Case Name: David Murphy, Respondent, v. The United States Fidelity and Guaranty Company, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1905-01
Citations: 100 A.D. 93
Docket Number: 
Parties: David Murphy, Respondent, v. The United States Fidelity and Guaranty Company, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 100
Pages: 93–99

Head Matter:
David Murphy, Respondent, v. The United States Fidelity and Guaranty Company, Appellant.
A provision in a contract for an allowance of five dollars a day by way of liquidated, damages “for each and every day hereafter the said work shall remain incomplete ” — construed not to apply to a total abandonment, but simply to a delay in executing a contract.
David Murphy, who had taken a contract to construct a library building, which he was required to complete on or before November 1, 1902, entered into a contract with the G. K. Perry Stone Company, by which the latter agreed to furnish the cut stone required in the erection of the building. The contract provided that all the stone should be delivered on or before August 1, 1902, and that if the Perry Company should fail to finish the work within the stipulated period it would pay as liquidated damages.five dollars per day " for each and every day hereafter the said work shall remain incomplete.”
The Perry Company furnished Murphy with a bond which provided, “the condition of the foregoing obligation is such that if the said Principal shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants and conditions of the said contract on the part of the said Principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law.” The bond also contained the condition that the surety thereon should have the right to complete the contract of the Perry Company if the latter should default in the performance thereof.
The Perry Company made default in the performance of the contract on August 1, 1902. The surety on the bond was notified of the default, but did not eleejt to undertake the performance of the contract, and Murphy then relet the contract for the furnishing of the stone to another party.
Held, that the stipulation in the agreement with the Perry Company providing for an allowance of five dollars a day “by way of liquidated damages” “for each and every day hereafter the said work shall remain incomplete,” did not constitute the "basis of the surety’s liability upon the bond, as’this provision contemplated the performance of the contract, although, at a later date than . that prescribed therein, and did hot apply to the.ubanticipated/contingeücy of, a total abandonment of the contract by the Perry Company.
■ Appeal by the defendant, The United States Fidelity and Guaranty Company, from a judgment of the Supreme-Court in favor of the plaintiff, entered, in the ,ofñc¿ of the clerk of the county of' Onondaga on the 29th day of December, 1903, upon the report of a referee." 1
Thomas Hogan, for the appellant.
William F. Hodge, for the respondent.

Opinion:
Spring, J.:
. On- the 10th day. of Augiist, 1901, the plaintiff entered into an agreement with the city of Syracuse to erect the Carnegie Library building in that city, The price to be paid was $1-33,897,. and the building was to be completed on or before November 1,1902. The contract contained a provision that in the event of the failure to complete the building at the stipulated- period, delay from inclement' weather, strikes, etc., excepted, the contractor should be charged with a per diem sum as damages to be fixed by the building- committee representing the city, in the construction of the building. The contractor executed and delivered a bond to the said ci;ty in the penalty of $66,949 for the faithful performance of the agreement by .him.
On December, 7, 1901, the plaintiff.entered into an agreement in writing with the G, IL Perry Stone Company of Indiana, whereby said stone company agreed to furnish - and deliver F. O.. B:, Syracuse, the cut stone required in the erection of said building fop the" sum of $23,000. ' Said stone Was to be Bedford Indiana cut stone, and prepared conformably to the specifications which were a part .of the plaintiff's contract with the city, and it was all to be delivered on or before August 1, 1902. The agreement provided that if the Perry Company should-fail to finish the work" within the stipulated period it should pay as liquidated damages five dollars per 'day " for each and every day hereafter the said work shall remain 'incomplete." The stone was to be used during the erection of the building, and payments Were to be made as fast as -the stone were supplied. It is, therefore, a fair deduction that the parties expected the deliveries of the stone would be made in substantial quantities during the spring and early summer of 1902, in order that the erection of the building might be hastened forward in the favorable season of the year.
' The defendant is a surety and guaranty company located at Baltimore, Md., It duly executed to the plaintiff its bond in the penalty of $6,000, bearing date March 5, 1902, indemnifying him against loss by reason of the failure on the part of the said Perry Company to perform the aforesaid agreement. The. bond contained the following condition: " Now, therefore, the condition of the foregoing obligation is such that if the said Principal shall well and truly indemnify and save harmless the said obligee from any pecuniary loss resulting from the breach of any of the terms, covenants and conditions of the said contract on the part of the said Principal to be performed, then this obligation shall be void; otherwise to remain in full force and effect in law."
The bond also contained the condition that the defendant should have the right to complete the said contract with the G. K. Perry Stone Company in case the said principal defaulted in the performance thereof.
The Perry Company commenced the delivery of the stone pursuant to its agreement, but on the 1st of July, 1902, it had shipped to the plaintiff only about one-tentli of the quantity called for by its contract. The fact became apparent that the stone would- not be •delivered by August first- and the prosecution of the building was much retarded by the delay of the Perry Company. On July second the plaintiff advised the defendant, by letter, of the small amount of stone already delivered and of the probable default in performance by its principal. The defendant was represented by local agents in the city of Syracuse who had been apprised of the delay to the plaintiff by reason of the failure of the Perry Company to supply him with stone in the quantities intended when the agreement was made. These complaints were repeatedly made to said agents during the month of July and they were communicated to the defendant. The plaintiff also directly informed it during the month of July that no stone whatever had been delivered since July first, and none in fact was shipped to the plaintiff after that date. The defendant, therefore, even before the expiration of the period for the ¡jerformance of the agreement, was fully advised of the real situation and of the likelihood that there would be a default by its principal. It made no attempt apparently to urge the prosecution of the work by the Perry Company or to relieve the plaintiff from the embarrassment caused by the delay in failing to ship the stone in accordance with the evident purpose of the parties.
The Perry Company defaulted on August first, and about that time made an assignment for the benefit of creditors. The plaintiff promptly notified the agents of the defendant in Syracuse of the default and endeavored to ascertain whether the defendant elected to complete the performance of the work undertaken by the Perry Company. The communications and conferences between these local agents of the defendant and the plaintiff Were frequent during the early part of August. The defendant was kept fully informed of them. The plaintiff also several times wrote to the defendant asking for instructions concerning the performance of the Perry agreement, but elicited no response.
In the meantime -the plaintiff received bids for the furnishing of these cut stone, which were of a particular variety, and to be furnished as specified in the original agreement with the city.
On the twelfth of August these agents of the defendant notified the plaintiff to let the contract to the lowest bidder. Immediately the plaintiff accepted the bid of the South Side Stone Company, also an" Indiana corporation, for the completion of -the work commenced by the Perry Company. The price to be paid was $23,000,- and the South Side Company was the lowest bidder for the performance of - the work, and the one next above it was for the sum of $35,000. On that day, and after the acceptance of the bid and after the contract had been executed by the plaintiff, but before it was signed by the South Side Company, the defendant notified its agents to take no action in the matter until further instructions, and plaintiff was advised of said message. He at once requested the South Side Company to defer action, and the matter was held in abeyance until August eighteenth, when the South Side Company wired the plaintiff asking if it should proceed with the delivery of the stone, and he advised it to do so and work was. commenced at once, and the agreement was subsequently executed.
These facts are substantially undisputed, and the referee has properly found that the plaintiff gave the defendant a reasonable opportunity and deferred action a reasonable time before entering into any other agreement.
The defendant, during the month of July, knew of the delay made by its principal, and was fully assured that a default was apt to occur. 1 It was also aware of the importance of prosecuting the work vigorously during the summer season. It, however, made no effort to expedite the work or to prepare for intervention when the crisis was reached. The urgency of the necessity of the plaintiff to obtain the stone was constantly presented to it but to little purpose. The situation called for' energetic and vigilant effort on its part, but' it was met listlessly amd with no apparent comprehension of the needs of the plaintiff.
Unless, therefore, there is some legal objection to the plaintiff recovering the damages he sustained and which fairly resulted from the failure to perform the agreement by the Perry Company, we are satisfied that the judgment should be sustained.
The defendant contends that the stipulation in the agreement with the Perry Company providing for an allowance of five dollars a day " by way of liquidated damages " is the limit of the plaintiff's recovery and is a substitute for compensation for any actual damages which he may have sustained. In order to construe a provision of this character it is necessary to understand the situation at the time of the execution of the agreement and what the parties had in mind by it. They inserted this provision in anticipation of the full performance of the agreement. If the Perry Company carried out its contract, except that it was not completed by August first, the damages for delay were to be limited to the stipulated sum! Neither party contemplated an absolute abandonment of the work by the Perry Company. When that occurred the relations of tlie parties changed. There was an ending of the agreement and the burden was then placed upon the plaintiff to go elsewhere to secure the stone which was to be furnished by the Perry Company. His contractual relations with that corporation had ceased. On the other hand, had it performed the work although extending beyond the prescribed date the contract would have been in force. By its terms delay in performance had been anticipated and provided for. No provision had been made to meet the unlocked-for contingency of total abandonment. The bed rock of the stipulated sum'" by way of liquidated damages " was the ultimate fulfillment of the contract, so that the rights of the parties could be gouged by that instrument with the work completed. The language employed is, " Should the contractor: fail to finish the work at or before the time agreed upon " the per diem allowance is to be paid " for each and every day hereafter the said work shall remain incomplete " unless " delayed," etc.
The only reasonable, interpretation which can be given to this provision is the one suggested, that the liability for the stipulated sum did not accrue until the contractor had fulfilled his agreement, and, consequently,. it cannot be available to bar the plaintiff recovering the damages actually sustained by him on account of the renunciation of the agreement. The per diem allowance, was not to be paid in lieu of performance, but upon performance after the time fixed in the agreement.
. In each of the cases cited by the counsel for the appellant there had been a completion of the contract, or else the controversy turned on the question whether the stipulated sum was intended as liquidated damages or a penalty (Curtis v. Van Bergh, 161 N. Y. 47; Dunn v. Morgenthau, 73 App. Div. 147), or the actual dam-. ages were difficult of ascertainment, or the stipulated amount was vastly disproportionate to the loss. (Ward v. Hudson River Building Co., 125 N. Y. 230.) As was said in Phœnix Ins. Co. v. Continental Ins. Co. (87 N. Y. 400, 405): " The rule, deduced from the authorities, is, that when there is a covenant to do, or not to do a particular• act, under a penalty, the covenantor is bound to do, or refrain from doing,, the very thing, unless it appears from the particular language, construed in the light of the surrounding circumstances, that it was the intention of the parties, that the payment of the penalty should be the price of non-performance, and to be accepted by the covenantee, in lieu of performance. The question to be considered is, what was the primary intent of the agreement ? If the primary intent was that the covenant should be performed, the annexing of a penalty is regarded merely as security for the performance of the covenant, and not as a substitute for it."
If the defendant had availed itself of its privilege and completed the contract of its principal a different question would he presented It then would'have been subrogated to the rights of the Perry Company and the contract would have been continued in force and the stone delivered in pursuance of it..
The plaintiff's claim consisted of many items for increased expense? and costs incurred by him for carrying on the work in the winter and for money expended for freight and other charges which were enumerated. The referee has found that the South Side Stone Company and the plaintiff diligently pushed the work to completion and did their utmost to avoid loss and extra expense. Despite their efforts the work ran .into the winter and increased costs and expenses were incurred by the plaintiff on that account. Several items of his claim were disallowed by the referee and it was substantially pared down. While one or-two of the items allowed rest on rather a fragile foundation, yet they are supported by the testimony of the plaintiff, and there is very little contradictory evidence to the specific items. The referee had the advantage of the personal presence of the witnesses and we are disinclined to interfere with the estimate he has made.
The judgment should be affirmed, with costs.
All concurred,
Judgment affirmed, with costs.