Hanlon Drydock & Shipbuilding Co. v. G. W. McNear, Inc.

Plaintiff Hanlon Drydoek and Shipbuilding Company, Inc., recovered a judgment against defend

Respondent and other shipbuilders were invited to submit bids for the repair of said steamer in accordance with plans and specifications dated August 7, 1920, prepared and written by appellant. On August 12-, 1920, respondent tendered its bid to perform said work in accordance with said plans and specifications for the sum of $37,000 and on the same day its bid was accepted. Respondent agreed to complete said repairs and to redeliver said steamer, in a seaworthy condition, within twenty days. Said specifications contained the following clause: “A penalty of $400.00 a day will be exacted and deducted from the contract price for each day that elapses between the actual completion of the contract and the time specified by contractor in the tender.” On August 21, 1920', the parties made a supplementary contract in writing calling for additional repairs which respondent agreed to make within said period of time for the sum of $7,000. On August 30, 1920, a second supplementary contract was entered into orally between the parties whereby respondent undertood to drydock, clean, and paint said steamer for the reasonable value of the services performed, the work to be completed also within the original twenty-day limit. Said steamer was not ready for redelivery until September 25, 1920, which the court found was twenty-three days in excess of the limitation of time fixed by the contract and for which the court in this action allowed appellant, as provided in the contract, the sum of $400 a day for each day’s delay, making a total deduction of $9,200 from respondent’s entire demand. One of the main contentions made on this appeal is that the trial court should have declared the $400 a day clause of the contract void, as being a “penalty,” and applied the measure of actual damages, which appellant claims amounted to $2,500 a day, making a total of $60,000.

[1] Under the code provisions of this state, a contract which attempts to fix the amount of damages in anticipation ■ of a breach of an obligation is void to that extent (Civ. Code, sec. 1670), but “the parties to a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable

Appellant concedes that in determining whether a provision in a contract is for liquidated damages, or for a penalty, the fundamental rule, so often announced, is that the construction of these stipulations depends, in each case, upon the intent of the parties, as evidenced by the entire agreement construed in the light of the circumstances under which it was made (Nakagawa v. Okamoto, 164 Cal. 718 [ 130 Pac. 707 ]), and that such intent is to be determined “obviously” as appellant says “at the time the contract is entered inte,

We are convinced that appellant’s theory cannot be sustained. If adopted it would practically destroy the power given contracting parties under section 1671 of the Civil Code in any case to make a binding agreement as to stipulated damages, and would in effect be adding to that code section a proviso, namely, “provided such impracticability continues up to and exists at the time of the breach.” Appellant’s theory is manifestly contrary to authorities of other jurisdictions, notably the federal jurisdiction; it finds no support in the text-books so far as our attention has been called, and if inference may be indulged in, we think the cases of the local jurisdiction clearly indicate that there is no intention to depart from the universal rule established elsewhere.

In the case of Sun Publishing Co. v. Moore, 183 U. S. 642 [ 46 L. Ed. 366 , 22 Sup. Ct. Rep. 240 , see, also, Rose’s U. S. Notes], the .agreement of the parties was that if the Sun Publishing Company did not return a vessel it had chartered • from Moore it would pay Moore “the sum of $75,000 to secure any and all losses in damages which might occur to said boat,” etc. Suit was commenced by Moore to recover that sum on account of the loss of the vessel, and upon trial the publishing company contended that where the actual damages can be assessed from testimony the court must disregard any stipulation fixing the amount and require proof of the damage sustained; the court, speaking through Mr. Justice White, said: “We think the asserted doctrine is wrong in principle, was unknown to the common law, does not prevail in the courts of England at the present time, and it is not sanctioned by the decisions of this court. And we shall, as briefly as we can consistently with clearness, proceed to so demonstrate.” The court then goes on to briefly discuss the

In Banta v. Stamford Motor Co., 89 Conn. 51 [ 92 Atl. 665 ], the court, in considering this question, says: “The

Pacific Factor Co. v. Adler, 90 Cal. 110 [ 25 Am. St. Rep. 102 , 27 Pac. 36 ], one of the cases cited and relied upon by appellant, holds, inferentially at least, contrary to appellant’s theory. It is there said: “Whether a contract is such

[4] The denomination in the contract of the $400 a day clause as a “penalty” is of no consequence. Even though designated as such it may be held to be liquidated damages, where the intention to the contrary is plain. (Williston on Contracts, par. 784; 1 Sedgwick on Damages, pp. 777-780.)

Other cases relied upon by appellant are Stark v. Shemada, 187 Cal. 785 [ 204 Pac. 214 ]; Sherman v. Gray, 11 Cal. App. 348 [ 104 Pac. 1004 ]; Thomas v. Anthony, 30 Cal. App. 217 [ 157 Pac. 823 ]; McInerney v. Mack, 34 Cal. App. 153 [ 166 Pac. 867 ]; Eva v. McMahon, 77 Cal. 467 [ 19 Pac. 872 ]; Williamson v. Barrett, 13 How. (U. S.) 101 [ 14 L. Ed. 68 , see, also, Rose’s U. S. Notes], and Wilmington Transp. Co., v. O’Neil, 98 Cal. 1 [ 32 Pac. 705 ]. None of them, however, sustains the proposition advanced by appellant or even, by analogy, gives it support. Furthermore, those cases are readily distinguishable from the instant one by their facts, either in regard to the subject matter of the contract there under consideration or the circumstances prevailing at the time the contract was made. Referring to those cases, it may be conceded that where parties deal with a commodity of extensive barter and sale, with a market value, according

[6] It is also well settled, as was held in Thomas v. Anthony, supra, and McInerney v. Mack, supra, that where a party seeks to enforce a stipulated damage clause he must both plead and prove that the clause comes within the protection of said section 1671 of the Civil Code. The stipulation of the parties is, of itself, not conclusive upon the courts. (Pacific Factor Co. v. Adler, supra). In Thomas v. Anthony the contract called for the forfeiture of-money deposited as stipulated damages in case of default in the purchase of an automobile, and in McInerney v. Mack, supra, required the payment of a stipulated amount for failure to perform under a real estate broker’s contract. In neither case did the party attempting to enforce the stipulation allege or make any effort to prove that his case was brought within the exception contained in said code section. The court consequently held, in each case, that the clause was unenforceable; that the mere stipulations of the contract were not sufficient for that purpose.

In Wilmington Transp. Co. v. O’Neil, supra, plaintiff sought to recover the sum of $3,500 for the loss of a “lighter” it had rented to defendant under a contract which provided that if the lighter was lost defendant would pay the sum of $3,500. The answer alleged “that the value of the lighter at the time it was delivered to defendant or at any other time thereafter did not exceed $1,800.” The answer having admitted execution of the contract and the loss of the

In the case of Williamson v. Barrett, supra, the question of liquidated damages was not involved at all. The proposition there was the measure of damages and not the amount, that is, the rule to be applied in ascertaining the value of the use of a boat during the period of repairs, which had been previously sunk in a collision on the Ohio River during the year 1848. The court held that the owner could recover the amount for which “the vessel might have been chartered during the period of the repairs” according to the market price for the hire of such vessels, the court saying that such market price could “be ascertained as readily, and with as much precision as the price of any given commodity in the market.” That particular portion of the opinion was vigorously assailed in a dissenting opinion by three members of the court, including Chief Justice Taney, in which it was held that the rule of “loss of market” and “probable profits of a voyage” was “too uncertain in its nature to entitle it to judicial sanction”; that such had been the settled doctrine of that court for more than thirty years, and that “the supposition that the amount of damages can be easily fixed, by what the injured boat could have been hired for, on a charter party, during her detention, will turn out to be a barren theory,” etc. The rule announced by the majority opinion had been deviated from, to some extent at' least, in later cases. (The Conqueror, 166 U. S. 1101 [ 41 L. Ed. 937 , 17 Sup. Ct. Rep. 510 , see, also, Rose’s U. S. Notes];

We find nothing in the cases of Los Angeles O. G. Assn. v. Pacific Surety Co., 24 Cal. App. 95 [ 140 Pac. 295 ], and Dyer Bros. v. Central Iron Works, 182 Cal. 588 [ 189 Pac. 445 ], cited by appellant, that is opposed to the general rule above stated. Those cases involved the construction of pleadings, wherein plaintiff in the first case alleged “that it would be and was and is, impracticable or extremely difficult to fix damages,” etc., and plaintiff in the second case alleged “that at all times it was and is impracticable and extremely difficult,” etc. Each complaint was held good as against demurrer, but the opinions do not indicate that the words “and is,” as used in the first complaint, or the words “at all times . . . is,” as used’in the second complaint, were at all necessary to the statement of a complete cause of action or had any special significance whatever. [7] In the instant case, after setting forth the surrounding circumstances under which the contract was made, respondent alleged, in the language of the code section, the ultimate fact that “from the nature of the case it was impracticable or extremely difficult to fix the actual damage which defendant might suffer in the event of breach,” etc., which in our opinion was sufficient. The disjunctive form of allegation used here passed the test of demurrer in Los Angeles O. G. Assn. v. Pacific Surety Co., supra. Apparently appellant did not deem the points now urged of sufficient importance to justify the filing of a

[3] Appellant makes the additional contention that the sum stipulated as damages was unreasonable and therefore void. The question of the unreasonableness thereof must, of course, be judged in the light of the circumstances existing when the amount was agreed upon. Much of the evidence on this point has already been narrated, but in addition it shows that said sum was proposed and written into the specifications by appellant, and was at all times allowed to remain unchanged. It was upon the faith of the proposals and statements made in said specifications that respondent calculated and tendered its bid. If, after respondent’s bid had been invited and before it was accepted, conditions changed as to ownership of the vessel or as to concluding a charter-party therefor, so that appellant knew that the sum stated in the specifications had become grossly inadequate to cover appellant’s damage in case of delay and that the amount thereof would reach a sum greatly in excess of that stated in the stipulation, we believe that in order to legally charge respondent with such increased damage, said stipulation should have been modified or eliminated by appellant before the acceptance of respondent’s bid and the letting of the contract. Appellant surely knew better than respondent what its damage would be in case of the delay, and it cannot be supposed that appellant would have entered into a contract containing a stipulation written by itself, for the payment of damages in the sum of only $400 a day if it knew or had reason to believe that its damage would approximate $2,500 a day and that it could legally recover that amount. It must, therefore, be assumed from these circumstances that the sum of $400 a day was honestly arrived at, on a fair basis, as representing the reasonable amount of damage appellant believed it would suffer in case of delay and was in good faith inserted in the contract. Furthermore, we are of the opinion that under the circumstances related appellant is not in a position to question the reasonableness of that amount.

[9] The next point made by appellant is that the oral agreement of August 30, 1920, for drydocking, cleaning, and painting the vessel was an independent contract, and that none of the terms of the original contract applied thereto;

But whether or not the $400 a day clause applied to the supplementary contract makes little difference, for the reason that it manifestly appears from the evidence that it was the original contract that was breached.

The twenty-day limitation expired on September 2, 1920. The original contract provided that this $400 a day clause should apply “for each day that elapses between the actual completion of the contract and the time specified by the contractor in the tender.” Said contract further provided that the contractor’s time and liability should “cease when repairs and replacements are completed; when a sufficient dock trial is completed and he has removed all his equipment and dirt occasioned by the repairs to the vessel, and the vessel is in all respects ready to leave the works of the contractor in a seaworthy condition and ready for the sea”; also that “when the work of installation is completed, the boilers will be given a six-hour dock trial under full steam with main engines and auxiliaries running full speed.” Appellant’s construction of the contract pertaining to completion of the

[10] Appellant further objects to the finding that “the terms and conditions of the • original contract so far as applicable to said drydocking, cleaning, and painting contract were made a part thereof” upon the ground that the finding

[11] Appellant complains of the failure of the court to find “what the reasonable market value of the ‘Asuncion’ was per day” and upon the question of “damages suffered by defendant for payment of wages and provisions to the crew of ‘Asuncion’ while on dry dock.” The application of the rule of stipulated damages rendered immaterial the question of the market value of the ship at the time the breach occurred, and in answer to the latter point it is enough to say that respondent was not obligated to make any payments or perform any duties other than those specified in the contract.

[12] The failure to find upon the allegations of negligence as set forth in appellant’s cross-complaint was not error. The court allowed appellant the full measure of legal damages resulting from the delay, and hence the cause of the delay, whether or not from negligence, became an immaterial issue. [13] The findings as made are supported by the evidence and are sufficient in form and in substance to sustain the judgment, and even if immaterial issues had been found upon, the judgment would not be affected thereby.

[14] Appellant further objects to the allowance for interest. We think the trial court improperly awarded respondent interest on the sum sued for in the second count from the date of the redelivery of the vessel to October 25, 1920, which amounted to $54.18. Up to October 25, 1920, the amount due respondent under the supplementary contract was an unliquidated demand. Consequently respondent was not entitled to interest thereon. (Cox v. McLaughlin, 76 Cal. 60 [ 9 Am. St. Rep. 164 , 18 Pac. 100 ]; Macomber v. Bigelow, 123 Cal. 532 [ 56 Pac. 449 ] ; American Hawaiian Engineering Co. v. Butler, 17 Cal. App. 764 [ 121 Pac. 709 ].) But on that date the amount was made certain by calculation and adjustment between respondent’s representatives and an engineer named Martignoni, who supervised all of the repair work for appellant and with whom the agreement

The judgment will be modified by deducting therefrom the sum of $54.18, representing the amount of interest improperly allowed, and as thus modified will stand affirmed. Respondent will recover its costs

Tyler, P. J., and 'Cabaniss, J., pro tem., concurred.

A petition by appellant to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on February 9, 1925:

All the Justices concurred.