Southern Motor Supply Co. v. Shelburne Motor Co.

• Decision Date: 04 June 1935
• Docket Number: 24874.
• Citation: 46 P.2d 562,172 Okla. 495,1935 OK 642
• Parties: SOUTHERN MOTOR SUPPLY CO. v. SHELBURNE MOTOR CO.
• Court: Oklahoma Supreme Court

46 P.2d 562

172 Okla. 495, 1935 OK 642

SOUTHERN MOTOR SUPPLY CO. v. SHELBURNE MOTOR CO.

No. 24874.

Supreme Court of Oklahoma

June 4, 1935

Syllabus by the Court.

1. A provision in a lease contract fixing a definite sum as damages for a breach thereof is valid and enforceable, when it appears that said sum does not constitute excessive compensation to the lessor for the damages actually sustained by said breach.

2. Where parties enter into a lease contract which provides for payment of a fixed amount as damages for a breach thereof by the lessee, and thereafter said lessee breaches said contract, surrenders possession of the premises, and pays the amount fixed by the contract, the lessor is precluded from collecting further damages for said breach of the contract.

Appeal from District Court, Oklahoma County; R. P. Hill, Judge.

Action by the Shelburne Motor Company against the Southern Motor Supply Company. Judgment for plaintiff, and defendant appeals.

Judgment reversed, and cause remanded, with directions.

Reuben M. Roddie, Ralph P. Welch, and V. V. Harris, all of Oklahoma City, for plaintiff in error.

Everest McKenzie, Halley & Gibbens, of Oklahoma City, for defendant in error.

OSBORN Vice Chief Justice.

This action was commenced in the district court of Oklahoma county by the Shelburne Motor Company, hereinafter referred to as plaintiff, against the Southern Motor Supply Company hereinafter referred to as defendant, wherein it was sought to recover the sum of $225 as damages arising through the breach of a rental contract. The cause was tried to the court, and a judgment rendered in favor of plaintiff, from which defendant appeals.

The stipulated facts are that on January 10, 1928, a lease contract was entered into whereby plaintiff leased to defendant a building in Oklahoma City, Okl., for a term of five years, at the rate of $400 per month payable in advance. The lease further provided for the payment of an original sum of $800 as rental for January and February, 1933, the last two months of the term. It further provided that, if the terms of the lease were violated and the lease forfeited, the plaintiff was to retain the $800 as liquidated damages.

On May 31, 1931, after notice to plaintiff, defendant surrendered the premises and gave plaintiff leave to retain the $800 as liquidated damages. The rent had been paid in full up to the date of the forfeiture of the lease. Plaintiff refused to accept the surrender of the premises, and notified defendant that it would be held to the terms of the lease, and made demand for payment of the balance of the rent as provided by the terms of the lease.

The parties then entered into a written agreement, by the terms of which plaintiff was to rent the property to the Parrott Motor Company for $175 a month, and further agreed that this was not to prejudice the rights of either party in the determination of the issues raised in this action. Plaintiff rented the property to the Parrott Motor Company, credited defendant with $175, and demanded $225 as the balance due on the rent for the month of June, 1931.

Defendant contends that by the terms of the lease the $800 paid and held by plaintiff was fixed by the contract as liquidated damages in the event of forfeiture of the lease, and that plaintiff is not entitled to further damages by reason of said forfeiture. Defendant contends that the $800 was a penalty instead of liquidated damages, and under the law of Oklahoma the parties are prohibited from contracting for the payment of a penalty in case of a breach of the contract, and to such extent the contract is void and without effect, and therefore plaintiff is entitled to collect the full amount of the rental as provided by the contract, less the credit given to defendant of the rental paid by the Parrott Motor Company.

We are cited to the following statutes as they appear in O. S. 1931 as being applicable to the issues raised herein:

"9488. Penalties imposed by contract for any non-performance thereof, are void. But this section does not render void such bonds or obligations, penal in form, as have heretofore been commonly used; it merely rejects and avoids the penal clauses.

9489. Every contract, by which the amount of damages to be paid, or other compensation to be made, for a breach of an obligation, is determined in anticipation thereof, is to that extent void, except as expressly provided by the next section.

9490. A stipulation or condition in a contract, providing for the payment of an amount which shall be presumed to be the amount of damage sustained by a breach of such contract, shall be held valid, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damages."

It is agreed by the parties that there is but one question to be determined, and that is whether the sum of $800 mentioned in the contract is liquidated damages or is a penalty. In the case of Board of Education of City of Sapulpa v. Broadwell, 117 Okl. 1, 245 P. 60, 62, it is said:

"Whether a sum mentioned in a contract be liquidated damages or a penalty is one of the most subtle questions of the law, and has led to innumerable adjudications. See 17 C.J. 931 et seq. After all, the rules are not so complicated-the difficulty arises from an application thereof to the particular facts in a given case. This court has, on numerous occasions, considered and announced the rules which we hold are applicable to the instant case. The leading authority is, perhaps, McAlester v. Williams, 77 Okl. 65, 186 P. 461. Mr. Justice Kane there discusses the basis and history of the said statutes quoted above. The essential facts of that case, germane to the instant case, were that the defaulting party had agreed to erect a building of certain specifications, kind, and character, on certain real estate within a specified time, or forfeit $1,000 as liquidated damages. There the rule announced is that:

'The question whether the amount stipulated to be paid upon failure of performance is to be treated as liquidated damages or as a penalty is, in its last analysis, still a question of law for the court, to be determined from the language and subject-matter of the contract, the evident intent of the parties, and all the facts

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