trial court should have granted a new trial, 8. DAMAGES (§ 80*)-CONSTRUCTION OF CONon that ground. TRACT-PENALTY "FORFEIT." Where a contract for the sale of land upon The judgment is reversed, with directions installments declared that, in case of failure to to grant a new trial. (57 Ind. App. 222) ZENOR v. PRYOR. (No. 8422.) pay for the property as provided, the purchaser should forfeit as liquidated damages an amount equal to the full purchase price of the land, it must be accepted as a penalty and not liquidated damages; for the word "forfeit" implies a term "liquidated damages," it cannot be supposed that the damages for breach could amount to the full purchase price of the land (Appellate Court of Indiana, Division No. 1. penalty, and, notwithstanding the use of the Nov. 18, 1914.) 1. PLEADING (§ 217*) - ANSWER - DEMUBREB AS OPENING RECORD. As an answer is not needed until plaintiff has filed a complaint stating a cause of action, the sufliciency of the complaint will first be determined in reviewing the overruling of plaintiff's demurrer to the answer. [Ed. Note. For other cases, see Pleading, Cent. Dig. §§ 537, 540-548; Dec. Dig. § 217.*] 2. PLEADING (§ 217*)-COMPLAINT THEORY OF COMPLAINT. Where plaintiff demurred to the answer, the demurrer cannot be overruled on the ground that no answer was required, if the complaint stated a cause of action upon any theory. [Ed. Note. For other cases, see Pleading, Cent. Dig. §§ 537, 540-548; Dec. Dig. § 217.*] 3. VENDOR AND PURCHASER (§ 314*)—ACTION FOR PURCHASE PRICE-COMPLAINT-SUFFI CIENCY. A complaint, which does not allege performance of the conditions of a contract for the sale of land and the tender of a deed and abstract of the property as required, does not state a cause of action to recover, on the contract, the balance of the purchase price due. [Ed. Note. For other cases, see Vendor and Purchaser, Cent. Dig. §§ 920-927; Dec. Dig. 314.*] 4. DAMAGES (§ 150*)-LIQUIDATED DAMAGESSUFFICIENCY OF COMPLAINT. A complaint to recover liquidated damages prescribed by contract, which alleged failure to perform, without any averments of actual damages, is sufficient; but, if the provision is a penalty, then the complaint must not only aver a failure to perform, but that actual loss and damage resulted. [Ed. Note. For other cases, see Damages, Dec. Dig. 150.*] 5. DAMAGES (§ 76*)-CONSTRUCTION OF CONTRACT-PENALTIES. Where contracts leave in doubt the question whether sums specified therein by the contracting parties to be paid in case of a default are intended as liquidated damages or penalties, the courts favor that interpretation which makes such sums penalties. [Ed. Note.-For other cases, see Damages, Cent. Dig. §§ 154, 155; Dec. Dig. § 76.*] 6. DAMAGES (§ 78*) - PENALTIES CONTRACT. FORM OF The form of the contract does not control in determining whether sums fixed to be paid in case of default are liquidated damages or a pen alty. [Ed. Note.-For other cases, see Damages, Cent. Dig. §§ 157-163; Dec. Dig. § 78.*] 7. DAMAGES (8 76*)-CONSTRUCTION OF CONTRACT-PENALTY. Where there is nothing in the contract to show that the parties actually meant to adjust the damages, and where the sum stipulated to be paid in case of default is wholly collateral to the object of the contract, being inserted as security for performance, it will not be allowed as liquidated damages. [Ed. Note.-For other cases, see Damages, Cent. Dig. §§ 154, 155; Dec. Dig. § 76.*] [Ed. Note. For other cases, see Damages, Cent. Dig. §§ 170-175; Dec. Dig. § 80.* For other definitions, see Words and Phrases, First and Second Series, Forfeit.] Appeal from Circuit Court, Owen County; James B. Wilson, Judge. Action by John W. Zenor against James V. Pryor. From a judgment for defendant, plaintiff appeals. Affirmed. Homer Elliott, of Spencer, for appellant. Willis Hickman, of Fowler, and E. E Pryor, of Martinsville, for appellee. HOTTEL, J. This action was brought by appellant against appellee and is based on the following written contract, filed as an exhibit with the complaint, viz.: "205.00 Spencer, Ind., Nov. 5, 1909. "I hereby purchase of Spencer Commercial Club of the town of Spencer lot number 8 in Prospect Park addition to the said town of Spencer for the sum of two hundred five dollars, which amount I agree to pay as follows: $25.00 cash, one-fifth of balance in 60 days, one fifth in 90 days, one-fifth in 4 months, one-fifth in 5 months and one-fifth in 6 months after date, with interest on deferred payments at the rate of 6 per cent. from date, all without relief from valuation or appraisement laws. Warranty deed together with an abstract to be made to me for said lot when all payments therefor are fully made. In case any defects are found in the title to said lot a reasonable time shall be allowed said Commercial Club in which to correct the title. I further agree that if I fail to pay for said lot as above specified I will forfeit as liquidated damages for such breach of this contract and default of such payment, an amount equal to the full purchase price as above stipulated. Negotiable and payable at Exchange Bank, Spencer, Indiana. J. V. Pryor. "Witness: John H. Smith." The complaint avers, in substance, the execution of said contract, and that by it the appellee agreed to pay the amount therein set out in the manner and at the times and in the amounts as therein stated. "That by the further terms of said instrument said defendant agreed that, in case he should fail to pay said amounts as herein specified, he would forfeit as liquidated damages for such breach of the said contract and default of such payment an amount equal to the full purchase price as above stipulated. That afterwards, to wit, on the 17th day of December, 1909, and before the payments mentioned in said instrument were due, the said Spencer Commercial Club, by its president and secretary, assigned said instrument to plaintiff herein by written indorsement on mercial Club, and no averment of a tender of the deed and abstract to the lot mentioned in the agreement sued on, and hence, under the authorities, fails to state a cause of action to recover on the contract the balance of the purchase money due on the lot sold. Summers v. Sleeth, 45 Ind. 598; Clark v. Continental Improvement Co., 57 Ind. 135. See, also, Ginther v. Rochester, 46 Ind. App. 378, 387, 92 N. E. 698; Wile v. Rochester Improvement Co., 24 Ind. App. 422, 56 N. E. 928. the back thereof, a copy of which said in- | ed by appellant's assignor the Spencer Comdorsement is made a part hereof and is marked 'Exhibit B.' That said instrument was indorsed and assigned to plaintiff as collateral security for a note for $3,800 executed by said Spencer Commercial Club to said plaintiff. The said note is yet unpaid, and that by reason thereof and by reason of said assignment of said instrument, the plaintiff then became and ever since has been the holder and legal owner thereof. That but $25 has been paid on said obligation by defendant. That there is now due and unpaid of principal, interest, and forfeiture, as above set out, the sum of $219.85. Wherefore plaintiff prays judgment against defendant in the sum of $220 and for all other proper relief." To this complaint appellee answered in two paragraphs. The first paragraph was a general denial, and the second an affirmative paragraph setting out at great length the facts and circumstances connected with the purchase and sale of said lot by said Commercial Club, and averring that certain representations and promises were made by such club as an inducement to, and as part of the consideration for, appellee's agree ment in the contract sued on; that such promises were not kept by such club; and that as a result the consideration for appellee's agreement to pay has failed except as to the $25 cash payment. Appellant demurred to said second paragraph of answer, which demurrer was overruled, and, appellant electing to stand on such ruling, appellee withdrew his first paragraph, and judgment was rendered on the pleadings in favor of appellee and against appellant for costs. The only error assigned is the overruling of the demurrer to said paragraph of answer. The complaint was filed on the 23d of January, 1911, and hence the question of determining its sufficiency is not affected by the act of 1911 (Acts 1911, p. 415; sections 344, 348, Burns 1914). [1] As, under the law as construed previous to the passage of said act, an answer has no office to perform until the plaintiff has placed on file a complaint which states a cause of action against the defendant (Alexander v. Spaulding, 160 Ind. 176, 180, 66 N. E. 694, and authorities cited), we will first consider the sufficiency of the complaint. [2] It is not clear from the averments of the complaint whether appellant sought to recover on his contract the balance of the purchase money due for said lot, or to recover on the forfeiture clause of such contract. However, for the purposes of this appeal, if the complaint states a cause of action on any theory, it should be held sufficient by this court. [4] Judged by the amount of the recovery asked and by all the averments of the complaint, the trial court doubtless treated it as being sufficient to state a cause of action under the forfeiture clause of the contract sued on. Whether it was good on this theory depends on whether the amount stipulated in such forfeiture clause be treated as liquidated damages or as a penalty. If, under the law, such specified sum should be treated as liquidated damages, the complaint is sufficient; but, if such sum should be treated as a penalty, the complaint is not sufficient. This is so because, if such sum is to be treated as liquidated damages, the amount of recovery is fixed by the contract, and the averments of the failure to perform such contract without any averments of actual damages is all that is necessary. Howard v. Adkins, 167 Ind. 184, 191, 78 N. E. 665; Burley Tobacco Soc. v. Gillaspy, 51 Ind. App. 583, 100 N. E. 89, 91; J. I. Case, etc., Mach. Co. v. Souders, 48 Ind. App. 503, 96 N. E. 177; Bird v. St. Johns, etc., Church, 154 Ind. 138, 147, 148, 56 N. E. 129; Spicer v. Hoop, 51 Ind.. 365, 368; Jaqua v. Headington, 114 Ind. 309, 16 N. E. 527; Stanley v. Montgomery, 102 Ind. 102, 26 N. E. 213. But if such sum must be treated as a penalty, then the complaint should not only have averred the failure to perform the contract, but it should have also averred that actual loss or damage resulted from such failure. Newman v. Perrill, 73 Ind. 153, 155; J. I. Case, etc., Mach. Co. v. Souders, supra. See, also, Howard v. Adkins, supra. The question presented is not free from difficulty. As was said by the Supreme Court in the case of Jaqua v. Headington, supra: "Few questions have more perplexed the courts than the one before us. The decisions are in hopeless conflict, and it is almost impossible to extract from them any satisfactory general rule. The decisions are little more than a multitude of particular instances-a mere collection, indeed, of special cases." [5-8] The particular cases, however, all recognize that, where the contract leaves in doubt the question whether the sum specified therein by the contracting parties was intended as liquidated damages or a penalty, [3] The complaint contains no averments, the tendency of the courts is in favor of that either general or special, of performance of interpretation which makes such specified the conditions of the contract, to be perform-sum a penalty. Merica v. Burget, 36 Ind. App. 453, 464, 75 N. E. 1083, and cases cited; | peformance, it will not be allowed as liqWilkes v. Bierne, 68 W. Va. 82, 69 S. E. 366, uidated damages." (Our italics.) 1 Sedgw. 31 L. R. A. (N. S.) 937, 939, and authorities Damages, 410; Wilkes v. Bierne, supra; cited; Mt. Airy Milling, etc., Co. v. Runkles, Ould v. Spartanburg Realty Co., 94 S. C. 184, 118 Md. 371, 376, 84 Atl. 533; 1 Pomeroy, 187, 77 S. E. 866. Equity Jur. (2d Ed.) § 440. The cases also recognize and announce that "the form of the instrument does not control, for the courts will look beyond that to the subject of the contract and to the consequences that will probably flow from a breach of its terms or conditions" (Jaqua v. Headington, supra, 114 Ind. 310, 16 N. E. 528); and, “‘if upon the whole agreement the court can say that the sum stipulated to be paid was intended to be a penalty,' the court will so treat it, without regard to how the parties have designated it" (Bell v. Scranton Coal Mines Co., 59 Wash. 659, 665, 110 Pac. 628, 631). See, also, Sanford v. First Nat. Bank, 94 Iowa, 680, 63 N. W. 459. Pomeroy, in his Equity Jurisprudence, lays down, among others, the following rules, established by judicial authority, as aids in determining said question: "First. Wherever the payment of a smaller sum is secured by a larger, the larger sum thus contracted for can never be treated as liquidated damages, but must always be considered as a penalty. Fourth. Whether an agreement provides for the performance or nonperformance of one single act, or of several distinct and separate acts, if the stipulation to pay a certain sum of moncy upon a default is so framed, is of such a nature and effect that it necessarily renders the defaulting party liable in the same amount at all events, both when his failure to perform is complete, and when it is only partial, the sum must be regarded as a penalty, and not as liquidated damages." (Our italics.) 1 Pomeroy, Equity Jur. (2d Ed.) 88 441, 444. "Just compensation for the injury sustained is the principle at which the law aims, and the parties will not be permitted, by express stipu lation, to set this principle aside.' Myer v. Hart, 40 Mich. 517, 29 Am. Rep. 553; Wil helm v. Eaves, 21 Or. 194, 27 Pac. 1053, 14 L. R. A. 297, 299; Mt. Airy Milling, etc., Co. Walker v. Bement, 50 Ind. App. 645, 657, 94 v. Runkles, 118 Md. 371, 376, 84 Atl. 533; N. E. 339. While the parties to the contract sued on use the expression "liquidated damages," they also use the word "forfeit," and the term "forfeit" both in common parlance and by lexicographers is recognized as strongly implying penalty. The meaning of both these words, however, is to be determined by the connection in which they are used. Barber, etc., Co. v. City of Wabash, 43 Ind. App. 167, 174, 86 N. E. 1034, and authorities cited; Washington Co. v. Baltimore, etc., R. Co., 12 Gill & J. (Md.) 399, 38 Am. Dec. 319. Construed as liquidated damages, the con. tract in suit would permit a recovery for damages in the same amount for a partial breach as for a complete failure, and would in any event permit a recovery of a sum larger than the balance due on the lot, although appellant retained it. Judged by the authorities herein reviewed and the rules which they recognize and announce for our guidance, we have concluded that the sum stipulated in the contract sued on must be treated as a penalty, and hence, on account of the absence of the averments before indicated, the complaint fails to state a cause of action. It is also well settled that where there is nothing in the contract that shows that the parties meant to actually adjust the damages, It follows that no reversible error is preand "where the stipulated sum is wholly sented by the appeal. Alexander v. Spauldcollateral to the object of the contract, being, supra, and cases cited. ing evidently inserted as merely security for Judgment affirmed. (212 N. Y. 608) In re NORTHERN BANK OF NEW YORK. MUNICIPAL CORPORATIONS (§ 2551⁄2, New, vol. Where a city had funds on deposit with an insolvent bank, it was not entitled to preference payment over other depositors and creditors by reason of its public character. Appeal from Supreme Court, Appellate Dirision, First Department. WERNER, HISCOCK, CHASE, COLLIN, HOGAN, and MILLER, JJ., concur. CARDOZO, J., takes no part. (213 N. Y. 22) PASKUSZ et al. v. PHILADELPHIA CAS- (Court of Appeals of New York. Nov. 10, 1. INSURANCE (§ 432*)-CREDIT INSURANCE— A policy of credit insurance provided that In the matter of the Northern Bank of the class of customers to be covered and the limit to be given to each of them were describNew York. From an order of the Appellate ed in an annexed schedule, that it should cover Division (163 App. Div. 974, 148 N. Y. Supp. both new and old customers having one of the 70), affirming an order of the Special Term capital and credit ratings specified in the sched(85 Misc. Rep. 594, 148 N. Y. Supp. 70), de-in which the letter indicated the capital and the ule containing a column of ratings as, "G-3," nying a motion by the City of New York figure the credit rating, and further provided for the preferential payment of its deposit, that old customers possessing a capital and the. City appeals. Affirmed. credit rating other than as specified in the above schedule, or who were rated entirely blank as to both capital and credit, or whose names were not printed in a designated mercantile agency book, should be covered by the policy. The insured made sales to an old customer whose rating was designated by "-4,"; the capital column being blank. Held, in view of the other language of the policy, that the rating "-4," was "a capital and credit rating other than as specified in the above schedule,' and hence a risk covered by the policy. [Ed. Note. For other cases, see Insurance, Dec. Dig. 432.*] See, also, 148 N. Y. Supp. 1133. Appeal, by permission, from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered June 5, 1914, which affirmed an order of Special Term denying a motion for an order directing the superintendent of banks of the state of New York to pay the claim of the city of New York against the Northern Bank of New York in full as a preferred claim. - CON The following questions were certified: 2. INSURANCE ( 146*) — AMBIGUITY STRUCTION IN FAVOR OF INSURED. "(1) Upon the facts stated in the moving Insurance contracts should be clear and papers, is the city of New York entitled to preference in the payment of the moneys on deposit explicit in their terms, and not couched in lanin the Northern Bank of New York to its cred-guage as to the construction of which lawyers it at the time it was taken charge of by the su- and courts might honestly differ, but be so perintendent of banks for the purpose of liqui- plain and unambiguous that men of average indation? telligence may understand their meaning, and in phrases must be given the meaning most favorthe construction of such contracts ambiguous able to the insured. (2) Is the city of New York, in claiming such preference in the payment of such moneys on deposit in the Northern Bank of New York to its credit, barred by the statute of limitations contained in section 19 of the Banking Law (Consol. Laws, c. 2) of the state of New York? (3) Is the claim of the city of New York for such general preference barred by the order filed in the Supreme Court on December 6, 1911, affirming the report of Referee Ernest Hall, which denied the claim of the city of New York to a priority as to $6,818.24, based solely upon the allegation that such sum had been received by said bank after banking hours with the knowledge of the officers of said bank that it was not in a safe and solvent condition, and had not been entered on the cash book of the city nor upon the books of the bank?" Frank L. Polk, Corp. Counsel, of New York City (Frederic R. Coudert, Charles A. Conlon, and George P. Nicholson, all of New York City, of counsel), for appellant. Henry H. Abbott, Edward A. Craighill, Jr., and Lester C. Burdett, all of New York City, for respondent. PER CURIAM. Order affirmed, with costs. First question certified answered in the negative. Second and third questions certified not answered. [Ed. Note.-For other cases, see Insurance, Cent. Dig. §§ 292, 294-298; Dec. Dig. § 146.*] Chase, J., dissenting. Appeal from Supreme Court, Appellate Division, First Department. Action by Jacob Paskusz and others, copartners composing the firm of J. Paskusz & Son, against the Philadelphia Casualty Company. From a judgment of the Appellate Division (146 App. Div. 763, 131 N. Y. Supp. 421) reversing a judgment of the Trial Term in favor of plaintiffs and dismissing the complaint, plaintiffs appeal. Reversed, and judgment of Trial Term affirmed. See, also, 147 App. Div. 895, 132 N. Y. Supp. 1140. Jacob Scholer, of New York City, for appellants. Frank H. Platt, of New York City, for respondent. CARDOZO, J. The plaintiffs are the holders of a policy of credit insurance issued by the defendant. The policy provides that the class of customers to be covered by its protection, and the limit of credit to be given *For other cases see same topic and section NUMBER in Dec. Dig. & Am. Dig. Key-No. Series & Rep'r Indexes to each of them, shall be described in an an- | is based upon a construction of the policy unnexed schedule. The schedule distinguishes duly strict and literal. A customer may fairbetween old customers and new. The former are those to whom the indemnified has shipped goods within 18 months before the shipment of the first item included in the account upon which loss has been incurred. The latter are those to whom he has shipped no goods within 18 months, or to whom he has never sold any goods. Customers, whether old or new, are covered by the policy if they possess one of the capital and credit ratings specified in the following schedule: "R. G. Dun & Company's Mercantile Agency. First Grade. A +A1 A -A 1 B+ 1+ 1 1 1 112 112 12 Second Grade. ly be said to have "a capital and credit rating other than as specified in the above schedule," though one element of the rating is a blank or a cipher. Whether the phrase quot ed is to be given that meaning must depend largely on the context. The argument adverse to such a construction is that a blank rating cannot properly be spoken of as a rating at all. The very next clause of the policy supplies the answer. It speaks of customers "who are rated entirely blank as to both capital and credit." A rating that is blank is, therefore, still conceived of as a rating, and is so characterized in the contract. There is nothing strained or unusual in such a use of words. A man's capital may be rated by the use of a cipher as truly as by the use of any other symbol. The value may be something or nothing; the symbol may be positive or negative; but in either event, within the sense of this clause, it constitutes a rating. There are not two schedules, one for capital and one for credit; but A key to these ratings issued by the mer- both_elements, capital and credit, are fused cantile agency, but forming no part of the into a single schedule; and whatever the policy, shows that the first column is intend-value given to each element distributively, ed to represent a capital rating and the sec- the resultant is described collectively as a ond a credit rating. Thus, in the symbol capital and credit rating. "G-3," the letter "G" indicates a capital rating of from $5,000 to $10,000, and the figure “3” a credit rating described as good. We have said that all customers, old or new, possessing one of these capital and credit ratings are covered by the policy. Old customers, however, are covered under certain conditions, though they fail to comply with these requirements. The conditions are stated in the policy as follows: G 111223 It is urged, however, that even if a blank rating may be deemed a rating for some purposes, the provision that the policy shall cover customers "who are rated entirely blank as to both capital and credit" evinces an intent to exclude customers who are rated blank as to only one of those elements. We think another inference may more justly be drawn. If both columns were blank it might plausibly be said that there was no rating at all, and not merely a different one from those specified in the schedule. To guard against a construction that would exclude losses under those conditions the provision was inserted that, even if both columns were blank, the loss would be covered. The purpose was not restriction, but enlargement. In providing that the losses should include sales to During the term of the policy the plaintiffs customers "possessing a capital and credit made sales to an old customer whose rating rating other than as specified in the above in the mercantile agency was designated by schedule," the policy had already made adethe symbol "-4," the capital column being quate provision for cases where there was a blank. The sales resulted in a loss; and the blank in one column only. To make the question is whether the loss is covered by the classification complete, all that remained was policy. The plaintiffs say that the rating to cover cases where there was no rating of "-4," is a capital and credit rating other any kind, and this accordingly was done. than as specified in the schedule, and hence [2] In the construction of this contract we that subdivision TT sanctions a recovery. must give to ambiguous phrases the meaning The defendant says that "-4" is not a cap-most favorable to the insured. People v. Merital and credit rating other than as specified in the schedule, but only a credit rating, and that, although a recovery would be permitted if both columns were blank, it is not permitted where only one of them is blank. The trial court held with the plaintiffs. The Appellate Division reversed the judgment, and held with the defendant. "TT-Subject to the terms and conditions of the attached bond, and this rider, old customers of the indemnified possessing a capital and credit rating other than as specified in the above schedule, or who are rated entirely blank as to both capital and credit, or whose names are not printed in the designated Mercantile Agency book, shall be covered for goods shipped during the term of the attached bond." cantile Credit Guarantee Co., 166 N. Y. 416, 421, 60 N. E. 24. We think there is an ambiguity here, and we resolve it in favor of the plaintiffs. We are confirmed in this conclusion when we consider that the construc tion urged by the defendant would make the scheme of the policy unreasonable. In that view, if both columns contained the worst |