Case Law Summaries

Jean-Baptiste v. Borkon Truckarama

• Opinion Date: June 8, 2001
• Business Law
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CONTRACTS; BREACHES; DAMAGES—Where actual damages to a seller approximate the amount of a non-refundable contract deposit, the forfeiture of the deposit is not an unreasonable penalty.

A customer contracted with a truck dealership to purchase a used tractor trailer for $14,650. The contract was made on the seller’s pre-printed form which included a provision, in large bold type, that “ALL DEPOSITS ARE NON-REFUNDABLE.” The contract also included a provision that “this vehicle is sold as-is with no warranty as to mechanical condition.” Notwithstanding the “as-is” provision, the consumer claimed that the seller agreed to make certain repairs to the truck. The seller, however, agreed that it was to make certain limited repairs, but not to the extent claimed. When the consumer went to pick up the truck, all of the repairs had not been made, and he decided to not purchase the vehicle. The seller retained the deposit and subsequently sold the truck for $9,000. The consumer sued the seller for the return of the deposit. Based on the testimony of the parties, the lower court judge said to the consumer, “I don’t believe you – the papers speak for themselves.” The lower court also concluded that forfeiture of the deposit was not a windfall because the seller was only able to sell the truck for $9,000. On appeal, the consumer argued that the forfeiture amounted to a windfall and that the seller’s retention of the deposit was unconscionable. The Appellate Division agreed that the consumer had breached the contract. However, it recognized that such a determination was only the first step in determining whether the seller could retain the deposit. It recognized that “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 non-feasibility of otherwise obtaining an adequate remedy.” In deciding whether a stipulated damage clause is reasonable, a court must consider: 1) the difficulty in assessing damages, 2) the intention of the parties, 3) the actual damages sustained, and 4) the bargaining power of the parties. The Court addressed each of these factors and concluded that: 1) it would not be difficult for the seller to ascertain its damages because it would merely need to find another willing buyer, sell the truck, then seek the balance from the initial purchaser, 2) the intention of the parties was not helpful in this case, 3) the legitimacy of the subsequent sale of the truck for $9,000 was questionable, and 4) the bargaining power was in favor of the seller because it was in the business of selling trucks and the purchaser had bad credit. As a result, it concluded that if the subsequent sale for $9,000 was made in good faith and at arms length with another customer, then the lower court’s decision to uphold the forfeiture would be reasonable because the actual damages would be $14,650 minus $9,000, or $5,650. In such a case, the actual damages would be approximately the amount of the deposit, and the forfeiture of the deposit would not constitute a penalty. However, the Appellate Division concluded that the lower court did not sufficiently address the legitimacy of the subsequent sale. Accordingly, it remanded for further inquiry.

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