Opinion ID: 2498554
Heading Depth: 2
Heading Rank: 1

Heading: Liquidated Damages and Alternative Performance Provisions

Text: ¶ 37 Only one case from this court addresses alternative performance provisions. Chandler v. Doran Co., 44 Wash.2d 396, 267 P.2d 907 (1954). [2] There, a company hired a manager, Benson Chandler, to operate one of its plants in Oakland, California. Id. at 398, 267 P.2d 907. In exchange for his services, Chandler received a salary and an option to buy the Oakland plant. But the contract gave the company a choiceif Chandler exercised his option, the company could (a) sell the property or (b) pay Chandler more money. Id. ¶ 38 The twist in the case was that the contract was an oral contract, and so the option was in fact unenforceable. Id. at 400, 402-03, 267 P.2d 907. When Chandler tried to exercise his option, the company refused, presumably noting that the option was unenforceable. Id. at 399, 267 P.2d 907. When he tried to get the money they agreed he would receive if the company chose not to sell, the company claimed that part of the agreement was a liquidated damages provision on an unenforceable option and so also not enforceable. Id. at 402-03, 267 P.2d 907. Chandler argued that `where a contract contains two promises in the alternative, one of which is within the Statute of Frauds and one of which is not, recovery may be had for breach of that which is not.' Id. at 400, 267 P.2d 907 (quoting uncited source, presumably plaintiff's brief). We held that the agreement for payment of money was enforceable as an alternative promise. Id. at 403, 267 P.2d 907. This holding obviously avoided an extremely unjust result. ¶ 39 In fleshing out the concept of an alternative performance provision, or alternative contract, as opposed to liquidated damages, we relied entirely upon the famous contract treatises of Corbin and Williston. We defined an alternative contract as `one in which a party promises to render some one of two or more alternative performances either one of which is mutually agreed upon as the bargainedfor equivalent given in exchange for the return performance by the other party.' Id. at 401, 267 P.2d 907 (quoting 5 Arthur Linton Corbin, Corbin on Contracts § 1079, at 379 (1951)). We noted that distinguishing the two kinds of provisions is a problem which the text writers seem to agree is puzzling, and upon which the decided cases are in conflict. It must be solved as a question of factual interpretation, and the form of words used by the parties is not controlling. Id. We continued: A contract may give an option to one or both parties either to perform a specified act or to make a payment; and though this form of contract cannot be used as a cover for the enforcement of a penalty, yet if on a true interpretation it appears that it was intended to give a real option (that is, that it was conceived possible that at the time fixed for performance, either alternative might prove the more desirable), the contract will be enforced according to its terms. The fact that a promise is expressed in the alternative, however, may easily be given too much weight. As the question of liquidated damages or penalty is based on equitable principles, it cannot depend on the form of the transaction, but rather on its substance. It follows that a contract expressed to be in the alternative when examined in the light of the existing facts may prove to be (1) a contract contemplating a single definite performance with a penalty stated as an alternative, (2) a contract contemplating a single definite performance with a sum named as liquidated damages as an alternative, or (3) a contract by which either alternative may prove the more advantageous and is as open to the promisor as the other. A contract may belong to the third class even though the term `liquidated damages' is applied in the contract to one alternative. But the fact that a contract appears from its terms to belong to the third class does not prove that it does not belong to the first. Id. at 401-02, 267 P.2d 907 (quoting 3 Samuel Williston, A Treatise on the Law of Contracts § 781, at 2194 (rev. ed. 1936)). ¶ 40 Finally, we pointed out that the lengthy negotiations and the magnitude of the transaction were such that a decision could not have been reached by the parties without thorough study. Id. at 403, 267 P.2d 907. This, combined with the fact that we could not say that the relative values of the alternatives are so disproportionate as to be unequal, convinced us that the contract contained an alternative performance provision. Id. at 404, 267 P.2d 907.