Purcell v. Schweitzer (224 Cal. App. 4th 969, 2014)

Opinion

NARES, Acting P. J.

This action arises out of a promissory note in the amount of $85,000 given by defendant Michael Schweitzer to plaintiff Lennox A. Purcell. After Schweitzer defaulted on the promissory note, Purcell brought a lawsuit seeking to recover the monies he had loaned him. The parties settled the action, with Schweitzer agreeing to pay the sum of $38,000, along with interest at the rate of 8.5 percent, in installments over 24 months. The settlement agreement also provided that payments were due on the first day of each month. To be considered timely, payment had to be received no later than the fifth day of the month. Of relevance to this appeal, the agreement provided that if a payment was not made on time, it was considered a breach of the entire settlement agreement, making the entire original liability of $85,000 due. The agreement also specified that that provision did not constitute an unlawful “penalty” or “forfeiture.”

When Schweitzer was late on a payment, Purcell sought and was granted a default judgment in the amount of $58,829.35. Schweitzer thereafter brought a motion to set aside the default judgment, asserting the default judgment was the result of an unlawful penalty. The court set aside the default judgment, finding that it constituted an unenforceable penalty because the amount of the judgment bore no reasonable relationship to the amount of damages Purcell would actually suffer as a result of Schweitzer’s breach.

Purcell appeals, asserting the court erred in setting aside the judgment because (1) Schweitzer waived his right to challenge the judgment on any grounds and (2) the judgment did not constitute an unenforceable penalty because it fairly represented the amount of his damages. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Original Lawsuit and Settlement

In September 2009 Purcell brought a lawsuit against Schweitzer and others to recover the money he loaned them. In March 2010 Schweitzer signed a settlement agreement with Purcell. Pursuant to that agreement, Schweitzer agreed to pay Purcell the sum of $38,000, along with interest on the unpaid principal at the rate of 8.5 percent in installments over 24 months. Monthly payments by Schweitzer then began on April 1, 2010, with a balloon payment of all remaining principal and accrued interest due on April 1, 2012. Schweitzer was to make an initial payment of $20,000, with monthly payments of $750 occurring thereafter. The payments Schweitzer made under the payment plan ranged from $750 to $1,332.58.

The settlement agreement also provided that all payments by Schweitzer were due on the first day of each month and considered late if not actually received by the fifth calendar day of the month. Moreover, the settlement agreement provided that in the event of such a breach, a judgment for the full amount of Schweitzer’s original liability of $85,000 could be entered against him. The stipulation for entry of judgment attached to the settlement agreement further provided that the $85,000 “is an agreed upon amount of monies actually owed, jointly and severally, by the Defendant [(Schweitzer)] to the Plaintiff [(Purcell)] and is neither a penalty nor is it a forfeiture.” (Italics added.) That section also provided that the $85,000 took into consideration “the economics associated with proceeding further with this matter, including but not limited to: [f] (1) A fully performed settlement; [f] (2) Limiting the continuing attorneys’ fees and costs relating to litigation; [