Seidlitz v. Auerbach
| Citation | 230 N.Y. 167,129 N.E. 461 |
| Parties | SEIDLITZ v. AUERBACH et al. |
| Decision Date | 31 December 1920 |
| Court | New York Court of Appeals Court of Appeals |
Action by Cecile Seidlitz against Mayer S. Auerbach and another. From a judgment of the Appellate Division (186 App. Div. 7,174 N. Y. Supp. 82) reversing a judgment of the Trial Term, entered upon a verdict directed by the court in favor of the plaintiff and dismissing the complaint upon the merits, plaintiff appeals.
Judgment of the Appellate Division reversed, and that of Trial Term affirmed.
Chase, j., dissenting.
Appeal from Supreme Court, Appellate Division, First department.
Henry M. Flateau, of New York City, for appellant.
Daniel P. Hayes, of New York City, for respondents.
In 1914 the Arco Realty Company leased to Fox, Temple, and Kalek the premises Nos. 104 and 106 West One Hundred and Sixteenth street, New York, to be used as a theater. It was agreed that the buildings then existing should be torn down and one proper for this purpose should be erected by the lessor in their place. The lease contained numerous express conditions, ‘all and every one of which the tenant covenants with the landlord to keep and perform.’ Some of these conditions were comparatively of slight importance; as, for instance, that requiring the tenant to keep the sidewalks free from ice and snow, and not to allow waste to accumulate. Others are more vital. Again, the damages caused by the breach of certain conditions were susceptible of accurate valuation, such as that the tenants should obtain a liability insurance policy of $10,000 and pay the premiums. This the parties themselves understood, for they agreed that, if not paid by the tenants, they might be paid by the landlord, in which case they would become due as additional rent. The lease then provided that the tenants had paid to the landlord $7,500, later reduced to $7,065.25, ‘as security for the faithful performance by the tenant of all the covenants and agreements herein contained and to indemnify the landlord against loss by reason of any such default; and, as the damages which the landlord would sustain in the event of a default by the tenant hereunder would not be susceptible of ascertainment, it is hereby covenanted and agreed between the landlord and tenant that in the event of any such default the damages sustained by the said landlord be and they are hereby fixed and liquidated at the amount of seven thousand five hundred dollars, in payment of which the landlord shall retain the said sum of seven thousand five hundred dollars so deposited as aforesaid, without any deduction or offset whatever.’ There was a further provision that, if default was made in the payment of the rent or upon the continued breach of the other covenants, the landlord might re-enter the premises and remove all persons therefrom by summary proceedings or otherwise, and at his option might relet the premises as agent of the tenant and receive the rents therefor. But in the event of re-entry or of termination of the lease by summary proceedings or otherwise the tenant shall remain liable for his rent until the time when this lease would have expired.
The landlord did tear down the buildings and constructed a theater, and the tenants afterwards entered into possession. The lease, with the security deposited thereunder, was later assigned to the plaintiff, and the property itself, with the deposit and all rights under the lease, was transferred to the defendants. On March 6, 1917, one month's rent was not paid. Summary proceedings were begun, and on March 19th the plaintiff was evicted. On April 10th the defendants contracted to sell the demised premises to one Stern, and on the 14th they actually conveyed the same to the latter ‘free from all incumbrances.’ A few days later this action was begun to recover the security deposited under the lease, less the landlords' actual damage. It was defended on the ground that the deposit was fixed and liquidated damages for breaches of the covenants of the lease, that many of such covenants had been broken, and that therefore the sum deposited might be retained by the defendants. As a counterclaim it was also alleged that because of the breaches by the plaintiff of the covenants the defendants have been damaged to the extent of $7,500.
The trial court directed a verdict in favor of the plaintiff for the sum of $6,764.19, the amount of the security in the defendants' possession at the time of the trial, less their actual damages as proved by them. On appeal the Appellate Division reversed this judgment and dismissed the complaint on the theory that the security was deposited as liquidated damages. We think this disposition of the case was erroneous.
[1][2][3] As has been said, the lease contained many covenants of varying importance on the part of the lessees. As to some a loss occasioned by a breach were ascertainable with certainty and necessarily would be inconsiderable. It appeared on the trial that the premium for liability insurance was $17.01. As to other covenants the damages that might result were uncertain. Still the meaning of the agreement as to the deposit of the $7,500 is clear. It was deposited as security for the performance of each of these covenants. In the event of default in the case of any one of them the damages are said to be liquidated at the sum of $7,500. A default does not mean a breach of all of them. Nor can it mean the breach of that one of them which may seem the most important. The language is too specific to admit of any such construction as was given in Brownold v. Rodbell, 130 App. Div. 371,114 N. Y. Supp. 846. Nor, as their answer shows, is such its proper construction as understood by the defendants. This being so, it is immaterial which covenant was in fact broken. In determining whether the amount of the deposit is to be treated as liquidated damages or as a penalty, the agreement is to be interpreted as of its date, not as of its breach. Dunn v. Morgenthau, 175 N. Y. 518, 67 N. E. 1081; Dunlop Co. v. New Garage Co., L. R. 1915, App. Cas. 79. It is also true that a stipulation to forfeit a certain sum for the breach of any of the terms of the contract cannot be separated and a part treated as a penalty and the remainder as liquidated damages. Stillwell v. Paepcke-Leicht Lumber Co., 73 Ark. 432, 84 S. W. 483,108 Am. St. Rep. 42. With these principles in mind, the great weight of authority is to the effect that, where a contract contains a number of covenants of different degrees of importance, and the loss resulting from the breach of some of them will be clearly disproportionate to the sum sought to be fixed as liquidated damages, especially where the loss in some cases is readily ascertainable, the sum so fixed will be treated as a penalty. The strength of a chain is that of its weakest link.
[5] There is little satisfactory discussion on this question in the higher courts of the state. Reference is made to the matter in Jackson...
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