Sales and Leases | 210
Example : A software developer licensed a software product to automobile dealerships. The software tabulated various types of information, including inventory costs, rent, commissions, and so on, to determine a dealership’s costs on a sale of any given automobile in its inventory. The relevant contract contained a liquidated-damages clause setting liquidated damages at $2,000 per unauthorized copy, reproduction, or use of the software. The fee to license the software was $500 annually. On similar facts, a federal district court easily found that the liquidated-damages clause was unenforceable. The developer’s true harm from unauthorized copying, reproduction, or use of the software was lost annual license fees. Thus, a liquidated-damages amount of $2,000 per unauthorized use was disproportionately high to actual harm, rendering it unenforceable as a penalty. [ Adapted from Stoner & Assoc’s v. JKC Nampa, Inc. , No. C08–422RAJ, 2009 WL 901920 (W.D. Wa. 2009).] Compare : A buyer placed successful bids for two mobile homes, one for $50,000 and another for $47,000. The relevant contract required the buyer to tender a $5,000 deposit for each home, which she did. The contract also provided that, should the seller breach the contract by failing to transfer either mobile home or both mobile homes, the buyer’s liquidated damages would total $10,000—basically, the return of her $5,000 deposit on each home. On analogous facts, a state trial court easily found that the liquidated-damages amount was reasonable. The amount, $5,000 per home, was not unreasonably large considering contract prices of $50,000 and $47,000, respectively. [ Adapted from Moutopoulis v. 2075- 2081 Wallace Ave. Owners Corp. , 47 Misc.3d 1049 (N.Y. Civ. Ct. 2015).] c. Difficulty of Proving Loss A liquidated-damages amount must be reasonable in light of the difficulty of proving loss— that is, the difficulty of proving actual harm, determined as of the time of contracting. If, at the time of contracting, the circumstances reasonably indicate that actual loss will be difficult to prove, the parties may assign a reasonable dollar value to that possibility. It is irrelevant that, in hindsight, actual damages were not in fact difficult to determine. [2 Hawkland UCC Series § 2-718:1, Westlaw (database updated June 2021).] Example : A software developer licensed a software product to automobile dealerships. The software tabulated various types of information, including inventory costs, rent, commissions, and so on, to determine a dealership’s costs on a sale of any given automobile in its inventory. The relevant contract contained a liquidated-damages clause setting liquidated damages
Made with FlippingBook - Online Brochure Maker