McFadden v. Fuentes, 08-89-00402-CV

• Decision Date: 25 April 1990
• Docket Number: No. 08-89-00402-CV,08-89-00402-CV
• Parties: 12 UCC Rep.Serv.2d 728 David L. McFADDEN, Appellant, v. Pedro Zaragosa FUENTES, Appellee.
• Court: Texas Court of Appeals

Page 736

790 S.W.2d 736

12 UCC Rep.Serv.2d 728

David L. McFADDEN, Appellant, v. Pedro Zaragosa FUENTES, Appellee.

No. 08-89-00402-CV.

Court of Appeals of Texas El Paso.

April 25, 1990.

Rehearing Overruled May 23, 1990.

Ralph E. Harris, El Paso, for appellant.

Francis C. Broaddus, Jr., El Paso, for appellee.

Before FULLER, WOODARD and KOEHLER, JJ.

OPINION

WOODARD, Justice.

This is an appeal from a summary judgment in favor of the Defendant, Mr. Fuentes. We reverse.

The parties contracted for Fuentes' purchase of certain bowling, restaurant and bar equipment. On the execution of the agreement, $20,000.00 was paid, $30,000.00 was to be paid on or before March 1, 1986 and $135,000.00 was to be paid on May 1, 1986, which was the date Fuentes was to take possession of the property. The contract was prepared by the attorney for the seller. It provided that "[i]n the event Buyer fails to pay the full purchase price for the personal property as provided for herein on or before May 1, 1986, Seller shall have the right to retain all money paid pursuant to the terms and conditions of this Agreement, and cancel this Agreement." Under the contract, $20,000.00 was deposited with the attorney for the seller as earnest money to be held in escrow until the terms of the agreement had been complied with. On January 13, 1986, the attorney sent Fuentes notice that if the $30,000.00 of March 1, 1986 was not timely made, "Mr. McFadden (seller) will have no alternative but to cancel the agreement and retain all money paid pursuant to the terms of the agreement." On September 10, 1986, the seller filed suit for consequential damages caused by the breach of contract.

The focal point of the appeal is whether the exacted $20,000.00 was a penalty of forfeiture to be applied toward consequential damages for a breach of contract, or whether it was proper liquidated damages that had been stipulated to by the parties whereby "cancellation" of the contract precludes any further damage award.

To be enforceable as liquidated damages under common law, the damages must be uncertain and the stipulation must be reasonable. Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484 (1952). However, in 1965, the Uniform Commercial Code was enacted in Texas. The specific provisions of the UCC supersede the common law applicable to transactions in goods. Tex.Bus. & Com.Code Ann. sec. 2.718 (Vernon 1968), provides for liquidated damages in the agreement subject to their reasonableness in light of anticipated or actual harm, difficulties in proving loss and inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. Section 2.719 now provides that remedies in case of default can be contracted for, including an exclusive or sole remedy where expressly agreed upon. Section 2.719, Uniform Commercial Code Comment states:

(2) Subsection (1)(b) creates a presumption that clauses prescribing remedies are cumulative rather than exclusive. If the parties intend the term to describe the sole remedy under the contract, this must be clearly expressed.

The limitation or exclusion of consequential damages must not be unconscionable, but unconscionability would be a matter of confession and avoidance, and was not affirmatively pleaded in this case. The pertinent paragraphs of the contract are as follows:

(1) With the execution of this Agreement, (the buyer shall) deposit $20,000.00 in escrow with Ralph E. Harris, said deposit representing earnest money to be held in escrow by the said Ralph E. Harris until such time as all terms and conditions of this Agreement are complied with; ...

. . . . .

(2) In the event Buyer fails to pay the full purchase price for the personal property as provided for herein on or before May 1, 1986, Seller shall have the right to retain all money paid pursuant to the terms and conditions of this Agreement, and cancel this Agreement.

The contract further provides that the buyer has the option to cancel the contract or extend the closing date if the property becomes damaged by fire or other casualty. It also...