Equitable Lumber Corp. v. IPA Land Development Corp.

38 N.Y.2d 516

 

RULE:

If a provision for liquidated attorney’s fees is found to be unreasonably large, the provision is void as a penalty.

FACTS:

Plaintiff filed an action to recover of the purchase price of materials and attorney's fees stipulated in a contract for the sale of goods. Defendant denied liability on the ground that the goods were not of merchantable quality. Upon plaintiff's motion for summary judgment, the court found that defendant was liable to plaintiff. The court then set the reasonable value of attorney's fees at approximately 11 percent of the amount recovered. The Appellate Division modified the award, raising the amount of attorney's fees recoverable by the plaintiff but fees were still below the amount stipulated to in the contract. Plaintiff appealed claiming that both courts below erred in disregarding the provision liquidating attorney's fees at 30 percent.

ISSUE:

Did the lower courts err by disregarding the liquidated 30% attorney’s fees provision in the contract for sale of goods?

ANSWER:

Probably not.

CONCLUSION:

New York’s highest court reversed and remanded for the resolution of two factual questions:

  1. Was a 30% fee reasonable in light of the damages to be anticipated by one in the plaintiff’s position?
  2. Was the fee commensurate with the actual arrangement agreed upon by the plaintiff and its attorney?

If the amount is found to be unreasonably large, then the provision is void as a penalty.

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