Section 9 Liquidated Damages

• Library: Damages 2012

A liquidated damages clause in a contract represents the parties’ stipulation that a particular measure of compensation will represent the damages in the event of a breach. Diffley v. Royal Papers, Inc., 948 S.W.2d 244, 246 (Mo. App. E.D. 1997). Liquidated damages take the place of actual damages. Eureka Dev., Inc. v. Port Jefferson Realty, LLC, No. 4:05CV1281 FRB, 2007 WL 2908179, at *2 (E.D. Mo. Oct. 3, 2007) (applying principles of Missouri law). Thus, when there is an enforceable liquidated damages clause, there is no need to prove actual damages, and whether the actual damages are more or less than the liquidated damages is of no consequence. Id. But the plaintiff must show at least some actual harm or damage caused by the breach before a liquidated damages clause is triggered. Grand Bissell Towers, Inc. v. Joan Gagnon Enters., Inc., 657 S.W.2d 378, 379 (Mo. App. E.D. 1983).

Because the liquidated damages are intended to compensate for the breach and are, in essence, a stipulation as to the amount of actual damages, the plaintiff cannot recover both liquidated damages and actual damages for the same injury. Paragon Group, Inc. v. Ampleman, 878 S.W.2d 878, 882 (Mo. App. E.D. 1994). With a valid liquidated damages clause, the nonbreaching party does not have a duty to mitigate damages. Burst v. R.W. Beal & Co., 771 S.W.2d 87, 91–92 (Mo. App. E.D. 1989). Thus, there is no right of offset for benefits received by the nonbreaching party or any claim for unjust enrichment by enforcing a valid liquidated damages clause because this would have the effect of eliminating this provision in a contract. Eureka Dev., 2007 WL 2908179, at *3.

If the agreed-on amount is a reasonable forecast of the harm caused by the breach, and the harm caused by the breach is difficult to accurately measure, a liquidated damages provision is enforceable. Id. Courts, however, require that the liquidated damages provision be compensatory rather than a penalty. Id. If its application is punitive, the courts may refuse to enforce it. Id.; see also Frank v. Sandy Rothschild & Assocs., Inc., 4 S.W.3d 602, 605–06 (Mo. App. E.D. 1999). In evaluating whether the liquidated damages is penal in...