City of Rye v. Public Service Mut. Ins. Co.

Court of Appeals of New York, 1974.

34 N.Y.2d 470, 358 N.Y.S.2d 391, 315 N.E.2d 458.

Dawson, pp. 133-135


Facts: The defendants posted a $100,000 surety bond to ensure the completion of some buildings.  They were not completed on time.  The plaintiff sued to collect the entire $100,000 face value of the bond.  The plaintiff moved for summary judgment but was denied by the trial court.  The appellate court upheld the trial verdict.  The plaintiff appealed.


Issue: Did the agreement between the parties provide for a penalty or for liquidated damages?


Rule: If damages from a breach are hard to measure, a provision in the contract fixing damages for breach will be upheld if the damages are reasonable and not disproportionate to the projected harm.


Analysis: The court argues that there is no statutory authority for the city to extract such a large bond from the developers.  The city did not demonstrate substantial actual damages from the delay in construction.  Thus, the court concludes that the bond is a penalty for breach and is not allowed at common law.


Conclusion: The court upheld the verdicts of the trial court and appellate court.


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