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1822. dence as aforesaid, was competent and sufficient eviN^^r/ dence of the defendants' intention to apply his payment to the extinguishment, in the first instance, of such parts of the said moneys as were due by simple contract, and to reserve the 1,000 dollars out of the money due under the said original contract." This instruction the Court refused to give: and did instruct the jury u that it was competent to the plaintiffs to recover the said 1,000 dollars in this action, unless they should be satisfied by the evidence that the defendant, at the time of paying the money, had expressly directed the same, or a sufficient part thereof, to the payment of the 1,500 dollars due on the simple contract."

To both these opinions the defendant excepted; and the jury having given a verdict for the plaintiff in the Circuit Court, this writ of error was brought to the judgment rendered thereon.

It is contended, by the plaintiff in error, that the Circuit Court erred.

1st. In overruling the claim to off-set the 1,000 dollars mentioned in the agreement.

2d. In declaring that the plaintiff in that Court might so apply the payments made, as to discharge the contract under seal, and leave the sum retained by the defendant in that Court, to be demanded under the simple contract.

1. Is the sum of 1,000 dollars mentioned in the agreement of the 13th of May, to be considered as a penalty, or as stipulated damages?

The words of the reservation are, u The said house to be completely finished on or before the 24th day

Sandiford.

of December next, under the penalty of 1,000 dol- 1822. lars, in case of failure." V^TVT^'

'Tayloe

In general, a sum of money in gross, to be paid \for the non-performance of an agreement, is considered as a penalty, the legal operation of which is, to cover the damages which the party, in whose favour the stipulation is made, may have sustained from the breach of contract by the opposite party. It will not of course be considered as liquidated damages; and it will be incumbent on the party who claims them as such, to show that they were so considered by the contracting parties. Much stronger is the inference in favour of it's being a penalty, when it is expressly reserved as one. The parties themselves denominate it a penalty; and it would require very strong evidence to authorize the Court to say that their own words do not express their own intention. These writings appear to have been drawn on great deliberation; and no slight conjecture would justify the Court in saying that the parties were mistaken in the import of the terms they have employed.

The counsel for the plaintiff in error supposes, that the contract furnishes clear evidence that the parties intended this sum as liquidated damages. The circumstance, that it is annexed to the single covenant, stipulating the time when the work shall be completed, is considered as showing that it was intended to fix the damages, for the breach of that covenant. Without deciding on the weight to which this argument would be entitled, if supported by the fact, the court cannot admit that it is so supported. The engagement, that the said houses shall be complete

Vol. VII. 3

1822. ly finished on or before the 24th day of December

v^'^/ next, is as much an engagement for the manner, as

v- for the time of finishing the work, and covers, we

Sandiford. °'

think, all the covenants made by the defendants in error in that agreement. The case, therefore, presents the single question, whether an agreement to perform certain work by a limited time, under a certain penalty, is to be construed as liquidating the damages which the party is to pay for a breach of his covenant. This question seems to have been decided in the case of Smith v. Dickenson, reported in 3 Bos. fr Pull. 630.

The plaintiff in error relies on the case of Fletcher v. Dycke, reported in 2 T. R. 32., in which an agreement was entered into to do certain work within a certain time, and if the work should not be done within the time specified, "to forfeit and pay the sum of 10/. for every week," until it should be completed.

But the words "to forfeit and pay," are not so strongly indicative of a stipulation in the nature of a penalty, as the word "penalty" itself; and the agreement to pay a specified sum weekly during the failure of the party to perform the work, partakes much more of the character of liquidated damages than the reservation of a sum in gross.

The Court is well satisfied that this stipulation is in the nature of a penalty, and, consequently, that there was no error in rejecting it as a set-ofl* in this case."

a This subject is discussed, with his usual ability and acuteness, by Mr. Evans, in the Appendix to his Translation of Pothier on Obligations, (Vol. 2. p. 93 -98.) He thinks that the Sandiford.

The second objection goes entirely to the form of 1822. the action. The declaration is in assumpsit; and s"!j^^ the plaintiff contends that the money claimed was due on a sealed instrument. It is admitted that all the money for the whole work performed by the defendants in error was paid, except the sum of 1,000 dollars, which was retained by the plaintiff in error, expressly on account of that sum which he supposed himself entitled to under the contract of the 18th of May, on account of the failure to complete the buildings by the 24th of December. If this money was due on the simple contract, then this action was clearly sustainable; if it was due under the sealed instrument, then it could be recovered only by an action on that instrument. It's being due on the one or the other depends on the application of the payments made by the plaintiff to the defendants in error. The Court instructed the jury, that it was competent to the plaintiff to recover the said 1,000

penalty ought, in general, to be regarded as stated damages; and his observations are calculated to excite doubts as to the correctness of some of the decisions on this subject. In addition to the cases collected by him, and those cited in the argument of the above case, in the text, (Tayloe v. Sandiford,) the following cases may be referred to. Ponsonby v. Adams, 6 Bro. Pari. Cas. 418. Harrison v. Wright, 13 East, 343. Rolfe v. Peterson, 6 Bro. Pari. Cas. 470. Sloman v. Walter, 1 Bro. Ch. Rep. 418. Hardy v. Martin, lb. 419. Love v. Peers, 4 Burr. 2229. Cotterel v. Hook, Doug. 101. Wilbeam v. Ashton, 1 Campb. JY. P. Rep. 78. Barton v. Glover, 1 Holt's N. P. Rep. 43. The learned reader will also find the supposed result of all the English cases summed up by Mr. Holt, in a note to the last mentioned case. 1 Holt's N. P. Rep. 45.

Sandiford

182?. dollars in this action, " unless they should be satisfied ^^^ by the evidence that the defendant, at the time of paying the money had expressly directed the same, or a sufficient part thereof, should be applied to the extinguishment of the 1,500 dollars due on the simple contract."

This instruction of the Court is given in terms, the correctness of which cannot be entirely admitted. It would exclude an application of the money made by the creditor himself, with the assent of the debtor to the simple contract debt; for, in such case, it would not appear that the debtor had "expressly directed" the application.

Thus, among the accounts exhibited at the trial, is a receipt for the whole sum due for extra work performed under a verbal contract. It was not proved that the application of this money to the discharge of the verbal contract was "expressly directed." Yet no person will say that the creditor was at liberty to controvert this application, or to change it.

A person owing money under distinct contracts has undoubtedly a right to apply his payments to whichever debt he may choose; and, although prudence might suggest an express direction of the application of his payments at the time of their being made ; yet there may be cases in which this power would be completely exercised without any express direction given at the time. A direction may be evidenced by circumstancea as well as by words. A payment may be attended by circumstances which demonstrate its application as completely as words could demonstrate it. A positive refusal to pay one

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