Wallace Real Estate Investment Inc. v. Groves

881 P.2d 1010 (1994)

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Nature of the Case

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Facts

Ds own 10 acres of undeveloped commercial property. On August 1, 1989, D entered into an agreement with Roddy Cox whereby Cox agreed to pay $1,520,000 for the property. Ds established the purchase price to encourage a quick, cash sale. Ds also needed the funds that the sale would generate. Cox gave a $20,000 note as a down payment. Cox had 30 days to conduct a feasibility study for the potential development of an apartment complex. After this 30-day period, Cox could either abandon the property and receive back its note, or exchange the note for cash. If Cox went ahead with the sale, it would close within 60 to 90 days. A liquidated damages provision applied to the deposit, stating that 'in the event of default by Buyer, Seller shall have the election to retain the earnest money as liquidated damages.' An addendum stated that for each additional 30-day delay in closing, Cox agreed to pay $15,000. The $15,000 represented the lost investment value of the purchase price, calculated at 12 percent simple interest on the investment value not realized. Cox negotiated this agreement with the intention of assigning his interest to P, which he did in September 1989. After the last $15,000 extension payment permitted by the addendum, the parties negotiated a second addendum. The second addendum provided for $30,000 extension payments for October and November 1990 and established December 17, 1990, as the new closing date. The liquidated damages provision to the second addendum provided as follows: Seller shall retain all payments made to-date (earnest money and extension payments), as liquidated damages and not as penalty, in order to indemnify the Seller against loss as a result of breach of this agreement. It is agreed that damages that result to Seller include: freezing the purchase price at a time when real estate land values were escalating at unprecedented rates; compensating seller for holding the property off the market and losing the time value of its property were the property liquidated and funds invested; lost opportunity for larger profits; and related costs. On December 13, 1990, P wrote the sellers, stating that he could not close on December 17 and requesting 'a new agreement with everyone to close on or about January 7, 1991.' The sellers refused and, in a December 14, 1990, letter, informed P that they were prepared to close as scheduled on December 17, 1990. Ds attended the closing and P faxed a letter stating that closing could not take place as scheduled because of two problems with the title. On December 24, 1990, the escrow agent received Ds' notice of cancellation, which they had executed on December 21, 1990. Ds retained the $260,000 in earnest money and extension payments as liquidated damages. P sued Ds seeking the money paid. P also made claims for specific performance and breach of contract. The sole issue at trial was the validity of the liquidated damages provisions. The court ruled for Ds. The Court of Appeals affirmed. P appealed.