RUMSEY v. GILLIS Et Al.

SECOND DIVISION
ANDREWS, P. J.,
MCFADDEN and RAY, JJ.

NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules/

November 6, 2014

In the Court of Appeals of Georgia
A14A1268. RUMSEY v. GILLIS et al.

ANDREWS, Presiding Judge.

Peter Rumsey sued Ray and Nancy Gillis for damages for breach of a

“Lease/Purchase Agreement” (the Agreement) by which the Gillises agreed to lease

and then purchase Rumsey’s residence. We consider Rumsey’s appeal from the trial

court’s grant of summary judgment in favor of the Gillises on all of his claims. For

the following reasons, we affirm in part and reverse in part.

In April 2011 the Gillises and Rumsey entered into the Agreement, which

provided that the Gillises agreed to purchase the residence from Rumsey for the sum

of $550,000.00; that the closing would occur on or before April 30, 2014; that,

commencing in May 2011 until the closing date, the Gillises would lease the

residence from Rumsey pursuant to a lease attached as an exhibit to the Agreement;
and that, when the Agreement was entered into by the parties, the Gillises paid

earnest money in the amount of $10,000.00 held by Rumsey. The Agreement also

contained a liquidated damages clause providing that earnest money retained in the

event of default constitutes liquidated damages in full settlement of all claims. The

Agreement provided that, if the lease was terminated before the closing date by

default of the Gillises, that was considered a default of the Agreement entitling

Rumsey to pursue available remedies. The attached lease provided for payment of

rent in the amount of $3,500.00 per month for a lease term commencing on May 3,

2011, and ending on the closing date of the purchase. The Gillises did not purchase

the residence pursuant to the Agreement; rather, the Gillises vacated the residence

and ceased paying rent in November 2011, and Rumsey retained the $10,000.00 in

earnest money and subsequently sold the residence to a third party.

After retaining the $10,000.00 in earnest money paid by the Gillises, Rumsey

sued the Gillises in December 2011 for breach of the Agreement seeking damages

allegedly caused by the Gillises’ failure to purchase the residence and pay rent due

under the lease. After Rumsey sold the residence in March 2012 to a third party for

$437,000.00, he sought damages for breach of the purchase agreement in the amount

of $113,000.00 (the difference between the third party sales price and the

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$550,000.00 sales price in the Agreement). As to damages under the lease agreement,

Rumsey sought unpaid rent from November 2011 (when the Gillises vacated the

residence and ceased rent payments) to the date he sold the residence to a third party

in March 2012, plus late fees and interest associated with the unpaid rent for that

period.

The Gillises answered and counterclaimed against Rumsey. In their amended

answer, the Gillises asserted various defenses including (1) the defense that the

Agreement was unenforceable, and (2) the alternative defense that, if an enforceable

Agreement existed, it contained an enforceable liquidated damages clause under

which Rumsey retained the $10,000.00 in earnest money as damages in full

settlement of any breach of the Agreement, and that this barred Rumsey’s claims. In

two counterclaims against Rumsey, the Gillises asserted: (1) that, because the

Agreement was unenforceable, they were entitled to return of the $10,000.00 they

paid as earnest money, and (2) that, during the period they occupied the residence and

paid rent under the lease, they suffered damage as a result of Rumsey’s breach of his

duty to keep the residence in good repair.

The Gillises moved pursuant to OCGA § 9-11-56 for summary judgment on all

of Rumsey’s damage claims under the Agreement. The summary judgment motion

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was based on the same alternative defense asserted in the amended answer – that all

of Rumsey’s claims were barred by an enforceable liquidated damages clause in the

Agreement. Accordingly, for purposes of the motion, the Gillises conceded that the

Agreement was enforceable and that they breached it by terminating the lease and

refusing to purchase the residence. The Gillises asserted they were entitled to

summary judgment because, pursuant to the liquidated damages clause, Rumsey

retained the $10,000.00 in earnest money as damages in full settlement of all his

claims that they breached the Agreement. The trial court granted the motion ruling

that the liquidated damages clause was enforceable; that Rumsey retained the earnest

money in full satisfaction of his claims that the Gillises breached the Agreement; and

that this entitled the Gillises to summary judgment on all of Rumsey’s claims.

1. Rumsey claims the trial court erred by granting summary judgment to the

Gillises on the basis that all of his claims were barred by the liquidated damages

clause in the Agreement.

To prevail on a motion for summary judgment, “the moving party must

demonstrate that there is no genuine issue of material fact and that the undisputed

facts, viewed in the light most favorable to the nonmoving party, warrant judgment

as a matter of law.” Lau’s Corp. v. Haskins, 261 Ga. 491, 491 (405 SE2d 474) (1991);

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OCGA § 9-11-56. Applying this standard, we find that the trial court correctly

granted summary judgment in favor of the Gillises on Rumsey’s claims seeking to

collect damages for breach of the Agreement in excess of the $10,000.00 of earnest

money that he retained.

Under OCGA § 13-6-7, “[i]f the parties agree in their contract what the

damages for a breach shall be, they are said to be liquidated and, unless the agreement

violates some principle of law, the parties are bound thereby.” The Agreement at

issue for purchase of the residence (for $550,000.00), and for the buyers’ lease of the

residence (until closing), required the Gillises, as buyers, to deposit earnest money

with Rumsey, as seller, in the amount of $10,000.00. The Agreement contained a

liquidated damages provision which stated:

If the [earnest money] check is accepted and deposited by Seller it shall
constitute liquidated damages in full settlement of all claims of Seller
against Buyer. Such liquidated damages are not a penalty and are instead
a reasonable pre-estimate of Seller’s actual damages, which damages are
difficult to ascertain. Nothing herein shall prevent the Seller from
declining the tender of the earnest money. . . .

The Agreement in its pre-printed form set forth conditions governing return of the

earnest money to the buyer (e.g., termination of the agreement due to fault of the

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seller) or disbursement1 of the earnest money to the seller (e.g., termination of the

agreement due to fault of buyer). The printed Agreement also contained a

subsequently-added handwritten stipulation concerning earnest money which states:

“Earnest money is non-refundable if property does not close.”

Rumsey contends that the handwritten stipulation controls, renders the

liquidated damages provision inapplicable, and shows that the parties agreed that, if

there was no closing on the residence, he was entitled to retain the earnest money and

sue the Gillises for breach of the Agreement to recover his actual damages. “In the

construction of contracts there is a rule that a [handwritten] portion prevails over a

printed portion, where the two cannot be reconciled.” Stanley v. Greenfield, 207 Ga.

390, 390 (61 SE2d 818) (1950); Lester v. Crooms, Inc., 157 Ga. App. 377, 379 (277

SE2d 751) (1981). Applying the rules of contract construction, we find that the

handwritten stipulation can be reconciled with the liquidated damages provision.

[T]he construction of contracts involves three steps. At least
initially, construction is a matter of law for the court. First, the trial court
must decide whether the language is clear and unambiguous. If it is, the

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Although the Agreement contained provisions for the earnest money to be
disbursed to the Seller by the “Holder” of the earnest money, it is undisputed that
Rumsey, the seller, was also designated in the Agreement as holder of the earnest
money. Accordingly, provisions for disbursement from a separate holder to the seller
are inapplicable.

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 court simply enforces the contract according to its clear terms; the
contract alone is looked to for its meaning. Next, if the contract is
ambiguous in some respect, the court must apply the rules of contract
construction to resolve the ambiguity. Finally, if the ambiguity remains
after applying the rules of construction, the issue of what the ambiguous
language means and what the parties intended must be resolved by a
jury. Because the first two of these steps involve questions of law, the
trial court’s application of them is reviewed de novo on appeal.

City of Baldwin v. Woodard & Curran, Inc., 293 Ga. 19, 30 (743 SE2d 381) (2013)

(punctuation and citation omitted); Copy Systems of Savannah, Inc. v. Page, 197 Ga.

App. 435, 436 (398 SE2d 784) (1990). The handwritten stipulation providing that the

earnest money held by Rumsey was non-refundable if no closing occurred, is not

inconsistent with Rumsey’s retention of the earnest money pursuant to the liquidated

damages provision as full settlement of his claims against the Gillises for breaching

the Agreement and failing to close. Accordingly, we find that the language of the

Agreement unambiguously sets forth a liquidated damages provision. Although the

trial court reached this conclusion by a different construction of the Agreement, we

affirm the court’s ruling under the right for any reason rule. City of Gainesville v.

Dodd, 275 Ga. 834 (573 SE2d 369) (2002).

Rumsey contends that the trial court erred by finding that the liquidated

damages provision in the Agreement was enforceable. “[T]he enforceability of a

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liquidated-damages provision in a contract is a question of law for the court.” Liberty

Life Ins. Co. v. Thomas B. Hartley Constr. Co., 258 Ga. 808, 809 (375 SE2d 222)

(1989). “A term fixing unreasonably large liquidated damages is unenforceable on

grounds of public policy as a penalty.” AFLAC, Inc. v. Williams, 264 Ga. 351, 354

(444 SE2d 314) (1994) (punctuation and citation omitted). In Southeastern Land

Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 230 (227 SE2d 340) (1976), the

Supreme Court established a three-part inquiry to determine whether a liquidated

damages provision in a real estate sales contract is enforceable, and authorizes the

seller to retain the earnest money paid by the buyer in the event of a breach of

contract by the buyer, or whether it is unenforceable as a penalty. The three-part

inquiry, which necessarily requires the resolution of questions of fact, determines if

the following factors are present:

First, the injury caused by the breach must be difficult or impossible of
accurate estimation; second, the parties must intend to provide for
damages rather than for a penalty; and third, the sum stipulated must be
a reasonable pre-estimate of the probable loss.

Southeastern Land Fund, 237 Ga. at 230; Liberty Life, 258 Ga. at 809. As the

movants on summary judgment, the Gillises had the burden of showing that, as to the

three factors, no genuine issue of material fact exists. Liberty Life, 258 Ga. at 809.

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 As to the first factor, the ordinary measure of damages for breach of this kind

of purchase agreement is the difference between the agreement sales price and the

market value of the residence at the time of the breach – a value which “would be

subject to the varying opinions of experts, who would have to reconstruct a past

market when making their evaluation.” Id. at 809. The record shows that Rumsey,

who was experienced in real estate transactions and had purchased and sold about 20

residences in 2011, and his real estate agent, testified that the value of the residence

was subject to difficult-to-predict market fluctuations. As to the second factor, the

Agreement explicitly states that the parties intended for the $10,000.00 earnest money

to represent liquidated damages in the event of a breach by the buyers, and that it was

not intended as a penalty. Caincare, Inc. v. Ellison, 272 Ga. App. 190, 192 (612 SE2d

47) (2005); Oran v. Canada Life Assur. Co., 194 Ga. App. 518, 520 (390 SE2d 879)

(1990). As to the third factor, $10,000.00 of earnest money as liquidated damages

represents about two percent of the $550,000.00 purchase price of the residence. This

percentage of the sales price is well within other payments of earnest money as

liquidated damages found to be reasonable as a matter of law. Swan Kang, Inc. v.

Kang, 243 Ga. App. 684, 686 (534 SE2d 145) (2000) (two percent of sales price);

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Liberty Life, 258 Ga. at 809 (ten percent of sales price); Fuqua Constr. Co. v. Pillar

Dev., Inc., 293 Ga. App. 462, 465 (667 SE2d 633) (2008) (two percent of sales price).

We find that the Gillises carried their burden with respect to the three

Southeastern Land factors, and that the trial court correctly determined as a matter of

law that the liquidated damages provision in the Agreement was not a penalty and

was enforceable. Since the liquidated damages provision in the Agreement was

enforceable, the $10,000.00 in earnest money retained by Rumsey as liquidated

damages was the maximum amount he was entitled to collect against the Gillises for

damages as a result of their breach of the Agreement. Fickling & Walker Co. v.

Giddens Constr. Co., 258 Ga. 891, 898 (376 SE2d 655) (1989). Accordingly, the trial

court correctly granted summary judgment in favor of the Gillises on all of Rumsey’s

claims seeking to collect actual damages (in excess of the agreed liquidated damages)

for breach of the Agreement. Id.

Rumsey contends that, even if his claim for actual damages for breach of the

agreement to purchase the residence was barred by the liquidated damages defense,

he was still entitled to sue the Gillises for actual damages for breach of the separate

lease agreement. On the lease claim, Rumsey sought to collect rent he claims was due

under the lease from the date the Gillises allegedly breached both the lease and the

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Agreement by vacating the residence in November 2011, until the date he sold the

residence to a third party in March 2012. The Agreement refers to the attached lease

“made a part of this Agreement,” and further provides that:

Prior to purchasing the [residence], the Buyer (referred to as ‘Tenant’
where the context would so indicate) will be leasing the [residence] in
accordance with the terms and conditions of a separate Lease Agreement
(‘Lease’) between the parties attached hereto as an exhibit. In the event
the Lease is terminated by Seller due to a default of the Tenant
thereunder, Buyer shall also be deemed to be in default of this
Agreement and Seller may pursue all of its remedies. . . .

The lease provides that the lease term commences on May 3, 2011, “and shall end

at the closing of the purchase of the [residence] by Tenant pursuant to [the]

Agreement between the parties. . . .” Thus, the Agreement and the attached lease

make clear that, when the Gillises vacated the residence, this constituted not only a

breach of the lease but a breach of the entire Agreement, and that the parties did not

intend for the residence to be leased apart from the buyer/tenant’s agreement to

purchase the residence. Rumsey and his real estate agent confirmed this

understanding in deposition testimony that the Gillises’ breach of the lease was

considered a breach of the entire Agreement, which entitled Rumsey to retain the

$10,000.00 in earnest money. Accordingly, the trial court correctly ruled that

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Rumsey’s retention of the $10,000.00 earnest money extinguished his claim for rent

allegedly due after the Gillises breached the Agreement by vacating the residence.2

We find no merit to Rumsey’s claim that the Gillises waived their liquidated

damages defense because it was not raised in their initial answer to his complaint. See

OCGA § 9-11-8 (c) (pleading affirmative defenses). The Gillises raised this defense

for the first time in their motion for summary judgment, and thereafter in an amended

answer. Assuming this was the assertion of an affirmative defense, it was timely

raised for the first time in the motion for summary judgment. Gober v. Hospital Auth.

of Gwinnett County, 191 Ga. App. 498, 498-499 (382 SE2d 106) (1989); Brown v.

Moseley, 175 Ga. App. 282, 283 (333 SE2d 162) (1985); Hardy v. Ga. Baptist Health

Care Systems, Inc., 239 Ga. App. 596, 597 (521 SE2d 632) (1999).

Without citation to the record or to supporting authority, Rumsey contends the

trial court erred by ruling that he was prohibited from tendering the $10,000.00 in

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We note that the lease also gave Rumsey (as landlord) the right to seek other
damages, for example, the cost of repairing damage to the residence (other than
normal wear and tear) caused by actions or neglect of the tenant, tenant’s household,
or their invitees, while the tenant occupied the residence. Rumsey did not seek those
kinds of damages, and we render no opinion on whether the liquidated damages
defense would apply to those damages.

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earnest money to the Gillises once they asserted the liquidated damages defense. This

claim of error is deemed abandoned. Court of Appeals Rule 25 (c) (2).

2. Rumsey contends that the trial court erred by ruling that the Gillises’

liquidated damages defense did not bar their counterclaims.

As set forth above, the Gillises brought two counterclaims against Rumsey

asserting: (1) that, because the Agreement was unenforceable, they were entitled to

return of the $10,000.00 they paid as earnest money, and (2) that, during the period

they leased the residence under the Agreement, they suffered damage as a result of

Rumsey’s breach of his duty to keep the residence in good repair. In the order

granting summary judgment in favor of the Gillises on their liquidated damages

defense, the trial court added the following statement: “As no motion regarding [the

Gillises’] counterclaims for damages has been filed, the same shall remain for

resolution by a jury.”

To the extent this statement could be interpreted as a ruling that the Gillises

remain entitled as a matter of law to pursue their counterclaim for return of the

$10,000.00 earnest money from Rumsey, we reverse. The Gillises moved for and

obtained an order granting summary judgment in their favor on their liquidated

damages defense. In the order, the trial court ruled that the Agreement between the

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parties contained an enforceable provision under which Rumsey retained the

$10,000.00 in earnest money as liquidated damages, and that this barred his claims

seeking to collect actual damages in excess of the agreed damages. Although the trial

court’s order did not dispose of the Gillises’ pending counterclaims, and the court did

not direct entry of final judgment pursuant to OCGA § 9-11-54 (b), Rumsey directly

appealed from the court’s ruling pursuant to OCGA § 9-11-56 (h). This Court’s ruling

on appeal affirming the trial court is binding on all subsequent proceedings in the

case in the trial court, and necessarily precludes the Gillises’ counterclaim for return

of the $10,000.00 earnest money. OCGA § 9-11-60 (h). As to the Gillises’

counterclaim alleging damages caused by Rumsey’s breach of the duty to keep the

residence in good repair, this claim concerns fixed damages which the Gillises claim

occurred before they vacated the residence and ceased paying rent. We conclude that

these damages were not within the contemplation of the liquidated damages

provision, and that the counterclaim for these damages is not precluded by rulings in

the trial court and this Court on the liquidated damages defense.

Judgment affirmed in part and reversed in part. McFadden and Ray, JJ.,

concur.

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