LEGAL PHASES OF COOPERATIVE ASSOCIATIONS. 25 
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 discussing 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 
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 re- 
leases, 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. 85 That the parties to a contract have described 
the amount to be paid in case of a breach as " liquidated damages " 
or as a " penalty " is not conclusive upon the point, s6 although the 
term used by the parties has been held to have some weight. 87 
In a certain case the defendant hired a yacht for four months for 
$10,000 and agreed in the event he failed to return it to pay $75,000, 
which was stated to be the value of the yacht for the purpose of the 
contract. The yacht was destroyed, and suit was brought for the re- 
covery of the $75,000. The Supreme Court affirmed a judgment for 
this amount, and in doing so, said in part : 
Whether a particular stipulation to pay a sum of money is to be treated as 
a penalty or as an agreed ascertainment of damages, is to be determined by 
the contract, fairly construed, it being the duty of the court always, where the 
damages are uncertain and have been liquidated by an agreement, to enforce 
the contract. 53 
In 1904 an agreement was entered into for the erection of two 
laboratory buildings for the Department of Agriculture in Wash- 
ington. The contract called for the completion of the buildings in 
30 months, and for a delay of 101 days beyond the contract period the 
Government deducted $200 a day, the amount stipulated in the con- 
tract as liquidated damages, a total of $20,200. Later suit was brought 
against the Government for the recovery of this amount. In holding 
^Bignall v. Gould, 119 U. S. 495. 
68 Northwestern Terra Cotta Co. v. Caldwell, 234 Fed. 491, 496. 
^Tayloe v. Sandiford. 7 Wheat. 13. 
88 Sun Printing & Publishing Ass'n. r. Moore, 133 U. S. 642. 
