Stonebraker v. Zinn

• Decision Date: 09 February 1982
• Docket Number: No. 15214,15214
• Citation: 286 S.E.2d 911,169 W.Va. 259
• Court: West Virginia Supreme Court
• Parties: Diana L. STONEBRAKER, et al. v. Richard Lee ZINN, et al.

Page 911

286 S.E.2d 911

169 W.Va. 259

Diana L. STONEBRAKER, et al. v. Richard Lee ZINN, et al.

No. 15214.

Supreme Court of Appeals of West Virginia.

Feb. 9, 1982.

Syllabus by the Court

1. Parties may properly contract for liquidated damages (1) where such damages are uncertain and not readily capable of ascertainment in amount by any known or safe rule, whether such uncertainty lies in the nature of the subject, or in the particular circumstances of the case; or (2) where from the nature of the case and tenor of the agreement, it is apparent that the damages have already been the subject of actual fair estimate and adjustment between the parties.

2. A clause for damages in a contract is a penalty rather than a liquidated damage provision when the amount is grossly disproportional in comparison to the damages actually incurred. This is true even though the provision is denominated as liquidated damages in the contract.

3. In determining whether the amount forfeited through liquidated damages under an installment land contract is so grossly disproportional to the damages actually incurred, courts take into account not only the loss of fair rental value to the vendor, but also costs involved in the sale of the property, depreciation, attorney fees and other directly related expenses arising by virtue of the purchaser's abandonment of the property.

4. Where an installment land contract provides for a monthly payment which covers interest set at a higher rate than allowed by law and amortization of the principal balance owed and such monthly payment is not grossly disproportional to the fair monthly rental value of the property, the interest rate will not be held usurious in the absence of other extraordinary factors.

Betsy Hutchings, Morgantown, for appellants.

Randy R. Goodrich, Kingwood, for appellees.

MILLER, Chief Justice:

We are asked in this appeal to reexamine the nature of an installment sales contract for the purchase of land and to declare such a contract as being entitled to the same protections and restrictions afforded analogous instruments such as deeds of trust. In the alternative, we are asked to declare the forfeiture clause of the contract between the parties to be a penalty and therefore unenforceable. Finally, we are asked to hold that the trial court erred in dismissing appellant's usury claim prior to consideration by a jury.

The facts are not in substantial dispute. On October 2, 1978, Richard and Mildred Zinn (vendors) agreed to sell to Samuel and Diana Stonebraker (purchasers) a house and land located in Preston County for the sum of $25,000. The contract entered into by the parties acknowledged receipt of a $1500 down payment and established a financing arrangement whereby the vendors agreed to accept the balance of the purchase price, $23,500, in monthly installments of $189.09 at an annual interest rate of 9%. A deed of trust lien in favor of the First Federal Savings and Loan of Waynesburg, Pennsylvania, previously given by the vendors, was acknowledged. The vendors were obligated, upon payment in full by the purchasers, to convey marketable title to the property by deed. The vendors agreed to make payments on the note secured by the deed of trust.

Purchasers took possession of the property and assumed all other responsibilities normally associated with homeownership, including payment of property insurance and taxes, maintenance and repairs. The contract provided for liquidated damages in the event the purchasers abandoned the property. The amount of the liquidated damages was the amount the purchasers had paid on the purchase price at the time of abandonment. ¹

The purchasers occupied the premises from November 1978 to November 1979 and made monthly payments. In November 1979, the purchasers notified the vendors that they could not afford both the cost of the necessary repairs to the property and the monthly house payments, and that they intended to vacate the premises. Prior to December 1, 1979, the purchasers vacated the property.

This action was commenced on December 6, 1979, when the vendors filed a complaint in the Magistrate Court of Monongalia County, seeking to recover damages for property allegedly removed from the premises by the purchasers. This action was later consolidated with an action alleging that the contract was usurious and unconscionable which was filed by the purchasers in the Circuit Court of Preston County. The trial court found that the vendors were entitled to liquidated damages by way of being able to keep the money paid by the purchasers. The court also found that the purchasers were not entitled to any relief on the theories they presented to the trial court. From this judgment, the purchasers appeal.

I.

The purchasers claim that the forfeiture clause in the contract ² is a penalty because the damages retained by the vendors are grossly disproportional to their actual damages and, therefore, it is unenforceable. The vendors argue that the clause is a valid liquidated damage clause. ³

Considerable recognition is given to the premise that parties entering into an agreement may avoid all future questions of damages which may result from a violation thereof by agreeing to a definite sum to be paid upon such a violation. There are several criteria by which a valid liquidated damage clause may be distinguished from a penalty as evidenced by this statement from 22 Am.Jur.2d Damages § 214 (1965):

"[A] stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach." (Footnotes omitted)

See also Dolbeer v. Harten, 91 Idaho 141, 417 P.2d 407 (1966); Melton v. Amar, 86 Idaho 262, 385 P.2d 406 (1963); Miller v. Remior, 86 Idaho 121, 383 P.2d 596 (1963); First National Bank and Trust Company of Barrington v. Maas, 26 Ill.App.3d 733, 327 N.E.2d 205 (1975); Economy Savings & Loan Co. v. Hollington, 105 Ohio App. 243, 152 N.E.2d 125 (1957); Christy v. Guild, 101 Utah 313, 121 P.2d 401 (1942); 25 C.J.S. Damages § 113(4) (1966); 5 Williston, A Treatise on the Law of Contracts, "Excuse of Conditions Causing Forfeiture" § 792 (1961); Calamari, J. and Perillo, J., The Law of Contracts, Damages § 14-31 (1977).

We have adopted basically this same rule as indicated by Syllabus Point 1, in part, of Charleston Lumber Company v. Friedman, 64 W.Va. 151, 61 S.E. 815 (1908), in regard to the circumstances when parties may properly contract for liquidated damages:

"Where the damages are uncertain and not readily capable of ascertainment in amount by any known or safe rule, whether such uncertainty lies in the nature of the subject, or in the particular circumstances of the case; or (2) where from the nature of the case and tenor of the agreement, it is apparent that the damages have already been the subject of actual fair estimate and adjustment between the parties."

See also Detroit Edison Company v. Wyatt Coal Company, 1 F.2d 768 (4th Cir. 1925); Wetzel County Savings & Loan v. Stern Bros., 156 W.Va. 693, 195 S.E.2d 732 (1973); Wilkes v. Bierne, 68 W.Va. 82, 69 S.E. 366 (1910).

This Court has also held that a clause for damages in a contract is a penalty rather than a liquidated damage provision when the amount is grossly disproportional in comparison to the damages actually incurred. This is true even though the provision is denominated as liquidated damages in the contract. Yost v. Wills, 86 W.Va. 71, 102 S.E. 728 (1920); Beury v. Fay, 73 W.Va. 460, 80 S.E. 777 (1914). See also 25 C.J.S. Damages §§ 101-16 (1966).

In determining whether the amount forfeited by a purchaser through liquidated damages under an installment land contract is so grossly disproportional to the damages actually incurred, courts take into account not only the loss of fair rental value to the vendor, but also costs involved in the sale of the property, depreciation, attorney fees and other directly related expenses arising by virtue of the purchaser's abandonment of the property. In Valdez v. Christensen, 89 Idaho 285, 404 P.2d 343 (1965), there was a $90,000 contract with $25,000 paid on the purchase price which permitted the vendors to keep all payments made if the purchasers defaulted. The trial court found that the loss of rental, depreciation and other items totalled $21,450 and left a $3,550 balance against the $25,000 down payment. The trial court additionally charged against the down payment attorney's fees in the amount of $850 and ordered repayment of $2,700 by the vendors to the purchasers. On appeal, the trial court was reversed for ordering the repayment:

"As the record now stands it does not appear that a forfeiture of $2,700 as additional damages for the breach of a contract of the magnitude of that here involved would be unconscionable or sufficient to amount to a penalty." Valdez, 404 P.2d at 346.

In Melton v. Amar, 86 Idaho 262, 385 P.2d 406 (1966), the court held the purchasers were not the victims of an unreasonable damage clause which provided that vendors could keep all payments made to them. The reasoning was that the amount kept bore a reasonable relation to the damages and expenses incurred, as the court stated:

"The trial court ... properly took into consideration the respondents' expenses in repossessing the property, including the respondents' attorney's fees and expenses in arriving at its determination that the forfeiture of the payments in this instance did not constitute a penalty." Melton, at 385 P.2d 409.

See also Dolbeer v. Harten, supra; Miller v. Remior, supra ; Annot., 31 A.L.R.2d 8 (1953); Annot., 6 A.L.R.2d 1401 (1949); 92 C.J.S. Vendor and Purchaser § 537 (1955).

In the present case, the vendors...