileff, 227 Mass. 100, 116 N. E. 231. words appropriate for a penalty or forfeiture 42 are of some evidentiary value. "Where a sum of money fixed by the parties 'as liquidated and ascertained damages, and not a penalty or penal sum, or in the nature thereof' was held by the court to be a penalty, it seems an abuse of language to say that this was in accordance with the parties' intention." 43 It may be said, however, that though the value of these terms is unknown to most persons who are not lawyers, they know whether a stipulation was inserted for the purpose of securing performance by being held in terrorem over a promisor, and that the intention of the parties with reference to this makes the vital distinction.44 But provisions for liquidated damages are intended for security as well as provisions for penalties. When liquidated damages of $10 a day are stipulated for, if a building is not completed on time, or payment of $5,000 if a promisor fails to comply with his promise not to enter into competition with the promisee, there can be no doubt that these provisions are intended not merely as a provision for an unpleasant and unexpected contingency but also to secure the promisee in the performance of the main obligation and to make the promisor more reluctant to break it. This distinction, therefore, is at least partially fictitious. The only sense in which the intention of the parties can have any meaning in this connection, and this seems to be the meaning generally given to the phrase by the courts when the matter is analyzed by them, is an intention to name a sum that is fixed in good faith as the equivalent of the injury which will probably be caused by breach of the contract, rather than an attempt to secure performance by a provision for an excessive payment. "Intention of the parties" is, however, a misleading and undesirable designation for this requirement, and the first step towards clearing the confusion 42 Van Buren v. Digges, 11 How. 461, 467, 13 L. Ed. 771; Nichols v. Haines, 98 Fed. 692, 39 C. C. A. 235; Zenor v. Pryor, 57 Ind. App. 222, 106 N. E. 746; Keinath v. Reed, 18 N. Mex. 358, 137 Pac. 841; Smith v. Wainwright, 24 Vt. 97, 102. 43 Sedgwick on Damages, § 406, referring to Kemble v. Farren, 6 Bing. 141. 44 Thus in Dubinsky v. Wells Bros. Co., 218 Mass. 232, 237, 105 N. E. 1004, Crosby, J., said: "We are of opinion that this deposit was intended by the parties to secure the performance of the contract and was not to be retained by the defendant as liquidated damages for the breach of the contract by the plaintiff." See also Westfall v. Albert, 212 Ill. 68, 72 N. E. 4. of the law on the subject is to drop the use of the phrase from the discussion. Even the suggested substitute of an inquiry whether the parties in good faith attempted to estimate the real injury-45 is a somewhat artificial cloak for the true principle; for the only evidence that the court ever has before it bearing on the issue whether the parties in good faith made such an estimate, besides their statement in the contract that the sum named is liquidated damages, or a penalty (and to this as has been seen the court rightly pays little attention) is the reasonableness in fact of the amount; and the matter would be much simplified if it were clearly recognized and stated that the reasonableness of the agreed sum looked at as of the time when the contract was made is the only important thing. 46 45 That is, made a "genuine preestimate" of the probable damage. Wise v. United States, (U. S. Oct. Term, 1918), 39 Sup. Ct. 303. 45 The artificial character of the search for intention is brought out by Marshall, J., in Seeman v. Biemann, 108 Wis. 365, 373, 84 N. W. 490. "The law is too well settled to permit any reasonable controversy in regard to it at this time, that where parties stipulate in their contract for damages in the event of a breach of it, using appropriate language to indicate that the damages are agreed upon in advance, and such damages are unreasonable considered as liquidated damages, the stipulated amount will be construed to be a mere forfeiture or penalty and the recoverable damages be limited to those actually sustained. While courts adhere to the doctrine that the intention of the parties must govern in regard to whether damages mentioned in their contract are liquidated, they uniformly take such liberties in regard to the matter, based on arbitrary rules of construction, so called, as may be necessary to effect judicial notions of equity. . . . The judicial power thus exercised cannot properly be justified under any ordinary rules ... of judicial construction. . . . In determining whether an amount agreed upon as damages was intended as liquidated damages or as a penalty, rules of language are ignored and the expressed intent of parties is made to give way to the equity of the particular case, having due regard to precedents. "This court, in harmony with the weight of authority, early adopted the arbitrary rule that where damages may be readily computed, and the stipulated damages, so called, are largely in excess of actual damages, the court will disregard what the parties say they intended and presume that they intended what is fair and reasonable under the circumstances, however much that may violate their language." In Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124, 125, the court said, "A provision in a contract for the payment of a stipulated sum in the event of its breach will be regarded and enforced as one for liquidated damages when three conditions coexist, to wit: (1) That the damages to be anticipated as resulting from the breach are uncertain in amount or difficult to prove; (2) that there was an intent on the part of the parties § 779. Whether the liquidation must be reasonable. In spite of the language of cases regarding the intention of the parties, there is little doubt that a sum named as liquidated damages in order to be given effect must be reasonable in amount.47 To be sure, under the recent decisions of the most authoritative courts, the primary question seems to be whether the parties honestly endeavored to fix a sum equivalent in value to the breach.48 But as has been seen, the chief, almost to liquidate them in advance; and (3) that the amount stipulated was a reasonable one, that is to say, not greatly disproportionate to the presumable loss or injury. Banta v. Stamford Motor Co., 89 Conn. 51, 92 Atl. 665." In Mount Airy Milling, etc., Co. v. Runkles, 118 Md. 371, 376, 84 Atl. 533, L. R. A. 1915 E. 373, the court said, "As just compensation for the injury done is the end which the law aims to reach, the intention of the parties at the time the contract was entered into is often, though not always, given weight; and whilst the language which they have used in the instrument, if they declare that the damages shall be liquidated, is a circumstance that may have its influence; yet even their explicit words will sometimes be disregarded, and the measure of damages will be restricted to such as the evidence shows have been actually sustained, if the entire agreement, and the peculiar circumstances of the subject-matter of the contract indicate that the reason and justice of the case require this to be done." See also Giesecke v. Cullerton, 280 Ill. 510, 117 N. E. 777. 47 In re Liberty Doll Co., Inc., 242 Fed. 695; People v. C. P. R. R., 76 Cal. 29, 18 Pac. 90; Banta v. Stamford Motor Co., 89 Conn. 51, 92 Atl. 665; Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124; Scofield v. Tompkins, 95 Ill. 190, 35 Am. Rep. 160; Maxwell v. Allen, 78 Me. 32, 2 Atl. 386; Baltimore Bridge Co. v. United Rys., etc., Co., 125 Md. 208, 93 Atl. 420; Myer v. Hart, 40 Mich. 517, 523, 29 Am. Rep. 553; Jones v. Stainton, 200 Mich. 694, 166 N. W. 966; Biddle v. Biddle, 202 Mich. 160, 168 N. W. 92; SheffieldKing Milling Co. v. Domestic Science Baking Co., 95 Ohio, 180, 115 N. E. 1014, 1016; Daly v. Maitland, 88 Pa. 384, 32 Am. Rep. 457; Gates v. Parmly, 93 Wis. 294, 66 N. W. 253, 67 N. W. 739. See also United States v. Bethlehem Steel Co., 205 U. S. 105, 51 L. Ed. 731, 27 Sup. Ct. Rep. 450; Gay Mfg. Co. v. Camp, 65 Fed. 794, 13 C. C. A. 137, 68 Fed. 67, 15 C. C. A. 226, 25 U. S. App. 134, 376; Chicago House Wrecking Co. v. United States, 106 Fed. 385, 389, 53 L. R. A. 122, 45 C. C. A. 343; Makletzova v. Diaghileff, 227 Mass. 100, 116 N. E. 231; Blunt v. Egeland, 104 Minn. 351, 116 N. W. 653; Werner v. Finley, 144 Mo. App. 554, 129 S. W. 73; Ward v. Hudson River Building Co., 125 N. Y. 230, 235, 26 N. E. 256; Grant Marble Co. v. Marshall & Ilsley Bank, 164 Wis. 547, 165 N. W. 14. In May v. Crawford, 142 Mo. 390, 401, 44 S. W. 260, the court said: "The touchstone of validity of contracts of the sort before us is found by solving the question whether the amount ostensibly awarded, for the breach complained of, is or is not reasonably appropriate and just, regard being had to the nature of the stipulation for the possible breach of which the agreement provides." 48 Clydebank Engineering, etc., Co. the only, means of determining whether the parties in good faith endeavored to assess the damages is afforded by the amount of damage stipulated for, and the nature of the breach upon which the stipulation was agreed to become operative. This is but saying in other words that the reasonableness or unreasonableness of the stipulation is decisive. 49 v. Castaneda, [1905] A. C. 6; Sun Printing, etc., Association v. Moore, 183 U. S. 642, 46 L. Ed. 366, 22 S. Ct. 240. There are even some expressions in the latter decision which would warrant the inference that any valuation agreed upon by the parties and clearly stated by them as of the essence of the agreement would be binding, but the case did not require so extreme a view, nor can it be supported. The relief granted against penalties is not granted because of accident or mistake in the agreement, but in opposition to the intention of the parties. It has been suggested that this case should be rested on the doctrine of estoppel, 9 Mich. L. Rev. 588, 18 id. 50, but there seems no reason to suppose that a defendant by admitting that the plaintiff's property has an excessive value can render himself liable to pay that value any more fully by means of estoppel than by direct promise. 49 In Clydebank Engineering &c. Co. v. Castaneda, [1905] A. C. 6, 16, Lord Davey said: "It is always open to the parties to show that the amount named in the clause is so exorbitant and extravagant that it could not possibly have been regarded as damages for any possible breach which was in the contemplation of the parties. "In Forest & Barr v. Henderson & Co., 8 Session Cases (Macpherson), 187, 193, the Lord President (Lord Inglis) says this: 'I hold it to be part of our law on this subject that, even where parties stipulate that a sum of this kind shall not be regarded as a penalty, but shall be taken as an estimate and ascertainment of the amount of damage to be sustained in a certain event, equity will interfere to prevent the claim being maintained to an exorbitant and unconscionable amount.' My only criticism upon that sentence would be this-that I do not think that that is the right way of putting it. I think the fact of a claim being of an exorbitant or of an unconscionable amount as compared with any possible damages that could have been within the contemplation of the parties, is a reason for holding it not to be liquidated damages but a penalty. But that is only a difference of expression, and with the substance of the observation I entirely agree. But the Lord President adds this significant sentence: 'But, of course, the question whether it is exorbitant or unconscionable is to be considered with reference to the point of time at which the stipulation is made between the parties.' That is to say, you are to consider whether it is extravagant, exorbitant, or unconscionable, whatever word you like to select, at the time when the stipulation is made." In Giesecke v. Cullerton, 280 Ill. 510, 117 N. E. 777, 778, the court said: "While the intention of the parties must be taken into consideration, the language of the contract is not conclusive. The courts of this state, as well as in other jurisdictions, lean toward a construction which excludes the idea of liquidated damages and permits the parties to recover only the damages actually sustained. Advance Amusement Co. v. Franke, 268 Ill. 579, 109 N. E. 471; Gobble v. Linder, 76 Ill. |