District of Columbia v. Harlan & Hollingsworth Co. ( 1908 )

Mr. Justice Van Orsdbl

delivered the opinion of the Court:

Counsel for plaintiff contends that the contract provides for the imposition of a penalty, and not liquidated damages, and therefore the District of Columbia was only entitled to deduct from the contract price the amount of damages actually sustained in consequence of plaintiff’s delay in delivering the boat. In England, before the passage of the statute of forfeitures and penalties (8 & 9 Wm. III.), in actions at law on a contract, where the performance of the conditions was secured by a penalty, the recovery was for the full amount of the penalty. Courts of equity, however, could relieve against fraud or mistake. The effect of this statute was to furnish the same relief in a court of law as could be obtained in a court of equity. In Sun Printing & Pub. Asso. v. Moore, 183 U. S. 661, 46 L. ed. 377, 22 Sup. Ct. Rep. 240, the court, speaking through Mr. Justice White, said: “Of course, courts of common law, merely by reason of the statute of 8 & 9 Wm. III., referred to, did not acquire the power to give relief in cases of contract, where a court of equity would not have exercised a similar power. Now, courts of equity do not grant relief in cases of liquidated damages — that is, cases ‘when the parties have agreed that, in case one party shall do a stipulated act, or omit to do it, the other party shall receive a certain sum as the just, appropriate, and conventional amount of the damages sustained by such act or omission.’ Story, Eq. Jur. sec. 1318. And as long ago as 1768 Lord Mansfield, in Lowe v. Peers, 4 Burr. 2225, said: * * * ‘Courts of equity will relieve against a penalty upon a compensation; but where the covenant is to pay a particular liquidated sum a court of equity cannot make a new covenant for a man; nor is there any room for compensation or relief.’ * * * Whilst the courts of the United States, in actions at law, undoubtedly possess the power conferred upon the courts of common law by the statutes of 8 & 9 Wm. III., and whilst recognition of such power was embodied in the judiciary act of 1789, reproduced in sec. 961 of the Revised Statutes (U. S. Comp. Stat. 1901, p. 699), the duty of such courts to give effect to the plainly expressed will of contracting parties is as imperatively necessary now as it was at common law after the adoption of the English statute.” It will be observed that at the present time, neither in England nor in this country do courts of law possess the right or power to give relief in cases of contract where a court of equity would not exercise a similar power. The rights of the parties to this action can rise no higher in a court of law than they would in a court of equity, and courts of equity, in the absence of fraud or mistake, do not grant relief in eases of liquidated damages.

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 damage 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 providing 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. It is not our province, in the absence of fraud or mistake, to set aside the plain terms of this contract and undertake to make for the parties a better contract than they made for themselves. Improvident and unwise contracts are often made, and where the parties act independently, free from fraud or other reason that would call for the intervention of a court of equity, and the intention can be drawn with reasonable clearness from the written instrument, it is not the duty, or within the power, of courts of law to place a different construction upon the contract than was intended by the parties when the agreement was originally made. Where the amount agreed upon as liquidated damages is out of all proportion to any actual damages that could possibly accrue, courts of equity may grant relief; but a court of law has no right to construe a contract contrary to the intention of the parties therein expressed, in order to make for them a better or more equitable contract than they made for themselves at the inception of the transaction, when both parties could view equally the advantages and disadvantages that would probably arise.

Whether the sum agreed to be paid as damages for the failure to perform the conditions of a contract shall be treated as liquidated damages or as a penalty is to be drawn from the subject-matter of the agreement, the meaning and intent of the parties as expressed in the contract, and the terms used to express that intent. In determining this question, courts will not be bound by the exact language of the contract. The contract may use the terms “forfeit” and “penalty,” and yet be construed to call for liquidated damages; and, likewise, the words “liquidated damages” used in a contract may be held to mean a penalty. In order to determine whether the amount stipulated in a contract to be forfeited for. nonperformance should be construed as a penalty or liquidated damages, an examination should be made of the whole contract, the sum stipulated, the ease or difficulty of measuring the pecuniary loss that would be sustained by the breach, the subject-matter of the contract, and the proportion that the amount stipulated bears to the entire consideration. Cases might arise where it would be difficult to ascertain exactly what the parties meant by a stipulation in a contract looking to the compensation to one party for the breach of the other. But the contract in the case at bar presents no such difficulty. The intention of the parties to this contract cannot be misunderstood. It is stated that “the contractor shall forfeit to the District of Columbia the sum of $25 for each working day that he shall be in default, which sum of $25 per day is hereby agreed upon as fixed and liquidated damages that the District of Columbia will suffer by reason of such default, and not by way of penalty.” In the face of such language it would be absurd for a court to impute to the parties an intention different from that which the language used so clearly implies. Besides, the plaintiff has raised no issue as to the sum named in the contract being out of proportion to the amount involved in the transaction, and no fraud or mistake is alleged or facts stated that would justify this court in holding that the contract should be reformed.

It is contended by counsel for plaintiff that the defendant, by the receipt of the engineer of the fire department of June 5th, and the order of the commissioners of July 3d, waived all right to retain liquidated damages. The receipt given by the engineer of the fire department upon the arrival of the boat in Washington cannot be construed into either a release of the plaintiff from the obligations of its contract, or an acceptance of the boat by the defendant. Even if the engineer could be regarded as the agent of the defendant, his agency in this instance would be limited to the performance of such acts as legally attached to his office, or as he had been specially authorized to perform by order of the commissioners of the District of Columbia. No such order had been made delegating authority to him to accept, on behalf of the defendant, the boat in question, and we are not advised of any official prerogative that would empower him to act in the premises. The engineer was sent to Wilmington by the order of Commissioner Biddle— not by any offcial order of the board of commissioners — to accompany the boat to Washington. The record does not disclose any subsequent order of the board confirming or approving the action of the engineer in giving this receipt. It will be observed, therefore, that no authority was conferred . upon the engineer to either receipt for or accept the boat. That this receipt was intended to operate as either a release of the plaintiff or an acceptance by the defendant is negatived by the subsequent action of the parties. Defendant’s agents continued to insist upon the completion of the boat in accordance with the terms of the contract. Plaintiff, without protest or complaint, proceeded to procure and install proper machinery to replace the parts that had proved defective. There seemed to have been a mutual agreement that default had been made in complying with the terms of the contract, and neither party apparently recognized in the receipt anything that would operate to limit or change the conditions of the contract. We are therefore of the opinion that the receipt cannot be held to have any binding effect upon the defendant.

The order of the commissioners of July 3d, however, presents a more difficult question. Usually the acceptance of work contracted for by one of the parties relieves the other party of liability for delay in the performance of his part of the contract, but such acceptance must be uziconditional, and with full knowledge, on the part of the accepting party, of any default on the part of the other party. Here the acceptance was upon the express condition that the plaintiff should “complete the work on the pumps and appurtenant machinery and substitute the required monitor pipe nozzles, so as to meet fully the requirements of the specifications.” This order must be interpreted in connection with the conditions then existing. The evidence unmistakably discloses that, both before and after the date of this order, repeated efforts were made by the plaintiff, with the assistance of the employees of the defendant, to put the machinery in proper order, and that this was not finally accomplished until near the close of October. The order in no way changed or varied the terms of the contract. By it the commissioners simply said, we will accept the boat upon condition that you comply fully with the terms of your contract. The condition upon which acceptance was based was the complete fulfilment of the contract. The order imposed no conditions different from those imposed by the contract. It laid upon the plaintiff no greater obligation than was provided for in the contract. If the order had in any way interfered with the plaintiff in carrying out its part of the contract, or imposed upon plaintiff additional burdens, this would have furnished an excuse for nonperformance. Peck v. United States, 102 U. S. 64, 26 L. ed. 46. The boat was sent here from Wilmington, Delaware, presumably in a completed condition. On arrival, the employees of plaintiff left it on the hands of the commissioners of the District. Instead of the commissioners interfering in any way with the plaintiff or its agents or employees, the evidence discloses that the officers and employees of the defendant, at large expense to the defendant, took care of the boat during the period of delay, and not only kept the engines fired and the boat in condition to test the machinery that was being replaced, but assisted the employees of the plaintiff in making the changes necessary to enable plaintiff to comply with the requirements of its contract. To hold that by this conduct, or by the order of July 3, the defendant waived its right to deduct the stipulated damage for the period of delay, would violate every equitable consideration that should govern the conduct of the parties.

The judgment is reversed, with costs, and the cause remanded, with instructions to the court below to proceed in conformity with this opinion.

Reversed.