Court of Appeal Serves Up Another Loss of Landlords!
1. Liquidated Damages are Unenforceable If They Bear No Reasonable Relationship to the Range of Actual Damages the Parties Anticipated Would Flow from a Breach
In the case of Graylee v Castro, 4DCA/3 number G057901, decided on August 4, 2020, the landlord leased a home to the defendant tenants. The landlord served a 3-day notice to pay or quit, alleging that the tenants racked up $27,170 in unpaid rent for the past nine months. Landlord then filed an unlawful detainer against the tenants, but on the day of trial the parties entered into a stipulated judgment where the tenants agreed to vacate the property by 3:00 p.m. on a certain date. The stipulation also expressed that failing to vacate by 3:00 p.m. would result in a $28,970 judgment against them. Naturally the tenants missed the 3:00 p.m. deadline to move out by several hours, and the landlord filed the stipulated judgment for $28,970, which the court granted. The tenants appealed, arguing that the $28,970 judgment entered against them was an unenforceable penalty under Civil Code § 1671(b), which governs liquidated damages.
The Court of Appeal reversed the judgment, finding that liquidated damages in this case was an unenforceable penalty because it bears no reasonable relationship to the range of actual damages the parties could have anticipated would flow from the breach. Thus, a stipulated judgment amount must reasonably relate to the damages likely to arise from the breach of the stipulation, not the alleged breach of the underlying contract citing Vitatech Int’l, Inc. v Sporn.
Here, nothing in the record showed that the parties made any effort to reasonably anticipate the amount of damages that might flow from the tenants’ breach of the stipulation. Instead, the judgment amount was calculated using the unpaid rent alleged in the complaint. As such, the court saw no meaningful relationship between the $28,970 judgment and the tenants’ failure to move out by 3:00 p.m.
Comment: Its tough being a landlord these days with legislature bending over backwards to help the tenants at the expense of landlords and the courts apparently doing the same.
About the Author
Scott Souders is a real estate attorney who has practiced real estate law in excess of 43 years in Southern California. The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.