Ward v. Hudson River Building Co. — 34 N.Y. St. Rep. 934

Majority

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De Witt C. Ward, App’lt, v. The Hudson River Building Co., Resp’t.^[1]

(Court of Appeals,

Filed January 13, 1891.)

Headnote

1. Contract—Excuse for non-performance—Act of God. ,

Plaintiff having contracted to erect certain houses by an agreement which stated that he was to pay $10 for every day’s delay after a certain time, as liquidated damages, was in default prior to March 5, 1888, and the parties entered into another agreement reciting the failure to complete the original contract, etc., and that it was mutually agreed that the sum, or penalty, due under said contract on March 25, 1888, shall be $1,540, by way of liquidated damages, unless said four villas and all extra work are then entirely finished, etc. On March 25th another agreement was made settling matters of difference, “ but leaving the question of said penalty for litigation" in case plaintiff chose to bring suit within six months. He did so. claiming that his work was delayed by an act of God, the great storm of March 12th, known as the “Blizzard.” Held, that this was not a case for equitable relief, that the last agreement was simply s settlement of the controversies which had arisen but left out for litigation the question of the penalty; that none of the features of a penal obligation were present, and plaintiff should be held to his agreement.

2. Same—Liquidated damages.

Where parties have stipulated for a payment in liquidation of damages, which are in their nature uncertain and unascertainable wi h exactness and may be dependent upon extrinsic considerations and circumstances, and the amount is not on the face of the contract out of all proportion to the probable loss, it will be.treated as liquidated damages.

3. Same.

The use of the word “penalty” in the last agreement- did not furnish a rule for construction or prevent the court from inquiring into what was covered by'that expression.

Appeal from judgment of the supreme court, general term, second department, reversing judgment entered on trial before a judge without a jury.

The plaintiff was a contractor and builder, and entered into contracts with the defendant for the erection of certain houses. By this action he seeks to be relieved from what he terms the penalty contained in his contracts, and to recover from the defend

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ant a certain amount of money withheld hy it. Bach of the original building agreements contained a provision that in default of a completion of the work by a certain date mentioned, “ the contractor shall pay to the owner ten dollars for every day thereafter that the said work shall remain unfinished, as and for liquidated damages.”

The plaintiff was in default as to each contract, and on March 5th, 1888, some time after the default, the parties entered into a further agreement with respect to their matters. This latter instrument recited the making of the original contracts ; the failure to complete; the desire of the contractor for an extension of time, and to avoid the payment of the penaltyj and then the following agreement is inserted: “ It is mutually agreed that the sum, or penalty, due under said contract, on March 25th, 1888, shall be $1,540, by way of liquidated damages, unless said four villas and all extra work are then entirely finished, etc.” The contract specifies what further is to be done in the way of work, etc., in order to entitle Ward to a waiver on the company’s part of his default, and it contains a further agreement in these words: “It is further mutually agreed that in case said Ward fails to complete said villas on or before said 25th day of March, 1888, as aforesaid, there shall be due and owing to said Hudson River Building Company, its successors or assigns, the sum of $1,540 by way of liquidated damages, etc.”

When March 25th had arrived, the work was still not completed, and on March 30th the parties again came together and entered into a further agreement. It recited the making of the previous contract of March 5th, the failure to complete, and that “ the said Ward claims that, notwithstanding that fact, the penalty referred to in said contract should not be exacted by reason of the allegations of fact as contained in a type written statement made by James M. Hunt, and this day presented to the company; and, whereas, the parties hereto are willing to close all matters of difference this day, leaving the question of the said penalty for litigation, in case said Ward chooses to litigate the same, said suit to be commenced within six months from date, if at all, and the said parties reserving all other questions and property from this controversy, except the one question of penalty, as alleged.” The parties then proceed to state their respective agreements in relation to matters of work, liens and payments; which are not material to be particularly recited here.

The statement of Hunt, referred to as containing the plaintiff’s objection to the exaction of a penalty, relates the occurrence of the so-called “blizzard” of March, 1888, states the consequent impossibility of proceeding with the contractor’s work, argues that delay was excusable, for being caused by an act of God, and then makes demands for payments and propositions for the completion of the work, etc.

This action was commenced within six months of the last contract, and the basis for the relief demanded in the complaint is that there had been a substantial performance, and that entire performance was only prevented by an act of God, in the occurrence

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of the great storm known as the “ blizzard,” and that the work had been finished and accepted by defendant

At special term the plaintiff had judgment, which was reversed at the general term, and from that reversal the plaintiff has appealed to this court.

James M. Hurd, for app’lt; George W. Cotterill, for resp’t.

The appellant seeks to excuse the failure to perform _ his agreement and to be legally absolved from the pecuniary loss consequent thereupon, by invoking the application of an equitable rule which relieves from a penalty and from forfeiture whenever performance has been rendered impossible by the act of God; by which expression he characterizes the storms and atmospheric disturbances in the state of New York and elsewhere which set in about March 12, 1888, and was popularly described as “the blizzard.” We do not think, however, that this is a case for equitable relief, or for any such application of the rule referred to. By the original contracts of the parties, .default in completion of the houses, which were the subject matter of their making, subjected the contractor to the liability to respond to the owner in a sum measured by the number of days of default and-agreed upon between them to be in liquidation of all damages. When the default occurred, the new contract which'followed did not excuse the plaintiff or waive his default; but, on the contrary, was an agreement between the parties fixing what the amount of the sum due by way of liquidated damages would be upon a certain date and stipulating that it should be due and owing then, if the contractor’s work still remained unfinished. The last agreement has no further bearing upon this matter than to evidence the fact that the continuing default of the contractor was not excused, and that if he chose to litigate the question of an excuse by act of God, which his lawyer advanced, he was at liberty to do so. It was, simply, an agreement in settlement of the controversies which had arisen; but which left out of them for subsequent litigation the one question of what is there called the penalty. Whether the sum agreed between the parties to be paid, in tíre event of a breach of some agreement, is termed by them a “penalty” or “liquidated damages,” is not controlling upon the question of construction. Their use of such words is not always conclusive as to their legal meaning. To get at that we must consider the subject matter and nature of the agreement and understand clearly the intention of the parties. If it shall then appear that the damage or loss which may be presumed to result from non-performance are uncertain and incapable of exact ascertainment, then the payment or liability fixed by them must be deemed to be liquidated damages and recoverable as such.

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 the essence of the agreement, but was in the nature'of a security for performance. This subject has been

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reviewed in very many opinions, to a few of the more interesting of which in the English reports and those of our state I may call attention.

In Lowe v. Peers, 4 Burr., 2228-9, Lord Mansfield, and in Kemble v. Farren, 6 Bing., 141, Tindal, C. J., discuss the subject. In Dakin v. Williams, 17 Wend., 447 , and 22 id., 201, Nelson, Ch. J., in the first report, and Chancellor Walworth, in the second, review the question in the light of the English and New York cases. Hosmer v. True, 19 Barb., 106 ; Lampman v. Cochran, 16 N. Y., 275 ; Clement v. Cash, 21 id., 253; Little v. Banks, 85 id., 258.

The result of an examination of cases is to confirm the idea that it is difficult, if it is even possible to lay down a general rule applicable to all the cases which arise where parties have undertaken to provide against a loss consequent upon a breach of an agreement. We may, at most, say that where they have stipulated for a payment in liquidation of damages, which are in their nature uncertain and unascertainable with exactness, and may be dependent upon extrinsic considerations and circumstances, and the amount is not, on the face of the contract, out of all proportion to the probable loss, it will be treated as liquidated damages.

In this case, the last agreement of March 30th, upon which the plaintiff seems to rest the use of the word “ penalty,” does not furnish a rule for construction and does not prevent us from inquiring into what was covered by that expression. That inquiry commences with the making of the original contracts and extends over their execution and until the parties made their final agreement of March 30th. As contracts for the erection of dwelling houses, a presumable damage would accrue from the houses not being in readiness for sale and occupation at the time fixed. What that damage would amount to was, obviously enough, incapable of exact ascertainment. But it can be readily seen that for the owner it was a matter of considerable pecuniary importance that the invested capital should be made productive from the earliest possible moment. A provision in his contract with' the builder, by which the latter agrees to pay him a fixed sum as liquidated damages, in the case of non-completion by the day appointed, is as reasonable as it is quite just to both parties. So, looking at what was contemplated, what was written, and what occurred in this case, I think it is evident that the use of the term liquidated damages in the original contract exactly defined what the parties must reasonably have intended, namely: the payment of a certain sum of money, which should operate to extinguish any claim of the owner for damages by reason of the plaintiff’s non-completion of the houses ; that the contract made after the default had occurred recognized, on the contractor’s part, a liability therefor, and was made for the purpose of stating the sum due and payable by him on a certain day, and of opening a way for him to be forgiven its payment.

None of the features of a penal obligation are present, and the

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plaintiff should be held to his agreement. The damages were liquidated, and the contract made no provision against the result of an interference with its performance by the intervention of occurrences unforeseen and beyond the plaintiff’s control. Having contracted absolutely to complete the houses on or before a certain date, unforeseen contingencies, no matter of what nature, are not available to plaintiff as a defense to the exaction of damages. Harmony v. Bingham, 12 N. Y., 99 ; Tompkins v. Dudley, 25 id., 275; Wheeler v. Ins. Co., 82 id., 543.

In the view we have taken of the contracts of the parties, discussion of the other points presented by the appellant as to admissions in the pleadings, and as to whether the reversal by the general term was justified upon the facts, is needless. The litigation was over the mooted point that the default clause in the contracts was in the nature of a penal obligation, and that the performance being rendered impossible by the act of God, the penalty could be relieved against. The trial court so found and adjudged. We have sustained the reversal at general term, and hold that the parties had themselves fixed the damages chargeable to delay in performance of the contract, and that no legal defense existed to the exaction of the stipulated sum, by reason of the occurrence of an unforeseen contingency.

The order reversing the judgment at special term and ordering a new trial should be affirmed, and under the stipulation judgment absolute is ordered for the respondent, with costs.

Judgment of general term affirmed, and judgment absolute ordered for the defendant on the stipulation, with costs.

All concur.