On appeal from Superior Court of New Jersey, Law Division, Mercer County.
Approved for Publication January 6, 1997.
Before Judges Michels, Kleiner and Coburn. The opinion of the court was delivered by Coburn, J.
The opinion of the court was delivered by: Coburn
The opinion of the court was delivered by
COBURN, J.S.C. (temporarily assigned).
This is an action on a contract for the sale of residential property between a corporate developer and consumers. The contract included a liquidated damages clause which, if enforceable, would permit the seller to retain a deposit of $79,027.40. The matter was decided below in favor of plaintiffs on a motion for summary judgment. The Wilson defendants had guaranteed the corporate obligation respecting return of the deposit. Defendants appeal. Plaintiffs, asking us, as they did the court below, to assume that they breached the agreement, seek return of their deposit on the ground that the seller suffered no damages. Defendants ask us, as they did the court below, to assume no damages flowed from the breach and to, nonetheless, permit retention of the deposit as liquidated damages because the amount stipulated in the contract was a reasonable estimate of damages likely to result from a breach by the buyers. In other words, defendants contend that the lack of actual damages is irrelevant. We cannot accept defendants' position. Consequently, for the reasons stated below, we affirm this aspect of the summary judgment in plaintiffs' favor. The judgment also contains an award of counsel fees against defendants which cannot stand on the record below.
On January 25, 1992, the parties signed a contract for the sale of realty and the construction of a house with a purchase price of $651,488.70. The deposit (representing ten percent of the purchase and fifty percent of the extras) was $79,027.40. Although plaintiffs' complaint contends defendants breached the agreement by failing to complete construction in a timely fashion, for purposes of the motion for summary judgment and this appeal they concede the breach was their doing.
On November 19, 1993, the corporate developer contracted to sell the house to another couple for $840,000, with a deposit of $10,000, the balance to be paid at closing of title, which occurred in due time at a final price of $845,484. Thus, the resale price exceeded the plaintiffs' contract price by $193,995.30. The motion Judge, after painstakingly reviewing the developers alleged additional costs, found that no loss accrued to defendants; and the defendants ask us to assume they lost nothing for purposes of this appeal.
In Kutzin v. Pirnie, 124 N.J. 500, 591 A.2d 932 (1991), the Court held that absent a liquidated damages clause in a contract for the sale of real estate, a purchaser in breach was entitled to the return of that portion of the deposit which exceeded the seller's actual loss. Id. at 511-17. The Court went on to say:
To ensure that our opinion not be misread, we emphasize that the contract at issue does not contain a forfeiture or liquidated damages clause; it merely states, "If this contract is voided by either party, the escrow monies shall be disbursed pursuant to the written direction of both parties." The contract is otherwise silent on the subject of what would happen to the deposit were the sale not to occur. Had the contract contained a liquidated damages clause, this case would have been governed by section 374(2) of the Restatement (Second) of Contracts, which states:
To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated loss caused by the breach and the difficulties of proof of loss.
Although we do not consider the validity or enforceability of a liquidated damages clause in this case, we are reminded of Professor Corbin's warning: "Penalties and forfeitures are not favored; and calling an outrageous penalty by the more kindly name of liquidated damages does not absolve it from its sin." Defaulting Vendee, (supra) , 40 Yale L.J. at 1016; cf. Central Steel Drum Co. v. Gold ...