Babler Bros., Inc. v. Hebener

• Decision Date: 31 December 1973
• Citation: 517 P.2d 653,267 Or. 414
• Parties: BABLER BROS., INC., Respondent, v. Robert M. HEBENER and D. LaVerne Hebener, Appellants.
• Court: Oregon Supreme Court

Page 653

517 P.2d 653

267 Or. 414

BABLER BROS., INC., Respondent, v. Robert M. HEBENER and D. LaVerne Hebener, Appellants.

Supreme Court of Oregon, In Banc.

Argued and Submitted May 7, 1973 at Pendleton.

Decided Dec. 31, 1973.

Irvin D. Smith, Burns, argued the cause for appellants. With him on the brief was Riney J. Seeger, Jr., Burns.

Douglas S. Querin, Portland, argued the cause for respondent. On the brief were Robert C. Wall, and Reiter, Wall & Bricker, Portland.

HOWELL, Justice.

Plaintiff filed this action in replevin to recover possession of certain gravel located on premises leased by defendants. The defendants filed a counterclaim for damages for breach of a contract between defendants and plaintiff. The action was tried before the court without a jury. Findings of fact, conclusions of law and a judgment were entered in favor of plaintiff on its complaint and against defendants on their counterclaim for damages. Defendants appeal.

The plaintiff, Babler Bros., is engaged in road and highway construction. The defendants are the lessees of a rock quarry located near the city of Burns. The plaintiff secured a contract from the Oregon State Highway Department to construct a section of highway near Burns. In December, 1970, the plaintiff and defendants entered into a contract whereby plaintiff agreed to purchase rock from defendants' quarry. The plaintiff agreed to remove the rock, crush and stockpile it on defendants' premises, and pay defendants 15 cents per cubic yard for the crushed rock.

The contract provided in pertinent part:

'AGREEMENT

'KNOW ALL MEN BY THESE PRESENTS, that Robert M. Hebener, and D. LaVerne Hebener, * * * hereinafter referred to as first party, and BABLER BROS., INC., an Oregon Corporation, poration, * * * hereinafter referred to as the second party, and

'WHEREAS, first party has a gravel lease with Clyde Cowing and Ruth Cowing dated the 23rd day of January, 1958, * * * and

'WHEREAS, second party does commercial paving and related work and has need for the type of rock found in said quarry situated on the leased premises for Oregon State Highway Job #92, in the amount of 80,000 tons, now, therefore,

'* * *.

'FIRST PARTY AGREES:

'1. Grants to the second party the nonexclusive right to set up a rock crushing plant, pugmill and A. C. Hot Plant on said leased premises and to crush and stockpile rock on said leased premises, for the period December 1, 1970 to and including July 31, 1971, or until the completion of Oregon State Highway Job #92 * * *.

'* * *.

'SECOND PARTY AGREES:

'* * *.

'23. At the termination by lapse of time specified hereinabove, on cancellation by default of this agreement, any and all rock materials of any nature or kind, being shot quarry rock, crushed rock, or rejected materials, they all shall immediately become the property of the first party without any written instrument to transfer the title thereto, and in case of default, and (sic) advance payment forfeited.

'* * *.

'BOTH PARTIES AGREE:

'* * *.

'2. In case of default of any of the provisions of this agreement hereinabove set forth by second party or their subcontractors, Robert Hebener will immediately upon becoming aware of such default notify the foreman in charge at the time personally of the default, and all operations will cease immediately. Default will be explained in a registered letter and mailed to Second Party, BABLER LER BROS., INC., * * *. In case default is not cured within ten calendar days of date on said registered letter, this agreement will be terminated forthwith, and paragraph 23 will be in immediate effect.

'* * *.'

The plaintiff's construction job on the Burns highway was completed in late August, 1971, and at this time approximately 17,000 yards of crushed rock remained at the quarry. Because of various alleged breaches of the contract, the defendants sent plaintiff several notices of cancellation of the contract and refused to allow plaintiff to remove the remaining rock.

The defendants alleged the above contract as an affirmative defense to plaintiff's action in replevin and further counterclaimed, alleging that the plaintiff had breached that contract in various respects.

The trial judge, in an oral opinion given at the close of the trial, found that plaintiff had title to the rock, that the evidence established only one breach--selling rock in violation of the contract--but that the defendants had failed to prove actual damages as to that breach. In so holding, the court also found that paragraph 23 operated not as a liquidated damage clause but as a penalty clause, and therefore it could not be used to measure damage from the proven breach.

We agree with the finding of the trial court that plaintiff had title to the rock. ¹

The portion of paragraph 23 which poses the issue of whether the clause calls for a penalty or liquidated damages is: 'On cancellation by default of this agreement' the remaining rock then becomes the property of the defendant.

The determination of whether a contractual provision constitutes a penalty or liquidated damages is a legal question for the court. Medak v. Hekimian, 241 Or. 38, 44, 404 P.2d 203 (1965). In Medak and in Harty v. Bye, 258 Or. 398, 483 P.2d 458 (1971), we adopted the test as set forth in 1 Restatement 552, Contracts § 339. The material part of the section states:

'(1) An agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless

'(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and

'(b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.

'* * *.'

Applying the test of the Restatement, the facts of this case do not disclose that forfeiture of the gravel was a reasonable forecast of compensation for a breach and that any harm caused by a breach was difficult to estimate.

As to the first requirement, it is apparent that paragraph 23 does not fix an amount of damages which is a reasonable forecast of just compensation for harm caused by a breach. That paragraph establishes that the amount of monetary damage was to be measured by the quantity of gravel existing at the time a default occurs. The amount thus available as compensation for a breach would depend entirely on the amount of gravel that happened to be on hand at the time and would be without any reasonable relationship to the amount of damages from a breach.

Additionally, there is no showing that any harm from a breach would be difficult...