Frank v. Jansen
| Decision Date | 07 February 1975 |
| Docket Number | No. 44748,44748 |
| Citation | 226 N.W.2d 739,303 Minn. 86 |
| Parties | Daniel R. FRANK et al., Appellants, v. Paul W. JANSEN et al., Respondents. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
1. Whether a provision in a contract for the sale of real property calling for the forfeiture of the buyer's earnest money in the event of breach constitutes a liquidated damage clause and limits the buyer's liability to the amount of the earnest money must be gleaned from the language of the contract and the evidence as to the intention of the parties, and where the evidence did not support a finding that the parties intended the stipulated amount to be in lieu of compensatory damages, the trial court's finding of a liquidated damages agreement could not stand.
2. Plaintiffs who vacated their residence and entered into a lease of another dwelling in reliance upon defendants' contract to purchase the residence were entitled to recover expenses reasonably incurred in attempting to mitigate damages by reselling the property, and the trial court erred in denying damages for expenses incurred in paying property taxes and puchasing insurance, utilities, and snow removal services while attempting to resell the vacant house.
Lindquist & Vennum, David G. Newhall, and Mark R. Johnson, Minneapolis, for appellants.
Stringer, Donnelly, Courtney, Cowie & Rohleder, and Owen L. Sorenson, St. Paul, for respondents.
Heard before OTIS, MacLAUGHLIN, and KNUTSON, JJ., and considered and decided by the court en banc.
*
This is an appeal from a judgment entered in favor of plaintiffs of $232.27 and from an order deying their motion for amended findings of fact and conclusions of law. Plaintiffs base their right to recover upon a breach of contract for the sale of real estate.
On July 20, 1970, plaintiffs, Daniel R. and Ethel D. Frank, entered into an agreement to sell their residence at 575 Mt. Curve Boulevard, St. Paul, to defendants, Paul W. and Betty L. Jansen, for the sum of $48,500. A neighbor of the Franks prepared the purchase agreement, using a Miller-Davis printed form. The purchase agreement, which is the vital evidence in this case, is reproduced below.
NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE
The reverse side of the purchase agreement provided:
'Items to be included without additional charge:
TO BE REMOVED BY PRESENT
OWNER
DINING ROOM AND MASTER BDRM.
LIGHT FIXTURE.
'Real estate taxes due and payable in 1970 to be paid by seller.
/s/ Paul W. Jansen
/s/ Ethel D. Frank
It will be noted that the purchase agreement recites that $2,000 has been received from defendants as a 'guarantee of good faith.' The clause in the printed contract calling for a forfeiture of a sum of money in case the purchaser refuses to fulfill the contract was left blank.
On October 23, 1970, defendants advised plaintiffs that they did not intend to purchase the property. The payment due on November 1, 1970, was not made.
In October 1970, defendants assisted plaintiffs in an unsuccessful attempt to resell the property without the aid of a realtor. The property was listed with Jambor Realty of St. Paul on November 14, 1970, and relisted with Rubin Realty Company of St. Paul on April 20, 1971. During the period from October 24, 1970, to July 23, 1971, extensive efforts were made to resell the property but no offers were received.
On July 24, 1971, James L. Diedrich offered to purchase the property, and on the following day Diedrich and plaintiffs entered into a purchase agreement for the sum of $43,700.
Prior to learning that defendants did not intend to go through with the purchase agreement, plaintiffs leased an apartment to which they moved on November 8, 1970. The Mt. Curve property remained vacant during the attempts to sell it. During the time the premises were vacant, plaintiffs continued to pay the real estate taxes, utilities, snow removal services, and insurance. They also incurred expenses for abstracting fees and newspaper advertisements connected with the attempts to resell the property. They also claim the right to recover legal fees in connection with the transaction with the Jansens.
The trial court held that the downpayment of $2,000 paid by defendants and retained by plaintiffs constituted liquidated damages. It also held that plaintiffs were entitled to recover abstracting fees and sums expended for newspaper advertisements, but allowed no other damages. In addition to finding that the downpayment of $2,000 constituted liquidated damages and that plaintiffs were entitled to recover the abstracting fees and cost of advertising, the court found as a fact that the purchase price of the realty was $48,500 and that the fair market value of the property at the time of the breach by defendants was $43,700.
Plaintiffs' motion for amended findings of fact and conclusions of law, in which they sought to increase the damages, was denied on September 25, 1973, judgment was entered on November 2, 1973, and this appeal followed.
Two issues are presented on this appeal, namely: (1) Does the evidence sustain the court's finding that the $2,000 downpayment made by defendants and retained by plaintiffs constituted liquidated damages? (2) Was the court correct in holding that only the abstracting fees and the cost of newspaper advertisements in an attempt to mitigate damages were recoverable?
'Liquidated damages are damages the amount of which has been determined by anticipatory agreement between the parties. The purpose of a penalty is to secure performance, while the purpose of stipulating damages is to fix the amount to be paid In lieu of performance. The term (Italics supplied.)
In the early case of Higbie v. Farr, 28 Minn. 439, 442, 10 N.W. 592, 593 (1881), we said:
'* * * In all cases where a party relies on the payment of liquidated damages as a discharge, it must clearly appear that they were to be paid and received absolutely In lieu of performance.' (Italics supplied.)
Many of the cases dealing with this subject matter discuss the difference between a penalty, which is usually unenforceable, and liquidated damages, which, if reasonable, are enforceable and determine the extent of liability. See, 22 Am.Jur.2d, Damages, § 212.
In Christianson v. Haugland, 163 Minn. 73, 75, 203 N.W. 433, 434 (1925), we said:
'The purpose of a penalty is to secure performance, while the purpose of stipulating damages is to fix the amount to be paid In lieu of performance.' (Italics supplied.)
In McGuckin v. Harvey, 177 Minn. 208, 210, 225 N.W. 19, 20 (1929), following Christianson, we said:
'* * * (W)e think that the parties properly might stipulate or liquidate their damages as they did, and their agreement should be given effect.'
In Schutt Realty Co. v. Mullowney, 215 Minn. 340, 346, 10 N.W.2d 273, 276 (1943), we quoted with approval the following from 15 Am.Jur., Damages, § 240, the substance of which is now found in 22 Am.Jur.2d, Damages, § 212:
'The term
In Zirinsky v. Sheehan, 413 F.2d 481, 485 (8 Cir. 1969), certiorari denied, 396 U.S. 1059, 90 S.Ct. 754, 24 L.Ed.2d 753 (1970), the Court of Appeals, in discussing Minnesota law, said:
'In Minnesota, as elsewhere, a provision for liquidated damages is generally held to be a convenient substitute as a reasonable forecast of general damages.'
Our attention has been called to Witt v. John Blomquist, Inc., 249 Minn. 32, 34, 81 N.W.2d 265, 267 (1957), where we said:
'Our conclusion is not in conflict with the rule that, where earnest money has been paid to an agent by a purchaser of real estate pursuant to the terms of a contract which provides that the earnest money shall be forfeited to the vendor in the event the purchaser fails to perform the contract, and where such provision cannot be construed as a penalty, the vendor is entitled to retain such earnest money as liquidated damages if the purchaser does fail to complete the transaction.'
It is true that the reference to liquidated damages in the above quotation might indicate that where the seller retains the downpayment of a purchaser it is to be considered as liquidated damages in all cases. However, that construction of the language we used is misleading. The case did not involve the question of liquidated damages as does the case now before us, only the right to retain the downpayment upon a breach of contract.
In the case of Costello v. Johnson, 265 Minn. 204, 121 N.W.2d 70 (1963), the buyers raised a contractual provision calling for forfeiture of earnest money as a defense in a seller's action for actual damages. We followed the language of Higbie v. Farr, Supra, looking at the language of the contract, to determine whether the parties had actually intended the retention...
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