Bayshore Royal Co. v. Doran Jason Co. of Tampa, Inc., 85-595
| Decision Date | 15 November 1985 |
| Docket Number | No. 85-595,85-595 |
| Parties | 10 Fla. L. Weekly 2556 BAYSHORE ROYAL COMPANY, Appellant, v. The DORAN JASON COMPANY OF TAMPA, INC., Appellee. |
| Court | Florida District Court of Appeals |
Malcolm V. McKay of McKay & Thomas, P.A., Tampa, for appellant.
Robert M. Quinn and R. Andrew Rock of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa, for appellee.
The defendant, Bayshore Royal Company (Bayshore), appeals a final summary judgment entered in favor of plaintiff, The Doran Jason Company of Tampa, Inc. (Jason), in plaintiff's suit against defendant for real estate brokerage commissions. The obligation of Bayshore to Jason for the commissions arose from a transaction which preceded the execution of the contract between them which is the subject of this suit. That the obligation arose is not in dispute. What is disputed is whether Bayshore was released from the obligation by that contract.
The summary judgment, which we can find no basis to affirm, does not indicate its basis except to track wording of Rule 1.510(c), Florida Rule of Civil Procedure. From argument of counsel and Jason's latest motion for summary judgment it appears that the basis was that a certain so-called liquidated damages clause in paragraph 6 of the contract which contained language appearing to release Bayshore from liability for the commissions was found to constitute an unlawful penalty and was, therefore, found to be unenforceable. That clause provided that Bayshore would be released from liability for the commissions if Jason went into default under a separate loan agreement of Jason, partially guaranteed by Bayshore, with a third party, Canadian Commercial Bank (CCB). Paragraph 6, in pertinent part, reads as follows:
In the event of ... any default by ... [Jason] under any instrument delivered by [Jason] to CCB in connection with the Loan [to Jason from CCB] ... [Jason] agree[s] that in addition to any other right or remedy Bayshore may have, ... Bayshore shall be automatically released from any liability for the brokerage commission....
There is no dispute that Jason did go into default on its loan from CCB.
We reverse. We conclude that the issue relative to that clause involved the adequacy of sufficiency of the consideration for the contract between Bayshore and Jason. More specifically, we conclude that this contractual provision under which Jason conditionally promised to release Bayshore from liability for the commissions constituted consideration provided by Jason for Bayshore's reciprocal promise to Jason to guarantee the CCB loan and did not constitute a liquidated damages clause which could be found to be an unlawful penalty. In summary, our reasoning for reversing is that since (a) penalties of the type apparently found to be unlawful in this case arise out of purported liquidated damages clauses, (b) such clauses, of course, can only exist when they provide for damages, and (c) the clause in question did not provide for damages but represented consideration for the contract, no such penalty could be found to exist.
The following very general and simplified types of definitions of the terms, "consideration," "damages," and "liquidated damages" are borne in mind in this opinion. "Consideration" may be generally thought of as the thing or promise one party to a contract gives to the other party in return for the thing or promise the other party gives. "Damages" in a breach of contract setting like this may be generally thought of as something to be given by one party who breaches the contract to the other party to compensate the other party for his loss which is a consequence of that breach. "Liquidated damages" may be thought of as the same as damages except that the particular amount to compensate the other party for that loss is contractually established in advance.
The wording of paragraph 6 releasing Bayshore from its obligation to pay Jason the commissions (which amounted to approximately $44,000) appears to have been treated by the parties in their arguments as providing, in effect, for a payment by Jason to Bayshore of that amount. Whether any such payment pursuant to paragraph 6 was to constitute liquidated damages, as has been the premise of the arguments of both parties, or was part of the consideration provided by Jason for the contract, as we have concluded it was, could make a great deal of difference in determining whether paragraph 6 is enforceable by Bayshore against Jason, as explained further below. Preliminarily, the difference is that if Jason's promise contained in that clause was consideration, the issue of whether it and other promises of Jason were sufficient to justify enforcing Bayshore's reciprocal consideration (Bayshore's promise to guarantee Jason's loan from CCB)--and, more to the point, the issue of whether that reciprocal consideration provided by Bayshore was sufficient to justify enforcing paragraph 6 against Jason--is tested, in general, only by determining whether anything of value was given by (or any detriment was suffered by) the party providing the consideration, however disproportionate in value the consideration provided by the respective parties may have been. On the other hand, if Jason's promise in paragraph 6 constituted liquidated damages to be paid by Jason to Bayshore upon Jason's default to CCB, the enforceability of that clause is tested to a substantial extent by whether its value is or is not excessively out of proportion to actual damages suffered by Bayshore from the default. If, under this liquidated damages approach, the value of paragraph 6 is excessively disproportionate in that regard, that paragraph could be stricken down as an unlawful penalty. This type of testing of the proportionality of the value of Jason's promise in paragraph 6 relative to the amount of any actual damages suffered by Bayshore from Jason's default to CCB is in sharp contrast to the foregoing test to be applied if paragraph 6 is treated as consideration. The basic test for sufficiency of consideration, further described below, has nothing to do with the proportionality of the consideration provided by the respective parties. Also, damages, of course, involve what happens after the breach of a contract, and, in evaluating whether or not a liquidated damages clause is a penalty, a court may consider the equities which exist after the breach. See Hutchison v. Tompkins, 259 So.2d 129 (Fla.1972). In contrast, in evaluating sufficiency of consideration for a contract a court looks only to the time the contract was entered into.
This distinction between a clause representing damages for breach of a contract and a clause constituting consideration for a contract might be thought of as a "legal technicality." However, which legal test properly applies in this case depends upon first identifying the category of law involved. As is pointed out above, whether the issue in this case belongs in the consideration category of the law or in the damages category is of substantial possible significance. It is sometimes not understood by laymen that so-called legal technicalities often have been created to achieve fairness and consistency in the law. The result reached in the trial court in this case (the apparent refusal to recognize as valid the wording of paragraph 6 releasing Bayshore from its commission obligation to Jason) by evidently using the damages category might be thought of as fair. Paragraph 6 was in consideration for Bayshore's partial guaranty of Jason's loan from CCB, and, as explained further below, Bayshore was ultimately required to pay nothing to CCB on that guaranty. But that result was reached with the perspective of judicial hindsight. In a contract case like this in the consideration category what is fair in the making of a contract should be determined principally by ascertaining what the parties to the contract freely and voluntarily agreed upon. The third part of the remainder of this opinion deals with finally ascertaining whether they actually agreed upon what paragraph 6 by itself seems to reflect.
The remainder of this opinion is organized into three parts: First, an explanation of why paragraph 6 is not a liquidated damages clause because it is not, in fact, a damages clause. Second, an explanation of why paragraph 6 constitutes consideration provided by Jason in its contract with Bayshore, and why Bayshore's reciprocal consideration (its guaranty of the CCB loan) for Jason's promise in paragraph 6 was sufficient notwithstanding arguments which can be made that the contractual promises of Jason were excessively disproportionate to Bayshore's guaranty promise. Third, a description of what we perceive to apparently be the true, unargued issue generated by the arguments made in this case as to what Jason promised to Bayshore and what Bayshore promised to Jason: what is the proper legal construction of clauses in the contract which are described below, including but not limited to paragraph 6, which set forth the consideration provided by Jason to Bayshore and which may be argued to be either conflicting or consistent as to whether under the facts of this case Bayshore was released from the commissions obligation to Jason.
Some portions of the remainder of this opinion, after the discussion about the not always clearly apparent distinction between a contract clause providing for damages and a contract clause providing for consideration, may seem relatively elementary. But those portions, which principally involve the law relative to consideration for contracts, are appropriate to a logical analysis showing no basis to affirm. Those portions serve to explain our conclusion that paragraph 6 constitutes consideration for the making of the contract and not damages to be paid for its breach.
As we have said, the arguments on appeal have as their premise the assumption that ...
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