Folden v. Lobrovich

California Court of Appeal Jul 1, 1959 No. Civ. 18376Published

Before: O'Donnell

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Holding. The court held that the contract provision requiring the forfeiture of a deposit upon the failure to secure additional leases was not a penalty or liquidated damages, but rather valid consideration for an option to terminate the contract. Because the contract was performed according to its terms, no breach occurred, rendering statutes governing liquidated damages inapplicable.

Issues

Whether a contract provision requiring the retention of a deposit upon the failure to secure additional leases constitutes a penalty or liquidated damages.
Whether a party may raise a new theory of law on appeal when the issue presents a question of law based on undisputed facts.

Disposition. Affirmed

Quotations verified verbatim against the opinion

“Both section 1670 and section 1671 of the Civil Code are concerned only with breaches of contract. There is no breach of contract in our case.”

“The employment of the term “liquidated damages” to describe the consideration paid by plaintiffs for the promises of defendant was, of course, unfortunate. However, this misdescription does not alter the nature or legal effect of the payment.”

O’DONNELL, J. pro tem.

Plaintiffs, who were partners doing business under the name of “Trio Food Center,” and defendant entered into the following written contract:

“This agreement made on March 3, 1954 between Grace Lobrovieh, the Owner, of 1378 Lincoln Avenue, San Jose, a store building, and the Trio Food Center, a partnership, the Prospective Tenant.

“The Owner agrees to remodel said premises according to a certain plans and specifications, or its mutually approved modification and specifically to erect a new store front and partitions to provide two stores and a warehouse, and lease and rent same to the Tenant. Work on remodeling to begin at once and be completed on or before June 1, 1954.

“A standard lease to be prepared and executed prior to June first upon the following terms and conditions: lease period, 10 years: rent, $400. per month; preference option, 10 years additional; effective June 1, 1954; right granted to sublease.

“The Tenant shall pay the Owner $2400. cash, receipt of which is hereby acknowledged; said sum to apply to the rent for the last six months of the period of the lease; monthly rent is payable in advance when due.

“It is further agreed between Owner and Tenant that this proposed lease will become effective only if and when Tenant secure leasing agreements satisfactory to him, on the Mascovich property forming the corner store of Minnesota and Lincoln Aves, and the second lot from said corner on Minnesota Ave; also the dArtenay store building and parking lot adjoining. And it is further agreed that should Tenant fail to secure such agreements, all obligations created hereunder will become null and void, but the $2400. above stated shall be retained by the Owner as liquidated and accrued damages.”

Pursuant to the contract defendant immediately began remodeling the store building. Plaintiffs were unable to. secure leases on the other properties referred to in the contract. They notified defendant of this fact and demanded return of the $2,400 they had paid her under the contract. Defendant

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refused to return the money and plaintiffs brought this action for money had and received. Judgment was rendered in favor of defendant and plaintiffs appeal.

Folden v. Lobrovich

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