Johnson v. Carman , 1977 Utah LEXIS 1293 ( 1977 )

MAUGHAN, Justice:

Defendant-appellant, a seller of real property to plaintiff-respondent under a uniform real estate sales contract, appeals from a decision of the Fourth Judicial District Court of Duchesne County. The lower court granted respondent-buyer damages of $8,845.00 in an action by respondent to recover part of the money paid under the contract. The court held that to enforce the forfeiture provision of the sales contract was unconscionable. Affirmed. Costs to respondent.

Appellant (hereafter referred to as seller) and respondent (hereafter buyer) entered into a uniform real estate contract on May 3, 1975 for the sale of real property in Duchesne County, Utah. The agreed upon price was $170,000.00. Payments were to be made as follows: $20,000.00 down payment on the date of execution of the contract and monthly payments of $1,477.11 for 12 months, beginning on June 15, 1975. After these 12 months a balloon payment of $15,000.00 would be due, followed by 12 more monthly payments of $1,477.11 and another balloon payment of $7,649.36. Following the second balloon payment the balance of the purchase price, together with interest at 814% per annum would be paid in equal monthly installments of $1,428.57 for 120 months.

Buyer performed under the contract until the early part of 1976. By mutual agreement the contract was altered on March 22, 1976. Buyer made the first payment under the altered contract on April 1, 1976 but then defaulted again. Buyer notified seller in May, 1976 he was unable to make any further payments, whereupon seller sent buyer a proper demand notice and buyer quit the premises on May 24, 1976.

Shortly afterward, buyer requested that he and seller arrange something about retaining buyer’s equity. Seller refused and buyer requested permission to re-enter the property on June 3, 1976. Seller denied permission and buyer brought suit on June 17, 1976.

The trial court made findings of fact concerning the amounts paid by buyer as follows:

Down payment $20,000.00

Payments on principal 3,839.31

Payments on interest 10.756.79

Total $34,596.10

The court found that seller sustained the following damages:

Interest on $150,000.00 to May 24, 1976, at 8½% per annum $14,485.00

Benefit of bargain 5,500.00

Attorney’s fees 1,165.00

Reasonable cost to restore premises 4.500.00

Total $25,650.00

The court, on these facts, held it unconscionable for seller to retain the entire sum paid by buyer. The court accordingly awarded the difference, viz., $8,845.00, as damages to buyer.

On appeal appellant contends the forfeiture clause of the uniform sales contract is valid and should be enforced.¹

The law in Utah with respect to such provisions appears well settled. Last year in Kay v. Wood, Utah, 549 P.2d 709 (1976) we expressed the following regarding forfeiture provisions in real estate sales contracts:

This court has long been committed to the rule that parties to a contract may agree as to the amount of liquidated damages that shall be paid in the case of a breach, that the agreement is enforceable if the amount stipulated to is not disproportionate to the damages actually sustained. The provision in a contract for the sale of real property that all payments which have been made will be forfeited as liquidated damages will not be enforced if the forfeiture would be grossly excessive and disproportionate to any possible loss so as to shock the conscience.

See also Perkins v. Spencer, 121 Utah 468, 243 P.2d 446 (1952); Jacobson v. Swan, 3 Utah 2d 59, 278 P.2d 294 (1954); Peck v. Judd, 7 Utah 2d 420, 326 P.2d 712 (1958).

Although we do not purport to lay down any specific percentage which will be considered unconscionable, to allow the seller to retain the $34,596.10 paid by buyer when seller’s actual damages amount to only $25,650.00 would be “grossly excessive and disproportionate to any possible loss.” Such would be to allow seller to retain payments totaling some 34% greater than the actual damages determined by the trial court.

The Restatement of Contracts, section 339, cited with approval in Perkins v. Spencer, supra, is in accord with this position. That section states:

(1) An agreement made in advance of breach fixing the damages therefore, is not enforceable as a contract and does not affect the damages recoverable for the breach unless:

(a) The amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and

(b) The harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.

In this case it appears the damages are fairly capable of accurate estimation. Since both (a) and (b) must be met the provision is not enforceable under section 339. The primary reason for the requirement that damages be difficult to estimate is that when they are ascertainable, exact damages determined at the time of breach will nearly always be more fair than those guessed at by the parties at the time of contracting. Such is certainly the situation here.

Appellant also contends the trial court used the wrong formula to compute seller’s damages, and hence miscalculated the damage award to buyer. Specifically, seller relies on Perkins v. Spencer, supra, and the factors listed there to be used to calculate damages. Those factors were:

1. Loss of an advantageous bargain;

2. Any damage to or depreciation of the property;

3. Any decline in value due to change in market value of the property not allowed in items No’s. 1 and 2;

4. For the fair rental value during the period of occupancy.

Although these are reasonable factors to determine damages, they were not meant to be a rigid formula to be applied mechanically in every case. In determining equitable damages, the trial court may use whatever factors it finds most appropriate to achieve justice. The court did use some of the factors suggested in Perkins. Here though, instead of using what may have been a speculative fair market value, seller was granted interest on the unpaid balance of the contract. The 8½% per annum rate used was one agreed upon by the parties in the contract.

We are not persuaded the trial court was not fair in its determination of the equities.

WILKINS and HALL, JJ., concur.

1 . In this connection see Carlson v. Hamilton 8 Utah 2d 272, 332 P.2d 989 (1958), where the buyer elected to proceed pursuant to the contract.