Baltimore Bridge Co. v. United Railways & Electric Co.

Pattison, J., delivered the opinion of the Court. The appellant, the Baltimore Bridge Company, on the 12th day of April, 1911, entered into a written agreement with the United Railways and Electric Company of Baltimore, the appellee, to do certain work, and furnish the material therefor, upon a viaduct of the appellee company known as the Huntington Avenue Viaduct, in the City of Baltimore, for which it was “to be paid for the full completion of the work: Steel work, $5,845.87; concrete floors, $453.00; concrete foundations or footings, $9.00 per cubic yard.” ²¹⁰ By the terms of the contract the work was to be completed “within four months from the date of the agreement, or sooner if possible,” and if not completed at such time the appellee company was authorized to retain as liquidated' damages the sum of twenty-five dollars for each day the work remained unfinished after the date designated for its completion. The exact wording of the agreement in respect to this provision is that “time shall be of the essence of this agreement, and for each day the completion of the work is delayed beyond the time hereinbefore limited as the time for its completion, the contractor agrees that the company may retain from the final payment to be made hereunder the sum ($25.00) indicated.in Schedule E forming part hereof. It being impossible at the time of entering into this agreement to estimate the substantial damage which will result to the company from such delay, the said sum is agreed upon as the liquidated damages which the company will suffer each day by reason thereof and not as a penalty, any decision or ruling of the Courts to the contrary notwithstanding.” The work under this agreement was not completed unti] the ninth day of October, 1911, fifty-nine days after the date designated for its completion.

The compensation that was to be paid under the contract for the work done and material furnished, had it been completed at the time named in the agreement, amounted to $6,931.57. Of this amount the appellee company retained, as liquidated damages, $1,475.00, or twenty-five dollars for each of the fifty-nine days the work remained unfinished after the date named in the contract for its completion, and paid the balance ($5,456.57) to the appellant company. It was to recover the amount so retained by the appellee that the suit in this case was instituted. At the conclusion of the case the Court directed a verdict for the defendant, and upon such verdict a judgment was entered thereon for the defendant.

It is from that judgment this appeal is taken. ²¹¹ The work was satisfactorily done, and the inquiry here is, whether the amount stipulated in the agreement to be paid by the appellant in the event of its failure to complete the work within the designated period, is to be regarded as liquidated damages or as a penalty. It is contended by the appellant that the amount so retained was designed to be, and in fact was, a penalty; while the appellee contends that the sum named was intended to be, and in fact was, liquidated or stipulated damages that were agreed upon at the time -of the execution of the agreement to be retained by it should the appellant company fail to complete the work within the designated period. It was said by Judge McSherry in Willson v. Mayor and City Council of Baltimore, 83 Md. 210 , “Whether a sum named in a contract to be paid by a party in default on its breach is to be considered liquidated damages or merely a penalty is one of the most difficult and perplexing inquiries encountered in the construction of a written instrument. The solution of that question * * * depends in a large measure at least upon the particular facts and circumstances of each separate case. * * * A stipulation to pay a specified sum upon the non-performance of a contract is regarded as a penalty rather than as liquidated damages if the intention of the party as to its effect is at all doubtful or is of equivocal interpretion * * * and where * * * the damages for a breach thereof are easily and exactly ascertainable. “It is equally well settled that a sum, if it be at all reasonable and is stipulated to be paid as liquidated damages for the breach of a contract, will be regarded as such, and not as a penalty, where from the nature of the covenant the damages arising from its breach • are wholly uncertain and cannot be ascertained upon an issue of fact.” Willson v. Mayor and City Council of Baltimore, supra.

In the case of Geiger v. The Western Md. R. R. Co., 41 Md. 15 , our predecessors said: “Where the parties have declared in clear and unambiguous terms that a certain sum shall be paid by way of compensation, upon a breach of the ²¹² contract, * * * the damages arising from the breach of which are uncertain, and incapable of being ascertained by any fixed pecuniary standard, and especially where the contract provides that the sum so claimed shall be paid as liquidated damages, the sum so fixed and agreed upon will be considered as compensation for damages resulting from the breach, and not as a penalty.” See cases there-cited, also Crawford v. Heatwold (Va.), 34 L. R. A. (N. S.), 587; Stratton v. Fike, 166 Ala. 210 ; Railroad Co. v. Gaba, 78 Kan. 432 ; Nilson v. Jonesboro, 57 Ark. 168; Ward v. Hudson River Bldg. Co., 125 N. Y. 230 ; Barber Asphalt Paving Co. v. City of Wabash, 86 N. E. 1036 ; Wallace Iron Works v. Monmouth Park Assn. (N. J.), 19 L. R. A. 456.

In the more recent case of the United Surety Co. v. Summers, 110 Md. 95 , in which the agreement between Lawrence, a builder and contractor, and Summers, for the furnishing- and erection of the re-enforced concrete work in and about a certain building then in course of erection, provided that in case the work was not completed within seventy working days Lawrence should pay to Summers, the owner, fifty dollars for each day in excess of seventy days occupied in the work, the rule was again stated by Judge Peaece, speaking for the Court and quoting from Ward v. Hudson River Bldg. Co., supra, to he, that “Where the parties have stipulated for a payment in liquidation of damages, which are in their nature uncertain and unascertainahle with exactness, and may he 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.” And the stipulation in that ease was held to be for liquidated damages and' not a penalty. See also cases of Filston Farm v. Henderson, 106 Md. 355 ; Graham v. Cooper, 119 Md. 358 . In 2 Joyce, Damages, paragraph 1291, it is stated: “That in order to determine whether a sum named shall he considered liquidated damages or penalty, Courts must look at ²¹³ the language of the contract, the intention of the parties to he gathered from all of its provisions, the subject of the contract and its surroundings, the ease or difficulty of ascertaining the damages' recoverable for a breach, the sum designated by the parties, and from all these factors determine what view shall be taken of the question in good conscience and equity.” Turner v. Fremont, 170 Fed. 259 . “And where from the nature of the contract the damage cannot be calculated with any degree of certainty the stipulated sum will easily be held to be liquidated damages where they are so denominated in the instrument.” Hennessy v. Metzger (Ind.), 38 N. E. 1058 .

The Supreme Court of the United States in the case of Sun Printing and Pub. Assn. v. Moore, 183 U. S. 662 , 46 Lawyers Ed. 378, said: “This Court has consistently maintained the principle that the intention of the parties is to be arrived at by a proper construction of the agreement made between them, and that whether a particular stipulation to pay a sum of money is to be treated as a penalty, or as an agreed ascertainment of damages, is to be determined by the contract, fairly construed, it being the duty of the Court always, where the damages are uncertain and have been liquidated by an agreement, to enforce the contract. Thus, Chief Justice Marshall, in Tayloe v. Sandiford, 7 Wheat. 13 , 5 L. Ed. 384 , although deciding that the particular contract under consideration provided for the payment of a penalty, clearly manifested that this result was reached by an interpretation of the contract itself.” The Court in the case of District of Columbia v. Harlan & H. Co., 30 App. Cases, Dist. of Columbia, 278, said: “There is nothing to prevent the parties from stipulating in advance that a certain sum shall be the damages which one shall forfeit to the other for failure to perform the conditions of a valid contract. Especially is this true where the damages to be sustained are uncertain in amount and cannot easily be ascertained.

In the case at bar the actual amount of dam ²¹⁴ age that might accrue because of the failure of the plaintiff to complete the fire boat within the time stipulated would be difficult to anticipate. The loss that might be sustained by the absence of an important part of the equipment of the fire department, such as this boat, might be inestimable. The fact that a fire did not occur during the period of delay is immaterial. We are here concerned with the conditions that confronted the parties when the contract was made and the clause for damages in case of delay was inserted.

It was the possible damage that might accrue from delay that governed the parties in fixing in advance the amount that should be regarded as settled and liquidated damages.” In the case of Blackwood v. Liebke, 87 Ark, 545, where the party was not actually damaged, as disclosed at the termination of the contract, owing to the fact that the price of an article there involved increased in market value after the breach of the contract, resulting beneficially to the defendant, the Court there said: “The question is not as to the status of the parties at the time when the contract terminated, but as to the status of the parties at the time they made the contract. It may be as the contract works out that it would be easy to ascertain the damage for the breach of it or to prove that there were none. But if the status of the parties at the time of the contract was such that it would be difficult or impossible to have anticipated the damage for a breach of it, and there was a positive element of damage, then under the authorities there is no reason why that may not be anticipated and contracted for in advance.” From the authorities given above it may be stated as a settled rule of law, that where the parties, at or before the time of the execution of the contract, agree upon and name a sum therein to be paid as liquidated damages, in lieu of anticipated damages which are in their nature uncertain and incapable of exact ascertainment, that the amount so named in the agreement will be regarded as liquidated damages and not as a penalty, unless the amount so agreed upon and ²¹⁵ inserted in the agreement be grossly excessive and out of all proportion to the damages that might reasonably have been expected to result from such breach of the contract. And whether it is excessive or whether the damages are incapable of exact ascertainment should be determined from the subject-matter of the contract considered in the light of all the surrounding facts and circumstances connected therewith and known to the parties at the time of its execution.

That these questions should be considered and determined from the contract itself, its subject-matter and the surrounding facts and circumstances connected therewith with which the parties are confronted at the time of its execution, is made necessary in order to ascertain the