LIQUIDATED DAMAGES. Damages the amount of which has been determined by anticipatory agreement between the parties.
Damages for a specific sum stipulated or agreed upon as part of a contract, as the amount to be paid to a party who alleges and proves a breach of it.
Where there is an agreement between par ties for the doing or not doing particular acts, the parties may, if they please, estimate beforehand the, damages to result from a breach of the agreement, and prescribe in the agreement itself the sum to be paid by either by way of damages for such breach. See 2 B. & P. 335, 350 ; 2 Bro. P. C. 431; 4 Burr. 2225. The civil law appears to recog nize such stipulations ; Inst. 3. 16. 7 ; Toul Her 1. 3, n. 800; La. Civ. Code Art. 1928, n.
5 ; Code Civile 1152, 1153.
The parties may bona Ade, where the dam ages are of an uncertain nature, estimate and agree upon the measure of damages up on a breach. The intention of the parties is arrived at by a proper construction of their agreement. It is the duty of the court, when the damages are uncertain and have been liquidated by agreement, to enforce the contract ; Sun Printing & Pub. Ass'n v. Moore, 183 U. S. 642, 22 Sup. Ct. 240, 46 L. Ed. 366, a fully considered case. A court will not substitute its judgment for that of the parties ; Schell v. Plumb, 55 N. Y. 592.
Such a stipulation on the subject of dam ages differs from a penalty in this, that the parties are holden by it ; whereas a penalty is regarded as a forfeiture, from which the defaulting party can be relieved.
It is settled both at law and in equity that the courts will not go behind an agreement for liquidated damages, but that a penalty is only security for the sum due or damages actually sustained ; 1 Sedgw. Dam. § 394. The word penalty in this contradistinction is not used according to its exact definition, but has acquired a settled technical mean ing; id. note.
The sum named in an agreement as dam ages to be paid in case of a breach will, in general, be considered as liquidated damages, or as a penalty, according to the intent of the parties ; and the mere use of the words "penalty" or "liquidated damages" will not be decisive of the question, if on the whole the instrument discloses a different intent; 6 B. & C. 216; Maxwell v. Allen, 78 Me. 32,
2 Atl. 386, 57 Am. Rep. 783 ; Kemp v. Ice Co., 69 N. Y. 45 ; 4 H. & N. 511; Condon v. Kemp er, 47 'Kan. 126, 27 Pac. 829, 13 L. R. A. 671; Pennsylvania R. Co. v. Reichert, 58 Md. 261; Houghton v. Pattee, 58 N. H. 326 ; Lansing v. Dodd, 45 N. J. L. 525. See Ward v. Build ing Co., 125 N. Y. 23b, 26 N. E. 256. It has been said, however, that if the parties use the word "penalty," it will control the interpretation of the contract; 3 B. & P. 630; Tayloe v. Sandiford, 7 Wheat. (U. S.) 13, 5 L. Ed. 384 ; Colwell v. Lawrence, 38 N. Y. 75 ; Brewster v. Edgerly, 13 N. H. 275 ; but in Bagley v. Peddle, 16 N. Y. 469, 69 Am. Dec. 713 ; the sum named was stated to be "liquidated damages," but was held to be a penalty. Whether the sum mentioned in the agreement to be paid for a breach is to be treated as a penalty or as liquidated dam ages is a question of law, to be determined by the court upon a consideration of the whole instrument ; 7 C. B. 716. The con struction must be the same in law and equi ty ; 5 H. L. C. 105. The tendency of the court is to regard the sum named as a pen alty rather than liquidated damages; 2 B. & P. 346; Cushing v. Drew, 97 Mass. 445; yet courts seek to ascertain the intent and are governed by it ; id. As to the distinc tion, see also Jackson v. Baker, 2 Edw. Ch. (N. Y.) 471, 30 Am. Rep. 28, n.
Such a stipulation in an agreement will be considered as a penalty, in the following cases : Where the parties in the agreement have expressly declared it or described it as a "penalty," and no other intent is clearly to be deduced from the instrument; 2 B. & P. 340, 350, 630 ; Tayloe v. Sandiford, 7 Wheat. (U. S.) 14, 5 L. Ed. 384; Dennis v. Cummins, 3 Johns. Cas. (N. Y.) 297, 2 Am. Dec. 160; Meyer v. Estes, 164 Mass. 457, 41 N. E. 683, 32 L. R. A. 283.