Under consistent authority, the judgment constitutes an unenforceable penalty because it bears no reasonable relationship to the range of actual damages the parties could have anticipated would flow from a breach of their settlement agreement. We publish this opinion to reaffirm that the rule set forth in Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896 [ 143 Cal.Rptr. 306] ( Sybron) continues to apply after the intervening amendment to Civil Code section 1671. We reverse and remand with directions to the trial court to enter judgment in the amount specified in the settlement agreement, plus postjudgment interest and costs.
The Bankruptcy Court then determined that Eising is entitled to relief pursuant to FRCP 60(b)(6) because the amount of the judgment is unreasonable in proportion to his original obligation and the seriousness of the default, and results in an unconscionable penalty. The Bankruptcy Court based this holding, in large part, upon Sybron Corp. v. Clark Hospital Supply Corp., 76 Cal.App.3d 896, 143 Cal.Rptr. 306 (1978). In that case, a debtor had agreed to pay $72,000.00 in 12 payments, but that on default, a judgment could be entered of $100,000.00.
The Family Defendants argue that the actual damages suffered by the Trustee as a result of their delay in obtaining the waiver of Claim no. 42 are minimal and the Judgment based on paragraph 7 is so disproportional in amount as to constitute an unenforceable penalty or a forfeiture. The Family Defendants rely on Cal. Civ. Code § 1671 and Sybron Corp. v. Clark Hosp. Supply Corp., 76 Cal. App. 3d 896, 900 (Cal.Ct.App. 1978). The Family Defendants also argue that because they have now provided the waiver of Claim no. 42, they are entitled to relief from forfeiture under Cal. Civ. Code § 3275.2. The Trustee's Position
However, the California courts have "consistently ignored form and sought out the substance of arrangements" to determine whether penalties are being imposed. Id. at 979, 73 Cal.Rptr.2d 378, 953 P.2d 484; see also Sybron Corp. v. Clark Hospital Supply Corp., 76 Cal.App.3d 896, 900 n. 3, 143 Cal.Rptr. 306 (1978) (the parties' mutual agreement that "the event of default is not a forfeiture or penalty" would not govern, as the "parties may not circumvent the public policy of sections 1670 and 1671 by characterizing penalties as something else"). Quaker characterizes the liquidated damages provision as a means of coercing timely payment through the application of a massive penalty.
Vitatech, however, fails to recognize that a liquidated damages provision lacking a reasonable relationship to the range of damages the parties reasonably could have anticipated is unenforceable and void as against public policy. ( Civ. Code, § 1599 ["Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest"]; Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896, 900, 143 Cal.Rptr. 306 ( Sybron ) ["Under California law liquidated damages not reasonably related to actual damages are unenforceable and void as penalties"].) "[A] court cannot validly enter a judgment or order which is void even if the parties agree to it."
The public policy expressed in that code section may not be waived or circumvented by language in the contract. Indeed, not even an express waiver of the right to appeal or the right to contest a stipulated judgment on any ground will prevent a party from challenging a penalty or forfeiture included in the stipulated judgment. (Purcell, at pp. 972, 975; see Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896, 902 & fn. 3.) If a party could not challenge an illegal term in a contract because he or she agreed to it, all statutes and other authorities establishing prohibitions on certain types of contracts or contractual provisions would be rendered meaningless and unenforceable.
In Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008), a California Court of Appeal explained that under a stipulated judgment-as is the case between Trustee and Andra Sachs-the court must analyze damages based on a "breach of the stipulation, not the breach of the underlying contract." 163 Cal. App. 4th at 499 (emphasis in original), citing, Sybron Corp. v. Clark Hospital Supply Corp., 76 Cal.App.3d 896, 902 (1978). The facts of Greentree are similar to those in the case at bar relating to the Stipulated Judgment.
Several cases discuss the enforceability of settlement agreement terms that call for entry of a stipulated judgment following one party's default in payment obligations. (See Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896 (Sybron); Greentree Financial Group, Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495; Purcell v. Schweitzer (2014) 224 Cal.App.4th 969 (Purcell). "In Sybron, . . . [t]he parties reached a settlement under which the buyers would pay the seller $72,000 plus interest in 12 monthly installments; if the buyers defaulted on any payment, a stipulated judgment for $100,000 could be entered in the seller's favor.
(Harbor Island Holdings v. Kim (2003) 107 Cal.App.4th 790, 794, 132 Cal.Rptr.2d 406 (Harbor Island ).) In support of its argument that the $17,500 discount provision was an unlawful penalty, Harkham Industries primarily relies on three Court of Appeal decisions—Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896, 143 Cal.Rptr. 306 (Sybron ), Greentree Financial Group. Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495, 78 Cal.Rptr.3d 24 (Greentree ), and Purcell v. Schweitzer (2014) 224 Cal.App.4th 969, 169 Cal.Rptr.3d 90 (Purcell ). In Sybron, a seller of goods sued the buyers for approximately $144,000 and the buyers cross-complained for approximately $160,000 on grounds of defective goods and rescission.
“Under California law liquidated damages not reasonably related to actual damages are unenforceable and void as penalties.” (Sybron Corp. v. Clark Hosp. Supply Corp. (1978) 76 Cal.App.3d 896, 900; see generally Civ. Code, §§ 1671, 3275.) In Sybron, the parties settled a dispute for a total of $72,000 to be paid in 12 monthly installments, plus monthly interest on the unpaid balance at 10 percent.