Webster v. Garrette

California Court of Appeal Dec 12, 1935 No. Civ. 5227Published

Before: Pullen

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Holding. The court held that the lease provision for the forfeiture of a $2,500 deposit as liquidated damages was void as a penalty because the damages were not difficult to ascertain and the provision applied to breaches of varying importance. Consequently, the lessor was not entitled to retain the deposit, and the lessee's action for recovery was not barred by the statute of limitations.

Issues

Whether a lease provision for the forfeiture of a deposit as liquidated damages constitutes an unenforceable penalty.
Whether the action to recover the deposit was barred by the statute of limitations.

Disposition. affirmed

Quotations verified verbatim against the opinion

“In determining whether a provision in a contract is for liquidated damages or for a penalty, depends upon the intention of the parties, which when ascertained will be given full effect unless contrary to law.”

“Where a fixed sum is covenanted to be paid for any one of several breaches of the contract of varying importance and differing widely in injuriousness the inference arises that a penalty was intended and not liquidated damages.”

PULLEN, P. J.

Appellant and respondent entered into a lease in 1922 for a building to be remodeled for a theater or moving picture purposes, for a term of years at a specified monthly rental. This litigation involves a deposit of $2,500 made by respondent with appellant under the following provisions of the lease:

[612]

“First: The party of the second part agrees that he will, as soon as said building is completed, place therein good substantial furniture of a value of not less than Twenty Thousand ($20,000.00) dollars.

‘1 Second: It is agreed that upon the execution of this agreement the party of the second part has paid to the party of the first part the sum of $2500.00 as a guarantee on the part of the party of the second part to fulfill the obligations contained in this agreement, the receipt whereof is hereby acknowledged by the party of the first part.

“Third: And in the event that said party of the second part shall fail, neglect or refuse to comply with the terms of this agreement or to fulfill any of the covenants or conditions thereof then the’said sum of '$2500.00 shall immediately become forfeited to the party of the first part as liquidated damages for the use and occupation of said premises and for the expense and inconvenience occasioned to the party of the first part.

“Fourth: As soon as said party of the second part has placed in said premises good and substantial furniture of a value of not less than $20,000.00, this contract shall operate and be construed to create a lien in favor of the party of the first part and against the party of the second part upon all of said furniture for the faithful performance by the party of the second part of all of the terms, covenants and conditions herein expressed, said lien to continue during the full period of this lease and as soon as said lien attaches the party of the first part will refund to the party of the second part the said sum of $2500.00 guarantee aforesaid.”

Respondent admittedly never installed $20,000 worth of furniture or fixtures in which he had an unincumbered title. The complaint alleges that notwithstanding the failure of lessee to install said furniture as in the lease provided, lessor accepted all rents accruing under the lease and that lessee continued in the uninterrupted and undisturbed possession of the premises and that in 1923 lessee, with the consent of the lessor, assigned his interest therein to National Theaters Syndicate of California, a corporation, who thereafter occupied said premises until the expiration of said lease in April, 1932.

Webster v. Garrette

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PULLEN, P. J.

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