Liquidated Damages

Case: Leeber v. Deltona Corp. (1988) [pp. 1013-1018]

546 A.2d 452

Parties: Plaintiff - Leeber

Defendant - Deltona

Procedural History: Judgment for Pl, Df appeals.

Facts: Deltona was a developer of condos real estate development. Pls signed a K
with Deltona to purchase a condo unit for $150k, with $22k paid at signing,
balance at closing. K expressly stated that the initial payment was to be kept by
Deltona as liquidated damages in the event of breach by Pls. Deltona kept trying
to get Pls to close (K also stated that closing would be within 4 years of K, &
as specified by Deltona), but Pls kept trying to put it off. Finally Deltona sent
Pls a final closing notice setting a closing date, which if Pls did not close on,
Deltona would terminate the K and keep the initial payment as liquidated damages.
Pls didn’t close, so Deltona kept the money. Deltona ended up selling the property
to someone else for $167k. Pls bring this suit to get their money back, alleging
that the liquidated damages provision was unenforceable. The trial determined
that the enforcement of the liquidated damages provision was unconscionable. Since
Deltona proved that it incurred actual damages of $5,704, trial court awarded Pls
$15k. Df appealed.

Issue: Whether the liquidated damages provision was unenforceable. -No.

Holding: Trial court judgment vacated.

Reasoning:
○ (Florida) Rule of Law: If damages are ascertainable at time of
contracting, the clause is a penalty & not enforceable. If not ascertainable, then
its liquidated damages & enforceable. However, if enforcement would be
unconscionable, equity may relieve against forfeiture. Minority position (Fl)
says reasonableness calculated at time of breach . K made in Fl, so use Fl law.
Also real estate is in Fl too. Also parties agreed to Fl law.
§ Where the damages ascertainable at time of contracting? - No
□ Since this is not disputed, court accepts that damages were not
ascertainable at time of contracting.
§ Is enforcement of the liquidated damages provision unconscionable?
Court says if not a penalty, its enforceable unless one of the following factors
is present:
□ If there was fraud on the seller's part
® no showing of this
□ Misfortune beyond buyer's control that accounted for the
failure to fulfill the K
® No evidence of this
□ Mutual rescission of the k
® No evidence of this
□ Such a benefit to the seller, that the retention of the
liquidated damages (as compared to total K price) would shock the conscience of
the court (to show unconscionability)
® 15% deposit - does this shock the conscience? - No,
normally this is viewed as reasonable.
® Court says trial court applied analysis incorrectly, and
looked at what Deltona eventually sold the property for, and only awarded Deltona
for their actual, incurred loss.
® But that's not the appropriate method of analyzing if
liquidated damages are ok. You're supposed to look at the reasonableness at the
time of contracting.
◊ Otherwise it would just damages for breach of K,
and parties didn’t K for liquidated damages for nothing. The point to have this
type of provision is to predetermine a way to handle breach of K ahead of time,
so as to avoid litigation and to equitably resolve conflicts, and this should be
encouraged.
◊ It can benefit both parties. Since sellers are
denied specific performance when there is a liquidated damages clause, buyers know
at time of contracting, that they'll only be liable for a certain amount, and not
more if it turns out Seller incurred a bigger loss.

Class Notes
(Florida) Rule of Law: If damages are ascertainable at time of contracting, the
clause is a penalty & not enforceable
○ Why doesn’t this make sense? If you do know the damages at time of K, then
you can make the liquidated damages reflect this amount.