Purcell v. Schweitzer CA4/1
224 Cal. App. 4th 969
| Cal. Ct. App. | 2014Background
- Purcell sued Schweitzer on an $85,000 promissory note; they settled for a $38,000 balance plus 8.5% interest, paid in installments over 24 months.
- Settlement required payments due the 1st, timely if received by the 5th; a late payment would be treated as breach making the original $85,000 liability immediately due.
- The stipulation expressly stated the $85,000 was not a penalty or forfeiture and Schweitzer waived appeals and challenges to the judgment.
- Schweitzer paid late in October (paid on Oct. 11); Purcell accepted the payment but nevertheless obtained a default judgment on Oct. 17 for $58,829.35 (much of which was labeled as "punitive damages").
- Schweitzer moved to set aside the default judgment, arguing the stipulated judgment was an unenforceable penalty; the trial court granted the motion, finding no reasonable relationship between the stipulated amount and actual anticipated damages and that the waiver was unenforceable as against public policy.
- On appeal the Court of Appeal reviewed the issue de novo and affirmed the order setting aside the default judgment.
Issues
| Issue | Purcell's Argument | Schweitzer's Argument | Held |
|---|---|---|---|
| Whether the stipulated judgment/ liquidated damages provision (triggering $85,000) was an enforceable liquidated damages clause or an unenforceable penalty | The parties expressly agreed the $85,000 reflected actual damages and economics of proceeding; clause is not a penalty and is enforceable | The stipulated judgment is an unlawful penalty because it bears no reasonable relationship to actual damages from a late installment | Held unenforceable as a penalty; it bore no reasonable relationship to anticipated damages for breach of the settlement stipulation |
| Whether Schweitzer's waiver of the right to challenge the judgment bars relief | The waiver expressly precludes any challenge or appeal of the judgment | Waiver is unenforceable as contrary to public policy where clause attempts to circumvent statutory limits on liquidated damages | Held waiver unenforceable as to enforcement of an unlawful penalty; public policy precludes circumventing Civil Code limits |
| Whether entry of judgment as "punitive damages" was permissible in a contract case | The judgment amount was justified by the parties' agreement | Punitive damages are not recoverable for breach of contract | Held improper: punitive damages are not recoverable in breach of contract actions |
| Whether acceptance of a late payment (Oct. 11) precluded relief | Purcell argues acceptance did not waive right to enter judgment under the agreement | Schweitzer notes acceptance shows no actual damages and undermines claim of large damages | Court relied on lack of relationship between breach and damages; acceptance underscores minimal or no actual damage |
Key Cases Cited
- Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (discusses when liquidated damages become unenforceable penalties)
- Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (liquidated/stipulated judgment that equals full underlying claim can be an unenforceable penalty when disproportionate to breach of settlement)
- Cook v. King Manor and Convalescent Hospital, 40 Cal.App.3d 782 (public policy prevents circumventing Civil Code limits by contractual labeling)
- Morris v. Redwood Empire Bancorp, 128 Cal.App.4th 1305 (reinforces requirement that liquidated damages reasonably relate to anticipated actual damages)
- Myers Building Indus., Ltd. v. Interface Tech., Inc., 13 Cal.App.4th 949 (punitive damages not recoverable for breach of contract)
- Harbor Island Holdings v. Kim, 107 Cal.App.4th 790 (standard of review: legal question on undisputed facts reviewed de novo)