Opinion ID: 2103007
Heading Depth: 1
Heading Rank: 1

Heading: reasonable relation to probable damages

Text: A party seeking to enforce a liquidated damages clause bears the burden of proving that the claim is valid as an exception to the general prohibition of § 9-08-04, NDCC. Federal Land Bank v. Woell, 415 N.W.2d 500 (N.D.1987); City of Fargo v. Case Development Co., 401 N.W. 2d 529 (N.D.1987). Section 9-08-04, NDCC, states: Every contract by which the amount of damages to be paid, or other compensation to be made, for a breach of an obligation is determined in anticipation thereof is to that extent void, except that the parties may agree therein upon an amount presumed to be the damage sustained by a breach in cases where it would be impracticable or extremely difficult to fix the actual damage. Section 9-08-04, NDCC, contains a rebuttable presumption that the amount set forth as liquidated damages constitutes the actual loss or damage sustained by breach of the contract. Eddy v. Lee, 312 N.W.2d 326 (N.D.1981). In order to raise the presumption, the party wishing to rely upon it must introduce credible evidence. Eddy v. Lee, 312 N.W.2d at 330. The foundational facts necessary to establish the existence of the presumption are: (1) that it appears that at the time the contract was made the damages in the event of breach will be incapable or very difficult of accurate estimation; (2) that there was a reasonable endeavor by the parties to fix their compensation; and (3) that the amount stipulated bears a reasonable relation to the probable damages and is not disproportionate to any damages reasonably to be anticipated. Ibid; Bowbells Public School Dist. v. Walker, 231 N.W.2d 173, 175, 176 (N.D.1975); Hofer v. W.M. Scott Livestock Co., 201 N.W.2d 410 (N.D. 1972). The trial court found that all three foundational facts of Eddy v. Lee were established. While conceding the existence of the first two foundational facts, Meide & Son argues that Coldwell Banker failed to establish the third foundational fact, thereby making the liquidated damages provision void as a penalty under § 9-08-04, NDCC. Whether a foundational fact exists is a question of fact subject to the clearly erroneous standard of review. Eddy v. Lee , 312 N.W.2d at 331. Findings of fact are not clearly erroneous unless there is no support in the evidence or, although there may be some supporting evidence for it, this court is left with a definite and firm conviction that a mistake has been made. Tom Buechler Constr. v. City of Williston, 413 N.W.2d 336 (N.D. 1987). It has been suggested that the greater the difficulty encountered by the parties in estimating the damages which might arise from a breach, the greater should be the range of estimates which the court should uphold as reasonable. Better Food Markets, Inc. v. American Dist. Tel. Co., 253 P.2d 10 (Cal.1953) (cited with approval in Hofer v. W.M. Scott Livestock Co., 201 N.W.2d at 415); 3 Restatement (Second) of Contracts § 356 comment b (1981). There is evidence to support the trial court's finding that the amount of liquidated damages was reasonably related to the probable damages and not disproportionate to any damages reasonably anticipated, when viewed from the time of contracting. The trial court found the amount of damages stipulated to be $232,780, a sum equal to the sales commissions due under the contract, [2] or gross sales commissions, calculated upon a reasonable selling price for the unsold units established by uncontroverted testimony. There was testimony that Coldwell Banker would have received $352,000 in management fees had Meide performed the contract. [3] Thus, Coldwell Banker produced evidence showing that the amount of liquidated damages was not excessive when compared to reasonably anticipated and probable damages. [4] We conclude that the trial court did not clearly err in finding the establishment of the third foundational fact of Eddy v. Lee . Meide & Son, relying on § 32-03-36, [5] argues that the trial court erred in awarding greater damages than would have been realized by full performance of the contract. It contends that without a breach, Coldwell Banker would have been entitled only to its net sales commissions in the amount of $34,917.00. [6] However, Meide & Son overlooks other damages, extremely difficult or impracticable to ascertain, yet flowing from the breach. Coldwell Banker suffered damages for loss of management fees, sales referrals, business contact with tenants, and goodwill, according to the trial court's findings. We are therefore unpersuaded that the only actual damages arising from the breach would be loss of the net sales commissions.