Geiger v. Westerland Maryland Railroad

Robinson, J., delivered the opinion of the Court. This suit was brought by the appellants as assignees in bankruptcy, to recover damages of the appellee, for breaches on two contracts for the construction of the appellee’s railroad, and to recover in addition thereto for work done under the contracts. The contracts were executed July 28, 1870, one for the construction of the lower or Owings’ Mill division, and the other for the upper or Williamsport division, and provided that the contractors were to begin the work within thirty days after notice, and complete the same within eight months. . They also provided that the work was to be done under the direction of the engineer of the appellee, who was to ¹¹ make monthly estimates of the quantity, character and value of the work done, and 85 per cent, of the value of the work estimated tor, was to be paid to the contractors, the remaining 15 per centum being retained; and when the work should he completed and accepted hy the engineer, a final estimate of all the work was to he made, and the balance appearing to he due the contractors, including the per centage so retained, was to he paid to the contractors.

If the contractors should refuse or neglect to prosecute the work with a sufficient force in the judgment of the engineer to complete the work within the time specified in the contract, the engineer was authorized to employ such number of men as would in his judgment he sufficient to insure its completion within the time prescribed, and to charge the wages as so much paid to the contractors under their contract. The contracts then further provided, that if the contractors should not from time to time comply with the stipulations on their part, in manner and form, and within the time stipulated; or in case it should appear to the chief engineer that the work did not progress with sufficient speed; or in case of interference with the work hy legal proceedings, instituted against the contractors hy any one, other than the Company itself, the said chief engineer might annul the contract hy notice in writing to the contractors, and that upon the service of such notice the “foregoing agreements on the part of the Company, and every claim and part thereof, shall become null and void, and the unpaid part of the value of the work done shall he forfeited hy the said parties of the first part to the use of said Company in the nature of liquidated damages and that all right of occupancy on the part of the contractors, and all their rights in and to any further prosecution or interest in the work should cease, and that the Company might contract anew as though the contract in controversy had never been made. ¹² The work on the Owings’ Mill division was begun in June, 18⁷¹, nearly ten months after the execution of the contract, but owing to the difficulty in securing the right of way, and the financial embarrassments of the appellee, it was in a measure suspended, and was not actively resumed again until April, 18⁷². On the Williamsport division it was begun in October, 18⁷¹, but was stopped by formal notice in December following, and resumed again in April, 18⁷². The work on the Owings’ Mill division not having progressed with that speed which the engineer thought it ought to do, and the contractors having failed, after due notice, to remove monthly the quantity of earth required, the engineer, on the 12th September, 18⁷², annulled the contract, and the work on the lower division having been abandoned, the contract was annulled the January following.

The main questions presented by this appeal are— First. — The right of the engineer to annul the contracts. Secondly. — Whether the forfeiture of the unpaid value of the work done is to be considered as a penalty to indemnify the appellee for breaches of the contracts, or as a fixed sum for compensation, in the nature of liquidated damages ? Thirdly. — If liquidated damages, whether it includes, in addition to the 15 per centum retained by the appellee, an amount due and unpaid on the monthly estimates ? Fourthly. — The claim of the contractors for damages on account of breaches by the appellee.

First.- — It is by no means unusual to find in contracts for railroad construction, provisions not only referring to the sole and absolute determination of the Company’s engineer, the monthly estimates as to the quantity, character and value of the work done, but also provisions conferring upon him the power to annul at any time the contract, if the work should not progress with that speed ¹³ which he in the exercise of his judgment might think proper. However stringent and arbitrary such provisions may seem at first sight, when we consider the character and magnitude of works of this kind, and the vital importance of having the construction completed within a given time, often prescribed by their charters, we can understand the necessity of guarding against breaches on the part of the contractors by covenants of the strictest and most imperative character. Be this however as it may, it is well settled that when such power is conferred by the contract on the engineer, the exercise of it by him, in the absence of proof of bad faith, is binding upon the parties. In this case, there is not a particle of proof to show that it was improperly exercised by the engineer of the appellee.

On the contrary, it shows that he exercised it with the greatest reluctance. The work was actively resumed by the contractors in April, 1812, and so early as May 11th, we find him urging them by letter to increase their force so as to enable them to remove 4,000 cubic yards per month. On July 10th he writes again, saying that they had removed but 2,500 yards during the preceding month, and warns them that unless their force is increased, he will be compelled to annul the contract. Other notices, both verbal and written, were given, but finding them of no avail, the contract for the Owings’ Mill division was, on the 12th September, 1812, annulled. 'The work on the Williamsport division was abandoned by the contractors in September, 1812, and in January following tliis contract was also annulled.

There is no proof to show that the contractors were hindered or in any manner delayed in the progress of the work, by the Company, after it was resumed in April, 1812. It is true the East End of the deep cut on the G-rafflin and Patterson property was not opened, but the engineer says due allowance was made for this, in the requirement, that 4,000 cubic yards of earth should be removed per month. ¹⁴ Whatever may have heen the delay in the progress of the work in 1871, resulting from the failure of the appellee to acquire the right of way, or whatever inconvenience and loss the contractors may have sustained by the non-payment of the monthly estimates, these facts in no manner affected or impaired the right of the engineer to annul the contract for the failure to prosecute the work with proper speed after it was begun in April, 1872. Owing to the financial embarrassments of the appellee, the work was in a measure suspended in the latter part of 1871, and when by the aid of the city's subscription, it was enabled to resume the construction in 1872, the work was to be prosecuted according to the terms of the contract. By these terms, the engineer was expressly empowered to annul the contract, and his right to do so under the circumstances of this case, is too clear for controversy.

Secondly.• — Conceding then, that the power to annul the contract was lawfully exercised, this brings us to the question as to whether the forfeiture prescribed therein is to be considered in the nature of a penalty to cover damages for breaches on the part of the contractors, or, as a sum agreed upon to be forfeited by the contractors and fixed as compensation for damages which the appellee might sustain. As a general rule it is true, that where a sum of money is stipulated to be paid for the non-performance of a contract, Courts are inclined to treat the sum thus to be paid, as a penalty to cover damages arising from the breach, and not as a sum of money really intended to be paid. But it is certainly open to parties who are about