Court Opinion

ID: 6861704
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:49:27.792436+00
Date Added: 2024-06-11T16:05:15.399603
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
The majority opinion, as it seems to me, wrongly confuses two distinct obligations of the appellant’s bond and thereby supports a decree which can rightly be supported by neither. The obligation to make the $60,000 worth of improvements by November 30, 1936, carries a valid liquidation of damages for failure at $100,000 as is shown in the opinion, but that obligation has not yet been breached. The obligation to pay rents, taxes, etc., prior to November 30, 1936, has been breached, and the default is exactly $25,984.25 as found by the decree; but the effort to liquidate damages under this obligation at $100,000 is plainly futile, and the bond itself recognizes it, for it pro*119vides that if the principal of the bond cannot be considered as liquidated damages, the bond shall remain in effect until exhausted by damages for successive defaults. The exact provisions under discussion are as follows :
“ (b) That should the Lessee fail to erect the improvements called for in the Lease Contract and hereinabove mentioned, on or before November 30, A. D. 1936, said Lessee and the Surety Company shall thereupon be bound and obligated unconditionally to pay to Lessors at Fort Worth, Texas, the full sum of One Hundred Thousand ($100,000.00) Dollars, not as a penalty but as liquidated damages, to compensate the Lessors for the damages sustained by them for such default, the amount of damages that would be sustained by Lessors for such default being uncertain and difficult of ascertainment and the parties hereto having agreed upon such sum in advance.
“(c) That should the Lessee at any time prior to the completion of the improvements called for herein, and prior to the time payment therefor has been made as required in the original Lease Contract and prior to November 30, A. D. 1936, fail or refuse to pay the rents, taxes and insurance, or keep and perform any of the obligations imposed on it by the terms of said Lease Contract, and should such default continue for thirty days after registered letters are mailed to the Lessee and the Surety Company calling their attention to any such default, said Lessee and the Surety Company shall thereupon be bound and obligated unconditionally to pay to Lessors at Fort Worth, Texas, the full sum of One Hundred Thousand ($100,000.00) Dollars, not as penalty but as liquidated damages to compensate the Lessors for the damages sustained by them for such default, the amount of damages that would be sustained by Lessors for such default being uncertain and difficult of ascertainment and the' parties hereto having agreed upon such sum in advance.-
“(e) That in any event the total liability hereunder is the sum of One Hundred Thousand ($100,000.00) Dollars, upon the payment of which this Bond shall be of no further force and effect, and that such full sum of One Hundred Thousand ($100,-000.00) Dollars shall be due and payable for either of such defaults.
“(f) Should it for any reason be held that the principal of this Bond cannot be considered as liquidated damages, then nevertheless the same shall remain in effect until exhausted, to protect the Lessors as to any and all damages sustained by them for defaults which this Bond secures.”
I think it very plain that section (c) goes first into operation for the period' prior to November 30, 1936, or until the completion of the improvements, and secures payment of rents, taxes, and insurance during this extension period. Section (b) becomes operative on November 30, 1936, if by that time the improvements have not been made. Each section separately undertakes to liquidate damages for its breach at $100,000. Although the liquidation may be sustained under section (b), it amounts to nothing until section (b) is breached and it is not breached unless and until on November 30, 1936, two years and ten months after the decree, the improvements shall not have been made. That the principal in the bond is in bankruptcy is no breach of section (b). Its existence as a corporation is not ended by bankruptcy and it may yet, aided perhaps by the surety, make the improvements in time, or the surety can go ahead and make them itself. This obligation of .the bond simply has- not yet been breached. ,
The obligation to keep rent and taxes paid was breached when the first default in rents occurred. But it seems absurd to me to say that thereupon by virtue of the liquidation agreement in section (c) the principal and surety in the bond owed $100,-000 when it is perfectly plain that they owed only the defaulted rent. Rent, taxes, and insurance charges are certain and their amount self-liquidating. The court had no difficulty in this case in fixing exactly what was due. There was not even dispute about it. Under the state and federal authorities cited in the opinion, neither a court of equity nor of law will enforce so unnecessary a liquidation of damages at $100,000 when a certainly ascertainable and much less sum is really due. The agreement is on its face a penalty in spite of the.language used. No evidence is necessary to show that it is such. And I think the pleadings are sufficient to raise the question.. The complainant alleged a liquidation of the damages at $100j000, and also alleged the exact damages suffered by defaults in rents and taxes. The surety answers that it-does; not know what rents and taxes are in arrears, but “denies that it is obligated to pay the complainants the sum of ,$100,000 or any other amount as liquidated damages' or otherwise.” The trial court, in its fourth con*120elusion of law, finds there was a valid and enforceable agreement for liquidated damages. It thus appears that the validity of the liquidation was challenged by the pleadings and decided by the court.
The decree gives judgment against the lessee for the $25,984.25 actual defaults, adjudges a lien, and orders a sale of assets pledged by the lease to pay it, and provides for a deficiency decree. It also gives an independent judgment for. $100,000 additional against the lessee and the surety company which it says is unsecured. The complainant is thus to be paid for defaults under section (c) and, in addition, the full liquidation of damages under section (b) which has not yet been breached, with interest from March 19, 1933, three years and six months before a breach could occur. It should have been for $25,984.25 and interest against principal and surety on the bond, the proceeds of sale of the pledged property to be credited thereon, and the remainder of the $100,000 stipulated in the bond to stand good for future breaches of it if any.