Case: EDGAR & THOMPSON FOUNDRY AND MACHINE WORKS v. THE UNITED STATES
Abbreviation: Edgar & Thompson Foundry & Machine Works v. United States
Decision Date: 1899-01-23
Docket Number: No. 20809
Citation: 34 Ct. Cl. 205
Volume: 34
Reporter: United States Court of Claims Reports
Court: United States Court of Claims
Jurisdiction: United States
Parties: EDGAR & THOMPSON FOUNDRY AND MACHINE WORKS v. THE UNITED STATES.
Judges: 
Pages: 205–222

Head Matter:
EDGAR & THOMPSON FOUNDRY AND MACHINE WORKS v. THE UNITED STATES.
[No. 20809.
Decided January 23, 1899.]
On the Proofs.
The claimant contracts to make the metal work for the Ohandeleur light tower, Louisiana. The contract prepared by the defendants provides that the claimant shall forfeit the sum of $25 per day as liquidated damages for each and every day’s delay in completing the work beyond the time agreed. The work is finished 130 days after the time fixed.
I. A court will treat provisions for deductions on account of delay as penalty and not as liquidated damages if tbe sum fixed is unreasonable..
II.Where the consideration of a contract is $7,500, and the deduction for delay amounts to $3,250, and the defendants have received ail they were entitled to under the contract, tlio amount will he considered excessive and the penalty will not he enforced.
III. The words of an agreement will he taken most strongly against the party who prepares it, and any liberality of construction will be in favor of the party who merely signs it.
IV. Each case must be governed by its own facts as to whether the provision is to be regarded as penalty or enforced as compensation. If conscionable, it will be enforced as liquidated damages; if doubtful, it will be construed as penalty.
The Reporters’ statement of the case:
The following are the facts of the case as found by the court:
I. On the 22d of August, 1895, claimants entered into the following contract with the United States through Maj. James B. Quinn, Corps of Engineers, United States Army, acting as engineer of the Seventh and Eighth light-house districts:
II. “Articles of agreement made and entered into between Edgar & Thompson Foundry and Machine Works, of the city of Mobile, a copartnership, composed of William Edgar, Julius Thompson, Harry Edgar, and Gustave It. Nelson, of the county of Mobile and State of Alabama, of the first part, and Major James B. Quinn, Corps of Engineers, U. S. Army, and lighthouse engineer 7th and 8th districts, acting for and in behalf of the United States of America, of the second part, witnesseth:
“ That the party of the first part, in consideration of the matters hereinafter referred to and set out, and of the advertisement, instructions to bidders, specifications, and drawings attached hereto, and which form a part of this contract, covenants and agrees to and with the party of the second part to furnish all the materials arid labor necessary to completely construct, erect at the workshops, take down after acceptance, and deliver at the localities and at the times prescribed in the 'specifications the metal work of the Chandeleur light tower, Louisiana.
“And the said party of the first part further agrees to forfeit the sum of twenty-five dollars ($25) per day as liquidated damages for each and every day’s delay in completing either portion of the work embraced in the two deliveries after the said times, the amount thereof to be deducted from any sum which might otherwise be due the said party of the first part in the hands of the light-house engineer, and to conform in every particular to the stipulations and considerations specified in this contract, and to be governed in all matters regarding the work by the party of the second part, or the authorized agent thereof, and that every portion of said work shall be subjected to a rigid inspection by the party of the second part, or his agent appointed therefor, and that this inspection shall be final.
“And the party of Ihe second part covenants and agrees to pay the party of the first part, as full consideration and price of and for said work, upon the acceptance and delivery thereof as above specified, the sum of seven thousand five hundred dollars ($7,500), said payment to be made upon the conditions named in the specifications.
“And when the payment herein stipulated is made, the possession of the material and labor shall pass to- and be vested in the United States.
“ Provided, however, That in case the party of the second part shall at any time be of opinion that this contract is not duly complied with by the party of the fiist part, or that it is not in due progress of execution, or that the said party of the first part is irregular or negligent, in such case he, the said party of the second part, shall be authorized to declare +’ „ contract forfeited, and thereupon the same shall become nail, •and the party of the first part shall have no appeal from the opinion and decision aforesaid; and the right to except to or question the same, in any place or under any circumstances whatever, is hereby released by the party of the first part; but that the party of the first part shall remain liable to the party of the second part for the damages occasioned to him by the said noncompliance, irregularity, or negligence, and that all money or reserved percentage that may be due by virtue of the provisions of this contract shall be forfeited to the party of the second part.
“And it is further stipulated and agreed that no member of Congress shall be admitted to any share or part of this contract or agreement, or to any benefit to arise therefrom; and this contract shall be in all its parts subject to the terms and conditions of sections 3739, 3740, and 3742 of the Revised Statutes of the United States.
“And it is also expressly understood and provided that nothing herein contained shall be so construed as to authorize any officer or agent of the United States to bind the United States by contract beyond the amount appropriated by Congress.
“And it is further covenanted and agreed that no member of the Light-House Board, inspector, light-keeper, or other person in any manner connected with the Light-House Service, shall be interested, either directly or indirectly, in this contract, or be entitled to any benefit to arise therefrom; and for any violation of this covenant and agreement the party of the first part shall forfeit all moneys which may become due under this contract.
“Provided, also, That it is expressly understood and agreed that this contract shall not be sublet nor assigned, but that it shall be well and truly carried out and fulfilled in good faith by tbe above-recited party of the first part, and that payment on account thereof shall be made to tbe aforesaid party of the first part, his heirs and successors, executors, or administrators.
“And provided further, That tliis contract shall not be binding upon the United States until it shall have been approved by the Light-House Board.
“And for the true and faithful performance of all and singular the covenants, articles, and agreements hereinbefore particularly set forth, the subscribers hereunto bind themselves, jointly and severally, their and each of their successors, heirs, executors, and administrators.
“Thus covenanted, made, and agreed by the said parties, in witness whereof they have hereunto set their hands this 22nd day of August, one thousand eight hundred and ninety-five.
“■Edgar & Thompson Foundry and Machine Works.
“Jaimes B. Quinn,
■ “ Major, Corps of Engineers,
UL. H. Engineer 7th and 8th Dists
III. The contract was prepared by the defendants in a printed form, and ivas signed by the parties in that condition, the amount of the forfeit as liquidated damages being a part of the printed matter. It does not appear from the evidence that they had, previous to the execution of the instrument, any negotiations or understanding as to the damages which might or would accrue to the defendants in consequence of the failure of the claimants to perform the contract within the time limited; nor does it appear that the defendants suffered any appreciable damages in consequence of such failure.
IV. The claimants completed the work provided for by said contract, but they delayed the completion thereof for 130 days after the time limited by the agreement.
V. Thatof the sum of $7,500 provid ed by said contract as compensation to claimants they have been paid the sum of $4,250, and there has been retained and not paid them by the United States the sum of $3,250, or $25 per day for the 130-days’ delay shown by finding iv.
Mr. E. W. Putnam for the claimant:
There is no better settled principle of law than that in a contract of this kind neither the use of the terms “forfeiture,” “liquidated damages,” or “penalty” is conclusive in itself of the intention of the parties in that regard. In spite of the use of either term the courts will consider the surrounding circumstances and the reasonableness of the transaction, and from these determine whether the sum provided for by the contract was intended by the parties to be a liquidation of the damages or a mere penalty.
In determining the reasonableness of the transaction the courts have always kept in view the principle that compensation is the universal measure of damages. While parties may, by express agreement as to the amount, make provisional liquidation of damages if the sum so agreed upon was not ascertained upon the principle of compensation the intention to liquidate will not be found, but the sum designated will be treated as penalty. In other words, such sum can never be treated as liquidated damages unless it is evidently the result of calculation between the parties by which it is found to be reasonable compensation for the injury. (1 Sutherland on Damages, sec. 283 et seq.; Sedgwick on Damages, 8th ed., sec. 396 et seq.; Davis’ Oase, 17 C. Cls. B., 201; Taylor v. Sandeford, 7 Wheat., 13; Van Burén v. Diggs, 11 How., 461; Quinn’s Case, 99 IT. S, B., 30; Batter lee’s Oase, 30 C. Cls. B., 31; Faíís v. Gamors, 115 U. S. B., 353. See, also, Opinion of Attorney-General Devens, 15 Opinions, 419, and of Attorney-General Olney, 21st Opinions, 27.)
The actual loss to the Government by reason of the delay in this case was practically nothing as is shown by the statement of the Light-House Board, and from the nature of the work and the use for which it was intended it can not be presumed that either the Light-House Board or the claimants expected that any damage would result from such delay as might occur or agreed beforehand as to the amount of it.
The time prescribed in the contract for the completion of the work was a little less than a year, the delay caused by the claimants about four months, and the amount retained nearly one-half of the contract price for the construction of the entire work. Can it be possibly presumed that the parties expected the' United States to suffer injury at this rate by reason of any delay?
It seems clear that the parties carried on these transactions without any clear understanding of the difference between “liquidated damages” and “penalty,” and in such a case it is the duty of the court to declare the sum.to be a penalty. {Davies v. Denton, 6 B. & C. (Eng.), 216.)
Another circumstance which ¡precludes the presumption that the parties intended the sum designated in this case as a liquidation of damages is that the contract provides for what it calls “two deliveries,” the making and setting up at the workshops and the taking down and delivering at the place of the permanent erection of the light house, and provides the forfeiture for the failure to make either of these “deliveries” within the prescribed time. This clearly is penalty only. (Bignall v. Gould, 119 ü. S. R., 495.)
It should also be borne in mind that generally in construing such provisions in contracts as this one the courts have shown a marked desire to lean towards that construction which excludes the idea of liquidated damages, and to be guided by the more equitable rule which permits the party to recover only for such damage as he has actually suffered, and in pursuing this tendency they have always indulged the presumption that the sum was penalty and cast the burden of proof oh the party contending for the contrary. (Sedgwiclc on Damages, 8th Ed., sec. 396; Taylor v. Sandiford, 7 Wheat., 13.)
Mr. W. H. Button (with whom was Mr. Assistant Attorney-General Pradt) for the defendants:
Theelaimant and the defendants agree that the determination of this question depends upon whether or not the parties to the contract fixed the amount stated upon the theory of providing for a reasonable and adequate compensation to the defendant for the damages incident to the delay. If such intention can be determined, then it must be held that the provision is one for liquidated damages, and not one for a penalty. In this regard the intention of the parties must govern.
The defendant contends that a consideration of all these matters leads to the conclusion that the provision in this contract is one for liquidated damages and not for a penalty.
In the first place, the contract provides that the sum reserved shall be $25 per day “as liquidated damages.” It must be admitted that the use of these words is not conclusive of the question, and that oftentimes they will be disregarded. This does not mean, however, that such words will be disregarded unless there is some good reason for it. In the absence of sucb reasons the words must be given tbeir ordinary meaning. Parties are presumed to know what they are talking about when they make contracts. The cases that have held the words used not to be conclusive have usually been cases in which other circumstances clearly indicated that the words were not reliable. In many of them the sum reserved is designated both as a “penalty” and as “liquidated damages.”
Mr. Sedgwick says:
“But if, on the other hand, the contract is such that the strict construction of the phraseology would work absurdity or oppression, the use of the term “liquidated damages” will not prevent the courts from inquiring into the actual injury sustained and doing justice between the parties. (Sedgwick on Damages, sec. 396.)
In Jaquith v. Hudson (5 Mich., 123), it is said, page 134:
“But the court will not apply this principle, and disregard the express stipulation of parties, only in those cases where it is obvious from the contract before them, and the whole subject-matter, that the principle of compensation has been disregarded, and that to carry out the express stipulation of the parties would violate this principle, which alone the court recognizes as the law of the contract.”
In other words, the court should not go out of its way to make for the parties a wiser bargain than they have made for themselves. Consequently the words should be given their due weight in construing this contract, as the defendant claims there is an absence of circumstances contradictory to their natural import.
In construing these clauses, the courts have adopted certain artificial rules made necessary by the peculiar nature of the provisions and the policy of courts toward them.
The most that can be'said for them is that they embody principles which the experience of judges has shown applicable to most cases where similar circumstances arise. It can in no wise be claimed for them that they are absolute rules for interpretation, and, of course, when other circumstances intervene to take away the reason of the rule they are of no consequence whatever.
One of these rules is that whenever the stipulated sum is to be paid on breach of a contract of such a nature that the loss may be much greater or much less than tbe sum it will not be allowed as liquidated damages.
This rule is usually applied to provisions for' reserving a certain percentage of payments on a contract to be forfeited in case of a breach. Sedgwick tersely gives the reason as follows:
“This sum bears no proportion to the actual damage, since the earlier (and presumably the more injurious) the breach the less the stipulated damages are.” (Sedgwick on Damages, sec. 412.)
This is the rule under which all the cases from the United States Supreme Court and the Court of Claims cited in the claimant’s brief were decided. An examination of those cases will show that the decisions could not well have been otherwise. If these authorities are relied upon by the claimant simply to show that the words of the contracts villi not always govern there is no objection to them. If, however, they are cited for the purpose of showing any reason why this particular clause should be construed a,s providing for a penalty it is confidently asserted that they are inapplicable.
There are two cases cited from the Court of Claims Reports— Davis v. The United States, 17 C. Cls. R., 201, and Satterlee v. The United States, 30 C. Cls. R., 31. These might be supplemented by the one other case called to attention in the Court of Claims Reports that involves this principle. That is the case of Kennedy v. The United States (24 O. Cls. R., 158).
In all three of these cases the contracts before the court were those in which a certain percentage of the various payments provided for, ordinarily 10 per cent, was reserved by the United States under a provision that it should be forfeited in case of a breach of the contract by the claimants. In considering such a provision and endeavoring to determine whether or not the parties had in mind the principle of adequate compensation for a loss to be sustained in case of a breach, there was room for but one decision, and any other would involve a manifest absurdity.
The result of a contrary conclusion would be that the greater the breach the less the amount of damages provided. Take, for instance, a contract that provided for ten payments, to be made according to the progress of the work, with a provision that 10 per cent of each should be reserved and forfeited in case of a breach of the contract. This is the ordinary pro vision of these contracts. It is manifest that if the contract is broken immediately after the first payment the amount of damages reserved is but 10 per cent of that payment and the work is only one-tenth advanced. If, on the other hand, the breach occurs after the ninth payment, then there is nine times as much money reserved and only one-ninth of the work remains to be done. It is impossible to arrive at the conclusion that such a scheme was instituted by parties having in mind adequate and reasonable compensation for injury to be sustained, and of necessity such provisions were interpreted as being provisions for penalties and not for liquidated damages. Of course this principle can have no application in a case like that at bar, in which the provision is for an amount commensurated with the length of the delay caused by the breach of the contract.
The cases cited from the Supreme Court Reports are Taylor v. Sandeford (7 Wheat., 13); Van Burén v. JJigges (11 How., 461); Quinn v. The United States (99 U. S. R., 30); Watts v. Gamors (115 U. S. R., 353).
The case of Taylor v. Sandeford involved a contract that provided a penalty of $1,000 in case a building was not finished by a certain time. The same principle applies to that case. If there was a delay of one day the $1,000 would be due; if there was, on the other hand, a delay of one year the same amount would be due. The parties could not have contemplated that such a j>rovision was one for compensatory damages. In that case also it was expressly declared that the amount was in the nature of a penalty. .
The case of Van Burén v. Bigges is of the same character. The contract involved provided for a forfeiture of 10 per cent of the contract price in case of a breach of the contract. Manifestly this forfeiture was provided for any breach, however large or however small, and could not have been intended as compensatory damages.
At page 477 the court said :
“ It (the clause in question) implies an absolute infliction, regardless of tire nature and extent of the causes by which it is superinduced.’
The case of Quinn v. The United States is a case of retained percentages, similar to those cited from the Court of Claims Reports, and comes within the same principle.
The case of Watts v. Gamors is within the same principle. The contract was for transportation, and the parties were bound to each other “in the penal sum of the estimated amount of freight” for the faithful performance of all stipulations of the contract. Eot only the form of this provision, but the fact that a fixed sum would be forfeited for any breach of the contract, however great or small, necessarily was conclusive of its nature as a penalty. The court said:
“It is in the form of a penalty; it covers alike an entire refusal to perform the contract and a failure to perform it in any particular, however slight; and for any breach, whether total or partial, a just compensation can be estimated in damages.”
It will be seen that all these cases proceed upon the same X>rinciple, tliat the intention of the parties was manifestly that a forfeiture should be incurred, because if they had had the idea of compensation in mind they could in no wise have intended that the greater the damage the smaller the compensation should be, or that the compensation should be the same irrespective of the amount of damage.
In the case at bar no such circumstances occur, but on the contrary the amount of stipulated damages provided varies according to the injury to be sustained. The cases cited by the claimant are governed by the rule above set forth, but the case at bar is governed by its converse. This circumstance furnishes a strong argument to the effect that the parties to this contract had in mind the idea of adequate compensation.
It is stated in the claimant’s brief that as a matter of fact the United States by reason of the delay suffered nothing. The question is not what the United States did actually suffer, but what the parties thought at the time the contract was made the United States might suffer in case the contract should not be faithfully performed. This contract was entered into in pursuance of an act of Congress appropriating money to build a liglit-house near the site of one which had been wrecked by a storm some time before. The work undertaken by the claimant was not the complete erection of this lighthouse, but its undertaking was to furnish the ironwork to be put up by other constructors or by the United States itself.
The only justification the United States had for the erection of this light-house was the necessity the public at large has for it. Such public necessity is the reason for its erection. Certainly the United States has the right to provide against any failure of such object, however great or small, and such provision is a very natural one on its part. (Malone v. Philadelphia, 147 Pa. St., 416.)
There is a well-considered opinion of the Comptroller of the Treasury upon this subject in 3 Compt. Dec., 282.
There is no question but that it is competent for the United States to protect itself against this class of damages. It is so held in the two cases last cited. Sutherland says:
“ If the intention, however, is clear to liquidate damages and the amount is either not greatly above or below the sum which would otherwise be recoverable; or, if above, was fixed specially to cover contemplated consequential losses not provable under legal rules, and is not an unreasonable provision therefor, the sum fixed may be sustained as liquidated damages." (Sutherland on Damages,, vol. 1, p. 504.)
It is submitted that the provision of $25 per day during this delay is a reasonable one and in no wise greater than the damage that might occur from such delay.
The damages in this case are uncertain and difficult to assess, consequently this clause should be interpreted as a provision for liquidated damages.
In claimant’s brief it is contended that the courts have always shown a marked desire to lean toward the construction which excludes the idea of liquidated damages and have inclined to what is termed the more equitable rule of throwing parties upon their right to recover actual damages. This may be true in some cases, but the rule is exactly the opposite where the damages consequent upon a breach of a contract are uncertain and incapable of exact measure. In such a case liquidation of damages is highly favored by all the courts, for the reason that it tends to prevent litigation.
In Kemp v. Knickerbocker lee Go. (69 N. Y., 45) the court says, at page 58:
“When the actual damages were uncertain and difficult of ascertainment, they (the courts) have leaned to hold the stipulated amount to have been intended as liquidated damages.”
In fact, many courts have carried this principle to such an extent as to hold that any sum reserved in this manner is to be considered liquidated damages where it is necessary to go outside of tbe contract to determine what the actual damages would be. (Sutherland on Damages, yol. 1, p. 504.)
How much more this principle must apply where the damages could not be satisfactorily determined, even though all extrinsic sources were exhausted for that purpose is apparent. (Sutherland, vol. 1, pp. 505, 508.)
These propositions are enforced by many citations. Under this rule are always cited cases like the one at bar, and where such per diem sums have been reserved in building contracts in nearly every case they have been held provisions for liquidated damages.
Mr. Sedgwick says, vol. 1, sec. 419:
“When it is provided in a building contract that the work shall be. completed on a certain day and that the builder shall “forfeit” or “allow” a stipulated sum for every day or week the completion of the work is delayed beyond that time, the stipulated sum, if a reasonable one, may be recovered as liquidated damages for the delay.” (See Jaquith v. Hudson, 5 Mich., 123.)
It is needless to multiply authorities to this proposition, but the court is referred to many cases cited by Sutherland and Sedgwick at the places above referred to; also to a half page of citations in 3 Compt. Dec., 286-287. The cases that have held this kind of a provision to be one for u, penalty have been cases where the amounts incurred were excessive or the actual damages easily ascertainable.
This principle has also been applied in a case in this court, which will appear in volume 33 of Court of Claims Reports. It is the case of Halliday and Richardson v. The United States, where the sum of $50 a day was provided iu a contract for the erection of certain buildings, to be deducted in case said buildings were not finished by a certain day. This sum was allowed as liquidated damages by the court, and not only this, but the sum of $50 was reserved for a delay in completion of either of two buildings, and was enforced in regard to each building.
In coming to its conclusion the court should hold in mind the importance to the United States of these provisions in its contracts. The case of the United States is not similar to that of individuals, for the buildings and structures contracted for by the United States are ordinarily of such a nature that they can. not be temporarily procured by leases, and consequently the damage for delay in tbeir completion is much greater tban that incident to delay in completing ordinary buildings. In the case at' bar there were no light-houses on the coast of Louisiana that could have been rented by the United States for a stated period while the contractors were finishing their contract. It must be apparent that the damage caused to the defendant was not only unavoidable, but could not be measured by any rental value to be determined from the rental of such a structure. The failure of this contractor to complete his contract within the time specified delayed the completion of the light-house to the same extent, and hence he was in the same attitude toward the Government in regard to this delay as though he had the contract of building the whole light house. All the circumstances of this case point strongly to the conclusion that this clause in the contract is a reasonable computation of the damage that might accrue to the Government by the failure of the claimant. If it is so the claimant has no grounds for recovery in this suit, and it is respectfully submitted that the petition must be dismissed and such action reported to the Secretary of the Treasury.

Opinion:
Weldon, J.,
delivered the opinion of the court:
This suit is prosecuted to recover the balance alleged to be due the claimants on the contract set forth in the findings, and the only controversy in the case grows out of the deduction by the defendants of the sum of $3,250 from the consideration, because of the faillure of the claimants to perform the contract within the time limited.
The findings show that there was a delay of one hundred and thirty days, which being computed at the rate of $25 per day amounts to said sum.
The contract required the claimants "to furnish all the labor and material necessary to completely construct, erect at the workshops, take down after acceptance, and deliver at the localities and at the time prescribed the metal work" for a light-house.
The deduction by the defendants was made under the following provision of the agreement:
"And the said party of the first part further agrees to forfeit the sum of twenty-five dollars ($25) per day as liquidated dam ages for eaeb and every day's delay in completing either portion of the work embraced in the two deliveries after the said times, the amount thereof to be deducted from any sum which might otherwise be due the said party of. the first part in the hands of the light house engineer," etc.
It is shown that the contract was prepared by the defendants in a printed form and signed by the parties in that condition, the amount of forfeit as liquidated damages being a part of the printed matter. It does not appear from the finding that previous to the execution of the instrument, the parties had any negotiations or understanding as to the damages which might or would accrue to the defendants in consequence of the failure of the claimants to perform the contract within the time limited, nor does it appear that the defendants suffered any appreciable damage in consequence of such failure.
The only question for us to consider is, whether the deduction on account of the delay as specified in the contract is to operate in law as a penalty, or liquidated damages as a measure of injury or compensation. If in the construction of the agreement it is to be regarded as a mere penalty, the deduction was improi>er; if as a measure of injury or compensation the deduction was proper, and the claimants have no right to recover.
The question presented by this record has been before this court in several cases growing out of contracts of a similar character, and in the decision- of those cases the court has followed the inclination of the law in determining that, unless it appears clearly to the contrary, the provision applicable to a failure to perform will be treated as a penalty and not as liquidated damages, and although the parties may agree to the sum as a measure of injury or compensation, yet if it is unreasonable and unconscionable it will not be enforced against the delinquent party.
In the case of Davis et al. (17 0. 01s. K.., 201) it is in substance said: In determining whether the amount named in a contract shall be taken as a penalty or liquidated damages courts are influenced largely by the reasonableness of the transaction, and are not restrained by the forms of the agreement, nor by the terms used by the parties, nor even by their manifest intent, which will be carried out so far only as it is right and reasonable.
This decision may be regarded as the limit in the direction of construing a provision as a penalty and not as liquidated damages; and it is perhaps not necessary to go .to that limit in dealing with provisions of this contract and the conditions of this controversy.
In the case of Van Burén v. Diggs (11 Howard, 361), in passing on a question similar to the one in issue, the court says:
"The term forfeiture imports a penalty; it has no necessary or natural connection with the measure or degree of injury which may result from a breach of contract or from an imperfect performance. It implies an absolute infliction regardless of the nature and extent of the causes by which it is superin-duced.
" Unless, therefore, it shall have been expressly adopted and declared by the parties to be a measure of injury or compensation it is never taken as such by courts of justice, who leave it to be enforced where this can be done in its real character, viz, that of a penalty. In a defense like that attempted by the defendant in the circuit court, upon the essential justness and fairness of the acts of the parties, a positive, immutable penalty could hardly be applied as a fair test of their merits."
It is said in that case that the term forfeiture imports a penalty, and applying that rule of construction to the contract in this case, even though forfeiture is followed by the term "liquidated damages," the penalty import of the agreement is not changed by the subsequent qualification. It must appear that the sum "was expressly adopted and declared by the parties to be a measure of injury or compensation."
The consideration of the agreement is the sum of $7,500, and the deduction by the'defendants is $3,250 — a very large per cent upon the compensation which the claimants were to receive for the contract work, and although for some reason the claimants did not complete the work until four months after the expired term, the defendants in the end received and accepted from the claimants all they were entitled to under the contract.
As has been said the contract was prepared and reduced to a printed form at the time of signatures by the officers of. the defendants, and it does not appear that the clause relating to the forfeiture or damage was ever the subject of negotiation or consideration between the parties. It is a most familiar principle of law that the words of an agreement are taken most strongly against the party who prepared it, and if any liberality of construction is to be indulged it will be in-favor of the party who merely signs and not the party who signs and prepares the instrument for execution. (Garrison v. United States, 7 Wall. XT. S. R., 688; Chambers v. United States, 24 O. Ols. R., 387.)
Words of penalty and words of liquidation are used in tbe contract. Tbe party is "to forfeit tbe sum of $25 per day as liquidated damages."
In tbe case of Bignall v. Gould (119 U. S. R., 495) tbe phraseology of tbe obligation sued on is very similar to tbe contract in this case. In tbat case it is nominated in the bond " in the penal sum of $10,000 liquidated damages." In tbe opinion of the court it is said "by the rules now established at law as well as in equity, the sum of $10,000 named in the bond is a penalty only, not liquidated damages." As observed by Lord Tenter-den in asimilar case, "whoever framed this agreement does not appear to have had any very clear idea of the distinction between penalty and liquidated damages, for the sum in question is described in tbe same sentence as a penal sum and liquidated damages." So in this case the word forfeiture is used in the same sentence with liquidated damages.
A case very much like the case at bar became the subject of official consideration in the office of the Attorney-General of the United States on a question referred to that Department by the Secretary of War. In reply to the inquiry of the Secretary the Attorney-General said:
"Inasmuch as the forfeiture or penalty incurred here was one imposed by the contract between the parties, and not by any act of Congress, and the work contracted for has all been finished according to the contract, and no actual damage has resulted to the United States, and the penalty was one from which, in like cases, a court of equity would grant relief, I am of the opinion that tbe Secretary of War has authority to remit the forfeiture provided for in the contract and to order payment of the entire sum withheld from the contractor." (21 Opins. Atty. Gen., p. 28.)
In the fifteenth volume of the Opinions of the Attorney-General, page 418, is also a case similar in facts to this case. In that case the contract provided that $50 per day should be forfeited, "to be deducted from the amount which maybe, and on the completion of the work as liquidated damages." In connection with that provision of the contract, the Attorney-General said:
" The contract (as I understand from your letter) having been faithfully performed, and no damage lohatever having been sus- tamed by the Government by reason of the deiay in its performance, the conditions which, in the' contemplation of the agreement, are necessary for the exaction of the penalty under consideration, do not exist. To exact it from the contractor under these circumstances would not be warranted by the law or justice of the case. I am therefore of the opinion that you are authorized to release him from that penalty."
We have examined the authorities cited in the briefs of the counsel for the defendants, but do not find them decisive of the issue in favor of the defendants. Each case must be governed by its peculiar facts, and no general rule can be prescribed in doubtful cases to determine the questions as to whether the provision is to be regarded as a penalty or be enforced as compensation for the injury. The contract of the parties will be enforced as to liquidated damages if conscionable, but in doubtful cases will be construed as a penalty; and thereby enforce against the delinquent party a responsibility only to the extent of allowing the injured party a just compensation for the injury sustained. In the case of Haliday a/nd Richardson (33 C. Cls. B., 453) cited by the counsel for defendants the court held that the defendants were entitled to deduct the amount in controversy upon the ground that it was agreed as liquidated damages. The facts of that case differ very materially from the facts in this case. In that case there had been two extensions of the contract as to the time of completion. The contractors were about to fail to complete the contract within the second extended time, and upon that condition the superintendent notified the claimants that he would take possession of the work, and thereupon the parties stipulated as to further extension of time with an agreement that if the work was not completed by a certain day the defendants were to deduct the sum of $50 for each day for the whole work, and $25 pier day in case a portion of the work was delayed. The extension of time was a short one, and the defendants were waiting and ready to occupy tlie building. Upon that state of facts the court held that the deduction was proper, and refused a judgment for the claimants.
In the case of Jaquith v. Hudson (5th Mich., 123), the court held that the sum to be retained was in the nature of stipulated and ascertained damages, and decided:
"The law, following the dictates of equity and natural justice, adopts, as the law of the contract, the principle of just com pensation fortbe loss or injury actually sustained; and courts will not permit parties, by express stipulations, or any form of language, however clear the intent, to set it aside. But they will apply this principle, and disregard the express stipulations of parties, only in those cases where it is obvious b om the contract before them, and the whole subject-matter, that the principle of compensation has been disregarded, and that to carry out the express stipulations of the parties would violate this principle.
" The real question in this class of cases is, not what the parties intended, but whether the sum is, in fact, in the nature of a penalty; and this is to be determined by the magnitude of the sum, in connection with the subject-matter, and not by the words, or the understanding of the parties."
Although the court enforced the agreement upon the theory that the parties had settled the question of damages by the terms of their agreement, yet it was held in substance that where the parties depart from the idea of just compensation and attempt to fix an arbitrary rule of damages, the law will not recognize or enforce the agreement, in that connection it is said:
"We do not mean to say that the principle above stated as deducible from the cases is to be found generally announced in express terms, in the language of the courts, but it will be found, we think, to be necessarily implied in, and to form the only rational foundation for all that large class of cases which have held the sum to be in the nature of a penalty, notwithstanding the strongest and most explicit declarations of the parties that it was intended as stipulated and ascertained damages."
Taking into consideration the doubtful and contradictory language of the agreement in connection with the unreasonable result as to damages in applying the theory that the agreement is to be construed as fixing a compensation, it is the opinion of the court that the deduction mentioned in the contract must be regarded in the nature of a penalty, and as no damages are shown, claimants aré entitled to recover the sum of $3,250, and for that amount a judgment is entered.