Case No. 102 LIQUIDATED DAMAGES/UNCONSCIONABILITY Spring Valley Garden Associate

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Case No. 102 LIQUIDATED DAMAGES/UNCONSCIONABILITY Spring Valley Garden Associates v.Earle County Court, Rockland County 112 Misc.2d 786, 447 N.Y.S.2d 629 (1982) FACTS: Plaintiff Spring Valley Garden Associates (Spring Valley) is the owner of property that is leased to tenants for residential purposes. Defendant Felm was a tenant in an apartment owned by Spring Valley in Earle (Earle) In November 198 1, Earle paid her rent with a check that bounced. By the time Spring Valley deposited the check and learned that it would not clear, more than ten days from the rent due date had passed. A provision in the lease required Earle to pay a service fee of $50.00 for rent not paid within ten days of the due date. Spring Valley refused to accept Earle's second payment for November rent unless it included the $50.00 late fee. Earle refused to pay the late fee. Therefore, Spring Valley brought this action to evict Earle. ISSUE: Is a clause in a lease enforceable where the clause requires a late fee of $50.00 when payment of the monthly rent of $405 is made more than ten days late? DECISION: No, judgment for Earle. REASONING: A clause in a contract that identifies an amount of money to be paid in the event of a breach is called a liquidated damage clause. Where a liquidated damage clause in a contract requires payment by the breaching party of a sum of money disproportionate to the loss suffered by the nonbreaching party, the clause will be unenforceable. The amount of the late fee in this case was grossly disproportionate to any loss suffered by the landlord as a result of Earle's late payment. The fee was therefore a penalty and not liquidated damage and as such was unenforceable. Another basis to invalidate the clause was unconscionability. A lease is a contract for a necessity of life (living space). The clause resulted in an excessive economic benefit for the landlord, it was drafted by the landlord, and apparently the landlord was not willing to negotiate the terms of the lease it had prepared. Thus the clause is unconscionable and, as such, invalid. QUESTIONS*** (See back of text for answers) 1) 2) Under what circumstances is a liquidated damage clause enforceable? Why might parties choose to include a liquidated damage clause in their contract? 527

Explanation / Answer

1) Liquidated damage clause in a contract is used to specify a predetermined amount that must be paid to the injured party as a compensation for some specific failure. A liquidated damage clause is enforceable under the following circumstances-

2) Parties choose to include a liquidated damage clause in their contract due to several reasons. Liquidated damage clause helps in predetermining the amount of damages in case of a breach of contract, instead of just leaving it to the judge/jury. The parties to a contract can better estimate the liquidated damage as compared to the judge. Besides, it also provides an estimate to the parties, so that can decide whether they want to breach the contract or not and act accordingly after careful analysis.   

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