On appeal from the District Court of the First Judicial District of the County of Morris.
For the plaintiff-respondent, Charles I. Malovany (Edwin G. Adams, of counsel).
For the defendant-appellant, William H. Yanowsky (Alfred J. Grosso, of counsel).
Before Justices Case, Donges and Porter.
The opinion of the court was delivered by
PORTER, J. Plaintiff sued for breach of contract and recovered the amount due together with liquidated damages as provided for in the contract. It is not disputed that the contract was breached by the defendant. The sole ground argued on appeal is that the trial court erred in awarding liquidated damages, the contention being that the contract should have been construed as providing for a penalty and not for liquidated damages.
The plaintiff is a distributor of liquefied petroleum product commonly known as "bottled gas." It is delivered to the consumer in metal cylinders which are refillable. On April 8th, 1939, the parties entered into a written agreement under
which the defendant agreed to purchase from the plaintiff exclusively all liquid petroleum gas required by him at the premises specified for a period of three years at a fixed price and to pay the regular charges for installation and servicing of necessary equipment. It was also provided that a monthly minimum charge would be one dollar and fifteen cents ($1.15). The clause of the contract concerning damages reads as follows:
"(f) Inasmuch as any loss arising from a breach of this agreement would be difficult of determination it is agreed that liquidated damages for any such breach is agreed upon to be fixed at the rate of $2.00 per month for all unexpired months of the life of this agreement." At the time of the breach the contract had eight months to run.
Parties to a contract may not fix a penalty for its breach. The settled rule in this state is that such contract is unlawful. Liquidated damages however are enforceable, and the intention of the parties will be carried out. The distinction between penalty and liquidated damages is to be tested by the reasonableness of the amount stipulated by the parties in the contract. If unconscionable, exorbitant or excessive under all the conditions and circumstances they are a penalty and not recoverable because the law limits recovery to indemnity from loss. Monmouth Park Association v. Wallis Iron Works, 55 N.J.L. 132; 26 A. 140; 218-220 Market Street Corp. v. Krich-Radisco, Inc., 124 N.J.L. 302; 11 A.2d 109.
It has also been held that where damages are uncertain in amount and not readily susceptible of proof and the parties have agreed upon a sum not disproportionate to the presumable loss it may be recovered as liquidated damages; "but where the agreement contains disconnected stipulations of various degrees of importance, the sum named * * * will be considered as a penalty, unless the agreement specifies the particular stipulation or stipulations to which the liquidated damages are to be confined." Summit v. Morris Traction Co., 85 N.J.L. 193; 88 A. 1048.
It is the contention of the appellant that under these rules the damages for the breach of the ...