Shields v. John Shields Const. Co.

• Decision Date: 11 April 1913
• Citation: 81 N.J.Eq. 286,86 A. 958
• Parties: SHIELDS et al. v. JOHN SHIELDS CONST. CO. et al.
• Court: New Jersey Court of Chancery

86 A. 958

81 N.J.Eq. 286

SHIELDS et al.

v. JOHN SHIELDS CONST. CO. et al.

Court of Chancery of New Jersey.

April 11, 1913.

Suit by John Shields and others against the John Shields Construction Company and others. Petition by the receiver of the John Shields Construction Company for instructions. Decree advised.

Chauncey G. Parker, of Newark, for receiver.

Albert C. Wall, of Jersey City, for Pennsylvania, N. J. & N. Y. R. Co. William D.

Edwards, of Jersey City, for First Nat. Bank of Jersey City.

STEVENS, V. C. The questions here considered come up on the petition of the receiver of the John Shields Construction Company for instructions. Among other things, he asks that the Pennsylvania, New Jersey & New York Railroad Company be directed to pay certain claims. The company resists their payment and insists that it has a claim against the receiver for liquidated damages. On March 16, 1905, the railroad company entered into an agreement with the construction company for the construction of the westerly section of the Weehawken tunnel. After the latter had done a certain portion of the work, it became insolvent, and on December 29, 1905, a receiver was appointed. The receiver continued the work until January 21, 1906, and then stopped. On March 2, 1906, the railroad made a new contract with William Bradley, who completed it. I will first consider the question of liquidated damages.

Section 34 of the Shields contract provides as follows: "In case the contractor shall fail to complete the work hereunder in accordance with the specifications and to the satisfaction of the engineer within the time herein agreed upon, the contractor shall and will pay to the company a sum equal to 1/50 of one per cent. of the amount paid or to be paid him for the entire work for each and every day the time consumed on said work and completion may exceed the time herein allowed for that purpose, which said sum, in view of the difficulty of ascertaining the loss which the company will suffer by reason of delay in the performance of the work hereunder, is hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages that the company will suffer by reason of said delay and default and not as penalty and the company shall and may deduct and retain the amount of such liquidated damages out of the moneys which may be due or become due to the contractor under this agreement."

Section 35 (under which the railroad company proceeded) provides that, if the engineer shall certify that in his opinion sufficient plant and material and a sufficient number of workmen are not employed in the execution of the work or that the work is not being carried on with due diligence, the company may give the contractor written notice, and if the contractor shall not comply with its directions the company may do one of two things: Either (1) declare the contractor to be in default and forthwith procure by contract or otherwise, either for the contractor, for his account and his risk, or otherwise as the company shall determine, the completion of the work, or (2) declare the contract at an end.

As the railroad company elected to take the latter alternative, and as the decision hinges upon the meaning of this subsection, I give it in full (the italics being mine): "(2) Declare this contract at an end, except as to liability of the contractor, hereinafter in this paragraph provided, and may make a new contract for construction with other parties upon such terms as the company may deem proper; the same to provide among other things that the new contractor shall allow, for so much of construction as has been already completed, a reasonable amount to be prescribed in such new contract, or to be ascertained as in such new contract to be provided; and in such case the contractor shall pay the company for all damages which the company shall sustain by reason of such failure, including the excess, if any, of the amount which the company shall pay the new contractor over the amount it would have had to pay the contractor party hereto for the same work and materials, together with the amount, if any, which shall be due the company, by reason of the delay in completion of the construction and completion of the entire work."

The new contractor performed the work at the same rates the Shields Company had contracted for, and, as far as appears, no damage in fact resulted from delay in construction, inasmuch as the other sections of the work had not been finished. The claim, therefore, is not based upon any real injury suffered. If the railroad is entitled to liquidated damages (which, it is said, amount to about $50,000 calculated according to section 34), it is merely because the contract so provides.

It seems to me plain that the contract does not provide for liquidated damages in the event that has happened. I have recently considered the question in the unreported case of Commonwealth Roofing Co. v. Board of Education of City of Newark, a case involving a similar situation, and I see no reason for changing my views on the subject. There are in the paragraphs quoted two alternatives presented: First, the completion of the work by the original contractor, but not within the time specified. Such was the case of Jersey City v. Flynn, 74 N. J. Eq. 107, 70 Atl. 497; Jersey City v. Jersey City Water-Supply Co., 76 N. J. Eq. 607, 76 Atl. 3. Second, the completion of the work by the railroad company or a second contractor. Every line of paragraph 34 indicates that the case there provided for is that of the original contractor who fails to complete within the time agreed upon. The assumption is that such contractor is doing the work, up to the very time of completion, and that it is his delay which is causing the loss. In that event the company is authorized to deduct and retain from the contract price, stipulated to be paid, to him, the liquidated damages, calculated as section 34 provides.

Under subsection 2 of section 35, on the other hand, provision is made for the possible loss that may ensue, where the company has been obliged to do the work itself or to employ and pay a second contractor. Here the conditions are different. The first contractor ought to be held for his own defaults but not for the acts of the company or the possible defaults of the second contractor. He ought not in reason to be held to a greater or lesser liability according as the railroad sees fit to give the second contractor more or less time to finish. The dealings of the company with Bradley illustrate this point. By the first contract, he was to finish by July 1, 1907; then the time for completion was extended to June 30, 1908, and afterwards to December 31, 1908. The company claims damages, calculated only from March 7, 1907, up to July 1, 1907, but why not up to December 31, 1908, if in view of the situation or difficulties encountered it thought that a reasonable time? The question comes to this: Does the contract allow the company to determine the amount of liquidated damages on considerations aside from the defaults of the Shields Company? Subsection 2 seems to me to call for another way of estimating them—a way that accords with established rules. It provides: First, that the second contractor shall allow a reasonable amount for the work done by the first...