Sales and Leases | 209
UCC Series § 2-702:2, Westlaw (database updated June 2021); Buyer in the Ordinary Course of Business, supra .]
2. Liquidated Damages Broadly speaking, a liquidated-damages provision states that if one party breaches the contract, the aggrieved party’s damages are a fixed amount of money. In Article 2, the contract may liquidate damages for either party’s breach. However, the amount must be reasonable, considering (1) the anticipated or actual harm that the breach caused, (2) the difficulty of proving loss, and (3) how inconvenient or infeasible it is to procure another adequate remedy. If the amount is unreasonably large, then it is void as a penalty. If the amount is unreasonably small, it may be unenforceable as an unconscionable limitation on damages. Common examples of liquidated-damages provisions include those providing for return or retention of deposits, refunds, or fees for late payment. [U.C.C. § 2-718(1), cmt. 1 (1951); 2 Hawkland UCC Series § 2-718:1, Westlaw (database updated June 2021).] a. Contractual Language Addressing the Reasonableness of Liquidated Damages Contracts often include language addressing the factors relevant to the reasonableness of liquidated damages. A common example is language indicating the parties’ agreement that (1) the liquidated damages are not penalties, but rather a reasonable approximation of the harm the aggrieved party would suffer upon a breach; (2) actual damages would be difficult or impossible to determine; and (3) otherwise obtaining an adequate remedy would be difficult, impracticable, inconvenient, and so on. Courts often give controlling effect to this sort of language unless the facts weigh strongly in favor of finding the liquidated amount unreasonable. [ See Wahlcometroflex, Inc. v. Westar Energy, Inc. , 773 F.3d 223 (10th Cir. 2014).] b. Anticipated or Actual Harm Flowing from the Breach A liquidated-damages provision must be reasonable considering, among other things, the anticipated or actual harm that the breach caused. Some courts hold that the amount must be reasonable in light of both the anticipated and actual harm; others hold that the amount need only be reasonable in light of one or the other. In any case, the thrust of this factor is to assure that the liquidated-damages amount is a reasonable forecast of the harm from the breach. If the amount of liquidated damages closely approximates the actual or anticipated harm caused, then the liquidated amount should normally be reasonable. If the liquidated amount is too high relative to the actual or anticipated harm, it may be an unenforceable penalty; if too low, it may be an unconscionable damages limitation. [ See Wahlcometroflex, Inc. v. Westar Energy, Inc. , 773 F.3d 223 (10th Cir. 2014); 2 Hawkland UCC Series § 2-718:1, Westlaw (database updated June 2021).]
Made with FlippingBook - Online Brochure Maker