Opinion
July 6, 1922.
Robert M. McCormick [ F.A.W. Ireland of counsel], for the appellant.
Lawrence Russell, for the respondent.
The appellant alleges in its answer that the plaintiff during the performance of the contract paid to the contractor considerable sums in excess of the amounts due it and in violation of the rights of the appellant thereby discharging the latter from its obligations under its bond. There is no allegation in the answer that in any other particular the plaintiff varied or modified the terms of the contract or so conducted itself or dealt with the contractor as to prejudice the rights of the appellant as a surety. It is true that the plaintiff from time to time advanced moneys to the contractor in excess of ninety per cent of the engineer's estimates theretofore made but nearly all of these advanced payments were absorbed in the subsequent estimates. None of the advancements not thus paid out of subsequent estimates have been charged to the appellant or taken into account by the referee in arriving at his conclusion in respect to damages. It appears that on July 25, 1918, before the plaintiff had any information that the contractor would make default in its contract, there was advanced to the latter $2,500 which was not deducted from any estimate but for which no claim was made by the village and was not allowed against the appellant by the referee. The appellant contends, however, that the effect of these advanced payments was to discharge the surety because they constituted an inducement to the contractor to abandon the contract or removed from the latter an incentive to complete the same. It has been held in some jurisdictions that advanced payments on a building contract may be so antagonistic to the interests of a surety as to release him from his obligation, but that doctrine has not found special favor in this State although it is recognized that the circumstances may be such as to justify the application of the principle. ( St. John's College v. Ætna Indemnity Co., 201 N.Y. 335, 341; Elmohar Co. v. Phillips, 188 App. Div. 100; British American Tobacco Co., Ltd., v. United States Fidelity Guaranty Co., 177 id. 582.) Very clearly from the facts here appearing the surety has not been injuriously affected. Plaintiff always retained ten per cent of the engineer's estimates except in one instance where the appellant consented that a payment be made therefrom. The overpayments were made in good faith and to facilitate the work and I am persuaded from the evidence that instead of proving prejudicial to the appellant they were actually beneficial. In the case last cited it was said by Mr. Justice SMITH in language which is here applicable: "If the owner to relieve the contractor's distress had loaned to him at any time a sum of money it would be hypercritical to hold that he had thereby lessened the incentive of the contractor to finish his contract, and thereby release the surety. These overpayments innocently made by the owner can hardly be deemed to be more prejudicial to the surety's rights." The appellant has no cause for complaint in respect to this branch of the case.
I think, however, the appellant is not liable for liquidated damages. In the first place, it appears without contradiction that the parties mutually agreed to a change in the location of the pipe line which had the effect of delaying the progress of the work at least two months. In Mosler Safe Co. v. Maiden Lane Safe Deposit Co. ( 199 N.Y. 479) the syllabus is as follows: "Where the parties are mutually responsible for the delays, because of which the date fixed by the contract for completion is passed, the obligation for liquidated damages is annulled and, in the absence of some provision under which another date can be substituted, it cannot be revived. If the plaintiff failed to complete within a reasonable time after crediting the defendant's delays, then the latter had a cause of action for the former's neglect and the measure of damages would be the actual loss proved to have been sustained." It is not necessary, however, to rely on that principle. The authorities quite uniformly hold as far as I am advised that a provision for liquidated damages in a building contract such as we are here considering should be construed as applying only to delayed and not to abandoned performance. ( Murphy v. United States Fidelity Co., 100 App. Div. 93; affd., 184 N.Y. 543; Brady v. Mayor, etc., 44 Hun, 511; Crawford v. Becker, 13 id. 375; Murphy v. Buckman, 66 N.Y. 297; Buhler Co. v. New York Dock Co., 170 App. Div. 486; 2 Williston Cont. [1920 ed.] § 785; Rainier v. Masters, L.R.A. 1916E, 1179; Shields v. Shields Construction Co., 81 N.J. Eq. 286.) The contract herein provides that on abandonment thereof by the contractor the plaintiff may itself at its option complete the work at the expense of the contractor. This provision by the terms of the bond is made subject to the prior right of the surety to do the same thing. It seems anomalous that an owner should be allowed liquidated damages for delays in the completion of a contract which the owner itself completed even though as is probably true in this case the plaintiff proceeded with due diligence. There are few cases indeed where it cannot be said that even more than due diligence might have been exercised. If the contractor had completed the contract but had failed to do so within the required time it would not be accepted as an excuse that reasonable diligence had been exercised. The contractor would have been bound by the terms of his contract even in the face of an impossibility to complete it within the required time. The plaintiff consumed a year and two months in the completion of this contract after September 1, 1918, the time fixed for its completion, at an expenditure of only $25,529.56, whereas in only about a year and four months allowed for the performance of the entire contract the contractor expended $64,532.13. Can it justly be said that the plaintiff could not have hastened the work to a more speedy completion? In Brady v. Mayor, etc. ( supra) it was said: "Under the contract the defendant had the right to cancel it and to finish the work itself, charging Brady with any excess in the expense of doing it. Could it also recover of Brady fifteen dollars [a day] for its own delay in completing the work?" This significant question applicable to this case is not answered by the finding of the referee "that the plaintiff and said Board without any unnecessary delay prosecuted said contract to completion." The provision for liquidated damages must be construed, not in the light of the fact that there has been no "unnecessary delay" by the plaintiff, but in the light of possibilities permitted by such construction. There would be a constant temptation to an owner in such a case not to hasten the work to completion. The inference from this is that it was the intention of the parties that the liquidated damages should apply only to work performed by the contractor and not by the plaintiff. Without continuing the discussion, however, it seems to me the question is foreclosed by the foregoing authorities. No case to the contrary is cited by the plaintiff.
Attention is also called to the following provision in the bond: "And if said obligee shall complete or relet the said contract, then any forfeitures provided in said contract against the principal shall not be operative as against the surety." The word "forfeiture" has an elastic meaning. "Its meaning is to be determined by the connection in which it is used." (26 C.J. 891; Chaude v. Shepard, 122 N.Y. 397.) I think it applies in the present instance to the provision for liquidated damages and excludes the liability of the surety therefor where the obligee completes or relets the contract. Both on reason and authority, therefore, the judgment as to this branch of the case is erroneous.
The judgment as to the appellant should be reversed and a new trial granted, with costs to the appellant to abide the event, unless the plaintiff stipulates to reduce the damages as to the appellant to $7,202.90, with interest, and to reduce the additional allowance granted to $400, in which event the judgment should be modified accordingly and as so modified affirmed, without costs of appeal.
Judgment as to the appellant reversed and a new trial granted, with costs to the appellant to abide the event, unless the plaintiff stipulates to reduce the damages as to the appellant to $7,202.90, with interest, and to reduce the additional allowance granted to $400, in which event the judgment is modified accordingly and as so modified unanimously affirmed, without costs of the appeal.