A liquidated damages provision is enforceable, instructs Atrium Medical Center v. Houston Red C LLC, No. 18-0228 (Feb. 7, 2020), when:
- “[T]he harm caused by the breach is incapable or difficult of estimation.” A contracting party’s testimony about fluctuations and uncertainties in the relevant market, at the time the agreement was made, can satisfy this requirement.
- “[T]he amount of liquidated damages called for is a reasonable forecast of just compensation.” Similar proof can satisfy this requirement, especially when “[t]he contract provision neither multiplies actual damages nor penalizes dissimilar breaches with the same broad brush.”
- If the first two requirements are satisfied, then “courts must also examine whether ‘the actual damages incurred were much less’ than the liquidated damages imposed, measured at the time of the breach.” In this case, this analysis required consideration of the plaintiff’s actual expectancy damages, as well as the potential effect of mitigation.
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