Illingworth v. Bushong
Decision Date | 23 October 1984 |
Citation | 688 P.2d 379,297 Or. 675 |
Parties | , 39 UCC Rep.Serv. 903 Robert A. ILLINGWORTH, Respondent on Review, v. Charles R. BUSHONG, Ruby Bushong, and George Chick Iverson, Petitioners on Review. TC 80-108-L, CA A20104, SC 29315. . * |
Court | Oregon Supreme Court |
Walter L. Cauble, Grants Pass, argued the cause for petitioners on review. With him on briefs was Schultz, Salisbury & Cauble, Grants Pass.
Patrick G. Huycke, Medford, argued the cause and filed briefs for respondent on review.
The narrow issue is whether the trial court erred in deciding that a forfeiture clause in an earnest money agreement was not a valid liquidated damages provision. We hold that there was no error in that respect. The broader question addressed in this opinion is how the validity of such clauses is to be tested.
Defendants owned a 373 acre ranch, which they listed for sale in July, 1978. Plaintiff viewed the property in August and on September 8 entered into an earnest money agreement to purchase the ranch for $490,000. That writing provided for an earnest money deposit of $50,000, of which $30,000 was paid at that time, and an additional $20,000 was to be paid on October 10. Plaintiff paid the additional earnest money.
The initial writing provided that closing was to occur on November 10, at which time another $124,000 was to be paid, and the defendants were to carry the balance on a contract. In mid October an addendum was added to the initial writing, extending the closing date to December 12. Plaintiff was unable to perform on that date.
The basic part of the earnest money agreement was on a printed form copyrighted by the Oregon Association of Realtors and, in this instance, supplied by the listing broker and salesman. A part of the printed portion was entitled "FORFEITURE PROVISIONS" and, in pertinent part, was as follows:
" * * * If the said sale is approved by the seller and title to said premises is marketable, and the purchaser neglects or refuses to comply with any conditions of sale within ten (10) days from the furnishing of a preliminary title report, or make payments promptly as set forth on the reverse side hereof, then the earnest money and additional earnest money receipted for on the reverse side hereof shall be forfeited, the cost of title insurance, escrow and attorney fees paid, and the remainder divided as provided on the reverse side hereof under Sellers [sic] closing instructions and fee agreement between the seller and the REALTOR to the extent of the agreed upon fee, and the residue, if any, paid to the seller as liquidated damages and this contract shall thereupon be of no further binding effect, or at his option, seller may seek damages or specific performance of this contract."
When plaintiff was unable to perform on December 12, defendants advised him that they would not return the earnest money. The entire $50,000 earnest money, which had been deposited with a local title company, was released to defendants on December 13.
While the foregoing events were taking place, two other prospective purchasers had made offers to buy the ranch, but both offers had been withdrawn prior to plaintiff's failure to perform on December 12. One of those purchasers made a new offer in a writing dated December 13, and that offer was accepted by defendants on December 30. That sale closed January 25 1979, for the same purchase price as the sale to plaintiff would have been, but with a higher down payment.
Plaintiff demanded return of the $50,000. Defendants refused to comply with the demand. Plaintiff then commenced this cause to recover that sum.
The key issue was whether the above-quoted FORFEITURE PROVISION was valid as being a clause for liquidated damages or invalid as being a penalty for nonperformance. The parties waived a jury, and the trial court decided that the clause was unenforceable. The trial court decided that defendants had suffered actual damages as a result of plaintiff's breach in the amount of $6,500, and awarded plaintiff judgment for $43,500. 1 As a predicate for judgment for plaintiff, the trial court made findings from the bench at the close of the trial: 2
Proceedings in the Court of Appeals
On appeal the defendants contended that the trial court had erred in holding that, "as a matter of law," the liquidated damages provision was a "penalty" and not an enforceable provision. They further contended that there was no evidence 3 to support the trial court's findings of fact:
(1) That the clause was a "penalty."
(2) That the figure of $50,000 as the yearly cost of operating the ranch was not considered at the time of making the contract.
(3) That the dollar figure chosen ($50,000) was just a 10% (of the purchase price) rule of thumb for earnest money and was the figure used by the state in its land dealings and that 10% was "custom."
The Court of Appeals first stated what it would take as the governing rules of law as they appear from two of our fairly recent decisions and one of that court's own decisions:
61 Or.App. at 155, 656 P.2d 370.
The Court of Appeals then found there was substantial evidence to support the trial court's findings of fact resulting in the trial court's ruling that the clause was for a penalty:
(Footnotes omitted.)
We allowed the defendants' petition for review because of apparent ambiguity, if not confusion, in our pronouncements of the law applicable to this kind of case.
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