Perkins v. Spencer

243 P.2d 446, 121 Utah 468, 1952 Utah LEXIS 160

• Court: Utah Supreme Court
• Decided: April 21, 1952
• Docket: 7565
• Status: Published

Opinions

CROCKETT, Justice.

This controversy is grounded upon a uniform real estate contract by which the defendants Spencer sold a home in Provo to the plaintiffs Perkins. The action in the district court, from which this appeal is taken, supplants an action for unlawful detainer in the city court of Provo wherein the Spencers alleged forfeiture of the contract and sought to evict the Perkinses from the property. In this action, the Perkinses sought to avoid the effects of the strict provisions of the contract and the unlawful detainer action by asking for cancellation of the contract and the return of their money, or in the alternative to reform it in accordance with additional terms as claimed by them, and which they could meet. Defendants answered denying any such agreement and counterclaimed on the same basis as their action in the city court was founded upon, alleging forfeiture of the contract for non-payment, and sought to repossess the premises.

The trial court ruled for the defendants, allowing them to rescind the contract for non-payment; permitting them to keep the amount paid in as liquidated damages, and also awarding treble damages for unlawful detainer after notice to quit.

Two points are urged on appeal, that the court erred: (1) In granting treble damages for unlawful detainer against the plaintiff, Mrs. Perkins; and (2) In ruling that the money paid in by plaintiffs constituted liquidated damages and not a penalty.

The contract provided that plaintiff Perkins would pay $10,500 for the home; $2500 was paid down and the balance was to be paid $75 per month until the Perkinses sold their home in Bountiful, Utah. When this was accomplished, they were to use the proceeds therefrom, together with what money they could borrow under an P. H. A. loan on the home purchased from Spencers, and pay the remaining balance on the contract. The Perkinses claim that the parties agreed that if these two sums were not enough to pay off the Spencers, the latter would accept a promissory note payable over a reasonable time, to take care of the difference. This was not included in the written contract. Upon conflicting evidence, the trial court found that there was no such collateral agreement and this finding will not be disturbed although it is obvious that there was, or ought to have been, some agreement regarding it because the parties could not be absoultely certain that the two sums mentioned would cover the entire contract price.

The contract was signed May 18, 1949. No time limit was fixed in which'the Perkinses had to sell their Bountiful home but the idea seems to have been that they would go forward with selling it and arranging for the loan as soon as possible. They made their payments of $75 per month for June, July, and August. The F. H. A. loan on the Provo home for the maximum amount procurable, $6,-000, was arranged for and the Bountiful home was sold by September 17th. Perkinses then indicated to the Spencers that they were in a position to pay off the contract except for $1,092.29. They offered to sign a promissory note for that amount payable on some reasonable terms the parties could agree upon. This the Spencers refused, insisting on payment of the whole balance. They claimed that the pro-ceeeds of the sale of the Bountiful home, plus the F. H. A. loan, were sufficient to pay off the contract.

It is true that the gross amounts of such proceeds would have paid off the Spencers. But when the real estate commission, loan costs, insurance, and certain other expenses necessary to the completion of the transaction are taken into account, not enough money remained to pay off the contract. It is impossible to tell from the record just how the figure of $1092.29 was arrived at or whether it was the correct amount. Suffice it to say that there has never been any dispute between the parties as to the amount the Spencers had coming. The dispute was only as to the manner of payment. The Perkinses were offering to perform the contract according to their understanding of the collateral agreement and the Spencers refused to accept any note at all.

The parties were in disagreement as to the carrying out of the contract; the Perkinses did not make any payment for September; the 30-day grace period was up on October 25th, and on November 3d, the Spencers served notice that unless the buyers paid the entire remaining balance of $7940.10 within five days the buyers would be tenants at will and all moneys paid would be forfeited as liquidated damages. Payment was not made and on November 9th, the sellers served another notice informing the buyers that they were tenants at will and requiring them to vacate the premises within five days. No question is raised in this case concerning the sufficiency or propriety of the notices served except as hereinafter discussed in reference to the item of treble damages.

Respecting the matter just mentioned, the notice to quit was served upon Mrs. Perkins but not upon Mr. Perkins personally. An attempt was made to serve him under the alternate to personal service set forth in Section 104-60-6 (2), U. C. A. 1943, which requires the leaving of a copy with some person of suitable age and discretion at the resident and sending a copy through the mail addressed to him. A copy for him was left with Mrs. Perkins but none was mailed. Unlawful detainer, being a summary procedure, the statute must be strictly complied with in order to enforce the obligations imposed by it. The trial court correctly ruled that the action for unlawful detainer could not be maintained against Mr. Perkins. He awarded judgment against Mrs. Perkins for treble damages totaling $535.50 for the period of occupancy after the notice to quit.

Mr. Perkns was working in Carbon County at the time the notice was served. However, there is nothing to indicate that he had abandoned the premises, or that the marital unity of the parties had been severed. The fact appears to be to the contrary. The manner of procedure by Spencers against both seems to assume that fact and the pre-trial order to which the parties agreed recites that the plaintiffs (plural) were in occupancy of the premises. Therefore, it is to be regarded as conclusive that Mr. Perkins was occupying the premises. So long as he remained in possession, it is difficult to see how Spencers could be damaged by that fact that Mrs. Perkins remained there. Even if she had moved, Spencers would have had no right to possession of the premises as against Mr. Perkins. They, therefore, suffered no actual damage. In Forrester v. Cook, 77 Utah 137, 292 P. 206, 211, we held that

“The damages which may be recovered in an action such as this one (unlawful detainer) are measured by the rule that they must be the natural and proximate consequences of the acts complained of and nothing more.”

Nominal damages to vindicate their right to possession against her is all that could properly be awarded.

A more serious question is raised by the appellants’ second point, that is, that the court erred in holding the total sum paid in to be liquidated damages. It is true that

«* * * This court is committed to the doctrine, that where the parties to a contract stipulate the amount of liquidated damages that shall be paid in case of a breach, such stipulation is, as a general rule, enforceable, if the amount stipulated is not disproportionate to the damages actually sustained.”

Bramwell Inv. Co. v. Uggla, 81 Utah 85, 16 P. 2d 913, 916. In that case the amount of forfeiture involved was $500 on a contract of $5,128 and was not greatly disproportionate to the actual damage. Other Utah cases consistent with this rule and considering the matter of liquidated damages as opposed to penalty are Dopp v. Richards, 43 Utah 332, 135 P. 98; Cooley v. Call, 61 Utah 203, 211 P. 977; Western Macaroni Mfg. Co. v. Fiore, 47 Utah 108, 151 P. 984; Thomas v. Foulger, 71 Utah 274, 264 P. 975; Croft v. Jensen, 86 Utah 13, 40 P. 2d 198; Christy v. Guild, 101 Utah 313, 121 P. 2d 401. See also Malmberg v. Baugh, 62 Uah 331, 218 P. 975; Young v. Hansen, 117 Utah 591, 218 P. 2d 666, and Green v. Nelson, 120 Utah 155, 232 P. 2d 776.

It will be observed that in all cases where the stipulation for liquidated damages was enforced it bore some reasonable relation to the actual damages which could reasonably be anticipated at the time the contract was made and was not a forfeiture which would allow an unconscionable and ex-horbitant recovery.

Illustrative of this is the case of Cooley v. Call, 61 Utah 203, 211 P. 977, relied on by the defendants. Plaintiff sellers sued defendant purchasers who were in default under a real estate contract. Defendants had paid in $1850 as an initial payment and some interest and taxes, making a total of about $2100. No monthly payments were provided for but certain lump sum payments were to be paid to complete the contract in two years so there was no immediate return to the sellers to take care of the current rental value. None of the sums were ever paid and the entire two years expired before the action was brought. The court figured the amount paid in mathematically, concluded that it equalled about 10% per annum on the purchase price and accordingly held that the amount was not so excessive as to be unconscionable and therefore did not represent a penalty upon the defendant.

The same is true of Christy v. Guild, 101 Utah 313, 121 P. 2d 401. There, the defendants had made no down payment. While they had paid in approximately one-third of the purchase price, they had paid only $20 to $30 each month over the period, plus making improvements on the premises totalling $2,000. But the property had a monthly income to them of $75, which exceeded the total of the payments they had made plus their improvements. After reviewing those facts, it was held that the forfeiture provision was not a penalty under the rule above stated.

On the contrary, where enforcement of the forfeiture provision would allow an unconscionable and exorbitant recovery, bearing no reasonable relationship to the actual damage suffered, we have uniformly held it to be unenforceable. In Western Macaroni Mfg. Co. v. Fiore, supra, the seller brought an action against the buyer under a contract whereby the seller undertook to pay $500 as damages if he violated any of the provisions of the contract providing for exclusive sale of macaroni to the defendant. Defendant failed to pay for merchandise, and the plaintiff sold to others. The forfeiture appeared to apply to any breach of the contract which might be of varying degrees of importance. It was held that the $500 forfeiture provision was a penalty which could not be enforced. In Malmberg v. Baugh, 62 Utah 331, 218 P. 975, $2500 was paid down, further payments were made bringing the total to $4450 of the full contract price of $10,000. The buyer was in occupancy of the property for 22 months; this court clearly indicated that they regard forfeiture of such sum as excessive and would not allow its retention.

In Croft v. Jensen, 86 Utah 13, 40 P. 2d 198, 202, the plaintiff seller sued for restitution of premises and damages. The defendant’s default consisted of failure to pay two $50.00 installments. Only $200.00 remained due of a total obligation of $6500.00. A provision of the contract was that upon default of the purchaser all payments theretofore made should be considered liquidated damages. This court said:

“To permit plaintiff to retain $6,300 as liquidated damages because she was not promptly paid two installments when there was only $200 remaining unpaid on the contract is not in accord with equity and good conscience, but is clearly unconscionable. * * *”

A recent expression of this court affirming this rule is found ini Young v. Hansen, 117 Utah 591, 218 P. 2d 666, 669 :

“* * * The contract did not provide for retention of the money and even if it did, it is questionable that such a provision could be enforced, as defendants would acquire an unconscionable advantage and he unjustly enriched at the expense of plaintiffs as there is no showing that defendants have suffered any damage.”

The rulings in the foregoing cases are in accord with the law as summarized in the Restatement of Contracts, § 339, dealing with the question of whether a forfeiture provision is liquidated damages or a penalty, which states:

“(1) An agreement, made in advance of breach fixing the damages therefor, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless

“(a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and

“(b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.”

On the same subject, the eminent authority, Mr. Willison on Contracts, Rev. Ed. § 779, p. 2191, says:

“In spite of the language of cases regarding the intention of the parties, there is little doubt that a sum named as liquidated damages in order to be given effect must be reasonable in amount. Under the recent decisions of the most authoritative courts, the primary question seems to be whether the parties honestly endeavored to fix a sum equivalent in value to the breach. This is but saying in other words that the reasonableness or unreasonableness of the stipulation is decisive.”

The construction of such a provision in a contract depends upon an interpretation of the whole instrument in the light of all of the circumstances surrounding the transaction. 1 Pomeroy’s Equity Jurisprudence 819. In this case a real estate man procured the printed uniform real estate contract and has his stenographer fill in the blanks. It was submitted to the parties who signed it wthout discussing or giving any special attention to the forfeiture provision. The Perkinses paid down $2500 of the $10,500. In addition, they paid $75 per month which was the reasonable rental value of the property as determined by the court, and which assured the Spencers of a fair current return on the property, so they were suffering no loss on that score. Although no time limit was set for completing the contract, it is plain to be seen that the parties had in contemplation a short period of a few months at most for the Perkinses to sell the Bountiful property. In the event of their failure to perform, the only potential damages to the Spencers would be a decline in the market or loss of an advantageous bargain. There was no such loss of any consequence.

The amount paid in was over 25%. Figuring it on an annual basis, that would amount to more than 50% per annum return to defendants on the value of their property. It therefore appears that the provision meets neither of the above mentioned requirements of Section 339 of the Restatement of Contracts in order to be enforceable; that is, (1) the amount was not a reasonable forecast of just compensation for the harm caused by the breach, and (2) the damage actually suffered is not such as is incapable of accurate determination. As a matter of fact, it could be determined to a high degree of certainty.

The plaintiffs had made each payment as due up until the dispute arose four months after the execution of the contract. Under the circumstances of this case, to permit the Spencers to insist upon payment of the entire balance or forfeit the contract and retain the whole $2725 would allow an unreasonable and exorbitant recovery to them and impose a hard and arbitrary penalty upon the Per-kinses, Section 339(1) of the Restatement of Contracts referred to above says further:

“(a) Punishment of a promissor for breach without regard to the extent of the harm that he has caused, is an unjust and unnecessary remedy * *

We hold that under the facts of this case, the forfeiture provision amounted to a penalty which is unenforceable. Defendants contend that to so rule nullifies their contract and leaves them with no other recourse than they would have had if no such provision had been in-eluded. It is true that this should be done only with great reluctance and when the facts clearly demonstrate that it would be unconscionable to decree enforcement of the terms of the contract. This is such a case.

When the contract provision is unenforceable, the only way rights of the parties can be adjusted is on the basis of damages ordinarily recoverable for such breach of contract. See Malmberg v. Baugh, supra.

The vendors are entitled to any loss occasioned them by any of these factors:

(1) Loss of an advantageous bargain;

(2) Any damage to or depreciation of the property;

(3) Any decline in value due to change in market value of the property not allowed for in items nos. 1 and 2; and

(4) For the fair rental value of the property during the period of occupancy.

The total of such sums should be deducted from the total amount paid in, plus any improvements for which it would be fair to allow recovery, and any remaining difference awarded to the plantiffs.

The case is remanded to the District Court to determine the amount to be allowed defendants and to award the balance to the plaintiffs in accordance with the views herein expressed. We expressly exclude therefrom any consideration of what the Spencers were going to do with the money if they had received it and the possibility of loss or gain therefrom.

WADE and McDONOUGH, JJ., concur.