California & Hawaiian Sugar Co. v. Sun Ship, Inc.

Facts

California & Hawaiian Sugar Co. (Plaintiff) hired Sun Ship, Inc. (Defendant) to construct a barge and also hired Halter to build a tug. Under its contract with Plaintiff, Defendant was to interconnect the barge and the tug as Plaintiff planned to use the hybrid to transport its sugar. Plaintiff’s contract with Halter provided that the tug was to be delivered to Defendant’s shipyard on April 30, 1981. Plaintiff’s contract with Defendant provided the barge be completed by June 30, 1981. This contract, negotiated by high-level managers and under advice of counsel, also provided that if the completed vessel was not delivered by June 30, 1981, Defendant would pay Plaintiff “as per-day liquidated damages, and not as a penalty” $17,000, which was deemed in the contract to be “a reasonable measure of the damages.” Defendant was late with performance and finished constructing the barge on March 16, 1982. Halter was also late, finishing constructing the tug on July 15, 1982. The vessels were connected shortly thereafter. Plaintiff sued Defendant to collect liquidated damages based on the clause in the contract. The trial court ruled in Plaintiff’s favor. Defendant appealed, arguing that because Halter had not delivered the tug by Defendant’s scheduled delivery date of the barge, the liquidated damages clause amounts to a penalty. Specifically, Defendant claimed that without the completed tug, Defendant’s delivery of a completed barge on the delivery date would have been useless to Plaintiff.