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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: November 5, 2016

Court Upholds Liquidated Damages Clause

On October 26, 2016, the Second Department issued a decision in Markham Gardens, L.P. v. 511 9th, LLC, 2016 NY Slip Op. 07005, upholding the enforcement of a liquidated damages clause, explaining:

A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. The burden is on the party seeking to avoid liquidated damages to show that the stated liquidated damages are, in fact, a penalty. Thus, the defendants, as the party challenging the liquidated damages clause, must demonstrate either that damages flowing from a prospective breach were readily ascertainable at the time the parties entered into their purchase agreement, or that the liquidated damages clause is conspicuously disproportionate to these foreseeable losses. The defendants failed to submit any evidence to establish either that actual damages were readily ascertainable at the time the purchase agreement was entered into, or that the liquidated damages were conspicuously disproportionate to foreseeable or probable losses. Further, the fact that, approximately two years after the date of the breach, the plaintiff ultimately sold the certificates to a third party for a higher price than the amount set forth in the purchase agreement does not bar the plaintiff from recovering under the liquidated damages clause.

(Internal quotations and citations omitted) (emphasis added).

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