Dealy v. Klapp

Cochrane, J.: Judgment having been granted on the pleadings, the affirmative defense contained in the answer has been overruled as matter of law. In my opinion such defense presents a question of fact in support of which the defendant was at liberty to [153] present evidence. It is well-established law that ordinarily a party at his election may maintain an action in equity to compel the specific performance of a contract to convey real estate or an action at law to recover his damages against the party failing to perform and the rule is unchanged notwithstanding that the parties have provided in the contract for the payment of liquidated damages in case of a breach thereof. In Baumann v. Pinckney (118 N. Y. 604, 612) it was said: “As early as 1835, it was said by Chancellor Walworth that a suit in equity against the vendee to compel a specific performance of a contract to purchase land had always been sustained as a part of the appropriate and acknowledged jurisdiction of a court of equity, although the vendor has, in most cases, another remedy by an action at law upon the agreement to purchase. (Brown v. Haff, 5 Paige, 235.) One of the earliest decisions of this court was to the same effect. (Crary v. Smith, 2 N. Y. 60.)” It does not follow, however, that the jurisdiction of a court of equity under all circumstances may be invoked in such a case. In the present case the parties inserted in their contract a provision fixing the amount of damages which either party failing to perform the agreement was to pay to the other. It may be a question of intent as to whether by such provision the parties did not create for themselves an exclusive remedy in case of a breach of the agreement. In Phoenix Ins. Co. v. Continental Ins. Co. (87 N. Y. 400) there was a covenant in a deed that the grantee would not erect any building on a portion of the premises conveyed adjoining the remaining lands of the grantor and a provision that in case of a violation of said covenant the grantee would pay to the grantor “ the sum of $1,500 liquidated damages.” The court in discussing this question said: “ The rule, deduced from the authorities, is, that when there is a covenant to do, or not to do a particular act, under a penalty, the covenantor is bound to do, or refrain from doing, the very thing, unless it appears from the particular language, construed in the light of the surrounding circumstances, that it was the intention of the parties, that the payment of the penalty should be the price of non-performance, and to be accepted by the covenantee, in lieu of performance. (Chilliner v. Chilliner, 2 Ves. Sr. 528; [154] French v. Macale, 2 D. & W. 269, and cases cited; Gray v. Crosby, 18 Johns. 219.) The question to be considered is, what was the primary intent of the agreement? If the primary intent was, that the covenant should be performed, the annexing of a penalty, is regarded merely as security for the performance of the covenant, and not as a substitute for it.” In Diamond Match Co. v. Boeber (106 N. Y. 473, 486) it is stated: “It is, of course, competent for parties to a covenant to agree that a fixed sum shall be paid in case of a breach by the party in default, and that this should be the exclusive remedy. The intention in that case would be manifest that the payment of the penalty should be the price of non-performance, and to be accepted by the covenantee in lieu of performance. (Phoenix Ins. Co. v. Continental Ins. Co., 87 N. Y. 400, 405.) But the taking of a bond in connection with a covenant does not exclude the jurisdiction of equity in a case otherwise cognizable therein, and the fact that the damages in the bond are liquidated, does not change the rule. It is a question of intention, to be deduced from the whole instrument and the circumstances; and if it appear that the performance of the covenant was intended, and not merely the payment of damages in case of a breach, the covenant will be enforced.” (The italics in the above quotations are mine.) It follows from the foregoing authorities that it is a question of intent whether the action for damages shall constitute the exclusive remedy and such intent is ascertainable not alone from the contract but from the contract construed in the light of surrounding circumstances. It is this question which is raised by the answer. It was, therefore, permissible for the defendant under his answer to introduce evidence bearing on the question as to whether or not the parties intended that in case of a breach of contract the payment of $5,000 should constitute the exclusive remedy for such breach. He was not confined to the contract but was at liberty to introduce extraneous evidence to show the intent of the parties. I apprehend also that if after the breach the parties had agreed that the initial payment of $5,000 which the plaintiff had received should be retained by her in settlement of the satisfaction of the broken contract such agreement would be as binding as if the plaintiff had received any other [155] sum of money in satisfaction thereof and such a defense seems to have been alleged in the answer which has been overruled. While in this respect the answer is vague no motion was made to have it made more definite and certain. The answer was improperly held as matter of law to be insufficient. It should further be observed that when this action was commenced the plaintiff was not entitled to full performance of the contract. The defendant had until July 1, 1921, to take title and make full performance of his contract. According to the uncontroverted allegations of the complaint, which are the only ones which can be considered in support of this judgment granted on the pleadings, the only default of the defendant at the time of the commencement of the action was in respect to the payment of $15,000 on April 1, 1921. For the recovery of that amount the plaintiff did not need an action in equity. The answer alleges among other things that the plaintiff had an adequate remedy at law. Whether a court of equity under such circumstances could or should exercise its jurisdiction is a question which need not now be determined in view of the conclusion already reached. The judgment should be reversed and motion for judgment on the pleadings denied, with costs to the appellant to abide the event. Woodward, H. T. Kellogg and Van Kirk, JJ., concur; John M. Kellogg, P. J., dissents, with a memorandum.