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OKAY TO ASSESS LIQUIDATED DAMAGES EVEN IF ACTUAL DAMAGES DON'T MATERIALIZE

Thursday, November 15, 2012 02:42 am

 

Parties to construction contracts agree to liquidated damages because predicting what actual damages could result from a contract breach is often too difficult. But is a liquidated damages provision enforceable even if no actual damages occur? In Mississippi, the answer is yes. There, the courts view a party's reasonable foresight that a potential breach will cause some loss--and not after-the-fact hindsight that reveals no actual loss--to be the proper exactor of liquidated damages.

A recent case involved a school district that charged $500/day in liquidated damages to a contractor who completed work on a high school construction project 39 days late. A circuit court enforced the $19,500 payment, but the contractor objected because the school district had not suffered any actual damages. In Hovas Construction, Inc. v. Board. of Trustees of Western Line Consolidated School District, 2012 Miss. App. Lexis 556 (Sept. 4, 2012), the Court of Appeals of Mississippi disagreed with that argument, holding that the issue of actual damages had no impact on the amount of liquidated damages to which the school district was entitled.

No liquidated damages where actual damage could have been ascertained

The Hovas contractor pointed out that, although completed 39 days late, the school building was completed 20 days before the start of the school year. In other words, it argued, the school district suffered no loss of use of the building.

However, a liquidated damages provision is enforceable unless "the actual damage resulting from the breach may be readily ascertained." PYCA Indus., Inc. v. Harrison Cnty. Waste Water Mgmt. Dist. , 177 F.3d 351, 367 (5th Cir. 1999). Here, the potential damage was not readily ascertainable, the court reasoned, since the building was not to be used for commercial purposes and the loss involved less me[...]

 
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