Unified School Dist. No. 315, Thomas County v. DeWerff

• Decision Date: 24 April 1981
• Docket Number: No. 51681,51681
• Citation: 6 Kan.App.2d 77,626 P.2d 1206
• Parties: UNIFIED SCHOOL DISTRICT NO. 315, THOMAS COUNTY, Kansas, Plaintiff-Appellee, v. Neil DeWERFF, Defendant-Appellant.
• Court: Kansas Court of Appeals

Page 1206

626 P.2d 1206

6 Kan.App.2d 77

UNIFIED SCHOOL DISTRICT NO. 315, THOMAS COUNTY, Kansas Plaintiff-Appellee, v. Neil DeWERFF, Defendant-Appellant.

No. 51681.

Court of Appeals of Kansas.

April 24, 1981.

Syllabus by the Court

1. A stipulation for damages upon a future breach of contract is valid as a liquidated damages clause if the set amount is determined to be reasonable and the amount of damages is difficult to ascertain.

2. Liquidated damages provisions, if otherwise valid, are generally enforceable in employment contracts for the employee's wrongful termination of employment.

3. The protection of the public interest is a proper consideration in determining the validity of a liquidated damages provision.

4. For the reasons stated in the opinion, construing the liquidated damages clause in a teacher's contract of employment it is held that the clause is valid and enforceable, although phrased in the language of a penalty.

Leon E. Roulier, Colby, for defendant-appellant.

H. David Starkey, Colby, for plaintiff-appellee.

Before PRAGER, Justice Presiding, ABBOTT, J., and J. PATRICK BRAZIL, District Judge, Assigned.

PRAGER, Justice Presiding:

The sole issue involved on this appeal is whether a provision in a teacher's employment contract is enforceable as a valid liquidated damages clause or is void as an illegal penalty. The facts are not disputed. Defendant, Neil DeWerff, had been employed by the plaintiff, a unified school district, for many years as a teacher and basketball coach. On June 28, 1978, defendant gave notice of his resignation to the school district. He was informed that his resignation would be accepted upon the payment of $400 as required by the negotiated teachers employment contract. Defendant refused to make the payment and plaintiff sued.

The contract provision in question provided:

"BOARD OF EDUCATION USD 315

"PROPOSAL: PENALTY FOR BREAKING CONTRACTS:

"1. It is the intent of this Board to negotiate an agreement that will tend to make teachers as responsible for the compliance to their contracts as they will expect the Board of Education to be.

"2. It is proposed that for faculty members currently on the staff, they be declared under contract for the purpose of this proposal on and after April 15 of the current year; unless an agreement has been reached between the Teachers' Association and the Board of Education mutually to change this date.

"3. That in all cases where a teacher who is under contract fails to honor the full term of his or her contract, a lump sum of $400.00 be collected between contract acceptance and August 1 if contract is broken. After August 1 a penalty of $75.00 will be charged for each full or part of a month remaining on his or her contract.

"4. The Board reserves the right to waive the provisions of this penalty policy."

The board's proposal was accepted by the teachers and included in the negotiated contract.

The trial court held an evidentiary hearing on two basic factual issues:

(1) Whether the damage amount stipulated in the contractual provision is a reasonable amount, and

(2) Whether the board has applied the contractual provisions impartially, equitably, and fairly.

It found the contractual provision to be a valid liquidated damages clause, the agreed amount of $400 to be reasonable, and that the board had applied the provision impartially and fairly in the past. Accordingly, judgment was rendered for plaintiff and defendant appeals. In support of his position that the contract provision is an illegal penalty, defendant emphasizes the following factors: (1) The language in the provision describes it as a "penalty"; (2) the stated purpose of the clause is to compel performance rather than to estimate damages; (3) the provision is coercive because plaintiff had the ability to waive its enforcement; and (4) the stipulated amount is binding regardless of the actual amount of damages incurred.

It is well settled that parties to a contract may stipulate to the amount of damages for breach of the contract, if the stipulation is determined to be a liquidated damages clause rather than a penalty. A stipulation for damages upon a future breach of contract is valid as a liquidated damages clause if the set amount is determined to be reasonable and the amount of damages is difficult to ascertain. White Lakes Shopping Center, Inc., v. Jefferson Standard Life Ins. Co., 208 Kan. 121, 126-28, 490 P.2d 609 (1971); Beck v. Megli, 153 Kan. 721, 726, 114 P.2d 305 (1941); Railroad Co. v. Gaba, 78 Kan. 432, 435-36, 97 P. 435 (1908). The distinction between a provision for liquidated damages and one for a penalty is that a penalty is to secure performance, while a liquidated damages provision is for payment of a sum in lieu of performance. Erickson v. O'Leary, 127 Kan. 12, 14, 273 P. 414 (1929); see also, Gregory v. Nelson, 147 Kan. 682, 686, 78 P.2d 889 (1938); Kuter v. Bank, 96 Kan. 485, 488, 152 P. 662 (1915). Liquidated damages provisions, if otherwise valid, are generally enforceable in employment contracts for the employee's wrongful termination of employment. 53 Am.Jur.2d, Master & Servant § 48, p. 122; Annot., 61 A.L.R.2d 1008, 1019.

The use of the term "penalty" throughout the provision does not, as a matter of law, defeat the trial court's finding that the provision was, in fact, a liquidated damages clause. The Supreme Court in Beck v. Megli, 153 Kan. at 726, 114 P.2d 305, explains:

"In determining whether contractual agreements are to be treated as penalties or as liquidated damages, courts must look behind the words used by the contracting parties to the facts and the nature of the transaction. The use of the terms 'penalty' or 'liquidated damages' in the instrument is of evidentiary value only. It is given weight and is ordinarily accepted as controlling unless the facts and circumstances impel a contrary holding. (Citations omitted). The instrument must be considered as a whole, and the situation of the parties, the nature of the subject matter and the circumstances surrounding its execution taken into account. There are two considerations which are given special weight in support of a holding that a contractual provision is for liquidated damages rather than a penalty the first is that the amount stipulated is conscionable, that it is reasonable in view of the value of the subject matter of the contract and of the probable or presumptive loss in case of breach; and the second is that the nature of the transaction is such that the amount of actual damage resulting from default would not be easily and readily determinable."

See also, Railroad Co. v. Gaba, 78 Kan. 432, 97 P. 435 Syl. P 4; Condon v. Kemper, 47 Kan. 126, 129, 27 P. 829 (1891).

As noted, the characteristic of a penalty is that it is designed to secure performance rather than to estimate reasonable damages in case of breach. The present case is complicated by the fact that the provision in question states that its purpose is to "make teachers ... responsible for the compliance to their contracts." However, the stated purpose of the provision is not necessarily controlling where the stipulated sum is reasonable and the amount of actual damages for breach would be difficult to determine. Here the evidence established that the provision in question was drafted by nonlawyer negotiators who were not trained in the intricacies of the law. It was further undisputed that such provisions are frequently included in employment contracts negotiated between school boards and teachers organizations. The affidavit of C. Gordon Nelson, Director of Research for the Kansas Association of School Boards, states that, for the school year 1978-79, 39 school districts had contracts containing some form of liquidated damages provision applicable on release of a teacher from his contractual obligations. The damages provided in those contracts are comparable in amount to that provided for in the contract presently before us for consideration.

Generally, a contract provision will be considered a penalty where there is no attempt to calculate the amount of actual damages that might be sustained in case of breach. Gregory v. Nelson, 147 Kan. at 685, 78 P.2d 889. An indication of this lack of calculation is deemed present when the amount of stipulated damages is the same for a total or partial breach, or for breach of minor or major contract provisions. Kansas City v. Industrial Gas Co., 138 Kan. 755, 762, 28 P.2d 968 (1934). In the present case, the contract provision required payment of a greater sum as the school year commenced and progressed. There was trial testimony that it became increasingly difficult, after the April 15 contract deadline, to procure qualified teachers. The terms of the contract, when coupled with the evidence, suggest that there was indeed an attempt to calculate the amount of damages that might result from the teacher's breach. The stated purpose of the provision to secure contract performance is not,...