Court Opinion

ID: 9846061
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:33:48.969457+00
Date Added: 2024-06-11T09:16:32.201550
License: Public Domain

*677Judge Greene
dissenting.
I disagree with the majority that the law in North Carolina provides that every person under a contract to purchase real estate, who defaults under the contract, forfeits to the seller any monies paid pursuant to the contract prior to the default, absent a specific agreement to the contrary.
The general rule provides that in a contract for purchase and sale, the vendor, upon breach by the purchaser, may either sue for the difference between the agreed price and the fair market value, or for damages which have been occasioned by the purchaser’s failure to comply with his contract. See, generally, 77 Am. Jur. 2d Vendor and Purchaser § 577-79 (1997). The parties, however, are free to expressly provide “that a certain sum will be paid by the purchaser as liquidated damages if the purchaser fails to perform, and such a provision will be given effect unless the situation of the parties and the surrounding circumstances show that, notwithstanding the words used, a penalty was intended.” Id. at § 581.
[A] stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach. I1]
Knutton v. Cofield, 273 N.C. 355, 361, 160 S.E.2d 29, 34 (1968); 22 Am. Jur. 2d Damages § 701 (1988) (provisions fixing damages “in an amount grossly disproportionate to the harm actually sustained or likely to be sustained ... is an agreement to pay a penalty”). Liquidated damages are collectable, but penalties are not enforceable. Id.
In this case, the parties did not stipulate a sum that would be forfeited upon the purchaser’s breach. Indeed, the provision that the $100,000.00 paid by the purchaser would be “earnest” money forfeited upon default by the purchaser was deleted from the contract. This deletion evidences the parties’ intent to have no forfeiture clause, thus relegating the seller to an action for damages in the event of the purchaser’s default.
*678In any event, to the extent the contract could be read to provide that the $100,000.00 would be forfeited upon the purchaser’s breach, that amount constitutes a penalty because it is so large as to be out of proportion to the probable loss of the seller and does not represent a fair estimate of the damages actually sustained.2 I would therefore hold that summary judgment for Nance was error, that Nance was not entitled to retain the $100,000.00 as a forfeiture, and that the case must be remanded for a determination of Nance’s actual damages arising from Star’s default.
I do not believe that Scott v. Foppe, 247 N.C. 67, 100 S.E.2d 238 (1957), and Walker v. Weaver, 23 N.C. 654, 209 S.E.2d 537 (1974), require that we reach a different conclusion. In Scott, the Court was careful to note that the seller was under no obligation “under the facts” of that case to refund to the defaulting purchaser the consideration paid pursuant to the contract. Scott, 247 N.C. at 72, 100 S.E.2d at 241. In Walker, this Court found it unnecessary to deviate from the general rule enunciated in Scott because application of that rule to the facts presented in Walker “produced no harsh result.” Walker, 23 N.C. App. at 656, 209 S.E.2d at 539. Even if we read these cases as holding that in the absence of a forfeiture clause, one will be implied, it does not follow that in each instance it will be treated as a liquidated damages clause, as opposed to a penalty clause. That, however, is the construction placed on these cases by the majority and it is a construction with which I disagree.
I would reverse summary judgment and remand.

. The fixing of unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. Restatement (Second) of Contracts § 356(1) (1981).

. If there is “a doubt whether a sum is in fact a penalty or liquidated damages, courts are inclined to hold that it is a penalty.” 22 Am. Jur. 2d Damages § 691 (1988). That determination presents a question of law, not a question of fact. Id. at § 692.