Court Opinion

ID: 5245397
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:57:30.100087+00
Date Added: 2024-06-11T08:27:51.621953
License: Public Domain

Scott, J. (dissenting):
In my opinion the judgment appealed from is right and should be affirmed. We have here the old question, so much discussed in the authorities, whether a sum of money deposited with a landlord by his tenant, and declared to be deposited as liquidated damages in case of a breach, should be treated as a penalty, and, therefore, not to be retained after the breach has occurred.
At first glance many of the authorities on the subject would appear to be contradictory, but that appearance is due in the main to the differing circumstances under which the several leases considered have been made, and in part to the strong disinclination which the courts at one time exhibited to enforcing a penalty, whether provided for by a lease or by any other form of contract. The last-mentioned reason for refusing to enforce covenants for the payment of stipulated sums as liquidated damages is by no means so potent as it once was. As was remarked by Mr. Justice Peckham in United States v. Bethlehem Steel Co. (205 U. S. 105, 119): “The courts at one time seemed to be quite strong in their views and would scarcely admit that there ever was a valid contract providing for liquidated damages. Their tendency was to construe the *544language as a penalty, so that nothing but the actual damages sustained by the party aggrieved could be recovered. Subsequently the courts became more tolerant of such provisions, and have now become strongly inclined to allow parties to make their own contracts, and to carry out their intentions, even when it would result in the recovery of an amount stated as liquidated damages, upon proof of the violation of the contract, and without proof of the damages actually sustained. ” In Sun Printing & Pub. Assn. v. Moore (183 U. S. 642, 660 et seq.) the present chief justice of the United States Supreme Court exhaustively examines the authorities upon this subject in England and in this country and especially in this State, and concludes by citing with approval from Clement v. Cash (21 N. Y. 253, 257) as follows: “When 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 in case of a failure to perform, and in language plainly expressive of such agreement, 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. * * * When they declare, in distinct and unequivocal terms, that they have settled and ascertained the damages to be $500, or any other sum to be paid by either failing to perform, it seems absurd for a court to tell them that it has looked into the contract and reached the conclusion that no such thing was intended; but that the intention was to name the sum as a penalty to cover any damages that might be proved to have been sustained by a breach of the agreement.” The omitted portions of the quotation refer to cases wherein the language of the covenant is doubtful, which is not this case, and to the power of a court of equity (but not of law) to give relief against a stipulation for excessive damages in certain cases. Although the present action is brought in equity because it seeks, besides recovering the deposit, to enforce a lien upon the demised premises, the complaint does not ask that ' the covenant as to liquidated damages be modified or declared inequitable, but, so far as concerns the right to recover the amount, it stands upon plaintiff’s legal right.
The general rule for determining whether a sum deposited *545as security shall in case of breach be considered as liquidated damages- or as a penalty is that it depends upon the intention of the parties at the time the contract is made, and in ascertaining what that intention was we are to consider not only the language they used, but the conditions which existed when the contract was made. (Caesar v. Rubinson, 174 N. Y. 492.) What the court is concerned with is to construe and enforce the contract which the parties made for themselves, not to make a new contract for them. Therefore, while the language alone is not always sufficient to establish the real intention, and the surrounding circumstances are to be taken into account, these circumstances are those which exist at the time the parties contracted, and the probabilities as to the extent of damage by a breach in the future which are apparent to the parties at that time, not at some future time and under circumstances which could not have been foreseen with any certitude when the contract was made. If at the time the lease in suit was made it may have been impossible to estimate the amount of the loss to the lessor resulting from the lessee’s failure to pay rent, that is, the parties could not look forward and foresee the amount of loss to the lessor, it is that condition which the parties must be assumed to have had in mind when they stipulated, in terms, for liquidated damages, and the fact, if it be a fact, that after the breach took place and the damage was caused, it was quite possible to point out and estimate the damage resulting from the breach could have had no bearing upon the intention of the parties when the lease was made.
So far as the language of the lease is concerned it could not easily have been made stronger. Not only is it stipulated that the deposit shall be held as liquidated damages to compensate the landlord in the event of a breach by the lessee, but the reason for so stipulating is explicitly given in that “it is impossible to estimate or determine what the damage would be ” in case of a breach. These words, or their equivalent, were found in the lease under consideration in Feyer v. Reiss (154 App. Div. 272), and are cited by the court as serving to establish the intention of the parties that the deposit should be *546considered liquidated damages. Ro similar words appeared in the lease considered in Feinsot v. Burstein (161 App. Div. 651; 213 N. Y. 703), where there was a simple declaration that in case of default the deposit should he retained as liquidated damages and not as penalty. In that case it was not stated in the lease, nor shown upon the trial, that under the circumstances existing when the lease was made the parties could have anticipated any difficulty in estimating the damages which might flow from a breach.
In the present case the contract between the parties was much more than an ordinary lease. The lessor undertook to purchase a lot of land and construct a large building thereon comprising a theatre capable of seating upwards of 2,000 people, with its equipment, and also an inclosed roof garden with stores, meeting rooms and a ballroom. All this was to be rented by the lessee for a term of ten years, with an option to renew for a further term of eleven years. This required, as the court has found, an initial expenditure of $667,000 by the lessor. The deposited security amounted to one year’s rent, or ten per cent of the aggregate rent reserved by the lease, which up to $52,000 was to be appropriated to the payment of the last year’s rent providing the lease ran so long, the lessor meanwhile paying interest on the whole sum deposited. I think it is impossible to say that any man could have foreseen, with even approximate exactitude at the time the lease was made, what the probable loss would be to the landlord in case the tenant should default at some time during the next ten years — whether he could or could not get another tenant who would care to use the building for the purpose for which it was expressly built, and if so what rent could be secured — whether if he were obliged to alter it so as to adapt it to other purposes, how much it would cost and what rent could be realized after such alterations and how long the building would have to remain vacant pending the procurement of another tenant or during alterations. All these were matters which might occur in the future, which could not be foreseen and the consequences of which, as bearing upon the lessor’s damage could not be estimated in advance.
I think that, for these considerations, the case is brought *547directly within the authorities which hold that a stipulation in a lease for liquidated damages in case of default, should be construed and enforced as it is written. And for the same consideration I do not think that in view of the value of the property involved, its peculiar character, and the length of the lease, the amount stipulated for damages was so large as to shock the conscience of' the court. Under easily conceivable circumstances the loss to the lessor might readily equal or even exceed the amount retained as security.
There is yet another reason why the complaint was properly dismissed. The sum deposited was in any event to be held as security for the full performance of each and every of the terms of the agreement, one of which was that in case the premises became vacant the landlord might re-enter and lease the property as agent of the tenant, who agreed to remain liable for any deficiency. This condition survived the dispossession, and the action was, therefore, prematurely brought, for the premises became vacant within the meaning of the lease when the tenant was dispossessed. (Halpern v. Manhattan Avenue Theatre Corporation, 173 App. Div. 610; affd., 220 N. Y. 655.)
The judgment appealed from should be affirmed, with costs.
Judgment reversed, with costs, and judgment ordered for plaintiff as directed in opinion, with costs. Order to be settled on notice.