
    James and Thomas H. Perkins versus Theodore Lyman.
    One covenants that he will not for seven years be interested in a certain trade; and he binds himself, his heirs, &c., in the penal sum of 8000 dollars, for his faithfully adhering to this contract After a verdict for the plaintiffs in an action of debt for the said penal sum, it was holden, that the demand was not for damages liquidated, but for a penalty or forfeiture, and therefore that the defendant was entitled to a hearing in chancery, before judgment should be rendered on the verdict
    After the decision of the Court upon, the issues in law joined in this action, (vide, ante, vol. ix. p. 522,) verdicts were taken before the late chief justice upon the issues in fact, which were mentioned in the former report to have been joined. Those issues arose out of the following pleas: —
    
      First, plea to the first count. “ And now the said Lyman comes and defends, &c., when, &c., and as to the first count in the plaintiff’s declaration, prays oyer of the agreement in writing declared on, and it is read to him in these words, viz.: ‘ Memorandum of an agreement made and concluded on the 8th day of June, one thousand eight hundred * and seven, by and between [ * 77 ] Messrs. James 8f Thomas H. Perkins on one part, and Theodore Lyman, of Boston aforesaid, merchant, on the other, viz.: The said James 8f Thomas H. Perkins agree to buy of said Theodore Lyman a certain ship now lying in the harbor of Boston, called the Vancouver, and to pay therefor, at the end of one year from the date, eight thousand dollars; and whereas the said James &f Thomas H. Perkins have this day executed a promissory note of hand, payable to said Lyman in one year, for the sum of eight thousand dollars ; now, in consideration of receiving said note, the aforesaid Theodore Lyman covenants and agrees with the said James 8f Thomas H. Perkins, that, provided they well and truly pay, or cause to be paid, the aforesaid sum of eight thousand dollars at the period it may fall due, that he will not, in his own name or iii the name of any other person for him, directly or indirectly, be interested in any voyage to the north-west coast of America, or in any adventure to that coast, or any species of traffic with the natives of that country, for the term of seven years, to be reckoned from this day ; and he, the said Theodore Lyman, doth bind himself, his heirs, executors, and administrators, in the penal sum of eight thousand dollars, for his faithfully adhering to this contract. Provided, and it is fully understood by the parties, that it is not in any way to affect the trade of. any vessels the said Lyman may now have on that coast, or on their way there.’ Which being read and heard, the said Lyman saith that the said James fy Thomas H. Perkins their action aforesaid ought not to have and maintain against him, the said Lyman; because, by protesting that he did not load or fit out the said ship called the Hamilton in the said count mentioned for a voyage to the north-west coast of America, and that he was not directly or ind rectly concerned in the loading or fitting out of the same; he for plea saith that, at the time of the departure of the said vessel and cargo for the said north-west coast of America, or at any time after, during the said voyage in the [ * 78 ] * plaintiff’s said first count of their declaration described, he was not the owner, in whole or in part, of the said ship called the Hamilton, and the cargo on board the same; and therefore he puts himself on the country.” “ And the plaintiffs likewise.”
    
      Second plea to the first count. “ And for a further plea in this behalf, as to the said supposed breach of covenant above in the said first count in the plaintiff’s declaration assigned, the said Lyman, by leave of the Court here for this purpose had and obtained, saith that the said James fy Thomas H. Perkins their action aforesaid thereof against him ought not to have or maintain, because he saith that the said ship called the Hamilton, in the plaintiff’s said first count of their declaration mentioned, and the cargo on board the same, or either of them, were not at any time after the making and executing of the agreement in the plaintiff’s said first count of their declaration mentioned, and before the bringing of the said action, engaged or employed by him, or by any other person in his, the said Lyman’s, behalf, or for his account or profit, in trade or traffic with the natives of the north-west coast of America; and thereof he puts himself on the country.” “ And the plaintiffs likewise.” The jury returned verdicts upon each of the issues thus joined in favor of the plaintiffs, and also upon similar issues joined on like pleas to the second count, which charged the defendant with owning and fitting the brig Lydia. ■
    
    At this term the plaintiffs moved the Court for judgment on the verdicts, for the sum of 8000 dollars, the sum demanded in their writ, together with the further sum of 2360 dollars, being the amount of interest for additional damages, the interest being computed from the day of the last breach of covenant alleged in the declaration to this time.
    The defendant prayed a hearing in chancery, pursuant to the statute of 1785, c. 22, § 1, for giving remedies in equity. [ * 79 ] * Otis and Bigelow, for the defendant, contended that
    the sum of 8000 dollars, mentioned as the penal sum in the agreement, was a penalty or forfeiture, and not to be taken as liquidated damages,  and therefore came expressly within the provision of the statute referred to, which makes it expressly the duty of the Court to make up judgment for the plaintiff, to recover so much as is due in equity and good conscience. And if the Court should be of opinion that this sum, instead of being a penalty or forfeiture, was in nature of liquidated damages, still it is believed the Court has an equitable jurisdiction to reduce them. It was on this ground that the late chief justice, at the trial of the issues, refused to permit evidence to be given to the jury as to the quantum of damages, his opinion being that the consideration thereof belonged exclusively to the Court. What goes strongly to support the motion is, that the penal sum was to protect the plaintiffs for seven years from the date of the agreement; and as the term has not yet expired, the judgment is to stand as security for further breaches, pursuant to statute of 1798, c. 76, <§> 6.
    In the opinion of the Court, given upon the demurrers joined in this action, it is said, “ The fact of the plaintiffs afterwards purchasing a part of the vessel fitted by the defendant, may properly be considered by the jury, when estimating the plaintiffs’ damages.” It is very plain that the Court considered that the damages were yet to be ascertained; and as this was not permitted to be done by the jury, it must remain for the Court upon a hearing in equity. If the defendant has the opportunity, it is in his power to satisfy the Court, or any other forum, that the plaintiffs are entitled to no more than .nominal damages.
    
      The Solicitor-General (Davis) and Sullivan, for the plaintiffs,
    insisted that they were entitled to the sum agreed by the parties as liquidated damages. The action was debt for this sum, and the plaintiffs have shown their action well founded. This is a stronger case than that of Lowe vs. Peers, 
      
       which was covenant not to do a certain act, and * if he did do it, to pay £ 1000. [ * 80 ] In such an action the plaintiff may recover more or less, but in debt for the penalty he is entitled to that or nothing. In Orr vs. Churchill, 
       which was an action of debt for a penalty, Lord Loughborough says, “ In such cases the parties may foresee the consequences of a breach of the engagement, and stipulate accordingly.” So the parties to this action have stipulated, foreseeing that it would be extremely difficult, if not impossible, either for the court, or a jury, to ascertain the actual damages in a case of this sort. It would not have entered their minds that such could ever be the result.
    In the case of Fletcher vs. Dyche, 
       where the agreement was to perform certain work in a limited time, or to pay a stipulated weekly sum for such time afterwards as it should remain unfinished, Ashurst, J., says, “ These sums are in the nature of liquidated damages, and are such a kind of penalty, if they may be called by that name, as a court of equity would not relieve against.” “The object of the parties, in naming the weekly sum, was to prevent any altercation with respect to the quantum of damages, &c. It would have been difficult for the jury to have ascertained them, and therefore it was proper for the contracting parties to ascertain them by their agreement; so that this is a case of stipulated damages, and is not to be considered as a penalty.” Buller, J., (quoting Lord Mansfield, in the case of Lowe vs. Peers,) says, “ Where the precise sum is fixed and agreed upon between the parties, that very sum is the ascertained damage, and the jury are confined to it.”
    In Astley vs. Weldon, 
       Lord Eldon says that what is matter of contract bottomed on good consideration, should not be looked upon as a penalty, but should be considered as liquidated damages. Heath, J., after observing that it is very difficult to lay down any general principle on the subject, states this is a safe one: “ Where articles contain covenants for the performance of several things, and then one large sum is stated at the end to be paid upon breach of performance, that must be considered as a penalty.. [ * 81 ] *But where it is agreed that, if a party do such a particular thing, such a sum shall be paid by him, there the sum stated may be treated as liquidated damages.”
    The case of Peirce vs. Fuller 
       is extremely similar to the case at bar, and there the penalty was considered as the damages liquidated by the parties. “The parties,” say the court, “were competent in law to make a contract, imposing a limited restraint on the defendant’s trade for the plaintiff’s benefit, and without injury to the public. They were competent to determine on what consideration it should be made, and to liquidate the damages if it should be broken.” “ The defendant, by honestly fulfilling his agreement, might have protected himself from the forfeiture.” “And when the plaintiff has suffered by the breach of it, he shall not be relieved from the terms, to which he had voluntarily submitted.”
    
      
       3 Bos. & Pul. 630, Smith vs. Dickenson. — 1 Br. Cha. Ca. 418, Slowman vs. Walter.
      
    
    
      
       4 Burr. 2227.
    
    
      
       1 H. Black. 232. — See, also, Pothier on Obligations, Evans’s translation and commentary, 93.
    
    
      
       2 D. & E. 32.
    
    
      
      
        2 B. & P. 346.
    
    
      
       8 Mass. Rep. 223.
    
   Per Curiam.

There is unquestionably considerable uncertainty in the application of the cases on this subject, if not in the principles which have influenced in the decision of those cases. But one point seems to be settled. The question whether a sum of money mentioned in an agreement shall be considered as a penalty, and so subject to the chancery powers of this Court, or as damages liquidated by the parties, is always a question of construction, on which, as in other cases where a question of the meaning of the parties in a contract provable by a written instrument arises, the Court may take some aid to themselves from circumstances extraneous to the writing. In order to determine upon the words used, there may be an inquiry into the subject matter of the contract, the situation of the parties, the usages to which they may be understood to refer, as well as other facts and circumstances of their conduct; although their words are to be taken as proved by the writing exclusively.

Perhaps there is nothing extraneous to the contract brought under our consideration in this suit, which can have much bearing or influence upon the inquiry into its meaning as to the particular question now in controversy. The occasion *of [ * 82 ] it is recited in the instrument; the purpose of it is very explicitly stated. But these would be consistently answered and secured, as well by an agreement of liquidated damages, as by a penalty, to be used as one remedy for the recovery of the actual damages sustained.

If the sum of 8000 dollars, mentioned in the agreement, is to be treated as liquidated damages, then for one instance in which the contract should be broken, and for a thousand in which the defendant should interfere in the trade contemplated by the parties to be secured to the plaintiffs for seven years, exclusively of him and of all acting under him, the same damages, the same amount of demand, would be recovered; and having been once paid, if demanded as a penalty, there would be an end of the contract; but if demanded as damages, then, it seems, the demand might be repeated.

Examined in this view, we see nothing which gives this contract any other determinate meaning than that of a penalty. If there is nothing to prevent the plaintiffs, in case the defendant should have injured" them, in breach of his contract, to a greater amount than 8000 dollars, from recovering upon his covenant, and in that form of action, the extent of the damage actually sustained, although greatly exceeding the sum mentioned, it would be a severe construction indeed, which should consider him liable to that amount upon one breach, however slight the injury and loss may have been.

If we look to the words themselves, there is a covenant, on the part of the defendant, that he will not, in his own name, &c., directly or indirectly, be interested in any voyage to the north-west coast of America, &c., for the term of seven years. Then he binds himself in the penal sum of 8000 dollars for his faithfully and strictly adhering to. this contract. It is not said, if he docs so, contrary to his agreement, then he will pay that sum as a satisfaction. Nor is there any thing expressed, which would conclude the plaintiffs, unless it be their form of action, when the amount of damages should exceed 8000 dollars, from demanding to the extent of their loss.

[ * 83 ] * Lord Mansfield expresses the distinction of liquidated damages, and a penalty to secure the performance of a contract, very closely and accurately, in the case of Lowe vs. Peers, referred to in the argument of the case at bar. There is a difference, says his lordship, between covenants in general and covenants secured by a penalty or forfeiture. In the latter case, the obligee has his election to bring an action for the penalty, after which he cannot resort to the covenant; or- to proceed upon the covenant, and recover more or less than the penalty.

Upon the whole, we are of opinion that the demand, in this case, is not for damages ascertained or liquidated by the parties to the contract, but for a penalty or forfeiture annexed to articles of agreement, a breach of which has been found; and therefore, by the statute, the defendant is entitled to a hearing in chancery before judgment shall be rendered, 
      
      
         Where the word penalty is used, the damages can never be considered as liquidated. — Smith vs. Dickenson, 3 B. & P. 630. — Davis vs. Penton, 6 B. & C. 216. —- Orr vs. Churchill, 1 H. Bl. 227. — Harrison vs. Wright, 13 East, 345. — Taylor vs. Sanford, 7 Wheat. 17. — Brown vs. Bellows, 4 Pick. 179. — On the other hand, when the words liquidated damages, or words equivalent, are used, without any explanatory words, at least in instruments under seal, the sum mentioned is usually considered as the stipulated damages, and not as a penalty. — Barton vs. Glover, Holt, C. 43 — Christie vs Bolton, 3 B. & C. 280. — Birch vs. Stephenson, 3 Taunt. 469.— Rolfe vs. Patterson, 2 Br. P. C. 436. — Farrant vs. Olmius, 3 B. & D. 692. — Reilly vs. Jones, 8 Moore, 244. — 1 Bing. 302. — Hasbrouck vs. Tappan, 15 Johns. 200. — However, where an agreement contains several stipulations, some of them touching matters of great importance to the parties, and others matters of little or no importance, a stipulation for liquidated damages generally upon any violation of the agreement will not be carried into effect.— Kemble vs. Farrer, 6 Bingh. 141. — 1 Selw. N. P. 366, 8th ed. — Astley vs. Weldon, 2 B. & P. 346. — Reilly vs. Jones, ubi sup. — Davis vs. Penton, 6 B. & Cresw. ubi sup.— Dennis vs. Cummins, 3 Johns. Cas. 297. — 1 Phil. Ev. 1, 66, 7th ed.—And it seems that, as far as respects contracts not under seal, whether the term penalty or stipulated damages be used in an agreement in referring to the compensation payable on the breach of it, the question for the jury to determine will be the actual damage sustained. — Randall vs. Everett, 1 Mood, & Malk. 42. — 2 Car. & P. 577. — Phil. Ev. vol. i. p. 167, 7th ed. — Pinkerton vs. Caslon, 2 B. & Ald. 704. — Reilly vs. Jones, 1 Bing. 302. — Barton vs. Glover, ubi sup. — Davies vs. Penton, ubi sup. — Spencer vs. Tilden, 5 Cowen, 144. — For the consideration must be coextensive with the promise. —6 Barn. Cr. 220.—Rann vs. Hughes, 7 D. & E. 350, n. — Sed vide Crisdee vs. Bolton, 3 Car. & Paine, 240. — Where the damages, however, must be in their nature uncertain, or cannot be accurately ascertained, there is nothing illegal or unreasonable in the parties by mutual agreement settling the amount at which they are to be estimated; and in such case, although the contract be not under seal, the stipulation deliberately made between the parties would generally be considered as the only rule for estimating the damages. — Kemble vs. Farrer, 6 Bingh. 148. — Crisdee vs. Bolton, ubi sup. — Reilly vs. Jones, ubi sup.—Barton vs. Glover, ubi sup. — Where an increased rent was reserved by an instrument under seal, fox every acre of land converted into tillage, it was held, that the jury were not at liberty to give damages for the actual injury sustained, instead of the increased rent. — Farrant vs. Olmius, 3 B. & A. 692. — And see Posonby vs. Adams, 6 Br. P. C. 418. — Rolfe vs. Patterson, 6 Br. P. C. 470. — Fletcher vs. Dyke, 2 D. & E. 32. — Slosson vs. Beadle, 7 Johns. 72. — Hasbrouck vs. Tappen, 15 Johns. 200. — Jones vs. Green, 3 Young & J. 298.
     