Court Opinion

ID: 5262706
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:47:58.976122+00
Date Added: 2024-06-11T08:28:06.375002
License: Public Domain

Davis, J. (dissenting):
The act of Christian Kurtzmann in organizing a corporation prior to the expiration of his period of limitation was not a violation of the contract. It was no overt act forbidden by its terms. He had a right to make plans as to what he would do when freed on December 5,1916, from the restrictive covenant.
Having in June, 1916, organized a corporation with a capital stock of $1,000, Christian Kurtzmann some time after December 5, 1916, attempted in a small way to do business and capitalize the Kurtzmann name. If plaintiffs were relying on his acts to justify their claim-for liquidated damages, they were bound to establish that Christian engaged in business in violation of the covenant before December 6, 1916. There is no such proof. What evidence is before us indicates that the circulars and advertisements were printed and circulated after that time. The sale of the first piano was in September, 1917, nine months after Christian’s right to engage in business had become fixed.
Evidently Christian had only started the business when he was called into military service on May 13, 1917. He was sent to France and did not return until June 6, 1919. Louis Kurtzmann, at his son’s request, took charge of the business to manage it, during the emergency caused by Christian’s absence. I mention this fact as significant because it negatives any deliberate and willful intent and purpose on the part of Louis Kurtzmann to violate the covenant in the contract. Anna Kurtzmann has not participated in the business.
The venture was unsuccessful. No pianos were manufactured. In a period covering more than two years only fourteen were sold. It does not appear clearly how much advertising was done by the corporation. Evidently it was inconsiderable for it resulted in the sale of a total of twelve pianos to four different firms. For how much of this Louis S. Kurtzmann was responsible is not clear, although I would deem it of importance to plaintiffs if they are depending on his violative acts as a basis of $50,000 liquidated damages against him, his wife and son. No acts but his can be relied on to sustain the cause of action.
Let us admit that the acts of Louis S. Kurtzmann in taking some charge of this small business of a son absent in his *696country’s service, and his participation, however slight, in conducting advertising and selling twelve pianos, were a violation of the letter of his covenant in the contract. Must joint and several liability of the defendants for this large sum follow as an inevitable and merciless consequence ?
Compared with what was contemplated when the contract was made, these acts seem but technical and trivial violations. Of the 1300,000 total capitalization of the corporation, Louis S. Kurtzmann sold to the individual plaintiffs his entire stock consisting of $47,000 common and $41,000 preferred. He was paid $130,000, and we must gain our knowledge of the relative value of the stock and the' good will by the conjectures we may indulge in, because it is recited in the contract that the price for the stock “ is based in large degree upon the good will of the business and its successful and continuous prosecution.” The value of the stock at the time purchased was readily susceptible of proof, but none was offered.
Anna Kurtzmann and Christian Kurtzmann owned no stock in the original corporation. Their act in signing the contract with their husband and father and making themselves severally hable for any act of his was gratuitous.
During the time that Christian Kurtzmann, Inc., was selling fourteen pianos and doing its advertising of an evidently trifling character, the plaintiffs were manufacturing and selling each year about 5,000 pianos, and they and their dealers were advertising at the rate of from $200,000 to $260,000 per year. There is not only no proof of loss, but no proof of any material interference with “ the good will ” and “ successful and continuous prosecution ” of plaintiffs’ business. The defendants had abandoned doing business more than six months before this action was brought —not an action at law to recover liquidated damages, but a suit in equity for damages, injunction and other relief.
These are the facts which lead me to differ with the majority of the court in their decision to grant the plaintiffs a judgment against the defendants for $50,000 damages, when there are no visible damages. We are not led to expect such results in a court of equity.
Where it is doubtful whether a provision should be deemed for a penalty or for liquidated damages, the courts incline *697to regard it as for a penalty, for by so doing the recovery can be apportioned to the actual damages or the loss actually sustained. (17 C. J. 937.) And in some jurisdictions the intent of the parties has been disregarded in order to avoid hardship. .(Id- 936.) There is considerable authority to the effect that where the contracts are in their nature susceptible of a trivial or partial breach for which the sum stated would be excessive, liquidated damages may not be recovered. (Id. 960, n. 10.)
. In the cases where the total amount of liquidated damages have usually been allowed, not only were damages difficult of ascertainment, but the breach was complete and actual damage resulted. The purpose in allowing damages is to make compensation for loss. I have no doubt that if there had been such substantial breach of the contract by the defendants or either of them, as to cause serious interference with the plaintiffs’ business, they would be hable for the entire sum. But it was for a breach of the “ agreements ” that defendants were to become liable — not for a slight or partial breach of one or more. Breaches of the “ agreements ” meant those actually harmful.
In Clement v. Cash (21 N. Y. 253), where recovery was permitted, the court says: “ Where the sum fixed is greatly disproportionate to the presumed actual damage, probably a court of equity may reheve.”
In Cotheal v. Talmage (9 N. Y. 551) it is said: “ When they have settled that compensation, neither a court of law nor a court of equity will diminish its amount, unless it be so grossly disproportionate to the actual injury that a man would start at the bare mention of it."
In Caesar v. Rubinson (174 N. Y. 492) the reluctance of courts to apply the stringent rule of liquidated damages where it wih result in great hardship is illustrated. There $1,000 deposited by a tenant to be retained by the landlord as hquidated damages in case of any breach of the tenant’s covenant was held to be security only. O’Brien, J., says: “ The deposit is not necessarily to be regarded as hquidated damages, although it is expressly so stated in the instrument.” And again, Whether a sum named was hquidated damages “may be dependent upon extrinsic considerations and cir*698eumstances, and the amount is not on the face of the contract out of all proportion to the probable loss.”
And again in Seidlitz v. Auerbach (230 N. Y. 167) Judge Andrews says: “ Generally whenever the damages flowing from a breach of a contract can be easily established, or where the damages fixed are plainly disproportionate to the injury, the stipulated sum will be treated as a penalty. So where a strict construction would result in absurdity. There must be some attempt to proportion these damages to the actual loss. The parties must not lose sight of the principle of compensation.” (See, also, to the same effect, Dunn v. Morgenthau, 73 App. Div. 147; affd., 175 N. Y. 518.)
Authorities might be multiplied. I have contented myself with statements of the rule chiefly from the cases cited by the appellants.
The plaintiffs had sufficient remedies. By the contract itself they might obtain injunctive relief. By an action brought on the contract or for unfair competition, actual damages and an injunction might be obtained.
There was not such a breach of the contract that it warranted the assessment of $50,000 against the defendants on any basis of compensation. The sum is too greatly disproportionate. While the intent of the parties in agreeing upon liquidated damages is to be interpreted as of the date of the contract, not as of its breach, it would be shocking to the conscience of a court of equity to hold that the parties contemplated that liability for the full amount should follow as a result of a slight infraction or partial breach of the contract; or that the court should undertake to enforce any such unconscionable agreement.
I must, therefore, regard the sum named to be intended as a penalty only, in case of minor or partial breaches of the contract; and record myself in favor of affirmance.