of the law on the subject is to drop the use of the phrase from the discussion. Even the suggested substitute of an inquiry whether the parties in good faith attempted to estimate the real injury-45 is a somewhat artificial cloak for the true principle; for the only evidence that the court ever has before it bearing on the issue whether the parties in good faith made such an estimate, besides their statement in the contract that the sum named is liquidated damages, or a penalty (and to this as has been seen the court rightly pays little attention) is the reasonableness in fact of the amount; and the matter would be much simplified if it were clearly recognized and stated that the reasonableness of the agreed sum looked at as of the time when the contract was made is the only important thing. 46 45 That is, made a "genuine preestimate" of the probable damage. Wise v. United States, (U. S. Oct. Term, 1918), 39 Sup. Ct. 303. The artificial character of the search for intention is brought out by Marshall, J., in Seeman v. Biemann, 108 Wis. 365, 373, 84 N. W. 490. "The law is too well settled to permit any reasonable controversy in regard to it at this time, that where parties stipulate in their contract for damages in the event of a breach of it, using appropriate language to indicate that the damages are agreed upon in advance, and such damages are unreasonable considered as liquidated damages, the stipulated amount will be construed to be a mere forfeiture or penalty and the recoverable damages be limited to those actually sustained. While courts adhere to the doctrine that the intention of the parties must govern in regard to whether damages mentioned in their contract are liquidated, they uniformly take such liberties in regard to the matter, based on arbitrary rules of construction, so called, as may be necessary to effect judicial notions of equity. . . . The judicial power thus exercised cannot properly be justified under any ordinary rules ... of judicial construction. . . . In determining whether an amount agreed upon as damages was intended as liquidated damages or as a penalty, rules of language are ignored and the expressed intent of parties is made to give way to the equity of the particular case, having due regard to precedents. "This court, in harmony with the weight of authority, early adopted the arbitrary rule that where damages may be readily computed, and the stipulated damages, so called, are largely in excess of actual damages, the court will disregard what the parties say they intended and presume that they intended what is fair and reasonable under the circumstances, however much that may violate their language." In Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124, 125, the court said, "A provision in a contract for the payment of a stipulated sum in the event of its breach will be regarded and enforced as one for liquidated damages when three conditions coexist, to wit: (1) That the damages to be anticipated as resulting from the breach are uncertain in amount or difficult to prove; (2) that there was an intent on the part of the parties § 779. Whether the liquidation must be reasonable. In spite of the language of cases regarding the intention of the parties, there is little doubt that a sum named as liquidated damages in order to be given effect must be reasonable in amount. To be sure, under the recent decisions of the most authoritative courts, the primary question seems to be whether the parties honestly endeavored to fix a sum equivalent in value to the breach. 48 But as has been seen, the chief, almost to liquidate them in advance; and (3) that the amount stipulated was a reasonable one, that is to say, not greatly disproportionate to the presumable loss or injury. Banta v. Stamford Motor Co., 89 Conn. 51, 92 Atl. 665." In Mount Airy Milling, etc., Co. v. Runkles, 118 Md. 371, 376, 84 Atl. 533, L. R. A. 1915 E. 373, the court said, “As just compensation for the injury done is the end which the law aims to reach, the intention of the parties at the time the contract was entered into is often, though not always, given weight; and whilst the language which they have used in the instrument, if they declare that the damages shall be liquidated, is a circumstance that may have its influence; yet even their explicit words will sometimes be disregarded, and the measure of damages will be restricted to such as the evidence shows have been actually sustained, if the entire agreement, and the peculiar circumstances of the subject-matter of the contract indicate that the reason and justice of the case require this to be done." See also Giesecke v. Cullerton, 280 Ill. 510, 117 N. E. 777. 47 In re Liberty Doll Co., Inc., 242 Fed. 695; People v. C. P. R. R., 76 Cal. 29, 18 Pac. 90; Banta v. Stamford Motor Co., 89 Conn. 51, 92 Atl. 665; Schoolnick v. Gold, 89 Conn. 110, 93 Atl. 124; Scofield v. Tompkins, 95 Ill. 190, 35 Am. Rep. 160; Maxwell v. Allen, 78 Me. 32, 2 Atl. 386; Baltimore Bridge Co. v. United Rys., etc., Co., 125 Md. 208, 93 Atl. 420; Myer v. Hart, 40 Mich. 517, 523, 29 Am. Rep. 553; Jones v. Stainton, 200 Mich. 694, 166 N. W. 966; Biddle v. Biddle, 202 Mich. 160, 168 N. W. 92; SheffieldKing Milling Co. v. Domestic Science Baking Co., 95 Ohio, 180, 115 N. E. 1014, 1016; Daly v. Maitland, 88 Pa. 384, 32 Am. Rep. 457; Gates v. Parmly, 93 Wis. 294, 66 N. W. 253, 67 N. W. 739. See also United States v. Bethlehem Steel Co., 205 U. S. 105, 51 L. Ed. 731, 27 Sup. Ct. Rep. 450; Gay Mfg. Co. v. Camp, 65 Fed. 794, 13 C. C. A. 137, 68 Fed. 67, 15 C. C. A. 226, 25 U. S. App. 134, 376; Chicago House Wrecking Co. v. United States, 106 Fed. 385, 389, 53 L. R. A. 122, 45 C. C. A. 343; Makletzova v. Diaghileff, 227 Mass. 100, 116 N. E. 231; Blunt v. Egeland, 104 Minn. 351, 116 N. W. 653; Werner v. Finley, 144 Mo. App. 554, 129 S. W. 73; Ward v. Hudson River Building Co., 125 N. Y. 230, 235, 26 N. E. 256; Grant Marble Co. v. Marshall & Ilsley Bank, 164 Wis. 547, 165 N. W. 14. In May v. Crawford, 142 Mo. 390, 401, 44 S. W. 260, the court said: "The touchstone of validity of contracts of the sort before us is found by solving the question whether the amount ostensibly awarded, for the breach complained of, is or is not reasonably appropriate and just, regard being had to the nature of the stipulation for the possible breach of which the agreement provides." 48 Clydebank Engineering, etc., Co. the only, means of determining whether the parties in good faith endeavored to assess the damages is afforded by the amount of damage stipulated for, and the nature of the breach upon which the stipulation was agreed to become operative. This is but saying in other words that the reasonableness or unreasonableness of the stipulation is decisive.49 v. Castaneda, [1905] A. C. 6; Sun Printing, etc., Association v. Moore, 183 U. S. 642, 46 L. Ed. 366, 22 S. Ct. 240. There are even some expressions in the latter decision which would warrant the inference that any valuation agreed upon by the parties and clearly stated by them as of the essence of the agreement would be binding, but the case did not require so extreme a view, nor can it be supported. The relief granted against penalties is not granted because of accident or mistake in the agreement, but in opposition to the intention of the parties. It has been suggested that this case should be rested on the doctrine of estoppel, 9 Mich. L. Rev. 588, 18 id. 50, but there seems no reason to suppose that a defendant by admitting that the plaintiff's property has an excessive value can render himself liable to pay that value any more fully by means of estoppel than by direct promise. "In Clydebank Engineering &c. Co. v. Castaneda, [1905] A. C. 6, 16, Lord Davey said: "It is always open to the parties to show that the amount named in the clause is so exorbitant and extravagant that it could not possibly have been regarded as damages for any possible breach which was in the contemplation of the parties. "In Forest & Barr v. Henderson & Co., 8 Session Cases (Macpherson), 187, 193, the Lord President (Lord Inglis) says this: 'I hold it to be part of our law on this subject that, even where parties stipulate that a sum of this kind shall not be regarded as a penalty, but shall be taken as an estimate and ascertainment of the amount of damage to be sustained in a certain event, equity will interfere to prevent the claim being maintained to an exorbitant and unconscionable amount.' My only criticism upon that sentence would be this-that I do not think that that is the right way of putting it. I think the fact of a claim being of an exorbitant or of an unconscionable amount as compared with any possible damages that could have been within the contemplation of the parties, is a reason for holding it not to be liquidated damages but a penalty. But that is only a difference of expression, and with the substance of the observation I entirely agree. But the Lord President adds this significant sentence: 'But, of course, the question whether it is exorbitant or unconscionable is to be considered with reference to the point of time at which the stipulation is made between the parties.' That is to say, you are to consider whether it is extravagant, exorbitant, or unconscionable, whatever word you like to select, at the time when the stipulation is made." In Giesecke v. Cullerton, 280 Ill. 510, 117 N. E. 777, 778, the court said: "While the intention of the parties must be taken into consideration, the language of the contract is not conclusive. The courts of this state, as well as in other jurisdictions, lean toward a construction which excludes the idea of liquidated damages and permits the parties to recover only the damages actually sustained. Advance Amusement Co. v. Franke, 268 Ill. 579, 109 N. E. 471; Gobble v. Linder, 76 Ill. § 780. Distinction between contracting in advance for a penalty and making an unreasonable accord after breach. Courts of equity do not ordinarily relieve against harsh or unfair contracts. Specific enforcement of such contracts may indeed be refused, but the court of equity leaves the parties to their remedy at law, and neither the court of equity nor the court of law considers the adequacy of the consideration for a promise.50 Therefore, in a contract of accord for breach of a previously broken contract, the parties may agree on what terms of settlement they will (except a larger liquidated sum in settlement of a broken obligation to pay a smaller undisputed and liquidated debt) however unfavorable the accord may be to the party in default. It may be urged therefore, that where the parties agree beforehand on liquidated damages they should have the same freedom to contract, and that however unfair the agreed damages may be, the court should enforce the contract. But experience has shown that dangerous advantage is likely to be taken of a party to a contract if he is allowed to stipulate in advance as a part of the contract that he will pay damages of any amount which the agreement may name, if he breaks the contract. It matters not that the parties have in terms agreed that an excessive sum, known by them to be excessive, shall be paid as damages. The sum is a penalty and payment of it will not be enforced. § 781. Alternative contracts. A contract may give an option to one or both parties either to perform a specified act or to make a payment; and though this form of contract cannot be used as a cover for the enforcement of a penalty, yet if on a true construction it appears that it was intended to give a real option, (that is that it was conceived possible that at the time fixed for performance, either alternative might prove the more desirable) the contract will be enforced according to its terms. 51 The fact that a promise is 157; Scofield v. Tompkins, 95 Ill. 190, 35 Am. Rep. 160. The great weight of authority in this and other jurisdictions is based upon the principle that a stipulated sum will not be allowed as liquidated damages unless it may be fairly allowed as compensation for the breach." 50 See supra, § 115. 51 See for instances of such contracts, expressed in the alternative, however, may easily be given too much weight. As the question of liquidated damages or penalty is based on equitable principles, it cannot depend on the form of the transaction, but rather on its substance. It follows that a contract expressed to be in the alternative when examined in the light of the existing facts, may prove to be (1) a contract contemplating a single definite performance with a penalty stated as an alternative; (2) a contract contemplating a single definite performance with a sum named as liquidated damages as an alternative, 52 or (3) a contract by which either alternative may prove the more advantageous and is as open to the promisor as the other. A contract may belong to the third class even though the term "liquidated damages' is applied in the contract to one alternative.53 But the fact and the measure of damages for breach of them-Cockburn v. Alexander, 6 C. B. 791, 814; Deverill v. Burnell, L. R. 8 C. P. 475; Steel v. People's Oil Co., 147 Ill. App. 133; Smith v. Bergengren, 153 Mass. 236, 26 N. E. 690, 10 L. R. A. 768; Missouri Edison Electric Co. v. M. J. Steinberg Co., 94 Mo. App. 543, 68 S. W. 383; Taylor v. Smith, 25 N. Y. App. Div. 632, 50 N. Y. S. 1134. Also infra, § 1407. Jackson v. Hunt, 76 Vt. 284, 56 Atl. 1010, and supra, § 1407. 52 In Stewart v. Bedell, 79 Pa. 336, 339, the court said: "The defendant's covenant not to engage in business within prescribed limits, and the covenant, if he should do so, that he would pay $10,000 liquidated damages, are not alternative; the latter being merely the agreed consequence of a breach of the former. If covenants be alternative and either be performed there is no breach. An election is given to the covenantor to perform either. But here a breach of the former covenant is necessary to give effect to the latter. Hence there is no election in such case, except that which arises from a determination to suffer the consequence of a breach. Here then the former covenant is broken, and its breach must be shown to entitle the plaintiff to resort to the secondary covenant to pay the damages. Hence the plea of 'covenants performed' applied only to the breach alleged in the declaration, to wit, of the covenant not to engage in business." 53 In Curnan v. Delaware, etc., Rd., 138 N. Y. 480, 34 N. E. 201, a contract reserved a right to terminate it on notice and payment for all labor which had been performed plus $3,000 "liquidated damages." The court held that exercise of the right of termination was not a breach of contract, and therefore if any breach did take place, and the power had not been exercised, the contractor must be allowed to recover his actual damages in excess of $3,000. So in Glynn v. Moran, 174 Mass. 233, 54 N. E. 535, where a contract provided that a joint business might be discontinued at any time, on one party paying the other $1,500, the court while treating the sum as liquidated damages, said, at page 236, "It is possible that the plaintiff's right to the $1,500 per annum might stand on the simple ground that the defendants agreed to pay it if they |