DAMAGES, LIQUIDATED - When the
parties to a contract agree to the payment of a certain
sum as a fixed and agreed upon satisfaction for not
doing certain things particularly mentioned in the
agreement, the sum is called liquidated damages.
It differ from a penalty, which is a forfeiture from
which the defaulting party can be relieved. An agreement
for liquidated damages can only be when there is an
engagement for the performance of certain acts that
if not done would injure one of the parties; or to
guard against the performance of acts that would be
injurious if done. In such cases an estimate of the
damages may be made by a jury, or by a previous agreement
between the parties, who foresaw the consequences
of a breach of the engagement and stipulated accordingly.
The civil law appears to agree with these principles.
It is to be observed that the sum fixed upon will
be considered either liquidated damages or a penalty
according to the intent of the parties. The use of
the words 'penalty,' 'forfeiture,' or 'liquidated
damages,' will not be decisive of the question if
the instrument, taken as a whole, discloses a different
intent.
Rules have been adopted to ascertain whether such
sum so agreed upon shall be considered a penalty or
liquidated damages, which will be here enumerated
by considering: First, those cases where it has been
considered as a penalty and; Secondly, where it has
been considered as liquidated damages.
It Has Been Treated As Penalty: 1. Where the parties
in the agreement have expressly declared the sum intended
as a forfeiture or a penalty, and no other intent
can be collected from the instrument; 2. Where it
is doubtful whether it was intended as a penalty or
not, and a certain debt or damages less than the penalty,
is made payable on the face of the instrument; 3.
Where the agreement was evidently made for the attainment
of another object, to which the sum specified is wholly
collateral; 4. Where the agreement contains several
matters, of different degrees of importance, and yet
the sum named is payable for the breach of any, even
the least; 5. Where the contract is not under seal,
and the damages are capable of being certainly known
and estimated.
It Has Been Considered As Liquidated Damages: 1.
Where the damages are uncertain, and are not capable
of being ascertained by any satisfactory and known
rule; 2. Where, from the tenor of the agreement or
the nature of the case, it appears that the parties
have ascertained the amount of damages by fair calculation
and adjustment.
