Court Opinion

ID: 9536453
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:00:01.763569+00
Date Added: 2024-06-11T14:54:30.933413
License: Public Domain

PETERSON, C. J.,
specially concurring.
Heretofore, when contract provisions such as the contract provision before us were brought to Oregon courts for enforcement, and a party claimed that the provision was one calling for liquidated damages or a penalty, we examined the contract to determine whether the provision was one for liquidated damages or a penalty. If the provision was for a penalty, it was unenforceable. If it was for liquidated damages, it was enforceable, provided the fixed amount was reasonable in the light of the harm sustained, the difficulties of proof and the inconvenience or nonfeasibility of other remedies. Illingworth v. Bushong, 297 Or 675, 692-93, 688 P2d 379 (1984).
Today’s majority opinion gives Oregon a new rule: If a contract is not written in terms of what constitutes a breach, but simply contains a promise to pay a given amount if an event occurs, the claim will be enforced as a “debt,” even though the “debt” is really compensation for loss, whether or not the “debt” is reasonable in light of the anticipated or actual harm, the difficulties of proof of loss, and the existence of an adequate remedy.
Concerning the contract provision at bar, the majority reaches these conclusions:
*1991. The contract gives the property owner the right to sell its property without the aid of the broker; therefore
2. The sale of said property by the owner does not breach the exclusive sales agreement; and therefore
3. The 10% to be paid to the broker upon sale by the owner is not a liquidated damage clause; rather, it is a debt, a sales commission that the broker has earned.
In attempting to distinguish cases in which this court has found liquidated damage provisions to exist under similar facts, the majority repeatedly states that in those cases “the court did not address whether the contract clause at issue constituted a liquidated damages provision” before testing the provisions’ validity. This the majority recites, is “putting the cart before the horse.” There is no uncertainty in those cases. The court believed the clauses to be liquidated damage clauses and treated them as liquidated damage clauses.
The majority explains that if the seller withdraws the broker’s authority granted under the exclusive listing agreement, and the contract provides for payment equal to the commission, the broker is only being compensated for the work the broker has done, that there has been no breach that would trigger any liquidated damages provision. It distinguishes Dean Vincent, Inc. v. Krimm (questioned in Illingworth v. Bushong, 297 Or 675, 688 P2d 379 (1984)), 285 Or 439, 591 P2d 740 (1979); Dean Vincent, Inc. v. McDonough, 281 Or 239, 574 P2d 1096 (1978) (questioned in Illingworth v. Bushong, 297 Or 675, 688 P2d 379 (1984)); and Dean Vincent, Inc. v. Chef Joe’s, 273 Or 814, 541 P2d 469, 544 P2d 146, reh den 273 Or 820, 544 P2d 146 (1975).
The majority also distinguishes Wright v. Schutt Construction, 262 Or 619, 500 P2d 1045 (1972) (questioned in Illingworth v. Bushong, 297 Or 675, 688 P2d 379 (1984)) saying,
“The Wright court erred because it failed to distinguish between two independent theories of recovery — (1) that an amount is due because a contract term has been satisfied, and (2) that liquidated damages are due because a breach has occurred. In the instant case, the lower courts repeated the error made in Wright.”
*200309 Or at 196. The fact is that in the fourth paragraph of the Wright opinion, the court states,
“Plaintiff appeals, contending that the trial court erred in holding the ‘stipulated sum’ to be a penalty, and also erred in denying recovery for a ‘debt due and owing.’ ” 262 Or at 621. (Emphasis added.)
The opinion then goes on for seven pages discussing the law relative to liquidated damages and ultimately held that the provision was a penalty “under the facts of this case.” 262 Or at 632.
Concerning the plaintiffs claim in Wright that the trial court erred in denying recovery for a debt due and owing, the court did address the claim, directly and forthrightly. The entire quotation from page 632 is:
“Plaintiff also contends that the trial court erred ‘in denying recovery for a debt due and owing,’ upon the ground that ‘this action was plead and tried as an action on a debt’ and citing Baumgartner v. Meek, 126 Cal App 2d 505, 272 P2d 552 (1954), among other cases, in which recovery of a realtor’s commission was affirmed without regard to the question whether it was a valid provision for liquidated damages or an invalid provision for a penalty. As stated in 5 Corbin, supra, [5 Corbin, Contracts] 337, § 1058, the terms used in the drafting of a contract may be of little significance in determining whether a contract provision is one for liquidated damages or for a penalty. In this case, we agree with the finding of the trial court that, in actual effect, this contract provision imposed a penalty. We therefore decline to follow such cases as Baumgartner v. Meek, supra.”
262 Or at 632 n 6.
I respectfully ask, what contract obligation has the broker satisfied under the majority opinion? The broker’s “best efforts” in selling the property? Does this include the situation where the seller revokes the broker’s authority one day after entering into the agreement? An hour? Must the broker show that he or she made a few phone calls during that hour in his or her best efforts to sell the property? Or do we assume that within the hour following execution of the contract the broker has fully performed his or her contract obligation? The rule pronounced today, though workable and clear, does away with much well settled liquidated damages law. Its *201practical effect will be to entirely do away with our caselaw concerning liquidated damages and penalties.
Let us look for just a moment at two significant rules set forth in the cases that the majority “distinguishes.” The first rule is that “an agreement, made in advance of breach, fixing the damages therefor, is not enforceable as a contract” unless certain other matters are established. The “other matters” include these: The amount so fixed must be a reasonable forecast of just compensation. The other is that the harm caused by the breach is incapable or difficult of accurate estimation. This is the rule stated by this court in 1984 in Illingworth v. Bushong, supra, 297 Or at 683. It is also the rule set forth in the Second Restatement of Contracts § 339.
The second rule is that “[a]s a general rule, an agreed damages clause is unenforceable where the provision is designed only to secure performance of a contract, rather than preestimate the anticipated damages.” Layton Manufacturing v. Dulien Steel, 277 Or 343, 346, 560 P2d 1058 (1977) (questioned in Illingworth v. Bushong, 297 Or 675, 688 P2d 379 (1984)). Whether a contract provision is designed essentially to operate as a penalty is still a question of law to be decided by the court. Layton Manufacturing v. Dulien Steel, supra, 277 Or at 346. A mere change of clothing does not change the person wearing them. A mere change in language should not prevent a court from looking at the provision for what it is.
Let me illustrate. Assume a real estate listing contract that states: If the owner sells the property during the term of the exclusive listing, the owner agrees to pay a penalty equal to the commission that the broker would earn if he or she sold the property. Under our precedents, that is unenforceable as a penalty.
Assume the same facts, except that the contract provides that if the owner sells the property during the term of the exclusive listing, the owner agrees to pay, as liquidated damages, an amount equal to the commission that the broker would earn if he or she sold the property. Under such a provision, the clause would be examined under the liquidated damage rules of Illingworth. The liquidated damage clause is enforceable “but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, *202the difficulties of proof, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy.” Illingworth v. Bushong, supra, 297 Or at 692-93.
Henceforth, if the contract uses neither the term “penalty” nor “liquidated damages,” and simply provides that if the owner sells the property during the listing, the owner agrees to pay $x, that contract will be enforced without looking at whether the amount agreed upon is reasonable in light of the difficulties of proof of loss, or the adequacy of other remedies.
We stated in Wright v. Schutt Construction, supra, 262 Or at 632 n 6, that “the terms used in the drafting of a contract may be of little significance in determining whether a contract provision is one for liquidated damages or for a penalty.” We looked at the “actual effect” of the contract. We should do the same here.
Suppose that a fruit marketing agent and a grower agree that the grower will pay the agent eight cents for each box of the grower’s pears marketed by the agent and eight cents for each box of the grower’s pears marketed by the grower itself. It is likely that the purpose of the latter clause is to compel the grower to market through the agent. Under the majority opinion, even if the latter clause exists only to secure performance of other parts of the contract, it is enforceable, so long as the words “penalty” or “liquidated damages” are not used. As stated earlier, such a rule is clear and workable; but it is inconsistent with the two significant rules stated in the cases that the majority now distinguishes.
Consider Dairy Coop. Ass’n. v. Brandes Cry., 147 Or 488, 30 P2d 338 (1934). In that case, the defendant agreed to purchase its milk and cream requirements from the plaintiff. The contract contained a provision that if the defendant failed to do so, the defendant would pay liquidated damages “[of] 10% of the estimated price of the aggregate quantity of milk which the [defendant] would take in one year should he perform his contract * * *.” This court refused to enforce the contract, saying that “said paragraph imposes nothing more than a penalty or forfeiture.” 147 Or at 500-01.
Under the majority opinion, with but a slight change of wording to read — “If the Distributor purchases milk or *203cream other than from the Association, it agrees to pay 10% of the cost of such milk or cream to the Association” — the above contract would be enforced according to the terms.
Under the majority opinion, so long as the agreement does not use the words “penalty” or “liquidated damages,” and is not written in terms of prohibited conduct, the agreement will be enforced as “an independent, valid contractual promise” if the contract is written to provide that certain conduct gives rise to the right to payment. Henceforth, lawyers will be well advised not to write a contract using the terms “liquidated damages,” or in terms of what conduct is prohibited, for such a contract will be subject to the carefully drawn liquidated damage rules of Illingworth. So long as the drafter uses language similar to that used in the case at bar, the contract will be enforceable, however unreasonable the damages.
The contract in this case appears to be a form contract used by a real estate multiple listing service. There may be some sophisticated sellers here and there who know the differences between a penalty, a liquidated damage clause and an “independent, valid contractual promise,” and there may be sellers who have the bargaining power to negotiate a contract different from the standard form. But not many, I suspect.
The contract before us begins, “For value received, you are hereby employed and given the exclusive right to sell or exchange the above described property * * *.” The essence of the contract is that the broker has an exclusive marketing agreement. If the owner decides to “breach” the contract by selling it himself or herself, the owner still pays. My disagreement is not that such contracts are illegal. But the transparency of the contract is clear. The “if-you-sell-it-yourself’ clause is a liquidated damage clause. It should be so treated.
I would follow our precedents. My approach does not leave the broker without a remedy. The broker wins in this case because its proof meets the requirements of Illingworth v. Bushong, supra. We have seen generations of cases such as these, culminating with Illingworth. The majority effectively has trashed those cases.
*204The Court of Appeals majority had it right. I would affirm for the reasons stated by it.
Fadeley, J., joins in this specially concurring opinion.