3 Div. 954.
October 27, 1953.
Appeal from the Circuit Court, Montgomery County, Walter B. Jones, J.
The following charge was given for plaintiff:
"8. I charge you that irrespective of any provision of a contract, a person who claims to have been injured as a result of a breach thereof is entitled to recover only the amount of damage which he has actually suffered as a result of such breach."
Capell, Howard Cobbs and Lawrence J. Fassman, Jr., Montgomery, for appellant.
It is a question of law for the court and not the jury whether a provision, in a contract for sale of land, for forfeiture of the binder or down payment in event of default by purchaser is one for liquidated damages or a penalty. Keeble v. Keeble, 85 Ala. 552, 5 So. 149; Stratton v. Fike, 166 Ala. 203, 51 So. 874; Federal Land Bank v. Bridgeforth, 233 Ala. 679, 173 So. 66; Weiss v. United States Fidelity Guaranty Co., 300 Ill. 11, 132 N.E. 749; Shields v. Early, 132 Miss. 282, 95 So. 839; Hammaker v. Schleigh, 157 Md. 652, 147 A. 790, 65 A.L.R. 1285. Where from the nature of a contract the damages for a breach thereof cannot be ascertained with any degree of certainty, the parties may stipulate in advance as to the amount to be paid as compensation for its breach, provided the amount agreed on is not out of all proportion to the probable damages. J. B. Colt Co. v. Armstrong Light Co., 17 Ala. App. 378, 85 So. 570; Stratton v. Fike, supra; American Dist. Tel. Co. v. Roberts Son, 219 Ala. 595, 122 So. 837; Piazza v. Liberty Motors, 34 Ala. App. 376, 43 So.2d 134; McPherson v. Robertson, 82 Ala. 459, 2 So. 333; Zucht v. Stewart Tile Guaranty Co., Tex.Civ.App., 207 S.W.2d 414; Wilkinson v. Lanterman, 314 Mich. 568, 22 N.W.2d 827; Gregory v. Nelson, 147 Kan. 682, 78 P.2d 889; Watt's Ex'rs v. Sheppard, 2 Ala. 425.
W. Ervin James, Montgomery, for appellee.
In case of doubt as to whether a provision in a contract was one to provide for liquidated damages or for a penalty, a construction in favor of finding the provision to be a penalty is preferred. Keeble v. Keeble, 85 Ala. 552, 5 So. 149; Shields v. Early, 132 Miss. 282, 95 So. 839; Stratton v. Fike, 166 Ala. 203, 51 So. 874; 15 Am.Jur. Damages, § 245; Pembroke v. Caudill, 160 Fla. 948, 37 So.2d 538, 6 A.L.R. 2d 1401. The words used in the contract such as penalty, or forfeiture, or liquidated damages, are not controlling. Keeble v. Keeble, supra; Watt's Ex'rs v. Sheppard, 2 Ala. 425; Mansur Tebbetts Implement Co. v. Tissier Arms Hardware Co., 136 Ala. 597, 33 So. 818; Pembroke v. Caudill, 160 Fla. 948, 37 So.2d 538, 6 A.L.R. 2d 1395; Shields v. Early, supra. If the amount stipulated to be paid in case of breach is disproportionate to the amount of probable damages, a construction in favor of a penalty is usually held. Keeble v. Keeble, 85 Ala. 552, 5 So. 149; 15 Am.Jur. Damages, § 249; World's Exposition Shows v. B. P. O. Elks, No. 148, 237 Ala. 329, 186 So. 721. If the actual damages which a breach of a contract will occasion are readily ascertainable, or are susceptible of measurement by some adequate and approved legal standard, the stipulation will be held to be one for a penalty. Federal Land Bank v. Bridgeforth, 233 Ala. 679, 173 So. 66; Stratton v. Fike, supra; Pembroke v. Caudill, supra; 15 Am.Jur. Damages, § 252; Henderson v. Murphree, 109 Ala. 556, 20 So. 45; McPherson v. Robertson, 82 Ala. 459, 2 So. 333.
This was a suit to recover $500 paid by the plaintiff as a binder, or earnest money on a contract to purchase real estate.
The complaint was on the common counts for money had and received, and issue was joined on a plea in short by consent.
The defendant, Yarbrough Realty Company, had been given a contract by the owners of the property to sell the same on a commission basis.
On June 23, 1951, after viewing the property, the plaintiff entered into a contract for the purchase. The purchase price was to be $12,032.36, with a $500 binder paid on signing the contract, and $1,750 to be paid on closing the sale, and the assumption of a mortgage on the property by the plaintiff in the amount of $9,782.36.
Paragraph 8 of the contract provided that:
"Party of the second part attaches hereto a check in the amount of $500.00 to act as good-will money and to be applied on the purchase price at the consummation of sale. Should the purchaser fail to carry out this contract in accordance with all its provisions, the earnest money as shown herein shall be forfeited as liquidated damages at the option of the seller and the earnest money so forfeited shall be divided between seller and the agent. Or seller may proceed for specific performance and agent shall be entitled to his commission."
The plaintiff paid to the defendant the $500 binder pursuant to the contract.
The plaintiff testified that later on the same day, which was a Saturday, finding he could not raise the $1,750 he went to defendant's office to advise them of this fact, but found the office closed. The following Monday morning plaintiff returned and advised the defendant he could not complete the transaction and requested a return of the binder money. The defendant asked the plaintiff to make further efforts.
On June 30, 1951, one week later, the plaintiff's attorney advised the defendant that the plaintiff was unable to complete the transaction, and offered to pay any damages that could be agreed on.
The defendant thereupon refused to return the $500 paid by the plaintiff as a binder.
Over the defendant's objections the plaintiff was also permitted to introduce evidence tending to show that the defendant on July 9, 1952 bought the house from the seller for the same sum as that agreed to by the plaintiff, the seller agreeing to release her one-half interest in the $500 binder, and further that the property was sold on July 10, 1952 for the sum of $12,500.
In his oral charge to the jury the court instructed the jury that they were to determine whether the stipulation as to the binder provided for liquidated damages, or for a penalty.
An exception was duly reserved to such instructions by the court.
It is virtually the unanimous rule of all jurisdictions that whether a stipulation is for liquidated damages or for a penalty is a question of law for the court. McCormick on Damages, Section 157; 15 Am. Jur. Section 242.
It is the clear implication of the doctrines of our cases that the rule in Alabama is in accord with this general view. Keeble v. Keeble, 85 Ala. 552, 5 So. 149; Stratton v. Fike, 166 Ala. 203, 51 So. 874; Henderson-Boyd Lumber v. Cook, 149 Ala. 226, 42 So. 838.
The court therefore erred in that portion of its oral charge submitting to the jury for its determination the character of the stipulation involved in the contract in this case, that is whether the stipulation called for liquidated damages or for a penalty.
The court also erred in giving plaintiff's requested charge No. 8.
This charge is misleading and erroneous in that it denies the validity of all stipulations for liquidated damages. The validity of such stipulations has been upheld in innumerable of our decisions from our earliest judicial history, where from the nature of the contract damages are uncertain and the amounts provided as damages in case of breach are not out of all proportion to probable damage.
Numerous other points are urged in appellant's brief as constituting error. Being clear to the conclusion that the two points already written to compel a reversal of this cause we will pretermit a discussion of these additional points.
Reversed and remanded.