Thursday, October 11, 2007

Liquidated damages and the lawyer’s dilemma

The Court of Appeals recently handed down this bright-line rule: a non-breaching party has no duty to mitigate damages if the contract contains a valid liquidated damages clause. (For the nonlawyers among us, such clauses set a particular amount that will be due if the contract is breached. They’re only valid under certain circumstances, and can never, under any circumstances, be put in as a penalty.)

In this case (PDF), the lone dissenter, Chief Judge Robert M. Bell, argued that because The Barrie School did not suffer any harm, the damages called for in the contract were unduly harsh — a windfall that unjustly enriched the school.

Do you agree that fairness requires a look at the harm actually suffered? Or do you stand by the Uniform Commercial Code, and believe that the whole point of a liquidated damages clause is to make actual loss irrelevant?

More to the point, how will Barrie affect what you do, and what you tell your clients to do?

-CHRISTINA DORAN, Assistant Legal Editor

1 comment:

xlegallady said...

I don't believe there is truly anything new about this decision. Liquidated damages, especially in construction and government contracts, have been interpreted this way routinely.

Perhaps the parents should have read the contract they signed and adhered to the terms of it.

I do find it interesting, however, that the matter reached the Court of Appeals. It would be interesting to know what personalities were involved. Surely the legal fees for each party exceeded the nearly $27K at issue.