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Pav-Saver Corp. v. Vasso Corp. - 143 Ill. App. 3d 1013, 97 Ill. Dec. 760, 493 N.E.2d 423 (1986)

Rule:

The two-part test of a liquidated damages penalty is: (1) whether the amount fixed is reasonable in light of the anticipated or actual loss caused by the breach; and (2) the difficulty of proving a loss has occurred, or establishing its amount with reasonable certainty. The difficulty or ease of proof of loss is a matter to be determined at the time of contracting, not at the time of the breach. 

Facts:

Pav-Saver Corporation (PSC) was the owner of Pav-Saver trademark and patents for the design and marketing of concrete paving machines. PSC formed a partnership with an attorney, H. Moss Meersman, who was also the owner and sole shareholder of Vasso Corporation, for the manufacture and sale of the machines. PSC sought to terminate the partnership and filed an action for a court-ordered dissolution, return of its patents and trademark, and an accounting. Vasso counterclaimed for wrongful termination. Both PSC and Vasso sought review of the order of the Circuit Court of Rock Island County (Illinois), which awarded PSC its interest in the partnership and awarded Vasso liquidated damages for wrongful termination.

Issue:

Did the lower court err in awarding PSC its interest in the partnership and in awarding Vasso liquidated damages?

Answer:

No

Conclusion:

The court held: 1) that the partnership agreement contemplated a permanent partnership, terminable only upon mutual approval; 2) that PSC's unilateral termination violated the agreement; 3) upon PSC's notice terminating the partnership, asso was entitled to continue the business pursuant to Ill. Rev. Stat. ch. 106 1/2, para. 38(2)(b); 4) that the trial court did not err in refusing to return the patents and trademark to PSC or assigning a good-will value; 5) that the amount of the liquidated damages was not unreasonable and was a legitimate matter bargained for between the parties; and 6) that the liquidated damages payout formula was enforceable and the doctrine of equitable set-off did not apply.

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