Kelley v. Seay

OPINION OF THE COURT. The opinion of the court was delivered by The written instrument sued on in this case is a bond or obligation dated July 28, 1891. In the first clause of the instrument the obligor binds himself in terms to pay the sum of three hundred and twelve dollars and fifty cents. The condition of the bond is, that if the obligor shall build, erect and complete a residence house on his certain land bought from the obligee, in the time (by February 1, 1892,) and at the cost ($1,500) aforesaid, "then this obligation to be null and void, otherwise to remain in full force."

And the defendant answers that he forthwith commenced the construction of the said dwelling house, on the said land, the cost of which on February 1, 1892, although but partially finished, was largely in excess of $1,500, to-wit: $4,000, the ultimate cost to be $10,000. It appears from the evidence that the house was completed during the spring before the suit was brought, on the 24th day of September, 1893. There is no allegation of damage in plaintiff's complaint, or any injury or damage attempted to be proven in the evidence.

If this suit had been brought prior to the time of Sir Thomas Moore. in the reign of Henry VII., there is but little question what would be the fate of the defendant in this case. No defense would avail him but a release under seal, as the original bond must then have been under seal which alone implies consideration. In vain he might have protested the failure of plaintiff to allege or prove specific breaches or damages, or have asserted the doctrine that time is not the essence of the contract, or invoke the equitable principle now well established in relation to penalties and forfeitures. These humane meliorations of the severity of the common law, were then unknown, and now they mark the gradual development of law as a moral science from the early barbarous technical practices of pristine jurisprudence, to the broader, more discriminating and substantial requirements of modern conception of justice. In vain might the distinguished defendant have been pointed to the pandects of Justinian, and discovered there the rich treasures of legal lore and practical moral value, to which the equity jurisprudence of our own age is so much indebted, for he would have received the same answer that Sir Thomas Moore did from the judges whom he then unsuccessfully attempted to persuade "we cannot relieve against the penalty".

Mr. Story says: in relation to penalties and forfeitures, "the general principle now adopted is, that whenever a penalty is inserted merely to secure the performance or enjoyment of a collateral object, the latter is considered as the principal intent of the instrument, and the penalty is deemed only accessory, and therefore as intended only to secure the due performance thereof, or the damage really incurred by the non-performance. * * * If the penalty is to secure the performance of some collateral act or undertaking, then courts of equity will retain the bill and direct an issue of quantum damnificatus: and where the amount of damages is ascertained by a jury, upon the trial of such an issue they will grant relief upon payment of such damages." (2 Story Juris. § 1314.) The same great jurist further says that the "true foundation of the relief in equity in all these cases, is that as the penalty is designed as a mere security, if the party obtains his money, or his damages, he gets all that he expected, and all that in justice he is entitled to." (Id. § 1316.)

Applying these principles to the case before us, and treating the penalty of the bond as a security for the performance of defendant's undertaking to complete a house by a given date, it certainly should appear where the plaintiff has sustained damages by failure on the part of the obligor to complete the house, for which the penalty in the bond stands as security only. Now, if there is no damage, there is no more reason for enforcing the penalty than for foreclosing a mortgage when the debt is already paid. The principal thing is the debt or damage, the security is collateral; and when the first is extinguished or does not come into existence, the collateral incident is affected in like manner. In order for plaintiff to avail himself of the security of the penalty, it must appear that he has sustained damages by the non-performance of defendant's undertaking, and the extent of such damage should appear. One party is not entitled to prosecute another in a court of justice for the redress of a wrong which does not exist. Where there is no actual damage shown, see Wilcus v.King, 87 Ill. 107.

It has become a settled rule that no other sum can be recovered under a penalty, than that which shall compensate the plaintiff for his actual loss. (1 Sedgw. Damages, 8th Ed. § 393.)

The subject has also been considered by the supreme court of the United States. A written contract was entered into by which the defendants in error, T. and S. Sandiford, agreed to build for the plaintiff, three houses on Pennsylvania avenue in Washington City. A subsequent contract, under seal, was entered into between the same parties for the building of three additional houses, "the said houses to be completely finished on or before the 24th day of December next, under a penalty of one thousand dollars in case of failure." The three houses were not finished at the day. The plaintiff in error retained the sum of $1,000 as stipulated damages out of the money due defendants in error. The suit was brought, and on the trial the plaintiff in error, (the defendant below), offered to set off the $1,000 as stipulated damages, which was not allowed, and the supreme court held the charge on this point right, though a new trial was ordered on other grounds. Marshall, C. J., said: "In general, a sum of money in gross to be paid for the non-performance of an agreement is considered as a penalty. It will not; of course, be considered as liquidated damages. Much stronger is the inference in favor of its being a penalty, when it is expressly reserved as one. The parties themselves denominate it a penalty and it would require very strong evidence to authorize the court to say that their own words do not express their own intention." (Taylor v. Sandiford, 7 Wheat. 13.)

In view of the law now applicable to this case, it is obvious enough that the plaintiff having suffered no injury, is not entitled to recover, and the judgment of the court below is hereby confirmed in all things, and the cause remanded to the lower court for appropriate action.

By the Court: It is so ordered.

Burford, J., having presided in the court below, not sitting; all the other Justices concurring.