Liquidated Damages Provision New York
In Wojciechowski v. Birnbaum, 191 AD2d 247, 595 N.Y.S.2d 3 (1st Dept. 1993), the Court held that a liquidated damages provision for $ 63,500 on a $ 630,000 contract was not "unreasonably large" and therefore could not be considered a penalty; making the provision enforceable. See, Id at 247.
In some cases the Court has held that a liquidated damages provision which ends up being far below the actual amount of damages can be considered a penalty, but this amount would have to be extremely unreasonable as perceived at time of the creation of the contract. Downtown Harvard Lunch Club, 201 Misc at 1091.
In Shulkin v. Dealy, 132 Misc2d 371, 504 N.Y.S.2d 342 (Sup NY 1986), the Court stated that they would uphold a liquidated damages clause in a contract unless is was clearly a penalty. See, Id. at 374.
The liquidated damages estimate cannot be used to impose a penalty upon the party that breaches. Id.
In deciding whether a liquidated damages clause is considered a penalty, the clause "must be judged, not by the loss which actually ensues, but by the situation as it existed at the time of [the] making of [the] contract." Downtown Harvard Lunch Club v. Rasco, 201 Misc 1087, 1091, 107 N.Y.S.2d 918 (S. Ct. N.Y. 1951).
A liquidated damages clause will be sustained if, at the time of the creation of the contract, the amount bore a reasonable relation to the amount of probable loss if the Defendant were to breach the contract, and "the amount of actual loss [was] incapable or difficult of precise estimation." Truck RAC 41 NY2d at 425.
"Whether a contractual provision is enforceable presents a question of law for the court." Miller v. Boyanski, 25 Misc. 3d 1228[A], 906 N.Y.S.2d 774, 2009 NY Slip Op 52324[U], 2009 WL 3853817 at 5; citing Mosler Safe Co. v. Maiden Lane Safe Deposit Co., 199 NY at 485.
"Where a liquidated damages provision is deemed enforceable, 'the measure of damages for a breach will be the sum in the clause, no more, no less." Zeer v. Azulay, 50 AD3d 781, 785-86, 860 N.Y.S.2d 527 (2nd Dept. 2008).