Case Name: Baird vs. Tolliver, et als.
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1845-12
Citations: 6 Hum. 186
Docket Number: 
Parties: Baird vs. Tolliver, et als.
Judges: 
Reporter: Tennessee Reports
Volume: 25
Pages: 186–195

Head Matter:
Baird vs. Tolliver, et als.
Where doubt exists whether a sum agreed to be paid on the non-performanee Of a contract is to be regarded as a penalty, or as stipulated damages, the courts should regard it as a penalty, dischargeable by the payment of the damages sustained.
Where an aggregate sum was agreed to be paid in the event of the non-return of certain State bonds received on loan, and such aggregate sum was greatly above the market value of the bonds, it is regaided as a penalty.
T his is an action of covenant which was brought in the circuit court of Wilson county, by Baird against Tolliver, George and C. Cummings, on the following instrument:—
“Received of Selden Baird four five per cent. State bonds, which we promise to return to him in twelve months, or pay him $4000, in current Tennessee Bank notes. 25th January, 1842. .C. CUMMINGS,, l. s.
G. CUMMINGS, l. s.
Z. TOLLIVER, l. s.
It was tried by Judge Caruthers and a jury, on the plea of covenants performed. It appeared on trial, that the bonds delivered on loan, and specified in the receipt, were for $1000 each, and that they were not delivered by the obligees according to the covenant, and that the market value of them, from the execution of the covenant till the 25th day of January, 1843, was from $550 to $800, the witnesses differing as to the value.
The presiding Judge charged the jury, that the sum of four thousand dollars agreed to be paid was a penalty, and that the measure of damages was the valué of the bonds on the 25th day of January, 1843.
The jury returned a special verdict, ascertaining the market value of the bonds to be $750 each; and that in the event the court should regard the sum of $4000 as stipulated damages, they returned a verdict for the plaintiff for that sum; but in the event that it should be regarded as a penalty, they found a verdict for the plaintiff for the sum of $3000.
The Judge gave a judgment for the plaintiff, and both parties appealed.
Stokes, for plaintiff.
Did the circuit judge place the proper and legitimate construction on the covenant, which is the foundation of this action? Are the four thousand dollars in bank notes agreed to be paid, in the event the bonds were not returned within the specified time, to be considered as liquidated damages, or in the nature of a penalty? If a penalty, then the judgment of the court below is correct; but if liquidated dama-gesj then this court should enter up a judgment for the four thousand dollars, with interest, on the special verdict of the jury. The question, whether it is a penalty or liquidated damages, depends on the facts to be collected from the face of the contract. The intent of the parties must be gathered from the stipulations of the agreement itself. Judge Story lays down this general rule, that cases of liquidated damages properly occur,when the parties have agreed that in case one party shall do a stipulated act, or omit to do it, the other party shall receive'a certain sum,- as the just, appropriate, and conventional amount of the damages sustained by such act or omission. — 2 Story’s Eq. Jur. 550. In the case of Astly rw.Wesden, Judge Heath states the general principle of law to the same effect — “Where articles contain covenants for the performance of several things, and one large sum is stated at the end to be paid upon breach of performance, that must be considered as a penalty. But, where it is agreed that, if a party do or not do such a particular thing, such a sum shall be paid by him, then the sum stated may be treated as liquidated damages.” — 2 B. & P. 345.
The contract, in this case, is clearly within the scope and meaning of the general principle stated. The defendants agree to do a particular thing — to return the bonds they had received — they failed to perform that agreement; and in anticipation of their failure, they stipulate and agree what shall be the consequence of it — the payment of four thousand dollars. It cannot be fairly insisted, from the nature and terms of the contract, that the four thousand dollars was inserted to secure the return of the bonds. Neither party could have expected, or did they intend, a return of the bonds. This -fact is clearly inferable from the language of the contract.- The defendants bind themselves to return the identical bonds received — not other State bonds — or pay the four thousand dollars. Could language make this fact clearer that the object and intent of the parties was to stipulate and settle the amount to be paid if the bonds were not returned, and the parties having thus fixed their own measure of damages, the courts will not interfere to change or make a new contract for them.
The view here taken of this case, is not only sustained by the general principle laid down, but it is likewise greatly strengthened, if not placed beyond doubt, by many adjudicated cases.
In the case of Fletcher vs. Dyche, two persons agreed to perform certain work in a limited time, or pay a stipulated weekly sum for such time afterwards as it should remain unfinished; the work was not finished in the time, and the court decided that it was a case of liquidated damages, and that the stipulated sum was not to be considered a penalty. — 2 S. Rep. 32. ,
In the case of Catharine Lowe vs. .Peers, the defendant, Peers, promised the plaintiff that he would marry no other person besides herself; if he did, he would pay her one thousand pounds in three months thereafter — Lord Mansfield dé-cided, in a clear and forcible opinion, that the plaintiff was entitled in her action to recover the one thousand pounds, on the ground that it was liquidated damages. — 4 Burr. Rep. 2225.
The Supreme Court, in New York, in the case of Smith vs. Smith, debt on a bond, that the defendant would not practice medicine in certain limits; if he did, he would pay the plaintiff five hundred dollars for each month — held that the five hundred dollars were liquidated damages, not a penalty.— 4 Wend. Rep. 468.
In the case of Pierce vs. Fuller, where the defendant bound himself not to run a stage in opposition to the plaintiff’s stage, in the penalty of two hundred and ninety dollars, the Supreme Court of Massachusetts decided, that the stated sum was liquidated damages, although it is expressed to be a penalty.. Sedgwick, J. in delivering the opinion of the court, says: “That the defendant shall not be permitted to say, that, although the contract was fairly and honestly made, and for a valuable consideration, to which he consented, the consideration was inadequate, that he made a bad bargain, and that when the plaintiff has suffered by the breach of it he shall be relieved from the terms to which he had voluntarily submitted.” — 8 Mass. Rep. 223.
Where by a contract for building the hull of a schooner, it was stipulated that, if the vessel was not completed on or before the 1st June, 1833, the defendant should “pay charter to the plaintiff at the rate of $ 1.50 per ton per month,” for any delay in the completion of the vessel after that time, and the parties bound themselves to the faithful performance of the contract in the penal sum of $1000 — it was held that the damages for such delay were liquidated by the contract.— Curtis vs. Brewer, 17 Pick. R. 513.
The case of Slossom vs. Beadle, 7 Johnsono’s Rep. 72, is directly in point with this case; and if it be an authority at all, is decisive of the question in dispute. It was an action of covenant, bro’t on an agreement by which the defendant covenanted, in consideration of $500, to convey to the plaintiff a tract of land by a certain day, or, in lieu thereof, to pay him eight hundred dollars. The court held that the eight hundred dollars were evidently intended to be liquidated damages, and were not inserted as a penalty. The defendant had received the consideration of $500, and at the end of the year he was to convey, or, in lieu thereof, pay the eight hundred dollars. This was an alternative' reserved for his election. Can there be a substantial difference pointed out between this case and the one now before the court? The contract in each case is under seal, and does not say one word about liquidated damages or penalty on the face. The covenant in each is to do a particular, definite and single act, and a stipulated sum is attached on failure to do that act.
But it will be urged that the case of Spencer vs. Tilden, 5 Cow. Rep. 144, virtually overrules the case of Slossom vs. Beadle. This will be found not to be so, upon investigation of the facts and the principles applicable to each case.. In the case of Spencer vs. Tilden, the defendants, by a written contract, not under seal, “promised to pay and deliver the plaintiff $360, or twelve good middling cows and twelve good calves,” at a certain place and bya stated time. The court decided that the three hundred and sixty dollars was a penalty, and that the plaintiff was entitled only to the value of the cows and calves, without giving the reason upon which the opinion was founded. The facts in the two cases differ in this important particular. The contract or agreement in Slossom vs. Beadle was under seal; but in the latter case, it was a written contract not under seal. Abbott, C. J., in the case of Randall vs. Everett, says, “I am of opinion, and I shall act upon that opinion, until I am corrected by a higher authority, that on any agreement for the non performance of which, damages are sought to be recovered, whatever may be the expressions used by the parties, and in whatever mode or form the agreement may be made, whether the stipulation is for a sum to be paid as liquidated damages, or for a sum in the nature of a penalty, the plaintiff shall recover such damages as upon a view of the whole case the jury shall think fit to give, and no more. I wish my observation to be understood as not applying to agreements under seal.” — 12 Eng. C. L. Rep. 272.
It will also be insisted that the case of Dennis vs. Cum-mins, 3 John. Cases, 297, comes in conflict with the case of Slossom vs. Beadle. Let us grant, ,for argument, that this is true; still we insist that, as the case of Slossom vs. Beadle was decided long after the other, by the same court, it overrules it as an authority, in every respect in which they are in conflict. But the cases are not alike in several important points, as will be clearly seen from the opinion of the court. Thompson, J. in delivering the opinion of the court in Dennis vs. Cummins, says, “I think this sum ought to be considered as a penalty, and not as liquidated damages. The real intention of the parties ought to be sought after, and carried into effect, where it can be discovered from the instrument itself. If recurrence be had to this agreement, it never can be presumed that the parties had the sum in view, as the measure of damages; for the full value of the defendant’s property, which was to be exchanged, was only $3,750, and the value of the plaintiff’s considerably less. It would be a strange construction to suppose that the damages, on a failure in fulfilling such a bargain, should be 2,000 dollars.” Here the plaintiff had parted with nothing; he sought the recovery of 2,000 dollars, for which no consideration had passed, and well did the court look upon that sum as the measure of damages, as excessive and unreasonable in the extreme. But the principle is clearly enforced in the opinion of the learned judge, that, where it is clearly inferable from the nature and terms of the contract, that the parties have estimated and liquidated the damages, and have inserted that sum, as the amount to be paid, in case of non performance, the courts would be bound to so consider it. This principle is of universal application in such kind of cases, fraud and imposition out of the question, and it is founded in sound reason. The parties to contracts, from knowing exactly their own situations and objects, can better appreciate the consequences of their failing to obtain those objects than either courts or juries. If it is clear from the face of the contract what shall be paid by the party who breaks it to the party to whose prejudice it is broken, the amount recovered on an action for the breach of it, should be the stipulated sum.— What more authority has a court of justice to put a different construction on the part of an instrument ascertaining the amount of damages for a breach,of its covenants, than it has to decide contrary to any other' of its clauses. The great object of courts of justice is to ascertain the intention of parties; more particularly to contracts under seal, and, if not contrary to law, to carry their intent into execution.
In this case, the parties, with a full knowledge of their situations and objects, entered into the contract, and the defendants, after having enjoyed the benefits secured to them by it, they refuse to abide by their own act, and ask a court of justice to make for them a new contract by construction. The claim for damages in such a case as this must rest in great uncertainty as to' the amount — the market value of State bonds being exceedingly unstable and fluctuating — and can it be said, with any show of justice, that the market value of the bonds would be a fair compensation to the.plaintiff? He parted with them with his estimate of their value placed upon them, and the defendants received them, acknowledging that estimate to be correct. The courts can have no safer guide to go by, in deciding on the amount of compensation for breach of contract in such a case, than the estimate which the parties, each knowing all the circumstances of the case, and cautiously taking care of their respective interests, have stipulated and agreed on.
Caruthers, for the defendants.
A question is made upon the instrument, whether the $4000, to be paid in case the bonds were not delivered, will be regarded as a penalty or liquidated damages.
In general, a sum of money in gross to be paid for the nonperformance of an agreement, is considered as a penalty, the legal operation of which is to cover the damages sustained by the non-performance or breach of contract. — 7 Wheaton, 13; 3 Pet. Dig. 206.
Where it is doubtful whether the sum inserted in the bond was intended as a penalty or liquidated damages, it will be decided to be a penalty. — 17 Wendell, 447.
Wherever a penalty is inserted merely to secure the performance or enjoyment of a collateral object, the latter is considered as the principal intent of the parties, and the penalty is only intended to secure the due performance thereof or the damages really incurred by the non-performance. — 2 Story, 444: 12 Yes. 282, 475.
Even if the parties have expressly stipulated that the amount forfeited is to be considered liquidated damages, yet, if they assume the character of gross extravagance or great disproportion to the nature and extent of the injury, they will be relieved against. — 2 Story, 550.
The general principle on this subject is, that, where a penalty is inserted merely to secure the performance or enjoyment of a collateral object, (such as the delivery of State bonds,) the lattér is the principal intent of the instrument, and the penalty an accessory, and is only intended to secure the damages really sustained by the non-performance. The test in such cases is, whether compensation can be made or not. — 2 Story, 544. Now, in this case, what was the object of inserting the $■4,000? To compel the delivery of the bonds. Can compensation be made for failure to do that collateral act? Surely the value of the bonds on the 23d January, 1843, would be full compensation; for, if they had been delivered, they were only worth what they were selling for in the market. If the object of the plaintiff were to lay up the bonds, he could have bought as many more with the price they were selling at. So the value of the bonds, at that time, is a full and perfect compensation for the breach of covenant.
The case in 5 Cowen, 144, cannot, in its facts and the principle settled, be distinguished from this. ’ A agreed to deliver to B twelve cows, on a day fixed, or pay him $360 in case of failure. It was held that this was not a case of liquidated damages, but that the $360 were a penalty, and the measure of damages was the value of the cows, and interest.
The only principle that can be drawn from the cases, when they are all examined, is, that when the thing to be done, or the collateral act, is of such a nature that a-- full and fair compensation can be given, with reasonable certainty, there the amount fixed in the contract to be paid shall be regarded as a penalty, arid riot liquidated damages. But where this certainty cannot be arrived at, from the- nature of the thing to be done, then the amount, fixed to be paid in case of failure, shall be considered liquidated damages. This is illustrated by the case in 4 Burrow, 2225, where the defendant violated a contract under a penalty to marry — a case in 4 Wend., 468, where the good will of a business was sold, and a damage of $10,000 to be paid if vendor set up in the same place — a case in 8 Mass., covenant not to run a stage to interfere with plaintiff. In all these; and a thousand similar cases in the books, it is easily seen that it would be utterly impossible to arrive at any thing like certainty in estimating damages, and, therefore, the amount stipulated by the parties shall stand.

Opinion:
Reese, J.
delivered the opinion of the court.
This case comes before us, by an appeal in error, on both sides, from the judgment of the circuit court.
The plaintiff's cause of action is stated in the declaration to. be a covenant, in which the defendant, acknowledging that he.had received from the plaintiff, on loan, four five per cent. State bonds, for one thousand dollars each, stipulates, that, within twelve months, he. would return to the plaintiff the :said bonds, or pay four thousand dollars. At the date of the covenant, and at the expiration of twelve months, and in the intermediate period, the market value of such bonds had been from six to eight hundred dollars. The main question discussed, both in the circuit court and here, was, whether the-four thousand dollars was to be regarded as a penalty to enforce the return of the. bonds, or to be recovered as liquidated damages. We are of opinion, upon principle, and the authority of the cases referred to, that the sum' mentioned is to be regarded as a penalty; because the bonds have an ascertainable market value; because that value was, during the whole period of the loan, greatly below the sum of four thousand' dollars; because that is an aggregate sum in gross, compelling the return of all four. bonds, arid not permitting the return of one, two, or even three of them; because, to hold, in such case, that the sum stated is liquidated damages, would furnish an easy device to evade the usury laws; because, finally, when there is any doubt, whether the stipulated sum be a penalty or liquidated damages, the legal principle is, for courts to incline to hold it to the former.
The other question discussed, is, whether the court erred in refusing to the defendant a new trial, upon the ground that the jury placed a higher value upon the bonds than the proof would warrant. We would have been satisfied with a smaller verdict; but we cannot say that there is not proof in the record upon which the verdict of the jury can rest and be sustained. This being so, and the circuit court having refused a new trial, the judgment will not be disturbed.