McMurry Oil Co. v. Deucalion Research, Inc. 1992 WY 165 842 P.2d 584 Case Number: 92-46, 92-47 Decided: 12/03/1992 Supreme Court of Wyoming
Cite as: 1992 WY 165, Wyo., 842 P.2d 584
McMURRY OIL
COMPANY, a Wyoming Corporation; John W. Martin; J.J. Meier; Fort Collins
Consolidated Royalties, Inc., a Colorado Corporation; Hurley Oil Properties, a
Wyoming Corporation; W.N. McMurry; Mountain States Exploration, Inc., a Colorado
Corporation; Martin Properties, Ltd., an Alabama Domestic Partnership; Enervest
of America, Inc., a New York Corporation; Rissler & McMurry Company, a
Wyoming Corporation; Marion H. Rochelle; Weeks, Brewer & Associates, a
California Corporation; and High Horizons, Phase II, a Washington Corporation,
Appellants (Defendants),
v.
DEUCALION
RESEARCH, INC., a North Dakota Corporation, Appellee (Plaintiff). DEUCALION
RESEARCH, INC., a North Dakota Corporation, Appellant
(Plaintiff),
v.
McMURRY
OIL COMPANY, a Wyoming Corporation; John W. Martin; J.J. Meier; Fort Collins
Consolidated Royalties, Inc., a Colorado Corporation; Hurley Oil Properties, a
Wyoming Corporation; W.N. McMurry; Mountain States Exploration, Inc., a Colorado
Corporation; Martin Properties, Ltd., an Alabama Domestic Partnership; Enervest
of America, Inc., a New York Corporation; Rissler & McMurry Company, a
Wyoming Corporation; Marion H. Rochelle; Weeks, Brewer & Associates, a
California Corporation; and High Horizons, Phase II, a Washington Corporation,
Appellees (Defendants).
Appeal from District Court of
Natrona County, Dan Spangler,
J.
Neil J.
Short, Casper,
for appellants in Case
No.
92-46 and for appellees in Case No. 92-47.
Stephenson
D. Emery of Williams, Porter, Day & Neville, Casper, for appellee in Case No. 92-46 and
appellant in Case No. 92-47.
Before MACY, C.J., and THOMAS, CARDINE, URBIGKIT
and GOLDEN, JJ.
URBIGKIT,
Justice.
[1.] McMurry Oil Company and
associates (Sellers) entered into a written agreement to sell a collection of
oil and gas properties to Deucalion Research, Inc. (Buyer). When the sale fell
through, cross-suits followed seeking possession of $50,000 earnest money in
addition to contesting fault in the sale agreement termination. The trial court
found retention of the $50,000 an unjustified penalty and granted the return of
the earnest money to the prospective Buyer while determining that the Sellers
had not been in default. We reverse the liquidated damage decision and otherwise
affirm the trial court through an analysis which enforces the contractual terms
of the parties' sales agreement.
[2.] Sellers address for
their concept of the issues on appeal:
1.
Whether the district court erred in ruling that Paragraph 10 termination of the subject contract
provided for a forfeiture.
2. In
the alternative, whether the district court erred in ordering a return of the
earnest money even in the face of finding a forfeiture.
(Emphasis
in original.)
[3.] Buyer
restates:
Whether
the Trial Court correctly found that the amount of earnest money deposit was
neither consistent with actual damages nor based upon any forecast of
compensation for the harm done, and therefore properly concluded that the
liquidated damages provision constituted a penalty or
forfeiture.
[4.] In the Buyer's appeal,
they contend:
I.
Whether the Trial Court erred as a matter of law in finding that title was
marketable.
II.
Whether the Trial Court erred as a matter of law in concluding that Plaintiff
breached the contract by failing to proceed with the
purchase.
[5.] Again, Sellers,
restate:
1.
Whether the district court erred in ruling that title was
marketable.
2.
Whether appellant/plaintiff Deucalion Oil Company breached the contract in
question and is denied any recovery.
3.
Whether the claims of appellant/plaintiff Deucalion Oil Company are barred by
its failure to mitigate damages and by the doctrine of
laches.
[6.] The Sellers, entered
into a rather normal executory contract to sell extensive oil interest property
holdings to Deucalion Research, Inc. The purchase price was $950,000, with
$50,000 "earnest money to bind" and the balance payable by cashier's check or
wire transfer at closing. Execution of the agreement was attended by a cash down
payment received by Sellers from Buyer of $50,000. The established closing date,
as extended, came and went. Buyer, about three weeks after the initially
established time, provided a written notice of contract rescission based on
claimed title defects. This litigation followed to determine who receives the
initial $50,000. The trial court found retention of the earnest money payment by
Sellers would create an impermissible penalty and ordered repayment to the
Buyer, while also determining that the Sellers were not in breach of the
agreement by failure to tender merchantable title for the properties to be
sold.
[7.] Specific title
provisions included:
It is
the intent of this instrument to deliver to Buyer 100% of the working interest
ownership in the properties at an 80% Net Revenue Interest to the
Buyer.
* * * *
* *
3. Representation of Seller. Seller
represents to Buyer as follows:
(a)
That Seller is the owner of the properties described in Exhibit "A", but does
not warrant title thereto.
(b) At
Closing, Seller will have and will convey to Buyer all Seller's working interest
in the Properties.
(c)
Until closing, Seller will not take any action with respect to the Properties
which would create any material liabilities or which would create any
commitments other than those created in the ordinary course of business without
Buyer's written consent.
(d)
Seller has the right to sell and transfer the Properties to Buyer and all
requisite corporate or other legal authorization to the execution and delivery
of this Purchase and Sale Agreement hereunder have been duly obtained and do not
conflict with any instrument to which it is a party or by which it is
bound.
(e) The
representations of Seller set forth herein shall be true on and as of Closing
and on and as of the Effective Date with the same force and effect as though
made on each of said dates.
4. Title Examination. Buyer shall be
entitled to perform, or cause to be performed, at Buyer's sole expense, any such
title examination as Buyer deems necessary or appropriate. In the event Buyer
determines that any title defects exist, Buyer shall notify Seller, in writing,
on or before closing of Buyer's title objections; provided, however, Buyer shall
notify Seller promptly of any title defects discovered by Buyer. As used in this
paragraph, the term "title defect", shall include the failure of any working
interest. Seller shall furnish to Buyer on or before closing such curative data
as may be necessary to satisfy Buyer that such defects have been resolved. If
Seller is unable to provide Buyer such curative data prior to closing, and Buyer
is unwilling to waive any such defects, Buyer may so notify Seller and terminate
this agreement.
5. Effective Date, Expenses and Accounting.
The Effective Date of the sale of the properties shall be as of 7:00 A.M.,
Mountain Daylight Time, on January 1, 1990. Seller shall be responsible for, and
pay, all expenses accrued or incurred in connection with the Properties prior to
the Effective Date and shall be entitled to receive the proceeds of production
lawfully produced from the Properties prior to the Effective Date, including oil
in stock tanks and Seller's proportionate share of all production on hand from
each well on each respective property as of the Effective Date. Tanks shall be
gauged at 9:00 A.M. on January 1, 1990 and all saleable oil be credited to
Seller's account. Buyer shall bear all reasonable expenses incurred and accrued
in connection with the operation of the Properties in the ordinary course of
business effective from the Effective Date and thereafter, and shall be entitled
to the proceeds of production lawfully produced from or attributable to the
Properties from the Effective Date, and thereafter.
6. Closing. Closing shall take place on or
before January 1, 1990, unless extended by mutual agreement of the parties * *
*[.]
[8.] Buyer obtained a title
opinion dated December 15, 1989. That opinion found title satisfactory for
acquisition purposes subject to certain normal transfer requirements, and then
stated:
The
records in the office of the Clerk of the District Court in Converse County, Wyoming
reveal Civil Action No. 10,915 filed by McMurry Oil Company against Enervest of
America, Inc., d.b.a. Independence 1986 Drilling
Program and Independence 1987 Drilling Program. The action
was filed November 22, 1989, seeking foreclosure of an oil and gas lien claimed
by McMurry Oil Company on the South Cole Creek Dakota Sand Unit # 61 and # 62
wells and Campbell fee well. The action also seeks a
judgment for unpaid operating expenses in the amount of $78,348.03. No answer
has been filed to date. While Enervest does not own an interest of record in the
subject lease, or in other leases in the South Cole Creek Dakota Sand Unit, it
is entitled to certain revenues from these unit wells by virtue of an agreement
with the working interest owners in the unit.
Requirement: None, but you should be
aware that Enervest of America has a claim to certain unit revenues from these
wells.
[9.] Buyer, in a
communication dated January 17, 1990 and received by Sellers on January 26,
1990, gave notice of title rejection and sale agreement termination. The parties
agree that the closing date was extended from January 1, 1990 to January 5, 1990
and then to January 12, 1990, but not thereafter. Factually, the record also
establishes that the Buyer had been unable to adequately merchandize the project
in order to obtain access to required funds to close by the date set in the last
extension of January 12, 1990.
[10.] This court will apply a realistic
standard to enforce the agreement of the parties as negotiated and settled.
Rather than attempting, at this stage, to rewrite Buyer's "acceptable title
opinion," we recognize that any rejection of title came too late and only
constituted a subterfuge to attempt to reclaim the earnest deposit when funds
had not been raised to complete the purchase. Notice of defect was required
under the agreement by the established closing date or, at the latest, by any
mutually agreed extension and when given at a time thereafter, it was too late
to provide the right of rescission to the prospective Buyer.1 We will follow the rule stated in
Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 509 N.Y.S.2d 507, 509, 502
N.E.2d 184, 186 (1986):
In
short, the defendants bargained for and obtained a limited right to cancel which
they failed to exercise within the time agreed upon. The cancellation was,
therefore, ineffective and the defendants' refusal to perform constituted a
breach * * *.
[11.] This agreement was a forfeit penalty
agreement, Cliff & Co., Ltd. v. Anderson, 777 P.2d 595 (Wyo. 1989), and,
consequently, the only damage claimable by Sellers, if Buyer refused to close,
was retention of the $50,000 earnest money deposit. See, however, Metropolitan
Mortg. & Securities Co., Inc. v. Belgarde, 816 P.2d 868 (Wyo. 1991) and Walters v. Michel, 745 P.2d 913 (Wyo. 1987) (alternative
remedies stated). The only real issue consequently remaining after our decision
that the January 17, 1990 claimed title defect was not a legal justification for
rescission is whether legal rules would void the liquidated damage agreement of
the parties.
[12.] We differ from the trial court and
require enforcement of the agreement. Consequently, when the Buyer was unable to
perform by tendering payment, we leave the earnest money deposit within the
agreement to be retained by the Sellers. Marcam Mortg. Corp. v. Black, 686 P.2d 575 (Wyo. 1984); James O.
Pearson, Jr., Annotation, Modern Status of Defaulting Vendee's Right to Recover
Contractual Payments Withheld by Vendor as Forfeited, 4 A.L.R.4th 993 (1981
& Supp. 1992).
[13.] Enforceability of a liquidated damage
provision, in particular when used in executory sales transactions, has broad
application. The decision we are presented regarding Sellers' retention of the
earnest money deposit is determinable as a question of law. Marcam Mortg. Corp.,
686 P.2d 575. The general
principle to be applied is that, in the absence of overreaching or
unconscionability, the parties should be left within the framework of the terms
of the agreement that they negotiate. Id. See also Wyo. Stat. 34.1-2-718(a) (1991)
(Uniform Commercial Code) and Albrecht v. Zwaanshoek Holding En Financiering,
B.V., 762 P.2d 1174 (Wyo. 1988). In Albrecht,
762 P.2d at 1179, this court, in quoting from Marcam Mortg. Corp., 686 P.2d at
580, said:
"`If
there is an express contract in connection with the damages, that contract, of
course, must govern.'" Studer v. Rasmussen, 80 Wyo. 465, 344 P.2d 990, 998
(1959).
This
court went on to say and recognized that:
"[T]he
supreme court will not rewrite clear contracts. Nor will this court rewrite
contracts under the guise of interpretation."
Wyoming
Machinery Company v. United States Fidelity and Guaranty Company, 614 P.2d 716, 720 (Wyo. 1980) (citation
omitted). See also Wyoming Recreation Commission v. Hagar, 711 P.2d 402
(Wyo. 1985) (quoting Kuehne v. Samedan Oil
Corporation, 626 P.2d 1035
(Wyo.
1981)).
Albrecht,
762 P.2d at 1179.
[14.] A confusion of theories and an incomplete
analysis has developed within the numerous cases determining Wyoming sales agreement
real estate law. The specific question is Sellers' retention of the earnest
money deposit or partial payment upon sale rescission pursuant to the terms of
the agreement following Buyer's payment default. Much of the confusion results
from Walker v. Graham, 706 P.2d 278 (Wyo. 1985) which, in its
peculiar facts, is not completely consistent with either prior or subsequent
case law.
[15.] In simplest concept, within these
retained deposit or payment cases, the seller enforces the agreement, retains the
payment, and rescinds the sale. Conversely, the buyer has an affirmative defense
to either rescind the contract and recapture the payment made as an equitable
defense of improper forfeiture or to enforce the contract and complete the sale
by belated payment.
[16.] In this case, the affirmative defense
postured by the Buyer was sale rescission and down payment return based on
default of Sellers resulting from property title failure. The only two defenses
available to the Buyer were the Sellers' default or contract unconscionability
and consequent non-enforceability. This is not a classical forfeiture
case.
[17.] In the early case of Quinlan v. St. John, 28 Wyo. 91, 201 P. 149 (1921), this court
recognized the enforceability of the contract as a law action. The decision then
found that the buyer failed in pleading to state as a defense an equitable right
regarding partial payment return.
In an
installment contract, such as the one at bar, for the purchase of realty, where
time is of the essence, or when the prompt payment of the installments is made a
condition precedent, as here, and the vendee defaults and without pleading
sufficient facts to bring his case within recognized rules of equitable
jurisprudence sues at law to recover payments made, the overwhelming weight of
American decisions are to the effect that he cannot recover the purchase money
paid * * *.
Id. at 101-02, 201 P. at
151.
[18.] That stated principle remains our
constant for subsequent Wyoming law development. Within the many
accompanying case citations and quotations, this court then adopted the
"majority rule" in Lawrence v. Demos, 70 Wyo. 56, 76-77, 244 P.2d 793, 801 (1952) (quoting
55 Am.Jur. 928, 929, 536):
"According, however,
to the majority American doctrine, a vendor who because of the vendee's default
enforces a forfeiture provision of the contract in accordance with its terms, or
takes proceedings to foreclose the vendee's rights thereunder, does not render
himself liable to return money paid on the contract. This is especially true
where the terms of the contract authorize the vendor to declare a forfeiture of
the contract and of money paid by the purchaser upon the latter's default, and
the vendor in so doing acts fairly and within the scope of the power, or where
the contract provides that the vendor may retain the deposit or part payment as
a forfeiture in the nature of liquidated damages for the failure of the
purchaser to complete the contract. In such a case it is said that the vendor in
putting an end to the contract acts in its affirmance and not in rescission of
it, by enforcing a remedy expressly reserved."
[19.] The centrality of the rule in application
was stated in Younglove v. Graham and Hill, 526 P.2d 689, 692-93 (Wyo. 1974) where this
court, after first discussing forfeiture, stated:
However,
after competent parties have solemnly contracted and agreed to certain
conditions, courts should exercise restraint in nullifying the terms thereof or
rewriting the contract. It is said that this is "a dangerous jurisdiction which
should not be extended," * * *. It does not extend so far as to authorize a
court of equity to disregard and set aside a valid stipulation of the parties
upon the performance of which their rights are made to depend in the absence of
some equitable basis. Consistent with this view we find the following statement
in 2 Warvelle on Venders, 822, p. 964 (2d. Ed.):
"As has
been stated, the doctrine is that if, upon the face of a contract, it clearly
appears to have been the distinct understanding and agreement of the parties
that if a stipulated act was not performed within a specified time certain
consequences were to follow; and if default has been made in the performance
within the time, a court of equity will give no relief unless a strict
performance was either waived by the party entitled to its benefits or is
excused on some special ground of equitable cognizance. * * *"[2]
[20.] Two recent cases have followed the
nonrepayment, contractual enforceability determinant of Quinlan, 201 P. 149; Lawrence, 244 P.2d 793;
and Younglove, 526 P.2d 689.
These include the most broadly concepted installment sales cases of Marcam
Mortg. Corp., 686 P.2d 575 and
Greaser v. Williams, 703 P.2d
327 (Wyo.
1985).
[21.] Clearly, the sales agreement stated the
parties' understanding that the earnest money deposit, in essence an option
payment, would be subject to retention by Sellers if Buyer became unable to
perform by making the total purchase payment. It would indeed take an unusual
factual situation for this court to invade the agreement of this Buyer and these
Sellers to redraft what they defined as the understood result for damages if
Buyer became unable or refused to perform. Marcam Mortg. Corp., 686 P.2d 575; Warner v. Rasmussen,
704 P.2d 559 (Utah 1985). See also
Hooper v. Breneman, 417 So.2d 315 (Fla. App. 1982) and Hendel v. Scheuer, 150
A.D.2d 431, 541 N.Y.S.2d 40 (1989), where the buyers breached the sales
agreement without legal excuse and could not recover their down
payment.
[22.] Since this was a liquidated-damage
penalty-only-transaction, the Buyer understood its limit of liability was
contractually established and could not exceed what had been initially paid as
the earnest money deposit. Likewise defined in the agreement was the
understanding that if the total purchase became unavailable to the Buyer for
sale consummation, the earnest money deposit would be retained by the Sellers.
If the contingency developed that the Buyer improperly failed to complete the
sale, the agreement provided an assured result.
[23.] We reverse the liquidated damage decision
that required repayment of the earnest money to the Buyer and otherwise
affirm.
FOOTNOTES
1 We neither agree nor
disagree with the trial court that merchantable title existed. The acreage
involved was a relatively small portion of the entire interest to be sold.
Clearly, title was correctable and was, in fact, cured if originally
unmerchantable. Apparently, Sellers were entitled to the "revenue stream" on the
questioned lands, but there was an outstanding unrecorded working interest.
Actual resolution was to be achieved by either non-contribution assessment
foreclosure or a buy-out. The foreclosure litigation was resolved by that
buy-out settlement.
The sales agreement
itself had a "satisfactory to the Buyer" title acceptability provision. Had a
notice of title defect been timely given, a converse result from what we
presently decide might have been appropriate or, at least, corrective
obligations could have been defined. Cf. Bethurem v. Hammett, 736 P.2d 1128 (Wyo.
1987).
2 This is not a waiver case. Cf.
Angus Hunt Ranch, Inc. v. Reb, Inc., 577 P.2d 645 (Wyo. 1978). If there is
any real explanation for Walker, 706 P.2d 278, perhaps it is
postured in a "waiver." Likewise, with the title defect issue removed, this is
not a seller default case. Mader v. James, 546 P.2d 190 (Wyo.
1976).
Citationizer Summary of Documents Citing This Document
Cite |
Name |
Level |
Wyoming Supreme Court Cases |
| Cite | Name | Level |
| 1998 WY 7, 952 P.2d 214, | Wilson v. Witt | Cited |
| 2000 WY 91, 2 P.3d 534, | AMOCO PROD. CO. v. EM NOMINEE PSHP. CO. | Cited |
| 2006 WY 36, 130 P.3d 924, | BART KNAPP V. LANDEX CORPORATION, a Wyoming corporation | Cited |
Citationizer: Table of Authority
Cite |
Name |
Level |
The Utah Supreme Court Decisions |
| Cite | Name | Level |
| 704 P.2d 559, | Warner v. Rasmussen | Cited |
Wyoming Supreme Court Cases |
| Cite | Name | Level |
| 1921 WY 24, 201 P. 149, 28 Wyo. 91, | Quinlan v. St. John | Discussed |
| 1952 WY 19, 244 P.2d 793, 70 Wyo. 56, | Lawrence v. Demos | Discussed |
| 1959 WY 40, 344 P.2d 990, 80 Wyo. 465, | Studer v. Rasmussen | Cited |
| 1974 WY 60, 526 P.2d 689, | Younglove v. Graham and Hill | Discussed |
| 1976 WY 15, 546 P.2d 190, | Mader v. James | Cited |
| 1978 WY 32, 577 P.2d 645, | Angus Hunt Ranch, Inc. v. Reb, Inc. | Cited |
| 1980 WY 69, 614 P.2d 716, | Wyoming Machinery Co. v. U. S. Fidelity and Guaranty Co. | Cited |
| 1981 WY 52, 626 P.2d 1035, | Kuehne v. Samedan Oil Corp. | Cited |
| 1984 WY 73, 686 P.2d 575, | Marcam Mortg. Corp. v. Black | Discussed at Length |
| 1985 WY 95, 703 P.2d 327, | ALICE T. GREASER, WILLIAM PAUL GREASER AND KERRY JOHN GREASER TRUSTEES OF THE GERALD J. GREASER TRUST, AS SUCCESSOR IN INTEREST OF G.J. GREASER, EDITH B. CHASE AND JACK PATTON v. EARL L. WILLIAMS, JR., AND EDITH M. WILLIAMS; EARL L. WILLIAMS, JR., AND EDITH M. WILLIAMS v. ALICE T. GREASER, WILLIAM PAUL GREASER AND KERRY JOHN GREASER TRUSTEES OF THE GERALD J. GREASER TRUST, AS SUCCESSOR IN INTEREST OF G.J. GREASER, EDITH B. CHASE AND JACK PATTON | Cited |
| 1985 WY 149, 706 P.2d 278, | Walker v. Graham | Discussed |
| 1985 WY 204, 711 P.2d 402, | Wyoming Recreation Com'n v. Hagar | Cited |
| 1987 WY 65, 736 P.2d 1128, | Bethurem v. Hammett | Cited |
| 1987 WY 163, 745 P.2d 913, | Walters v. Michel | Cited |
| 1988 WY 122, 762 P.2d 1174, | Albrecht v. Zwaanshoek Holding En Financiering, B.V | Cited |
| 1989 WY 150, 777 P.2d 595, | CLIFF & CO., LTD., A Wyoming Corporation; and SAM RATCLIFF v. ANDREW W. ANDERSON; NORMAN C. MOORE; COULTER ENTERPRISES, A Wyoming Partnership; FDIC, FORMERLY STOCKMENS BANK & TRUST COMPANY, A Wyoming Banking Corporation; and DORR INVESTMENTS, A Wyoming Partnership | Cited |
| 1991 WY 110, 816 P.2d 868, | Metropolitan Mortg. & Securities Co., Inc. v. Belgarde | Cited |
|