Will a Nebraska court enforce this liquidated-damages figure?
Only if the damages were hard to ascertain WHEN THE CONTRACT WAS MADE and the sum is EITHER a reasonable estimate OR reasonably proportionate to the loss actually caused, and if the construction is doubtful, Nebraska calls it a penalty. Growney v. C M H Real Estate Co. states the test, and the second prong is disjunctive on its face: “a stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach.” Kozlik v. Emelco, Inc. adds the timing, and note the verb: “the reasonableness of the stipulated damages can be judged as of the time the contract was formed”. CAN, not must. The presumption is friendly: “This court has consistently upheld the right of contracting parties to privately bargain for the amount of damages to be paid in the event of a breach of contract, provided the stipulated sum is reasonable in light of the circumstances.” The tie-breaker is not: Yant Construction Co. v. Village of Campbell, quoting Brennan v. Clark, carries the rule that “If the construction is doubtful, the agreement will be considered a penalty merely”, and “if the damages may be easily and readily ascertained, and if the amount stipulated is more than sufficient to compensate for the breach, it will be” treated as a penalty. In construction contracts a per-diem measure gets a safe harbour, though the Brennan passage Yant quotes says the opposite of a per-day building-contract sum; Abel (1972) is the later case and rests on Williston: Abel Constr. Co. v. School Dist. of Seward, adopting 5 Williston on Contracts § 785, treats “unless the sum fixed in the contract is very unreasonable the provision is treated as one for liquidated damages”, because “Such damages are obviously graded according to the extent of the breach, increasing proportionately with each day’s delay.” And there is a threshold argument that comes before all of this, Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.: “a contractual provision that requires payment based on something other than a breach of the contract is neither a liquidated damages clause nor a penalty provision”, so where the fee is for permitted conduct “[t]he question whether the fee is a reasonable estimate of damages caused by a breach is irrelevant, and the district court erred in engaging in such an analysis.” Whether a sum is liquidated damages or a penalty “is a question of law, dependent on the construction of the contract by the court.”
The trap
Ambiguity is fatal in Nebraska, and no one has to carry a burden for that to happen. Yant's tie-breaker sends a doubtful clause to the penalty side, Berens makes the characterisation a question of law reviewed independently, and Nebraska has NO articulated burden of proof on the issue, so an opaque or internally inconsistent clause can be struck without anyone having failed to prove anything. Second trap, and it is a single word: REIMBURSEMENT LANGUAGE DESTROYS THE CLAUSE. Yant struck a clause requiring the contractor “to reimburse the Village of Campbell at the rate of” $200 a month, holding “[e]vidently, the language used contemplated repayment of such sums as defendant may have been required to expend because of the delay.” Reimbursement framing concedes that damages are ascertainable, which kills prong one, and then measures the sum against the real outlay, which kills prong two. Abel's clause said the opposite (“not as a penalty, but as a predetermined and agreed amount”), and survived. Avoid reimburse, repay, recoup and cover our costs, but the word alone is not what kills a clause. Abel's surviving clause was expressly funded to pay “any additional engineering expenses incurred by the Owner after the end of the contract period”, and the one Nebraska statutory safe harbour for a cooperative marketing contract is itself framed as damages “to be paid to a limited cooperative association”. What sank Yant is that reimbursement was the whole measure of the sum, not one purpose named alongside a predetermined and agreed amount. Third: a sum that does not scale with the gravity of the breach. Yant's was graded by month and still failed, because the same $200 fell due whether a mile or a single yard of paving was missing. Yant's own reductio is that the village would retain “$200 a month for the extra time in which the insignificant part of the work remained uncompleted, although the uncompleted part of the work could be done at the cost of a few dollars”, and the modern echo is Browning Ferris Industries of Nebraska, Inc. v. Eating Establishment: 90th & Fort, Inc., which struck six months' billings taken “regardless of how much time was left on the contract.” The defence is gradation, and it is a defence rather than a safe harbour: the per-calendar-day measure survived in Abel, while the Brennan passage Yant quotes treats a per-day building-contract sum as a penalty. Fourth: if the loss is mitigable and you did not try, the clause is in trouble. Browning Ferris says “if the circumstances of a contract and its breach lend themselves to mitigation of damages, it is difficult to sustain a liquidated damage clause”, acknowledges that “liquidated damages and mitigation of damages are antithetic doctrines”, and called a plaintiff's failure to track its own reusable containers “the “avoidance of knowledge,” perhaps to shore up the claim for liquidated damages”. Fifth, the flank most drafters forget: the clause can be attacked for being TOO SMALL (Reichert v. Rubloff Hammond, L.L.C. observes that “Agreed-upon damages can also be so small as to be stricken as unconscionable in light of the breach”), and if you want the sum to be the ONLY remedy you must say so, because “A contract will not be construed to limit the remedial rights of the parties unless that intention is clearly expressed”.
34 authorities
The words that state the rule
The question of whether a stipulated sum is for a penalty or for liquidated damages is answered by the application of one or more aspects of the following rule: a stipulated sum is for liquidated damages only (1) where the damages which the parties might reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty and (2) where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach.
The words that state the rule
Ordinarily a sum paid in part performance of a contract, with a provision that it shall be forfeited in the event of a default, if not excessive, and if the actual damages are not calculable in advance, will be regarded as liquidated damages.
The words that state the rule
The question of whether or not the damages to be anticipated on breach could reasonably have been ascertained at the time the contract was entered into must be answered in the negative.
The words that state the rule
the reasonableness of the stipulated damages can be judged as of the time the contract was formed
The words that state the rule
This court has consistently upheld the right of contracting parties to privately bargain for the amount of damages to be paid in the event of a breach of contract, provided the stipulated sum is reasonable in light of the circumstances.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
Generally, the question whether a sum mentioned in a contract is to be considered as liquidated damages or as a penalty is a question of law, dependent on the construction of the contract by the court.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
It is well established that a contractual provision that requires payment based on something other than a breach of the contract is neither a liquidated damages clause nor a penalty provision.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
The question whether the fee is a reasonable estimate of damages caused by a breach is irrelevant, and the district court erred in engaging in such an analysis.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
And we have been reluctant to modify contracts between parties with business experience, as opposed to contracts between consumers and skilled corporate parties.
The words that state the rule
If the damages arising from a breach of the contract are difficult of ascertainment or admeasurement, and if the stipulated amount is not disproportionate to the amount of damages that may be reasonably anticipated from the breach, it will usually be regarded as a provision for liquidated damages.
The words that state the rule
On the other hand, if the damages may be easily and readily ascertained, and if the amount stipulated is more than sufficient to compensate for the breach, it will be .regarded as a penalty.
The words that state the rule
If the construction is doubtful, the agreement will be considered a penalty merely.
The words that state the rule
If defendant’s contention, and the view taken by the court, is sound, it would follow that, if plaintiff had completed all of the work contemplated by the contract, except a single rod or a single yard of the paving or curbing, defendant would be entitled to retain from the contract price $200 a month for the extra time in which the insignificant part of the work remained uncompleted, although the uncompleted part of the work could be done at the cost of a few dollars.
The words that state the rule
Evidently, the language used contemplated repayment of such sums as defendant may have been required to expend because of the delay.
The words that state the rule
Under the circumstances disclosed by the record in this case, we are constrained to hold that the language in the contract is a provision for a penalty, rather than for liquidated damages, and, as such, cannot be enforced.
The words that state the rule
unless the sum fixed in the contract is very unreasonable the provision is treated as one for liquidated damages.
The words that state the rule
Such damages are obviously graded according to the extent of the breach, increasing proportionately with each day’s delay.
The words that state the rule
We hold that the trial court’s determination that the contract provision for liquidated damages was not penal is correct.
The words that state the rule
The question of the reasonableness of a remedy generally addresses whether a liquidated damages clause is so great as to constitute a penalty.
The words that state the rule
Agreed-upon damages can also be so small as to be stricken as unconscionable in light of the breach.
The words that state the rule
A contract will not be construed to limit the remedial rights of the parties unless that intention is clearly expressed
- case575 N.W.2d 885Browning Ferris Industries of Nebraska, Inc. v. Eating Establishment — 90th & Fort, Inc.Neb. Ct. App.decided 1998read it at the source ↗
The words that state the rule
We suggest that if the circumstances of a contract and its breach lend themselves to mitigation of damages, it is difficult to sustain a liquidated damage clause.
- case575 N.W.2d 885Browning Ferris Industries of Nebraska, Inc. v. Eating Establishment — 90th & Fort, Inc.Neb. Ct. App.decided 1998read it at the source ↗
The words that state the rule
However, we acknowledge that liquidated damages and mitigation of damages are antithetic doctrines. See Lake Ridge Academy v. Carney, 66 Ohio St. 3d 376 , 613 N.E.2d 183 (1993) (holding as matter of law that when liquidated damage clause is valid, there is no duty to mitigate damages). But we do not believe a contracting party can negate the general duty to mitigate damages by merely inserting a liquidated damages provision in a contract.
- case575 N.W.2d 885Browning Ferris Industries of Nebraska, Inc. v. Eating Establishment — 90th & Fort, Inc.Neb. Ct. App.decided 1998read it at the source ↗
The words that state the rule
the evidence reveals this to be the “avoidance of knowledge,” perhaps to shore up the claim for liquidated damages, rather than a situation where actual damages are truly difficult to ascertain.
- statuteNeb. Rev. Stat. § 21-2952enactment date not established
The words that state the rule
A marketing contract may liquidate damages to be paid to a limited cooperative association for a breach or anticipatory repudiation of the marketing contract but only at an amount or at a formula that is reasonable in light of the actual or then anticipated harm caused by the breach or to be caused by the anticipatory repudiation. The provision may be enforced as liquidated damages and is not to be considered a penalty.
The words that state the rule
The contractor agrees to start this work on or before July 15, 1925, .and to complete same on or before the 1st day of September, 1925, and to reimburse the Village of Campbell at the rate of $200 per month for any extra time that may be required to complete said work.
The words that state the rule
For each calendar day that any work remains uncompleted after the end of the contract period, the amount of Seventy Five Dollars ($75.00) per calendar day will be assessed, not as a penalty, but as a predetermined and agreed amount to be used to pay, in part, any additional engineering expenses incurred by the Owner after the end of the contract period.
- case575 N.W.2d 885Browning Ferris Industries of Nebraska, Inc. v. Eating Establishment — 90th & Fort, Inc.Neb. Ct. App.decided 1998read it at the source ↗
The words that state the rule
It is apparent that BFI had no incentive to place the container in another location or even keep track of whether it did because the contractual damage provision gives BFI a far better deal: another 6 months’ worth of billings, without any overhead costs, regardless of how much time was left on the contract.
The words that state the rule
A provision in a building contract that the contractor shall pay a stipulated sum per day after a certain date if he failed to complete the building at the time designated is in the nature of penalty and not liquidated damages.
The words that state the rule
When, however, the parties are experienced in business, the damages are economic, and the parties had fair opportunity to consider the agreement, courts rarely find that liability limitations are unconscionable.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
When a declaratory judgment action presents a question of law, an appellate court has an obligation to reach its conclusion independently of the conclusion reached by the trial court with regard to that question.
- case747 N.W.2d 383Berens and Tate, P.C. v. Iron Mountain Information Management, Inc.Neb.decided 2008read it at the source ↗
The words that state the rule
parties to a contract may override the application of the judicial remedy for breach of a contract by stipulating, in advance, to the sum to be paid in the event of a breach.
- statuteNeb. Rev. Stat. § 21-2952enactment date not established
The words that state the rule
(4) Nothing in this section shall restrict a limited cooperative association from seeking any other remedy at law or equity in the enforcement of a marketing contract.
- statuteNeb. Rev. Stat. § 21-2949enactment date not established
The words that state the rule
In this section and sections 21-2950 to 21-2952 , marketing contract means a contract between a limited cooperative association and another person that need not be a patron member: (1) Requiring the other person to sell, or deliver for sale or marketing on the person's behalf, a specified part of the person's products, commodities, or goods exclusively to or through the limited cooperative association or any facilities furnished by the association; or
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.