Will Alaska enforce this liquidated-damages clause, or strike it as a penalty?
For a sale of goods, AS 45.02.718(a) states the test directly: "Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty."
The trap
AS 45.02.718(b)-(d) address a DIFFERENT scenario from an ordinary liquidated-damages clause: they set a buyer's right to restitution when a seller justifiably withholds goods for the buyer's breach, capped by any liquidated-damages term or, absent one, by 20% of the buyer's total contract obligation or $500, whichever is smaller. Do not read those restitution-cap numbers as a general ceiling on what a liquidated-damages clause may specify; they bound the buyer's RECOVERY in that specific withheld-goods situation, not the enforceability of a liquidated-damages clause generally. Subsection (d) completes the same scheme in a way that catches sellers who take goods in part payment: the reasonable value of those goods, or the proceeds of their resale, "shall be treated as payments for the purposes of (b) of this section," which enlarges the sum the buyer may claim restitution out of, and a seller who knows of the breach before reselling is held to the aggrieved-seller resale conditions of AS 45.02.706. Note also what this section does not reach: it is Article 2, so it answers for a sale of goods, and no Alaska decision read for this rule states or applies a general common-law penalty test to a liquidated-damages clause in a contract that is not a sale of goods.
4 authorities
- statuteAS 45.02.718enactment date not established
The words that state the rule
Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
- statuteAS 45.02.718enactment date not established
The words that state the rule
If the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of an amount by which the sum of the buyer's payments exceeds (1) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with (a) of this section, or (2) in the absence of those terms, 20 percent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
- statuteAS 45.02.718enactment date not established
The words that state the rule
The buyer's right to restitution under (b) of this section is subject to offset to the extent that the seller establishes (1) a right to recover damages under this chapter other than (a) of this section, and (2) the amount or value of benefits received by the buyer directly or indirectly by reason of the contract.
- statuteAS 45.02.718enactment date not established
The words that state the rule
If a seller has received payment in goods, their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of (b) of this section; but, if the seller has notice of the buyer's breach before reselling goods received in part performance, the resale is subject to the conditions laid down on resale by an aggrieved seller ( AS 45.02.706 ).
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.