liquidated damages clause in Maryland

2023The speculative nature of damages undermines a liquidated damages framework because liquidated damages must “provide a fair estimate of potential damages[.]” See Patch, 401 Md. at 510 , 933 A.2d at 390 (citations omitted).

2013Consequently, “Maryland courts will uphold a liquidated damages clause as valid, and not a penalty, if it satisfies two primary requirements”: (1) “the clause must provide a fair estimate of potential damages at the time the parties entered into the contract”; and (2) “the damages must have been incapable of estimation, or very difficult to estimate, at the time of contracting.” Id. at 510 , 933 A.2d 382 .

2015“First, such a clause must provide ‘in clear and unambiguous terms’ for ‘a certain sum’[.]” “Secondly, the liquidated damages must reasonably be compensation for the damages anticipated by the breach[.]” “Thirdly, liquidated damage clauses are by their nature mandatory binding agreements before the fact which may not be altered to correspond to actual damages determined after the fact[.]” While the language used by the parties is instructive in determining the validity of a liquidated damages clause, “[t]he decisive element is the intention of the parties — whether they intended that the sum b

2015“First, such a clause must provide ‘in clear and unambiguous terms’ for ‘a certain sum’[.]” “Secondly, the liquidated damages must reasonably be compensation for the damages anticipated by the breach[.]” “Thirdly, liquidated damage clauses are by their nature mandatory binding agreements before the fact which may not be altered to correspond to actual damages determined after the fact[.]” While the language used by the parties is instructive in determining the validity of a liquidated damages clause, “[t]he decisive element is the intention of the parties — whether they intended that the sum b

2013Finally, the “decisive element” in determining whether a provision is a liquidated damages clause, and not a penalty, is the intention of the parties, that is, “whether they intended that the sum be a penalty or an agreed-upon amount as damages in case of a breach.” Traylor, supra, 273 Md. at 661 , 332 A.2d 651 .

2013Finally, the “decisive element” in determining whether a provision is a liquidated damages clause, and not a penalty, is the intention of the parties, that is, “whether they intended that the sum be a penalty or an agreed-upon amount as damages in case of a breach.” Traylor, supra, 273 Md. at 661 , 332 A.2d 651 .

2015See Lee Oldsmobile, Inc. v. Kaiden, 32 Md.App. 556 [ 363 A.2d 270 ] (1976) (holding that where the presence of a resale remedy under the Uniform Commercial Code rendered damages ascertainable and a liquidated damage clause thus unenforceable).

2006See Fowler v. Printers II, Inc., 89 Md.App. 448, 479 , 598 A.2d 794 (1991)(“if ‘the record sets forth no basis on which damages could have been assessed,’ they cannot be recovered in a contract action.” (citing Yarnick v. King, 259 Md. 241, 250 , 269 A.2d 607 (1970))); see also Lee Oldsmobile, Inc. v. Kaiden, 82 Md.App. 556, 563 , 363 A.2d 270 (1976)(rejeeting a liquidated damages clause because actual damages were capable of estimation at the time contract at issue was signed).

2013In acknowledging that “ ‘one of the most difficult and perplexing inquiries encountered in the construction of written agreements’ is determining whether a contractual clause should be regarded as valid and enforceable liquidated damages provision or as a penalty,” id. at 510, 933 A.2d 382 (quoting Willson v. M. & C.C. of Baltimore, 83 Md. 203, 211 , 34 A. 774 (1896)), the Court recognized that there are two primary requirements that must be met for Maryland courts to uphold the validity of a liquidated damages clause and not a penalty on grounds of reasonableness: ...

2007More particularly, we have held that a liquidated damages clause is “an agree[d] upon and name[d] sum ... in lieu of anticipated damages which are in their nature uncertain and incapable of exact ascertainment.” Baltimore Bridge Co. v. United Railways & Electric Co., 125 Md. 208, 214 , 93 A. 420, 422 (1915).

2023The speculative nature of damages undermines a liquidated damages framework because liquidated damages must “provide a fair estimate of potential damages[.]” See Patch, 401 Md. at 510 , 933 A.2d at 390 (citations omitted).

2013Although it is true, as Critical Developments points out, that the Court of Appeals stated, in Barrie School, 401 Md. at 515 , 933 A.2d 382 , that “there exists no duty to mitigate damages where a valid liquidated damages clause exists,” that case is distinguishable, as to this particular issue, from the instant case because, here, unlike in Barrie School , the liquidated damages clause provides for a per diem amount rather than a single, fixed sum.

2006While the language used by the parties is instructive in determining the validity of a liquidated damages clause, “[t]he decisive element is the intention of the parties—whether they intended that the sum be a penalty or an agreed-upon amount as damages in case of a breach and this is to be gleaned from the subject matter, the language of the contract and the circumstances surrounding its execution.” Traylor, 273 Md. at 661 , 332 A.2d at 660 (Citations omitted). *157 Like in Holloway v. Faw, Casson & Co., 319 Md. 324, 354 , 572 A.2d 510, 525 (1990), where we determined that the contractual lan

2006While the language used by the parties is instructive in determining the validity of a liquidated damages clause, “[t]he decisive element is the intention of the parties—whether they intended that the sum be a penalty or an agreed-upon amount as damages in case of a breach and this is to be gleaned from the subject matter, the language of the contract and the circumstances surrounding its execution.” Traylor, 273 Md. at 661 , 332 A.2d at 660 (Citations omitted). *157 Like in Holloway v. Faw, Casson & Co., 319 Md. 324, 354 , 572 A.2d 510, 525 (1990), where we determined that the contractual lan

2007See Shallow Brook Associates v. Dube, 135 N.H. 40 , 599 A.2d 132, 137-38 (1991) (recognizing that a liquidated damages clause will not be enforced if the actual damages which occurs at the time of breach can easily be established and are substantially lower than the amount stipu lated, even if the fixed sum was a reasonable estimate at the time of contract execution).

2007See Shallow Brook Associates v. Dube, 135 N.H. 40 , 599 A.2d 132, 137-38 (1991) (recognizing that a liquidated damages clause will not be enforced if the actual damages which occurs at the time of breach can easily be established and are substantially lower than the amount stipu lated, even if the fixed sum was a reasonable estimate at the time of contract execution).

2007As we have indicated, in the absence of a statute providing otherwise, Maryland courts determine the validity of a liquidated damages clause by looking to the stipulated loss at the time of the contract’s formation, and not actual losses resulting from breach. 5 See Heister, 392 Md. at 158 , 896 A.2d at 353 (stating that “whether the amount specified is a penalty or liquidated damages is to be determined as of the time of execution of the contract” (quoting Anne Arundel Co. v. Norair Engineering Corp., 275 Md. 480, 494 , 341 A.2d 287, 294 (1975))); Hammaker, 157 Md. at 667 , 147 A. at 796 (sta

2007As we have indicated, in the absence of a statute providing otherwise, Maryland courts determine the validity of a liquidated damages clause by looking to the stipulated loss at the time of the contract’s formation, and not actual losses resulting from breach. 5 See Heister, 392 Md. at 158 , 896 A.2d at 353 (stating that “whether the amount specified is a penalty or liquidated damages is to be determined as of the time of execution of the contract” (quoting Anne Arundel Co. v. Norair Engineering Corp., 275 Md. 480, 494 , 341 A.2d 287, 294 (1975))); Hammaker, 157 Md. at 667 , 147 A. at 796 (sta

2007As we have indicated, in the absence of a statute providing otherwise, Maryland courts determine the validity of a liquidated damages clause by looking to the stipulated loss at the time of the contract’s formation, and not actual losses resulting from breach. 5 See Heister, 392 Md. at 158 , 896 A.2d at 353 (stating that “whether the amount specified is a penalty or liquidated damages is to be determined as of the time of execution of the contract” (quoting Anne Arundel Co. v. Norair Engineering Corp., 275 Md. 480, 494 , 341 A.2d 287, 294 (1975))); Hammaker, 157 Md. at 667 , 147 A. at 796 (sta

2007As we have indicated, in the absence of a statute providing otherwise, Maryland courts determine the validity of a liquidated damages clause by looking to the stipulated loss at the time of the contract’s formation, and not actual losses resulting from breach. 5 See Heister, 392 Md. at 158 , 896 A.2d at 353 (stating that “whether the amount specified is a penalty or liquidated damages is to be determined as of the time of execution of the contract” (quoting Anne Arundel Co. v. Norair Engineering Corp., 275 Md. 480, 494 , 341 A.2d 287, 294 (1975))); Hammaker, 157 Md. at 667 , 147 A. at 796 (sta

2007See Baybank Middlesex v. 1200 Beacon Props., Inc., 760 F.Supp. 957, 964 (D.Mass.1991) ("In order to determine whether the liquidated damages provision is valid, this Court must examine the reasonableness of the liquidated damages provision, both retrospectively, and at the time the parties agreed to it. ") (emphasis added); Independent Sch.

2007See Baybank Middlesex v. 1200 Beacon Props., Inc., 760 F.Supp. 957, 964 (D.Mass.1991) (“In order to determine whether the liquidated damages provision is valid, this Court must examine the reasonableness of the liquidated damages provision, both retrospectively, and at the time the parties agreed to it.”) (emphasis added); Independent Sch.

2007As a matter of law, because the liquidated damages clause is valid, Lake *394 Ridge did not have a duty to mitigate its damages following Carney's breach." Id. at 190.

2007As a matter of law, because the liquidated damages clause is valid, Lake Ridge did not have a duty to mitigate its damages following Carney’s breach.” Id. at 190.

2007See American Car Rental, Inc. v. Comm’r of Consumer Prot, 273 Conn. 296 , 869 A.2d 1198, 1209-10 (2005) (noting that “[t]he mere fact that expected damages resulting from breach are uncertain in amount or difficult to prove does not justify enforcement of whatever amount the contract includes as damages for breaeh[.]”); O’Brian, 507 S.E.2d at 365 (stating that “[t]he fact that a party enters into a contract containing a liquidated damages clause does not prevent that party from later litigating the validity of the clause.”).

2007See American Car Rental, Inc. v. Comm’r of Consumer Prot, 273 Conn. 296 , 869 A.2d 1198, 1209-10 (2005) (noting that “[t]he mere fact that expected damages resulting from breach are uncertain in amount or difficult to prove does not justify enforcement of whatever amount the contract includes as damages for breaeh[.]”); O’Brian, 507 S.E.2d at 365 (stating that “[t]he fact that a party enters into a contract containing a liquidated damages clause does not prevent that party from later litigating the validity of the clause.”).

2007See American Car Rental, Inc. v. Comm'r of Consumer Prot., 273 Conn. 296 , 869 A.2d 1198, 1209-10 (2005) (noting that "[t]he mere fact that expected damages resulting from breach are uncertain in amount or difficult to prove does not justify enforcement of whatever amount the contract includes as damages for breach[.]"); O'Brian, 507 S.E.2d at 365 (stating that "[t]he fact that a party enters into a contract containing a liquidated damages clause does not prevent that party from later litigating the validity of the clause.").

2007See American Car Rental, Inc. v. Comm’r of Consumer Prot, 273 Conn. 296 , 869 A.2d 1198, 1209-10 (2005) (noting that “[t]he mere fact that expected damages resulting from breach are uncertain in amount or difficult to prove does not justify enforcement of whatever amount the contract includes as damages for breaeh[.]”); O’Brian, 507 S.E.2d at 365 (stating that “[t]he fact that a party enters into a contract containing a liquidated damages clause does not prevent that party from later litigating the validity of the clause.”).

2023In Diosdado v. Diosdado, the Court of Appeal of California declined to enforce a liquidated damages clause in a marital settlement agreement that imposed a $50,000 penalty for adultery because the “penalty [was] in direct contravention of the public policy underlying no-fault divorce.” 118 Cal. Rptr. 2d 494, 496 (2002).

2013See, e.g., City of Elmira v. Larry Walter, Inc., 76 N.Y.2d 912 , 563 N.Y.S.2d 45 , 564 N.E.2d 655, 656 (1990) (per curiam) (holding that, in the absence of “clear and unambiguous language” indicating that liquidated damages clause was intended to apply to contractor’s “outright abandonment of the project,” no such damages should be awarded).

2013See, e.g., City of Elmira v. Larry Walter, Inc., 76 N.Y.2d 912 , 563 N.Y.S.2d 45 , 564 N.E.2d 655, 656 (1990) (per curiam) (holding that, in the absence of “clear and unambiguous language” indicating that liquidated damages clause was intended to apply to contractor’s “outright abandonment of the project,” no such damages should be awarded).

2010See also Cowan v. Meyer, 125 Md. 450, 465 , 94 A. 18 (1915) (holding that a contract clause allowing a general contractor to charge a subcontractor a certain sum for each day the subcontractor’s work was late was a liquidated damages clause and, therefore, because the parties had agreed to liquidated damages in the event of the breach that in fact occurred, the contractor could not attempt to recover actual damages instead); United Surety Co. v. Summers, 110 Md. 95, 111 , 72 A. 775 (1909).

2010See also Cowan v. Meyer, 125 Md. 450, 465 , 94 A. 18 (1915) (holding that a contract clause allowing a general contractor to charge a subcontractor a certain sum for each day the subcontractor’s work was late was a liquidated damages clause and, therefore, because the parties had agreed to liquidated damages in the event of the breach that in fact occurred, the contractor could not attempt to recover actual damages instead); United Surety Co. v. Summers, 110 Md. 95, 111 , 72 A. 775 (1909).

2006See, e.g., S. Brooke Purll, Inc. v. Vailes, 850 A.2d 1135, 1138 (D.C.2004)(recently clarifying District of Columbia law on the subject of the allocation of the burden of proof); Wassenaar, supra, 111 Wis.2d at 526 , 331 N.W.2d 357 (“Placing the burden of proof on the challenger is consistent with giving the nonbreaching party the advantage inherent in stipulated damages clauses of eliminating the need to prove damages, and with the general principle that the law assumed that bargains are enforceable and that the party asking the court to intervene to invalidate the bargain should demonstrate t

2006We have defined a liquidated damages clause as “a specific sum of money ... expressly stipulated by the parties to a ... contract as the amount of damages to be recovered by either party for a breach of the agreement by the other.” Mass. Indem. & Life Ins. v. Dresser, 269 Md. 364, 368 , 306 A.2d 213, 216 (1973) (citing Black’s Law Dictionary (Rev. 4th Ed.1968)).

2006We have defined a liquidated damages clause as “a specific sum of money ... expressly stipulated by the parties to a ... contract as the amount of damages to be recovered by either party for a breach of the agreement by the other.” Mass. Indem. & Life Ins. v. Dresser, 269 Md. 364, 368 , 306 A.2d 213, 216 (1973) (citing Black’s Law Dictionary (Rev. 4th Ed.1968)).

2006See Traylor, supra, 273 Md. at 670-71 , 332 A.2d 651 (upholding the trial court’s restriction of evidence of actual damages in a case construing the impact of a liquidated damages clause because the amount designated as liquidated damages did not appear to be a penalty and constituted prerequisites necessary for an enforceable contract); see also Habif, Arogeti & Wynne v. Baggett, 231 Ga.App. 289, 299 , 498 S.E.2d 346 (Ga.Ct.App.1998); Note, supra, 51 Ind. L.J. at 194 (arguing for the relevance of actual damages). 22 .

2006See Traylor, supra, 273 Md. at 670-71 , 332 A.2d 651 (upholding the trial court’s restriction of evidence of actual damages in a case construing the impact of a liquidated damages clause because the amount designated as liquidated damages did not appear to be a penalty and constituted prerequisites necessary for an enforceable contract); see also Habif, Arogeti & Wynne v. Baggett, 231 Ga.App. 289, 299 , 498 S.E.2d 346 (Ga.Ct.App.1998); Note, supra, 51 Ind. L.J. at 194 (arguing for the relevance of actual damages). 22 .