Kelly v. Marx

Spina, J.

(dissenting). I respectfully dissent. The parties, in the liquidated damages clause, bargained for peace of mind and certainty of result. There was, as the majority observes, nothing facially unjust about the terms of that clause: the five percent deposit was typical, and the parties, represented by counsel, are somewhat sophisticated. The buyers did not negotiate a “second look”; and the sellers did not negotiate an option to seek actual damages. The parties instead agreed upon the simplest form of liquidated damages clause, negotiating a clear break in the event of a default.

Our “second look” reveals nothing that the parties had not contemplated. The facts settled at one end of the spectrum: the seller had no damages. They could have settled at. the opposite end: the bottom could have fallen out of the market and the seller’s losses could have been far greater than five per cent. We have, by our decision, permitted one party to reopen and rewrite an otherwise rational and commendable pact.

The “second look” approach first appeared in Shapiro v. Grinspoon, 27 Mass. App. Ct. 596 (1989), a decision that claims direct lineage under A-Z Servicenter, Inc. v. Segall, 334 Mass. 672 (1956). However, it is not clear whether that case anticipated any progeny. A-Z Servicenter applied traditional analysis to a liquidated damages clause in a note secured by a mortgage. That note provided that the entire sum due under the note (including unearned interest), less payments made, would be “immediately due and payable as liquidated damages and not as a penalty.” Id. at 673 . Noting that unearned interest under a note was not a measure of contract damages, the court there held that its inclusion in liquidated damages “bears no rational relation to the balance remaining unpaid on the note . . . [and therefore] constituted a penalty.” Id. at 676 . “When a note is given for a fixed sum representing principal and interest for the period of the note, the clause accelerating the maturity of the debt will not be enforced as to future interest. . . . To al *834 low a charge for unearned interest in the attending circumstances would be unconscionable.” Id. at 677 .

Unlike A-Z Servicenter, there is nothing facially unconscionable or smacking of a penalty in the instant case. This is a case “where the sum agreed upon by the parties at the time of the execution of the contract represents a reasonable estimate of the actual damages,” which were otherwise difficult to ascertain at the time. Id. at 675 . The liquidated damages clause here was eminently suitable for the circumstances, and should be enforced as written, and as intended.. I would affirm the judgment.