Streeter v. Rush

By the Court, Rhodes, J. The plaintiff sold to the defendant his butcher shop, the fixtures and tools, and certain personal property connected with the business, receiving therefor two promissory notes of the defendant; and in his contract of sale he entered into this covenant with the defendant: “ I also bind myself in the sum of five hundred dollars to said Rush not to go into the butchering business in said Suisun, without the consent of said Rush, in any manner whatever.” The plaintiff now sues on the notes, and the defendant offers to set off the sum of five hundred dollars due him by reason of the plaintiff having engaged in the butchering business contrary to his covenant.

The only question in the case arises upon the refusal of the Court to give the third instruction asked for by the defendant. The question is this: Is the sum of money expressed in the covenant to be considered as a penalty, or is it to be held as liquidated damages ? ■

This subject has been a fruitful source of discussion in numerous cases, and it is impossible to reconcile all of them; but while there has been a conflict among them on some points, there are certain rules in which they all agree. The intention [71]of the parties to the agreement is the point of inquiry, and is to be ascertained from a consideration of the whole instrument ; and when ascertained, it is to be adopted by the Court, and full effect given to it, unless it is contrary to law. In construing the instrument, resort must be had to the signification of the terms employed by the parties, and to the rules of law, in view of which the parties are presumed to have contracted. If the parties agree upon the payment of a certain sum, whether in terms as a penal sum or not, if it can be plainly understood that the gross sum was intended as a security for the payment of a less sum, it will be held as a penalty; and it is also a general rule, that if the parties agree that the sum shall be paid as liquidated damages, the Court will so regard it, unless it clearly appears that it was intended merely as . a security for the payment of damages that might be considered liquidated and certain in amount.

Where the contract contains both the terms, “penalty,” and “liquidated damages,” as applied to the gross sum to be paid, or equivalent terms, or where it contains neither of those terns, the Court will ascertain the intention of the parties from the whole instrument, as it would in case of any other agreement. (Sedgwick on Measure of Damages, 417 to 442.) If the damages for the performance or non-performance of the act stipulated to be done or not to be done by the party agreeing to pay the gross sum, can be ascertained with certainty, or have been agreed upon between the parties, then, as in the case where the parties have denominated it a penalty, the Court will consider it as a security; but if they are “ wholly uncertain, and incapable of estimation, otherwise than by mere conjecture,” as was said in Williams v. Dakin, 22 Wend. 201, the gross sum will be regarded as liquidated damages. This is a rule by which to ascertain the intention of parties in cases of doubt, and not to enlarge or limit the intention, when expressed or clearly ascertainable without its aid. Courts are not authorized to put a different construction upon a contract from what the parties intended it should bear; nor are they warranted in adding to it a further term, or in striking there