Court of Appeals of Texas, Sixth District, Texarkana
Submitted: July 29, 2019
Appeal from the County Court at Law No. 1 Travis County,
Texas Trial Court No. C-1-CV-18-004591
Morriss, C.J., Burgess and Stevens, JJ.
R. Morriss, III Chief Justice
April 2017, Greg Jacobson executed a contract to purchase
(the Contract) Arnaud and Laurence Michelle Prodel's
(Prodel) residence on Laura Lane in Austin 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.
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 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.
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.
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.
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.
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.
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 ...