When will Oregon enforce a liquidated damages clause?
For goods, damages for breach may be liquidated 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 (ORS 72.7180(1)). The same section fixes what happens to money already paid: where the seller justifiably withholds delivery because of the buyer's breach, the buyer may recover its payments above the amount the liquidation term gives the seller or, where the contract liquidates nothing, above 20 percent of the value of the total performance the buyer owed or $500, whichever is smaller (72.7180(2)). In Illingworth v. Bushong the Oregon Supreme Court saw no good reason not to use that rule as the initial point of departure for analyzing liquidated damages provisions in contracts in general, and said that until reasons for variance surface the courts of the state shall follow that formulation, with citations to earlier cases stating conflicting rules to be disregarded unless a cited decision helps interpret ORS 72.7180(1). The court did not itself construe 72.7180(1): it recorded that the case was tried as if the opponent of the clause had the burden of proof, said the same result would obtain under the statutory text, and expressly declined to interpret it. The judgment against the clause stood, because there was evidence supporting the trial judge's findings on both criteria. In DiTommaso Realty the court held that a clause giving a real estate broker 10 percent of the selling price no matter who sold the property was not a liquidated damages provision but an independent, valid contractual promise.
The trap
A payment promised on an event rather than as damages for a breach may be enforced as a contractual promise without the reasonableness test: DiTommaso so held for a broker's commission payable whoever sold the property, while a special concurrence of two justices would have treated it as a liquidated damages clause. A footnote in a later opinion, listing the cases the plaintiff there cited, tags Illingworth "overruled on other grounds by" DiTommaso; DiTommaso itself says only that the Illingworth analysis "was unnecessary but did not lead to an erroneous conclusion" and disapproves prior opinions "to the extent" inconsistent, so Illingworth's reasonableness rule still governs a clause that IS written as liquidated damages, and DiTommaso governs whether it is one.
9 authorities
- statuteORS 72.7180enactment 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.
- statuteORS 72.7180enactment 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 the buyer’s 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) of this section; or (b) In the absence of such terms, 20 percent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
The words that state the rule
It is true that the legislature’s choice, by its terms, applies only to contracts for the sale of goods, but we are unable to perceive any good reason for not using that same rule as the initial point of departure for analyzing the validity of provisions for liquidated damages in contracts in general. It *693 may be that reasons for variance will surface in the context of litigating the validity of such provisions, but until then the courts of this state shall follow that legislative formulation in cases of this kind. Citations to cases earlier than this one that state or suggest conflicting rules are to be disregarded unless a decision cited is of assistance in interpreting the text of ORS 72.7180(1).
The words that state the rule
Defendants, as proponents, did plead that the loss was incapable or difficult of accurate estimation and that the amount fixed in the clause was a reasonable forecast of “anticipated” damages, but the cause was tried as if plaintiff had the burden of proof to establish the allegations in his complaint. 10 We are presently of the belief that the same result would obtain if the text of ORS 72.7180(1) were the point of departure, but it is not necessary that we here interpret or construe that text, and we do not do so.
The words that state the rule
Defendants have argued that such is the case here, but we agree with the Court of Appeals that there was evidence, as summarized by that court, 61 Or App 155 -156, which we have quoted, supra, at page 681, to support the findings of the trial judge on both criteria discussed above. The judgment of the Court of Appeals is affirmed.
- case309 Or 190DiTommaso Realty, Inc. v. Moak Motorcycles, Inc.Or.decided 1990read it at the source ↗
The words that state the rule
The issue in this case is whether a contractual clause, providing that a real estate broker shall receive 10 percent of the selling price no matter who actually sells the *344 property, was an unenforceable liquidated damages provision. We hold that the provision was not for liquidated damages but was an independent, valid contractual promise.
- case309 Or 190DiTommaso Realty, Inc. v. Moak Motorcycles, Inc.Or.decided 1990read it at the source ↗
The words that state the rule
The Court of Appeals erred when it interpreted the 10 percent provision as a liquidated damages provision. Its analysis of cases such as Illingworth v. Bushong, supra , was unnecessary but did not lead to an erroneous conclusion. To the extent that prior opinions are inconsistent with this opinion, they are disapproved. The decision of the Court of Appeals and the judgment of the circuit court are affirmed on different grounds.
The words that state the rule
6 Plaintiff cites Cash Flow Investors, Inc. v. Union Oil Co., 318 Or 88, 91 , 862 P2d 501 (1993) (in contract dispute, court may impose attorney fees as provided in contract); Illingworth v. Bushong, 297 Or 675, 694 , 688 P2d 379 (1984), overruled on other grounds by Ditommaso Realty, Inc. v. Moak Motorcycles, Inc., 309 Or 190 , 785 P2d 343 (1990) (contracting parties may agree on liquidated damages where damages would be difficult or impossible to accurately estimate)
- case309 Or 190DiTommaso Realty, Inc. v. Moak Motorcycles, Inc.Or.decided 1990read it at the source ↗
The words that state the rule
The “if-you-sell-it-yourself’ clause is a liquidated damage clause. It should be so treated. I would follow our precedents. My approach does not leave the broker without a remedy. The broker wins in this case because its proof meets the requirements of Illingworth v. Bushong, supra. We have seen generations of cases such as these, culminating with Illingworth. The majority effectively has trashed those cases. *204 The Court of Appeals majority had it right. I would affirm for the reasons stated by it. Fadeley, J., joins in this specially concurring opinion.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.