
    THE L. P. & J. A. SMITH CO. v. THE UNITED STATES.
    [No. 20805.
    Decided June 12, 1899.]
    
      On the Proofs.
    
    Claimant contracts to build the foundation for the Sandusky Bay range-light station to he finished September 30, 1895. The contract provides that he shall forfeit the sum of $20 for each and every day’s delay in completing and delivering the work after said date. He is delayed by reason of stormy weather, but not to a degree to render the performance of the contract impossible. The question involved is whether the $20 a day is penalty or liquidated damages.
    I. Where a contractor agrees “to forfeit the sum of $20 per day for each and every day’s delay” “the amount thereof to he deducted from amy sum whieh may he due him.” the provision will be regarded as penalty and not as liquidated damages.
    
      H. Where a contract provides that the contractor shall forfeit a fixed sum for each day’s delay after thie time agreed on, the court will not he controlled hy the form of the agreement of the parties, nor the terms used, nor the intent of the parties, hut will look to the reasonableness of the transaction.
    III. Where a contract provides for a per diem forfeiture for noncompletion within the time fixed, the salary of an inspector during the additional time will he deducted as ascertained damages.
    IV. Inasmuch as the expenses of a tug employed hy the defendants, during the period of delay, can he shown, the forfeiture clause will not he construed to he liquidated damages* intended to cover the expenses of the defendants.
    
      The Reporters’ statement of tbe case:
    The facts of the case Sufficiently appear in the opinion of the court.
    
      Messrs. Dudley & Miehener and Mr. John 0. Chaney for the claimant:
    Has the Goverment the legal right to withhold this $1,280 from the claimant under said clause of the contract'? Is it liquidated damages or a penalty ? Claimant holds that it is a mere penalty — that, $20 per day forfeiture does not measure .■ the damages. In the case of Van Burén v. Digges (11 Howard, '461,) there was a clause in the contract as follows:
    “House to be built of two stories * * * and to be entirely finished and fit for occupation on or before the 15th day of December, 1844 f and “He, the said William Digges, to forfeit 10 per cent on the whole amount if the said house is not entirely completed and fit to occupy at the time agreed upon, namely, December 25,1844.”
    •' In that case, before the lower court, the owner of the house , sought to offer testimony to show the peculiar adaptation of .the house, both in its design and situation, to his personal and professional pursuits and convenioncé, and that the amount of 10 per centum on the contract price, stipulated to be forfeited if the house was not entirely finished and ready for occupation, as therein provided, on the 25th of December, 1844, was intended by the parties as and for liquidated damages that would result and fairly belong to him by reason of the failure to finish the house by said date. But the court refused to admit the evidence, and it was sustained in this position by*' the Supreme Court.
    
      The forfeiture clause in that case is similar to the forfeiture clause in this. The clause in this case reads:
    “To forfeit the sum of twenty dollars ($20) per day for each and every day’s delay in completing and delivering the work after said date.”
    In Colwell v. Lawrence (38 N. Y., 71) there was a delay in completing the contract from October 15,1857, when it was to be completed, to the 14th day of February, 1858, when the contract was actually completed. And the court, in passing on the case, said:
    “It is scarcely to be supposed that the parties intended to fix an amount so extravagant, and which would be, if allowed as claimed, so grossly disproportionate to the actual damages, as liquidated damages for so trivial an omission or delay, and I can not discover any satisfactory reasons for any such inference or conclusion.”
    In the case of Begnall v. Could (119 U. S. R., 495) the forfeiture clause contained this language:
    “Penal sum of $10,000, lawful money, liquidated damages.”
    Yet the court held that the “sum of $10,000 must be regarded simply as a penalty to secure the payment of such damages as the obligee may suffer from breach of the bond.”
    In the case of Tayloe v. Sandiford (7 Wheat., 15), where the contract was for building three houses, the contract read:
    “The said houses to be finished on or before the 24th day of December next, under the penalty of $1,000 in case of failure.”
    The houses were not completed within the time fixed for their completion, and the $1,000 was claimed as liquidated damages, but the court held that the legal operation of this penalty clause was to cover the damages which the party in whose favor the stipulation was made may have sustained from the breach of contract by the opposite party.
    Even in case of liquidated damages it must be agreed that the sum named as such is to be received in lieu of performance. (Graham v. JBielcham, 4 Dallas, 149; Watts v. Oamors, 115 U. S. R., 353; Cay Mfg. Go. v. Lamp, 25 IT. S. App., 134; United * States v. Gatajar, 35 IT. S. App., 133; Spicer v. Hoop, 51 Ind., 365; Davis v. Gillette, 52 N. H., 126; Henry v. Davis, 123 Mass., 345; Pierce v. Jung, 10 Wis., 30; Davis v. XT. 8., 17 C. Cls. R., 201.)
    In equity tbe principle which now prevails is that whenever a penalty is inserted merely to secure the performance or enjoyment of a collateral object the latter is considered as the principal intent of the instrument, and the penalty is deemed only' as accessory, and therefore as intended only to secure the due performance thereof or the damage really incurred by the nonperformance.
    In every case the true test is whether compensation can be made. If it can be made, if the penalty is to secure the performance of some collateral act or undertaking, then the equity court will direct an issue of quantum damnificatus; and when the damages are ascertained relief will be granted upon thd’ payment thereof. (Sec. 1314, Story’s Eq. Jurisprudence.)
    The penalty is a mere security. If the party obtains his damages, he gets all that injustice he is entitled to.
    In reason, in conscience, in natural equity, there is no ground to say, because a man has stipulated for a penalty in case of his omission to do a particular thing, and omits to do it, he shall suffer an enormous loss, one wholly disproportionate to the injury to the other party. If it bé said that it was his own folly to have made such a stipulation, it may be equally well said that the folly of one man can not authorize gross oppression on the other side.
    Where a penalty or forfeiture is designed merely as a security to enforce the principal obligation, it is as much against conscience to allow any party to pervert it to a different and oppressive purpose as it would be to allow him to substitute another for the principal obligation.
    Any other rule would permit vindictiveness, injustice, and. oppression. (Sec. 1316, Story.) It is a universal rule in equity never to enforce either a penalty of a forfeiture. (Story, 1319.)
    Forfeiture belongs to crimes, or treason, or gross misconduct. It originally meant to confiscate. , It was a loss of something as a punishment for an offense against law. Are contracts drawn on the theory that either party, shall be punished if he be found delinquent? Or are they not drawn so that the delinquent shall make good to the other the loss he sustained by such delinquency.
    A sum of money forfeited is a penalty. In this connection it imports a penalty. As applied to contracts it is taken, not to create a forfeiture of the entire sum named, but only to cover the actual damages occasioned by the breach of contract.
    Bouvier’s Law Dictionary — Penalty. Burrill’s Law Dictionary — Forfeiture; Penalty.
    In the case of Dehler v. Held (50 Ills., 491) it was held that “liquidated damages” are those agreed upon by the parties as and for a compensation for and in lieu of the actual damages arising from a breach of contract. See also Streeper v. Williams (12 Wright (Pa.), 454; Watts v. Sheppard (2 Ala., 425); Hosmer v. Tone (10 Bart. (N. Y.), 106); Lansing v. Dodd (45 N. J. Law, 525); Kennedy v. U. S. (24 C. Ols. R., 122).
    
      Mr. Helix Drannigan (with whom was Mr. Assistant Attorney-General Pradt) for the defendants:
    While it must be apparent to the court that actual damage in moneys paid out, which might have been avoided, did occur because of the claimants’ delay in completing the work, it must also be apparent that no expert could possibly compute the exact amount of that damage; a part only could be computed, and that part is in evidence, namely, the salary of the Government inspector for two months and four days at $120 a month = $250. (R. 23; and par. 17, “Inspection,” p. 12.) This amount of damage is offered in evidence by the claimants themselves. It is set forth in Exhibit A, above referred to, which is attached to Colonel Smith’s deposition in behalf of the claimants. The other unavoidable expenses caused by the delay are not susceptible of computation; for example, the value of the additional length of time necessarily given by Colonel Smith — a high salaried officer — to the supervision of the work and the value of the time of clerks in his office; also the expenses of the trips of the steam tug and its crew, and the fuel, etc., going to and from the work during the period of delay. Add to this the increased cost necessarily incident to winter work in constructing the dwelling house for a keeper and a beacon house. All of these expenses could have been avoided if the contractors had finished their work at the required time. Foreseeing these additional necessary expenses which could not be liquidated in damages by a jury or by this court, it was not only natural but proper on the part of Colonel Smith, the engineer officer, when drafting this contract and signing it on bebalf of tbe Government, to insert a special stipulation for tbe payment of tbe probable and reasonable amount of sucb contemplated damages at a fixed ,sum per diem.
    If we are correct in tbis position — and we feel quite sure that we are — then tbe only question before the court is as to tbe justice and fairness of tbe stipulation in respect to tbe amount of money to be forfeited for each day’s delay. We think that $20 is a reasonable sum under tbe circumstances, and that if there is any doubt upon tbis point it is for tbe claimants to show that it is unreasonable.
    It is stated in Sedgwick on Damages, section 419, after a review of many cases, that—
    “Parties may usually liquidate damages for delay in tbe performance of a contract. Tbis is one of tbe commonest instances of stipulated damages. When it is provided in a building contract that tbe work shall be completed on a certain day and that tbe,builders should “forfeit” or “allow” a stipulated sum for every day or week tbe completion of tbe work is delayed beyond that time, the stipulated sum, if a reasonable one, may be recovered as liquidated damages for the delay.”
    Many cases are cited in the footnotes where sucb contracts have been sustained by tbe courts.
    Tbe subject-matter of tbe contract and tbe intention of tbe parties are not conclusive in sucb cases; but if, from tbe nature of tbe agreement — as in tbe case at bar — it is clear that any attempt to get at tbe actual damage would be difficult, if not impossible, then tbe courts will incline to give the relief which tbe parties themselves have agreed upon. But if, on tbe other band, tbe contract is sucb that a strict construction of tbe phraseology would work wrong or oppression, the use of tbe terms “ forfeiture” or “liquidated damages” will not prevent tbe courts from inquiring into tbe actual injury sustained and doing justice to tbe parties, be it more or less than tbe stipulated sum. (Sat ter lee v. United States, 30 C. Ols. R., 31; Kennedy v. United States, 24 O. Ols. R., 132.)
    In Kemble v. Karren (6 Bing., 141-147) Chief Justice Tindall describes tbe requisites for liquidated damages in these words:
    “We see nothing illegal or unreasonable in tbe parties by their mutual agreement settling the amount of damages, uncertain in their nature, at any sum upon which they may agree. In many cases sncb an agreement fixes that which is almost impossible to be accurately ascertained, and in all cases it saves the expense and difficulty of bringing witnesses to that point.”
    In JDaldn v. Williams the supreme court of New York (17 Wend., 447 ; 22 lb., 201) quotes, with approval, this description of liquidated damages.
    In Bagley v. Peddie the New York court of appeals said, in stating one of the distinctions between a penalty and liquidated damages, that—
    “Sixth. If, independently of the stipulated damages, the damages would be wholly uncertain and incapable of being ascertained except by conjecture, in such cases it will be considered liquidated damages, if they are so denominated in the instrument. (16 N. Y. Kep., 472.)
    In all such cases stress is laid on the fact that without a stipulation the damages are wholly uncertain and incapable of estimation, unless by conjecture.
    A common case of this kind is where a physician promises not to practice his profession after he has sold his practice, or where a party binds himself in a sum named not to carry on his particular trade or business within certain limits, or within a specified time, else to forfeit a sum mentioned. (Smith v. Smith, 4 Wend., 468; OheddicWs JEPr v. Marsh, 21 N. J. L., 463; Streep er v. Williams, 48 Pa., 450.)
    In Keeble v. Keeble (85 Ala., 552) it has been held that—
    “Where, independently of the stipulation, the damages would be wholly uncertain, and' incapable or very difficult of being ascertained except by mere conjecture, there the damages will usually be considered liquidated.”
    Similarly, in a contract of a railway company with its conductors, providing that any conductor who took a fare directly from a passenger should be liable to a fine of 815. This was held to be a reasonable stipulation, and the fine was allowed as liquidated damages. (Birdsall v. Twenty-third St. By. (Jo., 8 Daly 419.)
    In the case of Melntire v. Oagley (37 la., 676) the parties had stipulated for 10 per cent of the amount of a note as attorney’s fees if the note were collected by suit. It was held that the stipulated amount was to be considered as liquidated damages, on the ground of the impossibility of ascertaining with certainty beforehand the pecuniary measure of the injury.
    
      Tbe cardinal rule controlling all such cases is that the stipulated damages must be reasonable in amount, must be difficult or impossible of accurate ascertainment, and must have been intended by the contracting parties as liquidated damages. As stated in Streejper v. Williams (supra), per Agnew, J.-:
    “In each case we must look at the language of the contract, the intention of the parties as gathered from all its provisions, the subject of the contract and its surroundings, the ease or difficulty of measuring the breach in damages, and the sum stipulated, and from the whole gather the view which good conscience and equity ought to take of the case.”
    We submit that the case at bar meets all the conditions required to sustain a case for liquidated damages.
   Peelle, J.,

delivered the opinion of the court:

June 24,1895, the claimant, a corporation organized under the laws of Ohio, and the defendants, through Jared A. Smith, lieutenant-colonel, United States Army, entered into the contract, made part of the petition herein, whereby the claimant, in consideration of the sum of $16,987, payable as therein provided, agreed “to furnish all the materials and labor necessary to completely construct, erect, aud deliver on the date named in the specifications (September 30,1895), the crib and stone foundations for the Sandusky Bay range-light station, Ohio, in strict accordance with the terms of the specifications.”

The contract, among other things, further provided:

“And the said party of the first part further agrees to forfeit the sum of twenty dollars ($20) per day for each and every day’s delay in completing and delivering the work after said date; and the amount thereof to be deducted from any sum which might be due the said party of the first part in the hands of the Light-House Establishment.”

Paragraph 17 of the specifications for the work provided, among other things, that “ an inspector will be employed by the United States to supervise the construction of the beacon crib;” and in conformity therewith an inspector was employed, and he was paid by the United States at the rate of $120 per month during the whole period of the work, including sixty-four days after September 30, 1895; or during the said period of sixty-four days the defendants paid said inspector the sum of $256.

During the performance of a part of the contract by the claimant, a steam tug with, her officers and crew, regularly in the service of the United States, were, under the supervision of the engineer officer of the United States Army who signed said contract, employed, among others, upon said works, but for how long or at what expenses, if any, to the defendants on account thereof does not appear.

In the performance of its contract the claimant was, by reason of stormy weather and other causes, not the fault of the defendants, delayed in the completion and delivery of said work until December 3, 1895, or sixty-four days subsequent to the date when, by the terms of the contract, the work was to have been comideted.

By reason of the delay aforesaid the defendants deducted from the consideration price agreed upon for the work the sum of $20 per day therefor, amounting in the aggregate to $1,280, and refused to pay said sum or any part thereof to the claimant.

While the claimant was undoubtedly delayed or hindered in the performance of its contract by reason of stormy weather during a portion of the time, we do not think the facts sufficient to bring the case within the rule that performance was thereby rendered impossible. It was certainly rendered more difficult, and attended, as the facts show, with greater expense therefor; but we are inclined to the opinion that all the difficulties encountered by the claimant in the performance of its contract were such as an ordinarily prudent man, undertaking such w;ork, would have taken notice of and weighed before contracting.

In the Satterlee Oase (30 C. Ols. B., 31,51) the court said:

“If the law casts a duty upon a party, the performance will be excused if by the act of God it becomes impossible; but if a party engages to do something and fails to provide against contingencies the nonperformance is not excused by a contingency not foreseen, and which by its consequence increases the cost and difficulty of performance.”

However, the material question in the case, as we conceive, is, Was the forfeiture clause of the contract quoted intended by the parties as a measure of injury or compensation for the delay, or was it intended as a penalty for failure to perform the contract within the time agreed upon?

One of the earliest cases on that question, and one often quoted and commented on in this court, is that of Van Burén v. Biggs (11 How., 461, 477), wherein tlie defendant in error contracted for the building of a bouse, agreeing “ to forfeit 10 per cent on .the whole amount if the said house is not entirely completed and fit to occupy at the time agreed upon,” and in reference to which the court said:

“The clause of the contract providing for the forfeiture of 10 per centum on the amount of the contract price upon a failure to complete the work by a given day can not properly be regarded as an agreement or settlement of liquidated damages. The term forfeiture imports a penalty; it has no necessary or natural connection with the measure or degree of injury which may result from a breach of contract or from an imperfect performance. It implies an absolute infliction, regardless of the nature and extent of the causes by which it is superinduced. Unless, therefore, it shall have been expressly adopted and declared by the parties to be a measure of injury or compensation, it is never taken as such by courts of justice, who leave it to be enforced, where this can be done, in its real character, viz, that of a penalty.”

That case was followed by this court in the case of Kennedy v. United States (24 C. Cls. B., 122), wherein the court, in speaking of the 10 per cent; reserved until the completion of the work and declaring its forfeiture in case of the annulment of the contract said:

“The 10 per cent reserved until the completion of the work, though declared forfeited by the agreement in case of its annulment, must be treated as a penalty and not as liquidated damages.”

Such, also, was the ruling of the court in the case of Bams (17 C. Cls, B., 201); Pigeon v. United States (27 C. Cls. B., 167); Satterlee’s Case (supra); and Gleason and Gosnell v. The United States (33 C. Cls. B., 65).

In the case of Kaliday v. United States (33 C. Cls. B., 453), a case more analogous to "the one. under consideration, wherein the claimant, in contracting to build a house at the Zoological Park within a specified time, also agreed that:

■ “ In case of neglect or failure of the said parties of the first part to complete the above-mentioned 'house agreeably to and in conformity with the specifications and plans and the terms of this contract, on or before the date specified for the completion thereof, there shall be deducted the sum of $25 per day from the amount thereunder, in the discretion of the Secretary of the Smithsonian Institution, for each and every day that the completion and erection of said house, as agreed, maybe delayed beyond tbe time specified in this contract.”

In that case, notwithstanding the deduction stated was to be made “in the discretion of the Secretary of the Smithsonian Institution,” yet the court held that such deduction could only be made on the basis of actual damages and not as a measure of injury or compensation for the delay.

A still later case is that' of Fdgar and Thompson Foundry and ■Machine Worles v. United States, wherein the contract between the parties contained the following clause:

“And the said party of the first part further agrees to forfeit the sum of twenty-five dollars ($25) per day as liquidated damages for each and every day’s delay in completing either portion of the work embraced in the two deliveries after the said times, the amount thereof to be deducted from any sum which might otherwise be due the said party of the first part in the hands of the light-house engineer, * * * .”

In that case it will be noted that claimant agreed “ to forfeit the sum of twenty-five dollars ($25)per day as liquidated damages,” yet it was ruled, following the decision in the case of Van Burén v. .Di'gges (supra), that the term forfeiture imported a penalty, and though the term forfeiture was followed by the words “liquidated damages,” still the penalty import of the agreement was not changed by the subsequent qualification.

That view of the case is supported by the decision in the case of Bignall v. Gould (119 U. S. It., 495,498), wherein the defendant obligated himself in a bond “ in the penal sum of ten thousand dollars lawful money, liquidated damages,” and in reference thereto the court said: “By the rules now established, at law as well as in equity, the sum of $10,000 named in the bond is a penalty only, and not liquidated damages.”

In the case of Davis v. The United States (supra), involving the question of penalty or liquidated damages, the court said:

“ In determining whether an amount named in a contract is to be taken as penalty or liquidated damages, courts are influenced largely by the reasonableness of the transaction, and are not restrained by the form of the agreement nor by the terms used by the parties nor even by their manifest intent. Where the contract has expressly designated-the amount named as liquidated damages, courts have held that it was a penalty; and, conversely, where the contract has called it a penalty, it bas been held to be liquidated damages; and, again, where the parties have manifestly supposed and intended that an exorbitant and unconscionable amount should be forfeited,.the courts have carried out the intent only so far as it was right and reasonable.

Applying that rule to the case under consideration it is clear that the salary of the inspector, amounting to $256 during the period of delay, should be deducted from the amount so retained by the defendants, as that is actual ascertained damages.

But in respect of the time employed on said work by the steam tug, her officers and crew, regularly in the service of the United States, no- actual damage is shown. The defendants contend that the uncertainty of the amount of the damage in the use of the tug furnishes the reason why the forfeiture clause of the contract was intended by the parties as liquidated damages and not in the nature of penalty.

That inasmuch as the settlement of the amount of damage in the employment and use of the tug was uncertain in their nature, there was nothing unreasonable in the parties by their mutual agreement settling the amount, and this they say on the authority of the cases of Kimble v. Parren (6 Bing., 141, 147), Balcin v. Williams (17 Wend., 447 ; 22 id., 201), and Bag-ley v. Peddie (16 N. Y. B.ep., 472).

There is much reason for the argument advanced, but inasmuch as the actual damage in the use of the tug, her officers and crew, regularly employed in the service of the United States, could have been ascertained if employed or detailed with reference thereto, and as no definite expense appears to have been sustained by reason of such employment, the burden of which is upon the defendants, we fail to see the application of the rule contended for in this case. Besides, we think the authorities to which we have referred both in the Supreme Court and this court modify materially the rule upon which the defendants rely in support of their contention.

For the reason stated we must hold that the forfeiture of the sum of $20 a day for each and everyday’s delay in completing and delivering the work was intended by the parties as a penalty for the failure to perform the contract rather than the measure of injury for the delay; and this, we think, is the reasonable construction of the language used, independent of the intention of the parties, and that, therefore, the claimant is entitled to recover tbe amount so deducted from tbe consideration price of tbe contract, less tbe sum of $256, actual damages sustained in tbe employment of tbe inspector, leaving tbe sum of $1,024 as tbe amount for wbicb judgment will be entered.

Nott, Cb. J., was prevented by illness from taking part in tbis case.  