Mayor of the City of Brunswick v. Ætna Indemnity Co. , 4 Ga. App. 722 ( 1908 )

Powell, J.

(After stating the facts.)

1. In our opinion, construing the ordinance as a whole, it did not contain any covenant on the part of the grantees to exercise the street-railway franchise, but merely gave them an option to enjoy the privileges granted, on condition that the work should progress to the extent indicated within the time limited. However, since the stress of the argument — and the case was well and ably argued here — fell upon the points as to whether the sum expressed in the bond -is liquidated damages or a penalty, and since we have come to the conclusion that upon the solution of this question the result will be the same, we have decided to rest our decision on this, rather than on the ground that the ordinance and contract between the parties did not create the covenant claimed.

It is conceded that the city has not sustained any actual damages of such nature as to be susceptible of proof and recovery in a court of law. The plaintiff rests its case, and of logical necessity must rest it, squarely upon the proposition that the sum specified in the bond is recoverable as liquidated damages, — as a sum estimated and fixed in advance by the parties, as representing fair and jnst compensation to the obligee for those damages which naturally would be sustained by a breach of the contract, but which would probably be so speculative, uncertain, remote, or difficult of calculation as to render an ordinary action inadequate or unavailable. The contention of the defendant, of course, is that the $10,000 is merely a penalty; that this sum is named not to liquidate any damages, but to represent the maximum amount for which the surety would be bound toward the indemnification of the obligee against those actually legally computable damages it might sustain from any breach of the contract.

We note a marked custom among the judges who have had occasion to deal with the question as to whether a sum so named is a penalty or liquidated damages, to begin the discussion with some statement to the effect that the construction of such contracts presents a question of most vexing and perplexing nature; and in conformity to the custom we may as well make the same remark. However, looking to the nature of the whole contract as" contained in the bond and the ordinance, and keeping in mind a few well-established rules of construction, we can not believe that it is seriously doubtful but that the amount specified in this contract is purely and solely the ordinary penalty usually found in bonds with conditions annexed. In the first place, section 21 of the ordinance, in requiring the bond, prescribes that it shall be im the “penal sum” of $10,000. This is evidentiary, though not controlling on the question. Sanders v. Carter, 91 Ga. 450 (17 S. E. 345).

2. Then, under the terms of the bond, the makers stand bound, in the sum named unless the principal therein “shall duly and faithfully perform each and every covenant assumed to be performed by the grantee in the aforesaid ordinance.” The rule is. well recognized that a stipulation for the payment of a definite, unvarying sum, on the breach of any of several promises of varying' degrees of importance, especially where the damages for the breach of some of them would be easily ascertainable, is to be construed as a penalty. Swift v. Crow, 17 Ga. 609; Wilhelm v. Eaves, 21 Or. 194 (27 Pac. 1053, 17 L. R. A. 297); Graham v. Bickham, 4 Dall. 143 (1 L. ed. 778, 1 Am. Dec. 328); Foley v. McKeegan, 4 Iowa 1 (66 Am. Dec. 107) ; Long v. Towl, 42 Mo. 545 (97 Am. Dec. 355). To quote from Bayley, J., in the case of Davis v. Penton, 6 Barn. & Cress. (13 E. C. L. R.) 216, “Where the sum which is to be a security for the performance of an agreement to do several acts will, in cases of breaches of the agreement, be, in some instances, too large and in others too small a compensation for the injury thereby occasioned, that sum is to be considered a penalty.” To the same effect are the oft-cited English cases of Kemble v. Farren, 6 Bing. 141 (3 M. & P. 425, 7 L. J. C. P. 258, 31 Rev. Rep. 366), and Horner v. Flintoff, 9 M. & W. 678. Looking to the writing before us, is it reasonable to presume that the-parties intended that the obligors of the bond were to be liable-for ten thousand' dollars if the principal therein cut a shade-tree-without permission, or refused to let a policeman ride free, or failed on some occasion to furnish the requisite amount of water to flush the sewers? And yet each and all of these are covenants assumed by the acceptance of the ordinance, and a failure as to-any of them would as completely breach the bond as a failure-to build and operate the street-railway within the time required.

3. Furthermore, where the stipulated sum which, by the agreement, is to be paid upon a breach of the contract is held to be a. liquidation of the damages and not a penalty, it becomes the maximum, as well as the minimum, sum that can be collected, no matter how greatly, certainly, and definitely the obligee has been damaged by the breach or breaches. Foote v. Maloney, 115 Ga. 985 (42 S. E. 413); Swift v. Powell, 44 Ga. 123. For example, under the present contract the grantees of the franchise covenanted to-indemnify the city against such claims for. damages as might, from time to time arise through acts of omission or commission in the exercise of the franchises. Now, if the amount to be recovered for each and every breach of the contract has been liquidated by the stipulation of the sum named, the obligors might be held liable for this amount for some minor violation, and thereafter could with impunity commit persistent, flagrant, and heavily damaging breaches without liability; in other words; could pay the ten thousand dollars and thereafter break the contract at will. They might leave excavations in the streets unguarded until the recoveries against the city by injured persons amounted to five times ten thousand dollars, might refuse to pay to the city the promised percentage of its gross earnings, might injure and damage the city’s existing sewers and water mains at will, and yet, having paid tbe sum stipulated and liquidated as covering each and every breach, they could suffer no further liability. This reductio ad absurdum finds a parallel in the case of Wilkinson v. Colley, 164 Pa. 35 (30 Atl. 286, 26 L. R. A. 115). The designation of a conventional amount will not be held to liquidate the damages, where it is apparent that it was not the intention of the parties that the obligor could escape further liability by paying that sum.

The foregoing canons of construction seem so clearly to control the present case as to render unnecessary any allusion to the doctrine that in cases of doubt the courts favor the construction which holds the stipulated sum to be a penalty, and limits the recovery to the amount of damage actually shown, rather than a liquidation of the damages. The court did not err in sustaining the demurrer.

Judgment affirmed.