CONTRACTS.

[Lorain Circuit Court,

April 29, 1898.]

Hale, Marvin and Caldwell, JJ.

#### Knox Rock Blasting Co. v. Grafton Stone Co.

Condition requiring Double Fees for use of Tools beyond Expiration of Contract construed as a Penalty, not Liquidated Damages.

A provision in a contract for the use of certain tools and implements, that “in case the party of the second part shall at any time after the termination of the license, use or apply any of the tools or methods protected by the letters patent referred to therein, without first having obtained a new license, then the license fees shall be double the sum specified in the license” construed as a penalty and not as liquidated damages.

Caldwell, J.

This case involves a construction of the contract," as to whethe. certain matters stated in it constitutes liquidated damages or a penaltyr It seems that the plaintiff was the inventor of certain tools and implements to be used in the quarrying of rock; and, in 1889, or 1888, that company gave to the Grafton Stone Company the license to use the plaintiff’s inventions in its quarry at Grafton for one year with an option in the contract that if it was desirable on the part of the stone company to continue the contract for five years longer, that it could do so by serving notice upon the plaintiff to that effect, and if no notice was served then the silence was to be taken as a desire on the part of the stone company to continue as licensee for five years longer at the same terms; the terms being $250 a year.

Then there was a provision in the contract that if it was continued longer, under circumstances I will noticg more definitely hereafter, that the stone company was to pay to the plaintiff t-he sum of $500 a year.

*479This suit was brought, claiming that after the expiration of the six years under the lease, the stone company used this device for a period of three years thereafter. And suit was brought to recover the amount named in the contract, $1,500.

Upon the trial of the case it turned out that during the second year there had been no use made of the implements by the stone company, but a finding on the part of the jury that the use had been made during the first and third year after the expiration of the six years.

And the plaintiff claimed for such use $1,000. Claiming that the amount named in the contract was stipulated damages, and the defendant claimed that it was a mere penalty and that no recovery could be had beyond the actual use that was made of the implements, or actual damage. The matter turned upon the trial in such a manner that for this use for which suit was being pressed, a recovery of about $129, I think was obtained. And now upon the special finding of the jury that a use was made of this on the first and third years; that some use was made of it during those years, after the expiration of the lease, that under the finding of the jury and the law of the case it is entitled to $1,000, instead of the amount that was awarded, in the general verdict.

And whether the plaintiff is entitled to the $1,000, or must be content with what has been obtained upon the trial must be determined from the construction of the contract between the parties, and whether the parties intended to stipulate for damages, or to fix a penalty is a matter that has to be determined by the intention of the parties. It is purely a matter of intention, and that intention is to be determined entirely from the contract that existed between them.

No extrinsic evidence is proper in such a case, unless there is a charge of fraud or something that is its equivalent; being no such charge in this case it turns upon purely a question of construction of the contract.

Now, the contract, the agreement or lease was made May 22, 1888, between the Knox Rock Blasting Co., and the defendant, Grafton Stone Co.

Whereas, preceding the terms of the contract, recites that the plaintiff has obtained certain letters patent, that are of benefit to parties who are engaged in quarrying stone, giving their date, etc., and reciting that whereas the party of the second part is desirous of making use of these inventions and improvements protected by the above recited letters patent.

Now, therefore the parties have stipulated and agreed as follows, to-wit:

> “First — The party of the first part hereby licenses and empowers the said party of the second part to use and apply the improved method covered by letters patent above recited, together with all improvements that may hereafter be made thereon, and for which letters patent may issue to or become the property of the said party of the first part, at its quarry situated near Grafton, on the line of C. C. C. & I. R. R. and C. L. & W. R. R. in the township of Carlisle, county of Uorain and state of Ohio, said quarry being now owned and operated by said second party; and in no other place or places, for and during the full term of one (1) year from the date hereof and ending on the twenty-first day of May, A. D., 1889.

> “Second — In consideration whereof, the said party of the second part agrees to pay the sum of two hundred and fifty ($250) dollars, as *480follows, to-wit: two hundred and fifty ($250) dollars upon the first day of June, A. D., 1888, and a like sum upon the first day of June in each year during the term of this contract as provided for upon the second page hereof.

> ‘ ‘It is mutually understood and agreed by the parties hereto, as a part of the consideration of this contract, that the party of the second part shall have the privilege ol extension of the term of this license for the period of five vears, commencing upon the twenty-second day of May, A. D., I889, and expiring upon the twenty-first day of May, A. D., 1894, and the consideration for the said additional term of five years shall be the sum of twelve hundred and fifty ($1,250) dollars, payable in equal annual installments, as set forth in section two, upon first page of this contract, and it is further understood and agreed that the said second party may give notice in writing to said first party, on or before the first day of January, A. D., 1889, of its intention to accept or reject this privilege, and the failure to give such notice shall constitute this license a contract in full force and virtue, subject to all the conditions herein, for the above mentioned term of five years.

> ‘‘Third —The party of the first part agrees to protect the party of the second part against all suits for infringement if any, and also agrees, upon proof being furnished, to protect the said second party against any infringement of the patent above recited within the territory covered by this license, by any or all parties illegally using the same, and the said second party agrees to immediately disclose to the said first party the facts concerning any such infringement as shall' come to their notice, and to furnish proof of the same, when the said first party shall take immediate steps by proceeding at law, in equity or otherwise, to prevent such infringement.

> ‘ ‘Fourth — It is mutually understood and agreed by the parties hereto, that the manufacture and sale of the tools protected by the above recited letters patent, is hereby expressly reserved to and by the party of the first part and the use of any of said patented tools, by the party of the second part, is hereby expressly limited to the term and life of this license, and that the party of the first part may, if it so elect, require the return and delivery of all such tools, paying therefor the actual value of the same as ‘‘tool steal.”

> ‘‘Fifth — It is further mutually understood and agreed that in case the party of the second part shall at any time after the termination of this license, as set forth in any previous paragraph hereof, use or apply any of the tools or methods protected by the letters patent referred to above, without having first obtained a new license from the party of the first part, then and in that case the license fees shall be double the sum specified in the license for at least the term of one full year and thereafter from year to year at the increased rate, so long as any use shall be made of said tools or methods, not exceeding however the life of the patents. And upon failure by the said party of the second part to make payment of any of the said annual installments, the said party of the first part may, if it so elect, after having given ten days’ notice in writing to the party of the second part, or its agent in charge of the quarry, revoke and terminate this license; but the party of the second part shall not thereby be discharged from any liability incurred by this contract.”

There is no doubt but that the life of this contract was for one year with an option to extend. The stone company avails itself of that option, and it was then extended for five years under its terms, and *481there is no doubt but at the end of that five years this contract terminated, and there being an option in the fourth paragraph, that the plaintiff could take back the tools and pay for them the price of tool steal or could leave them, but that should depend entirely upon its option.

The stone company very properly, a few days before the termination of the contract, notified the plaintiff that it would no longer continue to use it, or no longer make any contract with it for the use of these tools and these implements and the company in Pittsburg responded to that letter by regretting very much their conclusion and wishing to know the grounds on which they had come to the conclusion that they had, not to use them any longer.

Now the company did go on, and as the case stands before us, it is conclusive that the parties did use these implements during the first and third years after the termination of this contract in 1894, and it leaves then only the construction of this contract so far as the fifth clause is concerned.

That is, this part of it, “It is further mutually understood and agreed that in case the party of the second part shall at any time after the termination of this license, as set forth in any previous paragraph hereof, use or apply any of the tools or methods protected by the letters patent referred to above, without first having obtained a new license from the party of the first part, then and in that case the license fees shall be double the sum specified in this license for at least the term of one full year, and thereafter from year to year at the increased rate, so long as any use shall be made of said tools or methods,” or that the use is continued.

It seems to us that calling this a license fee when there is no license —the license has terminated, the stone company has refused to enter into any new license; now to call that a license fee under this contract is certainly a misnomer. And there could be no license fee without a license, and that being a misnomer, the plaintiff now claims that it may be treated as liquidated damages for the use, that is, after the expiration of this lease. And the other party, the defendant, claims that it is a mere penalty attached for so using.

. In construing this class of contracts, the courts have to ascertain certain facts as aids in the construction, one of these, the intention of the parties to the contract is to be determined. Another matter that bears upon that intention is, whether or not the damages arising from the use as in this case after the expiration of the license whether the damages are such as are easily ascertainable or not. I am now putting that very strong in saying ‘ ‘easily ascertainable. ’ ’ Our Supreme Court in 110. S., has put it, if they are conjectural or uncertain, necessarily so, then the courts will construe the contract as for liquidated damages, but if they are certain, or so certain that they maybe definitely determined — and by that I do not mean precisely determined — I mean definitely determined as damages generally are in cases, then the courts will prefer to construe the provision as a penalty rather than as stipulated damáges.

And another principle clearly established by the courts' is, that if there is any uncertainty as to which the parties intended, whether they intended stipulated damages or penalty, the courts will invariably, if the damages can be ascertained, prefer calling it a penalty rather than stipulated damages.

There is something of a question in this case, whether this shall be called stipulated damages or a penalty, and that is to be determined by *482applying some of these rules, and the plaintiff insists that the reason it should be construed as stipulated damages in this case is, that the ainount of damages are not ascertainable or are ascertainable only under difficulties to the plaintiff; but that is not sufficient. I find a number of cases where the damages are ascertained through much difficulty and through expense, yet it is not regarded as a sufficient reason for construing the provision as stipulated damages in preference to that of a penalty.

It is certainly fair to both parties to say that the amount they agreed upon for the use of these implements during the six years — is the fair value for the use.' Fair value for the license.

And we have then the fair value for the use for a year in this contract itself, having that determined there is' no uncertainty except to determine the amount of time that these implements were used. They cannot be used at all without those persons who use them knowing pretty definitely, as definitely as we ever get at questions of this kind, how much they were used, how long they were used, to what extent.

And because the plaintiff cannot be upon the ground himself all the while without expense is not sufficient ground on which to turn the scale of the construction.

So that the amount of time that these tools were used in 1895 and 1897, could be quite definitely ascertained. And it was in this case as I find by looking through the testimony. There was considerable testimony on this question, the testimony is conflicting. If the jury took one view of the testimony it might allow much more for actual use than it would if it -took the testimony of the other side of the case. And in fact, very little, if any, would have been recovered in this case if the testimony of the defendant had been followed by the jury; but the verdict seems to be a, compromise, going between the two somewhat; the general verdict in the case.

So that we then have in this case no element of uncertainty as to the damages, that does not exist in a large number of cases where the courts ■ are very free to construe the provision in the contract as a stipulation for a penalty. That is true of a party who hires a house to be rented by a certain time, and the penalty attached for all time running over a year. Now it is uncertain and largely conjecture whether a boat that is to be completed by a certain day, as to how much she might have earned had she been in the trade from that time until the-boat was actually completed.

Unless there is some special element involved in it, such contracts are almost always construed by the court to be a penalty.

Another element that has weight in determining this, to which class it belongs is the amount. Tf the parties when fixing the amount, if all the circumstances show that they have fixed an amount much larger than could reasonably be expected to actually flow from a violation of the terms of the contract, then in that case the tendency is always in favor ®f construing the contract to mean a penalty.

It is hardly consistent with the way men take care of their own affairs to believe that a man intends to stipulate that he will pay damages for a certain default of his, way beyond, or much beyond what the damages will actually be.

Men usually take greater care of their affairs than to make contracts of that kind; but he may be willing that a certain amount shall be named, shall be a penalty, with the understanding that nothing can be *483recovered but actual loss. That actual loss may exceed that penalty or it may be less, but after it is once determined, then the party is entitled to recover his actual loss whether it be more or less than the penalty.

Now in reading this contract this idea appears prominent in it, here are six years that the stone company is authorized to use this invention, beyond that if it wants to use it, it must make a contract.

Now, as we say the supposition is that the fair use of it per year is $250. The parties for six years have regarded that as the fair value for the use of it.

If the stone company wants to continue longer than that it must make a contract, if it don’t make a contract then it must pay $500. It looks to me very much like a penalty of $250 for not making a contract for the use of it before using it.

In other words it is almost equivalent to saying, the use of this device is worth $250 a year if the defendant makes a contract, then it can have it for $250. It it does not, make a contract, or if it goes on and uses it without a contract, then it shall pay $500. It looks very much like a penalty of $250 for using it without a written contract. That being true — at least the contract is so uncertain as to this that we think under all rules for construing such contracts as I have already stated it, that we should construe it as being a penalty and not stipulated damages. We find therefore there was no error in this case and the judgment is affirmed.