Illingworth v. Bushong

• Decision Date: 22 March 1983
• Docket Number: No. 80-108-L,80-108-L
• Parties: Robert A. ILLINGWORTH, Respondent-Cross-Appellant, v. Charles R. BUSHONG, Ruby Bushong and George Chick Iverson, Appellants-Cross-Respondents. ; CA A20104.
• Court: Oregon Court of Appeals

Page 370

656 P.2d 370

61 Or.App. 152

Robert A. ILLINGWORTH, Respondent-Cross-Appellant, v. Charles R. BUSHONG, Ruby Bushong and George Chick Iverson Appellants-Cross-Respondents.

No. 80-108-L; CA A20104.

Court of Appeals of Oregon.

Argued and Submitted Dec. 11, 1981.

Decided Dec. 29, 1982.

Reconsideration Denied Feb. 17, 1983.

Review Allowed March 22, 1983.

Walter L. Cauble, Grants Pass, argued the cause for appellants-cross-respondents. With him on the briefs was Schultz, Salisbury & Cauble, Grants Pass.

Patrick G. Huycke, Medford, argued the cause and filed the brief for respondent-cross-appellant.

Before GILLETTE, P.J., JOSEPH, C.J., ^* and YOUNG, J.

GILLETTE, Presiding Judge.

Plaintiff brought this action to recover his earnest money deposit, which defendants had retained after plaintiff had defaulted on a contract to purchase their ranch. Plaintiff contends that the liquidated damages provision is unenforceable as a penalty. The trial court agreed and awarded plaintiff judgment for the amount of his deposit ($50,000), less defendants' actual damages of $6,500. Defendants appeal the court's ruling that the liquidated damages clause is invalid. Plaintiff cross-appeals, contending that the court erred in failing to award him attorney fees and in setting the rate of interest on his judgment. We affirm the trial court's ruling as to the penal nature of the forfeiture, but we reverse and remand on the attorney fees and rate of interest matters.

Defendants were, at the time of this dispute, co-owners of a 373-acre ranch in Josephine County, which they listed for sale in July, 1978. Plaintiff viewed the property in August and, on September 8, entered into an earnest money contract to purchase the ranch for $490,000. The agreement contained a forfeiture clause, providing that if the purchaser failed to go through with the sale, he would forfeit his earnest money deposit. ¹ The amount of the deposit was $50,000; the closing date was December 12, 1978. Plaintiff understood, however, that the deposit would not be forfeited on his breach if there were "back-up buyers" willing and able to purchase the ranch. Subsequent to the signing of the earnest money contract, two back-up buyers submitted offers to purchase the ranch, but both withdrew their offers before the scheduled closing date.

On the scheduled closing date, December 12, plaintiff failed to perform, because he did not have sufficient funds to close the transaction. On December 13, one of the former back-up buyers presented a new earnest money contract for purchase of the ranch to defendants' real estate agent. On January 25, 1979, that sale was closed for the same total price plaintiff had offered, but with a higher down payment.

This action, which plaintiff brought after defendants had refused his demand for the return of the deposit, was tried to the court. After determining that the forfeiture clause was invalid, the court found that defendants had incurred $6,500 in actual damages as a result of plaintiff's breach and therefore awarded plaintiff judgment of $43,500, setting interest at 6 percent from May 29, 1979, the date of demand. The court declined to award attorney fees.

A contract provision for liquidated damages is valid if it is designed to provide just compensation for the injured party in the event of a breach; if it goes beyond just compensation, however, it is unenforceable as a penalty. Wright v. Schutt Construction, 262 Or. 619, 623, 500 P.2d 1045 (1972). The test is whether:

" '(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and

'(b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.' " 262 Or at 623 , quoting Restatement of Contracts § 339(1) (1932).

To satisfy the first requirement, there must be a genuine pre-estimate of the injury; that is, the parties must make an honest and good faith effort to arrive at an accurate estimate. Dean Vincent, Inc. v. McDonough, 281 Or. 239, 246, 574 P.2d 1096 (1978). A showing that the liquidated damages are "grossly disproportionate" to actual damages is evidence that the estimate was not reasonable. 281 Or. at 246. The burden of proof, however, is on the party who seeks to avoid the clause. 281 Or. at 249. The question is for the trier of fact, unless reasonable minds could not disagree as to the facts and the conclusions to be drawn from them. Foster v. Peterson, 42 Or.App. 249, 258, 600 P.2d 490 (1979).

Here, the trial court specifically found that there was not a genuine pre-estimate of the damage that defendants would suffer should plaintiff fail to perform; rather, the amount of damages was selected on the basis of a rule of thumb that an earnest money deposit should represent 10 percent of the purchase price. There was substantial evidence in the record to support this determination, including defendants' inability, at deposition before trial, to state the amount of their monthly expenses in operating the ranch and the fact that their actual damages were, as the evidence showed, grossly disproportionate to the proposed liquidated damages. ² The trial court did not err in refusing to enforce the liquidated damages clause. ³

On cross-appeal, plaintiff contends that he should have been awarded attorney fees as the prevailing party pursuant to ORS 20.096. We agree.

The parties' earnest money ⁴ contract provides that the prevailing party in an action brought on the contract is to be awarded attorney fees. We have stated that, as a general rule, where both the plaintiff and the defendant seek damages from each other by way of claim and counterclaim and both claims are upheld, the party in whose favor final judgment is rendered is entitled to attorney fees. Marquam Investment Corp. v. Myers, 35 Or.App. 23, 30-31, 581 P.2d 545, rev den 284 Or. 341 (1978). We have qualified that rule only to recognize that where one party seeks money damages and the other party seeks equitable relief and both prevail, it may not be appropriate to make an award. 35 Or.App. at 31, 581 P.2d 545. This case is squarely within the general rule: plaintiff prevailed on his claim to recover the $50,000 deposit, and defendants were found to be entitled to $6,500 actual damages, resulting in a net judgment for plaintiff of $43,500. Plaintiff is clearly the prevailing party and should have been awarded attorney fees.

In his second assignment on cross-appeal, plaintiff contends that the trial court erred in setting the rate of interest on the amount due him at 6 percent per year from May 29, 1979, the date of demand, until paid, pursuant to the version of ORS 82.010 in effect on May 29, 1979. This statute was amended, effective July 25, 1979, to increase the pertinent rates of interest from 6 percent to 9 percent. Or.Laws 1979, ch. 794, §§ 1, 3. Judgment in this case was entered after July 24, 1979; plaintiff contends that the interest rate on his award should be set at 6 percent from May...