Coldwell Banker-First Realty, Inc. v. Meide & Son, Inc., BANKER--FIRST

• Decision Date: 29 March 1988
• Docket Number: No. 870109,BANKER--FIRST,870109
• Citation: 422 N.W.2d 375
• Court: North Dakota Supreme Court
• Parties: COLDWELLREALTY, INC., Plaintiff and Appellee, v. MEIDE & SON, INCORPORATED, Jerry L. Meide and Sandra A. Meide, Defendants and Appellants. Civ.

Page 375

422 N.W.2d 375

COLDWELL BANKER--FIRST REALTY, INC., Plaintiff and Appellee, v. MEIDE & SON, INCORPORATED, Jerry L. Meide and Sandra A Meide, Defendants and Appellants.

Civ. No. 870109.

Supreme Court of North Dakota.

March 29, 1988.

DeMars, Turman & Johnson, Ltd., Fargo, for plaintiff and appellee; argued by Joseph A. Turman.

Gunhus, Grinnell, Klinger, Swenson & Guy, Fargo, for defendants and appellants; argued by Craig R. Campbell.

LEVINE, Justice.

This case involves the validity of a liquidated damages clause in an exclusive real estate listing agreement. Meide & Son appeals from a judgment of the Cass County district court which enforced the clause and awarded Coldwell Banker--First Realty, Inc. (Coldwell Banker) $232,780.00 plus interest and costs. We affirm.

Meide & Son is a construction company based in Wahpeton, North Dakota. Jerome Meide (Meide) joined his father's construction business in 1962 and is now president of Meide & Son. Fargo Insurance Agency (Fargo Insurance) enjoyed a long-standing business relationship with Meide & Son. In the summer of 1977, the Fargo Insurance real estate division contacted Meide about developing a tract of south Fargo land, owned by Meide & Son. The parties negotiated an agreement to develop the south Fargo tract, known as the South Meadows division. The development agreement provided that Meide & Son would develop the property and the Fargo Insurance real estate subdivision would exclusively sell and manage the developed land. The agreement provided for damages in the event of breach as follows:

"This agreement may be terminated only in accordance with the following terms and conditions:

* * *

"C. By Developer, upon giving Broker written notice thereof at least thirty days in advance of the termination date. In the event of termination by Developer, Broker shall be entitled to liquidated damages as follows:

1) If the termination is effected prior to full execution of the development plan and sale of those buildings intended to be sold, Broker shall receive an amount equal to the Sales Commissions which would have been earned if the agreement had been fully executed, less the amount of promotional and advertising expenses budgeted but unexpended;

..."

Meide was given time to examine the agreement, and several changes were made at his request. Meide and Fargo Insurance signed the development agreement October 14, 1977.

In the spring of 1978 the city of Fargo approved a planned unit development (PUD) plat for the South Meadow subdivision. Meide & Son and Fargo Insurance approved and adopted the PUD plat as the development plan. Meide & Son followed the PUD plat in constructing those buildings which were completed. The PUD plat was renewed upon expiration, and with minor cosmetic changes was complied with even after the termination of the development agreement.

On September 20, 1978, Fargo Insurance assigned its interest in the development agreement to Coldwell Banker, with the consent of Meide & Son.

From 1980 until late 1982, marketing success was minimal due to a severe depression in the housing market and escalation of interest rates. However, in the latter part of 1982 through the early months of 1983 there was a strong rebound in the commercial apartment housing market.

When the housing market improved, Meide & Son prepared cost estimates for unbuilt units and applied for and received minor changes in the PUD plat. It also applied for and received building permits, and proposed to the Fargo Housing Authority sale of the remaining South Meadows property as HUD-subsidized housing.

On March 30, 1983, Meide & Son's attorney sent Fargo Insurance a letter terminating the development agreement. Within two months, Meide & Son sold all remaining units of the South Meadows subdivision. Coldwell Banker sued Meide & Son for liquidated damages for breach of the development agreement.

After a bench trial, the trial court determined that although Meide's experience with development agreements and listing properties with a realtor was "somewhat minimal," he was a sophisticated businessman capable of reading and understanding the terms of the development agreement, had negotiated and performed many government contracts and public and private housing projects, and was generally aware of the business of contracting, developing and selling property. The court found that Meide & Son terminated the development agreement in order to avoid paying commissions to Coldwell Banker.

The court found that as a result of the breach, Coldwell Banker suffered "probable loss of good will and continuing business relationships," "loss of revenue from management fees," "loss of future sales as a result of potential sale referrals from managing the contracts, and resultant contact with the individuals who would rent the apartments in the various units during the time of management," and "potential damage to the reputation of the plaintiff due to his failure to complete the project in the community." The court found that these damages were difficult, if not impossible, to estimate. The court also determined that Coldwell Banker had substantially performed under the development agreement and that Meide had accepted the benefits of that performance. ¹

Judgment was entered against Meide & Son for damages under the liquidated damages clause of the development agreement. Meide & Son appealed, raising three issues: (1) whether Coldwell Banker failed to prove that the amount stipulated as damages for breach of the development agreement bears a reasonable relation to the probable damages and is not disproportionate to any damages reasonably to be anticipated; (2) whether the liquidated damages clause is vague and ambiguous for lack of a sum certain and, therefore, unenforceable; (3) whether the trial court clearly erred in finding that Coldwell Banker did not act fraudulently or exercise undue influence.

I. REASONABLE RELATION TO PROBABLE DAMAGES

A party seeking to enforce a liquidated damages clause bears the burden of proving that the claim is valid as an exception to the general prohibition of Sec. 9-08-04, NDCC. Federal Land Bank v. Woell, 415 N.W.2d 500 (N.D.1987); City of Fargo v. Case Development Co., 401 N.W.2d 529 (N.D.1987). Section 9-08-04, NDCC, states:

"Every contract by which the amount of damages to be paid, or other compensation to be made, for a breach of an obligation is determined in anticipation thereof is to that extent void, except that the parties may agree therein upon an amount presumed to be the damage sustained by a breach in cases where it would be impracticable or extremely difficult to fix the actual damage."

Section 9-08-04, NDCC, contains a rebuttable presumption that the amount set forth as liquidated damages constitutes the actual loss or damage sustained by breach of the contract. Eddy v. Lee, 312 N.W.2d 326 (N.D.1981). In order to raise the presumption, the party wishing to rely upon it must introduce credible evidence. Eddy v. Lee, 312 N.W.2d at 330. The foundational facts necessary to establish the existence of the presumption are: (1) that it appears that at the time the contract was made the damages in the event of breach will be incapable or very difficult of accurate estimation; (2) that there was a reasonable endeavor by the parties to fix their compensation; and (3) that the amount stipulated bears a reasonable relation to the probable damages and is not disproportionate to any damages reasonably to be anticipated. Ibid; Bowbells Public School Dist. v. Walker, 231 N.W.2d 173, 175, 176 (N.D.1975); Hofer v. W.M. Scott Livestock Co., 201 N.W.2d 410 (N.D.1972).

The trial court found that all three foundational facts of Eddy v. Lee were established. While conceding the existence of the first two foundational facts, Meide & Son argues that Coldwell Banker failed to establish the third foundational fact, thereby making the liquidated damages provision void as a penalty under Sec. 9-08-04, NDCC.

Whether a foundational fact exists is a question of fact subject to the clearly erroneous standard of review. Eddy v. Lee, 312 N.W.2d at 331. Findings of fact are not clearly erroneous unless there is no support in the evidence or, although there may be some supporting evidence for it, this court is left with a definite and firm conviction that a mistake has been made. Tom Buechler Constr. v. City of Williston, 413 N.W.2d 336 (N.D.1987). It has been suggested that the greater the difficulty encountered by the parties in estimating the damages which might arise from a breach, the greater should be the range of estimates which the court should uphold as reasonable. Better Food Markets, Inc. v. American Dist. Tel. Co., 253 P.2d 10 (Cal.1953) (cited with approval in Hofer v. W.M. Scott Livestock Co., 201 N.W.2d at 415); 3 Restatement (Second) of Contracts Sec. 356 comment b (1981).

There is evidence to support the trial court's finding that the amount of liquidated damages was reasonably related to the probable damages and not disproportionate to any damages reasonably anticipated, when viewed from the time of contracting. The trial court found the amount of damages stipulated to be $232,780, a sum equal to the sales commissions due under the contract, ² or "gross sales commissions," calculated upon a reasonable selling price for the unsold units established by uncontroverted testimony. There was testimony that Coldwell Banker would have received $352,000 in management fees had Meide performed the contract. ³ Thus, Coldwell Banker produced evidence showing that the amount of liquidated damages was not excessive when compared to reasonably anticipated and probable damages. ⁴ We conclude that the trial court did not clearly err in finding the establishment of the third foundational fact of Eddy v. Lee.

Meide & Son, relying on Sec. 32-03-36, ⁵ argues that the trial court erred in awarding greater damages than would have been realized by full...