Willson v. City of Baltimore
| Decision Date | 26 March 1896 |
| Citation | 34 A. 774,83 Md. 203 |
| Parties | WILLSON v. MAYOR, ETC., OF BALTIMORE. |
| Court | Maryland Court of Appeals |
Appeal from court of common pleas.
Suit by Harry W. Willson against the mayor and city council of Baltimore for moneys payable by defendant to plaintiff. From a judgment in favor of defendant, plaintiff appeals. Reversed.
Argued before McSHERRY, C.J., and BRYAN, BRISCOE, RUSSUM, and FOWLER, JJ.
Frank Gosnell and Ernest S. McElroy, for appellant.
Wm. S Bryan, Jr., for appellee.
The mayor and city council of Baltimore, through the commissioners of public schools, advertised for sealed proposals for furnishing the schools of the city with desks and other necessary appliances. The bids were required to be made out upon forms which contained various stipulations. Among these, it was provided that The appellant filled out one of these forms, specified the prices at which he would furnish the needed supplies, gave the name and address of his surety, and inclosed his certified check for $500, payable to the appellee. His bid being the lowest, he was awarded the contract; but, through no fault of his own, and though he acted in entire good faith, he was unable, in spite of his efforts, to furnish the signature of the surety he had named in his bid, and he failed, without being at all to blame, to secure any other surety on his bond. Thereupon the commissioners readvertised for bids, these being obtained and accepted. The new bids were for sums much less than those named by the appellant in his bid, and in consequence the city not only lost no money by the failure of the appellant to furnish a bond and to fulfill his contract, but in fact saved a considerable amount. The appellant then demanded the return of the $500 which he had deposited with his bid, but the city refused to surrender the money, and claimed the right to hold it. Suit was therefore brought by him against the city for the recovery of the $500 deposited. The defendant demurred to the declaration, and a judgment was entered pro forma for the city, and the plaintiff appealed. There is no question of pleading involved. The inquiry is whether, under the circumstances stated, the appellant is entitled to recover back the $500 he deposited with his bid. The facts above set forth are all alleged in the declaration and, being well pleaded, are, of course, admitted by the demurrer. On the part of the appellant it is insisted that the $500 deposit was designed to be, and in reality was, a penalty, while on the part of the city it is claimed that the sum named was intended to be, and in fact was, liquidated or stipulated damages, which, for any breach of the appellant's bid or proposal was to be retained by the city, without reference to whether the city had actually sustained any injury or not. The distinction between a penalty and liquidated damages is of the utmost importance, and upon the decision in any given case between them depends the question whether a sum stipulated to be paid upon a breach of the contract shall be treated as a debt, to be arbitrarily enforced, without regard to the actual loss, or whether, on the other hand, it shall be discarded, to let in an inquiry as to the extent of the damage really sustained in consequence of an omission or refusal to perform the agreement. If the sum designated is held to be liquidated damages, the only evidence necessary to warrant a recovery of that particular amount is that the contract to which it relates has been broken. But, if the sum is regarded as a mere penal sum, its place in the contract gives it no weight, and a recovery for a breach of the undertaking will be limited to the extent of the loss or injury actually sustained and proved. In the one instance therefore, the whole of the sum is recoverable, when there has been a default, though the actual damages be nominal, while in the other only such damages as have been really incurred, and are satisfactorily shown, can be assessed and awarded for a breach. It is obvious, then, that the pending controversy turns upon the question whether the $500 deposit is liquidated damages, or a penalty. If it be the former the plaintiff has no right to recover it back, but if it be the latter the city cannot lawfully retain it, except to the extent that actual damage has been sustained.
Whether a sum named in a contract to be paid by a party in default, on its breach, is to be considered liquidated damages, or merely a penalty, is one of the most difficult and perplexing inquiries encountered in the construction of written agreements. The solution of that question, while to some extent controlled by artificial general rules, which are not wholly in harmony with the ordinary canons of construction, depends, in a large measure at least, upon the particular facts and circumstances of each separate case. There are to be found both decisions and dicta that are conflicting and irreconcilable, but the general principles which are usually invoked, and which are peculiar to contracts of this character, are nowhere seriously disputed or denied. As just compensation for the injury done is the end which the law aims to reach, the intention of the parties at the time the contract was entered into is often, though not always, given weight; and while the language they have used in the instrument, if they declare that the damages shall be liquidated, is a circumstance that may have its influence ( Geiger v. Railroad Co., 41 Md. 4), yet even their explicit words will be sometimes disregarded (Hough v. Kugler, 36 Md. 195), and the measure of damages will be restricted to such as the evidence shows have been actually sustained, if the entire agreement, and the peculiar circumstances of the subject-matter of the contract, indicate that the reason and justice of the case require this to be done . It is equally well settled that a sum, if it be at all reasonable, and is stipulated to be paid as liquidated damages for the breach of a contract, will be regarded as such, and not as a penalty, where, from the nature of the covenant, the damages arising from its breach are wholly uncertain, and cannot be ascertained upon an issue of fact. A common instance is the case of agreements between professional men, binding a retiring partner, or an apprentice or clerk, not to interfere with the business of the other. Galsworthy v. Strutt, 1 Exch. 659; Rawlinson v. Clarke, 14 Mees. & W. 187; Mercer v. Irving, El. Bl. & El. 563. But a stipulation to pay a specified sum upon the nonperformance of a contract is regarded as a penalty, rather than as liquidated damages, if the intention of the parties as to its effect is at all doubtful, or is of equivocal interpretation. Shute v. Taylor, 5 Metc. (Mass.) 61; Dimech v. Corlett, 12 Moore, P. C. 199; Crisdee v. Bolton, 3 Car. & P. 240; Chilliner v. Chilliner, 2 Ves. Sr. 528; Coles v. Sims, 5 De Gex, M. & G. 1. And such a stipulation is generally regarded as a penalty, in the absence of a clear indication of a contrary intention by the parties at the time the contract was executed, where the agreement is certain, and the damages for a breach thereof are easily and exactly ascertainable. Burrill v. Daggett, 77 Me. 545, 1 A. 677; Brown v. Bellows, 4 Pick. 179. Finally, the tendency of late years has been to regard the statements of the parties as to liquidated damages in the light of a penalty, unless the contrary intention is unequivocally expressed, so that harsh provisions will be avoided, and compensation alone will be awarded. Gammon v. Howe, 14 Me. 250; Leggett v. Insurance Co., 53 N.Y. 394; Brown v. Bellows, supra; 2 Green, Ev. §§ 258, 259.
Now, it will be observed that the contract between the appellant and the appellee, evidenced by the bid filed and accepted, has not a word in it descriptive of the $500 deposit as either liquidated damages or a penalty. It is clear, therefore, that the parties themselves have not, by any term or provision of the agreement, declared that the deposit shall be either the one or the other, but have left the question at large; and it is equally clear that there is nothing in the subject-matter of the agreement which imperatively requires that the deposit be characterized as liquidated damages, especially as the decided inclination of the courts, in doubtful cases even, is to treat the stipulated sum as merely a penalty. Indeed, there is no explicit forfeiture of the deposit at all. The contract provides simply that "if the successful bidders enter into contract, with bond, without delay, their checks will be returned"; but it is nowhere expressly declared that a failure to enter into bond shall entitle the city to the whole amount of the deposit, or to any part of it, though it is palpably implied that so much of it as will be a just compensation for any loss that may result to the city from the failure of the bidder to furnish the bond was, in view of...
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