Source: http://courts.mrsc.org/supreme/085wn2d/085wn2d0095.htm
Timestamp: 2019-04-22 04:15:13+00:00

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Damages - Liquidated Damages - Alternate Remedies - In General. A liquidated damages provision which fixes the damages for breach of an agreement unless a party "elects to enforce" the agreement, does not permit an action for actual damages as an optional remedy.
 Damages - Liquidated Damages - Penalty - What Constitutes. A liquidated damages provision of a contract constitutes a penalty and is unenforceable only when it requires the payment of a fixed sum as a punishment for failure to meet a primary contractual obligation.
 Damages - Liquidated Damages - Penalty - Low Estimate. Except for fraud or overreaching a party is bound by a voluntarily agreed to liquidated damages provision that does not amount to a penalty. A liquidated damages provision is not a penalty because it is unreasonably low.
 Pleading - Affirmative Defenses - Failure To Plead - Effect. The purpose of the requirement of CR 8(c) that parties affirmatively plead certain defenses is to avoid surprise. When a failure to so plead does not affect substantial rights of the parties, it is harmless. The failure to object at trial to argument in connection with a defense which was not affirmatively pleaded waives a later objection thereto.
 Estoppel - Elements - Reliance. For purposes of an assertion of equitable estoppel, there must be actual reliance by the asserting party on an admission, statement, or act of another party.
Appeal from a decision of the Court of Appeals, April 1, 1974, 10 Wn. App. 814. Reversed.
The Court of Appeals reversed a judgment of the Superior Court for King County, No. 736181, F. A. Walterskirchen, J., entered May 31, 1972. The respondents (defendants) appealed to the Supreme Court.
Action for breach of an earnest money agreement. The plaintiff appealed to the Court of Appeals from a summary judgment in favor of the defendants.
Bonjorni, Burgeson & Fiori and Duncan A. Bonjorni, for appellants.
Siderius, Lonergan & Crowley and David C. Pearson, for respondent.
Plaintiff' seeks against defendants damages arising out of the breach of an earnest money agreement, those damages being in excess of an amount stipulated in a liquidated damages clause.
If title is so insurable and purchaser fails or refuses to complete purchase, the earnest money shall be forfeited a liquidated damages unless seller elects to enforce this agreement.
cancel the agreement. Plaintiff's attorney responded that cancellation was not justified and demanded that defendants complete the transaction. Defendants did not respond to that letter, and the plaintiff sold the property to a third party for $19,000.
On the basis of the defendants' breach, plaintiff sued, alleging damages totaling $3,141.44. The defendants answered the complaint with a general denial and prayed for dismissal of the suit. On the day set for trial, the trial judge met with counsel in chambers. During that conference, the trial judge determined that the case turned upon the effect to be given the liquidated damages clause. Accordingly, the judge decided to treat the matter as one in which summary judgment was appropriate. Alter hearing argument relating to the liquidated damages clause, the court ruled that plaintiff was entitled only to the stipulated amount and entered an order for summary judgment in favor of defendants.
The Court of Appeals reversed the summary judgment. Mahoney v. Tingley, 10 Wn. App. 814, 520 P.2d 628 (1974). That decision was not unanimous and defendants appealed pursuant to ROA II-2 which provides for appeal where reversal of a superior court judgment is by less than a unanimous decision.
The liquidated damages clause at issue here provided an option to the plaintiff once there was failure or refusal by defendants to complete the purchase. Plaintiff could elect to sue for specific performance of the earnest money agreement, or she could retain the earnest money as liquidated damages. The potential remedy of specific performance was, of course, foreclosed upon sale of the property to a third party. Plaintiff now seeks to avoid the limitation imposed by the provision for stipulated damages.
. . . any payments theretofore made hereunder by the purchaser shall be retained by the seller in liquidation of all damages sustained by reason of such failure." (Italics ours.) Reiter v. Bailey, supra at 231. This court interpreted the clause to mean that the seller had reserved the options of seeking specific performance, liquidated damages or actual damages upon the buyer's default. Where parties expressly provide for such alternatives, there can be no objection to the seller's choice of one remedy from among those contemplated in the agreement. However, where an earnest money agreement provides that, upon the purchaser's failure or refusal to complete the transaction, the earnest money shall be forfeited as liquidated damages unless the seller chooses specific performance (as does the clause in the present case), we have clearly held that the seller cannot pursue a third remedy of unliquidated damages which is not written into the agreement. Underwood v. Sterner, 63 Wn.2d 360, 367, 387 P.2d 366 (1963). In this case the liquidated damages clause, if enforceable, will limit plaintiff's recovery to that amount stipulated in the earnest money agreement.
parties' breach. There being no element of punishment involved, it cannot be said that plaintiff is being penalized in any sense.
 There is some authority to support the view that where a stipulated amount of damages is substantially below the actual damage, the limitation will be found to be unenforceable. See, e.g., Bonhard v. Gindin, 104 N.J.L. 599, 142 A. 52 (1928); McCelvy v. Bell, 6 S.W.2d 390 (Tex. Civ. App. 1928); C. McCormick, Damages § 149, at 608 (1935). There is, however, contrary authority. For example, in Kinston v. Suddreth, 266 N.C. 618, 146 S.E.2d 660 (1966), the argument was made that a liquidated damages clause, which stipulated an amount less than actual damages, was a penalty and unenforceable. The court refused even to consider the nature of the clause at issue, holding that an injured party cannot recover damages beyond the amount stipulated in a liquidated damages clause. We believe that the view expressed by the North Carolina court is the better one.
Unless it be demonstrated that provisions for liquidated damages are actually a penalty or are . . . otherwise unlawful, this court will sustain them. Underwood v. Sterner, 63 Wn.2d 360, 387 P.2d 366 (1963); Management, Inc. v. Schassberger, 39 Wn.2d 321, 235 P.2d 293 (1951).
certainty of a liquidated damages clause to be preferable to the risk of seeking actual damages in the event of the purchasers' breach. We must also assume that the purchasers understood and relied upon the liability limitation stipulated in the agreement. Furthermore, it cannot be ignored that the seller, in making an earnest money agreement, can simply demand more protection--a larger deposit of earnest money--or even dispense with a liquidated damages provision altogether. Except where extraordinary circumstances are involved such as fraud or serious overreaching by the purchaser, a seller who chooses to utilize the device of liquidated damages in an earnest money agreement, with its attendant features of certainty and reliance upon the limitation, cannot avoid the effect of that agreement.
liquidated damages clause. To conclude that defendants are precluded from relying upon that clause as a defense would be to impose a rigid and technical formality upon pleadings which is both unnecessary and contrary to the policy underlying CR 8(c), and we refuse to reach such a result.
To constitute estoppel in pais, three things must occur: (1) An admission, statement, or act inconsistent with the claim afterwards asserted; (2) action by the other party on the faith of such admission, statement, or act; and (3) injury to such other party resulting from allowing the first party to contradict or repudiate such admission, statement, or act.
It is with respect to the second requirement of equitable estoppel, that of reliance upon defendants' request, that plaintiff's assertion fails. Defendants' request merely tended to confirm their intention to complete the .transaction, and plaintiff could rely on nothing more than the defendants' agreement to meet their obligations under the earnest money agreement. Upon defendants' breach of the agreement, the extent of defendants' liability was fixed by the liquidated damages clause. Therefore, the doctrine of equitable estoppel is not applicable in this case.
We reverse the Court of Appeals and order the reinstatement of summary judgment for defendants.
Petition for rehearing denied April 3, 1975.

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