Khan v. Bakhsh

129 Nev., Advance Opinion 57
IN THE SUPREME COURT OF THE STATE OF NEVADA
MUHAMMAD Q. KHAN, AN No. 60262
INDIVIDUAL; AND MAIMOONA Q.
KHAN, AN INDIVIDUAL,
Appellants, FILED
vs. AUG 0 1 2013
QADIR BAKHSH, AN INDIVIDUAL,
TRACIE K. LINDEMAN
Respondent. CLE5110= COURT
BY --rk a...-
DEPUTY CLERK
Appeal from a district court judgment after a bench trial in a
contract and tort action. Eighth Judicial District Court, Clark County;
Michelle Leavitt, Judge.
Reversed and remanded with instructions.
Michael H. Singer, Ltd., and Michael H. Singer, Las Vegas,
for Appellants.
Agwara & Associates and Liborius I. Agwara and George A. Maglares, Las
Vegas,
for Respondent.
BEFORE HARDESTY, PARRAGUIRRE and CHERRY, JJ.
OPINION
By the Court, CHERRY, J.:
At the bench trial in this case, Muhammad Q. and Maimoona
Q. Khan presented evidence of an allegedly written, but lost or destroyed,
agreement between the Khans and Qadir Bakhsh to purchase a certain
restaurant and land from Bakhsh. The district court excluded this
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evidence under the statute of frauds because the Khans failed to produce
the written agreement. The question in dispute is whether the district
court erred when it applied the statute of frauds to preclude consideration
of the Khans' evidence regarding the existence and terms of the allegedly
lost or destroyed written agreement. We conclude that the statute of
frauds does not apply to a writing that is subsequently lost or destroyed,
and oral evidence is admissible to prove the existence and terms of that
lost or destroyed writing. Thus, we reverse the district court's order and
remand this matter to the district court for further proceedings.
FACTS
Respondent Qadir Bakhsh owned a restaurant and the real
property on which it was located, which appellants Muhammad Q. and
Maimoona Q. Khan agreed to purchase. The parties' first buy-and-sell
agreement provided that the Khans would purchase the property for
$600,000 by paying off Bakhsh's outstanding first and second mortgages.
Both parties agreed that subsequent second and third agreements existed,
and the third agreement set a purchase price of $990,000, wherein the
Khans would pay off the $600,000 outstanding first and second mortgages
and execute a $390,000 promissory note in favor of Bakhsh. This third
agreement and promissory note proceeded through escrow and, according
to Bakhsh, was the operative agreement between the parties. The Khans
never made any payments on the $390,000 promissory note, and Bakhsh
eventually initiated the underlying suit against the Khans to recover the
principal and unpaid interest.
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At the bench trial, the Khans presented evidence that a fourth
agreement existed, which again set the purchase price for the property at
$600,000. According to the Khans, the only executed copy of this
agreement was given to a third party, Tahir Abbas Shah, for safekeeping.
After relations between Bakhsh and the Khans deteriorated, Bakhsh's
brother allegedly stole the signed copy of the fourth agreement from Shah.
Shah testified that when he confronted Bakhsh about the stolen fourth
agreement, Bakhsh initially agreed to return it, but never did so.
Bakhsh contended that the fourth agreement never existed,
and that the third agreement and the promissory note, under which the
purchase proceeded through escrow, contained the agreed-upon purchase
price and terms of the sale. The Khans maintained that the fourth
agreement, while stolen and allegedly destroyed by Bakhsh or his brother,
was the actual agreement between the parties, or alternatively that the
third agreement was fraudulently induced.
In its order after the bench trial, the district court refused to
consider most of the evidence that the Khans presented. The court found
that the Khans' evidence of the destroyed fourth agreement was barred by
the statute of frauds because it was an "unwritten" agreement for the
purchase of property. The district court also found that Muhammad
Khan's testimony about terms that differed from the terms of the third
agreement was barred by the parol evidence rule. After declining to
consider this evidence, the district court found that the Khans breached
the third agreement and entered judgment in favor of Bakhsh. The
district court awarded Bakhsh monetary damages of $390,000 plus
interest for the Khans' failure to pay the $390,000 promissory note,
$20,000 for Bakhsh's remaining interest in the restaurant, $585,000 in
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liquidated damages pursuant to a provision in the third agreement, and
$1,359.77 in costs. The Khans appealed.
DISCUSSION
We begin our review of the issues presented in this appeal by
examining the district court's application of the statute of frauds and the
parol evidence rule, before addressing the damages award.
Application of evidentiary rules
Statute of frauds
The Khans argue that the district court erred when it applied
the statute of frauds to bar their evidence of a fourth written contract that
they alleged was later stolen and destroyed. We agree with the Khans
that the statute of frauds does not bar oral evidence of such a contract.
Nevada's statute of frauds provides that every contract for the
sale of land is void unless the contract is in writing, and thus, oral
agreements to convey real property cannot be enforced. NRS 111.205(1),
see also Butler v. Lovoll, 96 Nev. 931, 934-35, 620 P.2d 1251, 1253 (1980).
Because the Khans did not present a writing evidencing the fourth
agreement, the district court deemed it an "unwritten" agreement and
applied the statute of frauds to bar the Khans' evidence of the fourth
agreement. But the Khans did not allege that the fourth agreement was
oral or unwritten. Instead, they presented testimony, from themselves
and Shah, and documentary evidence regarding the existence and terms of
a fourth written agreement, which was allegedly subsequently lost or
destroyed by Bakhsh. Because this evidence pertained to the existence
and terms of an allegedly written agreement, the statute of frauds is
satisfied and this evidence is admissible. See Lutz v. Gatlin, 590 P.2d 359,
361 (Wash. Ct. App. 1979).
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The admissibility of evidence concerning a written agreement
is not affected by the subsequent loss or destruction of such an agreement.
Its loss or destruction does not render it "unwritten" and the evidence of
its existence and terms barred by the statute of frauds. Id. Indeed, when
one party allegedly stole or destroyed the agreement, as the Khans allege
Bakhsh did here, that party may not use the statute of frauds to sanction
his obliteration of the agreement to the detriment of the other party. See
Baker v. Mohr, 826 P.2d 111, 113 (Or. Ct. App. 1992). Thus, in this case,
the district court erred when it found that the statute of frauds barred the
Khans' evidence of the existence and terms of the alleged fourth written
agreement. Edwards Indus., Inc. v. DTE I BTE, Inc., 112 Nev. 1025, 1033,
923 P.2d 569, 574 (1996) (stating that the district court's application of the
statute of frauds is a question of law, which this court reviews de novo).
Accordingly, the Khans were entitled to present parol or other evidence to
prove the existence and contents of the allegedly lost or destroyed fourth
agreement. Joseph E. Seagram & Sons, Inc. v. Shaffer, 310 F.2d 668, 674-
75 (10th Cir. 1962); Mark Keshishian & Sons, Inc. v. Wash. Square, Inc.,
414 A.2d 834, 840 (D.C. Ct. App. 1980). We therefore reverse that portion
of the district court's judgment.
Parol evidence
The Khans also argue that the district court abused its
discretion by applying the parol evidence rule to bar Muhammad Khan's
and Shah's testimony regarding terms contrary to the third agreement to
show that the third agreement was induced by fraud. The parol evidence
rule generally bars extrinsic evidence regarding prior or contemporaneous
agreements that are contrary to the terms of an integrated contract.
Crow-Spieker No. 23 v. Robinson, 97 Nev. 302, 305, 629 P.2d 1198, 1199
(1981). Extrinsic or oral evidence, however, is admissible to prove fraud in
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the inducement of an agreement, Golden Press, Inc. v. Pac. Freeport
Warehouse Co., 97 Nev. 163, 164, 625 P.2d 578, 578 (1981), to establish a
subsequent alteration of an agreement, M.G. Multi-Family Dev. v.
Crestdale Assocs. Ltd., 124 Nev. 901, 914, 193 P.3d 536, 545 (2008), or to
prove the existence and terms of a written, but lost or destroyed,
agreement. See, e.g., Joseph E. Seagram & Sons, 310 F.2d at 674-75.
Thus, the district court's application of the parol evidence rule to exclude
testimony that was inconsistent with the terms of the third agreement,
but that was offered as evidence that the third agreement was procured by
fraud or that the subsequent fourth agreement was reached and
memorialized in writing, but later lost or destroyed, was an abuse of
discretion. M.C. Multi-Family Dev., 124 Nev. at 913-14, 193 P.3d at 544-
45 (providing that the district court's application of the parol evidence rule
is reviewed for an abuse of discretion). We therefore reverse the district
court's order to the extent that it excluded this evidence. Because we
address only the district court's error in excluding admissible evidence, on
remand, the district court should independently weigh the admissible
evidence and enter a new judgment accordingly.
Liquidated damages
While we reverse and remand this case based upon the
evidentiary errors, we also address the Khans' argument that the district
court improperly awarded liquidated damages to Bakhsh because the
liquidated damages provision was a penalty. "[L]iquidated damage
provisions are prima facie valid," Haromy v. Sawyer, 98 Nev. 544, 546, 654
P.2d 1022, 1023 (1982), and serve as a good-faith effort to fix the amount
of damages when contractual damages are uncertain or immeasurable.
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Joseph F. Sanson Inv. Co. v. 268 Ltd., 106 Nev. 429, 435, 795 P.2d 493,
496-97 (1990).
In this case, the liquidated damages provision in the third
agreement required the breaching party to pay additional damages of
"150% of actual damages." Thus, by its very terms, this liquidated
damages clause requires ascertaining actual damages and imposes
additional damages as a penalty for breach. Such a penalty for breach of
an agreement is an unenforceable penalty. See Mason v. Fakhimi, 109
Nev. 1153, 1156-57, 865 P.2d 333, 335 (1993); Joseph F. Sanson Inv. Co.,
106 Nev. at 435, 795 P.2d at 497. Applying the de novo review
appropriate to liquidated damages awards, Dynalectric Co. of Nev., Inc. v.
Clark & Sullivan Constructors, Inc., 127 Nev. „ 255 P.3d 286, 288
(2011), we conclude that the district court erred in awarding liquidated
damages to Bakhsh because actual damages were ascertainable and the
provision here operated as a penalty. Am. Fire & Safety, Inc. v. City of N.
Las Vegas, 109 Nev. 357, 359-60, 849 P.2d 352, 354 (1993) (providing that
the interpretation of contractual provisions, including liquidated damages,
are reviewed de novo unless the interpretation turns on the credibility of
extrinsic evidence). We therefore reverse this determination.
CONCLUSION
The district court incorrectly applied the statute of frauds to
exclude evidence concerning the existence and terms of a fourth written,
but allegedly lost or destroyed, agreement. Likewise, it improperly
excluded evidence concerning whether the third agreement was induced
by fraud or modified by a subsequent agreement because the parol
evidence rule does not preclude such evidence. In addition, because actual
damages were ascertainable and the liquidated damages provision
operated as a penalty, the district court erred by awarding liquidated
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damages. For these reasons, we reverse the judgment of the district court
and remand for further proceedings consistent with this opinion.
We concur:
Hardesty
—
Parraguirre
8