Hall v. Weeks , 214 Ark. 703 ( 1949 )

The real estate sales contract involved here called for a down payment in gross of $4,000 as earnest money and contained this additional provision: ". . . if the title is good and the property not paid for as herein specified, this earnest money is to be forfeited to the seller . . ."

The primary and decisive question presented, as I read the record, is whether this $4,000 was intended, in the circumstances, as a penalty or liquidated damages.

I think under the plain terms of the contract and the meaning of the words used, a penalty, in effect, and not liquidated damages, was provided for by the parties. We only interpret contracts, not make them. If it could be said that some doubt was created by the use of the word "forfeiture," then, of course, under our well established rule "a contract will be construed as unfavorably as its terms will admit against the party who proposed and prepared it." (Headnote 1), Leshe v. Bell, 73 Ark. 338,84 S.W. 491.

It is conceded here that appellant prepared the contract.

Webster defines "forfeiture" as "breach of condition, . . . that which is forfeited; a penalty," and as synonymous with penalty.

In Bouvier's Law Dictionary, Rawle's Third Revision, Vol. 2, we find this language: "A provision in an agreement, that for its breach the party shall `forfeit' a fixed sum, implies a penalty, not liquidated damages; Salters v. Ralph, 15 Abb. Pr. (N.Y.) 273;" and in the cited case, the Supreme Court of New York said: "The stipulation here is for a forfeiture. If this is to be deemed stipulated damages, then there has certainly been a great revulsion in the law on this subject; for, instead of its being any longer difficult to frame a clause which shall have the effect of liquidating damages, it will have become difficult to frame a clause which shall not have that effect. In Bagley v. Peddie, 16 N.Y. 469, 69 Am. Dec. 731, it is laid down as one of the rules for determining whether a given clause liquidates the damages, that `where the word penalty is used, it is generally conclusive against its (the clause) being held liquidated damages, however strong the language of other parts of the instrument in favor of such construction.' Now, the case at bar falls directly within this rule. True, the word `penalty' is not used, but the word `forfeit,' which has the same legal effect, is; and it is through the single word `forfeit' only, that plaintiff can make any claim whatever to the $250. There is nothing in the language of the other parts of the instrument which in the slightest degree favors the construction that this sum was intended to be agreed on as ascertained and liquidated damages."

Here a gross sum of $4,000, as a forfeiture or penalty, was stipulated. Appellant never surrendered possession of the property in question and received all income until he sold it at a profit of approximately $5,000 over and above the selling price to appellees.

Had appellant intended that the gross sum of $4,000 stipulated was intended as liquidated damages, and not as a forfeiture or penalty, it would have been so easy to have removed any doubt by so stating in plain English in the contract. This he did not do, and as pointed out, we must construe the contract as unfavorably against appellant as its terms will admit.

This court, speaking through Judge MANSFIELD, in Nilson v. Jonesboro, 57 Ark. 168, 20 S.W. 1093, said: "The authorities, however, show that where the intention to liquidate the damages is not obvious, the stipulated sum will usually be given the effect of a penalty if it exceeds the measure of a just compensation and the actual damage sustained is capable of proof," and in Huntington v. Attrill, 146 U.S. 657, 13 S. Ct. 224, 36 L. Ed. 1123, the court said: "In the words of Chief Justice MARSHALL: `In general, a sum of money in gross, to be paid for the non-performance of an agreement, is considered as a penalty, the legal operation of which is to cover the damages which the party, in whose favor the stipulation is made, may have sustained from the breach of contract by the opposite party.' Tayloe v. Sandiford, 7 Wheat. 13, 17, 5 L. Ed. 384."

I think, therefore, that the decree should be affirmed. Certainly it seems to me we cannot say that the trial court acted against the preponderance of the testimony.