Jack Ezell, v. Ruth S. Gettle Estate, William Zack Gettle, Executor

Jack Ezell, v. Ruth S. Gettle Estate, William Zack Gettle, Executor

Civil Action-Contract Law-Breach of Contract-Estate Auction-Contract Between Auctioneer and Executor-Liquidated Damages Clause-Enforceability-Penalty-Unconscionability-Equitable Recission

Jack Ezell (“Plaintiff”), who owns Ezell Auction Company, entered into an Agreement with William Zack Gettle (“Defendant”) to sell property owned by the late Ruth S. Gettle at a public auction.  Four (4) days after executing the Agreement, Defendant withdrew the property for sale.  Plaintiff is seeking liquidated damages in the amount of $20,000.00 for services rendered under a liquidated damages clause, as well as a fee of three percent (3%) in commission that would have been paid following the sale of the real estate, ten percent (10%) in commission that would have been paid following the sale of personal property and $1,500.00 in advertising expenses under the Agreement.

1.  A clause setting forth liquidated damages is enforceable where it is a reasonable and fair attempt to fix just compensation for anticipated loss caused by a breach of contract.

2.  If a clause purporting to set forth damages constitutes a penalty, it is unenforceable. 

3.  Liquidated damages should be applied only in cases where the amount is reasonable and there is difficulty in assessing the harm that would be caused by a breach.

4.  An unconscionability analysis requires a two (2) fold determination: (1) the contractual terms unreasonably favorable to the drafter; and (2) there is no meaningful choice on the part of the other party regarding the acceptability of the provisions.  

5.  Under Title 13 Pa.C.S. § 2302, if a court finds that a contract or clause was unconscionable at the time it was made, the court may refuse to enforce the contract or limit the application of any unconscionable clause.

6.  In determining whether a liquidated damages clause is an unenforceable penalty, the court must examine the entire contract in light of its text and subject matter, the parties’ intentions and the faculty of measuring damages or lack thereof. 

7.  The purpose of equitable recission is to return the parties as nearly as possible to their original positions where warranted by the circumstances of the transaction. 

8.  Where the Agreement called for Plaintiff’s receipt of three percent (3%) of the purchase price of the property with a reserve value of $180,000.00, or $5,400.00, and ten percent (10%) of the purchase price of personal property, Plaintiff would have been entitled to less than $6,500.00 had the contract been fully executed, which is significantly less than the proposed liquidated damages under the Agreement of $20,000.00. 

9.  In light of the fact that Defendant’s attorney notified Plaintiff that Defendant was withdrawing the property from sale four (4) days after execution of the Agreement and the meager services that Plaintiff provided to prepare for the auction, the liquidated damages of $20,000.00 are both unconscionable and a penalty that the Court declines to enforce as written and instead will direct payment of $6,296.95 to Plaintiff, which represents three percent (3%) of the $180,000.00 reserve amount agreed upon and the amount of expenses Plaintiff paid to market the property.

L.C.C.C.P. No. 2023-00891, Opinion by Bradford H. Charles, Judge, September 23, 2024.

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY

PENNSYLVANIA

CIVIL ACTION – LAW

JACK EZELL                                            :

                   Plaintiff                                   :

                                                                    :

          v.                                                       :              NO. 2023-00891

                                                                    :

RUTH S. GETTLE ESTATE;                    :

WILLIAM ZACK GETTLE, EXECUTOR, :

                   Defendant                              :

                                                ORDER OF COURT

          AND NOW, this 23^rd day of September 2024, in accordance with the following Opinion, the Court determines that Paragraph 3 of the parties’ Agreement dated March 26, 2023, is not enforceable because said paragraph is unconscionable and because it creates a penalty instead of a reasonable liquidated damages amount.  However, the Court determines that Defendants did breach the agreement of March 26, 2023.  As a result of that breach, the Court awards damages to Plaintiff in the amount of six thousand, two hundred ninety-six dollars, and ninety-five cents ($6,296.95). Plaintiff’s request for costs of the suit is denied.

                                                          BY THE COURT,

                                                          ______________________________, J.

                                                          BRADFORD H. CHARLES

BHC/tjb

cc:     Court Administration

          George E. Christianson, Esq.

Ian M. Ehrgood, Esq.

IN THE COURT OF COMMON PLEAS OF LEBANON COUNTY

PENNSYLVANIA

CIVIL ACTION – LAW

JACK EZELL                                            :

                   Plaintiff                                   :

                                                                    :

          v.                                                       :              NO. 2023-00891

                                                                    :

RUTH S. GETTLE ESTATE;                    :

WILLIAM ZACK GETTLE, EXECUTOR, :

                   Defendant                              :

APPEARANCES:

GEORGE CHRISTIANSON, ESQ.                      FOR PLAINTIFF

IAN EHRGOOD, ESQ.                                         FOR DEFENDANTS

Opinion, Charles, J., September 23, 2024

          Before us today is the issue of whether the liquidated damages clause in a written agreement between the parties is enforceable.  Upon consideration of evidence that was presented at a bench trial before this jurist, we found the clause in question to be ambiguous.  We then ordered both parties to submit briefs supporting their positions on the liquidated damages provision. Today, we issue this Opinion in support of our decision to deny Plaintiff’s request for $20,000.00 in liquidated damages, finding it to be an unconscionable amount given the actual services rendered.  However, we award the Plaintiff the significantly reduced sum.  Our reasons for these decisions will be set forth below.

I.        FACTUAL AND PROCEDURAL BACKGROUND

          Jack Ezell (hereafter “EZELL”) is the owner of Ezell Auction Company.  William Z. Gettle (hereafter “GETTLE”) is the Executor of the Ruth S. Gettle Estate.  Ms. Gettle passed away leaving behind real estate located at 2928 Tunnell Hill Road in Lebanon (hereafter “PROPERTY”).  On March 26, 2023, EZELL and GETTLE entered into an Agreement for EZELL to sell the PROPERTY at a public auction, to be held on May 13, 2023[1].  Prior to the date scheduled for the auction, GETTLE withdrew the PROPERTY for sale.

          Paragraph 3 of the Auction Agreement reads in whole: 

“Seller agrees that if Seller withdraws any or all of the said personal property or real estate from sale at any time prior to said property being sold, Seller will pay the Auctioneer for services rendered to date, the sum of $20,000.00 as liquidated damages for services rendered and not as penalty, plus the expenses and advertising listed below. Seller further agrees that in case of postponement, Seller shall be responsible for all additional cost incurred as a result of such postponement.”

The expenses and advertising “listed below” are Auctioneer’s fees of 3% on real estate and 10% on personal property, and $1,500.00 in advertising expenses.

          According to EZELL, the form used for the Agreement is a standard form that he has used for the last twenty years.  There are blanks on the form for the parties to fill in after they agree on the amount of the reserve and the amount for liquidated damages. EZELL testified that GETTLE initially thought one hundred sixty thousand dollars ($160,000.00) would be a satisfactory figure for the reserve amount, but EZELL suggested that was too low and they agreed on one hundred eighty thousand dollars ($180,000.00).  EZELL claimed that GETTLE filled in the amount of $180,000.00 and the amount of $20,000.00 for liquidated damages.

          GETTLE implies that EZELL took advantage of him when EZELL presented him with a standard printed contract.  GETTLE alleges that it was EZELL that filled in the reserve price and the liquidated damages amount, after GETTLE filled in his basic information.  GETTLE said that he cancelled the Agreement four (4) days after executing it because he wished to keep the PROPERTY in the family.  GETTLE privately sold the PROPERTY for two hundred, forty-five thousand dollars ($245,000.00).

          EZELL asserts that he ordered auction notice signs and placed them on the property. He testified that he received numerous inquiries on PROPERTY, including one from the ultimate purchaser.  EZELL states that he had to hire someone to clean up the PROPERTY prior to the auction. GETTLE avers that EZELL visited the property about 10 times, but did not spend much time on advertising or fielding telephone calls.

EZELL said that he was told by GETTLE’s lawyer, Attorney Horace Ehrgood, to hold off on any further action in preparation for the auction.  The parties dispute the timing of when Attorney Ehrgood delivered this message to EZELL. GETTLE claims it was shortly after the Agreement was signed, but EZELL places it much closer to the scheduled open house for the sale.   

           On July 6, 2023, EZELL filed a Complaint demanding twenty thousand ($20,000.00) for liquidated damages plus costs of the suit.  A case management conference was held in this matter on October 5, 2023, and on June 3, 2024, EZELL filed a Motion to Request a Bench Tral.  The Motion was granted, and the Bench Trial took place on August 14, 2024. After the hearing, we entered an Order requesting the parties to submit briefs and present their arguments on the following questions:

1. What is the duty of this Court relative to enforcement of a contract when the proposed liquidated damages for “services rendered” far exceed the value of those services?
2. Under what circumstances can a contract provision be deemed unconscionable?
3. Whether the recent federal decision limiting realtors’ fees affects this case?
4. Is there any right of rescission that could be triggered by virtue of Attorney Ehrgood advising EZELL that the contract needed to be “put on hold” because it could no longer be effectuated as written?

The parties filed briefs, and the matter is now ripe for disposition on the issue of the validity of the liquidated damages clause.

II.       LEGAL PRINCIPLES

1. Penalty v. Reasonable Liquidated Damages

In Calabro v. Dept. of Aging, 689 A.2d 347 (Pa.Cmwlth. 1997), the Commonwealth Court declared, “Clauses setting forth liquidated damages are enforced where they are reasonable, and fair attempts to fix just compensation for anticipated loss caused by breach of contracts. (citing Priebe & Sons v. United States, 332 U.S. 407, 411,(1947) (overruled byUnited States v. Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424 (1958)). If a clause purporting to set forth damages does not actually do so, but rather constitutes a penalty, it is unenforceable.  (citing Com., Dept. of Transp. v. Interstate Contractors Supply Co., 568 A.2d 294 (Pa.Cmwlth. 1990).”

In the case of, Department of Transportation v. Mitchell,535 A.2d581 (Pa. 1987), our Supreme Court noted that liquidated damages should only be applied in cases where the amount is reasonable and there is a difficulty in assessing the harm that would be caused by a breach. In considering what is a reasonable amount, the Court should evaluate the terms of the bargained-for exchange. Such clauses are enforceable provided that, at the time the parties enter into the contract, the sum agreed to constitutes a reasonable approximation of the expected loss rather than an unlawful penalty. See Carlos R. Leffler, Inc. v Hutter, 696 A.2d 156 (Pa. Super. 1997). The common law rule articulated above is now codified in the Pennsylvania Commercial Code:

13 Pa.C.S.A. 2718. Liquidation or limitation of damages; deposits

Liquidated damages in agreement. —Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large, liquidated damages is void as a penalty.

In Wayne Knorr, Inc. v. Dept. of Transp., 973 A.2d 1061 (Pa.Cmwlth. 2009), the Commonwealth Court affirmed the decision of the Board of Claims which determined that the liquidated damages requested by PennDOT were an excessively large dollar amount in relation to the relatively minor amount of work and actual workdays involved.  The Board awarded liquidated damages, but at a significantly reduced amount, explaining, “[T]he $194,350 requested as construction engineering liquidated damages is an unreasonably large, liquidated damages figure under the circumstances of this case . . ..”

• Unconscionability of a Contract

In Cardinal v. Kindred Healthcare, Inc., 155 A.3d 46, 53 (Pa. 2017), the Superior Court noted that an unconscionability analysis requires a two-fold determination: (1) that the contractual terms are unreasonably favorable to the drafter (“substantive unconscionability”), and (2) that there is no meaningful choice on the part of the other party regarding the acceptance of the provisions (“procedural unconscionability”). Citing  MacPherson v. Magee Meml. Hosp for Convalescence, 128 A.3d 1209 (Pa.Super 2015). 

Pursuant to 13 Pa.C.S.A. §2302, if the Court as a matter of law finds that a contract or any clause of a contract was unconscionable at the time it was made, the court may:

(1) refuse to enforce the contract;

(2) enforce the remainder of the contract without the unconscionable clause; or

(3) so limit the application of any unconscionable clause as to avoid any unconscionable result.

The Comments in regard to § 2302(a)(2) state:

“Under this section the court, in its discretion, may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purpose of the agreement, or it may simply limit unconscionable clauses so as to avoid unconscionable results.”

In Sutter Corp. v. Tri-Boro Mun. Authority, 487 A.2d 933, (Pa.Super. 1985), a liquidated damages clause in contract between a municipality and general contractor regarding construction of a sewage treatment plant was not unconscionable, where contractor was an experienced contractor which dealt with municipality at arm’s length, where its officers understood the contract, and where deficiencies in construction were not inconsequential. The total contract price was $829,071.89, and liquidated damages were determined to be $59,300. Plaintiff argued that the contract provision calling for liquidated damages was unenforceable as unconscionable. The Superior Court stated, “We do not agree. In Pennsylvania, liquidated damages clauses have been universally accepted as a necessary part of the law governing construction contracts. See In Re: Plywood Co. of Pa., 425 F.2d 151 (3rd Cir.1970).”

On the other hand, in Com., Dept. of Transp. v. Interstate Contractors Supply Co., 568 A.2d 294 (Pa.Cmwlth. 1990), the Commonwealth Court found that that a liquidated damages clause in the parties’ contract constituted an unenforceable penalty.  In determining whether a liquidated damages clause is an unenforceable penalty, a court must examine the entire contract in light of its text, what it is about, the parties’ intentions, and the facility of measuring damages or lack thereof, so as to arrive at an equitable conclusion. See Department of Environmental Resources v. Hartford Accident and Indemnity Co., 396 A.2d 885 (Pa.Cmwlth. 1979). As per Hartford and Sutter, one of the factors to be considered is the actual text of the contract. The subject-matter of the contract should support the enforceability of the liquid damages clause.

• NAR Settlement

On April 14, 2024, the U.S. Judicial Panel on Multidistrict Litigation denied a motion to consolidate cases from vendors of real estate against an association of real estate agents and brokers alleging that certain association rules violated antitrust laws.  In Re: Real Estate Commission Antitrust Litigation, 2024 WL 1597517. These actions were filed in the wake of a plaintiff’s verdict in an earlier filed case against National Association of Realtors (NAR), the HomeServices defendants, the Anywhere defendants, Keller Williams Realty, Inc., and RE/MAX LLC. See Burnett, et al. v. Nat’l Assoc. of Realtors, et al., No. 4:19-00332 (W.D. Mo. Oct. 31, 2023), ECF No. 1294.  According to NAR’s settlement announcement, it will pay $418 million over four years and put in place a new MLS rule prohibiting offers of broker compensation on the MLS.   Key takeaways from the NAR settlement:

• Listing agents can’t advertise buyer’s agent fees. This change shifts the responsibility to buyers and their agents to negotiate fees directly – rather than the seller predetermining and dictating the buyer’s agent’s compensation. 
• Seller concessions may resemble the current system. Many MLSs are introducing a field for seller concessions, often allowing them to be expressed as a percentage. The key change: If the negotiated buyer’s agent fee is lower than the concession amount, the buyer keeps the difference, offering potential savings.
• Buyer’s agency agreements are mandatory. Buyer’s agents must now secure a signed agency agreement before taking on clients and touring homes. This agreement outlines the services and fees and aims to give buyers greater cost transparency. 
• Most notably for auctioneers, if they are not a “member” these new rules do not apply. NAR’s rules only apply if an auctioneer chooses to join. If you the auctioneer is not a realtor, then basically nothing regarding this settlement matters affects them.

Contrary to the suggestion of the parties, we do not find the NAR litigation to be particularly relevant to the issue now before us.

• Right of Recission

When a party seeks the equitable remedy of rescission, “part and parcel of the award of that remedy is returning the parties, to the extent possible, to the status quo ante.” In re Fowler, 425 B.R. 157, 204 n. 65 (Bankr.E.D.Pa.2010) (citing Baker v. Cambridge Chase, Inc., 725 A.2d 757, 766 (Pa.Super.1999) (“It is well known that the purpose of equitable rescission is to return the parties as nearly as possible to their original positions where warranted by the circumstances of the transaction.”)). Rescission traditionally required either that the rescinding party return what he/she received before a rescission could be effected (rescission at law), or else that a court affirmatively decree rescission (rescission in equity).” Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. 259, 264 (2015).

Because the objective of rescission is to return both parties as nearly as possible to their positions before they made the contract, a claim seeking a contract’s termination “should be granted only where the parties to a contract can be placed in their former positions with regard to the subject matter of the contract.” Umbelina v. Adams, 34 A.3d 151, 157; accord 17B C.J.S. Contracts § 651 (2019) (“The restoration of the status quo of the parties is, as a general rule, necessary for the rescission of a contract… ).“

In Umbelina, supra, purchasers of a home were not entitled to rescind their contract, as the general contractor had not fraudulently induced purchasers to enter into it, and the contract had been fully executed. Our courts have established that the “only grounds upon which equity will permit rescission of an executed contract are fraud, mistake, failure of consideration, and quia timet.”Id at 158-159, citing New–Com Corp. v. Estate of Gaffney, 72 B.R. 90, 93–94 (Bkrtcy.W.D.Pa.1987) (citing Windle v. Crescent Pipe–Line Company, 40 A. 310 (Pa. 1898);  Hays v. Hays, 36 A. 311 (Pa. 1897); Delamater’s Estate, 1 Whart. 362 (1836)). 

• Quantum Meruit

Quantum meruit is an equitable action, and principles of fairness should prevail.  Angino and Rovner v. Jeffrey R. Lessin & Associates, 131 A.3^rd 502 (Pa.Super. 2016).  Quantum meruit is a quasi-contract theory, utilized when a cause of action expressly sounding in contract cannot be sustained.  Shafer Elec. & Const. v. Mantia, 96 A.3^rd 989, 993 (Pa. 2014).  In the case, Durst v. Milroy General Contracting Inc., 52 A.3d 357 (Pa.Super. 2012),  the Superior Court began its analysis by noting that quantum meruit is essentially a claim for unjust enrichment, which “implies a contract [and] requires the defendant to pay to the plaintiff the value of the benefit conferred.” Id. at 360.  The factual circumstances of the case determine whether the doctrine is applicable. “In determining if the doctrine applies, our focus is not on the intention of the parties, but rather on whether the defendant has been unjustly enriched.”  Id. (quoting Schenck v. K.E. David, Ltd., 666 A.2d 327, 328 (Pa.Super.1995) (internal citations omitted)). When the only possible theory of the plaintiff’s complaint is that it is based on an express contract, no right to recover on the theory of a quantum meruit can be sustained. Zawada v. Pennsylvania System Bd. Of Adjustment, et al., 140 A.2d 335 (Pa. 1958).

III.   ANALYSIS

The salient issue in this case is whether Paragraph 3 of the parties’ contract is or is not enforceable.  This question must be answered using the legal principles set forth in Section II A (Liquidated Damages v. Penalty) and Section II B (Unconscionability), above.[2]  Because the law defining penalty and the law of unconscionability both require us to evaluate the totality of the parties’ bargained-for exchange, we will take a closer look at the contract and the services EZELL rendered pursuant thereto. 

Had an auction actually taken place, the PROPERTY would have been sold for what presumably could be characterized as fair market value.  In that event, EZELL would have been entitled under the Agreement to a 3% fee for sale of the house and a 10% fee for any personal property sold.  In addition, EZELL would have been entitled to reimbursement for costs pertaining to advertising.  Because the parties agreed upon a “reserve” of $180,000.00, we will use that as a presumptive fair market value.  Had the property been sold for $180,000.00, EZELL would have been entitled to $5,400.00, which represents 3% of $180,000.00.  In addition, EZELL would have been entitled to 10% of the value of any personal property plus reimbursement for the cost of advertisement.  Absent evidence of some extraordinary valuable personal property – and none exists – we perceive that EZELL would have been entitled to less than $6,500.00 had the contract been fully executed.  This is significantly less than the proposed “liquidated damages”.

Another way to evaluate whether the $20,000.00 liquidated damages amount is reasonable is to ask how much the property would sell for in order to generate a $20,000.00 fee.  Using the 3% fee set forth in the Agreement, the answer to this mathematical question is $670,000.00.  This amount is two and one-half times greater than the amount GETTLE ultimately received for the sale of the property. 

In terms of what EZELL actually accomplished before the Agreement was terminated, we perceive the following:

• He procured signs to advertise the auction.
• He posted some signs on the property notifying people about the auction.
• He received and responded to inquiries from persons interested in the property.
• He ordered advertisements from Kapp Advertising.
• He visited the property on several occasions.

EZELL presented no estimate of how many hours he spent in preparation for an auction of the property.  He likewise presented no evidence of the hourly value of his services.  He did present invoices for advertising from Kapp Advertising ($787.95) and from Blose Signs & Printing ($109.00). 

          Given that GETTLE’s lawyer notified EZELL that he was backing out of the Agreement relatively promptly after the contract was sold and given the relatively meager services that EZELL provided in preparation for an auction, we find the proposed $20,000.00 liquidated damage amount to be both unconscionable and a penalty.  Thus, under the law governing unconscionability of an agreement, and under the law defining the enforceability of a penalty, we decline to enforce Paragraph 3 of the parties’ Agreement as it was written.

          With the above being concluded, we cannot completely ignore the fact that both GETTLE and EZELL signed an agreement designed to facilitate the sale of GETTLE’s property.  We likewise cannot ignore the fact that the ultimate purchaser of the property contacted EZELL to inquire about the property following EZELL’s advertisements.  We therefore conclude that EZELL is entitled to something, albeit not a $20,000.00 penalty.  GETTLE proposes that EZELL should be entitled to no more than $1,000.00, which represents little more than the expense of advertising that EZELL paid to prepare the property for auction.  Such an outcome simply does not reflect the nature of the parties’ Agreement. 

          Whenever a professional assists in the marketing of real estate, whether by auction or not, the professional undertakes a certain amount of risk.  If no one is interested in the property, or if the price offered is less than fair market value, no transaction will occur.  In that event, the professional who expended time, effort and money would receive nothing.  This type of risk could be obviated by a contract whereby the owner would agree to compensate the professional on an hourly basis for time expended.  Obviously, GETTLE and EZELL did not enter into an agreement that compensated EZELL for services on an hourly rate basis.  Instead, the parties entered into an agreement that called for EZELL to accept a risk that the property would not be sold.  What EZELL should receive at this point must reflect the amount of risk he undertook.  We therefore conclude that mere reimbursement of expenses incurred by EZELL would not be fair under the facts presented to us. 

          As we contemplate everything that we heard about services rendered by EZELL, as we contemplated the degree of risk he undertook to enter into an agreement with GETTLE, and as we remember that the Agreement was terminated very shortly after it was signed, we conclude that EZELL should be entitled to receive $6,296.95.  We calculated this number by awarding EZELL 3% of the $180,000.00 reserve amount that the parties agreed upon plus the amount of expenses that EZELL paid to market the property. 

III.      CONCLUSION

 Based on the analysis of the facts and law stated above, this Court concludes that the amount of $20,000.00 in liquidated damages sought by EZELL is excessive considering the services that he rendered for GETTLE.  We will reduce the liquidated damages $6,296.95. EZELL will not be awarded any other costs.

---

[1] The Agreement also included the sale of a 2007 Chevy Equinox, a John Deere riding mower, and a DR lawn vacuum.

[2] As noted in Section II (C), the recent Federal decisions that limit the amount of commission paid to a real estate agent have no impact on this case.  In addition, the principles governing recission set forth in Section II (D) are not pertinent.  There is no evidence that EZELL fraudulently induced GETTLE into signing the Agreement.  Moreover, GETTLE backed out of the contract, not because he had been defrauded, but because he changed his mind and wanted to keep the property in the family.  To the extent that either party relies upon arguments based upon the NAR litigation or recission, we reject those arguments.