Thomas B. Hartley Const. Co. v. Liberty Life Ins. Co., No. 76578

• Court: United States Court of Appeals (Georgia)
• Writing for the Court: BANKE; BIRDSONG; BEASLEY; I am authorized to state that Chief Judge BIRDSONG
• Citation: 187 Ga.App. 849,371 S.E.2d 657
• Parties: THOMAS B. HARTLEY CONSTRUCTION COMPANY v. LIBERTY LIFE INSURANCE COMPANY.
• Decision Date: 22 June 1988
• Docket Number: No. 76578

Page 657

371 S.E.2d 657 187 Ga.App. 849 THOMAS B. HARTLEY CONSTRUCTION COMPANY
v.
LIBERTY LIFE INSURANCE COMPANY. No. 76578. Court of Appeals of Georgia. June 22, 1988.
Rehearing Denied July 15, 1988.
Certiorari Granted Sept. 9, 1988.

Page 658

[187 Ga.App. 854] W. Courtney LaFon, Beverly J. Hall, Roswell, for appellant.

John A. Howard, Atlanta, for appellee.

[187 Ga.App. 849] BANKE, Presiding Judge.

The appellant corporation sued to recover a $37,000 earnest money payment it had made to the appellee contemporaneously with the execution of a real estate sale contract. The appellee had declined to return any portion of the payment (which represented approximately 10 percent of the $373,500 sale price specified in the contract) in reliance upon the following contractual provision: "In the event buyer elects not to close this contract on or before the specified closing date, then in such event the earnest money will be forfeited as full liquidated damages to seller." The trial court granted summary judgment to the appellee on the basis of this provision, rejecting the appellant's contention that such a forefeiture would constitute an unenforceable penalty. This appeal followed. Held:

1. "A contractual provision requiring payment of a stipulated sum by one of the parties upon termination or cancellation of the contract will be treated as an enforceable liquidated damages provision rather than an unenforceable penalty only if all three of the following factors are present: 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 a penalty; and third, the stipulated sum must be a reasonable pre-estimate of the probable loss resulting from such a breach." Broadcast Corp. of Ga. v. Subscription, etc., Atlanta, 177 Ga.App. 199, 199-200, 338 S.E.2d 775 (1985).

"[W]hether a provision represents liquidated damages or a penalty does not depend upon the label the parties place on the payment but rather depends on the effect it was intended to have and whether it was reasonable. (Cit.) Where the parties do not undertake to estimate damages in advance of the breach ... the amount, even though [187 Ga.App. 850] called liquidated damages, is instead an unenforceable penalty. (Cit.)" Southeastern Land Fund v. Real Estate World, 237 Ga. 227, 228, 227 S.E.2d 340 (1976). " '[I]n cases of doubt, the courts favor the construction which holds the stipulated sum to be a penalty, and limits the recovery to the amount of damage actually shown, rather than a liquidation of the damages.' " Id. at 231, 227 S.E.2d 340, citing Mayor, etc., of Brunswick v. Aetna Indem. Co., 4 Ga.App. 722, 728, 62 S.E. 475 (1908).

An examination of the record in this case reveals no basis for a conclusion that the $37,000 earnest money payment represented a reasonable pre-estimate by the parties of the probable loss the appellee might be expected to suffer in the event of the appellant's failure to close the transaction. The only evidence submitted by the

Page 659

appellee in this regard consisted of an affidavit, executed by the individual who had acted as its attorney-in-fact in signing the contract, averring that the sum in question represented an accurate pre-estimate of the appellee's probable loss for the following reasons: "First, the value of the land could have declined. Secondly, there are costs associated with ownership, such as interest and other administrative expenses. Thirdly, by taking the property off the market under a contract of sale, the potential loss of opportunity to sell the property to another buyer willing and able to purchase the property, would mean that it might take months or even years to find another buyer willing, ready and able to purchase the property. A 10 percent liquidated damage provision is not unusual in the real estate industry and is an accepted pre-estimate of damages."

These factors quite clearly provide no basis for an estimate of the amount of the loss the appellee might reasonably be expected to suffer in the event of a breach of the contract by the appellant. "The ordinary measure of damages [for the breach of a real estate sales contract] is the difference between the contract price and the market value of the property at the time of the buyer's breach." Southeastern Land Fund v. Real Estate World, supra, 237 Ga. at 229, 227 S.E.2d 340. The only evidence in this case going to the issue of the amount of the appellee's actual damages consisted of an affidavit submitted by the appellant averring that, within five months after the date the parties were to have closed the sale, the appellee had resold the property for $92,000 more than the $373,500 the appellant had agreed to pay for it. It follows that the record does not establish that the contractual provision in question constituted an enforceable liquidated damages provision, with the result that the trial court erred in granting the appellee's motion for summary judgment.

2. We do not reach the issue of whether the appellant's motion for summary judgment should have been granted, as it does not appear that the trial court entered any ruling on that motion.

3. We have carefully considered the appellant's remaining contention[187 Ga.App. 851] --to the effect that there was a defect...