Smith v. Lambert Transfer Co., 109 Wash. 529,

                     SMITH v. LAMBERT TRANSFER CO.      529
 Jan. 1920               Opinion Per MACKINTOSH, J.

           [No. 15601, Department One. January 19, 1920.]
           GEORGE A SMITH et al., Respondents, v. LAMBERT
                TRANSFER COMPANY et al., Appellants. «1»

 530    SMITH v. LAMBERT TRANSFER CO.
                     Opinion Per MACKINTOSH, J.     109 Wash.

the covenants and agreements on the part of the lessee
herein. In case of the nonpayment of the rent payable
at any of the times herein specified or in default of
any of the covenants herein contained, the lessors may
cancel this lease in the manner provided by law, and
said payment of five thousand dollars shall be forfeited
as liquidated damages by the lessors. The
lessors covenant and agree to pay the lessees, semiannually,
seven per cent interest for the first five years
and thereafter six per cent upon said five thousand
dollars, and on January 1 and July 1 of each year the
interest then accrued upon said five thousand dollars,
as herein specified, shall be credited to the lessees
upon the monthly installment of rental due by the
lessees to the lessors on said respective dates hereunder,
and only the balance of said monthly installments
after deducting the credit for interest shall be
paid by the lessors."

The appellants, after being in possession some time,
failed to meet the monthly payments of rent promptly
and failed to pay the taxes as provided for in the
lease, and allowed the same to become delinquent. In
1918, the respondents paid the amount of the delinquent
taxes and redeemed the certificate which had
been issued therefor, and in August, 1918, the appellants
vacated the premises and the respondents began
this action for the purpose of canceling the lease,
declaring a forfeiture of, and providing for the retention
of, the $5,000 deposit as liquidated damages, and also
asked judgment for $2,145.93, the amount of the delinquent
taxes which they were compelled to pay. The
judgment of the lower court resulted in favor of the
respondents in the sum of $2,145.93, together with the
forfeiture of the $5,000 as liquidated damages.

Two questions appear in this case: First, as to
whether the provision in regard to the $5,000 is a
provision creating a penalty or creating liquidated
damages; and second, if the provision is one creating

                     SMITH v. LAMBERT TRANSFER CO.      531
 Jan. 1920               Opinion Per MACKINTOSH, J.

liquidated damages, whether the respondents are entitled,
in addition to the amount of $5,000, to a judgment for
the amount which they have expended in the payment
of delinquent taxes.

The question as to whether a stipulation in regard
to the payment of a fixed sum to a landlord to be used
in compensation for breach of the lease is held by the
landlord as a penalty or as liquidated damages is one
of no little difficulty, for it calls upon the court to
determine what was the intention of the parties to the
lease; and different courts, in interpreting the
intention of the parties, have arrived at what appear to be
irreconcilable conclusions, but all the courts seem to
agree that the mere language that the parties may
have used is not of controlling effect, but is to be given
the legal force their intention indicates. Some courts
have held that express stipulations for "penalties"
were really stipulations for "liquidated damages;"
and vice versa, "liquidated damages" have often been
called "penalties." Such courts hold that the parties
may not agree absolutely upon a large price for the
breach of some immaterial or trivial part of their
contract, it being said that such an agreement is against
the policy of the law. The test of the validity of such
contract provisions as the one before us has been determined
by this court to be that of the adequacy and
justice of the amount stipulated. The nature of the
agreement, for a possible breach of which the contract
provides, is a determining factor in establishing the
intent of the parties in providing for a possible violation.
Some of the particular things provided for in
the contract may be of less importance than others
and their breach may not result in serious damage, but
this is no more an absolute guide to the parties'
intention than the use by them of the words "penalty" or
"liquidated damages." That intention is to be

 532    SMITH v. LAMBERT TRANSFER CO.
                     Opinion Per MACKINTOSH, J.     109 Wash.

determined by whether, in view of the actual breach
complained of, the amount provided for in the
contract can fairly be regarded as a penalty or as a fair
measure of the real damage in the minds of the parties
most capable of determining the possible effect of the breach
of the contract.

"Generally speaking, it may be said, that when the
damages arising from the breach of the contract
which the obligation is given to secure, are uncertain
in their nature and not readily susceptible of proof by
the ordinary rules of evidence, and are not so disproportionate
to the probable damages suffered as to appear
unconscionable, and it is reasonably clear from
the whole agreement that it is the intention of the
parties to provide for liquidated damages and not a
penalty, such a stipulation will be held to be one for
liquidated damages." Madler v. Silverstone, 55 Wash. 159,
104 Pac. 165.

In a case in which a provision for the deposit of
$1,200 for the breach of a lease, the total rent of which
amounted to $36,000, was before us, this court said:

"The fallacy of respondent's argument lies in her
assumption that the $1,200 was advanced as security
only. She ignores the probable contingency that a loss
of the tenancy might cause damages to appellants difficult
of ascertainment, whether termination of the
tenancy resulted from a wrongful and voluntary surrender
by respondent or from respondent's default in
payment of rent, coupled with appellants' election to
then terminate the lease. By exercising their election
to terminate the lease, appellants did not waive their
right to retain the liquidated damages. The default
which caused such termination originated with respondent."
Barrett v. Monro, 69 Wash. 229, 124 Pac.
369, 40 L. R. A. (N. S.) 763.

In the case before us, the penalty was in the sum of
$5,000, and the total amount of the rent provided for
in the lease amounted to $76,500; so, in this case, we

                     SMITH v. LAMBERT TRANSFER CO.      533
 Jan. 1920               Opinion Per MACKINTOSH, J.

cannot say that the amount is disproportionate to the
total amount involved.

In Munson v. Baldwin, 88 Wash. 379, 153 Pac. 338,
the sum of $1,500 as liquidated damages for breach of
a lease, where the monthly rent was $370 and the lease
had three years to run, was held not to be unreasonable.
The parties agreed upon the liquidated damages
because the exact measure could not easily be ascertained.
That sum was not unreasonable in view of
the value of the lease as a whole.

This court has had before it many times the question
of whether stipulations in agreements were to be
considered as penalties or as part of the consideration
or as liquidated damages, and has held in the following
cases that the stipulations were for penalties: Krutz
v. Robbins, 12 Wash. 7, 40 Pac. 415, 50 Am. St. 871,
28 L. R. A. 676; Johnson. v. Cook, 24 Wash. 474, 64
Pac. 729; McDaniels v. Gowey, 30 Wash. 412, 71 Pac.
12; Stoner v. Shultz, 69 Wash. 687, 125 Pac. 1026;
Miller v. Moulton, 77 Wash. 325, 137 Pac. 491. In the
case of Dutton v. Christie, 63 Wash. 372, 115 Pac. 856,
it was held that the payment made was part of the
consideration for the contract. In the following cases
the stipulations were held to be for liquidated damages:
Reichenbach v. Sage, 13 Wash. 364, 43 Pac. 354,
52 Am. St. 51; Everett Land Co. v. Maney, 16 Wash. 552,
48 Pac. 243; Jennings v. McCormick, 25 Wash. 427,
65 Pac. 764; American Copper, B. & I. Works v.
Galland-Burke B. & M. Co., 30 Wash. 178, 70 Pac. 236;
Drumheller v. American Surety Co., 30 Wash. 530, 71
Pac. 25; Canady v. Knox, 43 Wash. 567, 86 Pac. 930;
Madler v. Silverstone, 55 Wash. 159, 104 Pac. 165;
Yatsuyanagi v. Shimamura, 69 Wash. 42, 106 Pac. 503;
Herberger v. Orr Co., 62 Wash. 526, 114 Pac. 178;
Barrett v. Monro, 69 Wash. 229, 124 Pac. 369, 40
L. R. A. (N. S.) 763; Grand Union Laundry Co. v.

 534    SMITH v. LAMBERT TRANSFER CO.
                     Opinion Per MACKINTOSH, J.     109 Wash.

Carney, 88 Wash. 327, 153 Pac. 5; Munson v. Baldwin,
88 Wash. 379, 153 Pac. 338.

Under these decisions, it must be held that the intention
of the parties in the case before us was to provide
for liquidated damages.

Having determined that the contract provision in
question was for liquidated damages, we come to the
determination of the second question, as to whether
respondents are entitled to retain the $5,000 in addition
to recovering the amount which they paid in
taxes, which was a special damage arising from the
breach of one of the covenants of the lease. The general
rule, as stated in 8 R. C. L. 358, is that, in contracts
providing for liquidated damages, the amounts
therein named measure the damages in case of a
breach, and that recovery must be for amounts no
other or greater than those stipulated, though the
actual damage may be greater or less. See, also,
17 C. J. 966. Without discussion, this court, in Go Fun
v. Fidalgo Island Canning Co., 37 Wash. 238, 79 Pac.
797, and West Coast Manufacturer's Agency v. Oregon
Condensed Milk Co., 54 Wash. 247, 103 Pac. 4, has
committed itself to the view that liquidated damages
establish the amount recoverable for the breach of the
contract. If the amount agreed upon is liquidated
damages, there can be no additional recovery for special
items of damages arising out of breach of covenants
for which liquidated damages were provided.
The fact that the actual damage may be in excess of
or less than the amount agreed upon as liquidated is
a matter with which the court could not be concerned,
for when it has been determined that that amount is
not disproportionate to the amount of the actual damage
which might occur, and the possibility was remote
at the time of entering into the contract of accurately
ascertaining the amount of the prospective damages,

                     SMITH v. LAMBERT TRANSFER CO.      535
 Jan. 1920               Opinion Per MACKINTOSH, J.

and the court having found the intent of the parties
to be that they have agreed upon a definite sum which
was to be retained by one of the parties as full compensation
in the event of the breach, proof of special
items of damage for the breach of any of the conditions
covered by the stipulated amount is inadmissible.
This rule has been followed in a great number
of cases, among which might be cited: McCurry v.
Gibson, 108 Ala. 451, 18 South. 806, 54 Am. St. 177;
Morris v. Wilson, Sons & Co., 114 Fed. 74; Millen v.
Gulesian, 229 Mass. 27, 118 N. E. 267; Jackson v. Hunt,
76 Vt. 284, 56 Atl. 1010; Board of Commerce of Ann
Arbor v. Security Trust Co., 225 Fed. 454; Dean v.
Connecticut Tobacco Corporation, 88 Conn. 619, 92 Atl.
408; Smith v. Newell, 37 Fla 147, 20 South. 249; Jobst
v. Hayden Bros., 88 Neb. 469, 129 N. W. 992; Yoder v.
Strong, 227 Pa 432, 76 Atl. 176; Nelson v. Butler, 190
S. W. (Tex. Civ. App.) 811; Morrison v. Ashburn, 21
S. W. (Tex. Civ. App.) 993; Stillwell v. Temple, 28 Mo.
156; Rosenquist v. Canary, 20 Misc. Rep. 40, 45 N.Y.
Supp. 342; Stone, Sand & Gravel Co. v. United States,
234 U. S. 270.

It would therefore appear that the lower court was
in error in including in its judgment the sum of
$2,145.93, which was a special damage to the respondents
for breach of the covenant to pay the taxes. The
judgment of the lower court will be modified by excluding
that sum, and in other respects affirmed.

HOLCOMB, C.J., MITCHELL, PARKER, and MAIN, JJ.,
concur.