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Jacobson v. Prodel

Court of Appeals of Texas, Sixth District, Texarkana

August 8, 2019

GREG JACOBSON, Appellant
v.
ARNAUD PRODEL AND LAURENCE MICHELLE PRODEL, Appellees

          Date Submitted: July 29, 2019

          On Appeal from the County Court at Law No. 1 Travis County, Texas Trial Court No. C-1-CV-18-004591

          Before Morriss, C.J., Burgess and Stevens, JJ.

          MEMORANDUM OPINION

          Josh R. Morriss, III Chief Justice

         In April 2017, Greg Jacobson executed a contract to purchase (the Contract) Arnaud and Laurence Michelle Prodel's (Prodel) residence on Laura Lane in Austin[1] for $1, 499, 000.00. Jacobson deposited $30, 000.00 in earnest money with Heritage Title Company in accordance with the liquidated-damage provision of the Contract. After amending the Contract to extend the closing date to February 28, 2018, Jacobson deposited an additional $30, 000.00 in earnest money with Heritage. On February 15, 2018, Jacobson notified Prodel that he was terminating the contract.

         The parties filed competing declaratory judgment actions, each claiming entitlement to the earnest money Jacobson deposited with Heritage. Following a bench trial, the trial court entered judgment[2] awarding Prodel the $60, 000.00 in earnest money, plus attorney fees. On appeal, Jacobson contends that the liquidated-damage provision was an unenforceable penalty and that he is entitled to stipulated attorney fees. Because we find that the Contract's liquidated-damage provision was not a penalty, we affirm the judgment of the trial court.

         The liquidated damage or "default" provision in the contract before us provides:

If buyer fails to comply with this contract, Buyer will be in default, and Seller may
(a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract, Seller will be in default and Buyer may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or
(b) terminate this contract and receive the earnest money, thereby releasing both parties from the contract.

         Paragraph 9 of the contract amendment provides:

The additional $30, 000 earnest money deposited on 10/30/17 was due to an extension given for the amount due on 10/26/17. The total earnest money being held in escrow at Heritage Title is $60, 000.

         "The term 'liquidated damages' ordinarily refers to an acceptable measure of damages that parties stipulate in advance will be assessed in the event of a contract breach." Flores v. Millennium Interests, Ltd., 185 S.W.3d 427 (2005). However, because "[t]he basic principle underlying contract damages is compensation for losses sustained and no more[, ] . . . we will not enforce punitive contractual damages provisions." FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59, 69 (Tex. 2014). Consequently, when a liquidated-damages provision is a penalty for failure to comply with a contract, it is unenforceable. Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991). The party seeking to invalidate the contract bears the burden of proving the liquidated damages are a penalty. Domizio v. Progressive Cty. Mut. Ins. Co., 54 S.W.3d 867, 874 (Tex. App.-Austin 2001, pet. denied). "While the question may require a court to resolve certain factual issues first, ultimately the enforceability of a liquidated-damages provision presents a question of law for the court to decide." FPL Energy, LLC, 426 S.W.3d at 70.

         To enforce a liquidated-damages provision, we must find "(1) that the harm caused by the breach is incapable or difficult of estimation and (2) that the amount of liquidated damages called for is a reasonable forecast of just compensation." Phillips, 820 S.W.2d at 788; see S. Union Co. v. CSG Sys., Inc., No. 03-04-00172-CV, 2005 WL 171349, at *4 (Tex. App.-Austin Jan. 27, 2005, no pet.) (mem. op.). "We evaluate both prongs of this test from the perspective of the parties at the time of the contracting." FPL Energy, LLC, 426 S.W.3d at 69-70.

         We first consider prong one, the difficulty of estimating in advance the damages that may be sustained by Prodel if Jacobson were not to close on the sale. The Contract was executed on April 12, 2017, and the closing of the sale was originally scheduled for August 11, 2017. Jacobson deposited $30, 000.00 to secure that closing date. When the closing did not take place on the initially scheduled date, the parties executed a contract amendment changing the closing date to October 31, 2017. The amendment also provided that, if the closing did not take place by October 31, 2017, Jacobson would deposit an additional $30, 000.00 earnest money with Heritage by October 26, 2017, at which time the closing date of the sale would be ...


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