Case ID: ill_267/html/0136-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Chief Justice Cartwright", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Parker-Washington Company, Plaintiff in Error, vs. The City of Chicago, Defendant in Error.
    
      Opinion filed February 17, 1915.
    
    1. Contracts—parties who are competent and free to contract may make their own contracts. The law permits parties who aré competent to contract and free to do so, to exercise their own judgment in making their contracts, and the proper function of the courts is to enforce such contracts as made, where they do not conflict with any rule of law or good morals or the declared public policy of the State.
    2. Same—contracts by which parties agree beforehand on the amount of damages for breach are, as a rule, valid. Contracts by which parties who are competent to contract and under no compulsion clearly agree beforehand upon the ■ amount of damages which shall be allowed for a breach are as lawful as any others unless they- are inhibited by some rule of law.
    3. Same—if intention is in doubt, courts are inclined to construe stipulated sum as a penalty. If the intention of the parties is in doubt the courts are inclined to construe the stipulated sum to be paid in case of a breach of the contract as a penalty, because the theory of the law generally is that compensation will work justice between the parties.
    
      4. Same—how intention of the parties will be ascertained. In order to determine whether a stipulated sum to be paid for the breach- of a contract was intended to be a penalty or liquidated damages, the court will consider the language used and the subject matter of the contract, and the use of the word “liquidated” docs not always determine the question.
    5. Same—when a stipulated sum in gross will be held to be a ■penalty. Where different acts to be performed are of unequal importance, some resulting in great damage and others in trifling loss, a stipulated sum in gross to be paid for failure to perform any one of the acts will be construed as a penalty.
    6. SAMUr—when provision for a stipulated sum to be paid for breach of contract will be upheld. Where the damages which will result from a failure to perform a contract are of such a nature that they cannot be definitely ascertained or proved, and the parties, being competent and free to contract, have stipulated a sum as liquidated damages in case of a failure to perform the contract, their agreement will be upheld. <
    7. Municipae corporations—when provision that a city may retain $50 for each day passing after date for completion of con'trac4 will be enforced. A provision in a contract with a city for the erection of a pumping station to supply water for the use of the inhabitants and for protection against fire, that the city may retain, as its ascertained and liquidated damages, $50 for each day between the time fixed for completing the work and the time of its actual completion, is valid and will be enforced even though completion was delayed by failure of contractors for other work in connection with the water tunnel to complete their work.
    Writ of Error to the .Branch “D” Appellate Court for the First District;—heard in that court on appeal from the Municipal Court of Chicago; the Hon. William N. Cottrell, Judge, presiding.
    Olsen & Boord, (Clarence N. Boord, of counsel,) for plaintiff in error.
    William H. Sexton, Corporation Counsel, (George L. Reker, and Max M. Korshak, of counsel,) for defendant in error.
   Mr. Chief Justice Cartwright

delivered the opinion of the court:

On September 10, 1909, the Parker-Washington Company, plaintiff in error, entered into a contract by which it agreed to construct for the city of Chicago, defendant in error, the foundations of a boiler room, auxiliary buildings and chimney of a pumping station at One Hundred and Fourth street and Stewart avenue, in the city of Chicago, and to complete the same, by December 22, 1909. The work was not" completed until March 5, 1910, seventy-three days after, the date fixed for its completion. The contract contained the following provision: “It is distinctly understood and .'agreed by the parties hereto that the work to be performed hereunder shall be completed within the time hereinabove fixed for its completion. Inasmuch as failure to complete the same within the time herein fixed will work an injury to the city of Chicago, and as damages "arising -from such failure cannot be calculated with any degree of certainty, it is hereby agreed that if such wprk js_ not.fully completed within the time fixed herein there shall be deducted from the contract price and retained by said city, as its ascertained and liquidated damages, the sum of fifty dollars ($50) for each and every day passing after the date fixed for the completion, until said work is fully completed as specified.” When the work was completed the defendant in error retained the stipulated sum of $50 a day for the seventy-three days as liquidated damages and the remainder of the contract price was paid. The plaintiff in error brought suit in the municipal court of Chicago for the sum so retained and also for a balance due on another contract. The court tried the case without a jury and found in favor of the plaintiff for a balance due on the other contract, but found against the plaintiff on this contract on the ground that the defendant was justified in retaining $3650 as liquidated damages. Judgment was entered accordingly, and the plaintiff appealed to the Appellate Court. for the First District and assigned as error the holdings of the municipal court on propositions of law and the refusal to allow the full sum claimed on both contracts. The Appellate Court affirmed the judgment, and a writ of certiorari was awarded to bring the record to this court for review.

The law permits parties competent to contract and free to do so, in the exercise of their judgment, to make their own contracts, and the proper function of courts is to enforce such contracts as made, where they do not conflict with any rule of law or good morals or the declared public policy of the State. When the intention of the parties to a contract is ascertained it is ordinarily the duty of the courts to carry it out, (United States v. Bethlehem Steel Co. 205 U. S. 105,) and they cannot properly assume a guardianship over those who have the requisite capacity and are free to make such contracts as they may choose. Contracts by which parties who are under no compulsion agree beforehand upon the amount of damages which shall be allowed for a breach are as lawful as any others unless they are inhibited by some rule of law. There is a class of contracts in which stipulations for liquidated damages are not permitted because the law has fixed a definite standard for such damages and an agreement to pay more is necessarily in violation of the law. Those are cases where there is an agreement to pay a certain sum of money, or in default to pay a sum exceeding the lawful'rate of interest, as liquidated damages. (Tiernan v. Hinman, 16 Ill. 400; 13 Cyc. 101.) That rule was alluded to in Peine v. Weber, 47 Ill. 41; and in the case of Scofield v. Tompkins, 95 id. 190, where the agreement was held to be for a penalty and not liquidated damages, the contract was to pay $22,770 as the price of land, and also as liquidated damages in case the sum was not promptly paid. Where the agreement does not interfere with any rule of law the intention of the parties, as in all other cases, must govern. Where the intention of the parties is in doubt the courts are inclined to construe the stipulated sum as a penalty, because the theory of the law generally is that compensation shall be the rule and the application of that rule works justice between the parties. (Iroquois Furnace Co. v. Wilkin Manf. Co. 181 Ill. 582.) In order to determine whether a stipulated sum to be paid for the breach of a contract was intended to be a penalty or liquidated damages, the court will consider the language used and the subject matter of the contract to ascertain the intention of the parties. The use of the word “liquidated” does not always determine the question, and in the case of Iroquois Furnace Co. v. Wilkin Manf. Co. supra, the fact that the supplemental contract recited that the purchaser was desirous that the contract should contain a penalty in the nature of stipulated damages was given weight. With respect to the subject matter of the contract, if the provision has reference to uncertain damages and the case shows that serious damage might have been incurred, and no fraud has been used in procuring the contract, the courts cannot interfere and the stipulated sum furnishes the full ■ measure. Generally, the language in which the parties have expressed their intention will control. One matter to be considered is the question whether different acts to be performed are of unequal degrees of importance, some resulting in great damage and others in trifling and inconsiderable loss. In such a case, if a stipulated sum in gross is to be paid for a failure to perform any one of the acts the sum will be construed as a penalty, because it cannot be presumed that the parties intended to satisfy a breach of either condition by the same stipulated sum. (19 Am. & Eng. Ency. of Law, 40; 13 Cyc. 101.) That doctrine does not apply to this case, for the reason that the sum agreed upon as liquidated damages related to the completion of the entire work. Where the damages that will result from a failure to perform the contract are of such a nature that they can not be definitely ascertained or proved and the parties have stipulated a sum as liquidated damages, there is no reasonable ground for saying that the parties did not intend to fix and define the amount of damages and their agreement will be upheld. These rules are. to be gathered from the following decisions: Peine v. Weber, supra; Poppers v. Meagher, 148 Ill. 192; Gobble v. Linder, 76 id. 157; Hennessy v. Metzger, 152 id. 505; Westfall v. Albert, 212 id. 68; Pinkney v. Weaver, 216 id. 185; Western Gas Construction Co. v. Dowagiac Gas and Fuel Co. 146 Mich. 119; 10 Ann. Cas. 224.

We do not see how there can be any. doubt as to the meaning of the parties as expressed in this contract, inasmuch as they specified that the failure to complete the work would work an injury to the city and the damages arising from the failure could not be calculated with any degree of certainty, which brings the case exactly within the rule of law on the subject. Not only did they express the fact that the damages could not be calculated with any degree of certainty, but that was the truth. The construction contracted for was a part of a pumping station for pumping water from Lake Michigan, to be distributed to the south and southwest parts of the city for the use of the inhabitants and for protection against fire. The city, in its corporate capacity, would suffer no damages by the failure to complete the work, but the citizens in whose behalf the contract was made would suffer damages which it would be practically impossible to prove. The contract was made by the city for the purpose of preserving the health and promoting the convenience and welfare of its citizens and protecting them and their property. (Brooks v. Wichita, 114 Fed. Rep. 297.) It is beyond question that there could be no estimate of damages or compensation for the inconvenience to the public or damage resulting from a failure to complete the contract as agreed, (Harlev v. Sanitary District, 226 Ill. 213,) and if the parties did not intend that the stipulated sum should be liquidated damages they did not intend that any damages could be recovered, since none could be proved.

Counsel insist that the defendant could retain nothing as liquidated damages because contractors for other work did not complete their contracts, and the pumping station, therefore, could not be used before the plaintiff completed its work. The pumping station was designed to bring water through a tunnel from Lake Michigan, and the tunnel was divided into three sections and different contracts were let for the construction of the sections. By these contracts all the work- was to be completed more than nine months before the time fixed for the completion of this contract, but the tunnel was not completed until after the work of the plaintiff had been finished. Neither the intention of the parties nor the construction of the contract can depend upon what happened afterward, which was not reasonably in contemplation when the- contract was made. Cases where the actual damages suffered have been capable of ascertainment and could be considered by the parties do not apply to the situation here. It was intended that each contract should be performed within the time agreed upon, and if there was a similar stipulation in every contract, the argument would lead to the conclusion that each one could say that nothing could be deducted from his contract price because someone else had not performed.

The contract was construed by the municipal court in accordance with the views we have expressed and the propositions of law held were in harmony with such views.

The judgment of the Appellate Court is affirmed.

Judgment affirmed.