O.C.G.A. § 13-6-7 (2019)

Annotations

Law reviews. - For comment, ‘‘Refocusing Liquidated Damages Law for Real Estate Contracts: Returning to the Historical Roots

of the Penalty Doctrine,’’ see 39 Emory L.J. 267 (1990).

JUDICIAL DECISIONS Liquidated damages are a sum to be paid in lieu of performance. Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981). Liquidated damages clause must be construed with other provisions of contract. Georgia Ports Auth. v. Norair Eng’g Corp., 127 Ga. App. 864, 195 S.E.2d 199 (1973). Requirements for liquidated damages clause. - Liquidated damages are allowed in Georgia, but for a clause to comply with O.C.G.A. § 13-6-7, three conditions must be met: (1) injury caused by the breach must be difficult or impossible of estimation; (2) the parties must intend to provide for damages; and (3) the sum stipulated must be a reasonable pre-estimate of the probable loss. Wehunt v. ITT Bus. Communications Corp., 183 Ga. App. 560, 359 S.E.2d 383 (1987); Ramada Franchise Sys. v. Motor Inn Inv. Corp., 755 F. Supp. 1570 (S.D. Ga. 1991); Oasis Goodtime Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga. App. 641, 507 S.E.2d 823 (1998). Words ‘‘liquidated damages’’ are not specifically required; however, some manifestation of the parties’ intent to agree to liquidated damages is. ADP-Financial Computer

Servs., Inc. v. First Nat’l Bank, 703 F.2d 1261 (11th Cir. 1983). Equity will not relieve one from duty to pay liquidated damages. Sutton v. Howard, 33 Ga. 536 (1863). Parol evidence is admissible when terms of contract are ambiguous. Sanders & Ables v. Carter, 91 Ga. 450, 17 S.E. 345 (1893). When note is given as liquidated damages and breach occurs, directed verdict is proper. Sikes v. Hart, 150 Ga. 121, 102 S.E. 831 (1920). Damages accurately expressed in monetary terms to be distinguished from those which are not. - In determining the validity of a liquidated damages provision in a contract, it is important to distinguish damages which are difficult to accurately determine in monetary terms from those damages which can be accurately established, albeit via a complicated procedure. Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981). Liquidated damages impossible to determine at time contract signed. - Since the extent and amount of damages were difficult or impossible to accurately estimate at the time the contract was executed that provi-

sion is void and unenforceable. Ryder Truck Lines v. Goren Equip. Co., 576 F. Supp. 1348 (N.D. Ga. 1983). Liquidated damages provision in aircraft lease was not unlawful penalty. - When aircraft leases provided that, upon default, the lessee was liable for stipulated loss values based on multiplication of the lessor’s capitalized costs for the aircraft by a decreasing percentage, the amount due from the lessee was liquidated damages rather than an unlawful penalty. Holmes v. GE Capital Corp. (In re Holmes), 369 B.R. 708 (M.D. Ga. 2007), aff ’d, 387 B.R. 896 (M.D. Ga. 2008). In determining whether a provision is for liquidated damages or a penalty, the cardinal tests are intention of the parties, and reasonableness or unreasonableness of amount fixed, according to certainty and ease or difficulty in ascertainment of actual damages, and according to similarity or disproportion between amount provided and actual or probable loss. National Manufacture & Stores Corp. v. Dekle, 48 Ga. App. 515, 173 S.E. 408 (1934); Krupp Realty Co. v. Joel, 168 Ga. App. 480, 309 S.E.2d 641 (1983). In deciding whether contract provision is enforceable as liquidated damages, the court makes a tripartite inquiry to determine if the following factors are present: first, injury caused by breach must be difficult or impossible of accurate estimation; second, parties must intend to provide for damages rather than for a penalty; and, third, sum stipulated must be a reasonable pre-estimate of probable loss. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976); Gibson v. Sheriff, 155 Ga. App. 578, 271 S.E.2d 710 (1980); Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981); Burns v. Gleason, 183 Ga. App. 245, 358 S.E.2d 646 (1987); Oami v. Delk Interchange, Ltd., 193 Ga. App. 640, 388 S.E.2d 706 (1989). Penalty arises when stipulated amount in excess of actual damages. - If actual damages are uncertain and difficult to ascertain or prove, and contract furnishes no data for their ascertainment, the provision will, as a rule, be held to be one for liquidated damages, if amount is not unreasonable. But if actual damages are capable of exact computation under contract and legal rule for their measure, a stipulation for an amount in excess of such damages will generally be

deemed a penalty. National Manufacture & Stores Corp. v. Dekle, 48 Ga. App. 515, 173 S.E. 408 (1934). Distinction between penalty and liquidated damages. - See Sanders & Ables v. Carter, 91 Ga. 450, 17 S.E. 345 (1893); Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897). Provision unenforceable when amount stipulated bears no reasonable relation to any probable actual damage. - Agreements to pay fixed sums as damages for breaches of contracts, when amount stipulated plainly has no reasonable relation to any probable actual damage which may follow breach, will not be enforced for agreed amount as liquidated damages, but will be construed as mere unenforceable provisions for penalties. Miazza v. Western Union Tel. Co., 50 Ga. App. 521, 178 S.E. 764 (1935); Daniels v. Johnson, 191 Ga. App. 70, 381 S.E.2d 87 (1989). A provision in a long-term retainer agreement between an attorney and a corporate client requiring the payment of fifty percent of the sums due under the remaining term of the agreement if the client terminated the agreement was unenforceable. AFLAC, Inc. v. Williams, 264 Ga. 351, 444 S.E.2d 314 (1994). A liquidated damages clause in an employment contract, which provided that a computer consultant would pay $50,000 if the consultant failed to provide one month’s minimum notice prior to voluntary termination of employment, was unenforceable as such amount bore no rational relationship to actual or potential damages for any breach of contract. Capricorn Sys. v. Pednekar, 248 Ga. App. 424, 546 S.E.2d 554 (2001). Considerations in determining whether amount stipulated is not disproportionate to probable loss. - In determining whether amount stipulated as a forfeiture is reasonable, and not disproportionate to damages which could necessarily flow from failure of performance, relation of parties, one to the other, their peculiar situation, absence or presence of fraud or oppression, and purpose agreement seeks to subserve, will in every instance furnish valuable assistance in reaching a fair and just conclusion. Sanders v. Carney, 118 Ga. App. 576, 164 S.E.2d 856 (1968).

Liquidated damages become maximum as well as minimum sum that can be collected. - Breaching party cannot complain that actual damages are less than those specified as liquidated damages. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976). When contract provides for liquidated damages, nonbreaching party cannot elect to take actual damages. - A feature implicit in the concept of liquidated damages is that both parties are bound by their agreement. A nonbreaching party who has agreed to accept liquidated damages cannot elect after breach to take actual damages should those damages prove greater than sum specified. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976). Retention of right to elect specific performance does not render valid liquidated damages provision unenforceable. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976). Agreement to deposit specified sum as security for performance as stipulation for liquidated damages. - That the parties agree to deposit a specified sum as security for performance, using language which imports an understanding that upon a breach the holder is to pay such amount over to the injured party without further formality, will generally be held decisive of the intent to stipulate for liquidated damages, though other considerations, of equal weight, may often turn the scale. Sanders v. Carney, 118 Ga. App. 576, 164 S.E.2d 856 (1968). Rent provision in building contract, dependent upon failure to complete building within stated time, is enforceable. Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897). Earnest money provision. - Provision in a real estate sales contract that if ‘‘this contract is not consummated by reason of Buyer’s refusal or inability to perform, then such earnest money shall be paid to Seller as liquidated damages for Buyer’s breach’’ was an enforceable liquidated damages clause, not an unenforceable penalty. Swan Kang, Inc. v. Tae Sang Kang, 243 Ga. App. 684, 534 S.E.2d 145 (2000). Employment agreement provision requiring employee to reimburse employer for relocation expenses that had been provided

to the employee if the employee did not work at least 12 months could not be construed as a liquidated damages provision since the provision did not contemplate the payment of damages in lieu of a breach. Tipton v. Canadian Imperial Bank of Commerce, 872 F.2d 1491 (11th Cir. 1989). Golden parachute agreement. - Liquidated damages analysis is inapplicable to a ‘‘golden parachute’’ agreement with a corporate officer, where the severance agreement does not purport to be a stipulated sum for damages for a breach, but is the price, in addition to ongoing compensation, for plaintiff ’s continued performance which plaintiff was not otherwise obligated to render. Royal Crown Cos. v. McMahon, 183 Ga. App. 543, 359 S.E.2d 379, cert. denied, 183 Ga. App. 907, 359 S.E.2d 379 (1987). Loss, destruction, or failure to return rented item. - When the contract does not contemplate payment of rental until the item is returned, nor payment as to the item’s loss or destruction, the measure of damages is the fair market value of the property, that is, if lost, destroyed, or simply not returned, or if damaged, the measure of damages is the difference in the market value immediately before and immediately after the damage. Letteer v. Archer, 160 Ga. App. 373, 287 S.E.2d 89 (1981). Lease late charge provision. - A lease provision for a $50 charge as ‘‘additional rent’’ when a rent check was returned without payment or when the rent was received late met the requirements for liquidated damages when such charge was made to compensate the owner for additional bookkeeping and clerical expenses. Krupp Realty Co. v. Joel, 168 Ga. App. 480, 309 S.E.2d 641 (1983). Liquidated damages clause upheld. - Generally speaking, a late charge clause provision contained in a lease is enforceable provided the provision constitutes a lawful liquidated-damages provision rather than an unlawful penalty. Mathis v. Rome Tractor Co., 180 Ga. App. 426, 349 S.E.2d 282 (1986). In a breach of contract action filed by a school against an enrolled student’s parents seeking payment of a full year’s tuition, the trial court properly granted summary judgment to the school as the parents failed in the parents’ burden of showing that a liqui-

dated damages clause in the contract amounted to an unenforceable penalty. Turner v. Atlanta Girls’ Sch., Inc., 288 Ga. App. 115, 653 S.E.2d 380 (2007). Law permitted parties to contract for liquidated damages precisely because of the difficulty of predicting future events and consequences; thus, the fact that a certain purchaser’s purchase of debtor’s property may have limited debtor’s damages did not establish that liquidated damages of $1 million was not a reasonable estimate of loss if the ‘‘stalking horse’’ purchaser did not purchase the property. Furthermore, the damages flowing from the stalking horse’s breach were difficult or impossible of accurate estimation, and the parties intended to provide for damages. Galleria Invs. LLC v. Hong Duck, LLC (In re Galleria Invs. LLC), No. A06-62557-PWB, 2008 Bankr. LEXIS 1860 (Bankr. N.D. Ga. Apr. 4, 2008). Liquidated damages provision in a rental contract for a storage unit was enforceable. Lancaster v. SUSA P’ship, L.P., 300 Ga. App. 567, 685 S.E.2d 474 (2009). Burden is on the defaulting party to show that a liquidated damages clause is a penalty. Oasis Goodtime Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga. App. 641, 507 S.E.2d 823 (1998). Liquidated damages is not a jury issue. - Trial courts should not ordinarily submit the issue of whether a contract provides for liquidated damages or a penalty to the jury. Roswell Properties, Inc. v. Salle, 208 Ga. App. 202, 430 S.E.2d 404 (1993). Cited in Martin v. Lott, 144 Ga. 660, 87 S.E. 902 (1916); Tuten v. Morgan, 160 Ga. 90, 127 S.E. 143 (1925); Standard Motors Fin. Co. v. O’Neal, 35 Ga. App. 727 (1926);

Spalding Constr. Co. v. Simon, 36 Ga. App. 723, 137 S.E. 901 (1927); Southwest Ga. Dev. Co. v. Griffin, 38 Ga. App. 276, 143 S.E. 784 (1928); Powell v. Bussell, 64 Ga. App. 42, 12 S.E.2d 152 (1940); Irvindale Farms, Inc. v. W.O. Pierce Dairy, Inc., 78 Ga. App. 670, 51 S.E.2d 712 (1949); Fox Motor Co. v. Dillard, 80 Ga. App. 885, 57 S.E.2d 824 (1950); Chadwick v. Dolinoff, 207 Ga. 702, 64 S.E.2d 76 (1951); Bower v. Certain-Teed Prod. Corp., 216 Ga. 646, 119 S.E.2d 5 (1961); Churches Homes for Bus. Girls, Inc. v. Manget Found., Inc., 110 Ga. App. 539, 139 S.E.2d 138 (1964); Concrete Materials of Ga., Inc. v. Smith & Plaster Co., 127 Ga. App. 817, 195 S.E.2d 219 (1973); White Farm Equip. Co. v. Jarrell & Clifton Equip. Co., 139 Ga. App. 632, 229 S.E.2d 113 (1976); Foster v. Economy Developers, Inc., 146 Ga. App. 282, 246 S.E.2d 366 (1978); Graham Bros. Constr. Co. v. C.W. Matthews Contracting Co., 159 Ga. App. 546, 284 S.E.2d 282 (1981); Macon-Bibb County Water & Sewerage Auth. v. Tuttle/White Constructors, Inc., 530 F. Supp. 1048 (M.D. Ga. 1981); Leader Nat’l Ins. Co. v. Smith, 177 Ga. App. 267, 339 S.E.2d 321 (1985); Club Properties, Inc. v. Atlanta Offices-Perimeter, Inc., 180 Ga. App. 352, 348 S.E.2d 919 (1986); Dan-D, Inc. v. Burnsed Enters., Inc., 188 Ga. App. 207, 372 S.E.2d 303 (1988); Fields v. Smith, 190 Ga. App. 369, 378 S.E.2d 741 (1989); Duke v. Williams, 197 Ga. App. 836, 399 S.E.2d 544 (1990); Banderas v. Doman, 224 Ga. App. 198, 480 S.E.2d 252 (1997); Sweatt v. International Dev. Corp., 242 Ga. App. 753, 531 S.E.2d 192 (2000); Valley Place, Ltd. v. T.I. Equity Fund, L.P., 246 Ga. App. 378, 541 S.E.2d 37 (2000); Williamson v. Harvey Smith, Inc., 246 Ga. App. 745, 542 S.E.2d 151 (2000).

RESEARCH REFERENCES Am. Jur. 2d. - 22 Am. Jur. 2d, Damages, § 179 et seq. C.J.S. - 17 C.J.S., Contracts, § 210. ALR. - Validity and effect of anticipatory provision in contract in relation to rate of interest in the event of default, 12 ALR 367. A provision in land contract for pecuniary forfeiture or penalty by a party is default as affecting the right of the other party to specific performance, 32 ALR 584; 98 ALR 877.

Provision in land contract for pecuniary forfeiture or penalty upon default of the purchaser as affecting the vendor’s right to maintain an action for the purchase price, 32 ALR 617. Stipulation as to amount recoverable for breach of contract against entering certain business or employment as a provision for liquidated damages or for a penalty, 59 ALR 1135. Stipulation as to damages in case of

breach of contract for purchase of goods to be manufactured by other party, as penalty or liquidated damages, 79 ALR 188. Provision in land contract for pecuniary forfeiture or penalty upon default of purchaser as affecting vendor’s right to maintain action for damages for breach of contract, 97 ALR 1493. Provisions by which upon breach of contract the entire amount remaining unpaid thereon shall become immediately due as one for penalty or for liquidated damages, 104 ALR 223. Provision for liquidated damages in contract for sale of goods, 138 ALR 594. Liability of building or construction contractor for liquidated damages for breach of time limit where work is delayed by contractee or third person, 152 ALR 1349. Power of guardian or committee to compromise liquidated contract claim or money judgment, and of courts to authorize or approve such a compromise, 155 ALR 196. Provision in land contract for forfeiture of payments as one for liquidated damages or penalty, 6 ALR2d 1401; 4 ALR4th 993. Validity, construction, and effect of limited liability or stipulated damages clause in fire or burglar alarm service contract, 42 ALR2d 591.

Validity and construction of liquidated damage provision in sign contract, 60 ALR3d 550. Enforceability of provision in loan commitment agreement authorizing lender to charge stand by fee, commitment fee, or similar deposit, 93 ALR3d 1156. Contractual liquidated damages provisions under UCC Article 2, 98 ALR3d 586. Modern status of defaulting vendee’s right to recover contractual payments withheld by vendor as forfeited, 4 ALR4th 993. Contractual provision for per diem payments for delay in performance as one for liquidated damages or penalty, 12 ALR4th 891. Liability of person furnishing, installing, or servicing burglary or fire alarm system for burglary or fire loss, 37 ALR4th 47. Liability of contractor who abandons building project before completion for liquidated damages for delay, 15 ALR5th 376. Liability for breach of employment severance agreement, 27 ALR5th 1. Provision in land contract for liquidated damages upon default of purchaser as affecting right of vendor to maintain action for damages for breach of contract, 39 ALR5th 33.