§ 2. Rvlea 0/ Law and Equity as to Time and Penalties,

There are two points of construction on which law and

equity once differed though they differ no longer. These

have reference to terms respecting time and penalties.

Time. At law, * time was always of the essence of the contract.'

sence of the ^ ^ made a promise to X whereby he undertook to do a

Com ^^^ *^ certain thing by a certain day in consideration that -X" would

Chap. II. § 2. RULES RELATING TO CONSTRUCTION. 243

thereupon do something for him, X was discharged from his

promise if A had not fulfilled his by the date named in the

contract. Equity however looked further into the intention Not so in

of the parties, so as to ascertain whether in fact the perform- ^^ ^*

ance of the contract was meant to depend upon -i's promise

being fulfilled to the day, or whether a day was named in

order to secure performance within a reasonable time. If

the latter was found to be the intention of the parties, equity

would not refuse to A the enforcement of X's promise if his

own was performed within a reasonable time. It is never- Lennon v.

••• Napper,

theless open to the parties to make time of the essence of the J^?^- ^ ^*

contract by express agreement.

The distinction between the rules of law and equity in

this respect is now swept away by the Judicature Act, which 36 & 37 vkt.

enacts that ^"^"^ ?.

' Stipulations in contracts as to time or otherwise, which

would not before the passing of this Act have been deemed

to be, or to have become of the essence of such contracts in

a Court of Equity, shall receive in all Courts the same con-

struction and effect as they would have heretofore received

in equity.'

Penalties have been regarded always by Courts of Equity, Penalties,

and for a long time past by Courts of Law, as open to ques-

tions of construction of the following character.

Where the parties affix a penalty to the non-performance

of his promise by one, or each of them, they may have in-

tended to effect either of two purposes; to assess the damages

at which they rate the non-performance of the promise, or

to secure its performance by the imposition of a penalty in

excess of the actual loss likely to be sustained.

If the former was their intention, the sum named is recover-

able as 'liquidated damages \' If the latter, the amount

^ Liquidated damages are ' the sum agreed upon in the contract by

the parties themselves as the damages for a breach of it.' Unliquidated Buiien &

damages are such as are left to be assessed by a jury according to the y^^^^^

loss sustained.

R 2

244 INTERPRETATION OF CONTRACT. Part IV.

Penalty and recoverable is limited to the loss actually sustained, in spite

damages. ®^ *^® ^^^ undertaken to be paid by the defaulter. In con-

struing contracts in which such a term is introduced, the

Courts will not be guided by the name given to the sum to

be paid. If it be in the nature of a penalty they will not

allow it to be enforced although the parties have expressly

stated that it is to be paid as liquidated damages and not

as a penalty.

6 Bing. 147. The leading case upon this subject is Kemhle v. Fa/rren,

and from it the following rules may be deduced : —

If the contract is for a matter of certain value and a sum

is fixed to be paid on breach of it which is in excess of that

value, then the sum fixed is a penalty and not liquidated

damages.

If the contract is for a matter of uncertain value and a

sum is fixed to be paid on breach of it, the sum is recoverable

as liquidated damages. There is * nothing illegal or unreason-

able in the parties, by their mutual agreement, settling the

Per Tindai, amouut of damagcs, uncertain in their nature, at any sum

C. L in Keinble 1 • ■• . 1 »

V. Farren. upou wuich tucy may agree.

If the contract contains a number of terms some of which

are of a certain value and some not, and the penalty is applied

«

to a breach of any one of them, it is not recoverable as

liquidated damages, however strongly the parties may have

expressed their intention that it shall be so.

6 Bingr. 147. Thus in Kemhle v. Farren the defendant agreed to act at

Covent Garden Theatre for four consecutive seasons and to

conform to all the regulations of the theatre, and the plaintiff

promised to pay the defendant X3 Gs, Sd. every night, during

that time, that the theatre should be open for performance,

and to give him one benefit night in each season.

It was further agreed that for a breach of any term of this

agreement by either party, the one in default should pay the

other £1000, *to which sum it was thereby agreed that the

damages sustained by any such omission, neglect, or refusal,

Chap. II. § 2. BULES RELATING TO CONSTRUCTION. 24$

should amount ; and which sum was thereby declared by the

said parties to be liquidated and ascertained damages and

not a penalty or penal sum or in the nature thereof/ The

defendant refused to act during the second season, the jury

put the damages for his breach of contract at £750, and the

plain ti£P moved for a rule to raise them to £1000.

But the Court held, that in spite of the explicit statement

of the parties that the sum was not to be regarded as a

penalty, it must be so regarded. If the penal clause had been

limited to breaches uncertain in their nature and amount, it

was thought that it might have had the effect of ascertaining

the damages, for the reason above cited. * But,' said Tindal^

C. J., 'in the present case the clause is not so confined ; it

extends to the breach of any stipulation by either party. If,

therefore, on the one hand, the plaintiff had neglected to

make a single payment of £3 6s. Sd. per day, or on the other

hand, the defendant had refused to conform to any usual

regulation of the theatre, however minute or unimportant, it

must have been contended that the clause in question, in

either case, would have given the stipulated damages of

Xiooo. But that a very large sum should become imme-

diately payable, in consequence of ther non-payment of a very

small sum, and that the former should not be considered as a

penalty appears to be a contradiction in terms; the case

being precisely that in which courts of equity have always

relieved, and against which courts of law have, in modern

times, endeavoured to relieve, by directing juries to assess Kemwe v.

" "^ Farren,

the real damages sustained by the breach of the agreement.' ^ ^'"^' *^7.

34<S DlSCHABaE OF CONTRACT. Part V.

PAET V.

I

DISCHARGE OF CONTRACT.

Discharge Wb have now dealt with the elements which go to the

' formation of Contract, with the operation of Contract when

formed, and with its interpretation when it comes into

dispute. It remains to consider the modes in which the

contractual tie may be loosed, and the parties wholly freed

from their rights and liabilities under the contract. And

in dealing with this part of the subject it will be proper

to consider, not merely the mode in which the original

contract may be discharged, but, in case of its being dis-

charged by breach, the mode in which the right of action

arising thereupon may be extinguished.

how The modes in which a contract may be discharged would

effected. x t_ xi

seem to be these.

Agreement. («) It may bQ discharged by the same process which

created it, mutual agreement.

Perform- {$) It may be performed ; and all the duties undertaken

by either party may be thereby fulfilled, and all the rights

satisfied.

Breach. (y) It may be broken ; upon this a new obligation con-

nects the parties, a right of action possessed by the one

against the other.

Impos- (5) It may become impossible by reason of certain cir-

cumstances which are held to exonerate the parties from their

respective obligations.

Operation (<) It may be discharged by the operation of rules of law

upon certain sets of circumstances, to, be hereafter men-

tioned.

of Law.

Chap.1. §1. BY A^GREEMENT. 247

CHAPTER I.

Discharge of Contract by Agreement.

We have ofben noted, as the esseDtial feature of the Forms of

contractual obligation, that it is the result of the voluntary bya^S-

act of the parties, expressed by their agreement. As it is ™^'*^-

their agreement which binds them, so by their agreement

they may be loosed.

And this mode of discharge may occur in one of three

forms ; waiver, substituted agreement, condition subsequent.