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Showing posts from October 1, 2017

The BUSKLAW October Newsletter: Liquidated Damages Must be Reasonable to be Enforceable

This Photo by Unknown Author is licensed under CC By-SA

In last month's newsletter, we determined that Michigan law doesn't recognize the concept that "unreasonable" or adhesion contracts are unenforceable. But there is a caveat: a liquidated damages contractual provision must be reasonable to be enforceable. 

A liquidated damages provision is a term of art in the legal world. It applies when, according to Professor Bryan Garner, the parties to a contract agree in advance on the measure of damages to be assessed if a party defaults. Liquidated damages provisions are common in employee non-competition agreements, and it was that clause in one such agreement that Kent County Circuit Court Judge Christopher Yates examined in the case of Alpha Automotive v Cunningham Chrysler of Edinboro.

The facts of the case are simple. Cunningham is a car dealer who contracted with Alpha to conduct promotional events to sell Cunningham&#…