Adam Trusty and Brittany Trusty v. David L. Hood ( 2014 )

Pursuant to Ind. Appellate Rule 65(D), this Jul 23 2014, 6:31 am
Memorandum Decision shall not be
regarded as precedent or cited before any
court except for the purpose of establishing
the defense of res judicata, collateral
estoppel, or the law of the case.
ATTORNEY FOR APPELLANTS: ATTORNEY FOR APPELLEE:
TIMOTHY J. LEMON BARRY T. EMERSON
Knox, Indiana Emerson & Manahan
Delphi, Indiana
IN THE
COURT OF APPEALS OF INDIANA
ADAM TRUSTY and )
BRITTANY TRUSTY, )
)
Appellants-Defendants, )
)
vs. ) No. 08A05-1309-CC-466
)
DAVID L. HOOD, )
)
Appellee-Plaintiff. )
APPEAL FROM THE CARROLL CIRCUIT COURT
The Honorable Benjamin A. Diener, Judge
Cause No. 08C01-1206-CC-114
July 23, 2014
MEMORANDUM DECISION - NOT FOR PUBLICATION
KIRSCH, Judge
Adam and Brittany Trusty appeal from the trial court’s order in an action brought
against the Trustys by David L. Hood alleging breach of a contract to sell residential real
estate. They contend that the trial court erred by failing to treat the earnest money as
liquidated damages, that there was inadequate proof of repairs to support the judgment, and
that attorney fees should not have been awarded. Concluding that the Trustys have not
established that the trial court erred by enforcing the contract against them, we affirm the
trial court.
FACTS AND PROCEDURAL HISTORY
Hood agreed to sell his residence at 12346 West Sleepy Hollow Road in Monticello,
Indiana, to the Trustys. After extensive negotiations, Hood and Adam entered into a
written purchase agreement for the sale of the real estate for the purchase price of
$113,000.00. In addition to the real estate, certain personal property was to remain. The
Trustys had the property inspected, and repairs were made to the property. The purchase
agreement was amended one last time, the closing date was set for October 7, 2011, and
the Trustys were to take possession of the property on October 8, 2011. The closing date
and the date of possession were adjusted to accommodate the Trustys.
Hood’s realtor, Cindy Bland, received a telephone call from the Trustys’ realtor,
Joan Abbott, informing Bland that Adam’s father had passed away, and that the Trustys
were still planning on closing on the property, but needed to change the closing date. The
realtors agreed to move the closing date to October 11, 2011. In a subsequent telephone
call, Abbott told Bland that she was not sure the Trustys would be present for the closing.
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A mutual release of purchase agreement signed by the Trustys and dated October
10, 2011, was sent to Bland. Hood rejected the release and hired an attorney to send a
notice of default of the purchase agreement to the Trustys. The Trustys did not respond to
the letter.
The purchase agreement signed by the Trustys provided the following in the event
of a default:
DEFAULT. In the event this Agreement is accepted and either party shall,
without legal cause, fail or refuse to complete the transaction in accordance
with the terms and conditions of this Agreement; the non-defaulting party
may pursue all legal or equitable remedies available under the law, and shall
be entitled to all court costs and reasonable attorney’s fees, and said Earnest
Money Deposit shall be held, retained or released by Listing Broker under
the listing contract with Seller and the Earnest Money Deposit paragraph of
this Agreement.
Plaintiff’s Ex. 2 at 3. The purchase agreement also had an earnest money deposit provision,
which reads as follows:
EARNEST MONEY DEPOSIT. As Earnest Money, Purchaser deposits
herewith $500.00 with Selling Broker by check which shall be applied to the
purchase price (or closing costs in the event of 100% financing) at closing.
All money paid herewith shall be held by Selling Broker until the acceptance
of this Agreement and shall be transmitted to Listing Broker immediately
upon such acceptance. If Purchaser fails for any reason to submit earnest
money, as agreed, Seller may terminate this Agreement. Earnest money shall
be returned promptly in the event this offer is not accepted. The Broker
holding any earnest money is absolved from any responsibility to make
payment to the Seller or Purchaser unless the parties enter into a Mutual
Release or a Court issues an Order for payment, except as permitted in 876
IAC 1-1-23 (release of earnest money). Upon notification that Purchaser or
Seller intends not to perform, Broker holding the earnest money may release
the earnest money as provided in this Agreement. If no provision is made in
this Agreement, Broker may send to Purchaser and Seller notice of the
disbursement by certified mail. If neither Purchaser nor Seller enters into a
mutual release or initiates litigation within sixty (60) days of the mailing date
of the certified letter, Broker may release the earnest money to the party
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identified in the certified letter. Purchaser and Seller agree to hold the Broker
harmless from any liability, including attorney’s fees and costs, for good faith
disbursement of earnest money in accordance with this Agreement and
licensing regulations.
Id.
Hood continued to list his property for sale through a real estate network. The listing
price was reduced from $129,000.00 to $119,000.00. Bart Hickman assumed realtor duties
for Hood and actively marketed the property. In March 2012, Hood received the only offer
to purchase his property for $98,000.00. In the course of maintaining the property for this
subsequent sale, Hood incurred additional expenses, including tasks that were FHA
requirements, an inspection required by the buyer, and upkeep expenses. Hood also
incurred legal costs and attorney fees due to the default of the purchase agreement with the
Trustys. Hood testified about the efforts made by his attorney in handling the matter and
his attorney submitted an affidavit attesting to the time and effort spent earning the fee.
The $500.00 earnest money was transferred from the Trustys’ realtor, Abbott, to
Hood’s realtor, Real Estate Network, pursuant to the terms of the purchase agreement. At
the time of trial, Real Estate Network retained the earnest money.
Hood filed a complaint for damages alleging breach of contract to sell residential
real estate against the Trustys. The trial began on July 26, 2013, after which the trial court
took the matter under advisement, allowing the parties to file proposed findings of fact and
conclusions thereon. After considering the parties’ submissions and arguments, the trial
court entered detailed findings of fact and conclusions thereon, entering judgment in favor
of Hood. The Trustys now appeal.
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DISCUSSION AND DECISION
In this case, the trial court asked the parties to submit proposed findings and then
entered findings of fact and conclusions thereon on its own motion. When a trial court
enters such findings, sua sponte, under Indiana Trial Rule 52, the specific findings control
only as to the issues they cover, and a general judgment standard applies to any issue upon
which the trial court has made no findings. Apter v. Ross, 781 N.E.2d 744, 751 (Ind. Ct.
App. 2003). The trial court’s specific findings will not be set aside unless they are clearly
erroneous, and we will affirm the trial court’s general judgment on any legal theory
supported by the evidence. Id. A finding is clearly erroneous when no facts or inferences
drawn therefrom support the finding. Id. On review, we neither reweigh the evidence nor
reassess the credibility of witnesses. Id. Instead, we consider only the evidence and
reasonable inferences from the evidence that support the finding. Id. “We owe no
deference to a trial court, however, on matters of law, reviewing these de novo.” Argonaut
Ins. Co. v. Jones, 953 N.E.2d 608, 614 (Ind. Ct. App. 2011).
Generally, the construction of a written contract is a question of law for the trial
court, whose decision we review de novo. Jenkins v. South Bend Cmty. Sch. Corp., 982
N.E.2d 343, 347 (Ind. Ct. App. 2013). “A long-standing principle of contract interpretation
is that a court on review must accept an interpretation of a contract that harmonizes all the
various parts, so that no provision conflicts with, is repugnant to, or neutralizes any other
contractual provision.” Id. at 348.
We are asked to review the trial court’s finding and conclusion that the residential
purchase agreement contained a penalty provision and not a liquidated damages clause.
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“The distinction between a penalty provision and one for liquidated damages is that a
penalty is imposed to secure performance of the contract and liquidated damages are to be
paid in lieu of performance.” Dean V. Kruse Found., Inc. v. Gates, 973 N.E.2d 583, 591
(Ind. Ct. App. 2012). Liquidated damages clauses provide for the forfeiture of a stated sum
of money upon a breach of contract without proof of damages and are generally enforceable
where the nature of the agreement is such that damages for breach would be uncertain,
difficult, or impossible to ascertain. Id.The Trustys contend that Hood kept the earnest money. However, the evidence
presented at trial established that the earnest money was retained by Hood’s realtor. The
residential purchase agreement provided that the seller’s realtor was to hold the earnest
money unless the parties entered into a mutual release or the trial court issued an order for
payment. At the conclusion of the trial, the trial court ordered the transfer of the earnest
money, which was held in escrow, to Hood’s attorney.
The Trustys also contend that the earnest money constituted liquidated damages
such that Hood could not recover damages beyond the $500.00 earnest money paid by
them. In Dean v. Kruse, we set forth certain factors for consideration in determining
whether a provision constitutes a penalty or a liquidated damages clause, including how
the provision is labeled, but acknowledged that there “are no hard and fast guidelines to
follow.” 973 N.E.2d at 591-92. Those factors include a consideration of whether there is
an intent to penalize the purchaser for a breach or if there is an intent to compromise, the
proportion of the amount claimed as liquidated damages with the amount of the loss likely
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to occur if there is a breach of the agreement, and whether the damages are ascertainable
or certain in the event of a breach. Id. at 591-93.
Applying those factors to the provision here, the trial court correctly found that the
earnest money was to serve as a penalty in the event of a breach. The earnest money
amount was grossly disproportionate to the actual damages, which were certain and
ascertainable. “[I]n most real estate purchase agreements, a measure of damages should
be readily ascertainable.” Id. at 594 (quoting Rogers v. Lockard, 767 N.E.2d 982, 990 n.6
(Ind. Ct. App. 2002)). “The measure of damages in a breach of real estate contract is the
difference between the sale price of the property to be sold and the fair market value of the
property at the time of breach.” Id. “The price paid by a subsequent purchaser following
the breach may also be admissible as evidence of the property’s fair market value.” Id.The contract price for the property was $113,000.00 and the subsequent purchase price was
$98,000.00. Hood also submitted evidence of the cost to maintain the property in the
interim. Thus, the damages were readily ascertainable, and the earnest money, $500.00,
was grossly disproportionate to the actual damages. The trial court’s decision is not clearly
erroneous.
The Trustys also argue that they were not in breach of the residential purchase
agreement because there was no evidence that Hood corrected the unacceptable items after
the property was inspected. The evidence adduced at trial established that Hood agreed to
correct all items on the unacceptable summary report from the inspection except one item.
The Trustys agreed in writing with Hood’s proposal for the corrections. Bland testified
that all the repairs were completed, and the property was ready for the October 11, 2011,
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closing date. The Trustys’ realtor testified that to her knowledge the repairs were
completed and that the repairs would have been easy to confirm during a walk through.
The walk through was never completed, however, because the Trustys were not present for
the closing.
There is no evidence in the record to establish that an alleged failure to complete the
repairs was the cause of the breakdown in the real estate purchase agreement. Instead, the
evidence reflects that the Trustys failed to close on the property because Adam’s father
passed away suddenly, and they did not wish to leave Adam’s mother alone. To that end,
they instructed Abbott to forward a mutual termination of the purchase agreement to Bland.
Therefore, the trial court’s conclusion that the Trustys were in breach of the real estate
purchase agreement is not clearly erroneous and is supported by the evidence.
Although the Trustys contend that Adam’s father’s death should excuse their breach
of the agreement, and allow for equitable principles to apply, such does not constitute a
“legal cause” to terminate the contract. The Trustys entered into a contract, the terms of
which proved more onerous than they anticipated. However, the parties were bound by the
contract, and the trial court did not err in enforcing the terms of the contract.
The Trustys assert that the costs and attorney fees assessed against them were not
reasonable. In particular, the Trustys argue that an award of $6,597.00 in attorney fees and
costs was excessive given the fact that the matter was tried to the bench and took only a
little more than two hours to complete. The Trustys, however, offer no evidence as to what
constitutes a reasonable fee.
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Here, the unambiguous language of the residential purchase agreement provided
that “the non-defaulting party may pursue all legal or equitable remedies available under
the law, and shall be entitled to all court costs and reasonable attorney fees, and said Earnest
Money Deposit shall be held, retained or released by Listing Broker under the listing
contract. . . .” Plaintiff’s Ex. 2 at 4. The evidence reflects that the Trustys defaulted on the
residential purchase agreement, and Hood rejected entering into a mutual release. Hood
testified that he worked with his attorney on most of the forty hours billed at a rate of
$150.00 per hour. That amount was supported by an affidavit signed by Hood’s counsel
attesting to the amount and reasonableness of the fee.
“It is well established that parties are permitted to enter into agreements containing
fee-shifting provisions as long as the provision does not violate public policy.” Gerstbauer
v. Styers, 898 N.E.2d 369, 379 (Ind. Ct. App. 2008) (quoting Walton v. Claybridge
Homeowners Ass’n, Inc., 825 N.E.2d 818, 824-25 (Ind. Ct. App. 2005)). The trial court
has broad discretion in assessing attorney fees, and that decision will be reversed only if
the award is clearly against the logic and effect of the facts and circumstances before the
trial court. Id. at 378. An abuse of discretion also occurs if the trial court misapplies the
law. Id.
Here, the contract contemplated an award of attorney fees if one of the parties was
required to enforce legal rights. An award of attorney fees pursuant to an agreement
between the parties accomplishes the goal of more fully compensating a party who has
successfully enforced his or her legal rights in court. Id. at 379. The Trustys defaulted on
the purchase agreement in October of 2011, and Hood’s complaint was filed on June 21,
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2012. The matter continued through a bench trial held on July 26, 2013. In preparation
for that trial, Hood’s attorney was required to review the purchase agreement, interview
the witnesses, document the evidence, and research the legal issues in preparation for trial.
The attorney billed Hood for forty hours at a rate of $150.00 an hour. That attorney had
thirty-five years of experience. In light of the time and effort required, the value of the
interests involved, and the experience, reputation, and ability of the attorney performing
the services, the trial court did not abuse its discretion in making the award of attorney fees
and costs.
Affirmed.
BAILEY, J., and CRONE, J., concur.
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