City of Rye v. Public Service Mutual Insurance Co. – Case Brief

City of Rye v. Public Service Mutual Insurance Co., 358 N.Y.S.2d 391, 315 N.E.2d 458 (N.Y. 1974).

Facts: The City of Rye (P) required the developers of a number of co-operative apartment buildings to post a $100,000 bond and to pay $200 for each day after April 1971 that the remaining units were not completed. The city sought to recover on the bond after 500 days. P sued and the court denied P’s motion for summary judgment on the grounds that the bond was a penalty. P appealed.

Issue: Under what circumstances will a liquidated damages clause be enforceable?

Holding and Rule: A liquidated damages clause will be enforceable so long as the amount is a reasonable measure of the anticipated probable harm.

The court held that in this case, the most serious disappointments in expectation suffered by P were not pecuniary in nature and therefore could not be measured in monetary damages. There was nothing to show that either the sum of $200 per day or the aggregate amount of the bond bore any reasonable relationship to the pecuniary harm likely to be suffered or in fact suffered. There was no statutory authority for the city to exact harsh penal bonds from developers.

Disposition: Affirmed.

Notes: The court’s discussion of liquidated damages in this case is actually dicta. The disposition of this case turned on the city’s lack of statutory authority to exact penal bonds from developers.

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