Liquidated Damage

Under the Uniform Commercial Code as adopted by Michigan, 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. Minn. Stat. §336.2-718.

Liquidated damages may only be recovered by contract. E.D.S. Construction Co. v. North End Health Center, 412 N.W.2d 783, 786 (Minn.App. 1987). In determining whether a liquidated damage clause is valid, the language of the contract itself must be examined as well as the facts and circumstances under which it was made. Id. See also, Schutt Realty Co. Mullowney, 10 N.W.2d 273, 276 (Minn. 1943). Liquidated damage clauses are prima facie valid but are enforceable only where damages are not readily ascertainable and where the amount fixed is reasonable in light of the contract as a whole, the nature of the damages contemplated, and the surrounding circumstances. E.D.S Construction, 412 N.W.2d at 786; see also, Gorco Construction Co. v. Stein, 99 N.W.2d 69, 74 (Minn. 1959).

A liquidated damage provision can be enforced without proving actual damages so long as the amount stated is reasonable. Willgohs v. Buerman, 115 N.W.2d 59 (Minn. 1962). The purpose of a liquidated damage clause is to provide payment in lieu of performance as opposed to a penalty which is to secure performance; it must be clear that the clause stipulating damages is for agreeing upon the amount to be paid when the contract is breached as opposed to being a penalty. See, Frank v. Jansen, 226 N.W.2d 739 (Minn. 1975).