This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Provisions in a building contract, that the contractor shall pay a certain sum per day if the building is not completed by the time agreed upon, are generally held to be for liquidated damages if reasonable in amount.1 Thus in the case of a contract for the erection of a building, a provision for the payment of fifty dollars a day,2 twenty dollars a day,3 ten dollars a day,4 or five dollars a day,5 have each been held to be valid as liquidated damages, where not greatly in excess of the actual damage caused by the delay. A provision in a contract for installing an electric light plant, for paying five pounds a day for delay after the time fixed by the contract, has been held to be valid as a provision for liquidated damages.6 So provisions for paying one hundred dollars a day for delay in erecting a grand stand,7 or fifty dollars a day for delay in erecting a church,8 have been held to be covenants for liquidated damages. So a provision for paying a reasonable amount per day for delay in building a sewer,9 or sewage works,10 is a provision for liquidated damages. A provision that if a street railway company does not complete the first line of its road within a year it shall lose its right of way and privileges, and shall pay five hundred dollars is a provision for liquidated damages.11 So a provision that -unless a certain amount of water is diverted into a given ditch the right of way thereof will be given up, is held to be a provision for liquidated damages.12 A contractor who is working under a contract by which he is to receive one hundred dollars per day for each day less than the time limit fixed by the contract in which he perforins the contract, and he is to pay a thousand dollars a day for each day that he exceeds such time limit, may make a provision with a subcontractor for the payment of one hundred and fifty dollars a day for each day of delay on the part of such subcontractor; and such last provision will be treated as a provision for liquidated damages.13 If delay will, cause great damage to the adversary party, the provision for payment can not be said to be necessarily a penalty, though it greatly exceeds the rental value of the property, if it does not greatly exceed the actual damage which will be caused by the delay.14 A provision in a contract for excavation that the contractor shall be liable for the wages of a superintendent and inspector from the time that the contract should have been performed to the time when the work is completed, is a provision for liquidated damages.15 Such provisions are upheld even if the building is one which would ordinarily not have a market value for rental purposes. Thus a provision for the payment of a certain reasonable amount for each day's delay in constructing a court house is a provision for liquidated damages.16 The courts are by no means harmonious, however, in treating such provisions as covenants for liquidated damages. Some courts treat them as penalties.17 A provision "to forfeit the sum of $20 per day for each and every day's delay" in completing a lighthouse has been held to be a penalty.18 It has been held that such provisions are to be treated as penalties if the rental value of the building is easy to be determined.19 This view is very generally taken if the amount stipulated for is unreasonable. Under a contract to erect a building of the value of eighteen thousand dollars, a provision for paying fifty dollars a day for delay, is treated as a penalty.20 Under a contract to erect a building worth three thousand four hundred dollars, a provision for paying three dollars a day for delay has been held to be a penalty.21 So an agreement to pay ten dollars a day for delay in completing a house the rental value of which is thirty dollars a month, is a penalty in the absence of a showing of damage other than loss of rents.22 However, if the amount is reasonable, the contract will generally be treated even in these jurisdictions as a provision for liquidated damages, as where the rental value is three hundred dollars a month and the contract calls for the payment of ten dollars a day for delay.23 A provision for liquidated damages, which amounts to half the contract price, the amount of which is incurred after the contract has been substantially performed, has been held to be so excessive as to be treated as a penalty.24 An agreement to pay a lump sum for delay without reference to the extent thereof or the amount of damage caused has been held to be a penalty. Thus an agreement to pay twenty thousand dollars "as liquidated damages and not as a penalty " for delay in the performance of a contract to tear down a brick building and remove it, is a stipulation for a penalty.25 The same result has been reached under a bond to pay twenty-five thousand dollars in the event of the breach of a contract to erect a sewage plant.20 If the owner insists upon payment of liquidated damages for delay, he must allow the contractor the contract price for the work which he has done.27
1 Lincoln v. Granite Co., 56 Ark. 405; 19 S. W. 1056; Emack v. Campbell, 14 App. (D. C.) 186; Kelly v. Fejervary, 111 Ia. 603; 83 N. W. 791; De Graff v. Wickham, 89 Ia. 720; 52 N. W. 503; Lamson v. Marshall, - Mich. - ; 95 N. W. 78; Carter v. Kaufman, - S. C. - ; 45 S. E. 1017; Collier v. Better-ton, 87 Tex. 440; 29 S. W. 467.
2 Curtis v. Van Bergh, 161 N. Y. 47; 55 N. E. 398; Bird v. Church, 154 Ind. 138; 56 N. E. 129.
3 Davis v. Hospital Association, - Wis. -; 99 N. W. 351 (for delay in completing a hospital to cost twenty-four thousand dollars).
Kelly v. Fejervary, 111 Ia. 693; 83 N. W. 791; Collier v. Betterton, 87 Tex. 440; 29 S. W. 467; .Reichenbach v. Sage. 13 Wash. 364; 52 Am. St. Rep. 51; 43 Pac. 354.
5 Young v. Gaut, 69 Ark. 114; 61 S. W. 372; Brown Iron Co. v. Norwood (Tex. Civ. App.), 69 S. W. 253.
6 Stegmann v. O'Connor (1900), A. G; 81 L. T. N. S. 627.
7 Monmouth Park Association v. Iron Works, 55 N. J. L. 132; 39 Am. St. Rep. 626; sub nomine, Wal-lis Iron Works v. Park Association, 19 L. R. A. 456; 26 Atl. 140.
8 Bird v. Church, 154 Ind. 138; 56 N. E. 129.
9 Lamson v. Marshall, - Mich. -; 95 N. W. 78; Thorn, etc., Co. v. Bank, 158 Mo. 272; 59 S. W. 109.
10 Law v. Redditch Local Board (1892), 1 Q. B. 127.
11 Nilson v. Jonesboro, 57 Ark. 168; 20 S. W. 1093.
13 Kunkel v. Wherry, 189 Pa. St. 198; 69 Am. St. Rep. 802; 42 Atl. 112.
14 Curtis v. Van Bergh, 161 N. Y. 47; 55 N. E. 398. (Rental $5.75 per day; stipulated damages $50.00 per day.)
15 O'Brien v. Pipe Works, 93 Ala. 582; 9 So. 415.
16 Heard v. Dooly County, 101 Ga. 619; 28 S. E. 986.
17 Mundy v. United States, 35 Ct. CI. 265; The Smith Co. v. United States, 34 Ct. C1. 472; Brennan v. Clark, 29 Neb. 385; 45 N. W. 472.
18 Smith Co. v. United States, 34 Ct. C1. 472.
19 Connelly v. Priest, 72 Mo. App. 673. (To pay $10 a day for delay.)
20 Cochran v. Ry., 113 Mo. 359; 21 S. W. 6.
21 Zimmerman v. Conrad, - Mo. App. - ; 74 S. W. 139.
22 Wheedon v. Trust Co., 128 N. C. 69; 38 S. E. 255.
23 Ramlose v. Dollman, 100 Mo. App. 347; 73 S. W. 917.
24 Edgar, etc., Works v. United States. 34 Ct. C1. 205.
25 Chicago House-Wrecking Co. V. United States, 106 Fed. 385; 53 L. R. A. 122.