Case ID: iowa_181/html/0237-01.html
Source: Caselaw Access Project
Author: {"author": "Preston, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

E. S. Brown, Appellee, v. W. A. Verzani, Appellant.
    DAMAGES: Liquidated Damages and Penalty — Forfeiture Clauses ■ — Construction. A clause in a non-fraudulent contract providing that all payments made shall be forfeited in event of failure to' comply with the contract, will not be treated as providing for liquidated, damages, in the absence of some fair showing that the parties contemplated, or that the non-defaulting party actually suffered, damages in an amount approximately the same as the payments made.
    
    
      Appeal from Woodbury District Court— John W. Anderson, Judge.
    Thursday, October 18, 1917.
    Action to specifically enforce a contract entered into between the plaintiff and tiie defendant, ivhich contract was executed and delivered in South Dakota, October 29, 1912, covering an exchange of lands in South Dakota, and to recover damages claimed to have been sustained by reason of a breach of the contract by appellant, in case specific performance of the contract could not be had.
    Defendant denied the validity of the contract and the right to specific performance thereof, because, as he alleged, the contract was signed and delivered upon the condition that the brothers and sisters of defendant, who owned interests in the land to be conveyed to plaintiff, should, after being advised of the contract, approve and ratify the same and join defendant in the conveyance to plaintiff; that his brothers and sisters refused to so approve, making it impossible for defendant to convey the title, in accordance with the contract, and because thereof the contract was never completely delivered; second, that the execution and delivery of the contract were induced by the fraudulent representations of plaintiff with respect to the character and value of the land which he was to convey to the defendant, and that because of this fraud the contract was rendered void and unenforcible; and third, that the appellee’s title to the land was not good and merchantable.
    At the time of the delivery of the contract, defendant paid plaintiff $1,000 as a part of the consideration for the exchange of the properties, and by cross-petition defendant- sought to recover back from plaintiff the $1,000 so paid, and he asked for general equitable relief. By the terms of the contract, plaintiff sold to defendant 640 acres of land in Lyman County, South Dakota, for a consideration of $27,200, to be paid: $1,000 when the contract was delivered; $4,000 on March 1, 1913, without interest before due; $7,200 on March 1, 1918, with a first mortgage back; ■and the remaining $15,000 to be paid to plaintiff by defendant’s conveying'to plaintiff 160 acres- of land in Clay County, South Dakota; transfer of title and possession to take place March 1, 1913. Under the contract, both parties were to furnish abstracts showing good and merchantable title, and the contract provides:
    “Time shall be understood to be of the essence of this contract, and failure on the part of said second party (Yerzani) to fulfill all the covenants herein agreed to, shall work -a forfeiture of all his rights hereunder, including the amount or amounts paid prior to that time.”
    The execution and delivery of the contract are' admitted. Defendant alleges that, within the time specified for performance of the contract, he orally notified plaintiff that his brothers and sisters would not convey, and demanded the surrender and cancellation of said contract and the return of the $1,000.
    The alleged false representations are that the Lyman County land was first-class farm land in every respect and worth at least $40 an acre. The defendant alleges that he afterwards discovered that the land was infested with noxious and poisonous vegetation, and was unfit for live stock or for the purposes for which he bought the land, and that, by reason thereof, he notified plaintiff that he elected to rescind the contract, and that he would not carry out or perform the same. Defendant further alleges that the title was not merchantable and was encumbered with mortgages, judgments and taxes, and he says that it was orally agreed by and between plaintiff and defendant that the contract should be regarded as rescinded by mutual agreement, and the defendant acted and relied upon the agreement and rescission.
    Defendant in his counterclaim pleaded the statute of South Dakota, where the contract was executed, which statute is as follows:
    “Section 2345. Specific perfoi-mance cannot be enforced against a party to a contx*act in' any of the following cases:
    “1. If he has not received an adeqxiate consideration for the contract.
    “2. If it is not, as to him, just and equitable.
    “3. If his assent was obtained by misrepresentation, concealment, circumvention, or unfair practice of any party to whom performance would become due under the contract, or-by any px'omise of such party which has not been substantially fulfilled; or,
    “4. If his assent was given under the influence of mistake, misapprehension, or surprise, except that where the contract provides for compensation in case of mistake, a mistake within the scope of such provision may be conpensated for, and the contract specifically enforced in other respects, if proper to be so enforced.” Compiled Laws, 1913, Yol. 2, Civil Code.
    He further alleges that said Section 2345, as above set forth, is now and at all the times in controversy herein was a valid and existing statute of the state of South Dakota, in which state the contract in controversy herein was made, executed and delivered.
    The trial court dismissed plaintiff’s petition and the defendant’s cross-petition, and rendered judgment against plaintiff for costs. The defendant appeals.
    
    Reversed.
    
      E. A. Burgess and J. J. McCarthy, for appellant.
    
      C. ISf. Jepson, J. F. Stecher, and Evans & Evans, for appellee.
   Preston, J.

We take it that the real question in the case on this appeal is in reference to defendant’s exception to the action of the trial court denying his right to recover from plaintiff the $1,000 which he paid plaintiff when the contract was signed and delivered. Appellant has argued the other matters set up as defenses, but we are satisfied with the findings of the trial court as to these, and the next question is as to the effect of such findings, and, as said, the real question is whether the $1,000 paid by defendant to plaintiff upon the execution of the contract should, under the record, be considered as liquidated damages, as found by the trial court.

After the contract in question was entered into, plaintiff sold the land in Lyman County to another party. This was in April, 1914. Plaintiff testifies, in regard to his sale of the land to such other party:

“The transaction with Barrett was closed up voluntaarily on my part, and lie paid me the consideration that I asked for the land; that consideration was satisfactory to me; I never notified defendant Verzani that I had sold this Lyman County land in controversy.”

The opinion and findings of the trial court are, substantially :

“That the contract for exchange ivas entered into substantially as claimed by plaintiff, and that the sum of $1,000 was paid to plaintiff by defendant, and that defendant entered into said contract in good faith and with the intention to perform the same, but that, through no fault of his, he was unable to perform, for the reason that the title to two thirds of the Clay County land was in other parties, and that they refused to convey or to permit the defendant to perform his contract. Under these conditions, the defendant would be liable to the plaintiff for nonperformance in nominal damages only.
“The court finds that the allegations of fraud and misrepresentation as made by the defendant are not sustained by the record, for the reason that it does not satisfactorily appear that the land of plaintiff was impregnated with alkali or other noxious substance, as alleged by defendant, and that if it was so impregnated, it does not satisfactorily appear that the plaintiff Brown had knowledge of such fact. It further appears that the defendant was warned by his sister, who was a part owner of the land, prior to his investigation and inspection of the land, ‘to look out for alkali,’ and that defendant made a personal inspection and investigation of the land before entering into the contract.
“The contention of defendant that the contract was executed and delivered upon the condition, or subject to the approval of the other parties interested, is not sustained by the evidence. The court is of the opinion that no such condition was made at the time of the execution and delivery of the contract. * * * While the defendant denies the right of plaintiff to recover or retain this $1,000 cash payment, the court is of the opinion that the defendant is entitled to retain the same upon the theory that it is and was considered by the parties as liquidated damages for the nonperformance of the contract, and upon the further theory that the plaintiff has been damaged in that amount by reason of the nonperformance upon the part of the defendant.”

The question as to whether the $1,000 paid by defendant should be considered a penalty, or liquidated damages, is not as fully argued as some of the other questions. Appellee argues that, notwithstanding the fact that appellant has argued numerous other questions, there are but two propositions involved in the appeal, and he says there are but two theories upon which appellant is entitled to recover the $1,000. The first is whether the contract was so tainted with fraud and misrepresentation on the part of appellee that appellant is entitled to have it set aside and recover damages therefor, — and as to this he says that there was no fraud, and that the trial court so found; and the second is that, even though there was no fraud, appellant is not entitled to recover. As to the last proposition, he argues that the contract expressly provides that a failure on defendant’s part to fulfill his covenants should work a forfeiture. So that appellee’s only reason for claiming that defendant is not entitled to recover the $1,000 is that, under the contract, it was/to be considered as liquidated damages. Appellant contends that the provision of the contract in reference to the $1,000 is a forfeiture, or penalty, which will not be enforced in equity.

It is not claimed, as we understand it, that the South Dakota statute before set out cuts any figure on this question, in vieAV of the findings of the trial court; although appellant argues that it is a South Dakota contract, and could not be specifically enforced under the statutes of that state, because defendant was to receive no adequate consideration, in that plaintiff’s land was worthless; second, that the contract is unjust and inequitable; and third, that defendant’s assent thereto was obtained by misrepresentation ; and that, where a court of equity finds that a statute forbids the enforcement of a contract, it will not forfeit to plaintiff a partial payment, but, to prevent the perpetration of a wrong, will order plaintiff, on cross-petition of defendant, to restore to defendant whatever he had paid in part performance. Appellant cites the statute before set out; Phelan v. Neary, (S. D.) 117 N. W. 142; Armour Packing Co. v. United States, 153 Fed. 1.

There may be force in appellant’s claim that plaintiff’s land was worthless. The court has discretion in the matter of specific performance, and may consider all the circumstances. Appellant concedes that the South Dakota statute is merely a statutory declaration of the general principles of jurisprudence, as defined and administered by the courts of this country generally, including the courts of Iowa, and cites the Phelan case, supra, to support this. But in view of our conclusion that, under the record, the provision of the contract as to the $1,000 should not be considered as liquidated damages, we do not feel called upon to determine appellant’s proposition just referred to. Under the authorities, the fact that a contract uses the words forfeiture, penalty, or liquidated damages, is not always controlling.

The case seems not to have been tried on the theory that plaintiff sustained damages in an amount as much as $1,000, and if it had been so claimed, we think the evidence would not sustain such contention, nor do we think, from all the circumstances of the case, that there was any considerable amount of damage accruing to plaintiff, or that the parties reasonably contemplated such. Plaintiff could have shown that he was damaged, if such was the fact, or the circumstances might be such as that the court can say that, plaintiff not having proved the exact amount, there was damage approximating the amount claimed to have been fixed as liquidated damages.

As we said in Joeckel v. Johnson, 178 Iowa 231, where, under all the circumstances, the sum stipulated in the contract as liquidated damages is out of all reasonable proportion to the loss sustained or reasonably to be anticipated, the stipulation will be treated as a penalty, since the right to damages for breach of contract is founded upon compensation and not gain; and where, from the nature of the contract, the extent of the damages which would result from the breach thereof is difficult or impossible of ascertainment, the fact that the parties have deliberately named a sum which should be treated as liquidated damages on the happening of a breach, is a matter of importance in determining the question. But in that case, though the exact amount of damage was not proved, the circumstances of the case showed that the party was damaged in approximately the amount fixed, so that the holding was that the amount fixed should be considered as liquidated damages.

In the instant case, the trial court found that defendant entered into the contract in good faith, and with the intention to perform the same, but that, through no fault of his, he was unable to perform, because the title was partly in other parties, and found, too, that under such circumstances defendant would be liable to plaintiff, for nonperformance, in nominal damages only; but later in its finding, or opinion, the court seemed to think that plaintiff was entitled to retain the $1,000 as such nominal damages; but, as he' stated it, as liquidated damages. Under the record, we think it is not shown that there was any damage in any considerable amount, or any amount approximating $1,000.

At this point, appellee argues that, as he construes appellant’s argument, appellant admits that appellee would be entitled to retain out of the $1,000 whatever expenses he had been put to in looking at the land, and that this in itself is an admission that the $1,000 was agreed upon as liquidated damages. We do not understand appellant’s argument to be that broad. If it were shown that such expenses were approximately $1,000, and that the parties so contemplated, there might be force in appellee’s claim. The trouble about this is, as we view it, that appellee has not pointed out in argument what such expenses were, and we do not find in appellee’s testimony that he testified on that subject. Defendant wrote a letter, December 15, 1912, to Sieh, the party claiming to have been the agent who brought these parties together, upon which plaintiff places some reliance; and in this letter, defendant said, in reference to the plaintiff’s land: “I might as Avell drop the $1,000 I have in it and let you and Brown split it.” But the same' letter also says: “You were smooth enough to get a good mouthful, but I Avil 1 head you off before you get your meal.”

It is true that appellee, a resident of Sioux City, Iowa, testified that, after the making of the contract, he would think his Lyman County land had depreciated in value about $15 per acre. This, on the 640 acres, would amount to $9,600. We think it cannot be seriously claimed that plaintiff or the defendant contemplated that the $1,000 paid and referred to in the contract should cover such an item, and furthermore, Ave are not convinced from the record that there Avas any depreciation, and we doubt very much Avhether the land Avas. worth $15 an acre. On cross-examination, plaintiff himself says, in reference to his land, that in this trade with defendant there was $12.50 per acre of wind. It is shown that plaintiff’s land was in an alkali strip, and witnesses living near it testify that the plaintiff’s land, and similar land in that locality, is not suitable for anything; that it is not good for grazing purposes, as the stock becomes alkalied and worthless, lose their hoofs, hair, become lame, and finally die. The trial court found that plaintiff was not guilty of false representations in regard to the character of the land.; but this was mainly on the ground, we take it, that plaintiff did not have knowledge of the character of the land. Witnesses living near the land in question testify as to its value and the alleged depreciation. One of them says that good land for that country sold for $15 per acre; that plaintiff’s land was not as valuable as that; that he did not consider plaintiff’s land of any value for stock-raising purposes; that he would not want it at all; that a person could sell it to speculators for $15 per acre; that for grazing purposes you would have to fool a man to sell it; that it had no market value in October, 1912; that there was a strip about 4 miles wide and 20 miles long of the alkali land. Another witness' says that the reasonable market value of land unaffected with alkali in that vicinity, in the fall of 1912, was $15 per acre. Another witness testifies that the land in controversy, on October. 29, 1912, was worth $8 per acre for speculating purposes, but for stock purposes it was not worth anything, and that nothing occurred between October 29, 1912, and March 1,-1913, to cause land values to fluctuate in the vicinity of the Brown land. Other witnesses give similar testimony.

Appellee relies at this point on the case of Burton v. Ryther, (S. D.) 161 N. W. 350. Appellant contends that the case can have no application because in that case thq court held that the damages as liquidated by the contract amounted to the rental value of the property, and that, therefore, the vendor was entitled to retain the money paid on the contract.

Appellant contends that, where a party in good faith enters into a contract to convey land which at the time is owned by himself and others, who refuse to convey their interest according to the contract, and the party contracting is unable to perform upon his part, plaintiff should be allowed to recover only the necessary expenses, if any, of inspecting the land and making the contract, and that defendant should be allowed to recover any money paid by him in part performance, less such expenses, ■ and cites Black on Rescission & Cancellation of Contracts, Sec. 211; Cullumber v. Winter, 154 Iowa 263; Eggert v. Pratt, 126 Iowa 727; 3 Elliott on Contracts, Sec. 2285.

Appellant also contends that, because plaintiff sold his land to other parties, and pending his action for specific performance, wherein defendant was resisting upon the ground that the contract is non-enforcible because induced by fraud, and because of his inability to perform, through no fault of his own, there was an adoption of the renunciation of the defendant, and a voluntary rescission of the contract upon his own part; and that, because plaintiff, by so alienating his own title during the pendency of his suit for specific performance, made it impossible for himself to specifically perform, he was bound to restore to defendant the $1,000 and place defendant in statu quo; and .cites in support of this McWhirter v. Crawford, 104 Iowa 550, Wright v. Swigert, 172 Iowa 743, Miller v. McConnell, 179 Iowa 377, Waters v. Pearson, 163 Iowa 391, Prichard v. Mulhall, 127 Iowa 545. As having some bearing, see, also, Pardoe v. Jones, 161 Iowa 426.

This may be so, but we shall not take the time to review the cases, or discuss the evidence as to whether there was a rescission by consent, or a mutual abandonment by both parties. It is enough to say that we hold, in view of the evidence before set out, and our discussion of the question as to the payment of the $1,000, and the provision in the contract with reference thereto, and under all the circumstances of this-case, that the $1,000 was not liquidated damages, as contended by appellee.

It follows, then, that the trial co.urt was in error in holding otherwise. The judgment and decree of the district court is reversed. Defendant may have a decree in the district court or in this court, at his election. — Reversed.

Gaynor, O. J., Weaver and Stevens, JJ., concur.