Holt's Cigar Co. v. 222 Liberty Associates

• Decision Date: 23 May 1991
• Citation: 404 Pa.Super. 578,591 A.2d 743
• Parties: HOLT'S CIGAR COMPANY, Appellee, v. 222 LIBERTY ASSOCIATES and Philip J. Banks, Appellants.
• Court: Pennsylvania Superior Court

Page 743

591 A.2d 743

404 Pa.Super. 578

HOLT'S CIGAR COMPANY, Appellee, v. 222 LIBERTY ASSOCIATES and Philip J. Banks, Appellants.

Superior Court of Pennsylvania.

Argued Oct. 18, 1990.

Filed May 23, 1991.

[404 Pa.Super. 580] Steven J. Cooperstein, Philadelphia, for appellants.

Louis S. Flocco, Philadelphia, for appellee.

Before DEL SOLE, POPOVICH and BROSKY, JJ.

POPOVICH, Judge:

This is an appeal from judgment entered in the Philadelphia County Court of Common Pleas, sitting in equity, awarding appellee Holt's Cigar Co. ("Holt's" or "Lessee") liquidated and lost profits damages in the amounts of $22,000 and $53,716, respectively. The action was one for injunction and breach of commercial lease. Named defendants were appellant Philip J. Banks ("Banks") and 222 Liberty Associates (a Pennsylvania limited partnership) ("Liberty" or "Lessor"; collectively referred to as "appellant"). We reverse the chancellor and vacate the liquidated damages award finding it an unenforceable penalty; we also reverse and vacate the lost profits award on grounds that relief in the form of unliquidated damages was not pleaded by appellee thereby creating an impermissible variance between the allegata and the probata.

Appellee Holt's is a Pennsylvania corporation with its principal place of business at 114 South 16th Street, Philadelphia, PA. It is at this location where appellee leased from Liberty commercial property in order to engage in the retail sale of various and sundry smoking products and accessories. As already indicated, Holt's complaint named 222 Liberty Associates and appellant, Philip J. Banks, as defendants. The complaint further averred (and this was admitted in defendants' answer) that Banks was a general partner and general contractor of 222 Liberty Associates during the relevant time period. Complaint and Answer 2-3. Preliminarily, we find the law well-settled in that this admission is sufficient to impose joint and several liability on Philip Banks for any wrongful act made in the ordinary course of partnership business. See 15 Pa.C.S.A. §§ 8533(b), 8325 & 8327 (Purdon App.1990); See also Rhodes v. Terheyden, 272 Pa. 397, 116 A. 364 (1922).

On January 1, 1980, Holt's began a ten-year term lease at the above-mentioned address. This commercial lease was for corner space fronting Sansom and 16th Streets situate on the ground floor of a multi-story building. The dispute arose out of extensive building renovation efforts undertaken by appellant in the midst of Holt's tenancy (not at Holt's behest). The body of the chancellor's opinion is brief enough to be cited in full:

This civil action in equity arose out of the defendant's performance of extensive renovations to a building in which plaintiff occupied ground floor space pursuant to a lease agreement dated December 31, 1989, [sic] and subsequent riders and addendums thereto. The lease agreement permitted the defendant landlord to conduct repair/renovation activities, however, plaintiff contended in its complaint and demonstrated at trial that the conduct of the defendant, its general partner and contractor, Philip Banks, its subcontractors and others, substantially interfered with and prevented the plaintiff from operating its business profitably. The conduct of the defendant can only be described as the total disregard of plaintiff's rights as a tenant and in certain cases, bordering on malicious activity. On two occasions, the plaintiff was forced to seek emergency relief in the Court of Common Pleas to force the defendant to provide heat to the leased premises. As [sic] one point, the defendant sought the eviction of the plaintiff but withdrew this request when Judge Gafni personally inspected the premises and permitted the plaintiff to escrow its rent to ensure the defendant's provided heat. A thorough review of the notes of testimony indicates the extent to which the defendant interfered with plaintiff's business activities and totally disregarded the plaintiff's rights as a tenant.

The evidence indicated a liquidated damages provision agreed to by the parties which provided for a payment of $500.00 day where plaintiff was unable to conduct business as a result of defendant's construction activities. The parties stipulated at trial that the number of business days at issue was 44 [excluding days closed and holidays], although plaintiff contended there were 52 [including days closes and holidays]. Plaintiff also contended that it was entitled to damages for loss of profits during the period of defendant's business interruption and interference.

This Court found the testimony of the defendant, Philip Banks, to be incredible and highly suspect, while the testimony of plaintiff's witnesses was credible and worthy of belief. Based upon the testimony and documentary evidence submitted by the parties, the court entered a verdict for plaintiff in the total amount of $75,716.00, which represented per diem damages of $500.00 for 44 days, plus loss of profits in the amount of $53,716.00.

The defendant contended that the plaintiff failed to prove its case by a preponderance of the evidence and that a verdict against the defendant, Philip Banks, individually, was unwarranted and unsupported by the evidence. This Court, sitting without a jury, was free to assess the credibility of the witnesses Chancellor's Op. 1-4.

and to accept or reject testimony presented. [citation omitted]. The fact that this Court did not believe the defendant, Philip Banks, or accept his version of the facts, does not render the evidence insufficient. Likewise, a complete review of the record in this case demonstrates the existence of substantial evidence to support the verdict in plaintiff's favor.... The verdict and judgment entered against [Banks] should stand accordingly.

On September 18, 1986, over six years into the lease, the parties negotiated an "agreement" calling for a $500 per diem stipulated sum to be paid appellee for delayed construction/renovation of the building. ¹ Relevant portions of the agreement are as follows:

Plaintiff's exhibit 1.

---------- Trial lasted for three days and filled 401 pages of transcript. On June 3, 1988, the chancellor issued the following uncaptioned notice of judgment in favor of appellees: "The court finds in favor of the plaintiff against the defendants 222 Liberty Associates & Philip J. Banks in the amount of $75,716." Appellant timely filed motions for post-trial relief on June 6, 1988, accompanied by a supporting memorandum. Relief was denied by order of October 4, 1988. Thereafter, upon praecipe, judgment was entered in favor of appellee on January 12, 1989, in the amount of $75,716 as against defendant Banks only. It was not until March 22, 1990, that the chancellor filed an opinion--apparently in response to appellant's notice of appeal to this court filed February 14, 1989.

Preliminarily, we note that despite one passing reference in the chancellor's opinion evidencing his recognition of this being an action in equity, the clear inference is that he was at all times operating under the mistaken belief that the rules of procedure governing actions at law applied. ³ The proof at trial bears this out, for while appellee's complaint requested both equitable and monetary relief in the form of liquidated damages, ⁴ the evidence at trial

was [404 Pa.Super. 586] limited exclusively to a plea for monetary damages (both liquidated and lost profit). Indeed, equitable relief was unavailable in light of the fact that all renovation efforts ceased before trial. Nonetheless, once equity (subject matter) jurisdiction properly attached, jurisdiction to enter a monetary decree for liquidated damages continued even though no disposition was made of plaintiff's initial application for injunctive relief, see Stryjewski v. Local Union No. 830, Brewery, Etc., 451 Pa. 550, 304 A.2d 463 (1973), and even though the alleged continuing harm ceased before trial. See McGovern v. Spear, 463 Pa. 269, 344 A.2d 826, 828 (1975). It has been said that a preliminary objection (either by defendant, or by the chancellor sua sponte ) as to the existence of a full, complete and adequate non-statutory remedy at law, see Pa.R.C.P. 1509(c), goes to the form of the action, is not jurisdictional, and, therefore, can be waived. See Carelli v. Lyter, 430 Pa. 543, 244 A.2d 6, 8 (1968); see also Pa.R.C.P. 1509(c). No such preliminary objection was made below. Accordingly, the chancellor properly addressed appellee's claim for liquidated damages.

LIQUIDATED DAMAGES AWARD

Appellant first contends that the $22,000 liquidated damages award must be reversed as the enforcement of a penalty. We agree.

Nearly a century ago our supreme court quite aptly articulated the policy against the enforcement of penalties in actions ex contractu:

[W]here the breach of agreement admits of compensation, the recovery may be limited to the loss actually sustained, notwithstanding a stipulation for a penalty. [This rule] is founded upon the principle that one party should not be allowed to profit by the default of the other, and that compensation and not forfeiture is the equitable rule.

Kunkel & Jordan v. Wherry, 189 Pa. 198, 201, 42 A. 112 (1899) (emphasis added). Hence, the rule of validity of a liquidated damages stipulation was held to comport with the general and overarching principle of contract remedies--compensation for damages sustained. See, e.g., Kothe v. R.C. Taylor Trust, 280 U.S. 224, 50 S.Ct. 142, 74 L.Ed. 382 (1930) (agreements to pay a fixed sum without any reasonable relation to probable damages for breach "tends to negative any notion that the parties really meant to provide a measure of compensation"); see also Keck v. Bieber, 148 Pa. 645, 646, 24 A. 170 (1892); see generally Restatement (Second) of Contracts, § 356 comment a. (noting centrality of the principle of compensation). Where a stipulated damages clause is intended as a form of punishment with the purpose, in...