
    Bartholomew Dunn, Appellant, v. Maximilian Morgenthau, Respondent.
    
      Liquidated damages, when a contract will he construed as providing for them.
    
    Where it is ascertainable from the terms of a contract, construed in the light of the surrounding circumstances under which it was made, that a sum of money was agreed upon by the parties as the measure of damages which would be sustained in the event of its non-performance, and the sum thus agreed upon is not so excessive as to shock the moral sense, courts will hold the parties to their agreement.
    The question whether the amount agreed upon is to be considered as liquidated damages or as a penalty is not to be determined by events subsequent to the making of the agreement.
    Appeal by the plaintiff, Bartholomew Dunn, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 11th day of Novemb er, 1901, upon the report of a referee.
    The action was brought to recover a balance alleged to be due for work, labor and services performed by the plaintiff, under a contract for the removal of rock and earth from a number of lots owned by the defendant. The lots were divided into three sections and the contract provided that the work upon each section should be completed by a specified date; that if it was completed prior to that date, the defendant should pay to the plaintiff the sum of fifty dollars for each week day, from the day the work was finished, to the date specified in the contract; that if the work was not finished until after the specified date, there should be deducted from the sum earned by the plaintiff the sum of fifty dollars for each week day, from the date specified in the contract, until the day when the work should be completely finished, “ said sum being agreed upon as liquidated damages for any such delay.”
    
      L. Lafiin Kellogg, for the appellant.
    
      Samson Laohman, for the respondent.
   Patterson, J.:

The learned referee before whom this case was tried has well stated in his opinion the rule of law prevailing in the State of New York as to stipulations in contracts' being for liquidated damages or for penalties. So much has been written upon the general subject of liquidated damages that it is unnecessary to multiply words concerning it. The leading cases in the State of ISTew York are referred to by the referee in his opinion, namely: Cotheal v. Talmage (9 N. Y. 554); Clement v. Cash (21 id. 258); Kemp v. Knickerbocker Ice Co. (69 id. 57); Ward v. H. R. B. Co. (125 id. 235); Curtis v. Van Bergh (161 id. 52); Little v. Banks (85 id. 265).

The rule deducible from all the cases is, that where it is ascertainable from the terms of an agreement, construed in the light of the surrounding circumstances under which it was made, that a sum of money is agreed upon by the parties as the measure of damage which will be sustained by the non-performance of that agreement, and the sum thus agreed upon under the circumstances is not so excessive as to shock the moral sense, courts will hold the parties to their agreement and keep them bound by their contract. Liquidated daniages ” is, in one sense, a mere phrase, but in another it has a very substantial meaning. When damages that may arise but are incapable of legal proof are agreed upon, the parties themselves come into accord as to compensation to be paid for a breach. Of course, if no damage is sustained, the provision of a contract for liquidated damages will be regarded as a penalty. That damage or injury must result from the breach is a necessary factor in the problem. In the case before us it is evident that time was of the essence of the contract. The testimony is very direct to the effect that if the rock had been removed from the defendant’s property in accordance with the terms of the contract, that property would have been marketable and might have been sold to the great profit of the defendant. By reason of the neglect or delay of the plaintiff in completing the work of removing the rock the defendant lost his market, at least that is the fair inference from the whole testimony. That time was an important factor in this contract is plain, and the plaintiff knew it. If the work had been completed by the plaintiff before the stipulated time mentioned in the contract he was to receive fifty dollars for every day between the date of actual completion and that named in the contract; and for delay, an amount of damage that might otherwise have been unprovable and not recoverable in an action was agreed upon. We think the determination of the learned referee on the general question was correct. Whether an amount named in an agreement is to be considered as liquidated damages or as a penalty is not to be determined by events subsequent to the making of the agreement, for it is obvious that if that were so, the greater the neglect of the defaulting party the better position he would occupy.

While we agree with the learned referee in the general view he has taken of the case, we think that his finding is erroneous in one respect. The liquidated damages were set up as a counterclaim, and it was incumbent upon the defendant to prove all the facts that would entitle him to a recovery. It is true that it was necessary for the plaintiff to show performance of his contract before he could recover, but that was shown. It cannot be doubted that the plaintiff at some time or other performed all the work he was called upon to do under the contract. The defendant has not satisfactorily shown that he was entitled to recover liquidated damages for the non-performance of the contract to remove the rock from the first eight lots within the stipulated time. The evidence is clear as to the delay concerning the other lots, but on a careful examination of the whole evidence we think that the defendant did not satisfactorily show that the removal of the rock on the first eight lots was not completed by the fifteenth of April, the time stipulated in the contract. Therefore, we think that the referee should not have allowed a recovery on the counterclaim for delay on the first eight lots from April fifteenth to June eighth, and that the plaintiff’s recovery should be augmented by the sum of $2,300.

The judgment should be modified so that it shall provide that the plaintiff recover of the defendant the sum of $6,050.54, less the defendant’s adjusted costs, to which he is entitled by reason of his offer to allow the plaintiff to take judgment for a larger sum than that now found to be due him, and as thus modified the judgment should be affirmed, without costs in this court.

O’Brien, Ingraham, Hatch and Laughlin, JJ., concurred.

Judgment modified as directed in opinion, and as modified affirmed, without costs.  