The courts seek to ascertain the real intent of the parties in making the provision. But the fact that the sum is specifically called liquidated damages is not conclusive. If the sum named is clearly disproportionate to the damage which would be suffered, it tends to indicate that a penalty was intended. Again, where the contract involves doing many acts of various sorts, and only one fixed sum is named to be paid upon a breach, a similar inference would be drawn.
Conversely if the sum varies with the extent of the breach, as where a certain amount is to be paid for each day of delay, it is an indication of an intention to fix liquidated damages. If the damages in ease of breach would be readily ascertainable, it is more likely that a named sum will be held to be a penalty than in cases where it be very difficult to determine the actual damage. The attempt to impose penalties being one to which the courts will not give effect, and the validity of such clauses depending largely upon their reasonableness, it is obvious that no general rule for drawing liquidated damage clauses can be given. The matter not being a simple one, it will be found that contractors often have very erroneous ideas on the subject, having learned of some one test sometimes applied by the courts, and believing such test to be conclusive. The necessity of care in drawing these clauses is in creased by the fact that where there is doubt, the courts incline to treat the amount fixed in the contract as a penalty, rather than as liquidated damages. It is important to make the amount stipu lated clearly reasonable as a measure of damages for the breach mentioned.
Breach of Contract Operating as Discharge. If one party to a contract is guilty of a serious breach thereof, the other party may thereupon have the right to treat the contract as terminated. The test is whether the breach goes, as is said, to the essence of the contract. No rule can be laid down as a guide to show what breach does go to the essence. The contract mist be construed and the intention of the parties ascertained. It is well to remember, however, this possibility, that very grave deviation by a builder, for instance, from the requirements of a contract, might, at the choice of the owner, discharge the contract. Furthermore, it is to be noted that if in any contract some matter is of especial im portance, which in other similar contracts might he of little ac count, as, for instance, the time of performance, its importance should be made clear. In such case it is desirable to state ex pressly that the matter in question is of time essence of the con tract, although this language in itself would not be held conclu sive. If the importance of a certain matter is made clear, then, in case of breach in respect of that matter, the injured person will stand in a better position, and be safe in holding himself dis charged from further obligation to proceed under the contract. In case of the termination of a contract, however, the student must remember that if the party terminating it retains the benefit of work already performed by the other party, he will be liable to pay for such work upon an implied contract.
Discharge by Consent. It hardly needs to be said that a contract may at any time be discharged by all the parties thereto. It is desirable to have the discharge, like the contract, clearly made in writing, so as to cover all questions of further rights and liabilities.
Waiver. If a party to a contract clearly waives his right under a certain clause, and the other party, relying on such a waiver, does not fulfil that clause, the resulting variation from the contract terms is excused. Thus if a building contract makes an architect's certificate a condition precedent to payment, and if the owner gives the contractor to understand that the certificate will not be required, this waiver renders the production of he cer tificate unnecessary as a condition of payment. Waiver may he fotu a in the conduct, as well as in the words, of a party. The f_estion whether words or conduct amount to a waiver, is one for the jury to decide.
Modification. Contracts may always be modified by agree ment of the parties. The subsequent agreement must be a good contract according to the ordinary rules, in order to effect a change in an existing contract. A waiver may also practically modify a contract. It is important, however, for the sake of avoiding emu. plications and disputes to have a contract always kept clear and readily provable. hence it is only a reasonable precaution to have any modifications of a written contract put in writing. One advan tage of this is that the written expression of the understanding is likely to be trade more definite, thus avoiding disputes on the ground of inexactness, as well as on the ground of misunderstanding.
Suretyship. The relation of suretyship arises where besides an obligee, as, for instance a creditor, and the principal obligor, as a debtor, there is another person who becomes answerable for the debt or default of the principal obligor, and who is called a surety.
The contract of a surety is so peculiar as to form the snbject of a separate branch of law. It will be remembered that this contract is one of those which, under the Statute of Frauds, must be in writing, in order to be enforceable. The principle of the law of Suretyship chiefly to be noticed is that if the creditor acts in such a manner as might affect the position of the surety and in creasa his liability, the surety is discharged. Therefore, if in a contract between A and P, U becomes surety for performance of B's part, A must proceed with great caution in all matters affect ing his relations with B. In some states if the surety requests the creditor to bring snit against the debtor, and the creditor re fuses to do so, the surety will be discharged. Written requests to sue are provided for by law in some states. Lack of diligence in prosecuting a snit may forfeit the creditor's right against the surety. The release of one surety discharges co-sureties from so much of the original debt as the person discharged could have been compelled to pay. So if the property of the debtor is held for security, and is surrendered, the creditor loses his claim against the surety to the extent of the value of the property. The point chiefly to be regarded as most likely to affect building contracts is that any material alteration in the contract between the creditor and the principal which woukl extend the liability of the surety beyond the terms of his original agreement, and to which the surety does not assent, discharges the surety.