Untitled Texas Attorney General Opinion ( 1954 )

November 1.6,,1954
Mr. Milburn L&than Opinion No. S-145
Executive Assistant
Texas SouthernUniversity Re: Payment of liquidated damages
3201 Wheeler Avenue for default on completion
Houston, Texas date of st,udentdormitory and
a student unionbuilding~ at
Dear Mr. Lathan: Texas Southern University.
On October 15, 1952, a Texas corporation contracted
to build a dormitory group for Texas Southern University.
The contract emphasized the importance of the time element in
completing the work. Tn Paragraph 3 of the General Condi-
tions in the contract we find the statement:
"All time limits stated in these documents are
of the'essence of the contract."
Again, in Paragraph 27 of the General Conditions is found the
statement:
"All contract work shall be completed on or
before the date set out incontract.
"Contractors must recognize the necessity
for completing~the ivorkeon time,:and'they shall
take all'neees-sary,steps'toassure~this end.
Contracts-between~Cont~ractorand Sub-Contractors,
special contractors, and~material dealers shall
provide properly scheduled~work and deliveries
to assure the completion within ~the agreed time
limit.'
"Contractors shall g,uaranteethe completion
of the work 'uponthe agreed date and shall agree
to then ayment to Owner liquidated damages in the
sum.of $50.00 per day, for each and every calendar
day's delay beyond the date fixed for the completion
~of'the work and the same shall constit~utea charge
to be paid by Contractor to Owner, prior to final
settlement on the Contract.
"Should Contractor begdelayed in-the prose&-
tion or completion of the work-by act, neglect or
default of Owner, of Architect, or of any other
-.
&. Milburn .Lathan, Page 2 (s-145)
Contractor employed,by~Owner-'upon~:the
wdrk,,,or'
by any dadige caused by fire,:Weather~conditions
bti'
C&h& casualty fortihich Contractoris-not
responsIble:or~by general strikesor 'lockouts'
caused by the'acta.'of‘employe``,~.then
the time
fixed for completion of the~workshall be
extended,for a perlod equIvalent'tb the time
lost byereason oftany ofthe causes.aforesaXd,
.i#hichextended'period'shall':be~det~emriined
and "
fixed by:Architect; but no suchallo$iance shalI~'
be madeunless a claim thereforeis presented in
writingto 'ArchLtedtwithin forty-eight hours of
the‘occ'urence.of,'such
delay."
Again/in Paragraph 28 of 'the General Conditions is'the
statement:
II The damages set for-the benefZt of ~
Owner ~.ihaliapplyat the~time for final settlement
a8 a charge:against Contractor.. Tin@ being :a
honslderation in :awardingof the~"contractOwner
accepts the above stipulateddait@$jesas the ".-
meas~ure'ofits~damage'in~:theevent that'thework
is'not substantially .coritplete'd~gnd,',ready,for
'occupandy,,onthe Contract CompletXon Date; The
said sums are ~agreed'uponas the measure-of
lSP,uidated~,damages'andshall not be,considered in
any sense as penalties."
Paragraph 3 of ~Addendum#l to this contract againemphasized
the time~element:
"@me? ~desires to'be able‘to ,pi?ovide
hausin for stuaentsfor~ the Pa~U Semester``of
,1953-,e:.,
opening'~on-or~,~aboutSeptember.~1,~,1953.
Bidders'should'~notethat both loti'cost&-&time
fo+``obxipaticyare ~of'vital:concern.,to~
Owner and
that cost should ``nbt be penalized adversely to
save time and"simllarly~that time~should'not be
penallied tomsavecost. Tiine~of'completion,,how-
ever'may 'be a factor in awarding a.,contractas
betHeen twosbidsreasonably close'together. At
least partial ocixpancy of Hen'sand Women's @ormi-
tory Buildings by Septemb~erI,,1953 is desirable,
tiith~completionof 'the remainderof the,work.there-
after as is feasible.,"
The Contractor's 'bid,df 427calendar'~days 'was
accepted by the Board~of Directors'of'Texas Southern
,University. Completion @at,eaccording ,to the bid'submitted
Mr. Milburn Lathan, page 3 (s-145)
by Contractor was'December 16, 1953. Under the provisions
of Paragraph 27, supra,'the Contractor requested"and the
Architect granted extensionsof 60'days because of weather
conditions and of 70 days because of general strikes. This
total 130 days extended the Contract Completion Date to April
25, 1954. However, Contractor did not complete the
dormitory group contract ,untilAugust l/1954, when the
Union Building was substantially ready~for use. The two
dormitories were substantially ready for use on or about
June 1, 1954.
You ask three q,uestionsin regard to the foregoing
statements:
1. Is the provision in the contract
specifying a fixed sum as liquidated damages for
default in completion date an enforceable obli-
gation under the facts presented?
2. Is the collection of the sum specified
as liquidated damages discretionary or mandatory
with Texas Southern University?
3. Does the completion date of the last com-
~pleted building determine the completion date or
can a partial completionbe recognized for the
p'urposeof determining liquidated damages on a
pro rata basis?
The leading ~case'on the subject of liquidated
damages is Sun Printing and Publishing Association v. 'Moore,
183~U.S:642, 22 S,Ct. ,240, 46 L. Ed. 366 (1902). Beginning
at page 673 the Court q.uotesfrom an early New York case the
applicable rule:
?ihen the parties to a contract, in which
the damages to be ascertained, growing out of a
breach, are uncertain in amount, mutually agree
that a certain sum shall be the damages, incase
of fail'ure to perform, and in language plainly
expressive of s,uchagreement, I know of no sound
principle or rule applicable to the construction
of contracts, that will enable a.court of law to
say that they intended something else. Where
the sum fixed is greatly disproportionate to the
presumed actual damages, probably a court of
equity may relieve; b,uta court of law has no right
to erroneously construe the intention of the
parties, when clearly expressed, in the endeavor
Mr. Milburn Lathan, page 4 (S-145)
to make better contracts for themthan they have
made for themselves. . *'
In the instant situation it is clearly apparent
that the University has suffered~substaritial,actualdamage
&used by~the delay. The construction of ~the'buildings
was financed'tiiththe proceeds froman issue of revenue
bonds. The bonds are to be paid fromthe revenues earned
from the operation of the buildings, It has been determined
that a revenue in excess of $3,000 per month may reasonably
be expected from each of the dormitories, and a revenue in
excess of $50,000 per month may reasonably be expected from
the operation of the UnionBuilding. The liquidated'damages
provided in the contract have a reasonable relationto the
acixal damages, are not punitive, and'therefore are valid
charges against the Contractor. Stewart 'v.Basey,,l50
Tex. 666, 245 S.W.2d 484 (1952).
The provision forliquidated damages need not be
apportioned because some of the buildings were completed
at an earlier time than the completion date for the last
b,uilding.-The contract was a~single contract for three
buildings, and until the last b,uildingwas completed it can-
not be contended that there was compliance.with-the contract.
The~case .of Wise v. United States, 249 U.S. 361, 39 S.Ct;
303, '63,L.Ed. 647 (1919) involved a contract to build two-
buildings for the Department of Agriculture in Washington,
D.C. The Supreme Court expressly rejected the'argument
that an apportionment of liq,uidateddamages should'be
accorded for the completionof 'one building prior to final
completion of 'the other building and of ~the contract. In
concluding the Court made a statement which controls your
situation:
"There is nothing in the contract or in the
record to indicate.that the partiesdid not take
into consideration, when estimating ,theamount of
damage which would be caused by delay,,the prospect
of one building being delayed and the other not, and
the amount of the damages stipulated, having regard
to the circumstances of the case, may well have been
adopted with reference to the probability of such
a result."
Since the charge for liquidated damages has
accr,uedagainst the~Contractor,,it is now mandatory that
the~Board of Directors of Texas Southern ~Universitycollect
this liquidated sum. Sections 53 and 55 of Article III of
the Constitution of Texas prohibit the~release of any
indebtedness, liability or obligation of any corporation or
Mr. Milb,urnLathan, page 5 (S-145)
individual to this State. The Board of Directors of Texas
Southern University operate under powers delegated to them
by the Legisla,ture. Certainly the Legislat~ure'hasnot,
and could not grant to them powers which the Legislat,urehas
not itself.
SUMMARY
The Provision in the dormitory group contract
specifying lfquidated damages is an enforceable
obligation.
The completion date on the last building
determines the completion date of the contract.
No apportionment of liq,uidateddamages is provided.
It is mandatory that the Board of Directors of
Texas Southern University collect the s'umspecified
as liquidated damages.
Yours very truly,
JOHN BEN SHEPPERD
Attorney General
BY
APPROVED: Billy E. Lee
Assistant
J; C. Davis, Jr.
County Affairs Division
'W. V. Geppert
Reviewer
Phillip Robinson
Reviewer
Robert S. Trotti
First Assistant
BEL:es