Truck Rent-A-Center, Inc. v. Puritan Farms 2nd Inc.

• Decision Date: 17 February 1976
• Docket Number: INC,RENT-A-CENTE
• Citation: 51 A.D.2d 786,380 N.Y.S.2d 37
• Court: New York Supreme Court — Appellate Division
• Parties: TRUCK, Respondent, v. PURITAN FARMS 2ND INC. et al., Appellants.

Page 37

380 N.Y.S.2d 37

51 A.D.2d 786

TRUCK RENT-A-CENTER, INC., Respondent, v. PURITAN FARMS 2ND INC. et al., Appellants.

Supreme Court, Appellate Division, Second Department.

Feb. 17, 1976.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Jay H. Topkis and Steven Finell, New York City, of counsel), for appellants.

Coudert Brothers, New York City (Mark D. Lebow and Emilio A. Dominianni, New York City, of counsel), for respondent.

Before RABIN, Acting P.J., and SHAPIRO, LATHAM, MARGETT and CHRIST, JJ.

MEMORANDUM BY THE COURT.

In an action Inter alia to recover damages for breach of contract, defendants appeal from a judgment of the Supreme Court, Queens County, dated May 14, 1975, in favor of plaintiff for $84,653.72, plus interest, costs and disbursements, after a nonjury trial.

Judgment affirmed, with costs.

Plaintiff leased 25 milk delivery trucks to defendant Puritan Farms 2nd Inc. (Puritan) under a written truck lease and service agreement, with defendant Honeywell Farms, Inc. guaranteeing the lessee's obligations. The lease commenced February 3, 1969, for a seven-year term, with an agreed rental of $1,275 per week. Puritan paid a four-week security deposit of $5,100.

By letter dated December 7, 1973, Puritan advised plaintiff that it was terminating the lease, effective December 14, 1973, for plaintiff's failure to properly maintain and service the vehicles. All trucks were returned to plaintiff, which refused to accept Puritan's termination of the lease and instituted this action based upon Puritan's breach.

We agree with the trial court that Puritan breached the lease agreement and that plaintiff is entitled to damages as provided for in the liquidated damage clause of the lease (paragraph 16 thereof) which provides:

'16. Upon termination of this agreement, * * * Lessor * * * shall be entitled to damages, herein liquidated for all purposes * * * as follows:

'(a) The sum of all rents designated as 'Fixed Rental Charges' which would have become due under the normal operation of this agreement from the date of the said termination to the date of its otherwise stated termination, including any effective renewal period; less

'(b) The re-rental value of said motor vehicles which is hereby agreed upon as fifty per cent (50%) of the sum of such 'Fixed Rental Charges' as are set forth in subdivision '(a)' of this article (i.e., paragraph).

'In arriving at said liquidated damages, the parties hereto have considered, among other factors, Lessor's substantial * * * investment in purchasing or reconditioning for Lessee's service the demised motor vehicles, the uncertainty of Lessor's ability to re-enter the said vehicles, the costs to Lessor during any period the vehicles may remain idle until re-rented, or if sold, the uncertainty of the sales price and its possible attendant loss. The parties have also considered, among other factors, in so liquidating the said damages, Lessor's saving in expenditures for gasoline, oil and other service items.'

Defendants contend that the foregoing paragraph does not fairly fix damages, but is, in fact, a penalty provision and should not be enforced. We disagree.

Whether paragraph 16 is a valid liquidated damage clause or a penalty provision must be determined as of the date of the execution of the agreement, not as of the date of its breach (see Joint Ind. Bd. of Painting & Decorating Ind. v. Kaplan, 66 Misc.2d 427, 320 N.Y.S.2d 452); and, if the clause was reasonable at the time of its execution, it will be upheld 'despite the fact that the actual loss ensuing may be much less than the sum agreed upon' (Konner Rental Corp. v. Pedone, 50 Misc.2d 69, 71, 269 N.Y.S.2d 463, 465). Accordingly, the special facts surrounding this transaction, and the intention and knowledge of the parties at the time of its execution, are dispositive. If the damages which may result from a future breach are not easy to compute, the parties may agree upon a liquidated amount and their agreement should control.

The underlying transaction herein was the lease of trucks specifically designed and altered for Puritan's use in the retail milk trade. It was known to Puritan that plaintiff had purchased these trucks to perform this agreement, that plaintiff had financed them and that the term of the financing agreement coincided with the term of the lease. The details of the financing were actually referred to in the lease. Plaintiff additionally agreed to provide extensive and continual maintenance on all the trucks--and to service them. This required a considerable work force. When plaintiff agreed to specifically design and provide trucks for this particular business, the parties, at the time of the inception of the agreement, realized that it would be difficult to compute exactly what damages would result from a future breach of that agreement. It is precisely for such an occasion that a liquidated damage clause is appropriate. However, the damages fixed must not be plainly disproportionate to the injury (Seidlitz v. Auerbach, 230 N.Y. 167, 173--174, 129 N.E. 461, 463).

This record reflects that the damages actually sustained are not disproportionately larger than the liquidated award and, in fact, the actual damages may even be greater than the amount fixed in the contract. The disputed paragraph for damages was not an unintended boiler-plate provision, but one deliberately inserted for the special circumstances of this transaction. The printed agreement contains several amendments and four typewritten endorsements, evincing a document which has in fact been studied and negotiated. Accordingly, the parties' intentions should control and the judgment, for the liquidated amount, should be affirmed.

LATHAM, MARGETT and CHRIST, JJ., concur.

SHAPIRO, J., dissents and votes to reverse the judgment and grant a new trial, with the following memorandum, in which RABIN, Acting P.J., concurs.

Under a lease and service agreement, plaintiff delivered 25 milk trucks to Puritan Farms 2nd Inc. (Puritan). Alleging that Puritan breached the agreement, plaintiff sued to recover damages under what the trial court found to be a valid liquidated damage clause. Determining that Puritan had in fact breached the agreement, the trial court, without proof of specific damages, awarded judgment to plaintiff under the formula contained in the so-called liquidated damage clause. I believe that Puritan's breach was not...