City of Rye v. Public Service Mut. Ins. Co.
| Decision Date | 10 July 1974 |
| Citation | 315 N.E.2d 458,358 N.Y.S.2d 391,34 N.Y.2d 470 |
| Parties | , 315 N.E.2d 458 CITY OF RYE, Appellant, v. PUBLIC SERVICE MUTUAL INSURANCE COMPANY et al., Respondents. |
| Court | New York Court of Appeals Court of Appeals |
Anthony T. Antinozzi, Corp. Counsel, New York City, for appellant.
Sidney Advocate, New York City, for Public Service Mut. Ins. Co., respondent.
Frank H. Connelly, New York City, for remaining respondents.
In this action to recover on a surety bond given to secure timely completion of some six buildings, the City of Rye, as obligee under the bond, seeks to recover the face amount of $100,000. The surety and the developers are defendants. Special Term denied the city's motion for summary judgment, and a divided Appellate Division affirmed the denial. In his concurring opinion at the Appellate Division, Mr. Justice Shapiro reasoned that the bond was penal in nature and therefore not enforceable. The dissenters, in an opinion by Mr. Justice Hopkins, would have sustained the city's contention that, as a governmental entity pursuing its governmental responsibilities, it had the power, without violating any public policy, to exact a substantial bond to secure performance of obligations imposed on a developer by the zoning ordinance and action taken under it.
The order of the Appellate Division denying plaintiff city's motion for summary judgment should be affirmed. The bond of $100,000 posted by the developers with the city to ensure completion of the remaining six 'peripheral' buildings by a date certain did not reflect a reasonable estimate of probable monetary harm or damages to the city, but a penalty, and, in the absence of statutory authority for the penal bond may not be recovered upon.
The developers, under a plan approved by the City Planning Commission, had constructed six luxury co-operative apartment buildings and were to construct six more. In order to obtain certificates of occupancy for the six completed buildings the developers were required to post a bond with the city to ensure completion of the remaining six buildings. By letter agreement with the city in the fall of 1967, they agreed to post a $100,000 bond and to pay $200 per day for each day after April 1, 1971 that the six remaining buildings were not completed, up to the aggregate amount of the bond. More than 500 days have passed without the additional buildings having been completed within the time limit. The city seeks to recover the entire $100,000 amount of the bond.
Concededly, no statute authorizes the city to exact a penalty or forfeiture from the developers. If there were such a statute, the statutory penalty would undoubtedly be upheld (see, e.g., Lyman v. Perlmutter, 166 N.Y. 410, 413--415, 60 N.E. 21; Clark v. Barnard, 108 U.S. 436, 461, 2 S.Ct. 878, 27 L.Ed. 780; see, also, United States v. Zerbey, 271 U.S. 332, 340, 46 S.Ct. 532, 70 L.Ed. 973, and cases cited). Hence, general principles of contract law governing the enforceability of liquidated damage clauses should apply (cf. Priebe & Sons v. United States, 332 U.S. 407, 411, 68 S.Ct. 123, 92 L.Ed. 32, see 5 Williston, Contracts (3d ed.), § 775B, at p. 664). The sole issue, then, becomes whether the agreement exacted from the developers and the conditional bond supplied provide for a penalty or for liquidated damages. If the agreement provides for a penalty or forfeiture without statutory authority, it is unenforceable. Where, however, damages flowing from a breach are difficult to ascertain, a provision fixing the damages in advance will be upheld if the amount is a reasonable measure of the anticipated probable harm (Ward v. Hudson Riv. Bldg. Co., 125 N.Y. 230, 235, 26 N.E. 256, 257; Restatement, Contracts, § 339; 5 Corbin, Contracts, §§ 1059, 1063). If, on the other hand, the amount fixed is grossly disproportionate to the anticipated probable harm or if there were no anticipatable harm, the provision will not be enforced.
The harm which the city contends it would suffer by delay in construction is minimal, speculative, or simply not cognizable. The city urges that its inspectors and employees will be required to devote more time to the project than anticipated because it has taken extra years to complete....
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