Willson v. Mayor of Baltimore

McSherry, C. J., delivered the opinion of the Court. The Mayor and City Council of Baltimore, through the Commissioners of Public Schools, advertised for sealed proposals for furnishing the schools of the city with desks and other necessary appliances. The bids were required to be made out upon forms which contained various stipulations. Amongst these it was provided that “the full name and address of a surety must be written on the proposal, and each proposal must be accompanied by a certified check for five hundred dollars ****** said check to be payable to the Mayor and City Council of Baltimore.

Ij the szicccssful bidders enter into contract with bond without delay, their checks will be returned as will those of the zinsuccessfid bidders. No proposal will be entertained which does not comply with the terms hereof.” The appellant filled out one of these forms, specified the prices at which he would furnish the needed supplies, gave the name and address of his surety and enclosed his certified check for five hundred dollars, payable to the ■ appellee. His bid being the lowest he was awarded the contract; but through no fault of his own and though he acted in entire good faith, he was unable in spite of his efforts, to furnish the signature of the surety he had named in his bid, and he failed, without being at all to blame, to secure any other surety on his bond. Thereupon the commissioners readvertised for bids.

These they obtained and accepted. The new' bids were for sums much less than those named by the appellant in his bid, and in consequence the city not only lost no money by the failure of the appellant to furnish a bond and to fulfill his contract, but in fact saved a considerable amount. The appellant then demanded the return of the five hundred dollars which he had deposited with his bid, ²¹⁰ but the city refused to surrender the money and claimed the right to hold it. Suit was thereafter brought by him against the city for the recovery of the five hundred dollars deposited.

The defendant demurred to the declaration and a judgment was entered pro forma for the city, and the plaintiff appealed. There is no question of pleading involved. The inquiry is whether, under the circumstances stated, the appellant is entitled to recover back the five hundred dollars he deposited with his bid. The facts above set forth are all alleged in the declaration and being well pleaded are, of course, admitted by the demurrer.

On the part of the appellant it is insisted that the five hundred dollars deposit was designed to be and in reality was a penalty; whilst on the part of the city it is claimed that the sum named was intended to be and in fact was liquidated or stipulated damages which, for any breach of the appellant’s bid or proposal, was to be retained by the city without reference to whether the city had actually sustained any injury or not. The distinction between a penalty and liquidated damages is of the utmost importance; and upon the decision in any given case between them depends the question whether a sum stipulated to be paid upon a breach of the contract shall be treated as a debt to be arbitrarily enforced without regard to the actual loss ; or whether, on the other hand, it shall be discarded to let in an inquiry as to the extent of the damage really sustained in consequence of an omission or refusal to perform the agreement. If the sum designated is held to be liquidated damages the only evidence necessary to warrant a recovery of that particular amount is that the contract to which it relates has been broken. But if the sum is regarded as a mere penal sum, its place in the contract gives it no weight, and a recovery for a breach of the undertaking will be limited to the extent of the loss or injury actually sustained and proved.

In the one instance, therefore, the whole of the sum is recoverable, when there has been a default, though the actual damages ²¹¹ be nominal; whilst in the other, only such damages as have been really incurred and are satisfactorily shown can be assessed and awarded for a breach. It is obvious, then, that the pending controversy turns upon the question whether the five hundred dollars deposit is liquidated damages or a penalty. If it be the former the plaintiff has no right to recover it back, but if it be the latter the city cannot lawfully retain it, except to the extent that actual damage has been sustained. 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 written agreements.

The solution of that question, whilst to some extent controlled by artificial general rules which are not wholly in harmony with the ordinary canons of construction, depends in a large measure at least upon the particular facts and circumstances of each separate case. There are to be found both decisions and dicta that are conflicting and irreconcilable ; but’ the general principles which are usually invoked, and which are peculiar to contracts of this character, are nowhere seriously disputed or denied. As just compensation for the injury done is the end which the law aims to reach, the intention of the parties at the time the contract was entered into is often, though not always, given weight; and whilst the language they have used in the instrument, if they declare that the damages shall be liquidated, is a circumstance that may have its influence, Geiger v. Western Md. R. R. Co., 41 Md. 4 ; yet even their explicit words will be sometimes disregarded, Hough v. Kugler, 36 Md. 195 , and the measure of damages will be restricted to such as the evidence shows have been actually sustained, if the entire agreement and the peculiar circumstances of the subject-matter of the contract indicate that the reason and justice of the case require this to be done. Kemble v. Farren, 6 Bing. 141 ; Foley v. McKeegan, 4 Iowa, 1 ; Watts v. Sheppard, 2 Ala. 425 ; Streeper v. Williams, ²¹² 48 Pa.

St. 450 ; Perkins v. Lyman, 11 Mass. 76 ; Condon v. Kemper, 47 Kan. 126 ; S. C. 13 L. R. A. 671 and notes ; Chamberlain v. Bayley, 11 N. H. 234; Davis v. Fenton, 6 Bar. & Cres. 216; Fitzpatrick v. Cottingham, 14 Wis. 237 ; Fisk, v. Gray, 11 Allen, 132 ; Green v. Price, 13 M. & W. 701. 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. A common instance is the case of agreements between professional men binding a retiring partner, or an apprentice or clerk not to interfere with the business of the other. Glassworthy v. Strull, 1 Exch. 659 ; Rawlinson v. Clarke, 14 M. & W. 187 ; Mercer s.

Irving, E. B & E. 563. But 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 parties as to its effect is at all doubtful or is of equivocal interpretation. Shute v. Taylor, 5 Metc. 61 ; Dimerch v. Corlett, 12 Moore P. C. C. 199 ; Crisdec v. Bolton, 3 Car. & P. 240; Chilliner v. Chilliner, 2 Ves. Sr. 5287 Coles v. Sims, 5 DeG.

M. & G. 1. And such a stipulation is generally regarded as a penalty in the absence of a clear indication of a contrary intention by the parties at the time the contract was executed, where the agreement is certain and the damages for a breach thereof are easily and exactly ascertainable. Burrell v. Daggett, 77 Me. 545 ; Brown v. Bellows, 4 Pick. 179 . Finally, the tendency of late years has been to regard the statements of the parties as to liquidated damages in the light of a penalty unless the contrary intention is unequivocally expressed, so that harsh provisions will be avoided and compensation alone will be awarded.- Gammon v. Hone, 14 Me. 250 ; Leggett v. N. Y. Mut.

L. Ins. Co., 53 N. Y. 394 ; Brown s. Bellows, supra, 2 Green Ev. secs. 258, 259. Now, it will be observed that the contract between the ²¹³ appellant and the appellee, evidenced by the bid filed and accepted, has not a word in it descriptive of the five hundred-dollar deposit as either liquidated damages or a penalty.

It is clear, therefore, that the parties themselves have not by any term or provision of the agreement declared that the deposit shall be either the one or the other, but have left the question at large ; and it is equally clear that there is nothing in the subject-matter of the agreement which imperatively requires that the deposit be characterized as liquidated damages, especially as the decided inclination of the Courts in doubtful cases even is to treat the stipulated sum as merely a penalty. Indeed there is no explicit forfeiture of the deposit at all. The contract provides simply that, “ if the successful bidders enter into contract with bond without delay, their checks will be returned ; ” but it is nowhere expressly declared that a failure to enter into bond shall entitle the city to the whole amount of the deposit or to any part of it, though it is palpably implied that so much of it as will be a just compensation for any loss that may result to the city from the failure of the bidder to furnish the bond was, in view of the whole subject-matter, designed by the parties to be applied by the city to its own reimbursement. But beyond this, the exact amount of loss which would result to the city by the failure of a bidder to give the required bond is capable of definite and precise ascertainment.

A failure to give the bond is a breach of the contract and the damages which would result from that breach would be the difference the city paid, if anything, in excess of the amount of the unexecuted bid, and also the expenses of a re-advertising for new bids. These elements of damage are neither uncertain nor difficult of ascertainment by a jury, and this fact is one of the recognized tests resorted to for distinguishing between liquidated damages and a penalty. Geiger v. Western Md. R. R. Co., supra. Not only, then, is there no provision expressly declaring this deposit to be liquidated damages, but to treat it as such would require the superaddition by implication of a distinct term to the con ²¹⁴ tract, which is not permissible, and the reversal of the doctrine that Courts lean strongly against upholding a specified sum as liquidated damages where such an interpretation is of doubtful accuracy and leads to manifest injustice.

That an interpretation which treats this deposit as liquidated damages would, to say the least, be of doubtful accuracy, cannot be disputed ; that it wmuld be unjust in this particular case in its results is scarcely open to discussion. The appellant is conceded to have acted in perfect good faith ; the city has not only not lost anything by his failure to give the bond, but it has actually gained thereby a considerable sum, and it would be unconscionable (Cutler v. How, 8 Mass. 257 ), under these conditions, for it to retain the five hundred dollars as stipulated and liquidated damages for a technical breach which has occasioned no appreciable inj ury. We discover nothing on the face of the contract, nothing in all the surrounding circumstances or the subject-matter, and nothing in the rules of law which will justify us in holding this deposit to be liquidated damages unless the remaining proposition to be considered sustains the appellee’s contention. That proposition is that where a sum is deposited, either with a third person or with the other party to the contract, it is invariably treated as liquidated damages, and the cases of Wallis v. Smith, 21