Section 15 In General

• Library: Damages 2012

Parties may agree on the damages to be assessed in the event of breach of contract between them. These agreements are set forth in liquidated damage clauses. A liquidated damage provision is a measure of compensation, which, at the time of contracting, the parties agree will represent their damages in case of a breach. Frank v. Sandy Rothschild & Assocs., Inc., 4 S.W.3d 602 (Mo. App. E.D. 1999). Liquidated damage clauses are valid and enforceable, but penalty provisions are not. Diffley v. Royal Papers, Inc., 948 S.W.2d 244 (Mo. App. E.D. 1997); Paragon Group, Inc. v. Ampleman, 878 S.W.2d 878 (Mo. App. E.D. 1994). The main distinction between a liquidated damage clause and a penalty provision is that the former is a measure of damages and the latter constitutes nothing more than a punishment for breach. Diffley, 948 S.W.2d 244; Muhlhauser v. Muhlhauser, 754 S.W.2d 2 (Mo. App. E.D. 1988). The validity of a liquidated damage clause must be viewed based on the circumstances at the time the contract was entered into. Info. Sys. & Networks Corp. v. City of Kansas City, Mo., 147 F.3d 711 (8^th Cir. 1998).

For a provision to be a valid liquidated damages clause and not a penalty, the amount fixed as damages must be a reasonable forecast of the harm caused by the breach, and the...