Wassenaar v. Panos

• Decision Date: 29 March 1983
• Docket Number: No. 81-1597,81-1597
• Citation: 331 N.W.2d 357,111 Wis.2d 518
• Parties: , 40 A.L.R.4th 266 Donald WASSENAAR, Plaintiff-Respondent-Petitioner, v. Theanne PANOS, d/b/a The Towne Hotel, Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 357

331 N.W.2d 357

111 Wis.2d 518, 40 A.L.R.4th 266

Donald WASSENAAR, Plaintiff-Respondent-Petitioner, v. Theanne PANOS, d/b/a The Towne Hotel, Defendant-Appellant.

No. 81-1597.

Supreme Court of Wisconsin.

Argued Feb. 4, 1983.

Decided March 29, 1983.

Robert G. Dowling, Milwaukee, argued, for plaintiff-respondent-petitioner; Shneidman, Myers, Dowling & Blumenfield, Milwaukee, on briefs.

James A. Walrath, Milwaukee, argued, for defendant-appellant; Shellow, Shellow & Glynn, S.C., Milwaukee, on brief.

ABRAHAMSON, Justice.

This is a review of an unpublished decision of the court of appeals filed May 6, 1982, reversing a judgment of the circuit court for Milwaukee county, Louis J. Ceci, Circuit Judge. The circuit court entered a judgment in favor of an employee, Donald Wassenaar, against his former employer, Theanne Panos, d/b/a The Towne Hotel, enforcing the stipulated damages clause in the employment contract and confirming a $24,640 jury award. The circuit court interpreted the stipulated damage clause in the contract as providing that in the event of wrongful discharge the employee was to be paid a sum equal to his salary for the unexpired term of the contract. The court of appeals reversed, holding the stipulated damages clause unenforceable as a penalty and remanding the cause to the circuit court for a new trial on the issue of damages only.

This court granted the employee's petition for review limiting the issue on review to whether the clause in the employment contract stipulating damages is a valid and enforceable liquidated damages provision or is, as a matter of public policy, an unenforceable penalty. We use the term "stipulated damages" herein to refer to the contract and the term "liquidated damages" to refer to stipulated damages which a court holds to be reasonable and will enforce. This court also asked the parties to address the sub-issue of whether a liquidated damages clause in an employment contract may serve to eliminate the employee's duty to mitigate damages, a question the court of appeals did not address. We conclude that where the stipulated damages clause is a valid provision for liquidated damages, the doctrine of mitigation of damages is not applicable to determine the damages awarded the nonbreaching party. In this case we hold that the stipulated damages clause is a valid provision for liquidated damages, not a penalty, and that the employee's earnings after the breach do not reduce the damages award. Accordingly, we reverse the decision, 107 Wis.2d 747, 322 N.W.2d 700 of the court of appeals and affirm the judgment of the circuit court.

The dispute centers on the stipulated damages clause of a written employment contract by which the employee-plaintiff, Donald Wassenaar, was hired as general manager of the employer-defendant, Towne Hotel. The employment contract is brief. It sets forth the employee's duties, his beginning salary, and his periodic pay increases. The contract further provides for a three-year term of employment beginning on January 1, 1977, renewable at the employee's option, and stipulates damages in case the employer terminates the employee's employment before the expiration of the contract. The stipulated damages clause in issue here reads as follows:

"IT IS FURTHER UNDERSTOOD, that should this contract be terminated by the Towne Hotel prior to its expiration date, the Towne Hotel will be responsible for fulfilling the entire financial obligation as set forth within this agreement for the full period of three (3) years." ¹

The employer terminated Wassenaar's employment as of March 31, 1978, 21 months prior to the contract's expiration date. Wassenaar was unemployed from April 1, 1978, until June 14, 1978, when he obtained employment in a Milwaukee area hotel where he remained employed at least until the time of trial in May, 1981.

The employee sued for damages. The employer answered the complaint and as an affirmative defense asserted that the employee had failed to mitigate damages. In a pretrial motion to strike the employer's affirmative defense that the employee had failed to mitigate damages, the employee argued that mitigation was irrelevant because the contract contained a valid stipulated damages clause. The circuit court struck the employer's affirmative defense, ruling that the employee had no duty to mitigate damages, apparently inferentially ruling that the stipulated damages clause was valid.

After a trial on the remaining issues and in response to special verdict questions, the jury found that the person negotiating the contract on behalf of the employer was authorized as the employer's agent to enter into the employment contract and that the employer terminated the employment without just cause. The circuit court, over the employee's objection, submitted to the jury the question of what sum of money would compensate the employee for his losses resulting from the breach of the employment agreement. ² The jury answered $24,640, which is the sum the employee had calculated as his damages on the basis of the stipulated damages clause of the contract, that is, his salary for 21 months, the unexpired term of the contract.

On review, the court of appeals characterized the question of whether a stipulated damages clause should be held void as a penalty because it fixes unreasonably large damages as a question of law to be determined independently by the reviewing court. It then scrutinized the stipulated damages clause and decided that the clause was void as a penalty. The court of appeals reached that conclusion reasoning that the amount of damages for breach of an employment contract could easily be measured and proved at trial and that the contractual formula fixing damages at full salary without considering how long the employee would need to find a new job or the probable earnings from substitute employment was unreasonable on its face. In its analysis, the court of appeals did not consider any facts other than the actual contract language and the black-letter law relating to the measure of damages for breach of employment contracts.

We agree with the court of appeals that the validity of a stipulated damages clause is a question of law for the trial judge rather than a mixed question of fact and law for the jury. ³ The validity of a stipulated damages clause is a matter of public policy, and as in other contract cases the question of contractual validity as a matter of public policy is an issue the trial judge initially decides. ⁴ But we disagree with the court of appeals that the label of "question of law" automatically relieves the trial court from its duty to consider evidence or gives the appellate court free rein in reviewing the trial court's decision.

Even though the trial court's conclusion regarding the validity of the stipulated damages clause is a legal conclusion[111 Wis.2d 525] --a policy judgment--that legal conclusion will frequently be derived from a resolution of disputed facts or inferences. ⁵ The trial judge, not the jury, determines these facts and inferences. In deciding whether a stipulated damages clause is valid, then, the trial judge should inquire into all relevant circumstances, including such matters as the existence and extent of the anticipated and actual injury to the nonbreaching party.

The trial court's decision that a clause is or is not valid involves determinations of fact and law and will be reviewed as such. The reviewing court will uphold the factual determinations underlying its legal conclusion unless they are contrary to the great weight and clear preponderance of the evidence. Fields Foundation, Ltd. v. Christensen, 103 Wis.2d 465, 475, 309 N.W.2d 125 (Ct.App.1981). Whether the facts fulfill the legal standard, here reasonableness, is a determination of law, id., and ordinarily the appellate court need not defer to the trial court's determination of a question of law. United Leasing & Financial Services, Inc. v. R.F. Optical, 103 Wis.2d 488, 492, 309 N.W.2d 23 (Ct.App.1981). Nevertheless, because the trial court's legal conclusion, that is, whether the clause is reasonable, is so intertwined with the factual findings supporting that conclusion, the appellate court should give weight to the trial court's decision, although the trial court's decision is not controlling. See Wright, The Doubtful Omniscence of Appellate Courts, 41 Minn.L.Rev. 751, 778-82 (1956); Morris, Law and Fact, 55 Harv.L.Rev. 1303, 1304 (1942).

To facilitate review, the trial court should separately state, on the record, its findings of fact and conclusions of law on the validity of the stipulated damages clause. The circuit court in this case did not state findings of fact and only inferentially ruled that the clause was valid when it ruled on the mitigation of damages issue. This court shall review the record to determine whether it supports the circuit court's legal conclusion.

Because the employer sought to set aside the bargained-for contractual provision stipulating damages, it had the burden of proving facts which would justify the trial court's concluding that the clause should not be enforced. Northwestern Motor Car, Inc. v. Pope, 51 Wis.2d 292, 295, 187 N.W.2d 200 (1971). Placing the burden of proof on the challenger is consistent with giving the nonbreaching party the advantage inherent in stipulated damages clauses of eliminating the need to prove damages, and with the general principle that the law assumes that bargains are enforceable and that the party asking the court to intervene to invalidate a bargain should demonstrate the justice of his or her position. ⁶ As we discuss below, we conclude that the employer failed to carry its burden, and we affirm the circuit court's conclusion that the stipulated damages clause is valid.

We turn now to the test that the trial court (and the appellate court) should apply in deciding whether a stipulated damages clause is valid. The overall single...