Mahoney v. Tingley
| Decision Date | 01 April 1974 |
| Docket Number | No. 1755--I,1755--I |
| Citation | 520 P.2d 628,10 Wn.App. 814 |
| Parties | Laura E. MAHONEY, Appellant, v. Claude W. TINGLEY and Nancy J. Tingley, his wife, Respondents. |
| Court | Washington Court of Appeals |
Bonjorni, Burgeson & Fiori, Duncan A. Bonjorni, Auburn, for appellant.
Siderius, Lonergan & Crowley, David C. Pearson, Seattle, for respondents.
Plaintiff Laura E. Mahoney sued to recover damages for breach of an earnest money agreement by defendants Claude W. Tingley and Nancy J. Tingley, his wife. Later the court granted defendants' motion for summary judgment of dismissal. Plaintiff appeals.
The controlling issue is whether, under the facts here, a liquidated damage clause contained in the earnest money agreement raises a genuine issue of material fact concerning the validity of that clause precluding entry of summary judgment in favor of defendants. The facts are these.
On October 23, 1970, the parties entered into a printed form of earnest money agreement whereby plaintiff agreed to sell to defendants certain real property for the sum of $21,500. The price was later reduced to $20,250 to conform with the Veterans Administration appraisal. The earnest money agreement fixed $50 as the earnest money. Defendants paid that sum. Later defendants paid additional sums totaling $150, treated by the trial court and by the parties on appeal as additional earnest money. The agreement provided:
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.
Sometime prior to December 10, 1970, the date for closing, plaintiff moved from the premises upon defendants' request in order to enable defendants to move in. Defendants did not move in. Shortly after plaintiff vacated the premises, defendants repudiated the agreement. Plaintiff immediately listed the property for resale, resold the property for.$19,000 which was $1,250 less than the reduced purchase price called for in the earnest money agreement, and then brought the action below to recover general damages of $3,141.44. Defendants sought a summary dismissal of plaintiff's action on the ground her recovery for defendants' breach was limited to the retention of the $200 in earnest money she received as liquidated damages. The court agreed and entered the summary judgment of dismissal, from which plaintiff appeals.
Of plaintiff's four assignments of error we need consider only the controlling issue dealing with the liquidated damage clause. Plaintiff contends that if the liquidated damage clause is a defense, there is a genuine issue of material fact concerning the validity of that clause precluding entry of summary judgment. We agree and reverse.
Before considering the validity of the liquidated damage clause, we must first decide whether the clause, if valid, excepts plaintiff's action from its operation by virtue of the phrase 'unless seller elects to enforce this agreement' contained in that clause. Plaintiff contends her action for general damages is permissible, citing Reiter v. Bailey, 180 Wash. 230, 39 P.2d 370, 97 A.L.R. 1489 (1934). Reiter did not involve the identical phrase used in the earnest money agreement here. In Underwood v. Sterner, 63 Wash.2d 360, 365, 387 P.2d 366 (1963), the earnest money agreement provided for forfeiture of the earnest money in language identical to that used in the instant case. In construing that language, the court said:
'(I)f the purchaser refuses to complete the purchase, I.e., she may elect specific performance or liquidated damages. Having sold the property for $225,000 to another purchaser, she waived the remeday of specific performance. She cannot now choose a third remedy of unliquidated damages which is not written into the agreement.
63 Wash.2d at 367, 387 P.2d at 370. The liquidated damage clause is applicable if valid.
We now consider the validity of that clause. In the absence of statute providing otherwise, parties to a land purchase contract are entitled to compensatory damages, I.e., just compensation, for breach of that contract. If the parties in advance of breach wish to agree upon the amount to be paid by way of compensatory damages for such breach, they may do so if the agreement complies with certain conditions. The damages stipulated must be (1) a reasonable forecast of just compensation for the breach that may occur, and (2) the damages caused by the breach must be incapable or very difficult of accurate estimation. These conditions are formulated in Restatement of Contracts § 339, at 552 (1932), approved and applied in Management, Inc. v. Schassberger, 39 Wash.2d 321, 327--328, 235 P.2d 293 (1951). Accordingly, if the parties stipulate for the recovery of a penalty, as in the case of an amount substantially in excess of just compensation, the stipulation will be void notwithstanding the contract characterizes the stipulation as liquidated damages and the parties intend the stipulation to be enforceable. Management, Inc. v. Schassberger, Supra; Stoner v. Schultz, 69 Wash. 687, 125 P. 1026 (1912); C. McCormick, Damages §§ 149, 150, 152, 153 (1935). As C. McCormick, Damages § 149 puts it:
In the more modern decisions, the quest for intention has dwindled to this: If the parties at the time of the contract intended to make a 'genuine pre-estimate' of the probable damages, it will be enforced; otherwise not. However, the use in the contract of the words 'liquidated damages' or 'penalty' or their respective equivalents will be evidence to be considered by the judge in determining whether such a 'genuine pre-estimate' was attempted; yet it is obvious that the actual relation between the amount stipulated and the loss that was to be foreseen will ordinarily be the deciding factor on this question.
See 1 T. Sedgwick, Damages §§ 405, 406 (9th ed. 1912); 5 S. Williston, Contracts § 779 (3d ed. 1961).
If the damages fixed are for vendee's total breach, the clause is for vendor's benefit. He may waive the benefit of the clause and sue for specific performance even though there is no express provision therefor. Asia Inv. Co. v. Levin, 118 Wash. 620, 204 P. 808, 32 A.L.R. 578 (1922). If, however, he seeks to recover damages, the vendor is bound by the stipulation if it meets the required criteria. Jenson v. Richens, 74 Wash.2d 41, 442 P.2d 636 (1968); Brower Co. v. Garrison, 2 Wash.App. 424, 468 P.2d 469 (1970). As Underwood v. Sterner, supra, put the matter in upholding the validity of the liquidated damage clause in the earnest money agreement in that case, the stipulated damage clause was a "pre-estimate of damages made in advance of the breach . . ." and was 'fairly and understandingly entered into with a view to just compensation for the anticipated loss . . .' 63 Wash.2d at 365, 366, 387 P.2d at 369, 370.
In determining whether the required criteria of validity have been met, the court looks to the facts and circumstances of the case. If the facts and circumstances are undisputed, the court is able to rule as a matter of law whether the required criteria exist, E.g., Underwood v. Sterner, Supra; Central Credit Collection Control Corp. v. Grayson, 7 Wash.App. 56, 499 P.2d 57 (1972). No issue of fact remains to prevent entry of summary judgment. See Broderick Wood Prod. Co. v. United States, 195 F.2d 433 (10th Cir. 1952). If, however, one or more material facts and circumstances is disputed, then the remedy of summary judgment is not available. See Decato v. Travelers Ins. Co., 379 F.2d 796 (1st Cir. 1967); 6 J. Moore, Federal Practice 56.17(18) (2d ed. 1972).
Reasonable men may differ as to whether a particular stipulation for damages is a reasonable forecast of just compensation caused by a purchaser's total breach of contract. If they may so differ, an issue of fact exists, and the issue must be resolved by evidence. Thus, in negligence cases involving the reasonableness of conduct, summary judgment is ordinarily not available because fact issues are involved. 6 J. Moore, Federal Practice 56.17(42), at 2583 (2d ed. 1972). E.g., Arney v. United States, 479 F.2d 653 (9th Cir. 1973); Roucher v. Traders & Gen. Ins. Co., 235 F.2d 423 (5th Cir. 1956). See Gordon v. Deer Park School Dist. No. 414, 71 Wash.2d 119, 426 P.2d 824 (1967). So, in principle, the reasonableness of the forecast of just compensation likewise creates a factual issue to be resolved by evidence. The issue to be determined is whether, at the time the stipulation was entered into, the forecast of damages was unreasonably high or unreasonably low for the breach involved. If the forecast of damages is unreasonably high, the stipulation calls for a nonenforceable penalty. If the forecast is unreasonably low, a court will not penalize the innocent party by limiting his recovery to the damages stipulated. C. McCormick, Damages § 149, at 608 (1935), puts the matter as follows:
(I)n the rare case where an amount unreasonably small in proportion to the probable loss is stipulated, the courts will on the same principle disregard it and permit the injured party to recover his actual damages.
For support of this principle, McCormick cites Bonhard v. Gindin, 104 N.J.L. 599, 142 A. 52 (1928); McCelvy v. Bell, 6 S.W.2d 390 (Tex.Civ.App.1928); and dictum in Weatherford v. Adams, 31 Ariz. 187, 197, 251 P. 453 (1926). Other textwriters also recognize the rule McCormick describes. 5 S. Williston, Contracts § 779, at 698 n. 7 (3d ed. 1961); 1 T. Sedgwick, Damages § 412 (9th ed. 1912).
If a fact issue exists on the reasonableness of the forecast, evidence should be admissible to resolve that issue. Such facts and circumstances may appear on the face of the agreement or be shown by evidence outside the agreement. Cf. Redmond v. Kezner, 10 Wash.App. 332, 517 P.2d 625 (1973). See Management, Inc. v. Schassberger, Supra; Brower Co. v. Garrison, Supra; Bonhard v. Ginden, ...
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