‘ LEGAL PHASES OF COOPERATIVE ASSOCIATIONS. 25 
Jt 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 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 per- 
haps 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 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 
* 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. 
§% Bignall v. Gould, 119 U. S.-495. 
