66 BULLETIN 110 6, U. S. DEPARTMENT OE AGRICULTURE 
to the association if delivery of his crop was prevented by a mort- 
gage executed prior to the signing of the marketing contract, and 
in all cases liquidated damages may be recovered by an association 
(if the contract contains no exception), although delivery of the 
crop is prevented by a crop mortgage. 70 
If a cooperative association in any State receives a crop on which 
a third person has a superior claim, the association runs a risk in 
receiving and handling the crop. If the person having the superior 
claim consents to having the association handle the crop, then there 
is no danger. In all cases in which an association receives a crop 
on which there is a lien or crop mortgage great care should be exer- 
cised to account to the holder of the lien or mortgage before making 
any payments to the grower. This is true whether the claim of the 
association is superior to the claim of the holder of the lien or 
mortgage or not. 
An association would be liable for conversion if it handled and 
sold a crop on which a third person had a superior claim, namely, 
a lien or crop mortgage. On the other hand, even though the claim 
of the association is superior, if the association has knowledge of the 
crop lien or mortgage, then it should account to the holder thereof 
before making payment to the grower. An association ordinarily is 
free to take a mortgage on any property of a member including a 
crop to secure it for advances made or to be made. 
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 used in discussing 
the term " liquidated damages " is " penalty." And it is frequently 
said that a penalty can not be recovered, but that liquidated dam- 
ages may be. A penalty may, in this connection, be defined as an 
amount fixed by the parties to a contract to be paid by one of them 
in case of breach, which is greatly, or perhaps grossly, in excess of 
the damages which may actually be suffered from such a breach. 
When the amount 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 defend- 
ant 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 ob- 
tain 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 was a penalty and not liquidated damages, and a judgment 
for 1 cent was affirmed. 71 That the parties to a contract have de- 
scribed the amount to be paid in case of a breach as " liquidated 
damages " or as a " penalty '' is not conclusive upon the point. 72 
70 Kansas Wheat Growers' Ass*n r. Ast et al., 118 Kan. 247. 234 P. 963 ; North Carolina 
Cotton Growers' Co-op. Ass'n t. Bullock, 191 N. C 464. 132 S. E. 154. A. L. R. 924 ; 
Lennox v. Texas Farm Bureau Cotton Ass'n (Tex. Civ. App.), 16 S. W. (2d) 413. 
71 Bignall r. Gould, 119 TJ. S. 495. 
« Northwestern Terra Cotta Co. v. Caldwell, 234 F. 491, 496. 
