Although the question does not disclose the reasons why RIC sued the owner, I feel that it is fair to conclude that the contractor found the liquidated damages provision unfair at the end. With this in mind, the case is founded on whether the provision was a penalty. To elaborate, liquidated damages provisions are often enforceable while penalties are not. As a result, courts will not concur with the amount stipulated in the contract; consequently, the damages will be limited to actual damages. In general, a court tries to answer the following questions to determine whether a provision was a penalty or liquidated damage: Was the damage difficult to estimate when the contract was written? Was the estimation reasonable and not excessive? The answers for both questions need to be yes, in order to a provision to be enforced (Clarkson et al.)
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On the other hand, the $200 a day initially appears to be a figure that tries to compensate for sales losses from not having the business open; thus, it could be considered a consequential damage or foreseeable losses. Nevertheless, if the delay was to extend into the month of November, the losses from sales would be higher than the ones from the previous month, given the seasonal behavior of this type of business. With this new scenario in mind, the owner would not be recovering enough compensation from the contractor to cover for her losses. Therefore, in my view, the initial provision was not trying to be compensatory in nature, as it did not increase in value through time (e.g. $200 first 30 days and $400 for the next period). Given these points, I feel that a court should answer “yes” to the questions that help distinguish a liquidate damage provision from a penalty. As a result, my opinion is that the owner should
On the other hand, the $200 a day initially appears to be a figure that tries to compensate for sales losses from not having the business open; thus, it could be considered a consequential damage or foreseeable losses. Nevertheless, if the delay was to extend into the month of November, the losses from sales would be higher than the ones from the previous month, given the seasonal behavior of this type of business. With this new scenario in mind, the owner would not be recovering enough compensation from the contractor to cover for her losses. Therefore, in my view, the initial provision was not trying to be compensatory in nature, as it did not increase in value through time (e.g. $200 first 30 days and $400 for the next period). Given these points, I feel that a court should answer “yes” to the questions that help distinguish a liquidate damage provision from a penalty. As a result, my opinion is that the owner should