Reference no: EM131675330

Question: S. BROOKE PURLL, INC., T/A PURLL CONSTRUCTION v. PATRICK DARRELL VAILES DISTRICT OF COLUMBIA COURT OF APPEALS

FACTS: The plaintiff hired the defendant to renovate his house and paid him a $5,000 initial payment under the construction contract but failed to do initial demolition work required under the contract. The contract contained a clause stating:

ISSUE: Was the clause imposing a payment of 35 percent of the contract value for breach by the owner a penalty clause or a valid liquidated-damage clause?

REASONING: Today, the trend is toward furthering freedom of contract through the enforcement of stipulateddamage provisions as long as they do not clearly disregard the principle of compensation. Such clauses simplify the resolution of a breach-of-contract dispute and give the parties an opportunity to resolve the damage question without resorting to litigation, by setting the measure of damages at the outset, before a breach even occurs. Such provisions are especially appropriate when the parties enter into a contract in which the damages are uncertain in amount and cannot be easily ascertained. Thus, the courts tend to uphold these clauses unless they are clearly unreasonable. The liquidated sum must simply bear a reasonable relation to the damages foreseeable at the time the contract was made. The burden of proof is on the breaching party to demonstrate that the damage clause is disproportionate to the foreseeable damages. In this case, the plaintiff provided no such evidence. The full contract price was $103,148.71. The contractor testifi ed without contradiction that two-thirds of the contract price represented materials and labor and one-third represented his profi t. The contractor explained that he consulted the Ames Construction Guide for the D.C. metropolitan area, which was customarily used in the industry for pricing construction jobs, in establishing his price. Thus, there was no evidence that the clause was unreasonable. The trial court had inappropriately struck the clause down because the contractor had failed to introduce evidence of his out-of-pocket expenses; such proof is not required to uphold a liquidated-damage clause.

DECISION AND REMEDY: The lower court's decision was reversed, in favor of the defendant contractor.

SIGNIFICANCE OF THE CASE: This case illustrates the preference for upholding liquidated-damage clauses.

CRITICAL THINKING: What evidence could the plaintiff have presented that might have changed the outcome of this case?

ETHICAL DECISION MAKING: The courts place the burden of proving the unreasonableness of a liquidated-damage clause on the breaching party. Which stakeholders benefit by this approach? Which stakeholders are disadvantaged by it?