Case Name: NOYES against PHILLIPS
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1875
Citations: 16 Abb. Pr. 400
Docket Number: 
Parties: NOYES against PHILLIPS.
Judges: 
Reporter: Abbott's Practice Reports
Volume: 16
Pages: 400–407

Head Matter:
NOYES against PHILLIPS.
Court of Appeals,
1875.
Liquidated Damag-es and Penalty.—Rescission of C onteact. —Exception.
■In an action on a contract which contained a clause of forfeiture of five hundred dollars in case of breach, plaintiff recovered that amount on theory that it was liquidated damages, and defendant had the verdict set aside on the ground that the clause was only a penalty. On the second trial defendant insisted that the clause was only a penalty, and plaintiff took an exception involving this question, but the verdict was for one thousand dollars damages.—Reid, that defendant could not have the judgment reversed.
.A recovery upon a penal clause in a contract inter partes is not limited by the amount of the penalty.
_An exception taken by one party to the rule of law, applied on the trial, can not avail the other party if the result of its application proves unfavorable to him.
'The insertion of a penal clause in a contract does not restrict the party aggrieved by a breach to the relief afforded by the penalty.
The action was brought in the city court of Brooklyn by Daniel L. Noyes and William D. Wines ^against George Phillips, to recover damages for the breach of an agreement not under seal, to exchange a house and lot owned by the defendant for certain ■vacant lots owned by the plaintiff, the material parts •of which agreement involved in this appeal are as follows:
“Agreement made and concluded on March 14,1873, ^between George Phillips ... of the first part, ;and Daniel L. Noyes and William D. Wines of the second part, as follows :
“ The party of the first part agrees to exchange his lot and three-story brown-stone house . . . subject to a mortgage of five thousand two hundred and fifty dollars, but free from all other incumbrances, and receive therefor the property belonging to parties of second part, being bounded as follows . . . the same to be free and clear from all incumbrances.
“And the parties to these presents each agree to give a good and sufficient deed for their respective pieces of property, on or about April 1, 1873, or forfeit the sum of five hundred dollars.
“JOHN PHILLIPS,
“DANIEL L. NOTES.
“WILLIAM D. WINES.”
The plaintiffs proved that John Phillips was authorized to execute this agreement for the defendant, and that said agreement, subsequent to its execution, was ratified by the defendant. The defendant made no question upon the trial but that he was so authorized.
Plaintiffs also proved an offer to perform on their part, on April 1st, and a refusal by the defendant to either give a deed of his house or pay the forfeit, and that the equity in defendant’s house and lot was worth one thousand dollars more than their lots.
The question as to the difference in value was submitted to the jury under a direction by the court that this difference would be the measure of plaintiff’s damages. The defendant requested the court “ to instruct the jury that they can not, under any circumstances, go beyond five hundred dollars or five hundred dollars and interest, from April 1, 1873,” which was declined, and the defendant excepted.
The plaintiffs requested the court to charge the jury as matter of law, that “the amount specified in the agreement is liquidated damages, and not a penalty, and the plaintiffs, if entitled to recover at all, are en titled to recover the sum of five hundred dollars,” which was declined, and plaintiffs excepted.
The jury found a verdict for the plaintiffs, for one thousand dollars: upon which judgment was entered and affirmed, upon appeal to the general term. The plaintiffs appealed to this court.
Lewis & MacKay, for defendant appellant.
Erastus 1Yew and JY. C. JOfoalc, for plaintiffs respondent.—The sum of five hundred dollars, named in the agreement, was a penalty and not liquidated damages (Richards v. Edick, 17 Barb., 260, 265-269 ; Salters v. Ralph, 15 Abb. Prac., 273, 275-6 ; Colwell v. Lawrence, 38 N. Y., 74, affirming 38 Barb., 643, 647-9 ; Bage v. Millard, 12 N. Y. Leg. Obs., 57). Mot a single word is said about liquidated damages and the word ‘ forfeiture ’ which is equivalent to a penalty, is used, which manifests that a penalty was intended ” (Colwell v. Lawrence, 38 N. Y, 74). The use of the word “forfeit ” implies a penalty, and the sum specified in the agreement was not intended to be paid as damages for a failure to perform simply, but rather as a penalty for a failure to perform “on or about April 1st” (Staples v. Parker, 41 Barb., 648, 651-3). The only question raised by the defendant’s request and exception is whether treating the five hundred dollars as a penalty the jury in estimating the damages could legally find a verdict against the defendant for a greater sum. The damages in consequence of a breach were fixed by a well settled legal rule—the difference between the agreed price and the market value at the time for performance (Engel v. Fitch, L. R., 3 Queen's Bench, 314; Pumpelly v. Phelps, 40 N. Y, 59, affirming 43 Barb., 469; Lock v. Furze, L. R., 1 C. P., 441; Exchequer Chamber, S. C., 6 Am. Law Reg. N. S., 445 ; Radford v. Wilson, 2 Bosw., 237; Bush v. Cole, 28 N. Y., 270). The five hundred dollars being named as a penalty or forfeiture, the instrument not being a bond under seal but a mutual agreement binding both parties to performance thereof, the plaintiffs were entitled to recover the actual damages, though they exceeded the five hundred dollars (Thompson v. Rose, 8 Cowen, 266 ; Harrison v. Wright, 13 East, 343, 347-8 ; Winter v. Trimmer, 1 W. Bl. Rep., 395; Graham v. Bickham, 4 Dallas, 149; Fisher v. Barrett, 4 Cushing, 381; Addison on Gontr., 1089). This is not an alternative agreement. There is a complete and absolute agreement to exchange property, preceding and distinct from the alternative clause, which latter clause only relates to the time of performance, and provides a penalty for a failure to perform on a certain day. The plaintiffs under this agreement would have been entitled to a decree for a specific performance, and they are therefore entitled to recover damages for a breach.

Opinion:
Chtjkch, Oh. J.
—The parties agreed to exchange real estate upon certain specified terms, and each agreed to deliver a deed of Ms property at a time specified, " or forfeit the sum of five hundred dollars." Upon the first trial the court held this to be a provision for liquidated damages, and the plaintiff had a verdict for five hundred dollars, which was set aside upon the application of the defendant upon the ground that the decision was erroneous, and that the sum should be deemed a penalty. *
The case was re-tried upon this theory, and resulted in a verdict for the plaintiff of one thousand dollars, against Ms request and exception that it should be regarded as liquidated damages, and the defendant now seeks to reverse the judgment alleging error: 1st. In the decision that it is a penalty; and, 2d. That the recovery could exceed five hundred dollars. As to the first question, the parties have changed sides, and it is to be regretted that the first verdict was not allowed to stand, as being probably quite as just, if not as legally accurate; bnt we must consider the exceptions as presented. We do not think that the exception of the defendant raises the question whether the sum named is a penalty, or liquidated damages. It is quite evident that he did not claim on the trial that it was liquidated damages, and the only construction which can be given to his request to charge is, that assuming it to be a penalty, the jury should be instructed in awarding damages not to exceed the sum of five hundred dollars, which was refused, and an exception taken. It is unnecessary, therefore, to determine the question of liquidated damages. It is, however, proper to say that if that question was before us we should hesitate in holding it a penalty, and there are many reasons for regarding it as a provision fixing the measure of damages by the parties. The word "forfeit" is not conclusive. A fundamental rule upon this subject is that the words employed must in general yield to the intention of the parties as evinced by the nature of the agreement, the amount of the sum named, and all the surrounding circumstances. The sum named is reasonable in amount for a failure to perform this agreement; it is payable for one breach, viz., a failure to deliver a deed, and the injury is in some degree uncertain in amount and extent, and might depend upon many unforseen contingencies. These are material circumstances favorable to an inference that the parties intended to fix this sum as the measure of damages. The question has been frequently before the courts, and authorities may be found apparently favoring either construction. As it is unnecessary to decide the question, it is only proper to disclaim an intention to decide that the sum named in this contract ought in law to be regarded as a penalty. Courts have felt embarrassed when called upon to enforce inequitable, harsh, or oppressive provisions in contracts, inserted often without reflection, or a full knowledge of their legal effect, by a laudable desire to harmonize the abstract principles of right and justice with the established legal rules that parties are at liberty to make contracts for themselves, and that it is the duty of courts to enforce them as made. By a liberal use of the element of supposed intention, they have been enabled to do so to a reasonable extent, and yet a reference to a few of the numerous authorities will illustrate the difficulties experienced in this respect (9 N. Y, 551; 21 Id., 253 ; 1 Id., 450 ; 5 Coto., 144, note b; 3 J. C, 297; 22 Wend., 201; 2 T. R., 32; 11 Ind., 70 ; 8 Mass., 223 ; 5 Allen, 304 ; 13 Wend., 588 ; 12 Barb., 366 ; 17 Id., 260; 15 Abb. Pr., 273 ; 38 N. Y., 74; 6 East, 529 ; 3 Pars. on Cont., 156). For the purposes of this case we must regard the provision as a penalty. The exception of the plaintiff is of course not available to the defendant, and his exception does not embrace the point. The case was tried upon his view of the law on that subject, and he can not complain.
The second point is not tenable, it being a penalty and contained in an agreement inter partes, the plaintiff has his election to sue for the penalty, or for a breach of the contract. In the latter event he is not limited in the amount of damages to the penalty. The rule would be different in an action on a collateral bond with a penalty conditioned for the performance of the contract. In that case the penalty would be taken as the limit fixed by the parties. The authorities are quite uniform on this subject (Addison on Cont., 7th ed., 367 ; Mayne on Damages, 2d ed., 169-70 ; 8 Cow., 266 ; 13 East, 343 ; 4 Dallas, 149 ; 5 N. Y., 422; 17 Barb., 265). Parties are not released from performing their agreement by inserting a penalty for non-performance (3 AtJc., 371). It is claimed by the defendant that this principle does not apply to this contract, because the agreement to exchange is not absolute, but is in the alternative, and that an action for a specific performance would not lie. I do not think that such is the legal construction of the contract. It contains an express agreement by the defendant to exchange his property (describing it) with the plaintiff for certain specified property of the latter, and then provides that each party shall execute a deed by a specified time, or forfeit five hundred dollars, and is signed by both parties. In legal effect it is the absolute agreement of both to exchange property, and might be enforced by either party ; and as we must regard the sum named as a penalty, it is to be construed as though it read, "we each bind ourselves to the performance of this contract in the penal sum of five hundred dollars." It can not be regarded as an agreement to do one act, or in lien thereof pay a sum of money, thus leaving it optional with the party to do either ; but if optional with the defendant, his failure to perform either would give the plaintiff the option to enforce either, or maintain an action for damages. The defendant occupies the position of refusing to perform the contract to exchange, or pay the forfeit, and claimed, and was allowed on the trial to reduce the damages below that sum ; and yet he insists that while he might reduce the sum to any extent, the plaintiff could not increase it by the same character of evidence. In other words, while he is to have the benefit of the sum named to limit a recovery, he is not under the corresponding burden of being bound by it.
The answer to all this is, that the sum named is not a fixed measure of damages, and that the action is on the agreement to exchange property, and the sum named upon the theory upon which the defendant voluntarily tried the case, has properly nothing to do with the question of damages. The authorities cited do not sustain the position of the defendant upon this point. The judgment must be affirmed.
66 All concur, except Grover, J., absent, and Raballo, J., not voting.55