or discount would be penal. In the case in question where a single day's delay over the permitted fifteen involves doubling the amount to be paid the case is very extreme indeed. If a usury law were in force, the question is one of construction of the statute. Does it apply to discounts for prompt payment or not? But merely because the discount is not obnoxious to the statute, it does not follow that it may not be objectionable as a penalty, if unreasonable in amount.60 There seems no reason to doubt a moderate discount, such as is common in case of electric light or gas contracts, would be enforceable.61 Similar in principle is a note for a fixed sum payable at a day certain, with a provision for a discount if paid before maturity. Such notes have been held enforceable.62 But if the amount of the discount were unconscionably large it would seem to indicate that the smaller sum was in truth the actual debt, and the larger sum the penalty. And if a contract were obviously framed to evade a usury law, which was in substance violated, the contract would be unenforceable.63 See decisions infra on notes where the rate of interest is increased after maturity. 41 In Missouri Edison Electric Co. v. Steinberg Hat & Fur Co., 94 Mo. App. 543, 68 S. W. 383, an electric lighting contract provided for discounts from the monthly bills if paid by the tenth of the month. The discount ranged from ten per cent to forty per cent, varying with the amount of the bill; the discount being greater, the larger the bill. The contract was upheld and it seems rightly; the large discount from the large bill being justified by the ordinary commercial practice of selling large quantities at lower rates than smaller quantities. Whether such a contract made by a public service company might not be obnoxious to the objection of being a device for improperly giving a lower rate to a large consumer than to a small one, is another question. The court relied on two earlier decisions: Missouri Electric Light & Power Co. v. Carmody, 72 Mo. App. 534, 537; Missouri Edison Electric Co. v. Bry, 88 Mo. App. 135, 136. But these decisions do not involve the same question as the later case. In the two earlier decisions there were involved contracts providing for a discount, not for prompt payment but in consideration of an agreement by the consumer to take electric current from the plaintiff, in one case of five years and the other for three years. 62 Carter v. Corley, 23 Ala. 612, Waggoner v. Cox, 40 Oh. St. 539; Campbell v. Shields, 6 Leigh, 517. But see contra Moore v. Hylton, 1 Dev. Eq. 429. 63 Orr v. Churchill, 1 H. Bl. 227; Clark v. Kay, 26 Ga. 403; Brown v. Maulsby, 17 Ind. 10; Kurtz v. Sponable, 6 Kan. 395; Davis v. Freeman, 10 Mich. 188; Gray v. Crosby, 18 Johns. 219; Shelton v. Gill, 11 Ohio, 417; cf. Gould v. Bishop Hill Colony, 35 Ill. 324. § 783. Rules aiding the court in determining whether a sum is liquidated damage. Whether the essential question to be determined is (1) the reasonableness of a sum named as liquidated damages or (2) the fact that the parties attempted to value in good faith, when the contract was made, the actual injury which would be caused by a breach, there cannot well be any other liquidated damages for a breach which causes an injury, the extent of which is mathematically certain, than the very sum thus mathematically determined; and if the amount of the injury, though not mathematically certain, can readily be valued, and a valuation must, as matter of obvious fact, fall within narrow limits, not only is a sum much beyond those limits unreasonable, but the parties must be regarded as chargeable with notice of that fact. Moreover, there is small reason to suppose that the parties will attempt in good faith to value the injury beforehand, if it can perfectly well be valued afterwards; so that not only are the parties more likely to make a bona fide attempt to liquidate their damage if from the nature of the contract the breach will cause damage uncertain in amount and not readily calculable, but the courts also are more ready to regard a provision as reasonable where ordinary principles of compensation cannot easily be applied, and will not afford certain relief.64 The amount of the sum named, however, even 64 Thus in Ponsonby v. Adams, 6 Brown Parl. Cas. 417. It was covenanted, that if the tenant failed to reside on an estate in Ireland leased to him, his rent should rise from 1251. to 150l. and it was decreed that the 251. additional rent was to be considered as liquidated damages. In Rolfe v. Peterson, 6 Brown Parl. Cas. 470, the same doctrine was laid down respecting a covenant that the tenant should pay 51. per annum for every acre broken up and converted into tillage. In Lowe v. Peers, 4 Burr. 2225, 2229, the same was held of a promise to pay 1000l. if the defendant married any woman except the plaintiff. In Clydebank Engineering, etc., Co. v. Castaneda, [1905] A. C. 6, 11, Lord Davey said of a stipulation for damages of £500 a week for delay in delivering torpedo boat destroyers: "The very reason why the parties do in fact agree to such a stipulation is that sometimes, although undoubtedly there is damage and undoubtedly damages ought to be recovered, the nature of the damage is such that proof of it is extremely complex, difficult, and expensive. If I wanted an example of what might or might not be said and done in controversies upon damages, unless the parties had agreed beforehand, I could not have a better example than that which the learned counsel has been entertaining us with in such a case, has also an important bearing upon the question. Though the mere fact that, as it turns out, the sum named exceeds the actual damage, will not make it a penalty, since the reasonableness of the provision must be considered as of the date of the contract,65 yet the excessive size of the sum agreed for the last half-hour in respect of the damage resulting to the Spanish Government by the withholding of these vessels beyond the stipulated period. Supposing there was no such bargain, and supposing the Spanish Government had to prove damages in the ordinary way without insisting upon the stipulated amount of them, just imagine what would have to be the cross-examination of every person connected with the Spanish Administration such as is suggested by the commentaries of the learned counsel: 'You have so many thousand miles of coast-line to defend by your torpedoboat destroyers; what would four torpedo-boat destroyers do for that purpose? How colud you say you are damaged by their non-delivery? How many filibustering expeditions could you have stopped by the use of four torpedo-boat destroyers?"" See also Kemble v. Farren, 6 Bing. 141; Reynolds v. Bridge, 6 El. & Bl. 528; Clark v. Barnard, 108 U. S. 436, 456, 27 L. Ed. 780, 2 Sup. Ct. 878; Sun Printing, etc., Assoc. v. Moore, 183 U. S. 642, 46 L. Ed. 366, 22 Sup. Ct. 240; In re Liberty Doll Co., 242 Fed. 695; Consolidated Lumber Co. v. Los Angeles, 33 Cal. App. 698, 166 Pac. 385; Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124, 125; Sanders v. Carter, 91 Ga. 450, 17 S. E. 345; Hennessy v. Metzger, 152 Ill. 505, 38 N. E. 1058, 43 Am. St. Rep. 267; Hamilton v. Overton, 6 Blackf. (Ind.) 206, 38 Am. Dec. 136; Commonwealth v. Ginn, 111 Ky. 110, 63 S. W. 467; Maxwell v. Allen, 78 Me. 32, 2 Atl. 386, 57 Am. Rep. 783; Taylor v. Times Newspaper Co., 83 Minn. 523, 86 N. W. 760, 85 Am. St. Rep. 473, 89 Minn. 12, 93 N. W. 659; Womack v. Coleman, 89 Minn. 17, 93 N. W. 663; Morse v. Rathburn, 42 Mo. 594, 97 Am. Dec. 359; St. Louis v. Parker-Washington Co., 271 Mo. 229, 196 S. W. 767, cert. denied 245 U. S. 651, 38 S. Ct. 11, 62 L. Ed. 531; Hurd v. Dunsmore, 63 N. H. 171; Lansing v. Dodd, 45 N. J. L. 525; Bagley v. Peddie, 16 N. Y. 469, 69 Am. Dec. 713; Lange v. Werk, 2 Oh. St. 519; Alvord v. Banfield, 85 Oreg. 49, 166 Pac. 549; Powell v. Burroughs, 54 Pa. St. 329; Emery v. Boyle, 200 Pa. 249, 49 Atl. 779; Muse v. Swayne, 2 Lea (Tenn.), 251, 31 Am. Rep. 607; Crawford v. Heatwole, 110 Va. 358, 66 S. E. 46, 34 L. R. A. (N. S.) 587; Herberger v. Orr Co., 62 Wash. 526, 114 Pac. 178; Barrett v. Monro, 69 Wash. 229, 124 Pac. 369, 40 L. R. A. (N. S.) 763; Lyman v. Babcock, 40 Wis. 503. Where a partner agreed not to use intoxicants and that if he did so, the partnership should be terminated and he should lose his interest therein and be entitled in lieu thereof merely to a stipulated salary until the breach occurred, the provision was held enforceable as liquidated damages. Henderson v. Murphree, 109 Ala. 556, 20 So. 45. "The certainty of some damage and the uncertainty of means and standards by which the actual damage can be ascertained requires the court to uphold the contract as one for liquidated damages." 65 Clydebank Engineering, etc., Co. v. Castaneda, [1905] A. C. 6; Sun Printing, etc., Association v. Moore, 183 U. S. 642, 46 L. Ed. 366, 22 Sup. Ct. 240; Blackwood v. Liebke, 87 Ark. 545, 113 S. W. 210; Banta v. upon may tend to show that the parties did not make a bona fide effort to fix the actual value of the injury.66 Even more clearly, where a contract contains a number of promises or a continuing obligation, a provision that a fixed sum shall be paid for any breach of any promise, or for any delay in performing the continuing obligation is a penalty.67 The provision is in fact un Stamford Motor Co., 89 Conn. 51, 92 Atl. 665; Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124; District of Columbia v. Harlan, etc., H. Co., 30 D. C. App. 270; Baltimore Bridge Co. v. United Rys., etc., Co., 125 Md. 208, 93 Atl. 420; Mead v. Wheeler, 13 N. H. 351. 66 Morse v. Rathburn, 42 Mo. 594, 97 Am. Dec. 359; Bradstreet v. Baker, 14 R. I. 546; Ward v. Hudson River Bldg. Co., 125 N. Y. 230, 26 N. E. 256. 67 Kemble v. Farren, 6 Bing. 141; Wilson v. Love, L. R., [1896] 1 Q. B. 626; Magee v. Lavell, L. R. 9 C. P. 107, 111; Elphinstone v. Monkland Iron & Coal Co., 11 App. Cas. 332, 342; Clydebank, etc., Co. v. Castaneda, [1905] App. Cas. 6, 15; Pye v. British, etc., Syndicate, [1906] 1 K. B. 425, 429; Bignall v. Gould, 119 U. S. 495, 7 Sup. Ct. 294, 30 L. Ed. 491; Keeble v. Keeble, 85 Ala. 552, 5 So. 149; Mansur, etc., Co. v. Tissier, etc., Co., 136 Ala. 597, 33 So. 818; Home Land, etc., Co. v. McNamara, 111 Fed. 822, 49 C. C. A. 642; Smith v. Newell, 37 Fla. 147, 20 So. 249; Greenblatt v. McCall, 67 Fla. 165, 64 So. 748; Trower v. Elder, 77 Ill. 452; Parker-Washington Co. v. Chicago, 267 Ill. 136, 107 N. E. 872; Heatwole v. Gorrell, 35 Kans. 692, 12 Pac. 135; State v. Larson, 83 Minn. 124, 86 N. W. 3, 54 L. R. A. 487; Morse v. Rathburn, 42 Mo. 594, 97 Am. Dec. 359; Squires v. Elwood, 33 Neb. 126, 49 N. W. 939; Monmouth Park Assn. v. Wallis Iron Works, 55 N. J. L. 132, 26 Atl. 140, 19 L. R. A. 456, 39 Am. St. 626; Summit v. Morris County Traction Co., 85 N. J. L. 193, 88 Atl. 1048, L. R. A. 1915 E. 385; Lampman v. Cochran, 16 N. Y. 275; Berry v. Wisdom, 3 Oh. St. 241; El Reno v. Cullinane, 4 Okla. 457, 46 Pac. 510; Wilhelm v. Eaves, 21 Ore. 194, 27 Pac. 1053, 14 L. R. A. 297; Alvord v. Banfield, 85 Oreg. 49, 166 Pac. 549; Keck v. Bieber, 148 Pa. St. 645, 24 Atl. 170, 33 Am. St. 846; Johnson v. Cook, 24 Wash. 474, 64 Pac. 729; Sledge v. Arcadia Orchard Co., 77 Wash. 477, 137 Pac. 1051; Madison v. American Sanitary Engineering Co. 118 Wis. 480, 95 N. W. 1097. It is true that in Wallis v. Smith, 21 Ch. D. 243, where the leading English cases up to that time on the subject of penalties and liquidated damages were commented upon by the Court of Appeal, Jessel, Master of the Rolls, thus classified the decisions and dicta on the subject: "1. Where a sum of money is stated to be payable either by way of liquidated damages, or by way of penalty for breach of stipulations, all or some of which are, or one of which is, for the payment of a sum of money of less amount, that is really a penalty, and you can only recover the actual damage, and the court will not sever the stipulations. "2. Cases 'in which the amount of damages is not ascertainable per se, but in which the amount of damages for a breach of one or more of the stipulations either must be small, or will, in all human probability, be smallthat is, where it is not absolutely necessary that they should be small; but it is so near to a necessity, having regard to the probabilities of the case, that the court will presume it to be so.' reasonable, and, furthermore, it is impossible to show in such a case that the parties made an honest attempt to estimate the actual injury which would be caused, since no reasonable person would suppose that the injury from any breach which might oc "Then the question is whether in that class of cases the same rule applies. Now, upon this there is no decision. There are a great many dicta upon the question, and a great many dicta on each side. I do not think it is necessary to express a final opinion in this case, but I do say this, that the court is not bound by the dicta on either side, and the case is open to discussion. It is within the principle, if principle it be, of a larger sum being a penalty for non-payment of a smaller sum; but, at the same time, it is also within another class of cases to which I am now going to call attention. "3. The class of cases to which I refer is that in which the damages for the breach of each stipulation are unascertainable, or not readily acertainable, but the stipulations may be of greater or less importance, or they may be of equal importance. There are dicta there which seem to say that if they vary much in importance the principle of which I have been speaking applies, but there is no decision. On the contrary, all the reported cases are decisions the other way; although the stipulations have varied in importance the sum has always been treated as liquidated damages. "4. A class of cases relating to deposits. Where a deposit is to be forfeited for the breach of a number of stipulations, some of which may be trifling, some of which may be for the payment of money on a given day, in all those cases the judges have held that this rule does apply and that the bargain of the parties is to be carried out. I think that exhausts the substance of the cases." But in Pye v. British, etc., Commercial Syndicate, Ltd., [1906] 1 K. B. 425, 429, Bigham, J., said, "I think the only rule which applies to all cases is that the judge must look to all the circumstances of each particular contract-to what the parties did as well as to the language used-and must say from them what the intention of the parties was. No doubt, notwithstanding the observations of Jessel, M. R., in Wallis v. Smith, 21 Ch. D. 243, one thing to be taken into consideration is to see whether the sum agreed to be paid is to be paid on the happening of one event or of many events some of which may be of great and some of small importance, and with great deference to the criticism of Jessel, M. R., in that case, I think the dictum of Lord Coleridge, C. J., in Magee v. Lavell, L. R. 9 C. P. 107, at page 111, is right when he said in the course of the argument: "The general principle of law appears to be that where the contract contains a variety of stipulations of different degrees of importance, and one large sum is stated at the end to be paid on breach of performance of any of them, that must be considered as a penalty.' I have myself always understood that that is one of the rules which must guide a judge when he has to discover what the intention of the parties was. The only exception I would take to that dictum is the use of the word 'must,' and I am sure that Lord Coleridge, C. J., did not mean to say that if other circumstances existed which would throw light on the intention of the parties in making the agreement a judge might not come to a contrary conclusion. He meant only that this fact was an important matter to take into consideration when seeking to find out the intention of the parties." |