Mahoney v. Tingley, 43319
| Decision Date | 09 January 1975 |
| Docket Number | No. 43319,43319 |
| Citation | 85 Wn.2d 95,529 P.2d 1068 |
| Parties | Laura E. MAHONEY, Respondent, v. Claude W. TINGLEY and Nancy J. Tingley, his wife, Appellants. |
| Court | Washington Supreme Court |
Bonjorni, Harpold & Fiori, Duncan A. Bonjorni, Auburn, for appellants.
Siderius, Lonergan & Crowley, David C. Pearson, Seattle, for respondent.
Plaintiff seeks against defendants damages arising out of the breach of an earnest money agreement, those damages being in excess of an amount stipulated in a liquidated damages clause.
The parties entered into an earnest money agreement in which the plaintiff agreed to sell residential property to the defendants. The price, originally fixed in the agreement at $21,500, was later reduced to $20,250 in order to conform to a Veterans Adminstration appraisal. Defendants deposited $50 as earnest money with the real estate broker and, subsequently, deposited $150 as additional earnest money. The agreement contained the following clause:
If title is so insurable and purchaser fails or refuses to complete purchase, the earnest money shall be forfeited as liquidated damages unless seller elects to enforce this agreement.
At defendants' request, the plaintiff moved from the premises, but the defendants did not move in. Instead, upon being notified that the transaction was ready for closing, the defendants indicated that they did not intend to complete the purchase. Defendants' attorney wrote to the plaintiff's realtor and stated that the defendants wished to cancel the agreement. Plaintiff's attorney responded that cancellation was not justified and demanded that defendants complete the transaction. Defendants did not respond to that letter, and the plaintiff sold the property to a third party for.$19,000.
On the basis of the defendants' breach, plaintiff sued, alleging damages totaling $3,141.44. The defendants answered the complaint with a general denial and prayed for dismissal of the suit. On the day set for trial, the trial judge met with counsel in chambers. During that conference, the trial judge determined that the case turned upon the effect to be given the liquidated damages clause. Accordingly, the judge decided to treat the matter as one in which summary judgment was appropriate. After hearing argument relating to the liquidated damages clause, the court ruled that plaintiff was entitled only to the stipulated amount and entered an order for summary judgment in favor of defendants.
The Court of Appeals reversed the summary judgment. Mahoney v. Tingley, 10 Wash.App. 814, 520 P.20 628 (1974). That decision was not unanimous, and defendants appealed pursuant to ROA II--2 which provides for appeal where reversal of a superior court judgment is by less than a unanimous decision.
The liquidated damages clause at issue here provided an option to the plaintiff once there was failure or refusal by defendants to complete the purchase. Plaintiff could elect to sue for specific performance of the earnest money agreement, or she could retain the earnest money as liquidated damages. The potential remedy of specific performance was, of course, foreclosed upon sale of the property to a third party. Plaintiff now seeks to avoid the limitation imposed by the provision for stipulated damages.
Plaintiff first argues that the alternative remedies provided by the earnest money agreement are not exclusive, and cites Reiter v. Bailey, 180 Wash. 230, 39 P.2d 370 (1934), for the proposition that a vendor may forego declaring a forfeiture of earnest money and elect, instead, to sue for actual damages. Reiter involved a real estate contract in which it was provided that, upon failure of the purchaser to make any payment.
'(T)he seller May elect to declare a forfeiture and cancellation of this contract and upon such election being made, . . . any payments theretofore made hereunder by the purchaser shall be retained by the seller in liquidation of all damages sustained by reason of such failure.'
(Italics ours.) Reiter v. Bailey, Supra at 231, 39 P.2d at 370. This court interpreted the clause to mean that the seller had reserved the options of seeking specific performance, liquidated damages or actual damages upon the buyer's default. Where parties expressly provide for such alternatives, there can be no objection to the seller's choice of one remedy from among those contemplated in the agreement. However, where an earnest money agreement provides that, upon the purchaser's failure or refusal to complete the transaction, the earnest money Shall be forfeited as liquidated damages unless the seller chooses specific performance (as does the clause in the present case), we have clearly held that the seller cannot pursue a third remedy of unliquidated damages which is not written into the agreement. Underwood v. Sterner, 63 Wash.2d 360, 367, 387 P.2d 366 (1963). In this case the liquidated damages clause, if enforceable, will limit plaintiff's recovery to that amount stipulated in the earnest money agreement.
Plaintiff's principal contention is that the liquidated damages clause constitutes a penalty and is, therefore, unenforceable. However, no penalty is involved here. A penalty exists where there is an attempt to enforce an obligation to pay a sum fixed by agreement of the parties as a Punishment for the failure to fulfill some primary contractual obligation. 5 S. Williston, Contracts § 770, at 641 (3d ed. 1961). In this case, it is not the party in default who seeks relief from an excessively high liquidated damages provision. Rather, the provision operates to limit the recovery of the party who incurred a loss as a result of the other parties' breach. There being no element of punishment involved, it cannot be said that plaintiff is being penalized in any sense.
There is some authority to support the view that where a stipulated amount of damages is substantially below the actual damage, the limitation will be found to be unenforceable. See, e.g., Bonhard v. Gindin, 104 N.J.L. 599, 142 A. 52 (1928); McCelvy v. Bell, 6 S.W.2d 390 (Tex.Civ.App.1928); C. McCormick, Damages § 149, at 608 (1935). There is, however, contrary authority. For example, in City of Kinston v. Suddreth, 266 N.C. 618, 146 S.E.2d 660 (1966), the argument was made that a liquidated damages clause, which...
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