Muldoon v. Lynch
6 P. 417, 66 Cal. 536, 1885 Cal. LEXIS 495 (1885)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A contract clause that imposes a 'forfeiture' for a breach, such as a daily fee for delayed performance, will be construed as an unenforceable penalty unless the party seeking to enforce it can prove actual damages, especially when the specified amount is disproportionate to any reasonably foreseeable actual loss.
Facts:
- Plaintiffs Muldoon and another individual contracted with defendant Lynch to construct a marble monument and other improvements on Lynch's cemetery lot for a total price of $18,788.
- The contract specified that the entire project was to be completed within twelve months from the date of the contract.
- The agreement contained a clause stating the work was to be completed 'under forfeiture of ten dollars per day for each and every day beyond the stated time for completion.'
- The monument was constructed using large marble blocks quarried in Italy, one of which weighed twenty tons.
- Procuring a ship in Italy capable of transporting the massive marble blocks to San Francisco caused a delay of nearly two years.
- Aside from the delay, the work was completed in full accordance with the contract specifications.
- Lynch sought to deduct $7,820 (representing 782 days of delay at $10 per day) from the final payment of $11,887.
Procedural Posture:
- The plaintiffs, Muldoon et al., sued the defendant, Lynch, in a trial court to recover the final unpaid balance of $11,887 on the construction contract.
- Lynch asserted as a defense that she was entitled to set off $7,820 against the balance, per the contract's forfeiture clause for the delay in completion.
- The trial court rendered a judgment in favor of the plaintiffs for the full amount, effectively ruling that the forfeiture clause was an unenforceable penalty.
- The defendant, Lynch, as the appellant, appealed the trial court's judgment to the current court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is a contract clause providing for a 'forfeiture' of a specific sum per day for delayed completion enforceable as liquidated damages, or is it an unenforceable penalty that requires proof of actual damages?
Opinions:
Majority - Myrick, J.
No, the clause is an unenforceable penalty. A provision in a contract specifying a monetary 'forfeiture' for a breach is interpreted as a penalty, not as liquidated damages, unless it is clearly intended as a reasonable pre-estimate of actual, difficult-to-ascertain damages. The court reasoned that the term 'forfeiture' is legally synonymous with 'penalty' and implies a punitive measure rather than a compensatory one. The fundamental principle of contract damages is compensation for actual loss, not punishment. Here, the $10 per day charge appears to be a 'spur' to encourage performance rather than a genuine attempt to liquidate damages, especially since Lynch presented no evidence of any actual pecuniary damage resulting from the delay. Therefore, the party seeking to enforce the clause must prove the actual damages they sustained, which was not done in this case.
Analysis:
This decision reinforces the judicial doctrine disfavoring penalties in contracts. It clarifies that the specific language used by the parties, such as 'forfeiture' versus 'liquidated damages,' is highly influential in a court's interpretation. The ruling solidifies the principle that for a stipulated damages clause to be enforceable, it must be a reasonable forecast of just compensation for the harm that is caused by the breach, and that harm must be of a kind that is difficult to estimate. This case serves as a warning to contract drafters that clauses intended to punish a party for a breach, rather than compensate for actual loss, will likely be struck down by courts.
