Blewett v. Hoyt

On the 28th day of November, 1891, an agreement was made wherein one H. G. Bond was party of the first part and Charles L. Colby and Colgate Hoyt were parties of the second part. By that agreement Bond agreed to sell to the parties of the second part, or their assigns, for the sum of $350,000, of which $50,000 had been paid to the party of the first part, an undivided two-thirds interest in certain mining claims in the state of Washington, the said sum of $350,000 to be paid in the manner following; that is to .say:

“The sum of fifty thousand ($50,000) dollars paid as aforesaid; the sum of one hundred and twenty-five thousand (125,000) dollars on or before the tenth day of December, A. D. 1891, and the balance of one hundred and seventy-five thousand ($175,000) dollars to be paid as follows: Whenever and as often as the said parties of the second part or their assigns shall receive upon the interest in the said mining claims hereby purchased by them, in net earnings or dividends from the working or operation of the said mining claims, or from any sale thereof, either- by themselves in association with the said party of the first part hereto or his assigns, or by any corporation which shall succeed to the ownership of the said claims, such net earnings or dividends shall be paid over to the party of the first part hereto or his assigns, until the said balance of one hundred and seventy-five thousand ($175,000) dollars has been paid in full.”

The agreement then contains provisions for ascertaining the net earnings or dividends, and the said parties of the second part further agreed that:

“They or their assigns will commence to develop and work the said mining claims within the period of two (2) months after a railroad shall have been completed and be in operation to the said mining district of Monte Christo, and that thereafter they will continuously continue to develop and work the said mining claims with a force of not less than ten (10) men until the said sum of one hundred and seventy-five thousand ($175,000) shall have been fully paid from the net earnings of the mines as aforesaid.”

And it was further agreed that the parties of the second part should execute to the party of the first part their bond in the suin of $175,-000, conditioned on the continuous development and working of the said mines by the parties of the second part, or their assigns, subject, however, to the provisions of the agreement, and the payment of the said sum of $175,000 out of the net profits thereof—

“Provided, however, that if the said parties of the second part shall cease to work and develop the said mines as herein stated for any other reason than

Injunction as hereinbefore provided, then so much of said balance of one hundred and seventy-five thousand ($175,000) dollars as may then remain unpaid shall bear interest at the rate of six per cent, per annum, payable semiannually out of the said net earnings or dividends of the said mines; and so long as the said interest is so paid, the said bonds shall not be deemed to be forfeited. It being mutually understood and agreed that in the case of forfeiture of said bond, the said party of the first part, or his assigns, shall be deemed to be damaged thereby in a sum equal to the balance of said sum of one hundred and seventy-five thousand • ($175,000) dollars remaining unpaid- at the time of such forfeiture; which said unpaid balance shall be, in such event, deemed and treated as stipulated damages.”

This agreement was signed by the party of the first part (Bond), the parties of the second part (Colby and Hoyt), and F. W. Williams and Edward Blewett, two of the plaintiffs in this action. This agreement having been duly executed, the property was conveyed to Colby and Hoyt, and the sum of $175,000 paid in cash and a bond was given, dated the 10th day of December, 1891, by which Colby and Hoyt were held and firmly bound unto Hiram G. Bond in the full sum of $175,-000 jointly and severally. The bond recited the execution of this contract of November 88, 1891, between Bond and Colby and Hoyt, which was set out in full; that Bond, at the request of Colby and Hoyt, had conveyed to George S. Brown and Francis H. Brownell, by deed sufficient in form to comply with said contract, an undivided two-thirds interest in said mining properties in the contract described, the said conveyance being in trust for the- obligors, Colby and Hoyt; and that the sum of $175,000 of such purchase price remains to be paid in the manner provided in the said contract, and provided:

“Now, therefore, if the said obligors or their assigns shall well and truly perform each and every of the covenants, promises and agreements, in said contract stipulated to be performed by said obligors, subject, however, to each and every of the provisos and limitations to such covenants, promises and agreements in said contract contained, then this obligation shall be void and of no further force or effect. But, if the said obligors or their assigns, shall fail, refuse or neglect to perform any of such covenants, promises or agreements (subject, however, to the provisos and limitations aforesaid), then, in any such event this bond shall remain in full force and effect, and become absolute.”

The bond further provided that if' the obligors or their assigns should cease to work and develop the said mines for causes other than injunction, as specified in the contract, then so much of the balance of .$175,000 as should then remain unpaid should bear interest at the rate of 6 per cent, per annum, payable semiannually out of the said net earnings or dividends of said mines, and, so long as the said interest was so paid, the bond should not be deemed to be forfeited. It was further understood and agreed that, in case of forfeiture of this bond, the obligee or his assigns should be deemed to be damaged thereby in a sum equal to the balance of the said sum of $175,000 remaining unpaid at the time of such forfeiture, which unpaid balance should -be, in such event, deemed and treated as stipulated damages, with a further provision that, in case of such forfeiture, Colby and Hoyt could reconvey the undivided two-thirds interest in said mines to Bond or his assignee, and which reconveyance should be deemed in full satisfaction of the penalty incurred for such forfeiture and

The complaint alleges that the said Bond and the plaintiffs and the defendant Hunt have fully performed each and every of the conditions of the said bond upon their part to be performed; that the defendant Hoyt and Colby, and his heirs, executors, and administrators, obligors in said bond, have failed, neglected, and .refused to carry out, fulfill, and perform the conditions of said bond as therein provided in the certain particulars specified. The complaint then alleges that, by reason of the premises and of the breaches of the' conditions of the said bond, these plaintiffs and the said defendant Hunt have been and are damaged in and to the sum of $136,718.75, with interest thereon at the rate of 6 per cent, per annum from the 1st day of January, 1898.

The case came on for trial at a Trial Term of the Supreme Court. Before the case was finally disposed of the jury were discharged, and it was consented that the court- should try the case without a jury, whereupon the court filed its decision, finding the execution of the contract and the execution of the bond alleged in the complaint; that on the 1st day of August, 1902, Hiram G. Bond assigned and transferred said bond or contract and the principal sum remaining due and payable thereon, amounting to twenty-five thirty-seconds thereof, to the plaintiff and the defendant Hunt, and that they are now the owners and holders thereof to the amount and extent aforesaid; that the said Bond and the plaintiffs and the said defendant Hunt have fully performed each and every of the conditions of the said bond or contract upon their part to be performed, that the two-thirds interest in the said mining claims covered by said contract was subsequently conveyed to a corporation; that thereafter the title to said mining claims was held by the said corporation until the 4th day of November, 1898, on which date it was conveyed by William C. Butler, receiver of said corporation, to Josiah B. Crooker, and thereafter, on the 10th day of July, 1899, conveyed by said Crooker to the Monte Christo Mining Concentration Company; that the defendant Hoyt and Colby and his heirs, executors, and administrators, obligors in said bond or contract, failed, neglected, and refused to carry out, fulfill, and perform the conditions of said bond or contract, in manner, form, and substance as therein provided, as alleged in the complaint, and, as a conclusion of law, that the defendant Hoyt was indebted to the plaintiffs and the defendant Hunt in the sum of $136,718.75, with interest at the rate of 6 per cent, per annum from the 1st day of January, 1898, and judgment was directed accordingl y .

Upon the trial Bond, who was a party to the contract and was the obligee in the bond sued on, was examined as a witness for the plain

In determining the question as to the liability of the obligors upon this bond, there are two questions which require consideration. The first is whether the condition of the bond has been broken so as to impose any obligation upon the obligors; and the second is whether, it the condition of the bond has been broken, the (plaintiff) obligee is thereupon entitled to a judgment for the full amount of the bond, or is only entitled to the damages proved to have been sustained by him by reason of the violation, the bond being upon condition that it should be void if the obligors or their assigns should well and truly perform each and every of the .covenants, promises, and agreements in said contract stipulated to be performed by said obligors. To entitle the plaintiffs to recover, they must prove that the obligors on the bond had failed to comply with the obligations of this contract. The contract provided for the purchase of these mining claims for $350,000, of which $175,000 was to be paid in cash and $175,000 was to be paid out of the earnings or dividends derived from the working of the mining claims, or the sale thereof. The obligors did not assume an obligation to pay this $175,000. Their entire

“Whenever and as often as they or their assigns should receive upon the interest in the said mining claims purchased by them, in net earnings or dividends from the working or operation of the mining claims or from any sale thereof, either by themselves in association with the said party of the first part or his assigns, or by any corporation which should succeed to the ownership of the said claims, such net earnings or dividends should be paid over to the party of the first part or his assigns, until the said balance of $175,000 had been paid in full.”

The parties contemplated that the mines should be worked either by Colby or Hoyt, or by a corporation which should succeed to the ownership of the claim; but it was the receipt by Colby afid Hoyt of money realized from working or operating of or selling the mining claims which would create an obligation to pay anything to Bond or his assigns; and there is no evidence of any kind, nor does the court find, that either Colby or. Hoyt receive in any way any earnings or dividends from the working or operation of the mining claims or any money from a sale thereof, or in any other manner. There was a' further covenant that statements of accounts and settlements of the operation of said claims should be made quarterly in each and every year in order to ascertain the net earnings or dividends accruing upon, tire said interest in said claims purchased, to the end that the amounts payable to Bond, if any, on account of the balance, should be determined and paid quarterly in each and every year; but I do not find evidence that this covenant was broken. No demand for such accounts were made; and there was no agreement that the obligors should be compelled to find the obligee in order to submit the accounts to him; and, in the absence of proof that there were net earnings or money received by Colby and Hoyt which were applicable to pay to Bond under the contract, there was no branch by the obligors. Colby and Hoyt also covenanted that they would commence to operate and work the said mining claims within a period of two months after a railroad should have been completed and be in operation, and that thereafter they would continuously continue to develop and work the said mining claims with a force of not less than 10 men until the said sum of $175,000 was fully paid from the net earnings of the mines aforesaid. The plaintiffs failed to prove that Colby and Hoyt did not develop and operate the mining claims; that the mining claims were not developed so as to expose or produce all ore of every kind that was capable of being produced from them; or that the development of the claims was not fully completed by Colby and Hoyt. What was conveyed to them were mining claims; what they

The fundamental error upon which the judgment below was granted, and which pervades the argument of the learned counsel for the respondent, is that by this agreement the obligors of this bond assumed to pay $175,000 in one of three ways—either by the payment of the money, the delivery of the mortgage, or a retransfer of the property. I fail to find any such obligation imposed upon the obligors by the contract. They agreed that the mining claims should be developed and worked either by themselves" or by a corporation to which the claims were to be transferred, and they also agreed that any profits or dividends realized from such developmént and workings or any moneys realized from a sale of the mining claims should be devoted to the payment of this sum of $175,000, and that, I think, was the extent of their obligations. They could satisfy these obligations by the execution of a mortgage or the retransfer of the mining claims, but there' is no obligation, express or implied, to pay to the obligee of the bond any sum of money on account of this $175,000, except what they should receive as profits from the working of the mining claims, as dividends from the corporation to which the' claims had been assigned, or from the proceeds of the sale of the claims. In the absence of proof that any such sum of money had been received by the obligors, there was no basis for a finding that the obligors had failed to pay to the obligee or his assigns any money due under the contract.

But it is said that the obligors, having by the transfer of the mining-claims to the corporation put it out of their power to comply with the contract to further continue the development and working of the mines, therefore became liable to pay the whole amount that would have been due had they received $175,000 in profits or dividends or from a sale of the property; but such a .disposition of the mining claims was dis

This conclusion renders it unnecessary to determine whether or not, under the terms of this bond, a breach of the contract imposed a liability for the full amount of the bond, or only for the amount of damages that the obligee sustained by a breach of the conditions of the contract. I think, however, that the bond was for a penalty, and that, a recovery upon it must be limited to the amount of the damages sustained in consequence of the violation of the conditions of the contract. The bond is in the usual form, by which the obligors are held and firmly bound unto the obligee for the full sum of $175,000, conditioned upon the performance by the obligors of the covenants, promises, and conditions in a contract which was made a part of the bond. This would be clearly a penalty restricting the obligee to a recovery of the amount of damage actually sustained by him by reason of a breach of the contract, were it not for the further provision of the bond that “it being mutually understood and agreed, that in case of forfeiture

In Caesar v. Rubinson, 174 N. Y. 492 , 67 N. E. 58 , where the sum of $1,000 was deposited as security for the faithful performance of the contract, it being provided that in case of any breach thereof said amount should be retained as liquidated damages for such breach, the court said:

“The character of the deposit, whether liquidated damages or a penalty, depends upon the intention of the parties as disclosed by the situation and by the terms of the instrument. The deposit is not necessarily to be regarded as liquidated damages, although it is expressly so stated in the instrument. Whether it is that or a penalty depends upon the nature of the transaction and the intention of the parties. * * A provision in a contract such as that1 now under discussion will be treated as liquidated damages only in those cases where, from the nature of the transaction, the actual damages consequent upon a breach of the contract are incapable of accurate measurement, or where the sum specified in the instrument is not out of all proportion to any damages which could possibly arise from a breach.”

And in Ward v. Hudson River Building Company, 125 N. Y. 230 , 26 N. E. 256 , it is said that:

“Where, however, a sum has been stipulated as a payment by the defaulting party, which is disproportionate to the presumable or probable damage, or to a readily ascertainable loss, the courts will treat it as a penalty, and will relieve, on the principle that the precise sum was not of the essence of the agreement, but was in the nature of a security for performance.”

In this case the contract provided for the payment of the sum of $175,000 out of the proceeds or dividends received by the obligors from the development and working' of these mining claims, or from a -sale thereof, and it was to secure the performance of this contract that the bond was executed. It would seem to have been conceded that the mining claims transferred were developed and worked for several years at a large cost, that no profits or dividends were ever realized, and that finally the workings were abandoned because the corporation to whom the mining claims had been transferred had become insolvent; such insolvency being caused by the loss sustained in attempting to develop and work the claims. This, clearly, was not such a violation of the contract as was contemplated by the parties as imposing upon the obligors a liability for the full amount of the penalty of the bond. Such penalty, in the absence of any proof -that the mining claims were of any value at the time the development and work

There is another objection to this judgment which, though somewhat technical, seems to be fatal. The plaintiffs commenced an action to recover their interest in this bond, evidenced by an assignment by the obligee which assigned the bond to the plaintiffs and the defendant Hunt. The bond was under seal and was payable to H. G. Bond. Before the action was brought Bond executed an instrument reciting that he held twenty-five thirty-seconds of the bond in trust for Leigh Hunt, Edward Blewett, Fred W. Williams,- and James M. Williams, who were the beneficial owners thereof, and therefore, in consideration of the premises and of the sum of $1, Bond assigned and set over unto these four persons “the said bond to the extent of twenty-five thirty-seconds thereto, to have and to hold the same according to their respective interests therein.” Hunt refused to join in this suit, and was made a party defendant. He interposed an answer which asked no judgment and demanded no affirmative relief from his codefendant Hoyt, and no copy of that answer was served upon Hoyt. No judgment in this action, therefore, could be given in his favor against Hoyt, but the court awarded judgment in favor of the three plaintiffs and the defendant Hunt against Hoyt for the full amount of the bond. There was no evidence to show what interest Leigh Hunt had. For all that appears, he might have owned all but a nominal amount, and yet he was entitled to no judgment, and could have none awarded to him in this action. The assignment was not to these four persons equally or from which equality could be inferred, for it was assigned' to them, to have and to hold the same according to their respective interests therein, and, to justify the recovery sought in this action, the plaintiffs’ respective interests in the bond would have to be proved and a judgment awarded for their interests, and not for the whole amount due. In the form in which it is it seems that the judgment cannot be Sustained.

The judgment should therefore be reversed, and a new trial ordered, with costs to defendant Hoyt to abide the event.

McLaughlin, j., concurs.

I concur in the reversal of the judgment appealed from, but I do not agree that the obligors on the bond released themselves from its obligations by transferring the property or that the only liability they can be charged with under the bond, if any, is one which arose when they made the transfer.

Upon a careful reading of the contract and the bond it will be seen that nowhere is there an absolute agreement on the part of the

In this aspect, the sum of $175,000 mentioned in the bond must be considered as a penalty, leaving plaintiff to recover only so much damages as can be shown to have resulted from this breach. Code Civ. Proc. § 1915. In other words, the obligors’ breach was that they did not so work the mines as to produce the $175,000, which, if earned, would have been payable to plaintiff, but, unless it is made to appear that, if the obligors had continuously worked the mines, they would have been able to earn the $175,000 or some part thereof, the plain-' tiffs have suffered no damage from the failure so to work. The fact that the obligors assigned the mining claims to a corporation is of no importance. Both the contract and the bond are full of clauses and phrases showing that such an assignment was contemplated by the parties. And the assignment had practically no effect upon the relation of the parties to this action, for the covenant of the obligors was that they or their assigns would do the things covenanted for. Thus the obligors became in effect sureties that their assigns would do-the things agreed upon, and, upon the failure of the assigns to do .diem, the-promise of the obligors was broken. Since there was no-

PATTERSON, P. J., and CRARKE, J., concur.