Court Opinion

ID: 9851783
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:19:40.641687+00
Date Added: 2024-06-11T09:22:15.327727
License: Public Domain

BAKES, Justice.
The sole issue in this appeal is whether the amounts retained by the vendor pursuant to forfeiture of a real estate purchase contract constitute an unconscionable penalty to the defaulting purchaser. We affirm the judgment of the trial court which held that the amounts forfeited under the contract bear a reasonable relation to the vendor’s actual damages and therefore do not constitute an unconscionable penalty.
A.M.R. Corporation agreed to purchase from Clampitts a 3,800-acre farm located in Elmore County, Idaho. The purchase price was $2.3 million to be paid as follows: $10,000 down at the execution of the purchase agreement in September, 1974; $250,000 in December, 1974; $250,000 in February, 1975; and the balance in semiannual payments of $89,500 each. Of the total farm acreage, 2,140 acres were under irrigation, approximately 1,400 acres were yet to be developed with water rights reserved but not yet put to beneficial use, and the balance was dry land. After executing the agreement the purchaser, A.M.R. Corporation, took possession of the farm. Vendors, Clampitts, retired from farming and moved to the State of Washington, although the vendors remained as lessees of record in a joint venture with their son during the growing season of 1975. It was purchaser’s intention to lease out the farm, develop the unirrigated portions, and eventually divide the entire farm into smaller portions to be sold at a profit. A.M.R. had previously purchased, subdivided and sold at a profit an adjoining and even larger farm.
Purchaser had difficulty in making the initial payments, and two subsequent contract amendments were executed to allow for late payments. Purchaser was unable to discharge the semiannual payments and continued negotiations were unfruitful. In September, 1976, vendors filed the initial complaint in the present action seeking a declaration of forfeiture, return of the farm, and a determination of quiet title. Purchaser counterclaimed that the amounts retained in forfeiture constitute an unconscionable penalty.
The purchaser apparently stipulated to partial summary judgment granting return of the property, judgment of forfeiture, and quiet title in favor of the vendors. At the time of the summary judgment stipula*148tion there was an alleged oral settlement agreement between the parties having to do with vendors’ repossession of the property, obtaining of new financing, developing of the unirrigated portions, and possible resale of the property to purchaser. This alleged settlement agreement was reduced to writing, but purchaser refused to execute it since the terms were in dispute.
The vendors returned from Washington, took possession of the farm, and obtained new financing in excess of $2 million in order to discharge the existing indebtedness which was in default and to install a major irrigation system to apply and preserve the water rights, then due to expire unless put to beneficial use. After successfully refinancing and developing the farm, the vendors then resold the farm with the new irrigation improvements to a different purchaser for $3.8 million.
The case proceeded to trial on purchaser’s counterclaim. At the time of forfeiture purchaser had paid $510,000 in principal and $221,753.24 in interest to the vendors. Purchaser also claims consideration of other amounts paid in taxes, improvements and personal property. The trial court found that vendors’ expenses in repossessing, refinancing, and reselling the property were so “intertwined” that those expenses must be considered as damages. The trial court found vendors’ actual damages to be $305,648,1 consisting of expenses for weed eradication, sprinkler pipe repair, loan fees, attorney fees and real estate commissions for the resale. The trial court also found the reasonable rental for the property was $447,518.51 during the two years in which purchaser was in possession of the property, and that there had been no depreciation or appreciation in the value of the property during the purchaser’s possession. The court concluded that the purchaser “failed to establish, by a preponderance of the evidence, that under the facts here the payments it made on the contract were so disproportionate to the actual damages incurred by [vendors] as a result of [purchaser’s] breach as to be exorbitant amounting to an unconscionable penalty.”
The purchaser has appealed, arguing that many of the items of vendors’ damages as found by the trial court were unsupported by the evidence or improperly allowed.
The appellant, defaulting purchaser in the present case, appears to take the position that all amounts previously paid on a forfeited real estate contract constitute "unjust enrichment” to the vendor and that vendor may only retain those amounts proved by substantial evidence to be “set-offs against unjust enrichment.” This position is not consistent with our prior cases.
“ ‘Generally speaking, parties to a contract may agree on liquidated damages in anticipation of a breach, in any case where the circumstances are such that accurate determination of the damages would be difficult or impossible, and provided that the liquidated damages fixed by the contract bear a reasonable relation to actual damages. But, where the forfeiture or damage fixed by the contract is arbitrary and bears no reasonable relation to the anticipated damage, and is exorbitant and unconscionable, it is regarded as a “penalty”, and the contractual provision therefore is void and unenforceable.’ Graves v. Cupic, 75 Idaho 451, 456, 272 P.2d 1020, 1023 [1954].
“... In seeking relief from the forfeiture, the burden of proving such facts rested upon [the defaulting purchasers].” Howard v. Bar Bell Land & Cattle Co., 81 Idaho 189, 197, 340 P.2d 103, 107 (1959).
Further, “it is for the trial court to determine under the facts of any particular case whether the amount stipulated as damages bears such reasonable relation to the damages actually sustained as to be enforceable as a provision for liquidated damages.” Nichols v. Knowles, 87 Idaho 550, *149556, 394 P.2d 630, 633 (1964). The finding of the trial court as to whether the forfeiture and liquidated damages constitute an unconscionable penalty will not be overturned on appeal unless it is clearly erroneous. I.R.C.P. 52(a).
In the present case the purchaser voluntarily agreed in the purchase contract that in the event of purchaser's default the vendor had the remedy of retaining all amounts paid, and that purchaser would forfeit all interest in the property to the vendors. Thus the purchaser had the burden of proof at trial to show that these liquidated damages bore no reasonable relation to the actual damages. Howard v. Bar Bell Land & Cattle Co., supra.
I
Liquidated Damages
At the time of forfeiture, purchaser had paid $510,000 in principal and $221,753 in interest on the purchase contract. Purchaser had also paid the amount of $7,338 toward an irrigation mainline which the seller repossessed with the property. Purchaser had also paid $13,783 for the 1975 property taxes which “was part of [the] contract obligation, the same as [the] payments upon the principal balance,” Anderson v. Michel, 88 Idaho 228, 239, 398 P.2d 228, 234 (1965), and should be viewed as an amount paid under the contract.2 Therefore, the amounts paid by purchaser which were forfeited as liquidated damages are:
Amounts forfeited by purchaser
Principal $510,000
Interest 221,753
Taxes 13,783
Irrigation equipment 7,338
Total $752,874
II
Actual Damages
A. Market value
In addition to A.M.R.’s claim that the amount forfeited exceeded the reasonable rental value of the property and other allowable damage items, A.M.R. alleges that the market value of the premises increased from the date of execution of the contract until the time of the breach, and that gain should have been considered by the trial court in determining the amounts forfeited by the purchaser. This Court has held in the past that, in the absence of a liquidated damage clause in the contract, “the measure of damages for breach of an executory contract of sale is the difference between the contract price and the market value of the premises at the time of the breach ...,” State ex rel. Robins v. Clinger, 72 Idaho 222, 230, 238 P.2d 1145, 1150 (1951). Where there is a liquidated damage clause, a similar determination of the difference between contract price and market value of the premises should be made to determine whether or not what the seller is acquiring back as a result of the forfeiture is more valuable than what he contracted to sell. While the rule is generally stated as the difference in values at the time of the breach, “this rule necessarily presupposes that the vendor is free to use or dispose of the property on the date of breach. Accordingly, if the vendee has interfered with the vendor’s freedom in this respect, by retaining possession or asserting an interest in the property, the vendor may include any additional damages caused thereby in the amount necessary to give *150him the benefit of his bargain.” 77 Am. Jur.2d Vendor and Purchaser § 489, p. 614. See also Honey v. Henry’s Franchise Leasing Corp., 64 Cal.2d 801, 52 Cal.Rptr. 18, 415 P.2d 833 (1966).
In this case the trial court found that there was no increase in market value. The trial court determined the relevant period to be from July of 1974 when A.M.R. purchased the property until July of 1976 when the seller actually terminated the contract for failure of the vendee to cure the default. We find no merit in A.M.R.’s argument that the trial court should have used an earlier date in December, 1975, the date of breach when it actually failed to make the payments. Subsequent to that time the parties mutually rescheduled payments, and it was not until July of 1976 that the vendors actually terminated the contract. The vendors submitted expert testimony concerning the market value of the premises as of July of 1976, and based upon that evidence the trial court found that there had been no increase or decrease in the value of the real property during that two-year period. The trial court’s findings are supported by substantial competent evidence and are not clearly erroneous, and therefore are affirmed. I.R.C.P. 52(a).
B. Rental value
In determining whether a liquidated damages provision on default constitutes an unreasonable forfeiture, one element of damage to consider is the loss of rental value during the time the defaulting purchaser was in possession. Anderson v. Michel, 88 Idaho 228, 398 P.2d 228 (1965). The trial court determined that the reasonable rental value for the entire farm for the two-year period that the vendees were in possession to be the sum of $447,518.51. The trial court calculated that rental value by first determining that the rental value for the portion of the acreage under cultivation was $401,252, using the landlord’s crop share for those acres based upon average prices and average yields of the area. The trial court then determined the rental value of the undeveloped land to be $46,-266.51, based upon what a reasonable return on investment or equity would yield for the entire farm, less the $401,252 allocable to the irrigated acreage under cultivation. The purchaser, who presented conflicting evidence suggesting that the actual rental proceeds were lower, argues that the trial court’s consideration of evidence of return on investment in arriving at rental value was improper. However, return on investment in property is circumstantial evidence relevant to determining a property’s rental value. Neither the actual rental received nor the average rental received on comparable properties is conclusive evidence as to what is a reasonable rental value. Both values are relevant evidence upon which to base a finding of reasonable rental value, as is evidence of return on investment. The trial court’s finding of rental value for the entire farm in the amount of $447,518.51 was based upon substantial and competent evidence and there^ fore will not be disturbed on appeal.
C. Costs of repossession, refinancing and resale
The costs which a seller incurs in repossessing the property from a defaulting purchaser are actual damages suffered by the seller. See Williamson v. Smith, 74 Idaho 79, 256 P.2d 784 (1953). A vendor may also claim as actual damages any costs which flow from the breach and which could have been within the contemplation of the parties at the time of contracting. See Annot. 52 A.L.R. 1511, 1512 (1928). It is possible that these additional damages could include, in the proper case with proper findings of fact, the costs of refinancing or reselling the property. This Court noted in Anderson v. Michel, supra, that “the possible expense of resale of the property” may be considered as actual damages to a vendor in determining whether an unreasonable forfeiture has occurred.
In the present case the trial court found that the costs of repossessing, refinancing and reselling the property were “intertwined and must be considered to*151gether.” This finding of fact was supported by substantial and competent evidence. At the time of executing the purchase agreement, purchaser was aware of the underlying indebtedness and the necessity of improving the unirrigated land. Purchaser was aware that a breach on its part could cause a breach on the underlying contract and therefore jeopardize the loss of the entire property. Purchaser was also aware that the failure to develop the unirrigated land and apply water rights to beneficial use might result in the loss of the water rights. At trial both parties testified as to the urgency for someone to cure the defaults on the underlying contracts and to apply the water rights to beneficial use prior to expiration.3 Prior to losing possession, the purchaser was also trying to obtain refinancing in order to cure the defaults, develop the irrigation system and hopefully subdivide and resell the property. Therefore, we find no error in the trial court’s considering these costs as damages to the vendors in determining the unreasonableness of the forfeiture.
The purchaser argues that even if the resale costs are allowed, only a portion of the realtor’s commission should be considered. The trial court allowed the entire commission on the $3.8 million resale value rather than a commission on only the $2.3 million which was the value of the property when the purchaser yielded possession. Purchaser argues that if allowed a vendor could always defeat an unjust enrichment claim by improving and reselling the property. However, the trial court evidently found that the vendor’s need to improve the irrigation system and resell the property resulted from purchaser’s breach. As a result of the trial court's finding that the need to resell flowed from the breach, we find no error in the trial court’s allowance of the entire realtor’s commission as actual damages to the vendor based upon these particular facts.
D. Miscellaneous damages
There were several other various items of alleged damage, some of which the trial court included in the actual damage sum, others of which the trial court did not include, and still others which it is not certain whether they were included or not. After considering each item and the objections to them, and eliminating some of them from our consideration on this appeal, we nevertheless conclude that the vendors’ actual damages approximated the amount forfeited as reflected in the following schedule:
Vendors actual damages:
Reasonable rental $447,518.00
Damage to sprinkler pipes 800.00
Costs of repossession and refinancing:
Loan commitment 600.00
Loan commitment 11,000.00
Loan fee & interest 44,908.00
Title policy & fees 5.954.00
Appraisal 250.00
Attorney fees 4.500.00
Attorney fees 6.730.00
Title fees 200.00
Costs of resale:
Realtor’s commission 224,640.00
Total $747,100.00
When comparing the $747,100 in actual damages to $752,874, the amount forfeited under the liquidated damage clause, the application of the liquidated damage clause in this case appears fair and reasonable.4 *152Cf. Anderson v. Michel, 88 Idaho 228, 398 P.2d 228 (1965); Institute on Real Estate Defaults, Merlyn W. Clark, Defaults of Executory Land Sale Contracts — Vendors Remedies, p. 92, n. 66 (Idaho Bar Foundation 1982). The foregoing calculations make no allowance for compensation to Mr. Clampitt for the several months’ time which he personally spent in developing and installing the new irrigation system, which should be an additional factor in considering whether the actual damages bear a reasonable relationship to the liquidated damages.
We conclude that the trial court’s determination that the forfeiture clause in the contract does not operate as an unconscionable forfeiture in this case is supported by substantial and competent evidence and is not clearly erroneous under I.R.C.P. 52(a). Accordingly, the judgment of the trial court is affirmed.
Costs to respondents. No attorney fees.
DONALDSON, C.J., and SHEPARD and HUNTLEY, JJ., concur.

. The trial court did not list the specific items in arriving at this sum, and the briefs disagree slightly on what items were included in the sum.

. Vendors concede in their brief that the trial court "evidently forgot to consider the taxes ... and payment for irrigation pipe ... paid by A.M.R.”
Purchaser also claims $24,161 paid in principal and interest for mobile homes which were purchased in a separate agreement from the vendors and which were left on the property and eventually resold by the vendors. The trial court noted that even though vendors retained no title or lien interest in the mobile homes, and that neither the stipulation or the parties nor the court order returning possession of the farm to the vendors covered the mobile homes, nevertheless the vendors retook possession of the mobile homes and apparently eventually sold them. The trial court concluded that the mobile homes were not part of the real estate contract and transaction and therefore did not include the amounts paid for them in the forfeiture calculation, although it noted that the purchaser would have a separate claim against the vendors for "fair compensation therefor." We agree.’

. At oral argument, purchaser's attorney argued that the water rights could have been extended by a mere application for extension. However, the record suggests that neither party was aware of this possibility, and the purchaser’s own testimony characterized the need to apply the water rights as one of the "emergencies’’ facing the parties.

. The trial court found the vendor’s damages to be $531,413.27, which included $225,765 in lost "net" rental and $305,648 in expenses because of default and resale. The difference between the trial court’s total damage calculation and our calculation results primarily from the trial court’s determination of the rental to be $225,-765, which it computed by first offsetting from the gross rental figure of $447,518 the interest paid by purchaser of $221,753. To more accurately reflect the amounts forfeited by the purchaser, and the vendor’s damages, we have listed the gross rental as damages, and the interest paid as an amount forfeited by the purchaser. As a result, the actual damages listed above are approximately $221,753 more than the trial *152court’s figure, and our figure for the amounts forfeited by purchaser is larger by that same amount. The differences are merely a wash when making a comparison of the actual damages to the amount forfeited.