Opinion ID: 2200390
Heading Depth: 1
Heading Rank: 2

Heading: Stipulated damages were reasonably related to probable damages.

Text: Safari also challenges the trial court's determination that the liquidated damages were not reasonably related to probable damages. The court based this determination partially on the fact that the down payment constituted twenty-eight percent of the entire contract price, or nineteen percent of the total value of the bar and real estate. The court cited the refusal of other jurisdictions to enforce such provisions where payments before default exceeded ten percent of the purchase price. However, in Heikkila, this court upheld a liquidated damages provision where the down payment was nearly twenty-seven percent of the total purchase price. In this case, the down payment percentage was reasonable because of the type of business involved. Acknowledging the difficulty of ascertaining the probable damages and the potentially quick decline of a bar business, the trial court stated: A bar business involves managerial expertise on the part of the vendee so that business clientele, and thus good will and ultimately profits, is maintained. Such property (inventory, fixtures, and equipment) is also highly susceptible to waste while in the possession of the vendee; it would thus arguably be difficult to accurately estimate damages in event of a breach. Here, the major, unexpected events were the incredibly short term of occupancy by the Buyers and the rapid deterioration of the business. Both events were in Buyers' control and Sellers should not be penalized by an after-the-fact judgment. The reasonableness of the liquidated damage provision must be viewed at the time of contracting not after default or breach. SDCL 53-9-5; Heikkila, supra ; Prentice, supra . As stated in Walter Motor, liquidated damage provisions serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable[.] Id. at 323. In this case, the parties recognized the usefulness and need for a liquidated damages provision and included it in the sale contract. The burden of establishing that such a provision is a penalty rests upon the Buyers and they have not sustained their burden of proof. Heikkila, supra ; Prentice, supra . They have failed to produce any evidence that the liquidated damages were not reasonably related to probable damages or that the liquidated damages were disproportionate to reasonably anticipated damages. Without such evidence the liquidated damages provision cannot be declared an unlawful penalty. As this court stated in Prentice, supra at 355: In the absence of any evidence clearly establishing a substantial disparity between the payments made on the contract, together with the improvements made to the property, and the loss of rents and other detriment suffered by the vendors, we cannot say that the enforcement of the liquidated damages clause worked an unconscionable forfeiture upon Mrs. Classen. While Buyers merely asserted disparity, Sellers' evidence indicated that their loss may have exceeded $100,000. Under these circumstances, a liquidated damages provision must be upheld.