City of
Court
of Appeals of
34
N.Y.2d 470, 358 N.Y.S.2d 391, 315 N.E.2d 458.
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.