O'Hara Group Denver, Ltd. v. Marcor Housing Systems, Inc.

• Decision Date: 21 May 1979
• Docket Number: No. C-1656,C-1656
• Citation: 595 P.2d 679,197 Colo. 530
• Parties: The O'HARA GROUP DENVER, LTD. and the First National Bank of Englewood, Petitioners, v. MARCOR HOUSING SYSTEMS, INC., Respondent.
• Court: Colorado Supreme Court

Page 679

595 P.2d 679

197 Colo. 530

The O'HARA GROUP DENVER, LTD. and the First National Bank of Englewood, Petitioners, v. MARCOR HOUSING SYSTEMS, INC., Respondent.

No. C-1656.

Supreme Court of Colorado, En Banc.

May 21, 1979.

Rehearings Denied June 11, 1979.

Banta & Eason, P. C., Stephen G. Everall, William K. Malone, Englewood, for petitioners.

Ireland, Stapleton & Pryor, P. C., William C. Jensen, James C. Ruh, Denver, for respondent.

ERICKSON, Justice.

We granted certiorari to review the decision of the court of appeals in Marcor Housing Systems, Inc. v. First American Title Co., Colo.App., 584 P.2d 86 (1978). We affirm in part, reverse in part, and return this case to the court of appeals with directions to remand to the district court for a new trial on the issues set out in this opinion.

I. The Facts

In April of 1974, the seller, Marcor Housing Systems, Inc. ("Marcor") and the buyer, O'Hara Group, a California corporation ("O'Hara California"), entered into two contracts for the purchase and sale of two commercial properties, denominated "Greens" and "Commercial." As a part of this agreement, O'Hara California deposited $100,000 in an escrow account with the First American Title Company ("Title Company"). The escrowed funds were designated as liquidated damages to be paid to Marcor in the event O'Hara California failed to perform its obligations under the contract.

O'Hara California borrowed the $100,000 from the First National Bank of Englewood ("Bank"). In return, the Bank received as "security . . . to insure the prompt payment" of the debt, all of O'Hara California's "right, title and interest as buyer in and to" the contracts to purchase.

Closing was to take place within six months after the contracts to purchase the properties were signed. O'Hara California experienced financial difficulties, and an extension was granted by Marcor until January of 1975. As that date approached, it became apparent that O'Hara California would be unable to secure financing. Marcor again granted an extension, this time until March 20, 1975. In order to enable the purchase and sale to take place, Marcor also agreed to the substitution of a new entity, the O'Hara Group Denver ("O'Hara Denver") as purchaser of the property. The managing corporate officers of O'Hara Denver were substantially the same as those who made up the officers of O'Hara California. As consideration for the agreement for an extension and substitution of O'Hara Denver for O'Hara California, O'Hara Denver was required to escrow an additional $25,000 with the Title Company. The Bank did not provide the additional funds which were required of O'Hara Denver, but O'Hara Denver acquired the funds to obtain the extension.

At the time that O'Hara Denver was substituted for O'Hara California, new contracts were entered into between Marcor and O'Hara Denver. The new contracts superseded the original agreements to purchase which had been signed by Marcor and O'Hara California. The new contract related to the same properties, but the Commercial parcel was divided into two parts, and the liquidated damage deposit, which now totaled $125,000, was allocated between the various parcels.

The Bank did not receive a new written assignment of a security interest in the contracts to purchase from O'Hara Denver. Thus, once the second set of contracts were entered into, the Bank had a written assignment only from O'Hara California, which was no longer a party to the agreements. However, the Bank has asserted that, at the time of the substitution of parties, it received an oral assignment ¹ from O'Hara Denver, and that Marcor was aware of that assignment. The Bank subsequently received a written assignment from O'Hara Denver. That assignment was made after the salient facts which gave rise to this litigation had occurred and after litigation was commenced.

O'Hara Denver did not appear at the March 20, 1975, closing, because it was unable to obtain financing. Testimony at trial indicated that on the morning of the scheduled closing, an official of O'Hara Denver contacted representatives of Marcor and informed them that O'Hara Denver would not attend the closing. However, the trial court made no findings in this regard and specifically did not find that the alleged conversation constituted a breach on the part of O'Hara Denver. In any event, the failure of O'Hara Denver to appear at closing was a breach of contract. Mitchell v. Evans, 150 Colo. 568, 375 P.2d 101 (1962).

Marcor immediately made demand upon the Title Company for the liquidated damages held in escrow. This litigation followed, and O'Hara Denver was made a defendant. After litigation commenced, and some six months after the aborted closing, O'Hara Denver asserted that the title which Marcor had been prepared to offer at closing was defective. O'Hara Denver contends that for this reason its breach of the contracts to purchase was excused. O'Hara Denver demanded the return of the escrowed funds.

The Bank made several attempts to intervene in the subsequent lawsuit between O'Hara Denver and Marcor. Their motions to intervene were denied. The propriety of those denials is discussed in Part V. of this opinion, Infra.

II. Liquidated Damages

The first issue which we reach on appeal is the contention of O'Hara Denver that the liquidated damages provided for in the agreements to purchase are in the nature of a penalty. The factors to be considered in determining whether an amount designated as liquidated damages for breach of a contract is in reality a penalty are: (1) whether the parties intended to liquidate damages; (2) whether the amount of liquidated damages, when viewed from the time of contracting, was a reasonable estimate of the presumed actual damages that breach of the contract would cause; and (3) whether, when viewed from the time of contracting, it was difficult to ascertain the amount of actual damages that would result from breach. Perino v. Jarvis, 135 Colo. 393, 312 P.2d 108 (1957).

The trial court heard expert testimony on these issues and found that, at the time the contracts were signed, it would have been difficult to ascertain the actual damages which would flow from breach, and that $125,000 was a reasonable forecast of the damages that would occur and reflected reasonable compensation for Marcor's actions in keeping the properties off the market.

We will not disturb these findings on appeal. Briano v. Rubio, 141 Colo. 264, 347 P.2d 497 (1959). The trial court also found, on the basis of the contracts, that the parties intended to liquidate damages. Since all elements of a valid contract to liquidate damages were present we concur in the trial court's decision in this regard.

III. The Contracts

A. Essential Terms of the Agreement.

O'Hara Denver asserts that the contracts which support the transaction are void. First, it contends that the parties did not agree on all the essential terms of the contract. Second, it argues that the contracts are void for "lack of mutuality of obligation."

O'Hara Denver contends that the contemplated purchase of the Greens and Commercial properties was part of a broader agreement between it and Marcor to develop the properties after the sale and purchase. It asserts that the development plans were discussed only in general terms and that the failure of the parties to the contract to finalize their agreement so far as it related to development means that the parties had only "agreed to agree in the future" on an essential term of the contract. Cf., Ward v. Ward, 94 Colo. 275, 30 P.2d 853 (1954).

The trial court found that the agreements to purchase related to:

"(P)arcels of land (which) were to be transferred for definite consideration on a date certain. . . . The Purchase Agreements contained all the essential elements of a contract and are not simply agreements to agree but in every sense legally binding contracts between the parties."

Thus, in effect, the trial court found that the parties considered future development of the properties to be "collateral to the properties' transfer and sale." Marcor Housing Systems, Inc. v. First American Title Co., supra, at 88. We cannot say that the trial court's finding was clearly erroneous, See Briano v. Rubio, supra, and for that reason, we affirm the trial court.

B. Mutuality of Obligation.

According to the terms of the agreements to purchase, if O'Hara Denver failed to perform, the liquidated damages escrowed with the Title Company were to become the property of Marcor. Those same agreements provided, however, that if Marcor were to "fail or refuse to perform the obligations required to be performed by it on or prior to the Closing Date," the funds held in escrow were to be returned to O'Hara Denver. The contracts further provided that, in the event of Marcor's breach, "this agreement shall then be null and void and neither party shall have any further obligations hereunder."

O'Hara Denver contends that this last clause deprives it of any legal remedy in the event of Marcor's breach and that this lack of remedy renders Marcor's promise to perform illusory and, hence, insufficient consideration to support a contract. Cf., Gould v. Rite-Way Company, 143 Colo. 65, 351 P.2d 849 (1960); Monroe v. Martin, 137 Ga. 262, 73 S.E. 341 (1911).

The trial court held that Marcor's right to refuse to perform its obligations under the agreements to purchase was limited by an implicit requirement that it act in "good faith." However, we need not decide whether such a requirement so limited Marcor's freedom of action that consideration for its promise was present. Compare Jay Dreher Corp. v. Delco Appliance Corp., 93 F.2d 275 (2nd Cir. 1937) (L. Hand, J.), With Monroe v. Martin, supra. See also 3A A. Corbin, Contracts § 762 (1960). We agree with the court of appeals that certain actions taken by Marcor pursuant to the contracts provided sufficient consideration to validate those agreements. Specifically,...