Case Name: N. Mon Wai et al., Respondents, v. George F. Parks, Respondent, Jack T. Watkins, Appellant
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1953-10-26
Citations: 43 Wash. 2d 562
Docket Number: No. 32349
Parties: N. Mon Wai et al., Respondents, v. George F. Parks, Respondent, Jack T. Watkins, Appellant.
Judges: 
Reporter: Washington Reports
Volume: 43
Pages: 562–573

Head Matter:
[No. 32349.
En Banc.
October 26, 1953.]
N. Mon Wai et al., Respondents, v. George F. Parks, Respondent, Jack T. Watkins, Appellant.
Milton P. Sackmann and Kenneth C. Hawkins, for appellant.
Velikanje & Velikanje and John S. Moore, Jr., for respondents Wai.
Reported in 262 P. (2d) 196.

Opinion:
Schwellenbach, J.
April 27, 1949, Mon Wai and wife leased certain real property in Yakima to Parks and Watkins for a term of ten years, beginning not later than July 1,1949, at an agreed rental of $405 per month, payable in advance, on or before the first day of each month. The pertinent provisions of the lease agreement are as follows:
"Whereas, the parties hereto desire to enter into an agreement whereby the parties of the first part will construct upon the above-described premises a parking lot and service station building, the parties jointly sharing the cost of said construction; and
"Whereas, the parties hereto desire to enter into an agreement for the construction of said property and the leasing of said building and premises; Now, Therefore,
"It is agreed and understood that in consideration of the covenants herein contained and the payments of rental hereinafter provided, that the Lessors do hereby agree to con struct upon the above-described real property a hard-surface asphalt parking lot to be enclosed by a six-foot cyclone fence ¿nd a concrete bumper curb of the full area, except around the entrance and service station. And in addition thereto Lessors will construct a concrete-block building and other installations which are evidenced by blue print attached to this agreement, signed by the parties hereto and made a part hereof by reference.
"Lessees have as of this date delivered to Lessors the sum of Five Thousand Dollars ($5,000.00), receipt of which is hereby acknowledged, which Lessees agree shall be applied to the cost of the construction of said parking lot; all the remaining cost and expense thereof shall be borne by Lessors, except that Lessees shall furnish and pay for the cost of installing gasoline tanks, pumps and any and all other facilities as they shall desire upon said premises. . . .
"It is agreed and understood that at the termination of this. lease any and all improvements placed upon said premises shall remain thereon and shall be the property of Lessors, except that Lessees shall have the right to remove any gas pumps placed upon said premises and shall have the right to remove any fixtures or equipment together with any stock of goods and supplies placed thereon by Lessees, except the gas tanks, which may be removéd without in any way damaging or injuring said premises. . . .
"It is agreed and understood that in the event Lessees shall fail, neglect or refuse to pay the rentals herein reserved and in the manner herein set forth, time being declared to be the essence of this agreement; or in the event Lessees shall fail in any other respect to carry out the terms and conditions of this agreement; . . . Lessors shall have the option to forfeit and terminate this lease and recover possession of the premises herein demised in the manner and form provided by the laws of the State of Washington now or hereafter to go into effect, but Lessors shall give thirty (30) days notice in writing of their intention to forfeit said lease, which notice may be made either personally on either of the above-named Lessees, or may be made by depositing the same in the United States mail, postage prepaid, addressed to the Lessees, or either of them at the above-described premises, and all moneys paid by Lessees to Lessors shall be forfeited as liquidated damages to Lessors.
"The above remedies in the case of the failure, to pay rent or to perform the covenants of this contract are cumulative and shall not deprive Lessees of the right to use any statutory remedies available to them. . . .
"In the event suit or action is instituted to enforce any of the terms or conditions of this agreement, or to regain possession of the same or any part thereof, the prevailing party in such suit or action shall be entitled to reasonable attorneys' fees to be determined by the court.- . . . " (Italics ours.)
The lessees took possession July 1,1949.
July 22, 1949, Parks sold his interest to Watkins. By the terms of a written instrument executed by the parties, Watkins assumed and agreed to pay, and in all particulars to perform, the rentals, terms and conditions of the Mon Wai lease.
Watkins continued in possession and paid the rentals up to September 1,1951. However, he did not pay the rentals due September 1, 1951, October 1, 1951, and November 1, 1951.
November 5, 1951, Mon Wai served notice on Parks and Watkins that they had failed to make the three payments above mentioned, in the total amount of $1,215, and notified them that unless the payments were brought to date within thirty days the lease would be forfeited and terminated.
November 7, 1951, Parks and Watkins surrendered the property to Mon Wai, and delivered possession and the keys to him.
March 7, 1952, Mon Wai and wife commenced this action against Parks and Watkins for the unpaid rent. Parks answered, setting up the agreement between himself and Watkins and praying that, in the event judgment be entered against him, he have and recover judgment over against Watkins in the full amount, together with an attorney's fee of $150. Watkins answered, alleging that the lease was terminated and rescinded prior to the institution of the action and that there was no valid and binding agreement in existence at that time.
The trial court entered judgment against Parks and Watkins, and each of them, in the amount of $1,215, plus interest and costs, and an attorney's fee of $250. The court also, as part of the same judgment, awarded judgment in the amount of $1,465 to Parks over and against Watkins, together with an attorney's fee of $150. Watkins alone is appealing.
Appellant assigns error in the making of certain findings of fact; in awarding judgment against Parks and Watkins; in awarding judgment over to Parks; and in allowing attorney's fees to Parks.
Unless there is a stipulation in the lease agreement providing for liquidated damages in case of default, upon forfeiture of a lease for failure to pay rent the lessor may recover all rent due at the time the forfeiture was declared. Kelley v. von Herberg, 184 Wash. 165, 50 P. (2d) 23.
We have held that, where a certain sum is paid to the lessor by the lessee to be held until the end of the term, and it is agreed between the parties that, either in the event of nonpayment of rent payable at the times specified or of default of any of the covenants contained in the lease, the lessor may cancel the lease and the sum paid to the lessor shall be forfeited as liquidated damages, such agreement is binding provided the amount agreed upon as liquidated damages is reasonable. Smith v. Lambert Transfer Co., 109 Wash. 529, 187 Pac. 362; Pacific & Puget Sound Bottling Co. v. Clithero, 162 Wash. 156, 298 Pac. 316; Benjamin Franklin Thrift Stores v. Jared, 192 Wash. 252, 73 P. (2d) 525.
There is no difference, so far as damages are .concerned, between a breach of a covenant to pay rent and a breach of any other covenant in the lease. In Pacific & Puget Sound Bottling Co. v. Clithero, supra, we said:
"The first paragraph of the lease above quoted provides that in consideration of the sum of two thousand dollars and the performance of the other covenants by the lessee, the premises are leased and demised.- In the last paragraph quoted, the two thousand dollars first méntioned is specifically referred to as having been deposited as liquidated damages. It is there said that the two thousand dollars so deposited shall be forfeited as liquidated damages on account of the 'breach or default' of the lessee. The question then arises whether the breach and default there referred to includes a breach or default in the covenant to pay rent.
"The clause in the fore part of the sentence, 'if the rent shall be due and unpaid,' bears exactly the same relation to the latter part of the sentence covering liquidated damages on account of breach or default as does the clause, ' (if) default shall be made in any of the conditions or. covenants herein contained.' If the liquidated damages specified covers one clause, it would seem to necessarily follow that it covers the other. While it is true that the two thousand dollars, when first mentioned in the lease, was referred to as a consideration therefor, its status as liquidated damages was definitely fixed in the last paragraph."
Even though no money has been deposited, if the parties to a contract stipulate that, in the event of a breach, one of the parties shall pay to the other a specific sum as stipulated damages, such an agreement is valid, the theory being that the parties have agreed, or have stipulated, as to the amount of damage. Herberger v. Orr Co., 62 Wash. 526, 114 Pac. 178. In each instance, the intention of the parties is controlling. 52 C.J.S. 213, Landlord and Tenant, § 472 b.
2 Bouvier's Law Dictionary, 2023 (3rd Rev.), defines liquidated damages:
"Damages the amount of which has been determined by anticipatory agreement between the parties.
"Damages for a specific sum stipulated or agreed upon as part of a contract, as the amount to be paid to a party who alleges and proves a breach of it."
It will thus be seen that, where liquidated damages are provided for, a particular amount has been agreed upon between the parties to be paid in case of a breach. Ordinarily in lease agreements the lessee has paid a certain sum to the lessor, and that particular sum is earmarked as the amount to be retained in the event of a default by the lessee. However, in executory contracts for the sale of real property, it is often provided that, in case of default, the seller may forfeit the contract and retain, as liquidated damages, all sums theretofore paid by the purchaser.
Counsel have not furnished us, nor has our search revealed, a case such as this, wherein the lease agreement provided, "and all moneys paid by Lessees to Lessors shall be forfeited as liquidated damages to Lessors." Appellant insists that the above clause must have referred to the $5,000 paid at the time of the execution of the lease. We are satisfied that the $5,000 was the lessees' contribution to the cost of the construction of the parking lot, the cost of which was to be shared jointly by the parties.
Although, as stated above, we have found no case holding that "all moneys paid by Lessees shall be forfeited as liquidated damages," we see no reason why the parties may not so contract if they desire to do so. When the parties to this lease agreement contracted, the lessees contributed $5,000 as their share of the cost of the construction of the parking lot. At the expiration of the term, which was to run ten years, the improvements would belong to the lessor. No testimony was given as to the intention of the parties, and that intention must be gained from the language which they themselves used.
It could very well be that the parties, realizing that the lessees were contributing $5,000 toward the construction of a service station which they were to occupy for ten years and which would then belong to the lessor, considered the fact that at some time during the term of the lease (here it was two and one-half years), lessees might default, thus giving the lessor the right to terminate the lease. It would be a fair interpretation of the agreement that the parties stipulated that, in such an event, considering the fact that the time of the full ownership of the property in the lessor would thus be accelerated, the only damages to which the léssor would be entitled because of the default of the lessees, would be the moneys which they had already paid to him.
Counsel for respondents stated, in oral argument at the Departmental hearing, that the liquidated damage provision was merely "thrown in" in order to be overly cautious. At the En Banc hearing he stated that the including of that provision was inadvertent and was therefore superfluous. Nevertheless, it is there, and respondents are bound by it. It should be noted that the provisions in the lease concerning forfeiture and liquidated damages are both included in one paragraph, consisting of one sentence. There is no question but that the lease was drawn by respondents' counsel. Where a lease is capable of more than one construction, the courts will adopt that construction most favorable to the lessee. Anderson v. Ferguson, 17 Wn. (2d) 262, 135 P. (2d) 302, and cases cited. See, also, Dorsey v. Strand, 21 Wn. (2d) 217, 150 P. (2d) 702.
We are of the opinion that the parties, by agreement, limited respondents' damages, in case of their termination of the lease and recovery of possession because of the failure of the lessees to pay the rentals when due, to the moneys theretofore paid by lessees to respondents.
Parks is not appealing the judgment against him. Subsequent to the entry of the judgment, and after Watkins' appeal had been commenced, respondents executed on sufficient of Parks' property to cover the full amount of the judgment, plus interest, costs, and attorneys' fees. They then satisfied of record the judgment against Parks and Watkins. Respondents move this court to dismiss the appeal because the question is now moot, relying upon National School Studios v. Superior School Photo Service, 40 Wn. (2d) 263, 242 P. (2d) 756; Pacific Savings & Loan Ass'n v. Smith, 121 Wash. 595, 209 Pac. 1086, 212 Pac. 582; Lewis-Pacific Dairymen's Ass'n v. Frame, 126 Wash. 493, 218 Pac. 385. Those cases are not in point as to the issues now before us. Neither is RCW 4.88.040, relied upon by respondent. The motion to dismiss the appeal is denied.
The judgment appealed from is reversed.
Mallery, Hamley, Donworth, and Finley, JJ., concur.