Court Opinion

ID: 5550885
Source: CourtListenerOpinion
Date Created: 2022-01-11 00:31:21.622163+00
Date Added: 2024-06-11T08:35:05.968379
License: Public Domain

By the Court

Nisbet, Judge.
The several assignments of error in this cause, resolve themselves into one question, and that is, is the agreement upon the face of this paper to pay interest from date, if the principal sum is not punctually paid at its maturity, in the nature of a penalty? or is it an undertaking to pay the back interest as damages ? The court below decided it to be an undertaking to pay the back interest as damages, for a failure to pay the principal sum at the maturity of the note. Upon this decision, the plaintiff in error brings this cause up. If this back interest is stipulated damages, then the plaintiff below was entitled to recover it, — if a penalty, he is *472entitled under the contract to recover whatever, in the proper form of action, he could prove to be the quantum of his injury. The parties do not call it either the one or the other — if they did, the name they gave to it would not change its nature. That is settled by the authorities.— Story’s Eq., sec. 1318. The amount in this case is liquidated, whether it be penalty or damage ; for the agreement is, in case of non-payment punctually, then to pay “ interest from date” — that is, the interest which the law allows, to be computed from the date of the note.
By referring to the note, and to the law of the State, prescribing the rate of interest, the amount will be ascertained, id cerium est quod cerium reddi potest. One thing is very clear — that is, that neither the courts of Great Britain, nor of our Union, have established any rule, by which it can always with certainty be determined, what is a penalty, and what liquidated damages. We shall, of course, undertake to establish none. It is settled by the later cases, that, in order to ascertain whether the sum specified in the agreement is to be considered a penalty or liquidated damages, the court must look to the whole of the agreement, and unless it clearly appear thereby to have been intended by the parties as liquidated damages, it will be considered as a penalty only.— Tidd’s Practice, 877; 6 Barn, and Cres. 216; 11 Mass. Rep. 81. In commenting on this subject, Mr. Justice Story remarks : “ But we are carefully to distinguish between cases of penalties strictly so called, and cases of liquidated damages. The latter properly occur, where 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. In cases of this sort, courts of equity will not interfere to grant relief, but deem the parties entitled to fix their own measure of damages, provided always, that the damages do not assume the character of gross extravagance, or of wanton or unreasonable disproportion to the nature or extent of the injury.” — Story’s Eq. Juris, sec. 1318; Eden on Injunctions, 41.
Upon a careful review of the authorities, we are prepared to say, that this extract affords the best general rule upon a question of no little complexity. We do not see why its application may not in most cases determine what is a penalty, and what damage. Its application relieves us from doubt as to what is the law of the case before us. It is a safe general rule, not to interfere with the contract which parties have thought proper to make ; it is the business of courts of justice, not to make, but to enforce contracts. If the meaning of the parties is reasonably plain, then courts will not be astute to find out a different meaning. The parties in this case, and in all others of like character, have the unquestionable right to fix their own measure of damages. They are presumed to know, better than a jury could determine for them, what injury would result from any given act or omission. And if the parties have made their contract, and it is not in contravention of the law, let it even be conceded to be unreasonable ; it is right to compel them to abide it. In Lowe vs. Peers, (Burrow, 2229,) Lord Mansfield sustains these general views in these words: “ When the precise sum is fixed and agreed upon between the parties, that very sum is the ascertained damages, and the jury is confined to it.” In that case Peers had in writing bound himself to marry Mrs. Lowe, and in default, to pay her 1000 pounds. This was held to be a *473case of damages. A reason for abiding the damages which the parties have agreed upon, is found in the difficulty which a jury would find, in many cases, of ascertaining the amount of injury sustained. — 6 Bing. 141. In the case we are now determining, we know of but one criterion which the jury would have, by which to fix the damages which the payee sustained, and that is the very one by which the parties themselves ascertained them, to wit, the legal rate of interest on the money. How unnecessary in such a case to go to a jury, simply to affirm the contract of the parties.
So one, in consideration of one dollar, agreed by deed not to run a stage on a specified road, under a penalty of $290. The penalty named was ruled damages. — 8 Mass. 222.
So a creditor grants indulgence for two years, and covenants that he will not sue, under penalty of a forfeiture of the debt. Held to be damages. — -4 Mass. 433.
The reader is referred to the following cases, determined to be damages. — Ponsonby vs. Adams, 9 Bro. P. C. 417; Roy vs. Duke of Beaufort, 2 Atk. 199; Lowe vs. Peers, 4 Burrow’s Rep. 2229; Fletcher vs. Dyche, 2 T. R.52; Barton vs. Glover, 1 Holt. 43; Christie vs. Bolton, 3 B. & C. 280; 3 Taunton, 469; 3 B. & H. 692; 8 Moore, 244; 1 Bing. 302.
On the other hand, it may be considered as settled, that where a larger sum is stipulated to be. paid, in order to secure the prompt payment of a lesser, it is a case of penalty. — 2 Bos. & Pul. 346. So, too, where a specified sum is agreed upon, to cover different breaches, and would be in some cases too large, and in others too small, that is a case of penalty.— 6 Barn. & Cres. 216.
In all cases where the damages are excessive, they are held to be penalty.— Story’s Eq. sec. 1318. Such was the case read from Alabama, determined by the Supreme Court of that State. There the back interest reserved, ranged from two and a half to ten per cent, per month. As to what are eases of penalty, see 1 Bro. C. C. 418 ; 1 Cox, 26; 2 Bos. & Pul. 346; 3 B. & P. 630; 13 East, 348; 1 Camp. 78; 3 Burrow, 1374; 1 H. Black. 227; 2 Vernon, 315; 1 Ala. Rep. 170; 1 ib. 170; 1 ib. 209; 11 Mass. 76. Scarcely any two cases upon this subject are to be found alike, illustrating tiie difficulty of determining the case before us, upon authority. Believing this to be impossible, we shall decide it upon the general principles laid down by Mr. Story, and to them we again revert, premising that this is not a case where a small sum is secured by a larger, nor a case where one penalty is made to cover different breaches of various importance.
According to Story, cases of liquidated damages occur, when the parties have agreed, that in case one party shall do, or omit to do, a stipulated act, the other shall receive a certain sum. Now, it is upon this note agreed, that if the maker shall omit to pay the principal of the debt at its maturity, the other party, to wit, the payee, shall receive interest upon that sum from its date ; that is, the interest fixed by law for a given period upon a given sum. The sum is therefore agreed to be paid, and it is a certain sum ; and it is to be paid if the maker omit to do a stipulated act.
*474Further, this sum is to be paid as a just, appropriate and conventional amount ot the damages sustained by: the omission. This back interest is the conventional amount of the damages, because it is the amount agreed upon between the parties. It is appropriate in this, that it is the rate of interest which the law itself has ascertained as the value of money. And its justness will appear from the following considerations : One taking a note upon time, is reasonably presumed to make his monetary arrangements upon the faith of prompt payment, and if he is not promptly paid, it is a fair presumption that his own affairs are thereby deranged, and he himself damnified. The amount of that injury will be different, of course, according to the circumstances of each case ; but we can reason only according to the operation of general rules. We suppose, then, that if his debt is promptly paid, the advantage to him will be equal to the legal interest on the amount, for the time his debtor has had the use of his money, or its equivalent in property. If not promptly paid, the corresponding injury will be'equal to the interest for the time. The benefits of these contracts upon time, contrary to the received opinion, according to the legal view of them, are reciprocal. When A sells property, or lends his money to B, and takes his note at twelve months, the possession of the property or the money passing at the time to B, the legal inference is, that the price of the property or of the moneyis enhanced by the interest on the cash price of the property, or the actual sum loaned, for twelve months. This interest is added in the note. Now, if there be a stipulation, that in case of non-payment at maturity, the note shall bear interest from date, and it is not paid, and the back interest is collected, the common opinion is, that A in the above case realizes sixteen per cent, upon this contract, to wit, eight per cent, originally added into the note, in consideration of time, and.eight per cent, of the back interest. But is this true ? It is true that he does, in fact, receive sixteen per cent., but eight per cent, of that interest is offsetted by the use of the property, or the money in the hands of B ; the use being worth eight per cent, to him. The consequence is, that, in cases where the damages thus stipulated to be paid do not exceed eight per cent., the payee realized only eight per cent upon his money, or the price of his property. Then the result of such a contract as the one before us enforced, is, that the payee gets eight per cent., the lawful interest upon money. Now, is such amount otherwise than just ? We think not. And if just, it is not grossly extravagant or wanton, or .unreasonably disproporlioned to the injury.
We know that, in point of fact, the giving of time does often enhance the price of property or money, far beyond eight cent., as stated. But how can we judicially know that to be the case here ? We reason from the record. The reasonableness and justness of the damages in this case might be variously illustrated. We refer only to the instance of administrators, whose notes are taken at twelve months, and very often with the condition found in this note. It is of serious importance to the estate which he represents, that the debts thus contracted be promptly paid. At the expiration of twelve months, he is liable, not only to be called upon, but to be sued, if the estate which he represents, which is very generally the case, has no resources to pay debts, but the proceeds of the sale ; and the debts contracted on account of the sale are not promptly met; then he *475is put to great inconvenience, and the estate of his intestate injured, lie is compelled, perhaps, to borrow money, at exorbitant rates ; to submit to be sued and pay costs, or to sue upon the notes in his hands, and pay commissions for collecting. In his case, eight per cent, for twelve months cannot be considered unjust or excessive damages.
We affirm the judgment of the court below.