amounted to only $9.80, and failure to obtain a release of this claim would have made the entire amount of the bond due and payable. The Supreme Court held that the $10,000 was a penalty and not liquidated damages, and a judgment for 1 cent was affirmed.83

That the parties to a contract have described the amount to be paid in case of a breach as "liquidated damages" or as a "penalty" is not conclusive upon the point,84 although the term used by the parties has been held to have some weight.85 It has been held that the word "fine" was intended by the parties to a contract to mean “liquidated damages."

986

In a certain case the defendant hired a yacht for 4 months for $10,000 and agreed, in the event he failed to return it, to pay $75,000, which was stated to be the value of the yacht for the purpose of the contract. The yacht was destroyed, and suit was brought for the recovery of the $75,000. The Supreme Court affirmed a judgment for this amount and, in doing so, said in part:

* * * whether a particular stipulation to pay a sum of money is to be treated as a penalty, or as an agreed ascertainment of damages, is to be determined by the contract, fairly construed, it being the duty of the court always, where the damages are uncertain and have been liquidated by an agreement, to enforce the contract.87

In 1904 an agreement was entered into for the erection of two laboratory buildings for the Department of Agriculture in Washington. The contract called for the completion of the buildings in 30 months, and for a delay of 101 days beyond the contract period the Government deducted $200 a day, the amount stipulated in the contract as liquidated damages, a total of $20,200. Later, suit was brought against the Government for the recovery of this amount. In holding that no recovery could be had, the Supreme Court of the United States said: 88

** * courts will endeavor, by a construction of the agreement which the parties have made, to ascertain what their intention was when they inserted such a stipulation for payment, of a designated sum or upon a designated basis, for a breach of a covenant of their contract, precisely as they seek for the intention of the parties in other respects. When that intention is clearly ascertainable from the writing, effect will be given to the provision, as freely as to any other, where the damages are uncertain in nature or amount or are difficult of ascertainment or where the amount stipulated for is not so extravagant, or disproportionate to the amount of property loss, as to show that compensation was not the object aimed at or as to imply fraud, mistake, circumvention, or oppression. There is no sound reason why persons competent and free to contract may not agree upon this subject as fully as upon any other, or why their agreement, when fairly and understandingly entered into with a view to just compensation for the anticipated loss, should not be enforced. The foregoing quotation expresses the common law relative to liquidated damages.

In a number of cases involving cooperatives, the courts have found that at common law they were entitled to liquidated damages. On the other

83

Bignall v. Gould, 119 U. S. 495, 7 S. Ct. 294, 30 L. Ed. 491.

84 Northwestern Terra Cotta Co. v. Caldwell, 234 F. 491, 496.

85

Tayloe v. T. & S. Sandiford, 20 U. S. 13, 5 L. Ed. 384.

89

86 United Farmers Association of California v. Klein, 41 Cal. App. 2d 766, 107 P. 2d 631.

87

Sun Printing and Publishing Association v. Moore, 183 U. S. 642, 662, 22 S. Ct. 240, 46 L. Ed. 366.

88 Wise (Trustee in Bankruptcy of Stannard) v. United States, 249 U. S. 361, 365, 39 S. Ct. 303, 63 L. Ed. 647.

89

Burley Tobacco Society v. Gillaspy, 51 Ind. App. 583, 100 N. E. 89; Tobacco Growers' Coop. Association v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231; Ex parte Baldwin County Producers' Corporation, 203 Ala. 345, 83 So. 69: Washington Coop. Egg & Poultry Association v. Taylor, 122 Wash. 466, 210 P. 806; Bull

hand, in a number of cases it was held that at common law provisions in bylaws or contracts providing for the payment by members of stipulated sums, in the event they failed to market their products or livestock through the association, were unlawful as they were deemed to be in restraint of trade.90

The bylaws in the Iowa case first cited provided that any member of the association should forfeit 5 cents for every hundredweight of produce or livestock sold to any competitor of the association. The association bought and sold the produce and livestock of nonmembers in addition to that of members. The bylaw, on its face, was aimed at competitors of the association and did not disclose that its purpose was the maintenance and upkeep of the association. It will be remembered that provisions for liquidated damages are sometimes referred to as maintenance clauses, on the well-founded theory that all members of a marketing agency should contribute to its maintenance and upkeep even though they may not make use of it for a particular period. In the Iowa case, the court held that the bylaw was unlawful as it was deemed to be in restraint of trade.

In the other cases cited with the Iowa case just discussed, the courts reached similar conclusions and for the same reason. Subsequent to the decision of the Iowa cases, a cooperative marketing act was enacted in that State which expressly authorized associations to provide for liquidated damages in their contracts and bylaws. Under this act the supreme court of that State held that a provision in the bylaws of a livestock association for the payment of 25 cents per 100 pounds for all livestock marketed by members outside the association was valid.91 So that, so far as associations incorporated under the cooperative act of Iowa are concerned, they may provide for liquidated damages in their contracts or bylaws.

In Colorado, the rule announced by the supreme court, holding that provisions in contracts or bylaws which caused a member of an association to become liable to the association for a specified amount in the event he marketed his products outside the association were illegal, was changed by the supreme court in later cases in which the liquidated-damage clause provisions were authorized by cooperative acts under which the associations were formed.92 The Alabama case referred to was decided by an intermediate court of that State and was superseded by a decision of the supreme court of the State.9

93

In many of the cooperative statutes, language is included which expressly authorizes associations to include in their contracts and bylaws provisions for liquidated damages. These provisions in the cooperative statutes specify ville Milk Producers' Association v. Armstrong, 178 N. Y. S. 612, 108 Misc. Rep. 582; Castorland Milk & Cheese Co. v. Shantz, 179 N. Y. S. 131; Manchester Dairy System, Inc. v. Hayward, 82 N. H. 193, 132 A. 12; Potter v. Dark Tobacco Growers' Coop. Association, 201 Ky. 441, 257 S. W. 33; Elephant Butte Alfalfa Association v. Rouault, 33 N. M. 136, 262 P. 185.

20 Reeves v. Decorah Farmers' Coop. Soc., 160 Iowa 194, 140 N. W. 844, 44 L. R. A. (N. S.) 1104; Ludowese v. Farmers' Mut. Coop. Co., 164 Iowa 197, 145 N. W. 475; Burns v. Wray Farmer's Grain Co., 65 Colo. 425, 176 P. 487, 11 A. L. R. 1179; Atkinson v. Colorado Wheat Growers' Association, 77 Colo. 559, 238 P. 1117; Colorado Wheat Growers' Association v. Thede, 80 Colo. 529, 253 P. 30; Georgia Fruit Exchange v. Turnipseed, 9 Ala. App. 123, 62 So. 542.

91 Clear Lake Coop. Live Stock Shippers' Association v. Weir, 200 Iowa 1293, 206 N. W. 297.

92

Rifle Potato Growers' Coop. Association v. Smith, 78 Colo. 171, 240 P. 937; Marvin v. Pueblo Dairymen's Cooperative, 131 Colo. 601, 284 P. 2d 238, 12 A. L. R. 2d 130.

93

Ex parte Baldwin County Producers' Corporation, 203 Ala. 345, 83 So. 69.

that the sums thus fixed shall be reasonable. The supreme courts of many States have passed upon the contracts of cooperatives formed under such statutes and have generally upheld the provisions contained in them with respect to liquidated damages. For instance, liquidated damages of 5 cents per pound in the case of tobacco,94 5 cents per pound for cotton,95 25 cents per bushel for wheat,96 50 cents per box for fruit,97 and 5 cents per dozen for eggs 98 have all been upheld.

It should not be assumed from the foregoing that an association, even under a statute authorizing it to provide for liquidated damages, is free to fix any amount as such damages. On the contrary, the amount should always be reasonable and not so extravagantly large as to indicate that compensation to the association is not the object sought. The Supreme Court of Iowa has said, with reference to a provision purporting to provide for liquidated damages, that:

Where it appears that the amount provided for is disproportionate and excessive, equity will reject the terms of the proviso and declare a penalty."

When the legal status of cooperatives was once established, it followed as a matter of course that such associations were entitled to provide for liquidated damages under circumstances comparable with those under which other entities might provide for and recover such damages, because liquidated damages were well known to the common law and are in no sense peculiar to cooperation. At the present time it is believed that cooperatives in each of the States may provide for liquidated damages, by reason of provisions existing in the statutory law of the State or by reason of the common law.

Some interesting cases involving liquidated damages have been before the courts. In a Kentucky case a member of the Dark Tobacco Growers' Cooperative Association rented his farm for cash rent, went to the city, and there worked as a carpenter. The association sued the landlord for liquidated damage of 5 cents per pound on account of the tobacco grown and sold by the tenant, who was not a member of the association and who marketed the tobacco through other channels. The contract of the landlord with the association covered all the tobacco grown on his land. The court held that the association was entitled to recover liquidated damages amounting to $250, and referred to a provision in the Bingham Cooperative Act of Kentucky, which declares that it is a conclusive presumption that a member controls the products grown on his land.1

91 Tobacco Growers' Coop. Association v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231; List v. Burley Tobacco Growers' Coop. Association, 114 Ohio St. 361, 151 N. E. 471; Dark Tobacco Growers' Coop. Association v. Mason, 150 Tenn. 228, 263 S. W. 60; Dark Tobacco Growers' Coop. Association v. Daniels, 215 Ky. 67, 284 S. W. 399; Dark Tobacco Growers' Coop. Association v. Robertson, 84 Ind. App. 51, 150 N. E. 106.

95

South Carolina Cotton Growers' Coop. Association v. English, 135 S. C. 19, 133 S. E. 542; North Carolina Cotton Growers' Coop. Association v. Bullock, 191 N. C. 464, 132 S. E. 154, 47 A. L. R. 924.

96 Kansas Wheat Growers' Association v. Schulte, 113 Kan. 672, 216 P. 311; Nebraska Wheat Growers' Association v. Norquest, 113 Neb. 731, 204 N. W. 798.

97 Lee v. Clearwater Growers' Association, 93 Fla. 214, 111 So. 722; Anaheim Citrus Fruit Association v. Yeoman, 51 Cal. App. 759, 197 P. 959.

98

Poultry Producers of Central California v. Nilsson, 197 Cal. 245, 239 P. 1086. Fort Dodge Coop. Dairy Marketing Association v. Ainsworth, 217 Iowa 712, 251 N. W. 85, 87. See also Parker v. Dairymen's League Cooperative Association, Inc., 226 N. Y. S. 226, 222 App. Div. 341.

1

1 Dark Tobacco Growers' Coop. Association v. Daniels, 215 Ky. 67, 284 S. W. 399.

Again it has been held that the inability of a member to deliver his products, because of a crop mortgage, does not prevent the association from recovering liquidated damages as a result of his failure to deliver.2 And when a member of an association has signed a contract warranting that he was in position to control the wheat he produced, the fact that the president of the association told the member whose wheat was covered by a mortgage that he could deliver it to the mortgagee did not operate to relieve the member from liability to the association for liquidated damages on account of wheat so delivered.3

5

In the case last cited there were no exceptions in the contracts excusing failure to deliver because of the reasons therefor. Hence, the courts followed the general rule that impossibility of performance of a contract, unless created by an act of God, the law, or the complaining party, does not, as a rule, excuse failure to perform. In other words, the members in the cases cited had agreed to deliver their products and, having failed to do so without a lawful excuse, they were liable for liquidated damages. A rather novel case arose involving the law of liquidated damages in California. The Civil Code of California stated that liquidated damages could be recovered by contract only where it is impracticable or extremely difficult to fix actual damages. However, the Agricultural Code of California authorized nonprofit marketing associations to fix by contract or bylaw liquidated damages to be paid on breach of contract with respect to sale, delivery, or withholding of products. About twenty raisin growers formed a cooperative under the laws of California. The association entered into a contract with a third person under which he was to receive and pack raisins upon delivery by members of the association. The marketing agreement between the association and its members provided for specified liquidated damages should the grower "fail to deliver raisins hereby sold in accordance with the terms of this agreement." One of these terms was to deliver raisins "properly cured and in good condition." Eight members of the cooperative, although delivering all the raisins they produced, delivered some raisins of such high moisture content that they could not be processed without redrying. Some of the other members of the cooperative brought an action against the members furnishing the wet raisins and against the association for the recovery of liquidated damages. A judgment in favor of the plaintiffs in the trial court was reversed on appeal. In denying recovery, the appellate court held that (1) the law did not authorize a contract for liquidated damages because of the delivery of inferior quality raisins but only for the failure to deliver the proper quantity, and (2) the marketing contract itself permitted recovery of liquidated damages only when a grower failed or refused to deliver all his raisins. In California in cases in which it appeared that marketing contracts had been assigned to a cooperative, but in which it did not appear that the growers in question had become members of the association, it was held

2 North Carolina Cotton Growers' Coop. Association v. Bullock, 191 N. C. 464, 132 S. E. 154, 47 A. L. R. 924; Bishop v. Alabama Farm Bureau Cotton Association, 215 Ala. 388, 110 So. 711; Kansas Wheat Growers' Association v. Ast, 118 Kan. 247, 234 P. 963; Kansas Wheat Growers' Association v. Leslie, 126 Kan. 694, 271 P. 284; Lennox v. Texas Farm Bureau Cotton Association, 16 S. W. 2d 413 (Tex. Civ. App.).

3

5

Kansas Wheat Growers' Association v. Leslie, 126 Kan. 694, 271 P. 284.

Dermott v. Jones, 2 Wall. 1, 69 U. S. 1, 17 L. Ed. 762, 76 U. S. 486, 19 L. Ed. 621.

Olson v. Biola Coop. Raisin Growers Association, 184 P. 2d 742; affirmed, 193 P. 2d 929; 33 Cal. 2d 664, 204 P. 2d 10.

that provisions for liquidated damages in the marketing contracts were unenforceable.

When a milk cooperative did not show that it was justified in rejecting milk tendered by a member, it could not recover liquidated damages for failure to deliver milk.

Although a bylaw of an association provided that membership therein should cease in case any member failed to comply with the terms of his marketing contract, this did not prevent the association from recovering liquidated damages arising out of a breach of the marketing contract by a producer.8

In drafting a provision for liquidated damages, care should be taken that the rule prescribed for ascertaining the damages will be fair, equitable, and clear under all circumstances. For instance, a provision for the payment of $10 per cow, in the event a member marketed any milk outside the association, has been criticized on the ground that it is uncertain whether the $10 per cow is to be determined on a per-day basis or once and for all, or whether it would be applicable if a member marketed outside the association the milk from some cows but not from all.9

Cooperatives in entering into contracts with third persons, as well as with their members, should keep the foregoing principles in mind. In an Oregon case it was held that the stipulated damages specified in a contract entered into by a dairy cooperative with a dairy distributor amounted to a penalty.1

10

It has been held that the fact that a provision in a marketing agreement providing for liquidated damages is void because it does not conform to the statute under which the association is organized does not invalidate the entire contract.11

"S

Specific Performance

PECIFIC performance may be defined as the actual accomplishment of a contract by the party bound to fulfill it, for a decree for specific performance is nothing more or less than means of compelling a party to do precisely what he ought to have done without being coerced by a

It should be borne in mind that the term "specific performance" is the name of an equitable remedy, by means of which a person is affirmatively compelled by the court to perform his contract. It is true that growers are frequently enjoined from disposing of their products outside the association of which they are members, in violation of their contracts; and this, generally speaking, results in the contract actually being performed; but, strictly speaking, this is not what is meant by the term "specific performance." The cooperative statutes that have been enacted by the

6

Sun-Maid Raisin Growers of California v. Paul A. Mosesian & Son, Inc., 90 Cal. App. 1, 265 P. 828; Sun-Maid Raisin Growers of California v. K. Arakelian, Inc., 90 Cal. App. 10, 265 P. 832.

7

Frame v. Trenton Milk & Cream Company, Inc., 210 N. Y. S. 591, 125 Misc. Rep. 86.

8

9

Milk Producers' Association v. Webb, 97 Cal. App. 650, 275 P. 1001.

Pierce County Dairymen's Association v. Templin, 124 Wash. 567, 215 P. 352. See also Watertown Milk Producers' Coop. Association v. Van Camp Packing Co., 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A. L. R. 391.

10

Dairy Cooperative Association v. Brandes Creamery, 147 Ore. 488, 30 P. 2d 338, 147 Ore. 503, 30 P. 2d 344.

Watertown Milk Producers' Coop. Association v. Van Camp Packing Company, 199 Wis. 379, 225 N. W. 209, 226 N. W. 378, 77 A. L. R. 391.

12 25 R. C. L. 203.