GA Code § 13-6-7 (2021)
2021 Georgia Code|Title 13 - Contracts|Chapter 6 - Damages and Costs Generally|§ 13-6-7. Damages and Expenses Recoverable - Liquidated Damages Generally

 If the parties agree in their contract what the damages for a breach shall be, they are said to be liquidated and, unless the agreement violates some principle of law, the parties are bound thereby.   (Orig. Code 1863, § 2881; Code 1868, § 2889; Code 1873, § 2940; Code 1882, § 2940; Civil Code 1895, § 3794; Civil Code 1910, § 4390; Code 1933, § 20-1402.)   Law reviews.   - For article, "Not so Fast! Enforcing Accelerated Rent Clauses in Commercial Lease Agreements," see 25 Ga. St. B.J. 19 (Dec. 2019). For comment, "Refocusing Liquidated Damages Law for Real Estate Contracts: Returning to the Historical Roots of the Penalty Doctrine," see 39 Emory L.J. 267 (1990).   JUDICIAL DECISIONS    Liquidated damages are a sum to be paid in lieu of performance. Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981).    Liquidated damages clause must be construed with other provisions of contract. Georgia Ports Auth. v. Norair Eng'g Corp., 127 Ga. App. 864, 195 S.E.2d 199 (1973).   Requirements for liquidated damages clause.    - Liquidated damages are allowed in Georgia, but for a clause to comply with O.C.G.A. § 13-6-7, three conditions must be met: (1) injury caused by the breach must be difficult or impossible of estimation; (2) the parties must intend to provide for damages; and (3) the sum stipulated must be a reasonable pre-estimate of the probable loss. Wehunt v. ITT Bus. Communications Corp., 183 Ga. App. 560, 359 S.E.2d 383 (1987); Ramada Franchise Sys. v. Motor Inn Inv. Corp., 755 F. Supp. 1570 (S.D. Ga. 1991); Oasis Goodtime Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga. App. 641, 507 S.E.2d 823 (1998).    Words "liquidated damages" are not specifically required;  however, some manifestation of the parties' intent to agree to liquidated damages is. ADP-Financial Computer Servs., Inc. v. First Nat'l Bank, 703 F.2d 1261 (11th Cir. 1983).    Equity will not relieve one from duty to pay liquidated damages. Sutton v. Howard, 33 Ga. 536 (1863).    Parol evidence is admissible when terms of contract are ambiguous. Sanders & Ables v. Carter, 91 Ga. 450, 17 S.E. 345 (1893).    When note is given as liquidated damages and breach occurs, directed verdict is proper. Sikes v. Hart, 150 Ga. 121, 102 S.E. 831 (1920).   Damages accurately expressed in monetary terms to be distinguished from those which are not.    - In determining the validity of a liquidated damages provision in a contract, it is important to distinguish damages which are difficult to accurately determine in monetary terms from those damages which can be accurately established, albeit via a complicated procedure. Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981).   Liquidated damages impossible to determine at time contract signed.   - Since the extent and amount of damages were difficult or impossible to accurately estimate at the time the contract was executed that provision is void and unenforceable. Ryder Truck Lines v. Goren Equip. Co., 576 F. Supp. 1348 (N.D. Ga. 1983).   Liquidated damages provision in aircraft lease was not unlawful penalty.   - When aircraft leases provided that, upon default, the lessee was liable for stipulated loss values based on multiplication of the lessor's capitalized costs for the aircraft by a decreasing percentage, the amount due from the lessee was liquidated damages rather than an unlawful penalty. Holmes v. GE Capital Corp. (In re Holmes), 369 Bankr. 708 (M.D. Ga. 2007), aff'd, 387 Bankr. 896 (M.D. Ga. 2008).    In determining whether a provision is for liquidated damages or a penalty, the cardinal tests are intention of the parties, and reasonableness or unreasonableness of amount fixed, according to certainty and ease or difficulty in ascertainment of actual damages, and according to similarity or disproportion between amount provided and actual or probable loss. National Manufacture & Stores Corp. v. Dekle, 48 Ga. App. 515, 173 S.E. 408 (1934); Krupp Realty Co. v. Joel, 168 Ga. App. 480, 309 S.E.2d 641 (1983).    In deciding whether contract provision is enforceable as liquidated damages, the court makes a tripartite inquiry to determine if the following factors are present: first, injury caused by breach must be difficult or impossible of accurate estimation; second, parties must intend to provide for damages rather than for a penalty; and, third, sum stipulated must be a reasonable pre-estimate of probable loss. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976); Gibson v. Sheriff, 155 Ga. App. 578, 271 S.E.2d 710 (1980); Thorne v. Lee Timber Prods., Inc., 158 Ga. App. 226, 279 S.E.2d 521 (1981); Burns v. Gleason, 183 Ga. App. 245, 358 S.E.2d 646 (1987); Oami v. Delk Interchange, Ltd., 193 Ga. App. 640, 388 S.E.2d 706 (1989).   Failure to show late fees were liquidated damages.    - Trial court erred in granting summary judgment to the property owners association as to late fee damages because the court failed to show that the late fees provision in the declaration were liquidated damages rather than an impermissible penalty. Northside Bank v. Mountainbrook of Bartow County Homeowners Ass'n, 338 Ga. App. 126, 789 S.E.2d 378 (2016).   Penalty arises when stipulated amount in excess of actual damages.    - If actual damages are uncertain and difficult to ascertain or prove, and contract furnishes no data for their ascertainment, the provision will, as a rule, be held to be one for liquidated damages, if amount is not unreasonable. But if actual damages are capable of exact computation under contract and legal rule for their measure, a stipulation for an amount in excess of such damages will generally be deemed a penalty. National Manufacture & Stores Corp. v. Dekle, 48 Ga. App. 515, 173 S.E. 408 (1934).   Distinction between penalty and liquidated damages.    - See Sanders & Ables v. Carter, 91 Ga. 450, 17 S.E. 345 (1893); Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897).   Provision unenforceable when amount stipulated bears no reasonable relation to any probable actual damage.    - Agreements to pay fixed sums as damages for breaches of contracts, when amount stipulated plainly has no reasonable relation to any probable actual damage which may follow breach, will not be enforced for agreed amount as liquidated damages, but will be construed as mere unenforceable provisions for penalties. Miazza v. Western Union Tel. Co., 50 Ga. App. 521, 178 S.E. 764 (1935); Daniels v. Johnson, 191 Ga. App. 70, 381 S.E.2d 87 (1989).    A provision in a long-term retainer agreement between an attorney and a corporate client requiring the payment of fifty percent of the sums due under the remaining term of the agreement if the client terminated the agreement was unenforceable. AFLAC, Inc. v. Williams, 264 Ga. 351, 444 S.E.2d 314 (1994).    A liquidated damages clause in an employment contract, which provided that a computer consultant would pay $50,000 if the consultant failed to provide one month's minimum notice prior to voluntary termination of employment, was unenforceable as such amount bore no rational relationship to actual or potential damages for any breach of contract. Capricorn Sys. v. Pednekar, 248 Ga. App. 424, 546 S.E.2d 554 (2001).    Trial court did not err in ruling, after a bench trial, that the contract's liquidated damages provision was an unenforceable penalty because there was no reasonable pre-estimation of probable loss as no evidence was presented that tied the contract's stipulated sum - a half-year's salary - to the probable loss of either the clinic or the doctor upon the other party's breach; the provision stipulated a single, unvarying sum as liquidated damages; it required that single amount to be paid, regardless of which party breached the employment agreement and regardless of what point during the term of employment the breach occurred; and the clinic president offered no explanation for how the contract's designated sum related to those damages. Gwinnett Clinic, Ltd. v. Boaten, 340 Ga. App. 598, 798 S.E.2d 110 (2017).   Unenforceable penalty.    - Liquidated damages provision in the real estate sales contract constituted an unenforceable penalty because the broker had not made any efforts to market the property and the broker failed to demonstrate that, at the time the contract was executed, a $53,250 sales commission constituted a reasonable pre-estimate of the broker's probable loss. Sexton v. Sewell, 351 Ga. App. 273, 830 S.E.2d 605 (2019).   Considerations in determining whether amount stipulated is not disproportionate to probable loss.    - In determining whether amount stipulated as a forfeiture is reasonable, and not disproportionate to damages which could necessarily flow from failure of performance, relation of parties, one to the other, their peculiar situation, absence or presence of fraud or oppression, and purpose agreement seeks to subserve, will in every instance furnish valuable assistance in reaching a fair and just conclusion. Sanders v. Carney, 118 Ga. App. 576, 164 S.E.2d 856 (1968).   Liquidated damages become maximum as well as minimum sum that can be collected.    - Breaching party cannot complain that actual damages are less than those specified as liquidated damages. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976).   When contract provides for liquidated damages, nonbreaching party cannot elect to take actual damages.    - A feature implicit in the concept of liquidated damages is that both parties are bound by their agreement. A nonbreaching party who has agreed to accept liquidated damages cannot elect after breach to take actual damages should those damages prove greater than sum specified. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976).   After an employee was properly awarded recovery under a liquidated damages provision in an employment contract, the employee was not entitled to recover actual damages. McBride v. Mkt. St. Mortg., 381 Fed. Appx. 758 (10th Cir. 2010)(Unpublished).    Trial court properly ruled that the agreement between the parties contained an enforceable provision under which the seller retained the $10,000.00 in earnest money as liquidated damages and that the seller's claims seeking to collect actual damages in excess of the agreed damages was barred. Rumsey v. Gillis, 329 Ga. App. 488, 765 S.E.2d 665 (2014).    Retention of right to elect specific performance does not render valid liquidated damages provision unenforceable. Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 227 S.E.2d 340 (1976).   Agreement to deposit specified sum as security for performance as stipulation for liquidated damages.    - That the parties agree to deposit a specified sum as security for performance, using language which imports an understanding that upon a breach the holder is to pay such amount over to the injured party without further formality, will generally be held decisive of the intent to stipulate for liquidated damages, though other considerations, of equal weight, may often turn the scale. Sanders v. Carney, 118 Ga. App. 576, 164 S.E.2d 856 (1968).    Rent provision in building contract, dependent upon failure to complete building within stated time, is enforceable. Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897).   Earnest money provision.    - Provision in a real estate sales contract that if "this contract is not consummated by reason of Buyer's refusal or inability to perform, then such earnest money shall be paid to Seller as liquidated damages for Buyer's breach" was an enforceable liquidated damages clause, not an unenforceable penalty. Swan Kang, Inc. v. Kang, 243 Ga. App. 684, 534 S.E.2d 145 (2000).   Summary judgment to lender on rescission claim properly denied.    - Trial court did not err by denying summary judgment to the lead lender on a rescission claim because a jury question remained concerning whether the bank's offer to restore to the lead lender any benefits that the lender may have received under the participation agreement was reasonable and it did not matter how the repurchase clause was characterized as the failure to timely repurchase would entitle the bank to pursue money damages. 2010-1 SFG Venture LLC v. Lee Bank & Trust Co., 332 Ga. App. 894, 775 S.E.2d 243 (2015), cert. denied, No. S15C1763, 2015 Ga. LEXIS 702 (Ga. 2015).    Employment agreement provision requiring employee to reimburse employer for relocation expenses  that had been provided to the employee if the employee did not work at least 12 months could not be construed as a liquidated damages provision since the provision did not contemplate the payment of damages in lieu of a breach. Tipton v. Canadian Imperial Bank of Commerce, 872 F.2d 1491 (11th Cir. 1989).   Golden parachute agreement.    - Liquidated damages analysis is inapplicable to a "golden parachute" agreement with a corporate officer, where the severance agreement does not purport to be a stipulated sum for damages for a breach, but is the price, in addition to ongoing compensation, for plaintiff's continued performance which plaintiff was not otherwise obligated to render. Royal Crown Cos. v. McMahon, 183 Ga. App. 543, 359 S.E.2d 379, cert. denied, 183 Ga. App. 907, 359 S.E.2d 379 (1987).   Loss, destruction, or failure to return rented item.    - When the contract does not contemplate payment of rental until the item is returned, nor payment as to the item's loss or destruction, the measure of damages is the fair market value of the property, that is, if lost, destroyed, or simply not returned, or if damaged, the measure of damages is the difference in the market value immediately before and immediately after the damage. Letteer v. Archer, 160 Ga. App. 373, 287 S.E.2d 89 (1981).   Lease late charge provision.    - A lease provision for a $50 charge as "additional rent" when a rent check was returned without payment or when the rent was received late met the requirements for liquidated damages when such charge was made to compensate the owner for additional bookkeeping and clerical expenses. Krupp Realty Co. v. Joel, 168 Ga. App. 480, 309 S.E.2d 641 (1983).   Liquidated damages clause upheld.    - Generally speaking, a late charge clause provision contained in a lease is enforceable provided the provision constitutes a lawful liquidated-damages provision rather than an unlawful penalty. Mathis v. Rome Tractor Co., 180 Ga. App. 426, 349 S.E.2d 282 (1986).    In a breach of contract action filed by a school against an enrolled student's parents seeking payment of a full year's tuition, the trial court properly granted summary judgment to the school as the parents failed in the parents' burden of showing that a liquidated damages clause in the contract amounted to an unenforceable penalty. Turner v. Atlanta Girls' Sch., Inc., 288 Ga. App. 115, 653 S.E.2d 380 (2007).   Law permitted parties to contract for liquidated damages precisely because of the difficulty of predicting future events and consequences; thus, the fact that a certain purchaser's purchase of debtor's property may have limited debtor's damages did not establish that liquidated damages of $1 million was not a reasonable estimate of loss if the "stalking horse" purchaser did not purchase the property. Furthermore, the damages flowing from the stalking horse's breach were difficult or impossible of accurate estimation, and the parties intended to provide for damages. Galleria Invs. LLC v. Hong Duck, LLC (In re Galleria Invs. LLC), Bankr. (Bankr. N.D. Ga. Apr. 4, 2008).    Liquidated damages provision in a rental contract for a storage unit was enforceable. Lancaster v. Storage USA P'ship, L.P., 300 Ga. App. 567, 685 S.E.2d 474 (2009).   District court properly found that the liquidated damages clause was enforceable under Georgia law as: (1) the district court rejected the buyer's challenges to the reasonableness of the $220,000 figure, finding that the amount selected appeared to be reasonably proportionate to the financial injury one might have expected from a breach on the part of the buyer; (2) the Georgia Supreme Court had found reasonable a forfeiture provision providing that a seller of real estate could have retained 10 percent of the purchase price upon the buyer's default; and (3) the agreement showed that the parties clearly contemplated, and intended, for the earnest money to be treated as liquidated damages in the event of a breach. Chandy v. RaceTrac Petroleum, Inc., 147 Fed. Appx. 811 (11th Cir. 2005)(Unpublished).   Liquidated damages provision in an employment contract was upheld because the employee's injury from the employer's breach was difficult to accurately estimate; the provision was clearly liquidated damages and not a penalty, particularly as it was designated as a liquidated damages provision; and the payments under the provision were reasonable estimates of the employee's probable losses upon the employer's termination or violation of the contract. McBride v. Mkt. St. Mortg., 381 Fed. Appx. 758 (10th Cir. 2010)(Unpublished).    Liquidated damages clause in a hotel licensing agreement was enforceable under O.C.G.A. § 13-6-7 because the agreement was directly related to the past performance of the hotel by using a percentage of gross room revenue generated in the 36-month period prior to termination. Noons v. Holiday Hospitality Franchising, Inc., 307 Ga. App. 351, 705 S.E.2d 166 (2010).    Liquidated damages provision in an administrative services contract between a management company and health care companies was an enforceable penalty because: (1) the anticipated expenses for the new business venture could not have been easily calculated so that the injury caused by a breach of the contract was difficult to estimate with accuracy; (2) officers who helped negotiate the contract for both sides testified that the liquidated damages provision was meant to compensate the management company for lost revenues in the event of an early termination; and (3) the liquidated damages in the amount of fifty percent of remaining fees under the contract was a reasonable pre-estimate of probable loss. Mariner Health Care Mgmt. Co. v. Sovereign Healthcare, LLC, 306 Ga. App. 873, 703 S.E.2d 687 (2010).    In an action for claims arising from a commercial property lease agreement, the trial court did not err in denying the lessee's motion for summary judgment on the lessor's claim for late fees as the lessee failed to show that the late charge was a penalty as a matter of law because the lessee apparently conceded that the actual damages caused by a late payment under the lease would be difficult or impossible to accurately estimate; in construing all reasonable inferences in favor of the lessor as the parties could have intended the late fees either as liquidated damages or as a penalty, the late fees had to be considered liquidated damages; and the fees could have reflected an anticipated increase to the lessor's transaction costs. West Asset Mgmt. v. NW Parkway, LLC, 336 Ga. App. 775, 784 S.E.2d 147 (2016).    Burden is on the defaulting party to show that a liquidated damages clause is a penalty. Oasis Goodtime Emporium I, Inc. v. Cambridge Capital Group, Inc., 234 Ga. App. 641, 507 S.E.2d 823 (1998).   Liquidated damages is not a jury issue.    - Trial courts should not ordinarily submit the issue of whether a contract provides for liquidated damages or a penalty to the jury. Roswell Properties, Inc. v. Salle, 208 Ga. App. 202, 430 S.E.2d 404 (1993).   Late charges upheld.    - In contending that late fees provided in a note were unenforceable as a penalty, the borrowers failed to introduce alternative figures as to what would be a reasonable pre-estimate of the loss or cite authority supporting the borrowers' position. The provision was therefore enforced as written. MMA Capital Corp. v. ALR Oglethorpe, LLC, 336 Ga. App. 360, 785 S.E.2d 38 (2016).    Cited in Martin v. Lott, 144 Ga. 660, 87 S.E. 902 (1916); Tuten v. Morgan, 160 Ga. 90, 127 S.E. 143 (1925); Standard Motors Fin. Co. v. O'Neal, 35 Ga. App. 727 (1926); Spalding Constr. Co. v. Simon, 36 Ga. App. 723, 137 S.E. 901 (1927); Southwest Ga. Dev. Co. v. Griffin, 38 Ga. App. 276, 143 S.E. 784 (1928); Powell v. Bussell, 64 Ga. App. 42, 12 S.E.2d 152 (1940); Irvindale Farms, Inc. v. W.O. Pierce Dairy, Inc., 78 Ga. App. 670, 51 S.E.2d 712 (1949); Fox Motor Co. v. Dillard, 80 Ga. App. 885, 57 S.E.2d 824 (1950); Chadwick v. Dolinoff, 207 Ga. 702, 64 S.E.2d 76 (1951); Bower v. Certain-Teed Prod. Corp., 216 Ga. 646, 119 S.E.2d 5 (1961); Churches Homes for Bus. Girls, Inc. v. Manget Found., Inc., 110 Ga. App. 539, 139 S.E.2d 138 (1964); Concrete Materials of Ga., Inc. v. Smith & Plaster Co., 127 Ga. App. 817, 195 S.E.2d 219 (1973); White Farm Equip. Co. v. Jarrell & Clifton Equip. Co., 139 Ga. App. 632, 229 S.E.2d 113 (1976); Foster v. Economy Developers, Inc., 146 Ga. App. 282, 246 S.E.2d 366 (1978); Graham Bros. Constr. Co. v. C.W. Matthews Contracting Co., 159 Ga. App. 546, 284 S.E.2d 282 (1981); Macon-Bibb County Water & Sewerage Auth. v. Tuttle/White Constructors, Inc., 530 F. Supp. 1048 (M.D. Ga. 1981); Leader Nat'l Ins. Co. v. Smith, 177 Ga. App. 267, 339 S.E.2d 321 (1985); Club Properties, Inc. v. Atlanta Offices-Perimeter, Inc., 180 Ga. App. 352, 348 S.E.2d 919 (1986); Dan-D, Inc. v. Burnsed Enters., Inc., 188 Ga. App. 207, 372 S.E.2d 303 (1988); Fields v. Smith, 190 Ga. App. 369, 378 S.E.2d 741 (1989); Duke v. Williams, 197 Ga. App. 836, 399 S.E.2d 544 (1990); Banderas v. Doman, 224 Ga. App. 198, 480 S.E.2d 252 (1997); Sweatt v. International Dev. Corp., 242 Ga. App. 753, 531 S.E.2d 192 (2000); Valley Place, Ltd. v. T.I. Equity Fund, L.P., 246 Ga. App. 378, 541 S.E.2d 37 (2000); Williamson v. Harvey Smith, Inc., 246 Ga. App. 745, 542 S.E.2d 151 (2000); Spirits, Inc. v. Patel, 350 Ga. App. 153, 828 S.E.2d 381 (2019).   RESEARCH REFERENCES   Am. Jur. 2d.   - 22 Am. Jur. 2d, Damages, § 179 et seq.   C.J.S.   - 17 C.J.S., Contracts, § 210.   ALR.    - Validity and effect of anticipatory provision in contract in relation to rate of interest in the event of default, 12 A.L.R. 367.    A provision in land contract for pecuniary forfeiture or penalty by a party is default as affecting the right of the other party to specific performance, 32 A.L.R. 584; 98 A.L.R. 877.    Provision in land contract for pecuniary forfeiture or penalty upon default of the purchaser as affecting the vendor's right to maintain an action for the purchase price, 32 A.L.R. 617.    Stipulation as to amount recoverable for breach of contract against entering certain business or employment as a provision for liquidated damages or for a penalty, 59 A.L.R. 1135.    Stipulation as to damages in case of breach of contract for purchase of goods to be manufactured by other party, as penalty or liquidated damages, 79 A.L.R. 188.    Provision in land contract for pecuniary forfeiture or penalty upon default of purchaser as affecting vendor's right to maintain action for damages for breach of contract, 97 A.L.R. 1493.    Provisions by which upon breach of contract the entire amount remaining unpaid thereon shall become immediately due as one for penalty or for liquidated damages, 104 A.L.R. 223.    Provision for liquidated damages in contract for sale of goods, 138 A.L.R. 594.    Liability of building or construction contractor for liquidated damages for breach of time limit where work is delayed by contractee or third person, 152 A.L.R. 1349.    Power of guardian or committee to compromise liquidated contract claim or money judgment, and of courts to authorize or approve such a compromise, 155 A.L.R. 196.   Provision in land contract for forfeiture of payments as one for liquidated damages or penalty, 6 A.L.R.2d 1401; 4 A.L.R.4th 993.   Validity, construction, and effect of limited liability or stipulated damages clause in fire or burglar alarm service contract, 42 A.L.R.2d 591.   Validity and construction of liquidated damage provision in sign contract, 60 A.L.R.3d 550.   Enforceability of provision in loan commitment agreement authorizing lender to charge stand by fee, commitment fee, or similar deposit, 93 A.L.R.3d 1156.   Contractual liquidated damages provisions under UCC Article 2, 98 A.L.R.3d 586.   Modern status of defaulting vendee's right to recover contractual payments withheld by vendor as forfeited, 4 A.L.R.4th 993.   Contractual provision for per diem payments for delay in performance as one for liquidated damages or penalty, 12 A.L.R.4th 891.   Liability of person furnishing, installing, or servicing burglary or fire alarm system for burglary or fire loss, 37 A.L.R.4th 47.   Liability of contractor who abandons building project before completion for liquidated damages for delay, 15 A.L.R.5th 376.   Liability for breach of employment severance agreement, 27 A.L.R.5th 1.   Provision in land contract for liquidated damages upon default of purchaser as affecting right of vendor to maintain action for damages for breach of contract, 39 A.L.R.5th 33.   Propriety of Landlord's Imposition of Fee for Late Payment of Rent, 49 A.L.R.7th Art. 2.   Intentional or Negligent Infliction of Emotional Distress in Aviation Cases Involving Crashes, Hard Landings, or In-Flight Injuries, 49 A.L.R.7th Art. 9.   Validity, construction, and application of FDIC prohibition of golden parachute payments, 12 U.S.C.A. § 1828(k)(1), 79 A.L.R. Fed. 2d 409.