LEGAL PHASES OF COOPEEATIVE ASSOCIATIONS. 25 



It was held that in the absence of fraud or such gross mistake as 

 would necessarily imply bad faith or a failure to exercise an honest 

 judgment, the action of the engineer was conclusive and binding 

 upon the parties. In a Massachussets case ^* it was said : 



It is well settled that where one agrees that another may fix the price for 

 certain property or the sum to be paid for material or services, the decision 

 of the party selected can not be impeached by showing that he has committed 

 an error of judgment or failed to avail himself of all the information which 

 he might have obtained, or has valued the property too high or too low. 



These cases announce a principle which would clearly include 

 the right of a cooperative association to determine in good faith 

 the grade and quality or other factors incident to products delivered 

 by a member if authorized to do so by a suitable provision in the 

 contract. 



LIQUIDATED DAMAGES. 



Liquidated damages are damages the amount of which has been 

 determined in advance by agreement between the parties. Long 

 before the days of Blackstone parties inserted provisions in their 

 contracts that one should pay a certain sum, in case he breached 

 the contract, to the other as satisfaction for the loss sustained by 

 the breach. One of the most common expressions which is used 

 in discussiing the term " liquidated damages " is " penalty." And 

 it is frequently said that a penalty can not be recovered, but 

 that liquidated damages may be. A penalty may, in this 

 connection, be defined as an amount fixed by the parties to a contract 

 to be paid hj one of them in case of breach, which is greatly, or per- 

 haps grossly, in excess of the damages which may actually be suffered 

 from such a breach. When the an^ount fixed is held to be a penalty, 

 such amount can not be recovered but only the actual damages 

 suffered. 



A case which well illustrates this view is one in which the de- 

 fendant entered into a bond to pay $10,000 in case he failed to secure 

 releases, within a year, from certain parties having claims against 

 him. One of the claims amounted to only $9.80, and failure to 

 obtain a release of this claim would have made the entire amount 

 of the bond due and payable. The Supreme Court held that the 

 $10,000 referred to was a penalty and not liquidated damages, and 

 a judgment for 1 cent was affirmed.^^ That the parties to a contract 

 have described the amount to be paid in case of a breach as " liqui- 

 dated damages " or as a " penalty " is not conclusive upon the 



8* New England Trust Co. v. Abbott, 162 Mass. 148, 38 N. E. 432, 27 L. R. A. 271 ; 

 see also Berger Mfg. Co. v. Huggins, 242 Fed. 853. 

 s^Bignall v. Gould, 119 U. S. 495. 



