Practice point: A contract clause is one for liquidated damages if the amount of actual loss is incapable or difficult of precise estimation, and the stipulated amount of damages bears a reasonable proportion to the probable loss. Whether a contractual provision represents a liquidated damages provision is a question of law.
Student note: Liquidated damages provisions will be upheld only if the amount fixed is a reasonable measure of the probable actual loss in the event of a breach. If the amount fixed is grossly disproportionate to the amount of actual damages, then the liquidated damages provision amounts to a penalty and will not be enforced.
Case: G3-Purves St., LLC v. Thomson Purves, LLC, NY Slip Op 06919 (2d Dept. 2012).
Tomorrow’s issue: Leave to amend to increase the ad damnum clause.