Case Title: Renaudette v. Barrett Trucking Co., Inc.

Citation: 167 Vt. 634, 712 A.2d 387

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1998-04-14T00:00:00Z

Document:
Renaudette v. Barrett Trucking Co., Inc.  (97-423); 167 Vt. 634; 712 A.2d 387

[Filed 14-Apr-1998]

                                 ENTRY ORDER

                       SUPREME COURT DOCKET NO. 97-423

                              MARCH TERM, 1998

Steven Renaudette, et ux              }     APPEALED FROM:
                                      }
                                      }
     v.                               }     Chittenden Superior Court
                                      }
Barrett Trucking Co., Inc., et al.    }
                                      }     DOCKET NO. S1159-95 CnC

               In the above-entitled cause, the Clerk will enter:

       This appeal arises out of an action to determine whether defendant
  Barrett Trucking Co., or plaintiffs Steven Renaudette and Catherine
  Beaudoin, should recover the $4,000 down payment plaintiffs made to an
  escrow agent pursuant to a real estate purchase and sale agreement. 
  Defendant appeals an order of the Chittenden Superior Court finding that
  although plaintiff breached the purchase and sale agreement, because
  defendant did not suffer any actual damages, defendant was not entitled to
  recover the $4,000 down payment specified as liquidated damages in the
  agreement.  Defendant contends that the reasonableness of the liquidated
  damages provision must be assessed at the time the contract is entered
  into, and viewed from this perspective, a $4,000 liquidated damages
  provision on a $170,000 real estate purchase is reasonable.  We agree and
  reverse.

       The parties signed a purchase and sale agreement for a five unit
  apartment building on June 21, 1995.  The agreement provided for a purchase
  price of $170,000 with a down payment of $4,000 to be held in escrow by
  Trombley Real Estate.  The agreement set the date for closing as August 15,
  1995.  The agreement also contained a liquidated damages provision which
  stated in part:

     Deposits: . . . . In the event either Seller or Purchaser does not
     perform and fails to close on the terms specified herein, this shall
     constitute a default.  In the event of a default undisputed by Seller
     and Purchaser, upon written demand, Escrow Agent shall pay the
     deposit to the non-defaulting party.

       Plaintiffs were unable to close on August 15, 1995, because their bank
  was unwilling to finance the sale until it received an appraisal report on
  the property.  Plaintiffs were prepared to close on August 16, 1995, but
  defendant declined to proceed with the sale.

       On September 6, 1995, plaintiffs filed suit in superior court seeking
  specific performance of the agreement.  Defendant filed a counterclaim
  seeking a declaration that, due to plaintiffs' breach of the agreement, it
  was entitled to retain the $4,000 down payment pursuant to the liquidated
  damages provision.

       After a trial, the court found that specific performance was
  impossible under the

 

  circumstances,(FN1) and instead awarded plaintiffs the deposit, attorney's
  fees and costs.  The court ruled that plaintiffs should receive the deposit
  because, measuring the damages as of August 16, 1996 (one day after the
  breach), it was apparent that defendant had never suffered any actual
  damages and thus the liquidated damages provision was unreasonable and
  unenforceable.  This appeal followed.

       Defendant claims that the court misinterpreted the law with respect to
  liquidated damages by assessing the reasonableness of the liquidated
  damages clause after plaintiffs had breached the contract.  Defendant
  asserts that the reasonableness of the liquidated damages clause must be
  assessed at the time the agreement is entered into and not after the breach
  has occurred.(FN2)

       We begin by noting that a determination of whether a liquidated
  damages provision is reasonable is a question of law for the court.  See
  Highgate Assocs., Ltd. v. Merryfield, 157 Vt. 313, 316, 597 A.2d 1280, 1282
  (1991).  Thus, where the court applies the correct legal standard, we will
  uphold its conclusions of law if reasonably supported by its findings.  See
  id.

       In New England Educ. Training Serv., Inc. v. Silver Street
  Partnership, we articulated three factors that should be considered in
  determining whether a contract provision is a reasonable liquidated damages
  clause rather than an unlawful penalty:

     [A] liquidated damages clause must meet three criteria to be
     upheld: (1) because of the nature or subject matter of the
     agreement, damages arising from a breach would be difficult to
     calculate accurately; (2) the sum fixed as liquidated damages must
     reflect a reasonable estimate of likely damages; and (3) the
     provision must be intended solely to compensate the nonbreaching
     party and not as a penalty for breach or as an incentive to
     perform.

  156 Vt. 604, 613, 595 A.2d 1341, 1346 (1991).

       A judgment as to whether these criteria have been met must be made at
  the time the contract is entered into and not after the contract has been
  breached.  See Watson v. Ingram, 851 P.2d 761, 765-66 (Wash. App. Ct. 1993)
  ("So long as the deposit amount agreed upon is not so disproportionate to
  possible damages as to be unconscionable, when estimated prospectively from
  the time the contract is formed, the terms of the earnest money agreement
  should be enforced without regard to the retrospective calculation of
  actual damages or the ease with which they may be proven."); First Nat'l
  Bank of Barrington v. Oldenburg, 427 N.E.2d 1312, 1318 (Ill. Ct. App. 1981)
  ("It is axiomatic that where, as here, the buyers default on a

 

  contract, the sellers may retain the full amount of the earnest money
  without reference to the amount of actual damages which the sellers may
  have suffered as a result of the purchase . . . ."); Alley v. Rodgers, 399 S.W.2d 739,