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contract, to B, the other party, in the event of the non-performance by A, A and B may have intended thereby either to assess the damages at which they rated the non-performance of the promise, or to secure its performance by imposing a penalty in excess of the loss likely to be sustained. If the court can reasonably construe the provision to be the former, the damages are called "liquidated damages," and may be recovered. If, however, the provision is the second alternative, it is called a penalty. In such event no more than the actual loss sustained may be recovered.58

In determining this intention, the courts will not be governed by the name given to the fixed sum mentioned in the contract. If it is liquidated damages, they will enforce it, although erroneously called a penalty. On the other hand, if it is in the nature of a penalty, they will not allow it to be enforced, although called by the parties "liquidated damages."

If the subject matter of the contract is fixed in value, naturally any sum in excess of that value is a penalty, and will not be enforced. On the other hand, if the value of the subject matter is uncertain, a sum, on the face of the contract, not greatly in excess of the probable damage, will be considered as liquidated damages.59 It is not considered to be a penalty to agree that the whole debt shall become due upon the non-payment of an instalment."

60

Courts disfavor forfeitures, and try to construe

58 Anson, Contracts (Huffcut's 2d ed.), § 347.

59 Ward v. Building Co., 125 N. Y. 230.

60 Kemble v. Farren, 6 Bing. (C. P.) 141 (Eng.).

stipulations for liquidated damages as penalties, when the amount on the face of the contract is out of all proportion to the possible loss. The better test is the magnitude of the sum in comparison with the subject matter, and not the intention of the parties.61

61 Dean v. Nelson, 10 Wall. 158 (U. S.).

PART V

THE PERFORMANCE OF

CONTRACTS

CHAPTER XIII.

PROMISES AND CONDITIONS.

154. Nature of promises.-The promise of a party to a contract may be an absolute promise or a conditional promise. He may promise to perform his part of the contract under any and all circumstances, or he may promise to perform it upon a contingency. It becomes necessary, therefore, to ascertain what promises are independent and which are dependent. "Whether covenants be or be not independent of each other must depend on the good sense of the case, and on the order in which the several things are to be done."62 When parties create a contract, they intend to produce a certain legal result. Hence, the test as to the nature of their promises is the intention of the parties.

155. Independent promises.-Absolute independent promises are wholly unconditional upon performance by the other party. Thus A agreed to raise 500 soldiers and to take them to a port. B agreed to pro

62 Morton v. Lamb, 7 Term R. 125 (Eng.); Leake, Contracts (5th ed.), p. 456.

vide transportation and victuals, but failed to perform. He set up the defense to an action by A on the contract that A had not raised the soldiers as promised. On demurrer, this defense was held bad, for the covenants of A and B were distinct and were to be performed independently of one another.63 Either A or B would have an action for a breach by the other party, regardless of his own promise. But the breach would not discharge the contract.

156. Dependent promises.-A dependent promise is subject to a limitation. The modern trend of the decisions is to construe promises as dependent rather than independent. Necessarily, however, parties may provide that the covenants shall be independent.

Thus, where A and B agreed to sell and buy a horse for $100, it will be assumed that A intended to give the horse only in case he received the money at the same time, and that B intended to pay only if he received the horse. Consequently, A could recover on B's promise only by offering to perform his promise.

157. Conditions.-Not every promise is a condition. Neither does the same legal result follow a failure to perform a promise as attaches itself to the non-performance of a condition. Thus, A promises to work for B and the latter promises to pay A when the task is completed. If A does not work as he promised, he is liable to B for damages. On the other hand, if A does work, ordinarily he must fully perform before he may recover from B on his promise. If he does not work, he may never sue B on his

63 Dey v. Dox & Mercer, 9 Wend. 129 (N. Y.).

promise. That is to say, the promise of B is dependent and subject to a condition, to-wit, a prior performance by A. But the promise of A is not subject to a condition.

A condition is a fact or event upon which the parties make the contract depend. It is "a fact or event which must precede some change in the legal relations of two (or more) parties." Although the fact or event must be uncertain, it is sufficient if that uncertainty exists in the minds of the parties. Ordinarily, the fact or event must be future as well as uncertain.65 A past or present event may, however, be a condition if it is unknown or uncertain in the minds of the parties. The same public policy that upholds the validity of the compromise of an unfounded but honestly entertained claim will uphold such a condition.

Distinctions. A distinction should be noted between conditions which relate to the very existence of a contract and those which relate to the performance of an existing contract. 66 Thus, the happening of a contingency may be necessary before there can even be any contract. Such conditions may be imposed by law or prescribed by the parties. For example, the law requires that there be a consideration before an action may be brought on an unsealed agreement.

But it is frequently difficult to determine whether a condition prescribed by the parties is to precede the existence of the contract or whether the contract is

64 Harriman, Contracts (2d ed.), § 299.

65 Langdell, Summary of Contracts, § 26.

66 Costigan, Performance of Contracts, pp. 1-6.

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