to the party injured to place himself in the position he would have been in had not his rights been violated. This rule is most frequently exemplified in the wrongful conversion by one person of stocks belonging to another. To allow merely their value at the time of conversion would, in most cases, afford a very inadequate remedy, and, in the case of a broker, holding the stocks of his principal, it would afford no remedy at all. The effect would be to give to the broker the control of the stock, subject only to nominal damages. The real injury sustained by the principal consists not merely in the assumption of control over the stock, but in the sale of it at an unfavorable time, and for an unfavorable price. Other goods wrongfully converted are generally supposed to have a fixed market value at which they can be replaced at any time; and hence, with regard to them, the ordinary measure of damages is their value at the time of conversion, or, in case of sale and purchase, at the time fixed for their delivery. But the application of this rule to stocks would, as before said, be very inadequate and unjust. The rule of highest intermediate value, as applied to stock transactions, has been adopted in England, and in several of the states in this country; while in some others it has not obtained. The form and extent of the rule have been the subject of much discussion and conflict of opinion. * * * Perhaps more transactions of this kind arise in the state of New York than in all other parts of the country. The rule of highest intermediate value up to the time of trial formerly prevailed in that state, and may be found laid down in Romaine v. Van Allen, 26 N. Y. 309, and Markham v. Jaudon, 41 N. Y. 235, and other cases, although the rigid application of the rule was deprecated by the New York superior court in an able opinion by Judge Duer, in Suydam v. Jenkins, 5 N. Y. Super. Ct. 614. The hardship which arose from estimating the damages by the highest price up to the time of trial, which might be years after the transaction occurred, was often so great that the court of appeals of New York was constrained to introduce a material modification in the form of the rule, and to hold the true and just measure of damages in these cases to be the highest intermediate value of the stock between the time of its conversion and a reasonable time after the owner has received notice of it to enable him to replace the stock. This modification of the rule was very ably enforced in an opinion of the court of appeals delivered by Judge Rapallo in the case of Baker v. Drake, 53 N. Y. 211, 13 Am. Rep. 507. * * * On the whole, it seems to us that the New York rule, as finally settled by the court of appeals, has the most reasons in its favor, and we adopt it as a correct view of the law.

The judgment is reversed, and the cause remanded to the. Supreme Court of Utah, with instructions to enter judgment in conformity with this opinion.

We have seen that the courts have certain fairly definite rules for determining the amount of damages to be assessed in compensation for the loss occasioned by the breach of a contract. However, in order to make judicial inquiry as to the amount of damages unnecessary, the parties sometimes place in their contract a stipulation that, in the event of a breach of the contract by one of the parties, he shall pay a certain sum as liquidated damages.

"Where a sum named is construed by a court as being liquidated

damages, such sum is the amount of recovery for a breach. A penalty, which differs in its nature very widely from liquidated damages, is a sum named in a contract, to be paid by a defaulting party as punishment for his breach. Unlike liquidated damages, a penalty is not regarded as constituting an agreed measure of compensation; it is considered as a punishment agreed upon beforehand. The practical purpose of the parties in naming such a sum, is to make the agreement for the penalty a kind of security for the performance of the contract. If their purpose is to make a penal sum absolutely due in toto in case of breach, their purpose will not be given effect; a sum which would, on principles to be stated hereafter, be unreasonable and unconscionable, will not be in any way determinative of the amount to be assessed for a breach. A court does not feel itself compelled to regard à penalty as being either the maximum or minimum amount to be assessed for a breach, where the penalty is named in a mere contract, although it is regarded as the maximum of liability, where it is named in a penal bond. Where a sum named in a contract is construed by a court as being a penalty, it cannot be collected in full as a stated compensation; only damages for the actual loss occasioned by the default will be assessed, whether such damages be greater or less than the penalty named. Where a penalty is named in either a statutory undertaking or a penal bond, the sum so named is the limit of recovery; and, while a lesser amount may be recovered on the bond, a greater cannot be."1

There is some conflict on various questions connected with liquidated damages; but, in general, the following rules are followed: "An intention to liquidate the damages is controlling. In seeking to ascertain the real intent, the courts lean strongly towards a construction that the sum fixed is a penalty, rather than liquidated damages. The language of the parties is not conclusive, and will be strictly construed.

"Where the stipulated sum is wholly collateral to the object of the contract, and is evidently inserted in terrorem as security for performance, it will be construed to be a penalty.

"Where the stipulated sum is to be paid on the non-payment of a less amount, or on failure to do something of less value, it will generally be construed to be a penalty.

"Where the stipulated sum is to be paid on breach of a contract of such a nature that the damages arising from a breach may be either much greater or much less than the sum fixed, it will be construed to be a penalty.

"Where the stipulated sum is to be paid on the breach of a contract of such a nature that the damages resulting from a breach would be uncertain, and incapable or difficult of being estimated by any definite standard, it will generally be construed to be liquidated damages, if reasonable in amount.

1 Bauer on Damages, § 33.

"Where the stipulated sum is to be paid on the breach of a contract of such a nature that the damages arising from a breach are capable of exact measurement by a definite standard, the sum fixed, if materially variant from the actual damages, will usually be regarded as a penalty; but where such sum is fixed to cover contemplated consequential losses, not recoverable under legal rules, and is not more than a reasonable compensation therefor, it may be sustained as liquidated damages.

"Where the contract provides that a certain sum, deposited to secure performance, shall be forfeited for nonperformance, the sum deposited, if reasonable in amount, will be construed to be liquidated damages.

"Where the stipulated sum is to be paid on any breach of a contract containing several stipulations of widely different degrees of importance, it is usually held to be a penalty.

"A sum stipulated to be paid upon a breach of contract cannot be recovered as liquidated damages upon a partial breach, where the other party has accepted part performance.

"A sum stipulated to be paid in evasion of the usury laws will be regarded as a penalty." 2

JAQUITH v. HUDSON.

(Supreme Court of Michigan, 1858. 5 Mich. 123.)

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CHRISTIANCY, J. * * The real question in this class of cases will be found to be, not what the parties intended, but whether the sum is, in fact, in the nature of penalty; and this is to be determined by the magnitude of the sum, in connection with the subjectmatter, and not at all by the words or the understanding of the parties. The intention of the parties cannot alter it. While courts of law gave the penalty of the bond, the parties intended the payment of the penalty as much as they now intend the payment of stipulated damages; it must therefore, we think, be very obvious that the actual intention of the parties, in this class of cases, and relating to this point, is wholly immaterial; and though the courts have very generally professed to base their decisions upon the intention of the parties, that intention is not, and can not, be made the real basis of these decisions. * * *

In this class of cases, where the law permits the parties to ascertain and fix the amount of damages in the contract, the first inquiry obviously is, Whether they have done so in fact? And here, the intention of the parties is the governing consideration; and in ascertaining this intention, no merely technical effect will be given to the particular words relating to the sum, but the entire contract, the subject-matter and often the situation of the parties with respect to each other and to the subject-matter, will be considered.

Hale on Damages (2d Ed.) §§ 51-60.

UNITED STATES v. BETHLEHEM STEEL CO.

(Supreme Court of the United States, 1907. 205 U. S. 105, 27 Sup. Ct. 450, 51 L. Ed. 731.)

PECKHAM, J.✶ ✶ ✶ The courts at one time seemed to be quite strong in their views, and would scarcely admit that there ever was a valid contract providing for liquidated damages. Their tendency was to construe the language as a penalty, so that nothing but the actual damages sustained by the party aggrieved could be recovered. Subsequently the courts became more tolerant of such provisions, and have now become strongly inclined to allow parties to make their own contracts and to carry out their intentions, even when it would result in the recovery of liquidated damages, upon proof of the violation of the contract, and without proof of the damages actually sustained. * ** The question always is: What did the parties intend by the language used? When such intention is ascertained, it is ordinarily the duty of the court to carry it out. *

KEEBLE v. KEEBLE.

(Supreme Court of Alabama. 1888. 85 Ala. 552, 5 South. 149.) Plaintiff and defendant's testator had been in partnership in the mercantile business. Plaintiff sold out to defendant's testator, but was employed by the latter as business manager. The terms of the employment imposed on plaintiff the obligation wholly to abstain from the use of intoxicating liquors, and, in the event he should become intoxicated, that he should pay, "as liquidated damages," the sum of $1,000. The plea alleged that plaintiff violated his promise to keep sober, and thereby became bound to pay to defendant's testator said sum of $1,000, which sum was offered as a set-off to plaintiff's demand.

SOMERVILLE, J. * * * The appellant violated his promise by becoming intoxicated, and remained so for a long time, and acted rudely and insultingly towards the customers and employés of the testator, and otherwise deported himself, by reason of intoxication, in such manner as to do injury to the business. It is not denied by appellant's counsel that this is a total breach of the promise to keep sober; nor is it argued that the damage resulting from the violation. of such a promise can be ascertained with any degree of certainty; nor even that the amount agreed to be paid as liquidated damages, in the event of a breach, is disproportionate to the damages which may have been actually sustained in this case. But the contention seems to be that, inasmuch as it was possible for a breach to occur with no actual damages other than nominal, the amount agreed to be paid should be construed to be a penalty. * * * It is argued, in other words, that becoming intoxicated in private, while off duty, would be a violation of the contract, but would be attended with no actual damage to the business of R. C. Keeble & Co. * * *There are but few agreements of this kind where the stipulation is to do or not do a particular act, in which the damages may not, according to circumstances, vary, on a sliding scale, from nominal damages to a considerable sum. One may sell out the goodwill of his business in a given locality, and agree to abstain from its further prosecution, or, in the

event of his breach of his agreement, to pay a certain sum as liquidated damages; as, for example, not to practice one's profession as a physician or lawyer, not to run a steamboat on a certain river or to carry on the hotel business in a particular town, not to re-establish a newspaper for a given period, or to carry on a particular branch of business within a certain distance from a named city.

In all such cases, as often decided, it is competent for the parties to stipulate for the payment of a gross sum by way of liquidated damages for the violation of the agreement, and for the very reason that such damages are uncertain, fluctuating, and incapable of easy ascertainment. * * * It is clear that each of these various agreements may be violated by a substantial breach, and yet no damages might accrue except such as are nominal. The obligor may practice medicine, and possibly never interfere with the practice of the other contracting party, or law, without having a paying client; or he may run a steam-boat without a passenger; or an hotel without a guest; or carry on a newspaper without the least injury to any competitor. But the law will not enter upon an investigation as to the quantum of damages in such cases. This is the very matter settled by the agreement of the parties. If the act agreed not to be done is one from which, in the ordinary course of events, damages, incapable of ascertainment save by conjecture, are liable naturally to follow, sometimes more and sometimes less, according to the aggravation of the act, the court will not stop to investigate the extent of the grievance complained of as a total breach, but will accept the sum agreed on as a proper and just measurement, by way of liquidated damages, unless the real intention of the parties * * designed it as a penalty. We may add, moreover, that no one can accurately estimate the physiological relation between private and public drunkenness, nor the causal connection between intoxication one time and a score of times. The latter, in each instance, may and the one may naturally lead to the other. nothing harsh or unreasonable in stipulating and beginning of the more aggravated evil

* * *

*

follow from the former, There would seem to be against the very source sought to be avoided.

[Judgment allowing defendant's set-off affirmed.]

SECTION 3.-RESCISSION

When a party has materially broken his contract, the injured party may sue the party in default and recover damages for the breach of contract. This is a suit upon the contract. The plaintiff will obtain a judgment for money damages, presumably sufficient in amount to equal what the plaintiff would have gained had the contract been performed. Where the suit is for specific performance of the contract, a successful complainant obtains, literally, what he was entitled to under the contract. In contrast with these remedies, which seek to put the plaintiff in the same position he would have occupied had the contract been performed by the defendant, the remedy of rescission, on the other hand, seeks to put the plaintiff in the same position which he occupied before he entered into the contract; that is, the remedy of rescission enables a plain