A liquidated damages provision is enforceable if (1) the amount so fixed is a reasonable forecast of just compensation for the harm caused by the breach, and (2) the harm caused by the breach is incapable or very difficult of accurate estimation.
Appellant buyers sought to purchase land from appellee sellers. The parties entered into a contract containing a liquidated damages provision awarding all extension payments and earnest money to appellees in the event of appellants’ default. Appellants defaulted, and appellees retained the earnest money and extension payments as liquidated damages. Appellants then filed an action to recover the moneys paid. The trial court ruled in favor of appellees and awarded them reasonable attorneys' fees and costs. On appeal, the appellate court affirmed the trial court’s decision. Appellants sought to review the appellate court’s decision. The state supreme court affirmed the appellate court’s decision.
Was the liquidated damages provision, awarding all extension payments and earnest money to appellee sellers in the event of appellant buyers’ default, valid?
The liquidated damages provision was enforceable because it was fairly and understandingly entered into by experienced, equal parties with a view to just compensation for an anticipated loss. Appellee sellers were not required to show actual damages, but that estimated damages that were extremely disproportionate to actual damages would be unconscionable. Appellant buyers' letter to appellees constituted an anticipatory breach and relieved them of any duty to perform.