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Orr v. Goodwin - 157 N.H. 511, 953 A.2d 1190 (2008)

Rule:

Before a liquidated damages clause will be enforced, three conditions must be met: (1) the damages anticipated as a result of the breach are uncertain in amount or difficult to prove; (2) the parties intended to liquidate damages in advance; and (3) the amount agreed upon must be reasonable and not greatly disproportionate to the presumable loss or injury.

Facts:

Plaintiffs, the owners of real property, brought an action against defendant prospective buyers after the parties' sales agreement was not consummated. The sales contract contained a liquidated damages clause that stated that plaintiffs had the option to retain defendants' deposit. Plaintiffs retained the $25,000 deposit and instituted the suit to recover various damages. The trial court granted defendants’ motion for summary judgment. Plaintiffs appealed.

Issue:

Was the liquidated damages clause of the parties’ contract enforceable?

Answer:

Yes.

Conclusion:

The Court held that the clause was enforceable. The title of the clause and the rights it defined evinced intent by the parties to liquidate damages in advance. As for whether the stipulated amount was reasonable, there was no evidence that the clause was an unreasonable estimate when the parties agreed to it. Moreover, plaintiffs had not shown that their actual damages were easily ascertainable or that the amount at issue was a penalty or grossly disproportionate to any actual loss from the breach. Furthermore, liquidated damages and actual damages were mutually exclusive remedies. The trial court did not err in finding plaintiffs' election of liquidated damages was final. They had retained the deposit for nearly a year and a half, without communication to defendants, before filing suit and had never indicated that they would return it before seeking to recover alleged actual damages. Plaintiffs pointed to no authority stating that a liquidated damages clause ought to be invalidated as insufficient.  For these reasons, the ruling of the trial court was affirmed.

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