Opinion ID: 857679
Heading Depth: 2
Heading Rank: 3

Heading: Liquidated Damages Clause Enforceable

Text: Burke’s complaint also contains a count asserting he can rescind the agreement on the ground that it contains an unenforceable penalty clause. As an initial matter, Burke does not point to any case suggesting that the remedy for an unenforceable damages clause under Illinois law is rescission of the contract. Cf. Grossinger Motorcorp, Inc. v. Am. Nat’l Bank and Trust, 607 N.E.2d 1337, 1348 (Ill. App. Ct. 1992) (“In sum, we conclude that the liquidated damages provision is unenforceable and that consequently defendant is only allowed to recover actual damages resulting from the breach.”); see also Hamming v. Murphy, 404 N.E.2d 1026, 1032 (Ill. App. Ct. 1980). No. 11-3208 13 In any event, the clause is enforceable. Whether a provision constitutes a valid liquidated damages clause or an unenforceable penalty clause is a question of state law that we review de novo. Energy Plus Consulting, LLC v. Ill. Fuel Co., LLC, 371 F.3d 907, 909 (7th Cir. 2004). Paragraph 12(a) of the purchase agreement provides, as it relates to damages: In the event of a default or breach of this Purchase Agreement by Purchaser, . . . Seller may terminate this Purchase Agreement and, as its sole and exclusive remedy upon termination, retain as liquidated damages . . . [the] Earnest Money de- posit . . . and if Seller is otherwise entitled to the liquidated damages described above, Seller shall return to Purchaser amounts paid to seller . . . . In accordance with Section 1703(d) of the Interstate Land Sales Full Disclosure Act, if Seller is otherwise entitled to the liquidated damages described above, Seller shall return to Purchaser amounts paid to Seller . . . in excess of (x) 15% of the Purchase Price (excluding any interest paid under the Purchase Agreement) or (y) the amount of Seller’s actual damages, whichever is greater. In Illinois, a provision that allows a defendant the option to receive liquidated damages or seek actual damages is unenforceable as a penalty. Karimi v. 401 N. Wabash Venture, LLC, 952 N.E.2d 1278, 1287 (Ill. App. Ct. 2011) (citing Grossinger, 607 N.E.2d at 1347). Such a provision is unenforceable because it gives the defendants 14 No. 11-3208 a minimum recovery regardless of actual damages, yet also allows the defendants to disregard liquidated damages if the actual damages were greater than the specified amount. Id. That negates the purpose of liquidated damages, which is to provide parties with an agreed upon, predetermined damages amount when actual damages may be difficult to ascertain. Id.; Hickox v. Bell, 552 N.E.2d 1133, 1140-41 (Ill. App. Ct. 1990). Here, the developer maintains that the clause does not give it the option to choose between liquidated and actual damages, and we agree. The plain language of the provision shows that the only “option” the developer has upon the buyer’s breach is whether to terminate the agreement, as the clause states that the seller “may terminate” upon the buyer’s default or breach. But there is no “may” in the provision as it relates to the type of damages. Notably, the Illinois appellate court construed this same liquidated damages provision in response to another suit against the developer here and rejected the argument Burke makes now. Karimi, 952 N.E.2d at 1287. The court ruled that despite paragraph 12(a)’s reference to actual damages, it did not give the seller the option to seek them. Id. Rather, “[a]lthough a calculation of actual damages may be necessary to determine a liquidated damages amount, defendants can receive no more than the amount plaintiffs have deposited pursuant to the agreement, even if actual damages prove greater than the sum deposited.” Id. The court also rejected the plaintiffs’ argument that paragraph 12(a) No. 11-3208 15 was a penalty because the developer sold the unit at issue for more than the price in the plaintiffs’ purchase agreement, reasoning that under the terms of the agreement, it was irrelevant to the liquidated damages issue whether the unit was later resold. Id. We see no indication that the Supreme Court of Illinois would disagree with this reasoning.