Where, under the contract, a deposit is made of a sum to be forfeited in case of de fault, it will be considered liquidated damag es ; 21 Ch. Div. 243; Mathews v. Sharp, 99 Pa. 560 ; Eakin v. Scott. 70 Tex. 442, 7 S. W. 777; but this was held to be so only if the deposit was a part performance and not as security ; Chaude v. Shepard, 122 N. Y. 397, 25 N. E. 358.
Under contracts not to carry on a particu lar business within specified limits of time and place, a sum named to be paid on de fault is liquidated damages; Stewart v. Be dell, 79 Pa. 336; Johnson v. Gwinn, 100 Ind. 466 ; 40 Ch. Div. 112 ; Newman v. Wolfson, 69 Ga. 764; Potter v. Ahrens, 110 Cal. 674, 43 Pac. 388 ; but not where the contract de scribes it as a "penalty" ; Smith v. Brown, 164 Mass. 584, 42 N. E. 101.
Where, in contracts for government work, provision was made for the retention of percentages, to be forfeited on non-comple tion, it was treated as a provision for liqui dated damages ; Satterlee v. U. S., 30 Ct. Cl. 31; and so were such provisions in a building contract ; Reichenbach v. Sage, 13 Wash. 364, 43 Pac. 354, 52 Am. St. Rep. 51; and in one for refitting a barge $50 for each day's delay, designated in the contract a "fine," where the fair rental value of the boat was $40 per day ; Manistee Iron-Works Co. v. Lumber Co., 92 Wis. 21; 65 N. W. 863 ; and generally under contracts for the pay ment of such daily sum upon failure of com pletion; Standard Button Fastening Co. v. Breed, 163 Mass. 10, 39 N. E. 346; Collier v. Betterton, 87 Tex. 440, 29 S. W. 467 ; Lincoln v. Granite Co., 56 Ark.' 405, 19 S. W. 1056; 28 Ont. 195; Monmouth Park Ass'n v. Wallis Iron Works, 55 N. J. L. 132, 26 Atl. 140, 19 L. R. A. 456, 39 Am. St. Rep. 626 ; but a similar provision in a contract for railroad ties was held a penalty ; Gulf, C. & S. F. R. Co. v. Ward (Tex.) 34 S. W. 328.
Where, from the tenor of the agreement or from the nature of the case, it appears that the parties have ascertained the amount of damages by fair calculation and adjust ment ; 2 Story, Eq. Jur. § 1318; 1 Bingh. 302 ; Chamberlain v. Bagley, 11 N. H. 234; Watt's Ex'rs v. Sheppard, 2 Ala. 425 ; Hamaker v. Schroers, 49 Mo. 406.
Where a bond was given in the penal sum of $10,000 upon condition not to practise as a physician and in case of breach, to pay $500 for every month in which he practised, the $10,000 was held to be a penalty and the $500 stipulated damages ; Smith v. Smith, 4 Wend. (N. Y.) 468. See Cheddiek's Ex'r v. Marsh, 21 N. J. L. 463.
See, as to the distinguishing tests of liqui dated damages and penalty, Bagley v. Ped die, 5 Sandf. (N. Y.) 192.
The following has been suggested as a general rule governing the whole subject: "Whenever the damages were evidently the subject of calculation and adjustment be tween the parties and a certain sum was agreed upon, and intended as compensation, and is in fact reasonable in amount, it will be allowed by the court as liquidated dam ages." 1 Sedgw. Dam. § 405. To establish
a liquidation of damages there must concur all the necessary elements of a valid con tract, assent of parties, consideration and , performance of the condition, if any; Union Locomotive & Eirpress Co. v. Ry. Co., 37 N. J. L. 23. The intent of the parties must be clear, but it must appear from the contract; 1 Sedgw. Dam. § 406. But prior negotiations may be referred to, to decide whether it is a penalty or liquidated damages ; U. S. v. Steel Co., 205 U. S. 105, 27 Sup. Ct. 450, 51 L. Ed. 731.
The question of penalty or liquidated dam ages is a matter of law for the court; 1 Tay]. Ev. Chamb. ed. § 40; 7 C. B. 713. The liqui dation must be reasonable ; Myer v. Hart, 40 Mich. 517, 29 Am. Rep. 553; Pennypacker v. Jones, 106 Pa. 237; hence the contract is not conclusive so far as that it would be per mitted to violate this principle; Jaquith v. Hudson, 5 Mich. 123.
The penal sum in a bond is usually a pen- j ally, but if a sum be agreed upon in the condition of a bond to be payable upon a breach, the question may arise whether it is liquidated damages or a penalty, and it will be subject to the same principles of con struction as in any other forms of contract ; Leake, Contr. 938, 1091; 2 Ves. Sen. 530. See 5 H. L. C. 105.
Where the language used is explicit, the extravagance of the sum named as liquidat ed damages will not be considered; Bagley v. Peddie, 5 Sandf. (N. Y.) 192. See Kelso v. Reid, 145 Pa. 606, 23 Atl. 323, 27 Am. St. Rep. 716; Bigony v. Tyson, 75 Pa. 157; Eakin v. Scott, 70 Tex. 442, 7 S. W. 777; [1892] 1 Q. B. 127.
Some discussion has arisen as to whether the question of liquidated damages Is in volved in alternative contracts to do a cer tain thing or pay a certain sum. In such cases what is known as the rule of least beneficial alternative is applied and dam ages are given upon the theory that the de fendant, if he performed, would have chosen the least onerous obligation; L. R. 8 C. P. 475; but in such a case it has been held that a defendant, having failed to exercise his op tion, must pay the sum as stipulated damag es ; Pearson v. Williams' Adners, 24 Wend. (N. Y.) 244; Pennsylvania R. Co. v. Reich ert, 58 Md. 261; Hodges v. King, 7 Mete. (Mass.) 583. But see Condon v. Kemper, 47 Kan. 126, 27 Pac. 829, 13 L. R. A. 671, and note.