# Knutton v. Cofield > Supreme Court of North Carolina · March 27, 1968 · 273 N.C. 355 URL: https://www.frixlaw.com/law-library/cases/9856231 ## Case - **Full name:** C. A. KNUTTON, T/A REID MUSIC COMPANY v. JAMES E. COFIELD, T/A COFIELD RESTAURANT - **Court:** Supreme Court of North Carolina - **Decided:** March 27, 1968 - **Citations:** 273 N.C. 355; 160 S.E.2d 29; 1968 Trade Cas. (CCH) 72,419; 1968 N.C. LEXIS 604 - **Precedential status:** Published - **Opinion:** Dissent by Bobbitt - **Judges:** Huskins, Bobbitt, Shaep - **Cited by:** 137 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9856231 ## How later opinions describe it (automated extraction) - stating that the trial court “passes upon the credibility of the witnesses and the weight to be given their testimony and the reasonable inferences to be drawn therefrom” and that, “[i]f different inferences may be drawn from the evidence,” the trial court “determines which in… - stating that "[a] penalty is a sum which a party similarly agrees to pay or forfeit . . . as a punishment, the threat of which is designed to prevent the breach, or assecurity . . . to insure that the person injured shall collect his actual damages" - stating that ultimate findings are “conclusive on appeal if there is evidence to support them, even though the evidence might sustain a finding to the contrary” - noting that liquidated damages are compensation for injuries in the event of a breach, and a penalty is a punishment designed as a threat to prevent a breach ## Opinion text Bobbitt, J., dissenting: I agree the demurrer was properly overruled and that Clause F of the contract is not void as violative of statutory provisions relating to restraint of trade. Moreover, I do not question the general statements in the Court’s opinion relating to distinctions between “liquidated damages” and “penalty.” The judgment of the court below, and this Court’s decision, is *364 predicated on an interpretation of Clause F which completely relieves plaintiff of any obligation, notwithstanding he has had possession and control of the electric “music machine” or “piccolo” during the period for which he seeks to recover from defendant, to minimize his damages by accounting for what he has received or by the exercise of due diligence should have received from the installation thereof in another or other locations. In my opinion, the provisions of Clause F when so interpreted provide for a penalty rather than for liquidated damages; that the judgment of the court below was entered under misapprehension of the applicable law; and that the cause should be remanded for determination of plaintiff’s damages in accordance with the rules ordinarily applicable in determining damages for such breach of contract. Evidence offered by plaintiff tends to show he discovered on November 11, 1964, that his electric “music machine” or “piccolo,” located in defendant’s restaurant-dance hall, had been disconnected; that plaintiff removed it from defendant’s place of business on or about November 16, 1964, and thereupon placed it in the place of business of Eli Cofield, defendant’s brother, who operated “a sort of combination pool room and beer parlor”; and that an older machine, theretofore located in Eli’s place of business, was removed and taken to plaintiff’s shop. The agent for plaintiff who handled these matters testified the older machine did not need repairs or service and that he was “almost sure we put it out some place later.” There was evidence that defendant and his brother Eli had adjoining places of business “right there at Midway in Bertie County.” Upon waiver of jury trial, the issues of fact were determinable by the trial judge. It does not appear that defendant’s counsel undertook to explore and develop evidence with reference to what plaintiff actually received or by the exercise of due diligence should have received from the operation of its machine in Eli Cofield’s place or other places of business during the unexpired portion of defendant’s contract with plaintiff. It would appear that any attempt to do so would have been futile in the face of the court’s opinion that Clause F provided for “liquidated damages” and not a “penalty” and defined with precision a complete method for determining what plaintiff was entitled to recover in event of such breach. My dissent is directed to this interpretation of Clause F, an interpretation now accepted and approved by this Court. Relevant general principles are set forth in the Restatement of Contracts, § 339, entitled, “Liquidated Damages and Penalties,” which, in pertinent part, provides: “(1) An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a *365 contract and does not affect the damages recoverable for the breach, unless (a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.” In Gorco Construction Company v. Stein, 256 Minn. 476 , 99 N.W. 2d 69 , Matson, J., speaking for the Supreme Court of Minnesota, stated: “In determining the issue (whether a particular provision is one for a penalty or one for liquidated damages) neither the intention of the parties nor their expression of intention is the governing factor. The controlling factor, rather than intent, is whether the amount agreed upon is reasonable or unreasonable in the light of the contract as a whole, the nature of the damages contemplated, and the surrounding circumstances.” In an earlier Minnesota case, Schommer v. Flour City Ornamental Iron Works, 129 Minn. 244 , 152 N.W. 535 , the opinion states: “The law adopts as its guiding principle that the injured party is entitled to receive a fair equivalent for the actual damages necessarily resulting from failure to perform the contract and no more.” Accord: Jolley v. Georgeff, 110 N.E. 2d 23 (Ohio). Ordinarily liquidated damages consist of an amount fixed as of the date the contract is made as damage resulting from a breach thereof or a breach of some specific provision thereof. The word “liquidated” has been defined as follows: “A demand is not liquidated though it appears that something is due, unless it appears how much is due.” Ballentine’s Law Dictionary, Second Edition, p. 763. It is said that “(t)he term is applicable when the amount of the damages has been ascertained by the judgment in the action, or when a specific sum of money has been expressly stipulated by the parties to a bond or other contract as the amount of damages to be recovered by either party for a breach of the agreement by the other.” Black’s Law Dictionary, Fourth Edition, p. 468. “The provision for the payment of liquidated damages founded upon a sum that is uncertain and unliquidated at the time that the .agreement is entered into cannot be said to constitute liquidated damages as to the amount to be paid in the event of a breach of contract. A liquidated damages clause presupposes an agreement between the parties for the payment of a sum certain upon the breach of the contract. (Citation.)” Frankel’s Carpet Fashions, Inc., v. Abraham, 228 N.Y.S. 2d 123 . Here, as in Weinstein v. Griffin, 241 N.C. 161 , 84 S.E. 2d 549 , discussed below, the contract provision does not fix a stipulated amount as damages resulting from a breach of any one or more of *366 the contract provisions. It purports to establish a method for determining the amount of damages different from the rule otherwise prescribed by law. In my view, the stipulated method imposes a penalty and therefore is unenforceable. Assuming its validity in determining what plaintiff would have received if the machine had remained in defendant’s place of business, it cannot relieve plaintiff of the legal obligation to minimize his damage. The lease considered in Christie, Mitchell and Mitchell Co. v. Selz, 313 S.W. 2d 352 (Texas), obligated the lessee to pay a rental of seventy-five dollars per month. The lessee surrendered the premises ten and one-half months before the lease term of two years expired. The lease contained the following provision: “Lessee shall nevertheless be liable to Lessor for the remaining balance then unpaid on such lease, at the rate of $75.00 per month as hereinabove specified, for the number of months then remaining in said term . . ., and Lessee hereby expressly covenants to pay to Lessor such sum in such event at the time of surrendering up said premises, . . (Emphasis by Massey, C.J., in his opinion for the Court of Civil Appeals of Texas.) Based thereon, the trial judge granted summary judgment for $787.50. The evidence disclosed that three months and ten days after lessee surrendered possession, the lessor rented the same premises to a third party as tenant and received substantial rentals from the new tenant. It was held that the contract provision on which the lessor relied, if and when construed as relieving the lessor of an obligation to account for the rentals received from the new tenant, provided for a penalty rather than liquidated damages. The judgment of the trial court was reversed and the cause remanded. In Weinstein v. Griffin, supra, the factual situation was quite different. There, the lease stipulation provided for the recovery by the lessor of the difference between the reasonable rental value and the rent provided in the contract during the unexpired portion of the term of the lease. This provision was treated by this Court as a stipulation for liquidated damages. The basis of decision is indicated by this excerpt from the opinion: “While liquidated damages, if in the nature of a penalty, are not favored (Crawford v. Allen, 189 N.C. 434 , 127 S.E. 521 ), the liquidated damages fixed in the contract are not less favorable to the defendants than the rule of law would impose in the absence of any provision for liquidated damages.” In Weinstein , it was stipulated that, if the premises were surrendered during the term, the rental for the unexpired portion of the term was to be reduced by the reasonable rental value of the premises during this period rather than by what the lessors, by the exercise of due diligence, could obtain by a rental thereof. Although the evidential *367 approach was different, there would be little variance, if any, in the result reached by these methods of minimizing the lessee’s damages. In Melodies, Inc., v. Mirabile, 179 N.Y.S. 2d 991 , the contract related to the installation of “music service” in the defendant’s bar. The plaintiff alleged and offered evidence tending to show the defendant breached the contract by discontinuing the service. Paragraph 10 of the contract provided: “10. Any act by the second party (defendant) causing an interruption, cessation or limitation of the full use of the equipment in accordance with the terms of this agreement shall be deemed a repudiation of this agreement by the second party. In such event, it is agreed that the measure of damages sustained by the first party . . . shall be the total original cost of installation as set forth in Exhibit ‘B’ plus a sum equal to the average return per week to the first party (plaintiff) up to the happening of such event from the equipment installed pursuant to this agreement, multiplied by the number of weeks remaining under the terms of this agreement or any renewal thereof.” (Our italics.) Plaintiff offered evidence that its gross collections the year and five months the contract was in operation amounted to $2,383.16 and that the average weekly collection for the same period was $33.09. The court, in a trial without jury, awarded damages in the amount of $2,000.00, the jurisdictional limit. On appeal, it was held “that Paragraph 10 of the contract, conditioned as it was, constituted a penalty.” The finding as to damages was reversed and the cause was “remitted” for a new trial “on damages.” In Unit Vending Corporation v. Tobin Enterprises, 194 Pa. Super. 470 , 168 A. 2d 750 , a similar factual situation was considered. The gist of the decision is accurately stated in this portion of the first headnote in the Atlantic Reporter, viz.: “Provision in agreement for location of cigarette vending machine that in event of breach or imminent breach by proprietor, operator might recover balance of loan made to proprietor and sum equal to operator’s average profit prior to breach multiplied by months remaining in unexpired term, plus collection fees, was penalty . . .” (Our italics.) The opinion of Ervin, J., citing Restatement, Contracts, § 339, states: “If the amount of damages assessed is subsequently adjudged unreasonable in the light of either anticipated or actual harm, the contractual provision will be voided as a penalty.” The opinion also states: “The operator should not be compensated for any profits that it might have been able to obtain by placing the machine in another location. It had the duty to minimize its damages by so doing if this were possible.” Where a stipulation as to damages recoverable in the event of a breach of contract is construed a penalty and not an agreement as *368 to liquidated damages, the party claiming damages may recover only such compensatory damages as he may be able to prove. Jolley v. Georgeff, supra; 25 C.J.S., Damages § 116(b), p. 1105; 22 Am. Jur. 2d, Damages § 235, p. 321. I find no decision upholding as a valid “liquidated damages” provision a stipulation similar to that contained in Clause F as construed by the trial judge and now by this Court. The only decisions I have found involving closely analogous factual situations are set forth above. Shaep, J., joins in dissenting opinion. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9856231. Public record. Not legal advice.