Long Dock Co. v. Mallery

12 N.J. Eq. 431

• Court: Supreme Court of New Jersey
• Decided: November 15, 1858
• Status: Published

Opinion

The following opinions were delivered.

Whelpley, J.

Complainants and Mallery entered into a contract under seal, dated the 28th May, 1858, by which Mallery, for the prices specified, agreed to furnish all the implements necessary to construct the Bergen tunnel, on the New York and Erie Railroad, and do the work according to the specifications in the agreement; and complainants agreed that whenever-, in the opinion of their engineer, the contract should have been wholly completed by Mallery, they would pay for the same in full at the specified prices. And by a subsequent clause of the agreement, it was stipulated that payments should be made from time to time, as the work progressed, on the certificate of the engineer for work done, such percentage to be deducted from the value of the work done in no ease to be less than ten per cent., as the engineer might think proper. The work was to be completed by the 7th December, 1857.

Mallery began his work, and progressed so that he received on monthly estimates, up to the month of June, 1857, $378,000. The company retained ten per cent., or $42,000.

By the contract, the company had the right to retain, until the completion of the contract work, the whole price, except the ninety per cent., which, by this clause, they had agreed to pay during its progress on the certificate of the engineer; the ninety per cent, was excepted out of the operation of the clause postponing payment of the whole price till the end of the work; indeed it might have been much less than ninety per cent., as the reserved per cent, was to be in no case less than ten; that was a minimum, no maximum was fixed. If the estimates were correct, the company had in hand, on account of this reservation, on the 8th June, 1857, §42,000. This money Mallery had no right to demand until the close of his contract, although he might have performed his contract to the letter.

The character of the work required heavy expenditures for labor and materials. To meet it, Mallery required not only Ms cash payments, but also the reserved fund of §42,000. He applied to complainants to pay Mm this in advance of the completion of the work; he did not ask the company to modify the contract, nor hold out any inducement for this advance, save that thereby the progress of the work would be more rapid. The company received no new consideration — the advance was a gratuitous favor extended to him, which the company could have denied without dishonor. His request was acceded to on his own terms, that he should make a mortgage opon Ms tools and apparatus belonging to the execution of the work, which mortgage, he states in liis answer, was “ to answer the same purposes which the retaining of said ten per cent, was intended to answer by the terms of the contract.”

It was executed, and the money paid to him. It recites s‘ that it was, among other things, agreed in the contract that ten per cent, of the estimates of the work done by him should he retained until said work was completed, and the contract fully performed, in the manner and within the time designated therein, the same being retained as security for such performance, and that the money had been paid upon Ms giving this mortgage; that said contract should be fully performed, or the money refunded with interest.”

The proviso in the mortgage was double.

, 1st. That if Mallery should well and truly perform in all things the said contract within the time and in the manner therein specified — or 2d, in case said contract should not be fully performed in the manner therein specified within the time herein mentioned (i. e. 7th December, 1857,) and stipulated for the completion thereof, that he should at the said time (i. e. 7th December, 1857,) repay to the complainant the said sum of $42,000 and interest from the date of said mortgage.

No doubt the parties to this arrangement understood their relative positions to be unchanged by it, except that the custody of the $42,000 was to be changed, pending the completion of the work up to the time fixed for its completion, from the treasury of the company to that of Mallery. It was nothing but a conditional payment of money supposed to have been earned by him, but not yet d.ue and payable, to accommodate and relieve his present wants, to be returned repaid on the 7th December, 1857, if the tunnel was not then complete.

The terms of the proviso were not, that in case the contract was not performed as far as he was bound to perform it, considering the relative performance of the company, he should repay the money, but that in case said contract should not be fully performed in the manner therein specified within the time therein mentioned for the completion thereof, he would repay the money with interest. The sum was not to be apportioned in view of part performance — the money referred to was to be repaid with interest without abatement or division.

Clearer language could not have been used to denote that the performance contemplated by the proviso was to be absolute actual performance, not constructive legal performance, or rather partial performance, with an excuse for nonperformance of the residue. Time was made the essence of the proviso.

If the company designed to retain the vantage ground given them by the contract and the reserved ten per cent, it was necessary to fix a time for the repayment of the money. If the repayment was dependant upon whether or not Mallery in good faith strove to fulfil his contract, if the proviso had expressed that idea, the company would have perceived that the condition of the mortgage did not secure them or answer the same purposes which the retaining of the ten per cent, was intended to answer. The tunnel was not completed at the time specified, and is now incomplete.

The complainants’ hill claims that the condition of the mortgage has not been performed; that the tunnel has not been completed; that the time fixed for the repayment of the money has passed, and it is still unpaid; and that, for these reasons, they are entitled to a sale of the mortgaged premises. They have also alleged that certain creditors of Mallery have, by virtue of an attachment out of the Hudson Circuit, levied upon and seized the mortgaged property, and the same is about to be sold by auditors appointed under the writ, at public auction in parcels, so that the property will go into the possession of a great number of purchasers, some of whom will be irresponsible ; that this will render the plaintiffs security at best, but security almost worthless.

The prayer of the bill is for an injunction and receiver. The injunction was granted.

The defendants, Mallery and Clark, one of the attaching creditors, have severally answered the bill. The injunction was dissolved, and the appointment of a receiver denied.

From this order the appeal has been taken.

All parties concur in one thing — all desire a sale of the property. Mallery desires a sale under the attachments, the complainants under the mortgage. The creditors claim the proceeds on payment of their debts, the complainant on payment of his mortgage.

The claim of the complainants is not to be paid the proceeds, as absolutely due them, but to have the money returned to their custody, whence it was taken for the accommodation of Mallery. The claim is to have the parties restored to the situations in which they were before the complainants parted with the custody of the money for Mallery’s accommodation. When repaid, the money .will still be liable to his claims on a final adjustment of the controversy. If paid into court or to a receiver, it would be there to be paid to whom it may be decided rightfully to belong. If, on the other hand, the property .be sold, and the money divided by the auditors under the attachment, the remedy of complainants for what may be eventually found due them is gone for ever.

If the bill shows a case for an injunction and receiver, the exercise of that power is called for, although the time of payment set in the mortgage has not yet come, unless the equity of the bill'is met by the answer. The reasoning of the Chancellor on that point is conclusive. The power of the court to preserve the pledge from destruction to answer the exigency of the mortgage is undoubted.

The Chancellor denied relief for two reasons.

1st. That complainants have no right to a repayment of the money to be held as an indemnity; and if they have, that the bill is not filed in that aspect.

2d. That complainants cannot claim the money until they show a right to hold it as their own on account of some breach of the contract — that is, that the condition is not broken unless the defendant has forfeited all claim to it; unless it has become a forfeit to be retained as a penalty when reserved by complainants.

This is a harsh construction of the contract, and ought not to be adopted, unless clearly required by its terms.

The mortgage is not to be considered as a substitute for the forty-two thousand dollars; such a substitution, so as to alter or impair the rights of the complainants to that fund, substitute a lesser for a greater security — substitution, in the sense of settling and compromising one right for another, could not have been contemplated by the parties.

It was of the essence of the arrangement that complainants should, by means of the mortgage, have the same control over the $42,000 as if they had not parted with it to defendant. In no other way could it “ answer the same purposes as the retained fund answered.”

The right given to complainants by the contract to retain the $42,000 was absolute — it was to retain until the actual completion of the work. It is, in fact, the last instalment — not payable till then.

The right was very valuable to secure the prompt performance of the work.

The contract shows, as well as the custom of engineers, set up in the answer, that the monthly estimates of work done are not exact, but approximate measurements; when the final exact estimate is made, it may turn out that the aggregate quantities of the monthly estimates exceed the final measurement. In that event the reservation will be seen to be a valuable protection against overpayment.

It cannot be contended that, if the work be completed, and the sum of the monthly estimates be $400,000, and the final estimate but $360,000, that the contractor may recover the ten per cent, upon the $400,000; and yet this result will follow if the ten per cent, is retained for forfeiture only, and not in any case as security against overpayment.

It must be true that it could be retained to provide against any default which, at law, would be a defence against an action for its nonpayment. It is equally clear that its repayment may be demanded for any cause which would bar its recovery from the company by action, if it had not been paid conditionally to Mallery. If this be not so, the substantia] rights of the parties have been changed by this arrangement.

The purposes for which the retention is authorized aré not restricted; they are to be determined by the whole scope and object of the contract, and the contingencies which might happen during its performance.

Where the parties provide a remedy of this character, it is to be presumed they intend it should be co-extensive with all the -mischief for which it is an appropriate remedy, and did not intend to confine it to a single object, and .that a forfeiture of a sum of money by way of penalty, and not as compensation. 2 Comyn on Con. 533; 2 Parsons on Con. 11, and cases there cited.

The law will not construe a sum of money named in an agreement to be forfeited, unless in extreme cases. It will be held to be a penalty to cover whatever damages the party may have actually sustained, unless the parties have stipulated to the contrary in such clear and unequivocal terms as leave no room for doubt, and then only where it is manifest the parties undertook to settle the damages beforehand to arise from a particular misfeasance or nonfeasance.

The special power given, not to the company but the engineer, to delarethe contract, and as incidental to that, the ten per cent., forfeited, to be retained for ever for damages which may have been sustained by reason of the forfeiture of the contract, which forfeiture is authorized in case the contractor refuses to cpmply with the contract after written notice served by the engineer specifying the grounds of complaint, can by no just rule of •construction be held to control the right to hold or disjjose of the reserved fund, and restrict it to the single purpose of being retained for contingent forfeitures or for the alternatives to the declarations of forfeiture, also provided in the contract. The first of these alternatives does not contemplate any appropriation of the ten per cent., as such — it merely gives the power to the company to take measures to secure the completion of the work independently of the contractor; nor does the second alternative refer to the appropriation of the ten per cent, merely: both, of these alternatives have other objects than the appropriation of the reserved fund.

These three clauses are designed to extend, not restrict the control of the company over that fund, so far as they refer to it. Without them they had a mere power to retain —by them, they acquire the active power to appropriate them directly to the work of completion.

That the additional privilege of forfeiture , and appropriation of the fund is expressly given, does not, by any just rule of construction, show that the right of holding it for any purpose fairly within the scope of the contract does not exist.

These powers are cumulative, not exclusive, the one of other. There are no restrictive words employed to confine the appropriation of the fund to those purposes. If, then, the ten per cent, was not reserved merely for the purpose of absolute forfeiture, but to protect the rights of the company in any respect in which they needed protection, it is clear that even if the mortgage does not fix a clay of payment past when the hill was filed, and therefore not forfeited, yet it does appear, from the statement of the hill, that the tunnel has not been completed, the contract closed, and that complainants’ lien on the mortgaged premises still exists, and while it exists this court will protect it by preventing a destruction of the pledge. The allegations of the hill are sufficient for this purpose; it shows the mortgage, the object of it in the light of the contract, the nonfulfilment of the contract, the threatened sale and dispersion of the property. What more is necessary ? The unnecessary allegation, that the money is due, will not vitiate it. It shows a case of threatened irreparable mischief to a right resting on a contract of mortgage under seal, entitled to the protection of the court. The mortgage is the sole restraint — no bond accompanied it.

From these considerations, I have reached the conclusion that this hill sets forth a sufficient ground for the interposition of the power of the court by injunction, because it shows that complainants are entitled to a lien on the property by reason of the noncompletion of the tunnel, which lien is in danger of destruction by the wrongful acts of defendants, and this without regard to the question whether the mortgage is forfeited or not. Indeed it would seem that, unless the time within which the contract may be declared forfeited has passed, that complainant has the right to have the property preserved; so that if it should hereafter be declared forfeited in the manner pointed out by the special clause, or if the company should desire to appropriate the money to the purposes for which its appropriation is authorized by the alternatives to the power of forfeitures, it may be forthcoming. The reasons why the court should preserve the fund for such a purpose have been conclusively given by the Chancellor. The reasons given why the property should be sold, and the fund held to await the decision of the court upon the conflicting claims of the complainant and the creditors, are equally conclusive. There would be nothing to hinder the court ordering the property sold clear of all encumbrances for the benefit of creditors. This, it will be recollected, is a mortgage of personal, not real estate; difficulties that may be in the way of the appointment of a receiver in the case of a mortgage upon land do not here exist. The necessity of a sale to preserve the property for the benefit of creditors and the complainant alike is manifest, and admitted by the parties.

The remaining question is, have the defendants, by their answers, entitled themselves, according to the course of the court, to a disolutiou of the injunction?

Mallery does not set up that he has, according to the condition o'f the mortgage, fully performed the contract in the manner therein specified, within the time therein mentioned and stipulated for the completion thereof, nor that he has repaid to the complainants the said sum of forty-two thousand dollars, therein mentioned. The difficulty of pleading in the answer a direct performance of the contract stared the pleader in the face, and he endeavored to meet the inquiry, for he says he denies it is true that he did not in all things perform his contract with the complainants in the time and in the manner specified therein, in the sense in which the same is alleged in the bill of complaint; on the contrary thereof, lie expressly charges, that he did perform the same in all' things until the said complainants required the defendant to cease and discontinue the performance of the same.

The answer is a manifest confession and avoidance of the allegations of the bill.

It sets up as an excuse for nonperformances,

1st. That complainants requested him to stop the further progress of the work through their agent, Mr. Mason, the president of the New York and Erie Railroad Company.

2d. That the complainants did not pay him as they agreed to do.

The first allegation is denied by complainants, and on the hearing of the motion to dissolve, the affidavit of Mr. Mason was read, denying any authority, as the agent of the complainants, to stop the work; and that he did, prior to the 19th November, then past, (the affidavit was taken 21st July, 1858,) give the defendant, Mallery, any order or direction as to his going on with or stopping his work under the contract, and that Mallery had been paid for a much greater quantity of work than he had done, and at a price beyond the contract price and the additional price they had agreed to pay, to wit, nine dollars per yard for headings; that Mallery said the estimates were false, that the money was paid by complainants’ ignorance of the facts, and was a fraud upon complainants ; that the complainants did not, at the time Mallery stopped, nor do they now, owe him any money for work done upon the contract, according to the terms thereof, or according to the prices fixed for work by their engineers, and that he has been overpaid several thousand dollars.

This affidavit is to rebut the allegations of the answers, touching the admitted fact, that at a certain stage of the work the company agreed to pay for the excavation of the headings of the tunnel, at the cost of $9 per cubic yard, for 8J cubic yards of headnig, per foot of tunnel; and footings, at $27.98 per cubic yard, for 13 yards, per foot of tunnel.

The complainants have undertaken to show, by the examination of H. L. Southard, a practical engineer, who measured, since the suspension of the work, the average height of the headings taken out by Mallery to be found forty hundredths cubic yards per lineal foot of the tunnel, instead of eight and one half cubic yards, at which the heading was stipulated to be paid for, at the rate of $9 per cubic yard.

The complainants allege that Mallery has charged and received payment for estimates for May, June, July, August, and September, 1857, allowing him for eight and one half cubic yards per lineal foot of tunnel of headings, although he in fact excavated but six and onehalf cubic yards per foot, and this, too, at the rate of $9 a cubic yard; and that he has thus received some hundred thousand dollars more than he has earned.

The defendant justifies this by setting up an usage of engineers to estimate for more than the work actually done, in order to compensate for work of more expensive and difficult character than ordinary.

I have stated these several counter statements and insistments of the parties, not for the purpose of examining and testing their accuracy and weight, but to show that there are matters and contested questions of great importance involved in the final determination of the case, upon which the parties ought to be deliberately heard. They show that in a case of this kind, where the rights of the complainant does not rest upon a mere equity, but are founded on a contract under seal, sought to be enforced in this court because of its power to provide an adequate remedy, where the whole remedy will be lost by a decision upon tbe merits at tbis stage of tbe case, tbe court should • defer a decision upon tbe merits until tbe final bearing, and that the injunction should be retained until that time.

The order dissolving the injunction should be reversed; the injunction continued to the hearing, and the case be remitted, to be proceeded in according to law.

Ogdek, J.

In this case I am of opinion that the mortgage was given and received in place of the retained percentage, which was held under the contract solely for the accommodation of Mallery, and that it should be dealt with upon the same principles that we would deal with the money, if Mallery was now claiming under this contract to have it paid over to him by tbe company; that the money was retained by the company as security for the performance of the contract by Mallery, and also to indemnify them against damage from a nonperformance on his part; and that the parties further agreed that the company should also have the option of making the whole a forfeiture upon one contingency, or of making monthly forfeitures of portions of it upon another contingency, hut that the company wore not bound to take a course which necessarily would create an absolute forfeiture, in order to avail themselves of the benefit of tbe percentage retained; that the company had a right to retain this money, under the second section of the sixth condition of the contract, until the contract should have been wholly completed, unless the contractor was prevented from executing it by the conduct of the company, and hence that the complainants should be directed to retain a lien on tbe mortgaged property to the same extent that they could have retained the money. Parties who had obtained liens upon the mortgaged property subsequent to tbe execution and registry of the mortgage held by tbe company were preparing to sell the property regardless of the' claim of the company; and upon a bill filed by the company, praying for an injunction and a hearing, an injunction was granted, and it has been served. Upon the defendants putting in answers, the Chancellor dissolved the injunction. I think he erred in making that order, because, in the view which I take of the case, the question, whether the complainants have lost their lien upon the property, which is conceded to have been well created, cannot be correctly determined upon bill and answer. Proofs must be taken to show why the contract was not performed, whether from the default of the company or of the contractor; an account must in some way be stated between them to ascertain whether the amount represented by the mortgage is really due and payable to the contractor, even if he was not responsible in damages for failing to complete the work; and if he shall be proved to be in default, how much of the detained percentage should be applied as indemnity for the company ? If the creditors should now be permitted to sell the personal chattels mortgaged to the company, the security of such mortgages would be utterly destroyed. I am of opinion that the decree dissolving the injunction should be reversed, and that the injunction should be continued to the final hearing, and that the property should be sold, under the direction of the Court of Chancery, for the best prices that can be obtained for the same; and that the avails of the sales should be paid into that court, to be applied, by the orders of the Chancellor, to such of the litigating parties as, upon a further investigation of the rights, he shall determine are entitled to the same.

The decree of the Chancellor was reversed by the following vote:

■ For affirmantiej-Judges Elmer, Cornelison, Valentine.

. For reversal — Chiee Justice, Judges Combs, Ogden, Vredenburgh, Bisley,"Wood, Haines, S.wain, Whelpley.