Morgan Enterprises, Inc. v. Gordon Gillett Business Realty, Inc., A90A0617

• Decision Date: 04 June 1990
• Docket Number: No. A90A0617,A90A0617
• Parties: MORGAN ENTERPRISES, INC. v. GORDON GILLETT BUSINESS REALTY, INC.
• Court: Georgia Court of Appeals

Page 303

395 S.E.2d 303

196 Ga.App. 112

MORGAN ENTERPRISES, INC. v. GORDON GILLETT BUSINESS REALTY, INC.

No. A90A0617.

Court of Appeals of Georgia.

June 4, 1990.

Rehearing Denied June 25, 1990.

Brannen, Searcy & Smith, Joseph J. Berrigan, Savannah, for appellant.

Gary M. Wisenbaker, Savannah, for appellee.

BIRDSONG, Judge.

Morgan Enterprises d/b/a Springfield Dairy Queen appeals the grant of summary judgment to the plaintiff realtor, Gordon Gillett Business Realty, Inc., which found Morgan Enterprises liable to pay $20,000 "liquidated damages" for having cancelled Gordon Gillett's realty contract before the term expired. Morgan Enterprises contends an issue of fact exists as to whether the liquidated damages clause was, in fact, an unenforceable penalty, under cases such as Fickling & Walker Co. v. Giddens Constr. Co., 258 Ga. 891, 376 S.E.2d 655. Held:

In determining whether a forfeiture provision in a contract amounts to an enforceable liquidated damages provision, or is an unenforceable penalty clause, the trial court at the summary judgment level must conduct a tripartite inquiry according to these standards: " 'First, the injury caused by the breach must be difficult or impossible of accurate estimation; second, the parties must intend to provide for damages rather than for a penalty; and third, the sum stipulated must be a reasonable pre-estimate of the ... loss.' [Cits.]" Southeastern Land Fund v. Real Estate World, 237 Ga. 227, 230, 227 S.E.2d 340. This tripartite inquiry is designed to resolve whether a provision for damages for breach amounts to "liquidated damages" under OCGA § 13-6-7.

At trial the burden is on the defaulting parties to show the provision is a penalty (Liberty Life Ins. Co. v. Thomas B. Hartley Constr. Co., 258 Ga. 808, 809, 375 S.E.2d 222), but the lay of this burden does not yet arise at the summary judgment level. Id. On cross-motions for summary judgment, each party must show there is no genuine issue of material fact regarding the resolution of these three points of inquiry and that each, respectively, is entitled to summary judgment; either party, to prevail by summary judgment, must bear its burden of proof.

Thus, in order for plaintiff Gordon Gillett to obtain summary judgment in enforcing this "damages" provision, Gordon Gillett bears the burden to prove the foregoing three elements in its favor. Id. The trial court erred in finding Gordon Gillett had carried this burden of proof in this case.

The listing agreement in this case provides that if appellant cancelled the contract during the listing term, "the commission shall become immediately due by the [s]eller to the [b]roker." The commission in this case is described as follows: "Seller agrees to pay [b]roker ten (10%), but in any event not less than $8,000, of the purchase price." Gordon Gillett contends that because the seller, Morgan Enterprises, set the "purchase price" at $200,000, the commission at ten percent is thus $20,000. But there was no purchase. Clearly the parties intended the actual "purchase price" as set by the seller to be flexible.

Gordon Gillett contends vigorously that since appellant seller set the "purchase price" at $200,000 in the contract, the contract must be construed against appellant. But the clause providing the hoped-for purchase price set by seller is not the subject of interpretation. In question is the "liquidated damages" clause, providing a forfeiture of "10% of the purchase price or not less than $8,000." Inasmuch as the form document, and that "liquidated damages" paragraph, clearly was prepared by Gordon Gillett, any ambiguities in it must be construed against Gordon Gillett. Moreover, in cases where doubt or ambiguity exists in the construction of the damages clause, we must favor the construction which holds "the stipulated sum" to be a penalty. Southeastern Land Fund v. Real Estate World, supra.

In this case "the stipulated sum" to be paid on default is not stated at $20,000 as Gordon Gillett contends, but is "10% of the purchase price, but in any event, not less than $8,000." The only reason Gordon Gillett contends this language ought to translate, beyond any genuine issue of fact, to $20,000, is that appellant seller set the prospective purchase price at $200,000. But, the property...