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thorities seem to sustain this proposition, $4,000, recited a consideration of $7,050, and bolding that, in case one of the sureties not provided that, if the grantee should erect on a party to the agreement for the extension

the premises buildings worth $16,000, the note

would be canceled, but would otherwise remain should pay the same, the implied right by in force. Hold that, since the damages to the virtue of the reservation existed in him to grantor from failure to erect the buildings are at once bring an action against the other par

uncertain and difficult to prove, the $4,000 will

be considered as liquidated damages, and not ties who had stipulated for the extension,

as a penalty. and that his rights were in no wise impaired. 2 Daniel, Neg. Inst. § 1322, and cases cited;

Appeal from superior court, Snohomish counStory, Prom. Notes (7th Ed.) 8 416. As to

ty; John C. Denney, Judge. whether section 756 (volume 2) of the Code,

Action by the Everett Land Company against authorizing any person bound as surety to

John J. Maney and Charles S. Zurn. Judgrequire the creditor to forthwith institute an

ment for plaintiff, and defendant Maney apaction upon the contract when the right of

peals. Affirmed. action has accrued, or, as provided in section 'A. R. Titlow, for appellant. Francis H. 757, in case of a failure to do so within a rea- Brownell, for respondent. sonable time, that the surety would be released, would affect this proposition, we are DUNBAR, J. This is an action brought by not called upon, and do not desire, to deter- the respondent to foreclose a mortgage for mine in this case, as the point is not raised purchase money upon four lots in the town by counsel, and we are of the opinion that of Everett, in Snohomish county, Wash.; said the second point made by the respondent lots being purchased by the appellant in the must be sustained, which is that the taking spring of 1892. In addition to the contract to of another surety under the agreement for pay $3,050 for the four lots, the appellant gave the extension released Bussell, who was not an obligation, which termed a “bond,” in a party thereto. This point seems to be sus- the sum of $4,000, which obligation was actained by the authorities. No case has been companied by a note for that amount. For cited to us directly holding the opposite, al- the balance of the amount claimed, no note though a number have been called to our at- was given, and for this amount the respondent tention holding that the addition of a surety Asks no personal judgment against the apwould not discharge the principal maker, be- pellant. The respondent, in a contemporanecause it in no wise altered the contract which ous writing, agreed, in case the appellant the maker of the note had entered into, bis should build upon the lots sold a brick house obligation being to pay the full amount of of the value of $16,000 within 18 months, the note without any right of recourse the note for which the $4,000 was given should against the sureties. But, as applied to a be released. This action seeks to recover, in surety, the case seems to be different, be- addition to the amount for which no note was cause it is an alteration of the contract as to given, the sum of $4,000, with interest on the him. Some of the reasons given for holding same since the date of its execution, and to that a surety not a party to such an agree- foreclose the mortgage for that amount. No ment is released are that the action might question is made by the appellant concerning be brought in another jurisdiction, by reason the validity of the judgment for anything more of the addition of another party; that the than the note for $4,000 with interest. Judgamount the nonconsenting surety, in case he ment was rendered in favor of the respondent should pay the note, would be entitled to re- for the whole amount claimed, including the ceive from the sureties with whom he joined $4,000 note, from which judgment this appeal by way of contribution, would be lessened; is taken. that the integrity of the instrument would It is the contention of the appellant that be affected thereby. And a further reason the $4,000 was in no sense a part of the puris given that the added surety might make a chase price, but that it was a provision for payment upon the note, and thus extend its

a penalty, and that the respondent must time, or renew it, as against the statute of bring his action at law to recover whatever limitations. 2 Brandt, Sur. (2d Ed.) § 380; damages he can prove himself to have sus. 2 Pars. Notes & Bills, pp. 241, 561; 2 Daniel, tained by reason of the breach of the conNeg. Inst. $8 1373–1375, 1387-1389.

tract in not building; it being conceded that The motion for a nonsult was properly the contract was not complied with in that granted. Affirmed.

respect. It appears from the correspond

ence in the record that, outside of the $4,ANDERS and REAVIS, JJ., concur.

000 note, the price asked for the lots by the

company was $3.050. On the 4th of March (16 Wash. 552)

the following instruments in writing were EVERETT LAND CO. V. MANEY et al.

executed, all at one time nd on one sheet (Supreme Court of Washington. March 12,

of paper:

"No. 90. Building Bond. This memoran1897.)

dum witnesseth that the Everett Land Com. LAND CONTRACT - ERECTION OF Buildings-PenALTY OR LIQUIDATED DAMAGES.

pany, a corporation, has, by deed of even The agreed price of land was $3,050, but a

date herewith, sold and conveyed to John J. separate contract, uccompanied by a note for Maney the following described real estate in Snohomish county, Washington, to wit: judgment obtained for the amount of damLots one (1), two (2), three (3), and four (4) ages proven, or whether it can be considin block six hundred and eighty-three (683), ered as liquidated damages. If it is to be as shown upon the plat of Everett now on considered as liquidated damages, then there file in the auditor's office of said county, for would be nothing left for the jury to deterthe consideration of seven thousand and mine, and the court would have jurisdiction fifty dollars, in part payment of which sum in this case to enter judgment as it has the said John J. Maney has this day execut- done. There is some conflict in the authori. ed to the Everett Land Company the follow- ties on this question, and it has been found ing promissory note:

difficult, and even impossible, to lay down a $4,000.00 Everett, Wash., 4th March, uniform rule governing all cases; but from 1892. Eighteen months after date, without the adjudications certain rules have been grace, for value received, I promise to pay formulated, which have received the sancto the Everett Land Company, at the office tion of the great majority of the courts, and of said company in Everett, the sum of four which it may be said are to-day universally thousand dollars, with interest from date at followed, so that the only question is as to the rate of eight per cent. per annum until the application of the rule to the facts in a paid; principal and interest payable in given case. The first rule is that: “Wher. United States gold coin. In case suit is in- ever the payment of a smaller sum is se stituted to collect this note, or any portion cured by a larger, the larger sum thus conthereof, I promise to pay the further sum of tracted for can never be treated as liquidated four hundred ($100.00) dollars as attorney's damages, but must always be considered as fee in such case. J. J. Maney. Due 4th a penalty.” That rule was favorably comSeptr. 1893.'

mented upon, and the principles which it In case John J. Maney shall, within eight- enunciates were followed, by this court in een months from this date, cause to be Krutz v. Robbins, 12 Wash. 7, 40 Pac. 415, erected and completed, ready for ordinary where it was held that: "An agreement in occupation, on lots 1, 2, 3, and 4 in block 683, a note and mortgage securing it that in case above described (or any of them), a brick or of default in the payment of any installment store building or buildings, to be commenced of interest, insurance premium, taxes, or the within six months, and costing not less than principal, the mortgagor will pay an in$16,000.00, then the above note shall be can- creased rate of interest, is in the nature of celed and returned to John J. Maney, other- a penalty, and is unenforceable in a suit for wise paid according to the terms thereof. foreclosure.” That case is cited by the apDated at Everett, Wash., this 4th day of pellant, but we think that the principles deMarch, 1892. The Everett Land Company, cided and discussed there do not apply to by Schuyler Duryee, General Manager." this kind of a case; nor does this case, as

On the same day the respondent executed we understand it, fall within the rule anin legal form a deed to said above-described nounced above. The payment of $3,050, property to the appellant, alleging the con- which it is claimed by the appellant was the sideration to be $7,050; and on the same day purchase price of the lots, is not, under the a mortgage was executed by the appellant in terms of this mortgage, secured, or attempt. favor of the respondent on the lots sold to ed to be secured, in any way by the $4,000 secure the respective sums of $763, $762, and note. So far as the mortgage is concerned, $762, due respectively March 4, 1893, March the one does not depend in any manner up4, 1894, and March 4, 1895; also, specially on the other, but the two simply form the securing the sum of $1,000 and interest consideration for which the deed is alleged thereon according to the terms of the non- to have been given. The next rule is that: negotiable promissory note,describing the “Where an agreement is for the performnote above mentioned. There are some other ance or nonperformance of only one act, and letters and notices given to the appellant by there is no adequate means of ascertaining the respondent before the execution of these the precise damage which may result from instruments, which it is claimed by the ap- a violation, the parties may, if they please, pellant conclusively show that the purchase by a separate clause of the contract, fix upprice of the lots was actually $3,030, in- on the amount of compensation payable by stead of $7,050, and he contends that the cor- the defaulting party in case of a breach; and respondence establishes this proposition be. a stipulation inserted for such purpose will yond a question. Conceding, for the pur- be treated as one for 'liquidated damages, poses of this case, that the actual amount unless the intent be clear that it was deasked for the lots was as contended for by signed to be only a penalty.” The third is the appellant, and that the $4,000 was no that: “Where an agreement contains provipart of the purchase price,-although there sions for the performance or nonperformare cases which hold exactly to the contrary, ance of several acts, of different degrees of - yet the question is left in this case as to importance, and then a certain sum is stipuwhether or not the note which was given for lated to be paid upon a violation of any or the $4,000 was intended as a penalty, in of all such provisions, and the sum will be which case the action upon the bond would in some instances too large, and in others hare to be brought by the appellant, and too small, a compensation for the injury

thereby occasioned, that sum is to be treated : tion for the injury caused by the delay.” So as a penalty, and not as liquidated dam- that it will be seen that this case was decided ages."

on altogether a different principle, and that These rules are set out in their order by Mr. the facts in that case did not bring it within Pomeroy in his work on Equity Jurisprudence the rule which we have announced, because (volume 1, § 441), and the author, in present- all that the respondent in this case, at the ing the third rule, says: "This rule has been time of the makin of the contract, had laid down in a somewhat different form, as right to expect, was not performed by the apfollows: Where the agreement contains pro- pellant. He had a right to expect that the visions for the performance or nonperformance building contracted for would be erected. The of acts which are not measurable by any ex- contract in the case at bar was not that this act pecuniary standard, and also of one or $4,000 note should be satisfied if the obligamore other acts in respect of which the dam- tions for $3,050 were paid when due. Had ages are easily ascertainable by a jury, and a it been, then it would have been parallel with certain sum is stipulated to be paid upon a the case quoted. But this obligation was basviolation of any or of all these provisions, such ed upon something separate and distinct from sum must be taken to be a penalty,"—thus car- the payment of the amount which the appelrying out the idea that, to constitute a stipu- lant claims was the purchase price of these lated sum a penalty, the damages must be lots. In Noyes v. Phillips, 60 N. Y. 408, the easily ascertained by a jury, and that if, under parties agreed to exchange real estate upon the circumstances of the case, the damages certain specified terms, and each agreed to de. cannot be ascertained with any degree of cer- liver a deed of his property at a time specified, tainty or safety, the stipulated sum must be or forfeit the sum of $500. This was held by considered liquidated damages. It seems to the trial court to be a provision for liquidated us that this case falls squarely within the sec- damages. The case went to the appellate ond rule announced, that there is no adequate court finally, and while the appellate court means of ascertaining the precise damage concluded, from the state of the pleadings and which may result from a violation, and that the record, that that question was not necessathe parties, therefore, may, if they please, con- rily before them, they did think it worth while, tract to fix upon the amount of compensation however, to say: “It is, however, proper to payable by a defaulting party in case of a say that, if that question was before us, we breach. Many cases are cited by Mr. Pomeroy should hesitate in holding it a penalty, and to sustain this doctrine, and in many of them there are many reasons for regarding it as the circumstances are identical in principle a provision fixing the measure of damages by with the circumstances as shown by the record the parties. The word 'forfeit is not conin this case. The appellant cites, as being par- clusive. A fundamental rule upon this suballel with the case at bar, the case of Long-ject is that the words employed must, in genworth y. Askren, 15 Ohio St. 370, where it is eral, yield to the intention of the parties, as said: "A note payable in a series of install- evinced by the nature of the agreement, the ments provided that a less sum would be ac- amount of the sum named, and all the surcepted in full payment if each installment rounding circumstances. The sum named is were paid punctually. Held, that the larger reasonable in amount for a failure to perform sum was in the nature of a penalty, and that this agreement; it is payable for one breach, the payment of the less discharged the obli- viz. a failure to deliver a deed; and the ingation, though defaults had occurred in paying jury is in some degree uncertain in amount the installments.” In that case the note was and extent, and might depend upon many unas follows: "For value received, I promise foreseen contingencies. These are material to pay N. Longworth, or order, one thousand circumstances favorable to an inference that dollars, with interest yearly till paid, and paya- the parties intended to fix the sum as the measble as follows: In two, three, four, five, six, ure of damages." In Houghton v. Pattee, 58 seven, eight, nine, and ten years, equal in- N. H. 326, the defendants gave B. their note stallments, with interest yearly, as aforesaid; for $4,000, part of the price of land conveyed being the contract price of a lot. But if each by B. to H., and H. gave the defendants a and every payment is made punctually as due, bond of $4,000, to be void if H. should expend or before due, or within ten days after each is $10,000 in building an hotel upon the land due, as an inducement to punctuality, two within a certain time, and a mortgage of the hundred dollars of the amount will be released, land to secure the bond. The time expired, and eight hundred dollars and its yearly inter- and H. did not perform any considerable part est accepted in full payment, but not other- of the condition of the bond. It will be seen wise." The court, in its opinion in that case, that this case embraces substantially the facts said: “All that the plaintiff, at the time of embraced in the case at bar. In that case the making the contract, had a right to expect, court decided that the parties intended to make was the payment of eight hundred dollars, the $4,000 the amount of liquidated damages, with the interest, in the installments and at and that the difficulty of ascertaining the the times stipulated. These payments Ricords amount of defendants' damage caused by tue had promised to make punctually. A default plaintiff's not building might be sufficient, in occurred; and in such a contract, in our opin- the absence of other evidence, to show an inion, interest is to be regarded as a compensa- tent to fix the amount in a bond. Many cases were cited to sustain the decision. The same representations were made with intent to de decision was rendered on substantially the ceive or defraud the appellant. same state of facts in Pratt v. Carroll, 8 A great many assignments of error are made Cranch, 471, Chief Justice Marshall delivering in this case, but, without specially reviewing the opinion. See, also, Chase v. Allen, 13 them all, we think they are all without merit, Gray, 42. Outside of these decisions, this court and that the case depends substantially on the has passed upon this case in Reichenbach v. determination of the question which we have Sage, 13 Wash. 365, 43 Pac. 354, where it held above discussed. It is, however, claimed by that: "A provision in a building contract for the appellant that the testimony shows that the recovery by the owner of ten dollars as an extension of time was given by the responddamages for each day the completion of the ent to the appellant to construct this building. building is delayed after the time stipulated is This, of course, would be a defense to this aca provision for liquidated damages, and not tion, if it had been substantiated; but a carefor a penalty.” The cases cited in the opinion ful examination of the record in this case, in that case sustain the theory that, where the which is exceedingly voluminous, fails to subdamages resulting from the breach are indefi- stantiate this contention. The testimony on nite and uncertain, and difficult to prove, upon this point was conflicting, and, the trial court a breach of the conditions the amount stipu- having passed upon that question, we do not lated should be considered as liquidated dam- feel justified in disturbing its judgment. The ages; and the case at bar falls squarely with- judgment will, in all things, be affirmed. in this rule, and the reasons for the rule apply with irresistible force. From the nature of SCOTT, C. J., and REAVIS and ANDERS, the transaction, it would be impossible to for- JJ., concur. mulate a rule governing the introduction of testimony which would establish the actual

(16 Wash. 563) damages. There is no test which can be applied. The contract itself furnishes no stand

SHEAFE v. HASTIE. ard by which damages flowing from its breach (Supreme Court of Washington. March 12, can be estimated or measured or computed

1897.) with any degree of certainty whatever, and INSOLVENCY-SET-OFF-LIQUIDATED DEMANDS. yet it can be easily understood that damages, 1. In an action by a receiver of an insolvent. and great damages, might be sustained by a

a demand due from the insolvent to defendant

before appointment of the receiver may be set breach in a building contract of this kind.

off in a case otherwise proper. That a substantial brick building of the value 2. Under Code Civ. Proc. $ 195, declaring of $16,000 erected on the lots sold would mate- that, in an action arising on contract, any othrially enhance the value of adjacent lots is al

er cause of action, arising also on contract,

and existing at the commencement of the acinost self-evident, and the respondent had a

tion, may be urged as a counterclaim, and secright to, and doubtless did, take this fact into tion 806, providing that defendant, in an acconsideration in making its contract of sale

tion on a contract express or implied, may set

off against plaintiff in interest any demand of with the appellant; but, if it were compelled like nature which existed and belonged to deto prove the damages it sustained by reason fendant at the commencement of suit, the fact of the appellant's failure to build, it would that a demand arising on contract is unliqui

dated does not preclude its being set off in a be greatly embarrassed. How many sales it

case otherwise proper. lost by reason of the absence of the building contracted for, or how much less it had to take

Appeal from superior court, King county;

T. J. Humes, Judge. for the lots actually sold, in the very nature of things, cannot even be known to the respond

Action by C. M. Sheafe, receiver of the ent, to say nothing of the difficulty of proof.

Washington Savings Bank, against A. W. For this reason it had a right to arbitrarily

Hastie. Defendant filed a counter-claim or fix the damages. It did fix them, and the ap

set-off for the reasonable value of services pellant agreed to the terms; and having made

rendered the bank before it became insolvent, a contract which they had a right to make,

but evidence was not permitted to be introand which would obviate any subsequent con

duced thereunder, and from a judgment tention as to the damages incurred in case of

against him defendant appeals. Reversed. a breach, the court will not annul their con- Carr & Preston and W. W. Wilshire, for tract, or read into it a provision that the ques- appellant. Clise & King, for respondent. tion of damages shall be submitteil to a jury.

It is also contended by the appellant that DUNBAR, J. The respondent, as receivthe court erred in rejecting testimony offered er of the Washington Savings Bank, sued apto prove contemporaneous agreements made pellant on two promissory notes, aggregating between the respondent and the appellant, and $100, with accumulated interest. Appellant promises of certain improvements, which demurred to the complaint; but, without setpromises were violated by the respondent. ting out the complaint, or discussing it furThis testimony, we think, is immaterial under ther, we think the allegations therein were any circumstances, and especially it could not sufficient to constitute a cause of action, and be introduced under the pleadings in this case. that the demurrer was properly overruled. There is no allegation of deceit, or that these As an affirmative defense and counterclaim.


or set-off, the appellant alleged that at divers the bank, if the bank had really been insoland sundry times he had performed services vent, and its liabilities exceeded its assets. as an attorney for the plaintiff (respondent), But that case is not presented here. which services were reasonably worth the On the technical question as to whether a sum of $288.50, and of which only the sum counterclaim could have been pleaded in this of $20 had been paid. And as a further af- action, we are aware that there is some confirmative defense appellant alleged as fol- flict of authority on the proposition generally; lows: “That at all the times herein or in the but it seems to us that our statute is so plain plaintiff's complaint referred to, and ever and explicit that construction cannot be insince then, the assets of the Washington Sav- voked. If we consider it as a counterclaim, ings Bank have exceeded, and they do now then section 195 of the Code of Procedure exceed, its liabilities." The respondent mov- provides that the counterclaim mentioned in ed to strike that portion of the answer in re- the preceding section must be one existing in lation to the assets of the bank exceeding favor of a defendant and against a plaintiff, its liabilities, which motion was sustained between whom a several judgment might be by the court. A reply was filed denying the had in the action, and arising out of one of affirmative allegations of the answer. Upon the following causes of action: (1) A cause the trial of the cause the respondent objected of action arising out of the contract or transto the introduction on the part of the appel- | action set forth in the complaint as the founlant of any evidence tending to support his dation of the plaintiff's claim, or connected counterclaim, on the ground of incompetency, with the subject of the action; (2) in an acand that the appellant's alleged counterclaim tion arising on contract, any other cause of could not be set up against respondent as re- action, arising also on contract, and existing ceiver of the Washington Savings Bank. at the commencement of the action. This This objection was sustained by the trial defense falls squarely within the provisions court, and appellant excepted. Appellant of this clause. The action is an action thereupon moved for a continuance on the arising on contract. The counterclaim sought ground of surprise, for the reason that, the to be alleged and proven is a

of sixth paragraph of appellant's affirmative an- action arising also on contract, and, accordswer having been stricken, the respondent's ing to the record, was existing at the commotion is immaterial, irrelevant, and redun- mencement of the action. And if it is to dant, and exposed appellant's said affirmative be construed as a set-off, then section 806 partial defense and counterclaim to the ob- is controlling, which provides that the dejection now urged by respondent, and that fendant in a civil action upon a contract exhe should be allowed a continuance to enable pressed or implied may set off any demand him to reinstate said paragraph 6, which con- of a like nature against the plaintiff in intained the allegation that the assets of the terest which existed and belonged to him bank exceeded its liabilities. The appellant at the time of the commencement of the suit. offered to make an affidavit in support of his There seems to be no real difference between motion for continuance, and asked to counterclaims and set-offs, so far as the statamend his answer so as to include the allega- ute is concerned, excepting that technically tion contended for, but the trial court over- there is a difference in degree, the set-off ruled the motion, and, upon the hearing of amounting only to a set-off or balance of the the testimony, instructed the jury to find a claim sued upon, or some portion thereof, and verdict for respondent in the full amount of the counterclaim comprehending a set-off and his claim on said notes, which the jury ac- an additional claim which would warrant a cordingly did, and judgment was rendered judgment over in favor of the defendant, if thereon. It is not necessary to pass upon the it were established; and, whatever conflict of alleged error of the court in striking out para- authority there may be, this court has estabgraph 6 of the answer, for, in the absence of lished the right of the defendant to a set-off this allegation, we think the set-off should or counterclaim where the claim is unliquihave been allowed. If there was an account dated, as in the case at bar, in Shelton v. existing between the appellant and the re- Conant, 10 Wash. 193, 38 Pac. 1013, where it spondent's bank, upon which a balance could was held that, under Code Proc. $ 195, in an have been struck at any time prior to the action arising on contract, the defendant failure of the bank, if it did fail, it ought | could counterclaim for any cause of action to have been considered as made, and the rel- against the plaintiff arising on contract, ative rights should not have been changed whether liquidated or not. by reason of the insolvency of the bank. If We think the record shows that the counthe set-off sought to be pleaded by the appel- | terclaim sought to be proven in this case was lant had amounted to a counterclaim, or a not barred by the statute of limitations. The claim which would have overbalanced the judgment will be reversed, with instructions claim of the respondent, and would have es- to the lower court to grant a new trial in actablished a demand over, then it is true that cordance wich this opinion. the excess of claim established by the appellant could only have been prorated equally SCOTT, C. J., and REAVIS and ANDERS, with the claims of other creditors against JJ., concur.


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