March 24, 2008
VINCENT J. MORROCCO, PLAINTIFF-APPELLANT,
LIMETREE ENTERPRISES, INC., D/B/A BARRY HERMAN ORCHESTRAS & ENTERTAINMENT,*FN1 DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Essex County, Docket No. DC-29816-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted February 25, 2008
Before Judges S. L. Reisner and Gilroy.
Plaintiff appeals from the March 13, 2007, order of the Special Civil Part, which dismissed his complaint on motion for judgment at the conclusion of a bench trial. We affirm.
Defendant is engaged in the business of providing musical entertainment, including bands for wedding parties. On June 6, 2003, plaintiff entered into a one-page written contract with defendant to provide a band known as "Cashmere" for plaintiff's daughter's wedding scheduled for August 14, 2004. The contract required plaintiff to pay a total price of $10,000: $3,300 on signing of the contract; a like sum ninety days prior to the wedding; and the balance fourteen days prior to the event.
The contract contained several sections that were set off from each other by large block print, specifying the contents of each section. The first section was captioned: "NON-REFUNDABLE DEPOSIT: BALANCE DUE." Under that caption, the contract provided in pertinent part: "Once you sign the contract the deposits are not refundable for any reason." Under another heading entitled "CANCELLATION OF CONTRACT: LIQUIDATED DAMAGES," the contract provided in pertinent part:
In addition, You understand that the service provided by the Orchestra/Performers is unique and that the Orchestra/Performers makes arrangements to provide music a substantial time before the Date of the Engagement. You understand that the Orchestra/Performers will engage musicians to appear on the Date of Engagement. If you cancel this contract, the Orchestra/Performers will suffer damages because of its obligation to those musicians. These damages are difficult to measure. Therefore, if You cancel this contract at any time up to thirty-one (31) days before the Date of Engagement, the Orchestra/Performers has the right to keep the deposits as liquidated damages to compensate the Orchestra/Performers for expenses and losses which result from cancellation of Contract by You.
On July 24, 2003, plaintiff notified defendant in writing that his daughter's wedding was cancelled and requested a refund of his $3,300 deposit. Defendant did not return the deposit.
On October 28, 2004, although plaintiff never received a refund of his deposit on the original contract, plaintiff entered into a second contract with defendant to provide the same band for his daughter's wedding, then scheduled for October 22, 2005. The second contract was identical in form and content with the first contract, except for the amount to be paid by plaintiff and the scheduled date of the wedding. The second contract required plaintiff to pay defendant $12,000, with $4,000 paid as a deposit. On February 10, 2005, plaintiff sent defendant a letter canceling the second contract and requesting a return of the $4,000 deposit.
On September 19, 2006, after defendant refused to return both deposits, plaintiff filed a complaint in the Special Civil Part, seeking a return of the two deposits.*fn2 At conclusion of the trial, Judge John Kennedy rendered an oral opinion, granting defendant's motion for judgment, determining that the non-refundable deposit provision of the two contracts was valid and enforceable. In making his decision, the judge stated in relevant part:
The plaintiff says that keeping a nonrefundable deposit, even though he signed the contract, even though he read the contract, even though he understood the contract, he claims that it is nonetheless an invalid penalty.
There is a difference between liquidated damages and an invalid penalty, and the case of Westmont Country Club v. Ka[m]eny, . . . 82 N.J. Super. 200 [(App. Div. 1964)], really spells out the difference. And in that case in an opinion by Judge Collester the [c]court noted that liquidated damages is a sum a party to a contract agrees to pay. If he breaks some promise in which having been arrived at, at a good faith effort to estimate in advance the actual damages that will probably ensue from the breach is legally recoverable as agreed damages if a breach occurs. Penalty, however, is a punishment, has no relation whatsoever to the amount of damages somebody suffers and the threat is designed to prevent a breach.
The [c]court went on to say that 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 a breach unless, A.) the amount so fixed 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 difficult of accurate estimate.
In this particular case it would appear that the damages really are somewhat incapable of accurate measurement. This is evidenced by the following facts.
No. 2, the parties agreed in their contract and recognized that damages are difficult to measure and that the orchestra performer suffered damages if there is a breach of the contract. And one can never go back I suppose and find out how many people appeared at Barry Herman between June 6, 2003[,] and July 24, 2003[,] in an effect to book a band for August 14[,] 2004[,] and were turned down.
Similarly, there is no easy way to estimate how many people came between . . . October 28, 2004[,] and February 10, 2005[,] in an effort to book a band for October 22, 2005[,] and were turned down on those particular dates because of the fact that a contract had existed for this thirteen member band. Well, I guess when it says Cashmere thirteen I guess that means thirteen people are in the band, I guess, or at least I find that's reasonable to assume.
So these kinds of damages are difficult to estimate, and moreover I find that Barry Herman naturally wants to keep a good relationship with its . . . bands, especially its more popular bands and, therefore, when the contract was entered into he immediately gives fifty percent of that deposit to the band and he [also gives] a portion of . . . the deposit to the contract person who signed up the client, and so Barry Herman knows and understands that at the time that the contract is entered into a fair portion of the more than fifty percent of the deposit is [going to be paid] to third parties . . . .
So it's clear that Barry Herman suffers damages if somebody, in fact, does breach the contract because he's already paid out deposit monies and already paid out monies to the sales[person].
So I must say this to you, Mr. Morrocco. I don't find [under this circumstance that the non-refundable deposit contract provision] is an undue penalty. I find that it's a reasonable liquidated damages clause in this particular circumstance.
On appeal, plaintiff argues:
THE TRIAL COURT'S ORDER DISMISSING THE COMPLAINT SHOULD BE REVERSED BECAUSE THE ENFORCEMENT OF A STIPULATED DAMAGE CLAUSE REQUIRES A FINDING THAT THE CLAUSE IS "REASONABLE" AND THE LAW REQUIRES THAT THIS FINDING BE BASED ON A FOUR-PART TEST. NO EVIDENCE WAS ADDUCED AT TRIAL AS TO THREE OF THE FOUR PRONGS OF THIS TEST AND THE TRIAL COURT DID NOT APPLY THREE OF THESE FOUR PRONGS IN FINDING THAT THE CLAUSE WAS "REASONABLE." MOREOVER, AS TO THE TEST ON WHICH EVIDENCE WAS ADDUCED; E.G.[,] THAT THE DAMAGES WERE DIFFICULT TO ASSESS, THE TRIAL COURT'S FINDING THAT THE DAMAGES WERE DIFFICULT TO ASSESS IS NOT SUPPORTED BY THE EVIDENCE IN THE RECORD AND IS PATENTLY WRONG.
THE ORDER OF THE TRIAL COURT ENFORCING THE STIPULATED DAMAGE CLAUSE IN THIS CONSUMER CONTRACT SHOULD BE REVERSED BECAUSE A STIPULATED DAMAGE CLAUSE IN A CONSUMER CONTRACT IS EITHER NOT ENFORCEABLE, OR, IF ENFORCEABLE, MUST INCLUDE A SHOWING BY THE VENDOR THAT A DILIGENT, GOOD FAITH EFFORT WAS MADE TO MITIGATE DAMAGES AND THAT DESPITE SUCH EFFORT DAMAGES WERE NOT MITIGATED AND THE DEPOSIT SHOULD BE RETAINED. SINCE SUCH A SHOWING WAS NOT MADE BELOW[,] THE ORDER OF THE TRIAL COURT SHOULD BE REVERSED AND JUDGMENT SHOULD BE ENTERED IN APPELLANT'S FAVOR.
Reviewing courts "'do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice . . . .'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974) (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995).
"The purpose of a stipulated damages clause is not to compel the promissor to perform, but to compensate the promissee for non-performance." Wasserman's, Inc. v. Middletown Twp., 137 N.J. 238, 254 (1994). "Enforceable stipulated damages clauses are referred to 'liquidated damages,' while unenforceable provisions are labeled 'penalties.'" MetLife Capital Fin. Corp. v. Wash. Ave. Assocs., 159 N.J. 484, 493 (1999) (quoting Wasserman's, Inc., supra, 137 N.J. at 248). "Liquidated damages is the sum a party to a contract agrees to pay if he breaks some promise, . . . arrived at by a good faith effort to estimate in advance the actual damage that will probably ensue from the breach, is legally recoverable as damages if the breach occurs."
Westmount Country Club, supra, 82 N.J. Super. at 205. However, "[a] penalty is the sum a party agrees to pay in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach." Ibid.
Courts favor enforcement of liquidated damage clauses because of principles of judicial economy and freedom of contract. MetLife, supra, 159 N.J. at 504. In determining whether a stipulated damage clause is enforceable as a valid liquidated damage clause or unenforceable as a penalty, we are guided by the test of whether the stipulated damage clause "is reasonable under the totality of the circumstances." MetLife, supra, 159 N.J. at 495 (quoting Wasserman's Inc., supra, 137 N.J. at 249). "The reasonableness test is applied either at the time the contract is made or when it is breached." Id. at 502.
We have considered plaintiff's arguments in light of the record and applicable law. We are satisfied that plaintiff's contentions are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the reasons expressed by Judge Kennedy in his oral decision on March 6, 2007. R. 2:11-3(e)(1)(A).
Nevertheless, we add the following comments.
Plaintiff argues that the bargaining power of the parties, when negotiating and executing the contracts, was not equal.
Plaintiff contends that defendant "controlled access to the band, the band was a very popular wedding band, the band was not a fungible item, and [plaintiff's] daughter wanted this particular wedding band to play at her wedding." Plaintiff asserts that he "had to either make a deal with [defendant] or disappoint his daughter."
We determined nothing unconscionable or unfair about defendant requiring a reasonable non-refundable deposit from plaintiff on signing a contract to reserve a particular band for a future event. The contracts were not contracts of adhesion, that is, "one which is not bargained for, but rather imposed on a member of the public for a necessary service on a take-it-or-leave-it-basis." McBride v. Minstar, Inc., 283 N.J. Super. 471, 491 (Law Div.), aff'd o.b. sub nom, McBride v. Raichle Molitor, USA, 283 N.J. Super. 422 (App. Div.), certif. denied, 143 N.J. 319 (1995), overruled on different grounds, Newman v. Isuzu Motors Am. Inc., 367 N.J. Super. 141 (App. Div. 2004). "[I]t is the need for the goods or services provided, coupled with a take-it-or-leave-it approach, that creates disparate bargaining power." Ibid. We conclude that when plaintiff entered into the contracts to reserve the particular band for his daughter's wedding, he did not have a need for that service, only a desire.
The stipulated damage clause was reasonable, constituting a valid and enforceable liquidated damage provision; not a penalty. Immediately on signing each contract, defendant: agreed to provide the Cashmere Band to play at plaintiff's daughter's wedding, and not permit the band to play elsewhere on the dates committed; paid one-half of each deposit to the band, reserving the band for the dates of the wedding; and paid a portion of the balance of each deposit to its salesperson.
Accordingly, only a portion of each deposit was retained by defendant as damages caused by plaintiff's breach. Under these facts, we discern that the stipulated damage clause was not unreasonable.