Opinion
February 5, 1909.
I. Maurice Wormser, for the appellant.
Samuel D. Lasky, for the respondent.
The complaint alleges the employment of the plaintiff as a salesman and general manager of the business of the defendant for a term of three years from January 2, 1904, to December 31, 1906, by an agreement in writing whereby the plaintiff was to receive as compensation for his services certain commissions based upon the defendant's business; that the plaintiff entered into the employment and continued therein until the termination of the contract, and that sales were made by the defendant in his business on which, under the terms of the agreement, the commissions amounted to $7,165.81, of which the plaintiff has received $3,890.38, the plaintiff demanding judgment for the balance remaining unpaid. The answer admits the employment; that the plaintiff continued in the defendant's employ until the date specified for the termination of the contract; and for a separate defense and by way of counterclaim annexes to the answer the contract actually made; alleges that the plaintiff has violated the agreement in certain particulars named; that by the terms of the contract it was agreed that if the plaintiff violated the agreement the damages for such violation should be the sum of $1,500, which the plaintiff agreed to pay to the defendant, and demands judgment dismissing the complaint and an affirmative judgment for the sum of $1,500. There was no allegation that defendant sustained damages by reason of a breach by plaintiff.
By the contract annexed to the answer it appears that the defendant "shall engage" the plaintiff as a salesman and general manager in his business for a period commencing January 2, 1904, and ending December 31, 1906, and the plaintiff agreed to work as salesman and general manager for said period, and the plaintiff, by the 4th clause of the contract, further agreed "to give his entire time and attention to the furtherance of the interests of the said business and to comply with the orders and commands of the party of the first part (defendant), and to perform his work as salesman and general assistant faithfully and honestly and to the best of his ability, and he further agrees to engage in no other business, either for himself or for any other person, during the time of employment as set forth in this agreement, unless agreed to by the party of the first part." It was further agreed by the 5th clause of the contract that "should the party of the second part (plaintiff) violate this agreement, then it is stipulated that the damages for such violation shall be the sum of Fifteen hundred ($1,500) dollars, which the party of the second part shall pay to the party of the first part, said Fifteen hundred ($1,500) dollars being agreed upon as stipulated damages." There is no allegation in the answer that the violation of the agreement therein set forth caused the defendant any damage, and the defendant bases his right to recover on this counterclaim upon the ground that the plaintiff has engaged in other business and has given part of his time and attention to the furtherance of the interests of other business than that of the defendant, and has not performed his work as salesman and general assistant faithfully and honestly in that he did, during the period covered by said contract, work for other people to the detriment of the business of this defendant.
On the trial plaintiff, after proving the amount of sales upon which he was entitled to commission, was asked on cross-examination a series of questions tending to show that during the time the plaintiff was acting under his contract he worked for other people than the defendant. These questions were objected to and excluded by the court upon the ground that under the 5th clause of the agreement the violation of the agreement intended was a violation of the entire agreement and not a violation of one of the independent conditions to which the plaintiff agreed, and that as there were no damages alleged in consequence of these violations the counterclaim was not sufficient. The defendant then attempted to prove a subsequent modification of the contract, which was excluded upon the ground that it was not pleaded. At the close of the case plaintiff asked for the direction of a verdict for the amount that seems to have been conceded due, which motion was granted, to which the defendant excepted. The defendant then moved for a new trial on all the grounds specified in section 999 of the Code of Civil Procedure except that of inadequacy of damages, which was denied. There was no request to submit any question to the jury. The only question presented upon this appeal is as to whether under the pleadings it was error to refuse to allow the defendant to prove that the plaintiff had violated this provision of the agreement.
The contract contemplated the employment of the plaintiff for a period of three years. During that period the plaintiff agreed to work as salesman and general manager for the defendant's business, and by a separate clause of the contract agreed to devote his entire time and attention to the furtherance of the interests of the defendant's business; to comply with the orders and commands of the defendant; to perform his work as salesman and general assistant faithfully and honestly, and to the best of his ability; and plaintiff further agreed to engage in no other business, either for himself or for any other person. These were independent obligations of the plaintiff, having a general relation as to the duties which the plaintiff was to perform. If the construction of this contract is as claimed by the defendant it would follow that upon a single violation of the defendant's orders or a single transaction by the plaintiff for himself during the time that the contract was in force, although such violation caused the defendant no damage, the defendant would be entitled to recover from the plaintiff the sum of $1,500. While such an act on the part of the plaintiff would be a violation of a stipulation contained in the contract, it would not be a violation of the general obligation assumed by the plaintiff upon which his right to compensation depended. The plaintiff was employed to act as salesman and general assistant for the defendant during the term of the contract. He rendered the services required of him and continued in his position during the term provided in the contract. We must assume that he violated his undertaking not to engage in any other business during the term of the contract, and for a violation of that undertaking the defendant would be entitled to recover damages sustained and could have maintained an action therefor. Considering, however, the object of the contract, I think it could hardly have been intended that the failure to obey any order given by the defendant or conducting a business transaction of the plaintiff on his own account would have subjected the plaintiff to a liability for the specified damages set out in the 5th clause of the contract. This provision is contained in a separate clause in the contract. It imposes a liability for a violation of "this agreement" not for one of the obligations imposed on the plaintiff by the agreement. What the parties had in mind was a breach of the contract as a whole, and for that it was quite reasonable, in view of the difficulty of establishing damage, to stipulate that a sum named be the liquidated damages for such a breach. It would be unreasonable to impose the payment of a considerable sum of money on a party upon the violation of one of several obligations, the performance of all of which was intended to assure to the defendant the performance by the plaintiff of the contract as a whole. There is no provision that if the plaintiff should violate any of its provisions then the plaintiff would be liable for the stipulated damages, but that if the plaintiff should "violate this agreement," then the stipulated damages should be payable. And this construction, it seems to me, carries out what was the intention of the parties and is much more reasonable than that contended for by the defendant.
The defendant relies upon the case of Cotheal v. Talmage ( 9 N.Y. 551), but the agreement in that case was so different from the one at bar that it cannot be considered an authority. There the plaintiff entered into an agreement with a company of persons of whom the defendant's principal was one by which the plaintiff agreed to furnish to the defendant's principal and his associates subsistence for a year with the articles and tools necessary for carrying on mining operations in California. On their part the associates covenanted with the plaintiff that they would diligently devote themselves to obtaining gold and other precious metals as provided for in the agreement, a certain proportion of the earnings of each being agreed to be paid to the plaintiff, and would execute a bond conditioned for the payment to him by the person executing the agreement in case such person should fail to keep or should break such agreement, and the defendant was surety upon that bond. The answer alleged that defendant's principal performed the agreement for a certain length of time and then he and the other parties interested with him broke up and abandoned the enterprise. It was held that the breach of the agreement was admitted by the pleadings and the only question was whether this was liquidated damages or a penalty. There by the act of the defendant's principal the whole object of the agreement was frustrated and its performance prevented. The breach in that case was of the entire contract, and this case would have been analogous if the plaintiff had, after remaining a few weeks in the defendant's employ, abandoned his work and refused to longer perform the contract. But I assume that in that case proof that the defendant's principal had absented himself from work for a week would not have been such a breach of the agreement as imposed upon the defendant a liability for the full amount. The discussion of the question was based upon the injury to the plaintiff by reason of the abandonment of the contract by one of those who had agreed to perform it; not a violation of one particular stipulation. After discussing the cases relied upon by the defendant in that case, the court said: "The only plausible ground for withholding the doctrine in any case is, that the party might be made responsible for the whole amount of damages for the breach of an unimportant part of his contract, and so be made to pay a sum by way of damages grossly disproportionate to the injury sustained by the other party." In Lampman v. Cochran ( 16 N.Y. 275) the parties had made a contract by which the plaintiff covenanted to convey to the defendant his farm provided that the defendant should pay to the plaintiff $3,100, in various installments, some in cash, some in notes, and the balance by bond and mortgage on the property. The agreement closed with this clause: "And the said parties to this instrument further agree, to and with each other, to pay one to the other the sum of five hundred dollars, as liquidated damages, in case one of the parties shall fail to perform said contract according to this instrument." One of the judges expressed an opinion that according to the just rules of construction the sum of $500 was intended as liquidated damages for a total and entire non-performance of all the stipulations of the contract on either side, and that a total or partial breach of either of the stipulations on the part of the defendant was not within the intendment of that clause; that the agreement does not say that a breach of each or either of the stipulations shall be visited with $500 liquidated damages as it should have been done if such had been the intention of the parties; that the defendant having paid $100 on the contract there was not an entire failure to perform the contract but a partial failure only, which prevents a recovery for the liquidated damages, which states the correct rule of construction to be applied to this case. The other judges held that the substance of the contract was a penalty and not liquidated damages. If, in this case, we assume that the defendant's construction is correct, and that for any single breach of any of these covenants on the part of the plaintiff the stipulation applied, it must then be held that the amount was in the nature of a penalty and not for liquidated damages, for imposing a liability for neglect to obey a single order of the defendant or where the plaintiff had transacted business on his own account when it had no relation to the defendant's business and which could cause him no damage, was so out of proportion to the amount to be paid that the clause would be construed a penalty and not as liquidated damages. ( Beale v. Hayes, 7 N.Y. Super. Ct. 640; Ward v. Jewett, 4 Robt. 714.) It has been many times held that the mere fact that the parties characterize the obligation as liquidated damages and not a penalty does not control. In Kemp v. Knickerbocker Ice Co. ( 69 N.Y. 45) it was stated that "The fundamental rule as often announced is that the construction of these stipulations depends in each case upon the intent of the parties as evinced by the entire agreement construed in the light of the circumstances under which it was made." (See, also, Ward v. Hudson River Building Co., 125 N.Y. 230; Perley v. Shubert, 121 App. Div. 786.)
I think, therefore, that as the defendant has failed to allege that he sustained any damage by these breaches by the plaintiff his counterclaim failed, and as he accepted the services rendered by the plaintiff during the entire term the plaintiff was entitled to recover the compensation allowed for the performance of such services.
The ruling of the trial court was, therefore, right and the judgment should be affirmed, with costs.
PATTERSON, P.J., LAUGHLIN, HOUGHTON and SCOTT, JJ., concurred.
Judgment and order affirmed, with costs.