Court Opinion

ID: 9550589
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:37:44.895719+00
Date Added: 2024-06-11T15:21:54.922086
License: Public Domain

WOLFE ,Chief Justice
(concurring).
Considerable difficulty has been experienced by the courts in arriving at a logical and workable basis for refusing to allow the seller, under a clause permitting him, to retain after buyer’s default an unreasonably large amount paid in by the buyer under the contract. The desire of the courts not to permit the seller to retain an amount greatly in excess of damages which he has actually suffered is, of course, responsive to the belief that it is inequitable for the seller to reap a windfall out of the contract. In contracts, as distinguished from torts, damages for breach or default may usually be ascertained with a fair degree of accuracy. Consequently, an excess amount, markedly above those damages, is in the nature of an enrichment not deserved.
But the difficulty of the courts has not been in determining what result should be reached but how logically it *480should be reached. At the time the parties make the contract, they agree on what is called liquidated damages. Of course, if it really is a penalty because not naturally related to any damage suffered, such as an agreement, for instance, to buy a certain amount of coal in case of default in a real estate contract, the law has no difficulty. No party can legally penalize another because of a breach. The law recognizes damages but not punishment as the natural consequence of an injury suffered by a party who is denied what another agreed to do or give.
It is impossible in many, if not most cases, for the parties on the date of the making of a contract which provides for the payment of installments over an extended period of time to know what the damages will be in the future in the event the buyer defaults because it will not be known when he will, if ever, default. Usually at the time when the default or breach occurs, the damages as of that time may be fairly and with reasonable accuracy ascertained. But to accurately estimate what the damages will be at a time long hence is impossible and in the nature of a prophecy or guess. I will hereafter point out that it is possible to provide in seller-buyer title retaining contracts a formula by which damages at any time may be ascertained with fair accuracy.
The law should recognize this difficulty and hold that in contracts where the fixing aforehand of the amount of damages (liquidation) is attempted, such provision will not be recognized because it must necessarily be only a guess which may or may not be accurate. The right of the seller to retain all payments made by the buyer should exist as security only until the damages are ascertained. If the right to agree in such types of contract to a certain amount as liquidated damages is recognized, it must always be subject to what every contract is subject to, viz. the duty of the court to determine whether its offices are being used to exact an unconscionable requirement or amount.
*481I think a holding that if the sum already paid in at the time of breach or default is greatly in excess of the amount of the actual damages, the stipulation (providing for its retention as liquidated damages) will be construed as providing for a penalty, but if reasonably near the actual amount of damages will be. construed as satisfying such stipulation, is illogical if not unworkable. That the nature of a provision in a contract cannot be ascertained beforehand but may vary and shift according to the state of the account between the parties to the contract at different times during its life from a provision for liquidated damages to a provision for a penalty, or vice versa, depending on the time of the breach and when the accounting is made is an anomaly in the law. Under various states of fact at date “x,” it may be a penalty; at date “y,” a provision for liquidated damages, depending upon when the breach may take place.
What is meant to be accomplished is the simple desideratum of not permitting a party to a contract to do an unconscionable thing. Unconscionableness may be present at the making of the contract or it may arise at the time of default or time of enforcement. But courts inherently have the power to refuse to lend themselves to unconscionable acts. All that is required is that courts, when asked to enforce an unconscionable provision in a contract, refuse to do so because at the time the enforcement is asked it would be unconscionable to do so. There is no need of indulgng in a useless attempt to find out at any certain time whether a provison calls for liquidated damages or a penalty. All that rationale may and should be dropped for it makes the determination depend not on any facts which can be ascertained at the time of the making of the contract but on what the situation happens to be at the time when the breach occurs. At one time it will be validly liquidated damages; at another, it may be a penalty. Therefore, in this case I concur on the ground that the court should have refused to enforce the provision permitting re*482tention of all the money already paid in, not on the ground that the provision was a “penalty provision” but because under the rule laid down by the American Law Institute in its Restatement of Contracts, § 339, set out in the main opinion, as I have herein interpreted it, the provision is unenforceable at any time. I say, “as I have herein interpreted it,” because I have doubts as to whether Section 339 was meant to apply to long term seller-buyer real estate contracts. Judging from the illustrations appearing in the context under Section 339, it applies rather where the performance is a single act. But it may be applied to a seller-buyer long term real estate contract if given the interpretation I place upon that section, and at the same time eliminate resting the principle on the shifting and senseless foundation of whether it is a provision for liquidated damages or a penalty.
Section 339 recognizes the principle that the question of whether a stipulation for liquidated damages is enforceable must await the time when enforcement is asked for. It states that
“an agreement made in advance of a breach fixing damages therefor, is not- enforceable as a contract and does not affect the damages recoverable for the breach (a) unless the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm caused by the breach is one that is incapable or very difficult of accurate estimation”. (Emphasis supplied.)
This statement recognizes that the court need not honor a provision for a forfeiture, except under the two named conditions. This works out in requiring, I think, that the amount demanded as liquidated damages be conscionable. It may furnish a different test by requiring the amount so fixed to be a
“reasonable forecast [instead of conscionable at the time enforcement is asked] of just compensation”. (Emphasis mine.)
*483Of course, the time when the “reasonable forecast” is to be made under this rule is at the time of the making of the contract and not at the time of the breach or the time enforcement is asked for; otherwise neither the words “forecast” nor “estimation” would be applicable. It would seem that in these long-term-seller-buyer real estate contracts,
“the harm that is caused by the breach is one that is [not] incapable or [not] very difficult of accurate estimation,”
because at the time of the breach the parties could ascertain to a fair degree of accuracy what the damages were, taking into consideration all the factors of the formula for fixing damages contained in the main opinion, and hence at the time of the making of the contract a reasonable forecast of the harm caused by a breach at any time during the life of the contract could be made. Therefore the harm which would be caused by a breach at any time would not be difficult to estimate by application of the formula which included those factors. If by such a formula the amount of just compensation for the harm could be fixed or forecast at the time of the making of the contract, there would be no difficulty or incapability of accurate estimates; hence the forfeiture clause fixing damages in advance of a breach would, under the Restatement of Contracts, § 339, not be enforceable.
Under this rule, it would not be necessary to determine whether the forfeiture provision was at the time of breach or at any time, a provision for liquidated damages or for a penalty. In this type of contract, under my interpretation of the conditions (a) and (b), the liquidated damages provision in these real estate contracts would always be unenforceable and the way would be open for the application of the simple question of damages. Consequently, I think the Restatement as a practical matter rules out retention clauses in seller-buyer contracts.
I accept the formula for determining damages upon default of the buyer contained in the opinion of Mr. Justice *484CROCKETT, subject to the following observation: Any damage to or depreciation of the property sustained during the buyer’s period of occupancy will be reflected in a decline in the market value of the property. Therefore, it is unnecessary in the formula to list “any damage to or depreciation of the property” separate from “any decline in market value of property.” When an appraiser determines the market value of the property at the time of repossession by the seller, he will take into consideration in arriving at that figure that the property has depreciated or has been damaged while the buyer was in occupancy.
For he reasons herein stated, I agree in the result.
HENRIOD, J., did not participate.