Jaquith v. Hudson

Christiancy J.:

The first point upon which the Court below was requested to charge, and for the refusal of which the first exception is taken, assumed that, by the arrangement between the parties, the contract was not to - become operative, or to have any force or effect, until the duplicates should be delivered, by Captain Edwards, to both parties, at the same time.

Whether such was the effect of the arrangement, or, whether the agreements were placed in the hands of Captain Edwards solely to await the execution and delivery of the bond and note mentioned in the contract, and thereupon to become operative, was a question which depended upon the intention of the parties, to be gathered from the whole transaction, their acts and declarations, and, in some -measure, upon the nature and provisions of the contract itself. It was a question of fact, involved in the issue. The Court had no right to assume the truth or falsehood of either side of the question. The evidence bearing ujion the point was conflicting. It was as clearly a question of fact for the jury as any other fact in issue in the cause. To have charged the jury as requested, would have been an encroachment by the Court upon the province of the jury. The question was, therefore, properly submitted to the jury. The charge of the Court in this particular was in all respects fair and correct, and the verdict of the jury is conclusive upon this point. The first exception, therefore, is not well taken.

The second exception raises the single question, Whether the sum of one thousand dollars, mentioned in the covenant of Jaquith not to go into business in Trenton, is to be construed as a penalty, or as stipulated damages — the plaintiff in error insisting it should be construed as the former, the defendant as the latter.

We shall not attempt here to analyze all the decided cases *133 upon the subject, which were read and cited upon the argument, and which, with others, have been examined. It is not to be denied that there is some conflict, and more confusion, in the cases: judges have been long and constantly complaining of the confusion and want of harmony in the decisions upon this subject. But, while no one can fail to discover a very great amount of apparent conflict, still it will be found, on examination, that most of the cases, however conflicting in appearance, have yet been decided according to the justice and equity of the particular case. And while there are some isolated cases (and they are but few), which seem. to rest upon no very intelligible principle, it will be found, we think, that the following general principles may be confidently said to result from, and to reconcile, the great majority of the cases, both in England and in this country:

First. The law, following the dictates of equity and natural justice, in cases of this kind, adopts the principle of just compensation for the loss or injury actually sustained/ considering it no greater violation of this principle to confine the injured party to the recovery of less, than to enable him, by the aid of the court, to extort more. It is the application, in a court of law, of that principle long recognized in courts of equity, which, disregarding the penalty of the bond, gives only the damages actually sustained. This principle may be stated, in other words, to be, That courts of justice will not recognize or enforce a contract, or any stipulation of a contract, clearly unjust and unconscionable; — a principle of common sense and common honesty so obviously in accordance with the dictates of justice and sound policy, as to make it rather matter of surprise that courts of law had not always, and in all cases, adopted it to the same extent as courts of equity. And, happily for the purposes of justice, the tendency of corn-ts of law seems- now to be towards the full recognition of the principle, in all eases.

This principle of natural justice, the courts of law, fol-owing courts of equity, have, in this class of cases, adopted *134 as the law of the contract/ and they will not permit the parties by express stipulation, or any form of language, however clear the intent, to set it aside; on the familiar ground, “con-. ventus privatorum non potest publico juri derogare.”

But the Court will apply this principle, and disregard the express stipulation of parties, only in those cases where it is obvious from the contract before them, and the whole subject-matter, that the principle of compensation has been disregarded, and that to carry out the express stipulation of the parties, would violate this principle, which alone the Court recognizes as the law of the contract.

The violation, or disregard, of this principle of compensation, may appear to the Court in various ways, — from the contract, the sum mentioned, and the subject-matter. Thus, where a large sum (say one thousand dollars), is made payable solely .in consequence of the non-payment of a much smaller sum (say one hundred dollars), at a certain day; or where the contract is for the performance of several stipulations of very different degrees of importance, and one large sum is made payable on the breach of any one of them, even the most trivial, the damages for which can, in no reasonable probability, amount to that sum: — in the first case, the Court must see that the real damage is readily computed, and that the principle of compensation has been overlooked, or purposely disregarded: in the second case, though there may be more difficulty in ascertaining the precise amount of damage, yet, as the contract exacts the same large sum for the breach of a trivial or comparatively unimportant stipulation, as for that of the most important, or of all of them together, it is equally clear that the parties have wholly departed from the idea of just compensation, and attempted to fix a rule of damages which the law will not recognize or enforce.

We do not mean to say that the principle above stated as deducible from' the cases, is to bo found generally announced in express terms, in the language of the courts; but it will be found, we think, to be necessarily implied in, and *135 to form the only rational foundation for, all that large class of cases which have held the sum to be in the nature of a penalty, notwithstanding the strongest and most explicit declarations of the parties that it was intended as stipulated and ascertained damages.

It is true, the courts in nearly all these cases profess to be construing the contract with reference to the intention of the parties, as if for the purpose of ascertaining and giving effect to that intention; yet it is obvious, from these cases, that wherever it has appeared to the Court, from the face of the contract and the subject-matter, that the sum was clearly too large for just compensation, here, while they will allow any form of words, even those expressing the direct contrary, to indicate the intent to make if a penalty, yet no form of words, no force of language, is competent to the expression of the opposite intent. Here, then, is an intention incapable of expression in words; and as all written contracts must be expressed in words, it would seem to be a mere waste of time and effort to look for such an intention in such a contract. And as the question is between two opposite intents only, and the negation of the one necessarily implies the existence of the other, there would seem to be no room left for construction with reference to the intent. It must, then, be manifest that the intention of the parties in such cases is not the governing consideration.

But some of the cases attempt to justify this mode of construing the contract with reference to the intent, by declaring, in substance, that though the language is the strongest which could be used to evince the intention in favor of stipulated damages, still, if it appear clearly, by reference to the subject-matter, that the parties have made the stipulation without reference to the principle of just compensation, and ' so excessive as to be out of all proportion to the actual damage, the Court must hold that they could not have intended it as stipulated damages, though they have so expressly declared.' — See, as an example of this class of cases, Kemble vs. Farren, 6 Bing. 141.

*136 Now this, it is true, may lead to the same result in the particular case, as to have placed the decision upon the true ground; viz., that though the pai'ties actually intended the sum to be paid, as the damages agreed upon between them, yet it being clearly unconscionable, the Court would disregard the intention, and refuse to enforce the stipulation. But, as a rule of construction, or interpretation of contracts, it is radically vicious, and tends to a confusion of ideas in the construction of contracts generally. It is this, more than any thing else, which has produced so much apparent conflict in the decisions upon this whole subject of penalty and stipulated damages. It sets at defiance all rules of interpretation, by denying' the intention of the parties to be what they, in the most unambiguous terms, have declared it to be, and finds an intention directly opposite to that which is clearly expressed— “ divinatio, non interpretado est, gum omhino recedit a literal

Again the attempt to place this question upon the intention of the parties, and to make this the governing consideration, necessarily implies that, if the intention to make the sum stipulated damages should clearly appear, the Court would enforce the contract according to that intention. To test this, let it be asked, Whether', in such a cáse, if it were admitted that the parties actually intended the Arm to be. considered as stipulated damages, and not as a penalty, would a court of law enforce it for the amount stipulated? Clearly, they could not, without going back to the technical and long exploded doctrine which gave the whole penalty of the' bond, without reference to the damages actually sustained. They would thus be simply changing the names of things, and enforcing, under the name of stipulated damages, what in its own nature is but a penalty.

The real question in this class of cases will be found to be, not what the parties intended, but whether the sum is, in fact, in the nature of a penalty; and this is to be determined by the magnitude of the sum, in connection with the subject-matter, and not at all by the words or the understanding *137 of the parties. The intention of the parties can not alter it. While courts of law gave the penalty of the bond, the parties intended the payment of the penalty as much as they now intend the payment of stipulated damages: it must, therefore, we think, be very obvious that the actual intention of the parties, in this class of cases, and relating to this point, is wholly immaterial; and though the courts h,ave very generally professed to base their decisions upon the intention of the parties, that intention is not, and can not, be .made the real basis of these decisions. In endeavoring to reconcile their decisions with the actual intention of the parties, the courts have sometimes been compelled to use language wholly at war with any idea of interpretation, and to say “that the parties must be considered as not meaning exactly what they say.” — Homer vs. Flintoff, 9 M. & W. per Park. B. May it not be said, with at least equal propriety, that the courts have. sometimes said what they did not exactly mean?

The foregoing remarks are all to be confined to that class of cases where it was clear, from the sum mentioned and the subject-matter, that the principle of compensation had been disregarded.

But, Secondly, there are great numbers of cases, where, from the nature of the contract and the subject-matter of the stipulation, for the breach of which the sum is provided, it is apparent to the Court that the actual damages for a breach are uncertain in their nature, difficult to be ascertained, or impossible to be estimated with certainty, by reference to any pecuniary standard, and where the parties themselves are more intimately acquainted with all the peculiar circumstances, and therefore better able to compute the actual or probable damages, than courts or juries, from any evidence which can be brought before them. In all such cases, the law permits the parties to ascertain for "themselves, and to. provide in the contract itself, the amount of the damages which shall be paid for the breach. In permitting this, the law does not lose sight of the principle of compensation, which is the law of *138 the contract, but merely adopts the computation- or estimate-of the damages made by the parties, as being the best and most certain mode of ascertaining the actual damage, or what sum will amount to a just compensation. The reason, therefore, for allowing the parties to ascertain for themselves the damages in this class of cases, is the same which denies the right in the former class of cases; viz., the courts adopt the best and most practicable mode of ascertaining the sum which will produce just compensation.

In this class of cases, where the law permits the parties-to ascertain and fix the amount of damages in the contract, the first inquiry obviously is, Whether they have done so in fact? And here, the intention of the parties is the governing consideration; and in ascertaining this intention, no merely technical effect will be given to the particular words relating to the sum, but the entire contract, the subject-matter, and often the situation of the parties with respect to each other and to the subject-matter, will be considered. Thus, though the word “penalty” be used (Sainter vs. Fergason, 7 M. G. & 8S. 716; Jones vs. Green, 3 Y. & Jer. 299; Fierce vs. Fuller, 8 Mass. 223 ), or “forfeit” (Noble vs. Noble et al. 7 Cow. 307 ), or “forfeit and pay” (Fletcher vs. Dycke, 2 T. R. 32), it will still be held to be stipulated damages, if, from the whole contract, the subject-matter, and situation of the-parties, it can be gathered that such was their intention. And in proportion as the difficulty of ascertaining the actual damage by proof is greater or less, where this difficulty grows out of the nature of such damages, in the like proportion is the presumption more or less strong tíiat the parties intended to fix the amount.

It remains only to apply these principles to the case before us. It is contended by the plaintiff in error, that the payment of the one thousand dollars mentioned in the covenant, of Jaquith is not made dependent solely upon the breach of the stipulation not to go into business in Trenton, but that it applies equally — first, to the agreement to sell to Hudson hi& *139 interest in the goods; second, to sell his interest in the books, notes, accounts, &c.; and, third, to the agreement to dissolve the partnership. But we can perceive no ground for such a construction. The language in reference to the sale of the interest in the goods, books, notes, accounts, &c., and that in reference to the dissolution, is not that of a sale in futuro, nor for the dissolution of the partnership at a future period, but it is that of a present sale and a present dissolution— “does hereby sell,” and “the copartnership is hereby dissolved,” is the language of the instrument. It is plain, from this language, from the subject-matter, and from all the acts of the parties, that these provisions were to take, and did take, immediate effect. There could be no possible occasion to provide any penalty or stipulated damages for the nonperformance of these stipulations, because this sale and dissolution would already have been accomplished the moment the contract took effect for any purpose; and, until it took effect, the stipulation for the one thousand dollars could not take effect, or afford any security; nor would Hudson be bound or need the security. But it remained to provide for the future. If Jaquith were to be at liberty to set up a rival store in the same village, it might seriously affect the success of Hudson’s business; and we are bound to infer, from the whole scope of this contract, that Hudson would never have agreed to pay the consideration mentioned in it, nor to have entered into the contract at all, but for the stipulation of Jaquith “ that he will not engage in the mercantile business in Trenton, for himself or in connection with any other one, for the space of three years from this date, upon the forfeiture of the sum of one thousand dollars, to he collected hy said Hudson as his damages.” This stipulation of Jaquith not to go into business, is the only one on his part which looks to the future; and it is to this, alone, that the language in reference to the one thousand dollars applies. Any other construction would do violence to the language, and be at war with the Whole subj ect - matter.

*140 .The damages to arise from the breach of this covenant, from the nature of the case, must be not only uncertain in their nature, but impossible to be exhibited in proof, with any reasonable degree of accuracy, by any evidence which could possibly be adduced. It is easy to see that while the damages might be very heavy, it would be very difficult clearly to prove any. Their nature and amount could be better estimated by the parties themselves, than by witnesses, courts, or juries. It is, then, precisely one of that class of cases in which it has always been recognized as peculiarly appropriate for the parties to fix and agree upon the damages for themselves. In such a case, the language must be very clear to the contrary, to overcome the inference of intent (so to fix them), to be drawn from the subject-matter and the situation of the parties; because, it is difficult to suppose, in such a case, that the party taking the stipulation intended it only to cover the amount of damages actually to be proved, as he would be entitled to the latter without the mention of any sum in the contract, and he must also be supposed to know that his actual damages, from the nature of the case, are not susceptible of legal proof to any thing approaching their actual extent. That the parties actually intended, in this case, to fix the amount to be recovered, is clear from the language itself, without the aid of a reference to the subject-matter, — “upon the forfeiture of the sum of one thousand dollars, to be collected by the said Hudson as his damages.” It is manifest from this language that it was intended Hudson should “ collect,” or, in other words, receive this amount, and that it should be for his damages for the breach of the stipulation. This language is stronger than “forfeit and pay,” or “under the penalty of,” as these might be supposed to have reference to the form of the penal part of a bond, or to the form of action upon it, and not to the actual “collection” of the money.'

It is, therefore, very clear, from every view we have been able to take of this case, that it was competent and proper *141 for the parties to ascertain and fix for themselves the amount of damages for the breach complained of, and equally clear that they have done so in fact. From the uncertain nature of the damages, we can not say that the sum in this case exceeds the actual damages, or that the principle of compensation has been violated. Indeed, it would have been perhaps difficult to discover a violation of this principle had the sum in this case been more than it now is; though, doubtless, even in such cases as the present, if the sum stated were so excessive as clearly to exceed all reasonable apprehension of actual loss or injury for the breach, we should be compelled to disregard the intention of the parties, and treat the sum only as a penalty to cover the actual damages to be exhibited in proof. In this case the party must be held to the amount stipulated in his contract.

The second exception, therefore, is not well taken; the Court properly refused to charge as requested, and no error appearing in the record, the judgment of the Circuit Court for the county of Wayne must be affirmed.

The other Justices concurred.