Buccola, Vincent 12/9/2015

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City of Rye v Public Serv. Mut. Ins. Co., 34 N.Y.2d 470 (1974)
315 N.E.2d 458, 358 N.Y.S.2d 391
grant summary judgment to them. Therefore, the Court of
Appeals has no power to grant the developers, respondents on
34 N.Y.2d 470, 315 N.E.2d 458, 358 N.Y.S.2d 391
the appeal, affirmative relief.
City of Rye, Appellant,
v.
Public Service Mutual Insurance City of Rye v. Public Serv. Mut. Ins. Co., 42 A D 2d 749,
Company et al., Respondents. affirmed.

Court of Appeals of New York

Submitted May 6, 1974; SUMMARY
decided July 10, 1974.
Appeal, by permission of the Appellate Division of the
Supreme Court in the Second Judicial Department, from an
CITE TITLE AS: City of Rye order of said court, entered July 23, 1973, which, by a divided
v Public Serv. Mut. Ins. Co. court, affirmed an order of the Supreme Court at Special
Term (W. Vincent Grady, J.), entered in Westchester County,
HEADNOTES denying a motion by plaintiff for summary judgment. The
Forfeitures and penalties following question was certified by the Appellate Division:
bond to ensure completion of buildings by developers “Was the order of this court, dated July 23, 1973, properly
made?”
bond providing for payment to city of $200 for each day
beyond date certain up to $100,000 that developers failed
to complete buildings did not reflect reasonable estimate of
POINTS OF COUNSEL
probable monetary harm or damage to city but penalty and,
in absence of statutory authority for penal bond, city may not Anthony T. Antinozzi, Corporation Counsel, for appellant.
recover on bond. I. The provision to pay a per diem charge for each day of
delay in the construction of the peripheral buildings is a
valid provision for liquidated damages. (Realworth Props.
([1]) Defendant developers had constructed six luxury co-
v. Bachler, 33 Misc 2d 39; Joint Ind. Bd. of Painting &
operative apartment buildings and were to construct six
Decorating Ind. v. *471 Kaplan, 66 Misc 2d 427; Kelly v.
more. To obtain certificates of occupancy for the completed
Board of Educ. of City of N. Y., 8 Misc 2d 1007, 7 A D 2d 856,
buildings, the developers were required to post a bond with
8 NY2d 764; Wise v. United States, 249 U. S. 361; Bethlehem
plaintiff city to ensure completion of the remaining buildings
Steel Co. v. City of Chicago, 234 F. Supp. 726; Knoblauch
by a date certain which bond provided for payment of $200
v. Little Falls Dairy Co., 241 App. Div. 910; Peekskill R. R.
per day for each day after April 1, 1971, up to the aggregate
Co. v. Village of Peekskill, 21 App. Div. 94.) II. As a public
amount of $100,000, that the buildings were not completed.
body, plaintiff is entitled to recover the full amount of the
In an action by the city to recover the face amount of the bond,
bond. (Fresh Grown Preserve Corp. v. United States, 143 F.
more than 500 days having passed without said buildings
2d 191; Lyman v. Perlmutter, 166 N. Y. 410.) III. There was
having been completed, motion by the city for summary
no economic duress in the execution of the agreement for the
judgment was properly denied. The bond did not reflect a
bond. (Austin Instrument v. Loral Corp., 35 A D 2d 387; Grad
reasonable estimate of probable monetary harm or damages to
v. Roberts, 35 Misc 2d 811; Joseph F. Egan, Inc. v. City of
the city but a penalty and, in the absence of statutory authority
New York, 18 A D 2d 357.)
for a penal bond, may not be recovered upon. Whether the
Sidney Advocate for Public Service Mutual Insurance
drastic remedy of penal bonds may be exacted is a matter best
Company, respondent. In the circumstances of this case,
left to the Legislature.
summary judgment dismissing the complaint should have
been granted.
([2]) The developers took no appeal from the determination
of the motion court and the Appellate Division which did not

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1

 Buccola, Vincent 12/9/2015
For Educational Use Only
City of Rye v Public Serv. Mut. Ins. Co., 34 N.Y.2d 470 (1974)
315 N.E.2d 458, 358 N.Y.S.2d 391
Frank H. Connelly for remaining respondents. I. The city has
sustained no actual damage. Therefore unless the common-
law bond can be enforced as an agreement to pay “liquidated
damages”, it cannot be enforced at all. (Weinstein & Sons
v. City of New York, 264 App. Div. 398; Winkelman v.
Winkelman, 208 App. Div. 68.) II. A bond, exacted by a
municipality to enforce compliance with the law is a penalty
bond, and it is ultra vires unless some statute sanctions it.
Penalties cannot be recovered through private agreement.
(Priebe & Sons v. United States, 332 U. S. 407; Lyman v.
Perlmutter, 166 N. Y. 410.) III. Actual fiscal damage, if any,
can be recovered under a penalty bond. (City of New York
v. Brooklyn & Manhattan Ferry Co., 238 N. Y. 52; Gitlin v.
Schneider, 42 Misc 2d 230; Weinstein & Sons v. City of New
York, 264 App. Div. 398; Perma-Stone Bi County Corp. v.
Ackerman, 15 Misc 2d 640.)
OPINION OF THE COURT
Chief Judge Breitel.
In this action to recover on a surety bond given to secure
timely completion of some six buildings, the City of Rye,
as obligee under the bond, seeks to recover the face amount
of $100,000. The surety and the developers are defendants.
Special Term denied the city's motion for summary judgment,
and a divided Appellate Division affirmed the denial. In
his concurring opinion at the Appellate Division, *472
Mr. Justice Shapiro reasoned that the bond was penal in
nature and therefore not enforceable. The dissenters, in an
opinion by Mr. Justice Hopkins, would have sustained the
city's contention that, as a governmental entity pursuing
its governmental responsibilities, it had the power, without
violating any public policy, to exact a substantial bond to
secure performance of obligations imposed on a developer by
the zoning ordinance and action taken under it.
The order of the Appellate Division denying plaintiff city's
motion for summary judgment should be affirmed. The bond
of $100,000 posted by the developers with the city to ensure
completion of the remaining six “peripheral” buildings by a
date certain did not reflect a reasonable estimate of probable
monetary harm or damages to the city, but a penalty, and, in
the absence of statutory authority for the penal bond, may not
be recovered upon.
© 2015 Thomson Reuters. No claim to original U.S. Government Works.
The developers, under a plan approved by the City
Planning Commission, had constructed six luxury co-
operative apartment buildings and were to construct six
more. In order to obtain certificates of occupancy for the six
completed buildings the developers were required to post a
bond with the city to ensure completion of the remaining six
buildings. By letter agreement with the city in the fall of 1967,
they agreed to post a $100,000 bond and to pay $200 per
day for each day after April 1, 1971 that the six remaining
buildings were not completed, up to the aggregate amount
of the bond. More than 500 days have passed without the
additional buildings having been completed within the time
limit. The city seeks to recover the entire $100,000 amount
of the bond.
Concededly, no statute authorizes the city to exact a penalty
or forfeiture from the developers. If there were such a statute,
the statutory penalty would undoubtedly be upheld (see,
e.g., Lyman v. Perlmutter, 166 N. Y. 410, 413-415; Clark
v. Barnard, 108 U. S. 436, 461; see, also, United States v.
Zerbey, 271 U. S. 332, 340, and cases cited). Hence, general
principles of contract law governing the enforceability of
liquidated damage clauses should apply (cf. Priebe & Sons v.
United States, 332 U. S. 407, 411; see 5 Williston, Contracts
[3d ed.], § 775B, at p. 664). The sole issue, then, becomes
whether the agreement exacted from the developers and the
conditional bond supplied provide for a *473 penalty or for
liquidated damages. If the agreement provides for a penalty
or forfeiture without statutory authority, it is unenforceable.
Where, however, damages flowing from a breach are difficult
to ascertain, a provision fixing the damages in advance will
be upheld if the amount is a reasonable measure of the
anticipated probable harm (Ward v. Hudson Riv. Bldg. Co.,
125 N. Y. 230, 235; Restatement, Contracts, § 339; 5 Corbin,
Contracts, §§ 1059, 1063). If, on the other hand, the amount
fixed is grossly disproportionate to the anticipated probable
harm or if there were no anticipatable harm, the provision will
not be enforced.
The harm which the city contends it would suffer by
delay in construction is minimal, speculative, or simply not
cognizable. The city urges that its inspectors and employees
will be required to devote more time to the project than
anticipated because it has taken extra years to complete. It also
urges that it will lose tax revenues for the years the buildings
are not completed. It contends, too, that it is harmed by a
continuing violation of the height restrictions of its zoning
2
 Buccola, Vincent 12/9/2015
For Educational Use Only

City of Rye v Public Serv. Mut. Ins. Co., 34 N.Y.2d 470 (1974)
315 N.E.2d 458, 358 N.Y.S.2d 391
There is no suggestion in this case that the developers' delay
ordinance. This is entailed because the 12 buildings in the
was purposeful. Apparently, the mortgage market “dried up”
entire complex vary in height between two and four stories;
the ordinance sets a maximum average height of 30 feet and the developers could not obtain additional financing for
the remaining six buildings in the time planned. (The court
for the complex; and the taller buildings, those higher than
is informed by the developers in their brief that, while this
the allowable average, were built first. Only after all of the
litigation has been pending, the remaining six buildings have
structures in the complex are built will the project comply
almost been completed.)
with the average height requirement of the ordinance.

Developers ask not only that the denial of summary judgment

The most serious disappointments in expectation suffered
to the city be affirmed, but that summary judgment be
by the city are not pecuniary in nature and therefore not
granted to defendants dismissing the city's complaint. Since
measurable in monetary damages. The effect on increased
the city by this action sought, not actual damages, but
inspectorial services or on tax revenue are not likely to be
only to recover the face amount of the bond, for the
substantial and, in any event, are not developed in the record
reasons discussed above, defendants perhaps might have been
on summary judgment. There is nothing to show that either
entitled to judgment dismissing the complaint. In denying
the sum of $200 per day or the aggregate amount of the bond
the city's motion for summary judgment, the motion court
bear any reasonable relationship to the pecuniary harm likely
and perhaps the Appellate Division, could have, but did not,
to be suffered or in fact suffered.
grant summary judgment for defendants (see CPLR 3212,
subd. [b]). Defendants, however, took no appeal from that
There is, as noted, no statutory authority for the city to
determination. This court has no power to grant defendants,
exact harsh penal bonds from developers who are perforce
respondents on this appeal, affirmative relief (People v.
dependent on approvals by local officials at the various
Consolidated Edison Co. of N. Y., 34 NY2d 646, 648).
stages of construction, and after construction for certificates
of occupancy. For *474 municipalities, without statutory
Accordingly, the order of the Appellate Division should be
authorization or restriction, to condition perhaps arbitrarily
affirmed, without costs, and the question certified by that
the grant of building permits or certificates of occupancy
court answered in the affirmative.
on large penalty bonds raises potential for grave abuse. A
developer, especially an outside developer, is rarely in a
position to bargain on an equal basis with local officials, after
completion of buildings rendered useless and an economic Judges Jasen, Gabrielli, Jones, Wachtler and Stevens concur;
drain without a certificate of occupancy. Whether, and under Judge Rabin taking no part.
what circumstances, the drastic remedy of penal bonds may Order affirmed, etc. *475
be exacted is a matter best left to legislated authority,
standards, and limitations.
Copr. (c) 2015, Secretary of State, State of New York

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© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3