Argued April 10, 1928
Affirmed July 17, 1928
From Multnomah: T.E.J. DUFFY, Judge.
For appellants there was a brief over the name of Messrs. Beck Hoecker, with an oral argument by Mr. M.B. Meacham.
For respondent there was a brief and oral argument by Mr. Samuel B. Weinstein.
This is an action to recover damages for the breach of a contract. The facts are that in September, 1924, the plaintiff came to the City of Portland and proceeded with plans to establish an advertising publication to be distributed to the homes of the city. At the same time the defendant, Harry Marcus, was contemplating a similar venture. After the plaintiff had made considerable progress with his plans, and had secured contracts for approximately 200 inches of advertising space at the rate of $1.20 an inch in his proposed publication, the defendant Marcus apparently desired to eliminate the plaintiff as a competitor. Pursuant to his desire, he sent for the plaintiff and proposed that he (Marcus) would purchase the plaintiff's contracts, or employ the plaintiff. During his overtures he threatened the plaintiff that if he would not accept the defendant's proposition he would render it impossible for the plaintiff to begin his venture. This meeting occurred in November, 1924. At that time, neither the plaintiff, nor the defendant, had published a first issue of their contemplated advertising sheets. The plaintiff testified that he was possessed of very little financial resources, but that Marcus "had plenty of money." He finally yielded to Marcus' importunities and the parties prepared and executed the contract which is the foundation of this action. It recites that the defendant, "Portland Shopping News," hires the plaintiff as advertising manager for the period of two years at a salary of $60.00 per week. It required plaintiff to devote four hours per day to his employment. The contract recited that the plaintiff must deliver to the defendant by November 26, 1924, " bona fide contracts of responsible retail merchants of Portland, Oregon, acceptable to the employer * * for at least 200 inches per issue at $1.20 per inch, for advertising space" in the "Portland Shopping News" and that "within thirty days from the date of this contract he will secure 80 additional inches of like contracts, and that if he fails to secure and deliver said 200 inches of said contracts by November 26, 1924, then said Employer may terminate this contract effective at once, and assign over to said Employee by assignment on the back thereof the contracts which he has secured, and thereupon this contract shall terminate and end, and in the event said Employee shall secure and deliver said 200 inches of said contracts by November 26, 1924, but shall fail to secure said additional 80 inches of said contracts within thirty days from the date of this contract, then the amount of $1,000 to be paid the Employee by the Employer for the right to terminate this contract as hereinafter agreed, where none of the other reasons for which it may be terminated, as hereinbefore or hereinafter agreed, apply, shall be reduced in proportion as the said 200 inches plus the additional number of inches secured by said Employee in said thirty days is to the total of 280 inches."
The contract next recites that the defendant expects to be able to commence publication within four weeks' time, but that if it "cannot start said publication within that time * * and does not do so," it shall have the right to terminate the contract and assign over to the plaintiff the contracts for advertising procured by himself, "and thereupon this contract shall terminate and end." Further the contract recites that if the defendant decides to discontinue the publication, "and ceases the publication thereof, then it may terminate this contract effective at once, and thereupon this contract shall terminate and end, provided this paragraph shall not apply if said publication shall be continued by the Employer or any individuals comprising the said corporation or by any of their business associates, in any similar form or under another name." The contract next provides:
"It is further agreed that in addition to the reasons hereinbefore specified, this contract may be terminated by the Employer at any time without reason, by payment to the Employee of the sum of One Thousand Dollars, and in the event said Employee does not secure said additional 80 inches of contracts within the time hereinbefore specified, then by paying him such proportional amount of said $1000.00 as the said 200 inches of contracts which he is to secure by November 26, 1924, plus the additional number of said 80 inches secured by said Employee in said 30 days, is to the total of 280 inches, and thereupon this contract shall terminate and end, but it is expressly understood that where this contract is terminated for any of the reasons hereinbefore set out then there is to be no payment of any sum of money whatever to said Employee."
The complaint alleges a breach of this undertaking, and asks for the sum of $1,000. Only the plaintiff testified: hence the record presents no conflict in the testimony. The answer admits that Marcus guaranteed the corporation's faithful performance of its contract. The verdict of the jury and the judgment of the court were for the plaintiff in the sum of $1,000; defendants appeal. AFFIRMED.
Defendants contend that the evidence fails to disclose that the plaintiff complied with his contract by producing 280 inches of advertising; that it establishes that the plaintiff was disloyal to his employer, and that it fails to prove that the defendant, "Portland Shopping News," breached its contract. We have carefully read the testimony and have examined the exhibits. Our conclusions upon these assignments of error are adverse to the defendants.
The contract reserved to the employer a privilege to terminate the contract and pay to the plaintiff the sum of $1,000. We believe that it is clear that the employer elected to terminate the plaintiff's services. But the defendants argue that the stipulation for payment of the sum of $1,000 is in the nature of a penalty. The plaintiff contends that this provision of the contract liquidates the damages. It is, of course, well established that a contract may fix the sum to be paid in the event of a breach, provided the sum is in fact compensation for damages. But, generally, a contract cannot embrace a penalty so as to render performance more certain: Yuen v. Fleshman, 65 Or. 606 ( 133 P. 803, Ann. Cas. 1915A, 1072); 17 C.J., Damages, § 232. In determining whether any particular stipulation is to be regarded as one fixing a penalty, or whether it really liquidates the damages, the adjudicated cases present us with an abundance of rules to guide our determination. For instance, the situation must be appraised as of the time when the contract was effected, and not as it appears at some other time: Baltimore Bridge Co. v. United R. etc. Co., 125 Md. 208 ( 93 A. 420). It is well settled that in the determination of the problem the court should consider all of the circumstances which surrounded the parties, together with the ease or difficulty of measuring the breach in damages. A comparison of the size of the stipulated sum not only with the value of the subject matter of the contracts, but also with the probable consequences of the breach as they appeared when the contract was executed may be helpful: 17 C.J., Damages, § 234. Mr. Justice BEAN in Salem v. Anson, 40 Or. 339 ( 67 P. 190, 91 Am. St. Rep. 485, 56 L.R.A. 169), well states another helpful rule in language which has been much quoted:
"* * When the actual damages in case of a breach of the contract must necessarily be speculative, uncertain, and incapable of definite ascertainment, the stipulated sum will be regarded as liquidated damages, and may be recovered as such without proof of actual damages, unless the language of the contract shows, or the circumstances under which it was made indicate, a contrary intention of the parties, or it so manifestly exceeds the actual injury suffered as to be unconscionable * * Where the damages are uncertain and speculative, the presumption ordinarily is that the parties have taken that into consideration in making the contract, and have agreed upon a definite sum to be paid in case of a breach, in order to put the question beyond dispute and controversy and to avoid the difficulty of proving actual damages."
In Alvord v. Banfield, 85 Or. 49 ( 166 P. 549), this court had recourse to another rule which is sometimes applied in an endeavor to ascertain whether the stipulated sum represents a penalty or actual damages:
"* * If there is an agreement for a fixed, unvarying sum, without regard to the date of the breach, when in the very nature of things the date of the breach would be all-important in determining the element of actual damages, the stipulation must be held to be one for a penalty."
Due to the difficulty of estimating the damages in employment contracts, stipulations of this nature are frequently favored in such contracts: 8 R.C.L., Damages, § 124; 17 C.J., Damages, § 256; Simon v. Linden, 107 Misc. Rep. 340 ( 176 N.Y. Supp. 491); Bustonaby Bros. v. Rivardel, 71 Misc. Rep. 207 ( 130 N Y Supp. 894); Maisel v. Sigman, 123 Misc. Rep. 714 ( 205 N Y Supp. 807). In the first two of the preceding cases the contract of employment fixed the sum of $1,000 as the damages. In the first case the term of employment was one year; in the second it was two years. Both allowed recovery.
It is also to be noticed that some of the former antipathy to these provisions which inclined courts at times, to construe them as stipulations for a penalty is modulating. Thus Mr. Justice CLARKE on behalf of the federal Supreme Court in Wise v. United States, 249 U.S. 361 ( 63 L.Ed. 647, 39 Sup. Ct. Rep. 303), expressed the changed attitude thus:
"The later rule, however, is to look with candor, if not with favor, upon such provisions in contracts when deliberately entered into between parties who have equality of opportunity for understanding and insisting upon their rights, as promoting prompt performance of contracts and because adjusting in advance, and amicably, matters the settlement of which through courts often involve difficulty, uncertainty, delay and expense."
See, also, Montague v. Robinson, 122 Ark. 163 ( 182 S.W. 558).
The application of these principles to the facts before us is not difficult. Both plaintiff and the defendant Marcus were men experienced in the advertising business. Marcus had a considerable advantage over the plaintiff because the former was familiar with local conditions, and had been connected with a large publication in Portland for many years as advertising manager. Thus if they were not equal masters of the situation, as is suggested in Hull v. Angus, 60 Or. 95 ( 118 P. 284), and Learned v. Holbrook, 87 Or. 576 ( 170 P. 530, 171 P. 222), the advantage lay with the defendant. Then also since the transaction required the plaintiff to abandon a venture, he was about to undertake, assign valuable contracts for advertising to the defendant and enter the employ of the defendant, the measure of damage could not be easily estimated. We also believe that the contract graduates the damages according to the severity of the situation. Thus it makes a distinction between a termination by reason of plaintiff's failure to produce 200 inches and his failure to produce 280 inches. Likewise defendant could terminate the contract without any compensation to the plaintiff by completely quitting the publication business. In that event the parties evidently felt the plaintiff would venture into the business for himself and would be free from the defendant's competition; that would constitute compensation for him. We do not attach much importance to the time element, because of the peculiar circumstances of this case. As we have already observed, plaintiff's undertaking required him to abandon a venture he was about to launch; he also was required to assign to the defendant contracts for advertising space of three months or more duration, and further the success of his employment required him to procure advertising contracts running for long periods of time. Finally, when the plaintiff surrendered the Portland field to the defendant, his opportunities for securing a profitable employment of his talents were thereby materially lessened. These factors reduce materially the importance of the time element. Simon v. Linden, supra, deals in an interesting manner with this same element in an employment contract.
It follows from the foregoing the judgment of the Circuit Court is affirmed. AFFIRMED.
RAND, C.J., and COSHOW and McBRIDE, JJ., concur.