City of Nashville v. Nashville Traction Co.

Me. Justice Green delivered the opinion of the Court. By ah ordinance approved in May, 1913, the city council of Nashville granted to defendant Nashville Traction Company a franchise to construct and operate a street car line through certain of the streets of said city. This ordinance was enacted subject to the approval of the voters of the city to be expressed at an election thereafter to he held. Said election was held legally, it was supposed, and the defendant Nashville — 477 — Traction Company constructed part of the line proposed. The line was not completed, however, work was abandoned for reasons not necessary to be detailed, and in 1916 the city authorities declared the franchise of defendant traction company forfeited. By section 14 of the ordinance of 1913 a certain bond was exacted from defendant traction company. The language of the ordinance respecting said bond is as follows: “That said company shall execute to the city, within ninety days from the final passage of this ordinance by the city council a,nd before the same- has been voted upon by the voters of the city of Nashville, a bond with approved, sufficient and undoubtedly solvent sureties, in the penalty of $200,000, and conditioned as follows: “First, to secure the city against any accident that may happen from the use of electricity in the streets, or in the construction of the said company’s road, or operation thereof; and, “Second, that within six months from the ratification of this ordinance by the voters of the city of Nashville said company shall begin the active work of constructing its street railway lines and power plants and shall diligently and faithfully and continuously prosecute the the same, and shall within eighteen months from the date of the ratification of said ordinance by the voters of the city 'of Nashville expend and contract for grading, .equipment, etc., $250,000, and within 2 years $500,000.” As required by this ordinance a bond was executed by defendant Nashville Traction Company,- as principal, and defendant Equitable Surety Company, as surety, in the penal sum of $200,000. The bond was conditioned — 478 — as required by the said section 14'of the ordinance, and contained other provisions indicating that it was intended also to secure compliance by the traction company with the provisions of the entire ordinance. The whole ordinance was quite lengthy and set out the duties and obligations of the traction company in much detail. The bill avers that only $165,000 was expended altogether by defendant traction company in this work, and that defendant traction company abandoned the work and failed to complete it, and the bill is filed to recover the full sum of $200,000 named as penalty of the bond. An .answer was filed by the defendants, raising various questions. The chancellor dismissed the bill, and the city has appealed. Other facts appear in the record which we need not set out. We rest our decision of this case upon one ground alone, and will undertake to state only such things as are necessary in this immediate connection. No special damages are alleged in the bill or proven by the city. The city insists that it is relieved from this obligation, inasmuch as it contends that the bond provides for liquidated damages and no proof of special damages is required. The defendants on the contrary, insist that the bond is one for a penalty,’ given as security for damages suffered by the' city, and that only such damage as is proven may be recovered. We are of opinion that the defendants’ contention is well taken, and that this is a penal bond, and that there can be no recovery herein in the absence of any showing by the city of any damage sustained. — 479 — The language employed in the bond indicates that it was intended to be a penal bond. We concede, however, that the particular words used are not conclusive upon the parties or the court, and we look further to determine the character of this paper. The narrowest scope to which this bond can be confined is within the limits of section 14 of the ordinance of 1913. The conditions of the bond prescribed in that section, which conditions are contained in the bond executed, are for the security of the city against any accident that may happen from the use of electricity in the streets, or in the construction dr operation of the road, or against the failure of the company to begin and faithfully prosecute the work of construction and expend $250,000 on this work within eighteen months from, the date of the ratification of said ordinance by the voters, and $500,000 within two years from said ratification of said ordinance. If the bond be treated as an undertaking to secure the performance of all the requirements of the ordinance granting this franchise to the Nashville Traction Company, then, of course, it has a much broader scope and covers many more things. In either case the bond covers a contract between the city and the traction. company, which embraces several distinct undertakings. In its narrowest scope the bond undertakes to secure the city against damages arising from the use of electricity in the streets, or in the operation of the line, or in the construction of the line, and to secure the expBnditure of $250,000 within eighteen months from ratification of the ordi — 480 — nance, and $500,000 ’within two years from ratification of the ordinance. Under the terms of this bond the defendant traction company and defendant surety company .are liable in the full sum of $200,000 for a breach of the contract in any of the particulars named. The single lump sum of $200,000 is made payable for any breach of the contract, regardless of the importance of the particular stipulation that may be breached. For instance, if the company spent a few dollars less than $500,000 on the work within the time prescribed, $200,000 might be recovered on the bond. If a few days more than the prescribed time were occupied in expending the $500,000, $200,000 might be recovered on the bond. Likewise for any failure of the defendant traction company to secure the city against any claim for damages occasioned by the use of electricity in the streets, in the operation of the road, or in the construction thereof, $200,000 might be recovered, regardless of the amount of the claim and the city’s damages. Under circumstances like these the bond must be treated as one for a penalty. It cannot be supposed that the parties intended to liquidate or stipulate the sum of $200,000 as the amount of damage recoverable upon every such breach, regardless of its importance.' The courts almost uniformly hold where a contract contains a number of stipulations of varying degrees of importance and a single sum is made payable for any breach, applicable alike to important and unimportant covenants, it-will be treated as a penalty rather than liquidated damages, no matter whát name is given it by the parties. Cases to this effect are too — 481 — numerous to he cited. They mil he found collected in 17 C. J., p. 953; 8 R. C. L., p. 571; note, Ann. Cas., 1912C, 1024; note, L. R. A., 1915E, 373; note, 198 Am. St. Rep. 56; Sutherland on Damages, section 294; Pomeroy, Eq. Juris, section 441. This rule is of particular force where the damage incident to the breach of some of the covenants is readily ascertainable, as would be the damage claims against the city secured by this bond. While the rule stated has not hitherto been applied in any of our reported cases, it must necessarily obtain here to preserve the harmony of our decisions. Another rule would permit the recovery of the full amount of the bond for a trifling breach, and this court invariably treats as a penalty a stipulated sum out of proportion, to the damage sustained. Coal Creek Co. v. Tennessee Coal, etc., Co., 106 Tenn., 651, 62 S. W., 162; Schrimpf v. Tennessee Mfg. Co, 86 Tenn., 219, 6 S. W., 131, 6 Am. St. Rep., 832; Tennessee Mfg. Co. v. James, 91 Tenn., 154, 18 S. W., 262, 15 L. R. A., 211, 30 Am. St. Rep., 865; Railroad v. Cabinet Co., 104 Tenn., 568, 58 S. W., 303, 50 L. R. A. 729, 78 Am. St. Rep., 933; Vaulx v. Buntin, 127 Tenn., 118, 153 S. W., 481. We are referred by counsel for the city to certain cases which take a distinction between bonds given to an individual and those given to a State of municipality to secure the performance of a contract for some public work. It is said in these cases that the State or city itself really sustains no damage; the loss is that of its citizens who failed to get the new railroad or car line; that such damage is difficult of calulation; and that — 482 — the payment of the sum specified in the bond will be enforced as a sort of statutory penalty for nonperformance of a duty enjoined by law Clark v. Barnard, 108 U. S., 436, 2 Sup. Ct., 878, 27 L. Ed., 780; Salem v. Anson, 40 Or., 339, 67 Pac., 190, 56 L. R. A., 169, 91 Am. St. Rep., 485; Nilson v. Jonesboro, 57 Ark., 168, 20 S. W., 1093; City of Indianola v. Gulf, Western, etc., R. Co., 56 Tex., 594. There are other cases to the same effect. In so far as they commend themselves, they treat of bonds conditioned upon the performance of a single undertaking, as the completion of a railroad of other public improvement. . The bond before us, however, covers numerous things, as we have seen, and in such cases the courts have applied the same rule to a municipal obligee as to an individual. Madison v. American Sanitary Engineering Co., 118 Wis., 480, 95 N. W., 1097; Brunswick v. Ætna Indemnity Co., 4 Ga. App., 722, 62 S. E., 475; Summit v. Morris County Traction Co., 85 N. J. Law, 193, 88 Atl., 1948, L. R. A., 1915E, 385. Indeed, in this case the city did not take this bond as a mere arm of the government to secure this public improvement for its citizens, but the bond was taken in part to protect the city against claims for damages, to which it would have to' respond purely in its corporate capacity. In so far as the city is concerned as a corporation, we see no reason for distinguishing between its rights and those of an individual obligee, and we quite agree with the supreme court of Wisconsin that where a bond is given to secure various covenants, conditions, and agreements of the principal — 483 — contract, some of them trivial, a “penal sum” named cannot he treated as liqudated damages for some covenants and a penalty only as to others. Madison v. American Sanitary Engineering Co., supra. Without discussing other questions, the decree of the Chancellor will he affirmed.