O'Brien v. Illinois Sur. Co.

• Decision Date: 07 March 1913
• Docket Number: 2,260.
• Citation: 203 F. 436
• Parties: O'BRIEN v. ILLINOIS SURETY CO.
• Court: U.S. Court of Appeals — Sixth Circuit

203 F. 436

O'BRIEN v. ILLINOIS SURETY CO.

No. 2,260.

United States Court of Appeals, Sixth Circuit.

March 7, 1913

O'Brien as owner, leased to one Nolan, for 97 years from January 1 1907, a vacant business lot in Cleveland. The agreed rent was $3,600 for the first two years, and thereafter $2,000 per year, all payments to be made quarterly in advance, and the lessee was also to pay all taxes imposed. Nolan also agreed to erect on the premises, within the first year, 'a brick building, of fireproof construction, substantial and modern in all respects, not less than two stories in height, having a frontage of not less than 60 feet and a depth of not less than 50 feet, the front of said building to be of pressed brick, with stone trimmings. ' The lessor reserved the usual right of re-entry in case the lessee violated any of his agreements. It was further agreed in the lease that Nolan should give a bond to secure to O'Brien the erection of the building; and, accordingly, a bond was executed and delivered in the penalty of $5,000 signed by Nolan, as principal, and by the Surety Company, the defendant in error as surety, conditioned that Nolan would, within the time limited in the lease, erect the building therein described that in the construction thereof all building laws would be observed, and that no mechanics' or material liens against the building should exist. The erection of the building was not commenced as agreed; O'Brien notified the Surety Company that if the building was not erected he would look to it for indemnity; no one did anything about the building; and Nolan never paid any rent or taxes.

In January, 1909, O'Brien brought this suit against the Surety Company, alleging the facts above recited, but not alleging that the lease contained any covenant by the lessee to keep the building insured or in repair. Pending demurrers and amendments, and on March 11, 1909, O'Brien gave Nolan notice to cancel and forfeit the lease, and thereafter, the default continuing, O'Brien re-entered. He then included, in an amended petition in this case, an allegation of such notice and re-entry. The court below sustained the demurrer of the Surety Company, and, plaintiff not further amending, dismissed the complaint. The writ of error which challenges this result necessarily involves every element of plaintiff's right to recover.

Stearns, Chamberlain & Royon and Wm. A. Carey, all of Cleveland, Ohio, for plaintiff in error.

A. J. Hopkins, of Chicago, Ill., and Joseph H. Wenneman, of Cleveland, Ohio, for defendant in error.

Before WARRINGTON and DENISON, Circuit Judges, and McCALL, District judge.

DENISON Circuit Judge (after stating the facts as above).

1. The court below properly held against plaintiff's theory that he was entitled to recover the sum named in the bond as liquidated damages. To meet the well-established principle that the penalty cannot be considered as a sum agreed upon for liquidated damages, when it appears that it was to secure the performance of each of several different conditions of varying degrees of importance and involving varying amounts of injury to the obligee (Bignall v. Gould, 119 U.S. 495, 7 Sup.Ct. 294, 30 L.Ed. 491; Lansing v. Dodd, 45 N.J.Law, 526), the plaintiff urges that the three things here contemplated were the erection of the building, the observance of the laws and the avoiding of the liens, and that these three things were successive, each being the only operative condition while it was active, and so that the rule just cited is avoided. It is sufficient to say of this contention that, whatever its merit otherwise might be, it is not applicable here. The first condition, the erection of the building, permitted a great variety of breaches, which might have ranged from the total absence of any building all the way down to some slight deficiency in form or size or trimmings. It is not to be supposed that the parties contemplated the payment of $5,000 if the builder used plain brick, instead of pressed brick, on the front, and the payment of the same amount if there was no building at all. The sum named in the bond was clearly a penalty, intended to indemnify O'Brien against such damages as the law might declare owing to him for any breach of any condition of the bond.

2. Defendant urged that the building was to belong to the lessee, and the lessor had, during the term, no interest therein; that the lessor's sole measure of damages for its nonerection was the lessened value of the reversion falling in at the end of the stated term, which expectant diminution must be reduced to terms of present worth; and that, with a 97-year lease and a building of the character described, and without covenant to insure or to keep in repair, such damage was so speculative as to be incapable of computation; and, hence, in practical effect, that the bond was wholly inoperative. We do not doubt that a building so promised constitutes, in effect, additional rent, payable at the end of the term, and that the present worth of such future subtraction from reversion value is the primary and ordinary measure of damages (Doe v. Rowland, 9 C. & P. 734; Cooper v. Randall, 59 Ill. 317); but the application thereof sought by plaintiff overlooks two considerations.

The first is this: The lease was not for an unalterable...