Will a Maine court enforce this liquidated-damages clause, or call it a penalty?
It is enforceable only if it passes a two-part test, and the party relying on it has to make the showing. Pacheco v. Scoblionko and Raisin Memorial Trust v. Casey state it the same way: "First, the damages caused by the breach must be 'very difficult to estimate accurately,' and second, the amount fixed by the agreement must be 'a reasonable forecast of the amount necessary to justly compensate one party for the loss occasioned by' the other's breach." Brignull v. Albert puts it shortly: "the damages must be difficult to prove and the amount fixed must be a reasonable forecast". On the burden, Pacheco is explicit: the drafters who were "also the parties seeking to enforce the liquidated damages clause ... were correctly assigned the burden of proving its validity", and the Court said that will "almost universally be the case". Enforceability is a question of law, but the findings that feed it are reviewed for clear error (Sisters of Charity Health System, Inc. v. Farrago). The results run both ways and the evidence decides: Pacheco's clause failed and the judgment against the drafters was affirmed; Brignull's $30,000 clause was upheld and affirmed; Sisters of Charity's $100,000 clauses were upheld and affirmed; Raisin Memorial's late fees and escalated rates were vacated and remanded for the trial court to decide "whether and to what extent these late fees and escalated interest rates amounted to liquidated damages or excessive and usurious penalties". For a sale of goods 11 M.R.S. § 2-718(1) codifies the same idea and adds the sanction: "[a] term fixing unreasonably large liquidated damages is void as a penalty."
The trap
A Maine defendant wins this by making the plaintiff prove the forecast, not by arguing about labels, and the burden is on the party relying on the clause, which in practice is the drafter. In Pacheco the clause failed because "[t]he Scoblionkos produced no proof as to what damages were anticipated or actually sustained" and because "the amount of the liquidated damages, which was 100% of the contract price, suggests the conclusion that it was an unenforceable penalty". Compare the two cases that came out the other way, both on hard numbers: Brignull, where "each patient could be valued at $140 annually" and the Court counted the 210 patients the departing optometrist saw in his first six months against the 215 he would have needed to take to justify the figure, so "$30,000 was a reasonable forecast"; and Sisters of Charity, where $100,000 clauses in physicians' employment contracts survived on evidence that a replacement physician needs two to three years to reach comparable income and that 1,373 patients moved their records. The lesson is arithmetic: produce the per-unit value and the volume, or lose. The other Maine hook is usury-adjacent: Raisin Memorial holds that "[i]f a late charge amounts to liquidated damages, we will affirm it; if it is an excessive or usurious penalty, we will not uphold the provision", and it VACATED the judgment and sent the late fees and default rate back for that determination, so a per-diem late charge stacked on a default interest rate is tested as a liquidated-damages clause and is not safe merely because the note says so. In a goods contract, read § 2-718(2) whole: it gives the BUYER restitution of payments exceeding either the amount allowed by a valid liquidation term or, "[i]n the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller", and that restitution is itself "subject to offset to the extent that the seller establishes" other damages or benefits the buyer received.
16 authorities
The words that state the rule
The enforceability of a liquidated damages provision is a question of law and is reviewed accordingly by the Law Court.
The words that state the rule
Moreover, the amount of the liquidated damages, which was 100% of the contract price, suggests the conclusion that it was an unenforceable penalty.
The words that state the rule
In the present matter, as will almost universally be the case, the Scoblion-kos were not only the drafters of the contract but also the parties seeking to enforce the liquidated damages clause. As such they were correctly assigned the burden of proving its validity.
The words that state the rule
The defendants’ remaining contentions are without merit and require no discussion. The entry is; Judgment affirmed.
The words that state the rule
First, the damages caused by the breach must be “very difficult to estimate accurately,” and second, the amount fixed by the agreement must be “a reasonable forecast of the amount necessary to justly compensate one party for the loss occasioned by” the other’s breach.
The words that state the rule
If a late charge amounts to liquidated damages, we will affirm it; if it is an excessive or usurious penalty, we will not uphold the provision.
The words that state the rule
The trial court must, upon remand, reexamine what, if any, late fees and escalated interest rates may be imposed on Casey. The parties will be able to argue, and the trial court should determine, whether and to what extent these late fees and escalated interest rates amounted to liquidated damages or excessive and usurious penalties. *1217 The entry is: Judgment vacated. Remanded to the Superior Court for further proceedings consistent with this opinion.
The words that state the rule
Liquidated damages must meet two requirements in order to be enforceable: the damages must be difficult to prove and the amount fixed must be a reasonable forecast.
The words that state the rule
We agree with the trial court that this test has been met. Because an optometrist’s practice is dependent on his relationship with his patients, it was evident at the time the employment contract was formed that damages would be difficult to prove after a breach. Further, $30,000 was a reasonable estimate of Brignull’s potential loss of revenue. The evidence revealed that each patient could be valued at $140 annually, so' that Albert merely needed to take 215 patients away from Brignull to justify the damages. In light of the fact that Albert saw 210 of BrignuU’s patients in his first six months of practice, $30,000 was a reasonable forecast. The entry is: Judgment affirmed.
- case2011 ME 62Sisters of Charity Health System, Inc. v. FarragoMe.decided 2011read it at the source ↗
The words that state the rule
We review the enforceability of a liquidated damages provision as a question of law, but we review for clear error the factual determinations that the trial court found to satisfy the two-part test.
- case2011 ME 62Sisters of Charity Health System, Inc. v. Farragome-medecided 2011read it at the source ↗
The words that state the rule
In sum, the restrictive covenants protected legitimate business interests of SOCHS, and the contracts contained enforceable liquidated damages provisions. The entry is: Judgment affirmed.
- statute11 M.R.S. § 2-718enactment 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 which 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.
- statute11 M.R.S. § 2-718enactment date not established
The words that state the rule
Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (a). The amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1) ; or (b). In the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
- statute11 M.R.S. § 2-718enactment date not established
The words that state the rule
The buyer's right to restitutions under subsection (2) is subject to offset to the extent that the seller establishes (a). A right to recover damages under the provisions of this article other than subsection (1) ; and (b). The amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
The words that state the rule
The Scoblionkos produced no proof as to what damages were anticipated or actually sustained as a result of the younger Pacheco’s withdrawal.
- case2011 ME 62Sisters of Charity Health System, Inc. v. Farragome-medecided 2011read it at the source ↗
The words that state the rule
Considering the competent evidence before the court demonstrating that it takes two to three years for a replacement physician to generate income at a level commensurate with that of an established doctor, and that 1373 patients requested that their medical records be transferred following these doctors’ breaches, the amount of damages fixed in the contract was a reasonable approximation of the damages that SOCHS would incur if a doctor left Court Street to practice within a twenty-five-mile radius.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.