Opinion ID: 2200390
Heading Depth: 1
Heading Rank: 3

Heading: whether the forfeiture provision contained in the contract for sale constitutes a penalty and is void as a matter of law under sdcl 53-9-4 and sdcl 53-9-5.

Text: SDCL 53-9-4 states: Penalties imposed by contract for any nonperformance thereof are void. This section does not void obligations penal in form such as heretofore have been commonly used, but it voids their penal clauses. SDCL 53-9-5 states: Every contract in which amount of damage or compensation for breach of an obligation is determined in anticipation thereof is void to that extent except the parties may agree therein upon an amount presumed to be the damage for breach in cases where it would be impracticable or extremely difficult to fix actual damage. The latter portion of SDCL 53-9-5 creates an exception to the general rule that penalty clauses are void. It requires that the parties have the right to agree upon an amount that will represent damages if a breach subsequently occurs; however, the situation must be one in which it would be difficult to ascertain any damages. Whether a forfeiture provision in a sales contract is an enforceable, liquidated damage provision or an unenforceable penalty is a question of law for the court. Heikkila v. Carver, 378 N.W.2d 214 (S.D.1985); Prentice v. Classen, 355 N.W.2d 352 (S.D.1984). Such a provision will be upheld if (1) damages in the event of breach are incapable or very difficult of accurate estimation at the time the contract was made; (2) there was a reasonable attempt by the parties to fix compensation; and (3) the amount stipulated bears a reasonable relation to probable damages and is not disproportionate to any damages reasonably to be anticipated. Heikkila, supra ; Prentice, supra ; Walter Motor Truck Co. v. State, 292 N.W.2d 321 (S.D.1980). The burden of establishing that such a provision is a penalty rests on the party against whom enforcement is sought. Heikkila, supra ; Prentice, supra . Determinative of this issue here is that a $75,000 downpayment was originally required by Safari, but that $50,000 was the maximum amount Buyers were able to raise. Absolutely nothing in the record indicates that the parties discussed that the $50,000 would be an appropriate amount to be forfeited in the event of a breach. The effect of the forfeiture provision, as Safari would have us believe, would be to require Buyers, in the event of a breach, to forfeit all sums of money previously paid by them. The trial court held that the damages in the event of breach were extremely difficult to estimate, but the forfeiture provision was a penalty as there was no reasonable endeavor by the parties to fix a fair compensation, and the stipulated damages were not reasonably related to probable damages and were disproportionate to the reasonably anticipated damages. We agree. The trial court submitted an exhaustive memorandum decision, which was incorporated into extensive findings of fact and conclusions of law. It considered, analyzed, and applied our relevant holdings in Walter Motor Truck, supra ; Heikkila, supra ; and Prentice, supra . Based upon these considerations, and our analysis of the law, we cannot say that the trial court clearly erred in its findings of fact. In addition, we find no error in the trial court's conclusion that the forfeiture provision constituted a penalty and is void as a matter of law.
WHETHER THE TRIAL COURT ERRED IN DETERMINING THE PLAINTIFF'S DAMAGES. The trial court awarded Safari the following damages: (1) Reasonable rental value of the business at $2,000 per month for a period of four months (AprilJuly), for a total of $8,000; (2) an additional $1,000 rental for the month of July; (3) $15,000 for the loss of business; (4) out-of-pocket expenses in the amount of $2,118.32; (5) $2,000 for restoration of the premises to its former condition; (6) $2,000 for attorney fees and costs; and (7) $50 which is the difference between $1,750 owed on inventory and the value of the inventory actually returned in the amount of $1,700. The total damages determined by the court were $30,168.32. The court also concluded that since Buyers had paid $52,000 on the contract price, that they were entitled to restitution of $21,831.68, which represents $52,000 paid less $30,168.32 in damages. The trial court may order restitution to the defaulting vendee by virtue of its powers to equitably adjust the rights of the parties in a foreclosure action. Heikkila, supra ; see also SDCL 21-50-2. Allowing Sellers to retain all payments made under the contract would unjustly enrich them. As previously stated, we have reviewed the memorandum decision which was incorporated into the findings of fact and conclusions of law. We agree with the trial court's determination of restitution and damages and conclude that the trial court did not commit err on the issues of law nor was it clearly erroneous on the issues of fact. Prentice, supra . Affirmed. WUEST, C.J., and MORGAN and HENDERSON, JJ., concur. SABERS, J., dissents.