(146 N.E.)

MILLER v. BLOCKBERGER et al. (No. 17946.)

4. Damages 78 (7)-When stipulated damages is a penalty as to any covenant it will be held a "penalty" as to all.

Where a contract contains several cove

(Supreme Court of Ohio. March 4, 1924. Re- nants, and the stipulated forfeiture is applica

hearing Denied Jan. 6, 1925.)

(Syllabus by the Court.).

1. Damages 79(1), 80(1)-Matters considered in determining whether damages stipulated in contract are "liquidated damages" or "penalty" stated; when stipulated sum a penalty.

ble alike to each covenant, and would become due on the breach of a single covenant, and is clearly a penalty as to any one covenant, it will be held a "penalty" as to all covenants.

Error to Court of Appeals, Van Wert County.

Action by Russell Miller against C. B. Blockberger and others. Judgment for plaintiff was in part reversed by the Court of Appeals, and plaintiff brings error. Affirmed.-[By Editorial Staff.]

of common pleas of Van Wert county, where plaintiff in error here was plaintiff and defendants in error were defendants. The petition averred that prior to the commencement of the action plaintiff and defendants entered into a contract whereby plaintiff leased to defendants for the term of five

This action was commenced in the court

In determining whether the sum provided in a contract to be paid in the event of its breach is liquidated damages, or a penalty, a court will construe the contract by its four corners in the light of the situation of the parties at the time of the execution of the contract, and from that position will determine whether the damages which would be sustained by reason of the breach could, at the time of the execution of the contract, by the process of computation and adjustment, have been easily and approximately ascertained; and, in determining whether they were so ascertained, will compare the amount stipulated with the amount of dam-years at a stipulated rental of $50 per ages which would probably result from the month, a certain garage building situated breach, and if there is such discrepancy be- in the village of Grover Hill, Ohio, and sold tween the sum stipulated and the damages to defendants plaintiff's stock of automobile which would probably and naturally result from accessories, fixtures, tools, and equipment the breach as to indicate that the sum stipu- situated in the garage building; that the lated could not have been arrived at by a pro- contract contains a provision that upon cess of computation and adjustment, or if ar- breach of the conditions thereof by either rived at by process of computation and adjust-party the one so in default shall pay the ment such process did not have for its purpose compensation, but was arrived at for some purpose other than compensation, the sum stipulated will be held to be "penalty" rather than "liquidated damages."

other the sum of $1,000. A copy of the contract is attached to the petition and an averment made that by the mutual mistake of the parties thereto the length of the term [Ed. Note. For other definitions, see Words of the lease was not set forth therein. The and Phrases, First and Second Series, Liquidat-petition further averred a breach upon the ed Damages; Penalty.] part of the defendants, and prayed for a reformation and specific performance of the

2. Damages 80(1)-Sum stipulated consid-contract, and, in the alternative, for judgered "liquidated damages" when bearing rea- ment in the sum of $1,000. sonable proportion to probable damage.

Where the parties to the contract, having in mind the damage which will be occasioned by its breach, compute or estimate that damage and contract with reference thereto, and the sum stipulated bears a reasonable proportion to the damage which would result from the breach,

such stipulated sum will be considered as "liq

uidated damages."

3. Damages 79(1)-Reasonable sum deemed "liquidated damages" where damage resulting from breach difficult of ascertainment in ad

vance.

The answer admitted that defendants entered into the written agreement and that the copy thereof attached to the petition was a true copy, and denied the other averments of the petition.

Upon the cause coming on for hearing in that court, the defendants demanded a trial by jury, which was refused, and upon the hearing the court found in favor of the plaintiff as to the question of reformation of the contract, declined a decree for specific performance, and awarded a judgment to plaintiff in the sum of $1,000 as against the Where the damage which would result from defendants as liquidated damages. Error a breach would be difficult of ascertainment in was prosecuted to the Court of Appeals, advance, or difficult of proof after the breach, which reversed so much of the judgment of and the parties to the contract, for the pur- the court of common pleas as awarded plainpose of fixing the compensation which would be due the party complying from the party in tiff the sum of $1,000, and affirmed the judgdefault, stipulate the amount, and the sum, ment in all other respects. Error is proseis not unreasonable or unconscionable, the stip-cuted here by the plaintiff in the trial court ulated sum will be construed as "liquidated dam- from the reversal of the judgment for the ages."

sum of $1,000.

(146 N.E.)

Harry L. Conn and Kerns Wright, both of | Van Wert, John S. Snook, of Paulding, and Knepper & Wilcox, of Columbus, for plain

There is no provision in the contract regu"First party further agrees to sell and the lating or attempting to regulate the use to second party agrees to buy the stock of fixtures, which the defendants in error shall put the tools, equipment and one-half of the present premises when acquired; nor obligation on stock of tires at the present market value of their part to do anything other than lease said fixtures, tools, equipment and one-half the premises, pay the rent, and pay for the stock of tires, said value to be determined by stock of goods and fixtures. There is no protwo invoicers, one chosen by each party, and vision in the contract restraining the plainin the event that the two invoicers cannot agree on the price of any article, a third party shall tiff in error from immediately entering inbe called in who shall fix the price of said to similar business in the same vicinity; nor article. is there any attempt to transfer or control

the patronage which plaintiff in error then had, or defendants in error might thereafter acquire. So the question of good will, going concern, or established business, in no way entered into the consideration of the parties in the making of this contract.

The only evidence of the rental value of the premises appears upon page 84 of the printed record, in the testimony of the plaintiff in error:

"Q. The fair rental value was about $50 a month at that time? [Referring to the date of the contract.] A. I think so."

And the only evidence as to the value of the stock of goods appears in the testimony of the plaintiff in error upon the same and the following page, and is as follows:

"Q. Now, do you have any idea about what the stuff mentioned in this paper marked 'Exhibit A' would have invoiced on the 9th of August, 1921; do you have a general idea? A. No better idea than any one else looking over the stock.

"Q. What I am getting at, was it a large sum of money or modest sum? A. Well, I suspect a modest sum.

"Q. Modest sum? A. I don't know just what -I don't know what it would run. I don't know what you would call a large sum or modest

"Q. Now, then, go ahead and tell what was said. A. I told Mr. Russell Miller what he would have to do to satisfy the requirements of the Bulk Sales Law, namely, he would have to give us a list of all of his creditors, sworn to by him as being a true and complete list, and he agreed he would do that. I then told him that Mr. Blockberger had with him between -around $2,600 in certificates of deposit, he wanted to close the deal to-day, but that because of his liability as a trustee under the Bulk Sales Law, if he did not comply with those requirements we would insist on putting that in a local bank there, tying it up six or seven days

until such time as creditors would have sufficient length of time under that law to make themselves known, and he consented to that."

contract the stock of goods and fixtures was worth from $2,200 to $2,600. The value of the stock of goods and fixtures is only important in determining whether the sum fixed as the amount which the party defaulting should be required to pay to the party not in default was intended to represent the probable damage which such party would sustain, or was intended as a penalty to be used as a club in forcing performance.

It will be observed that the stock of goods and fixtures was to be sold by plaintiff in error to defendants in error "at the present market value." The damage to the seller, in case of default on the part of the buyer, would be the difference between the market value of the stock of goods and fixtures and the contract price. The contract price in the instant case being the "market value," plaintiff's damage would be nothing more than nominal unless special damages by way of expense and otherwise were averred and proven, none of which are averred or proven in this case.

In this connection let us examine the clause which provides for the payment of $1,000 by the party breaching this contract, as follows:

"It is further understood and agreed by the parties to this contract that in the event that either of the contracting parties thereto shall fail to perform all and singular the conditions of the contract, the party so failing to perform shall pay to the other party the sum of one thousand dollars ($1,000.00)."

By its terms this clause specifically provides that the party failing to perform all or one of the provisions of this contract shall pay to the other the sum of $1,000. Therefore, under the terms of this contract, had

the defendants in error entered into a lease for the premises for the period of five years, and paid therefor rent each month in advance, and failed to receive and pay for the stock of goods and fixtures, the plaintiff in error, according to the contract, would have been entitled to recover the sum of $1.000 from them for the breach of that part of the contract which pertained to the sale of the goods and fixtures.

There are many reported cases in the various jurisdictions upon the subject of liquidated damages and penalty, and throughout most of them runs the principle that the theory of compensation, rather than punishment, must have been in the minds of the contracting parties to constitute the stipulated sum liquidated damages, and so the declaration is usually made that whether a stipulated sum to be paid by the party defaulting to the party not in default is liquidated damages or a penalty is dependent upon the particular circumstances of each case. To

The plaintiff in error having testified that in his opinion the stock was worth more than $2.000, and having declined to say it was worth more than $2,200, and the defendants in error having gone to the place of settlement at the time of settlement with the sum of $2,600, for the purpose of settle-cite the many cases discussing the subject ment, this court may reasonably assume

would be but to incumber the report with

(146 N.E.)

and bar in other reports. From an investi-, stipulated forfeiture is applicable alike to gation of the cases, however, we think the each covenant, and would become due upon following general principles may be enun- the breach of a single covenant, and is clearciated: ly a penalty as to one covenant, it will be held a penalty as to all covenants.

[1-4] In determining whether the sum provided to be paid in the contract is liquidated damages, or a penalty, a court will construe the contract by its four corners in the light of the situation of the parties at the time of the execution of the contract, and from that position will determine whether the damages which would be sustained by reason of breach could, by the process of computation and adjustment, have been easily and approximately ascertained at the time of execution of the contract; and, in determining whether they were so ascertained, will compare the amount stipulated with the amount of damages which would probably result from the breach, and if there is such discrepancy between the sum stipulated and the damages which would probably and naturally result from the breach as to indicate that the sum stipulated could not have been arrived at by a process of computation and adjustment, or, if arrived at by process of computation and adjustment, such process did not have for its purpose compensation but was arrived at for some purpose other than compensation, the sum stipulated will be held to be a penalty rather than liquidated damages, the theory being that the parties to the contract, having in mind the damage which will be occasioned by its breach, may compute or estimate that damage between themselves and contract with reference thereto and thus avoid the necessity of submitting the question to a court or other tribunal, and so long as the sum which they agree upon bears a reasonable proportion to the damage which would result from the breach, such sum will be considered as liquidated damages; or where the damage which will result from a breach would be difficult of ascertainment in advance, or difficult of proof after the breach, and the sum stipulated is not unreasonable or unconscionable, and bears some reasonable proportion to the value of the subject-matter and the damages which might reasonably result, and in fixing the sum stipulated the parties had in mind compensation and endeavored to anticipate the damage which would probably re sult, the stipulated sum will be construed as liquidated damages and not as a penalty. But where it is apparent from the contract itself and the situation of the parties thereto that the sum stipulated was arrived at arbitrarily, and bears no relationship to the damage which probably would result from a breach, where such damage is reasonably ascertainable, the sum stipulated as damages will be considered a penalty and not liquidated damages, and the parties will be relegated to their right to recover such damage as they may be able to prove; and where a contract contains several covenants, and the

146 N.E.-14

This court had the very question involved in this case under consideration in the case of Berry v. Wisdom, 3 Ohio St. 241, where it held:

"Where the note is to be paid upon full proof of a breach of the agreement on the part of A., and the agreement contains several covenants to be performed by A., some of more, and some of less importance than others, and the actual amount of damages which B. would sus

tain by a breach of some of the covenants,

would be easily ascertained; the sum mentioned in the note is not to be considered as liquidated damages, but in the nature of a penalty."

Measured by this rule, and applying the sum stipulated in this case to the stock of goods and fixtures, the sum stipulated is considerably in excess of one-third the entire value of the subject-matter of the contract, and is in excess of the damages which plaintiff in error could recover as actual damages by the difference between nominal damages and the sum of $1,000, and relates to a matter of which the actual damage could be easily ascertained. It therefore is apparent that the sum was not arrived at by the parties to this contract by fair calculation and adjustment, with a view to establishing by agreement the compensation which a jury would be obliged to return from the results which would inevitably flow from the breach of the contract, but that the sum was arbitrarily fixed as a penalty or security that the contract would be performed.

Applying the sum fixed as damages to the breach of the other subject of the contract, while the record discloses by the evidence of the plaintiff in error that the stipulated rental of $50 per month, each month in advance, was "the fair rental value" of the property "at that time," and on this record the damage in that respect would necessarily be nominal, yet by reason of the fact that damages with reference to the breach of the contract to lease for a period of five years would not be easily computable and ascertainable in advance, and so many eventualities might occur and might have been in the minds of the contracting parties, which might have prevented the owner from realizing rents aggregating a sum equal to the price stipulated in the contract from persons other than the defendants, which could not by the process of calculation and adjustment have been easily fixed at a definite sum, we are not able to say that the parties had in mind a purpose to do other than name a sum which would compensate for the breach of the agreement to lease.

However, in view of the fact that the contract pertained to two subjects, and contained separate covenants as to each subject, and