McNorton v. Pan American Bank of Orlando, N.A.

• Citation: 387 So.2d 393
• Decision Date: 23 July 1980
• Docket Number: No. 79-633,79-633
• Parties: H. L. McNORTON, Appellant, v. PAN AMERICAN BANK OF ORLANDO, N.A., Appellee. /T4-455.
• Court: Court of Appeal of Florida (US)

Page 393

387 So.2d 393

H. L. McNORTON, Appellant, v. PAN AMERICAN BANK OF ORLANDO, N.A., Appellee.

No. 79-633/T4-455.

District Court of Appeal of Florida, Fifth District.

July 23, 1980.

Rehearing Denied Sept. 9, 1980.

David B. King of Peed & King, P. A., Orlando, for appellant.

Frederic B. O'Neal of Johnson, Motsinger, Trismen & Sharp, P.A., Orlando, for appellee.

COBB, Judge.

In this relief from forfeiture case, McNorton, plaintiff below, appeals from the order of the circuit court granting defendant Pan American Bank of Orlando's motion to strike Counts I, II and III of his amended complaint, wherein the court also ruled that the motion to dismiss the amended complaint was moot and from entry of final judgment in favor of the Bank.

In March of 1977, McNorton and the Bank entered into an agreement whereby McNorton was to purchase the mortgage lien interest of the Bank in specified real property. The agreement stated in pertinent part:

2. That H. L. McNorton agrees to purchase and the bank agrees to sell the interest of the bank in the aforementioned mortgage to H. L. McNorton, or nominee, for the sum of ONE HUNDRED THOUSAND and No/100 ($100,000.00) DOLLARS payable as follows:

(a) Fifty Thousand Dollars upon the execution of this agreement; and

(b) Fifty Thousand Dollars due on the 27th day of April, 1977. 8. That the $50,000.00 paid to the bank by McNorton, or nominee, upon the execution of this agreement shall be earned by the bank upon the execution of this agreement. In the event McNorton fails to pay the balance of the funds due to the bank for the execution of this agreement by 5:00 P.M. on the 27th day of April, 1977, then this agreement shall be void and the bank shall be free to negotiate the sale of the mortgage lien to any other party whatsoever. The $50,000, having been earned upon the execution of this agreement, shall be the bank's property completely and shall not be subject to any claim by McNorton, or nominee. (emphasis added).

McNorton did not pay the second $50,000 on time; the deal fell through and McNorton was out $50,000. In May of 1978, McNorton filed a three-count complaint against Pan Am Bank seeking damages in the amount of $50,000. Counts II and III of the complaint were dismissed. Defendant filed an amended motion to dismiss Count I of the complaint on the grounds that the complaint on its face showed that plaintiff had an adequate remedy at law against a third party, National Car Rental Systems, for wrongful garnishment or malicious prosecution; therefore, the court was without jurisdiction to grant equitable relief. The circuit court granted defendant's amended motion to dismiss with leave to file an amended complaint. McNorton filed an amended three-count complaint and in Count I alleged the payment of $50,000 contemporaneous with the agreement which was attached as Exhibit 1. McNorton alleged that on April 27, 1977, he was unable to pay Pan Am Bank the remaining $50,000 because on April 26, 1977 a writ of garnishment was filed against his ComBank/Pinecastle account by National Car Rental Systems causing McNorton to be deprived of the use of some $28,000 which he intended to use towards partial payment of the $50,000 owed April 27, 1977; that he was still deprived of the use of the money due to the garnishment action at the time of filing the complaint, despite a directed verdict in his favor, due to a stay pending appeal; that he did not have the remaining $23,000 necessary to make the full $50,000 payment on Wednesday, April 27, but that he would have had the $23,000 on Friday, April 29, 1977, and had requested an extension; that if he had not been wrongfully deprived of the money in his ComBank account he would have paid the defendant $27,000 on April 27 and been granted the extension. Attached to the complaint as an exhibit was a letter from the Bank's attorney claiming the $50,000 previously paid and terminating all further obligation on the Bank's part by reason of the inability of McNorton to pay the remaining $50,000 pursuant to the agreement. McNorton's complaint further alleged that he negotiated with the Bank, but the negotiations were unsuccessful because he was unable to obtain a rapid dissolution of the writ of garnishment; that in August of 1977 the defendant Bank sold the two mortgages that it would have sold to the plaintiff, pursuant to an agreement attached as Exhibit 4, to National Car Rental Systems for $100,000; that as a result of this sale, the defendant Bank sustained no actual damages as a result of McNorton's inability to consummate the purchase; that the $50,000 deposit paid by the plaintiff to defendant bears no relationship to any damages sustained by the Bank and constitutes an unconscionable penalty and a forfeiture; that he had made a demand for repayment of the $50,000, but that the defendant Bank refused his demand; and that he had no adequate remedy at law to recover the $50,000 deposit. McNorton prayed that the court declare the retention by the Bank of the $50,000 unconscionable and relieve plaintiff of the forfeiture which constituted 50% of the purchase price; that the court enter a judgment rescinding the agreement attached as Exhibit 1; and that the court enter a final judgment in favor of plaintiff for $50,000 plus costs and interest.

The primary issue before us ¹ is whether Count I of McNorton's complaint stated a cause of action against the Bank for relief from forfeiture.

McNorton's cause of action is based on the rule announced in Hutchison v. Tompkins, 259 So.2d 129 (Fla.1972), an action by vendors to recover a cash deposit from defaulting purchasers, where the trial court's dismissal of the complaint was reversed and the provision in a purchase and sale agreement for the vendor to retain a cash deposit was held not to be a penalty.

The Bank offers five reasons why McNorton's complaint did not state a cause of action: first, that the equitable remedy is used to affirm and reinstate one's rights under a contract and not to rescind; second, that since relief from forfeiture is a method of affirming rather than avoiding a contract, to state a cause of action plaintiff must allege that he tendered full performance; third, that the agreement between the parties is, as a matter of law, an option and not a deposit receipt or purchase and sale agreement; fourth, that plaintiff failed to allege that his timely performance was prevented by a misfortune beyond his control; and fifth, that plaintiff failed to allege facts which show no adequate remedy at law.

The Bank argues that Hutchison did not set out a rule for providing for relief from forfeiture in other cases or other situations; that the language on which plaintiff is relying is dicta, and cites for our consideration 2 Pomeroy, Equity Jurisprudence, §§ 448-460(d) (Fifth Ed. 1941). We believe the Hutchison case does set out a rule of law concerning relief from a forfeiture. So does the Fourth District Court of Appeal, which stated that Hutchison:

held that whether a clause in a contract is one for liquidated damages or a penalty depends upon whether or not the damages flowing from a breach are readily ascertainable at the time the contract is executed. If the damages are ascertainable on the date of the contract, the clause is a penalty and unenforceable; if they are not so ascertainable, the clause is (usually) one for liquidated damages and enforceable; however, if subsequent circumstances demonstrate it would be unconscionable to allow the seller to retain the sum in question as liquidated damages, equity may relieve against the forfeiture.

Bruce Builders, Inc. v. Goodwin, 317 So.2d 868, 869 (Fla. 4th DCA 1975). In Hutchison the Supreme Court was clarifying the test for determining when there would be a relief from a forfeiture, as well as how to determine whether liquidated damages were or were not a penalty. In Hutchison, the trial court's dismissal of the vendor's complaint on the grounds that the liquidated damages of approximately eight percent were by law a penalty was reversed since the trial court relied upon the rationale of Pembroke v. Caudill, 160 Fla. 948, 37 So.2d 538 (1948), which indicated that if damages are readily ascertainable at the time of breach then a liquidated damage clause may be construed as a penalty. According to Hutchison, the critical time for ascertaining damages for purposes of a liquidated damages clause was held to be at the time of the drawing of the contract. Although not specifically related to the facts before it, we believe the following language was intended for the instruction of the bench and bar:

The better result, in our judgment, as Hyman (v. Cohen, 73 So.2d 393 (Fla.)) contemplates, is to allow the liquidated damage clause to stand if the damages are not readily ascertainable at the time the contract is drawn, but to permit equity to relieve against the forfeiture if it appears unconscionable in light of the circumstances existing at the time of breach. For instance, assume a situation in which damages were not readily ascertainable at the time the contract was drawn, and the parties agreed to a liquidated damage provision of $100,000. Purchaser later repudiated the contract; vendor resold the land to another party, which because of fluctuations in the real estate market, resulted in a loss to himself of only $2,000. In such a case a court following the Hyman theory would allow the liquidated damage clause to stand, because damages were not readily ascertainable at the time of drawing the contract, but would, as a court of equity, relieve against the forfeiture as unconscionable.

Hutchison, 259 So.2d at 132. In Bruce Builders the Fourth District Court of Appeal specifically applied the rule set forth in Hutchison to a situation where purchasers in default sought successfully at the trial court level the recovery of their deposit. The district court first determined that damages were not readily ascertainable at...