A trial court's decision that a contract clause is or is not valid involves determinations of fact and law and will be reviewed as such. The reviewing court will uphold the factual determinations underlying its legal conclusion unless they are contrary to the great weight and clear preponderance of the evidence.
The parties both signed an employment contract containing a stipulated damage clause that entitled the employee to damages in the same amount as his salary for early termination of the contract. The employer terminated the employee before the expiration of his employment contract. The employee sought the stipulated damage amount from the employer. The trial court entered a judgment on behalf of the employee. The Court of Appeals (Wisconsin) reversed, finding that the stipulated damage clause was a penalty. The employee appealed. The employees appealed to the Supreme Court of Wisconsin.
Was the employee entitled to the contract amount of liquidated damages?
The court held that the appellate court erred in finding that the stipulated damages were a penalty and affirmed the trial court's judgment. The court determined that where a stipulated damage provision was a valid liquidated damages provision, the doctrine of mitigation did not apply. The employer, the party challenging the contract, failed to prove that the stipulated amount of damages was grossly disproportionate to the actual harm and thus unreasonable. The court reviewed the reasonableness factors of whether the stipulated damages were a reasonable forecast of just compensation for the breach and whether the harm was difficult to accurately estimate and decided that the stipulated damages were reasonable. The trial court did not err in ruling that the stipulated damages provision was reasonable and enforceable.