Brief Fact Summary.
Plaintiff developed a subdivision and executed a covenant that any construction on a lot had to be completed within one year. Defendant bought a lot in the subdivision and began construction, however, construction was not complete within a year and Plaintiff gave Defendant written notice of the breach. Plaintiff brought suit, and filed a motion for partial summary judgment on the issue of whether Defendant breached the covenant. Defendant filed a cross motion for summary judgment that the liquidated damages clause was invalid. The trial court granted both motions for summary judgment. The court found that Defendant has violated the covenant, but that the liquidated damages clause was impermissible. Plaintiff appealed.
Synopsis of Rule of Law.
Liquidated damages clauses are proper where it would be difficult to ascertain actual damages and where the liquidated amount is a reasonable forecast of the damages likely to occur in the event of breach.
Carr-Gottstein Properties, Ltd. Partnership (Plaintiff) developed a subdivision and executed a Declaration of Covenants, Conditions and Restrictions to be followed by individuals who developed lots in the subdivision. One of the covenants was that any construction on a lot had to be completed within one year. The covenant contained a liquidated damages clause assessing a $25 daily fine for any breach of the covenant. Benedict (Defendant) bought a lot in the subdivision and began construction on September 20, 1999. On October 31, 2000, construction was not complete and Plaintiff gave Defendant written notice of the breach.
Whether a flat-rate, per diem liquidated damages may be awarded for breach of contract.
Yes. The trial court’s ruling is reversed. Liquidated damages clauses are proper where it would be difficult to ascertain actual damages and where the liquidated amount is a reasonable forecast of the damages likely to occur in the event of breach.
An indication of this lack of calculation is deemed present when the amount of stipulated damages is the same for a total or partial breach, or for breach of minor or major contract provisions.View Full Point of Law
Liquidated damages are appropriate where they do not serve as a penalty that punishes the breaching the party. The liquidated damages clause that Plaintiff imposed for Defendant’s breach is appropriate. 1) Damages caused by delays in construction are almost always difficult to determine. The injury to Plaintiff is of an aesthetic nature and thus not easily quantifiable. 2) The court determines that a $25 daily fine is a reasonable forecast of the damages likely to occur resulting from breaching the construction covenant. Because the damages are difficult to ascertain, courts generally accept bargained for liquidated damage amounts. Moreover, the length of the harm in this case is directly related to the extent of the breach. Accordingly, a daily fine is appropriate to correlate with the mounting harm each day of the breach. As a result of the foregoing, the liquidated damages clause is proper for Defendant’s breach of the subdivision covenant.