In order to be valid, a liquidated damages provision must meet two requirements: The damages caused by the breach are very difficult to estimate accurately and the amount so fixed is a reasonable forecast of the amount necessary to justly compensate one party for the loss occasioned by the other's breach. The enforceability of a liquidated damages provision is a question of law and is reviewed accordingly.
Plaintiff parent of the camper paid defendant camp tuition for his son to attend a summer camp. The camp agreement contained a liquidated damage provision that if a camper withdrew after a certain date the entire tuition was forfeited. The son had to withdraw after he was notified that he would have to attend summer school. The camp directors withheld the tuition pursuant to the liquidated damage provision. The parent of the camper brought an action to recover the tuition. The trial court granted judgment to the parent of the camper after it determined that the liquidated damage provision was unenforceable as a penalty. The camp directors asserted that there was an inadequate basis for the trial court's finding that the liquidated damage clause in the contract was an unenforceable penalty. On appeal, the court affirmed the judgment.
Did the court err in its finding that the liquidated damages clause was unenforceable?
The court affirmed the judgment that returned the tuition because it determined that the liquidated damage provision was excessive and suggested that there had been no good faith effort to estimate actual loss, so that the clause was a penalty provision designed to forestall any withdrawal.