[519] The general doctrine was well summed up in a Pennsylvania case. The owners of a hotel had agreed to sell it for $14,000, of which $3,000 was to be paid at a specific time, when a deed was to be made; part possession was to be deliv

ered at once, and in the contract the parties agreed to forfeit 3500 in case either failed to comply with its terms. It [520] was held that the forfeiture was intended by them as a compensation to either in case the other wholly abandoned the contract and was liquidated damages, not a penalty. As the general rule of damages might not embrace all the compensation the parties deemed would be due in view of the probable risk, trouble, loss and expense incident to the contemplated change on the part of either party, they were regarded as having fixed the sum stipulated as the amount of damage each would suffer from a total failure; and the word "forfeit" was outweighed by the other elements of interpretation and meant "to pay." Agnew, J., said: "It is unnecessary to examine the numerous authorities in detail, for they are neither uniform nor consistent. No definite rule to determine the question is furnished by them, each being determined more in direct reference to its own facts than to any general rule. In the earlier cases the courts gave more weight to the language of the clause designating the sum as penalty or as liquidated damages. The modern authorities attach greater importance to the meaning and intention of the parties. Yet the intention is not all-controlling, for in some cases the subject-matter and surroundings of the contract will control the intention where equity absolutely de

recovered by the plaintiffs. Had they finished the work the position would be correct, but if the contract is abandoned, relet and others complete the work, the amount retained as security is in its nature liquidated damages. If it were not so intended, there would be no security in the retention of this amount. . . . The president or engineer is the umpire between the parties. His determination ends the contract and exempts the company from its obligations. The agreements of the parties are the law by which their rights are to be determined, and I am extremely doubtful, at least, whether any court can legitimately interfere and upset their arrangements when an honest

discretion has been exercised, where neither fraud nor circumvention has intervened. I am instructed by my brethren, however, to say, as the opinion of the court, that in this class of cases the subject is open to inquiry whether the contractors had done any act, or omitted the performance of any duty, which, within the terms of the contract between the parties, would justify the president or engineer in declaring it abandoned; and if no such act had, in fact, been done, nor duty omitted, the honest exercise of the discretion conferred to abandon the contract ought not to shield the defendant from the payment of the per centum so retained."

mands it. A sum expressly stipulated as liquidated damages will be relieved from if it is obviously to secure payment of another sum capable of being compensated by interest. On the other hand, a sum denominated a penalty or forfeiture will be considered liquidated damages where it is fixed upon by the parties as the measure of the damages, because the nature of the case, the uncertainty of the proof or the difficulties of reaching the damages by proof have induced them to make the damages a subject of previous adjustment. In some cases the magnitude of the sum and its proportion to the probable consequence of a breach will cause it to be looked upon as minatory only. Upon the whole, the only general observation we can make is that in each case we [521] must look at the language of the contract, the intention of the parties as gathered from all its provisions, the subject of the contract and the surroundings, the ease or difficulty of measuring the breach in damages and the sum stipulated, and from the whole gather the view which good conscience and equity ought to take of the case."1

§ 294. Stipulation for payment of a fixed sum for partial or total breach. Contracts often contain a variety of stipu lations of unequal importance and, therefore, admitting of many breaches for which the damages would be different in amount. In such a case a total breach would involve an injury greater than that which would result from the infraction of a particular stipulation. Hence, it is self-evident that a sum stipulated to be paid, either for breach of one of the minor provisions or of the whole contract, could not be a liquidation of damages on the principle of compensation for actual injury. The sum would either be too great for a partial breach or wholly inadequate to one which involved the loss of the whole contract. Where an agreement contains sev eral stipulations differing in importance, and a sum is mentioned as liquidated damages to be paid in case of a breach and of such amount as is apparently appropriate to a total breach, it will be regarded as intended to fix the damages only for such a breach; and an intention will not be imputed to make it payable for breach of minor and unimportant parts

1 Streeper v. Williams, 48 Pa. St. 450; Shreve v. Brereton, 51 id. 175; Robeson v. Whitesides, 16 S. & R. 320.

in the absence of language very clearly expressing it. If, however, it cannot be appropriated thus to a total breach, but applies by necessary construction to such as would cause trifling loss or inconvenience, as well as to those of great importance, such sum is a penalty. Parke, B., said: "The rule laid down in Kemble v. Farren2 was that when an agreement contained several stipulations of various degrees of importance and value, the sum agreed to be paid by way of damages for breach of any of them shall be construed as a penalty, and not as liquidated damages, even though the parties have in express terms stated the contrary.

1 Hoagland v. Segur, 38 N. J. L. It makes no provision for damages 230. for other breaches of contract, which may occur consistently with the production of the results stated. One of the items of damage sustained by the plaintiffs was that it took a greater quantity of grain to produce a barrel with the defendants' machines than with the ordinary process, and the referee has found especially that from this source alone there was a positive loss of $1,096.75. This is a species of direct loss for which we think there can be a recovery. The cost to which the plaintiffs were subjected in repairing the mill after the defendants ceased work is also a direct loss arising from the defective machinery furnished, and it is not provided for in the contract. We think it clear that none of these items come within the terms of the stipulation for the retention of the machines, and that it was not within the contemplation of the parties that they should. We therefore consider that the provision for the retention of the machines was only in the nature of a penalty, and that the true measure of damages is the loss actually sustained, flowing directly from the defects in the defendants' machines." 26 Bing. 141.

In Pennypacker v. Jones, 106 Pa. St. 237, the stipulation was that machines put into a mill should have a designated capacity to make high grades of flour, and if the results were not as promised the machines were to be retained without payment being made for them. The court observe that nothing was "said to the effect, either that for any breach the entire machinery may be retained without payment for it, or that for a gross breach it shall be retained as stipulated damages. No sum is fixed either as a penalty or as liquidated damages. It is manifest that if the defendants produced all the results agreed upon except a deficiency of one or two barrels in the daily product, the forfeiture of the entire contract price of the machinery would be entirely out of proportion to the damage sustained. Again the letter of this provision of the contract is that the machines may be retained if the results are not as promised. This relates only to the non-production of the results contracted to be produced, that is, that the mill should have a capacity of two hundred barrels daily, with full modern percentage of high grades flour equal in quality to best in market.

[522] When the parties say that the same ascertained sum shall be paid for the breach of any article of the agreement, however minute or unimportant, they must be considered as not meaning exactly what they say; and a contrary intention may be collected from the other parts of the agreement." But in a later case he is reported to have said of the same case: "That decision has since been acted upon in several cases, and I do not mean to dispute its authority. Therefore, if a party agree to pay 1,000l. on several events, all of which are capable of accurate valuation, the sum must be construed as a penalty and not as liquidated damages. But if there be a contract consisting of one or more stipulations, the breach of which cannot be measured, then the parties must be taken to have meant that the sum agreed on was liquidated damages and not a penalty." And the same antithesis is stated by him in another case: "Where a deed contains several stipulations of various degrees of importance, as to some of which the damages might be considered liquidated, whilst for others they might be deemed unliquidated, and a sum of money is made payable on a breach of any of them, the courts have held it to be a penalty only, and not liquidated damages. But when the damages are altogether uncertain, and yet a definite sum of money is expressly made payable in respect to it by way of liquidated damages, those words must be read in the ordinary sense, and cannot be construed to import a penalty." This latter distinction has been recognized and followed in other cases in England and in America. In the

1 Horner v. Flintoff, 9 M. & W. 678. 2 Atkyns v. Kinnier, 4 Exch. 776. 3 Green v. Price, 13 M. & W. 695; affirmed, 16 id. 346.

4 Carpenter v. Lockhart, 1 Ind. 434. Cotheal v. Talmage, 9 N. Y. 551, was decided on this distinction. Ruggles, J., said: "It is contended that because the contract referred to in the bond bound the defendant to do several things of different degrees of importance, and the sum of $500 was made payable for the non-perform ance of any or either, it must be a penalty, and not liquidated damages.

This doctrine, in the cases in which it is asserted, is traced to the cases of Astley v. Weldon, 2 Bos. & Pul. 346, and Kemble v. Farren, 6 Bing. 141. But I do not understand either of these cases as establishing any such rule. The principle to be deduced from them is, that where a party agrees to do several things, one of which is to pay a sum of money, and in case of a failure to perform any or either of the stipulations agrees to pay a larger sum as liquidated damages, the larger sum is to be regarded in the nature of a penalty;