The law will permit parties to determine, by an agreement which enters into the contract, what shall be the damages which he who violates the contract shall pay to the other; but it does not always sanction or enforce the bargain they may make on this subject. Damages thus agreed upon beforehand, when sanctioned by the law, are called liquidated damages. Where the parties make this agreement, but not in such wise that the law adopts it, then the damages thus agreed upon are a penalty, or in the nature of a penalty. And the question whether damages agreed upon are to be treated as liquidated, or as in the nature of a penalty, and therefore reduced to the actual damage, often occurs, and is not always of easy or obvious solution.

By a bond with conditions (an ancient and somewhat peculiar instrument), a party (the obligor) first acknowledges himself bound to another party (the obligee), in a certain sum of money. Then follows an agreement, in the form of a condition, that if the obligor shall do a certain other thing, which may or may not be the payment of other money, the obligation above mentioned shall be void. It is obvious that the primary purpose of the instrument, if the parties are honest, is, that the thing shall be done which is recited in the condition. And the secondary purpose is, that if that thing be not done, the money for which the obligor is bound shall be paid by way of compensation to the obligee, and by way of punishment to the obligor. Hence its name of penalty. And, as in fact, the obligee always took care that the penalty should be high enough to give him full compensation, and operate as a powerful motive upon the obligor, it happened generally, if not always, that the penalty was much more than compensation for the wrong done by a breach of the condition. But the law has no remedy for this: * and one of the earlier of the just and merciful interpositions of the courts of equity, was to reduce the sum mentioned in the penalty to the actual measure of the injury sustained, so as to make it full compensation, but no more. (c) The propriety and expediency of this relief were so obvious, that courts of law, aided by statutes, soon applied it, and now, both in England and America, this is constantly done by the courts of law. (d) And it may be regarded as the tendency and preference of the law, to consider a sum payable for a breach of a contract, as 'a penalty over which it has control, rather than as liquidated damages. (dd) 1 In this practice, and the reasons for it, we may find

(bc) Chicago, etc. R. R. Co v. Northern Illinois, etc Co. 36 111. 60

(bd) Marburg v. Marburg, 26 Md. 8;

Nickerson v. Soesman, 98 Mass. S64; Fabbri v. Kalbfleisch, 52 N. Y. 28; Christ Church Hospital v. Fuechsel, 54 Pa. 71.

The money was sent for the purpose of paying the intestate's premium on a policy of life insurance, which would by its terms lapse if the premium was not paid within eight days thereafter, of all which facts the defendant had notice, but failed to deliver the money. It was held that the defendant was liable in damages for the value of the policy on the day it lapsed.

(c) Tit. Bond and Penalty, Eq. Cas. Abr. 91, 92; Bertie v. Falkland, 3 Ch. Cas. 135, per Lord Somers.

(d) 4 Anne, c. 16, §§ 12, 13. During a short period before this statute, the practice appears to have been this. The defendant, on motion, was allowed to bring the whole amount of the penalty into court, and the proceedings were thereupon stayed. The plaintiff, however, received only the amount of the principal, interest, and costs, and, if this did not equal the amount of the penalty, the defendant was allowed to take out the remainder Ireland's case, 6 Mod. 101; Gregg's case, 2 Salk. 596; Anonymous, 6 Mod. 153. The court said m Burridge v. Fortescue, 6 Mod. 60: "It is an equitable motion to be relieved against the penalty." •

(dd) Wallis v. Carpenter, 13 Allen, 19. And see Colwell v. Lawrence, 38 N. Y. 71; Davis v. Gillett, 52 N. Y. 126; Noyes v. Phillips, 60 N. Y. 408.

1 Mental suffering accompanying physical pain is an element of damage. Phillips v. London, etc. Ry. Co. 4 Q. B. D. 406; Mclntyre v. Giblin, 131 U. 8. clxxiv; Carpenter v. Mexican, etc. R. R. Co. 39 Fed Rep. 315; South, etc. R. R. Co. v. McLendon, 63 Ala. 266; Malone v. Hawley, 46 Cal. 409; Wall v. Cameron, 6 Col. 275; Lawrence v. Housatonic R. R. Co. 29 Conn. 390; City, etc. Ry. Co. v. Findley, 76 Ga. 311; Sheridan v. Hibbard, 119 111. 307; Indianapolis v. Gaston, 58 Ind. 224; Kendall v. Albia, 73 la. 241; Missouri, etc. Ry. Co. v. Weaver, 16 Kan. 456; Kentucky, etc. R. R. Co. v. Ackley, 87 Ky. 278; Smith v. Holcomb, 99 Mass. 552; Memphis, etc. R. R. Co. v. Whitfield, 44 Miss. 466; Ridenhour v. Kansas, etc Ry. Co. 102 Mo. 270; Clark v. Manchester, 64 N. H. 471; Wallace v. Western, etc. R. R. Co. 104 N. C. 442; Scott v. Montgomery, 95 Pa. 444; Texas, etc. Ry. Co. v. Curry, 64 Tex. 85; Bovee v. Danville, 53 Vt. 183; Richmond, etc. R. R. Co. v Norment, 84 Va. 167; Riley v. West, etc. Ry. Co. 27 W. Va. 145; Stewart v. Ripon, 38 Wis. 584.

And damages are usually allowed for mental suffering though unaccompanied by physical injury if the damage is not too remote. Thus for failure or delay in delivering a telegram containing such information that a failure or delay in delivery might reasonably be expected to cause mental suffering, compensation will be awarded. Beasley v. Western Union Tel. Co. 39 Fed. Rep. 181; Reese v. Western Union Tel. Co. 123 Ind. 294; Chapman v. Western Union Tel. Co. 90 Ky. 265; Young v. Western Union Tel. Co. 107 N. C. 370; Wadsworth v. Western Union Tel. Co. 86 Tenn. 695; Western Union Tel. Co. v. Cooper, 71 Tex. 507. But see contra, Russell v. Western Union Tel. Co. 3 Dak. 315; West v. Western Union Tel. Co. 39 Kan. 93. Damages may also be recovered for the humiliation of being wrongfully ejected by a carrier." Louisville, etc. R. R Co. v. Whitman, 79 Ala. 328;, Head v. Georgia, principles which aid us in drawing the distinction between liquidated damages and a penalty. For it is obvious, that where parties agree upon the damages to be paid for a breach of contract, whatever name they give to it, they do substantially the same thing which is done by a bond with penalty. And there is no more reason why the courts should regard the agreement, if it opposes reason and justice, in the one case than in the other.