Printable Format84-2-718. Liquidation or limitation of damages; deposits. (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
(2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds
(a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or
(b) in the absence of such terms, twenty percent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
(a) a right to recover damages under the provisions of this article other than subsection (1), and
(b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
(4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this article on resale by an aggrieved seller (section 84-2-706).
History: L. 1965, ch. 564, ยง 114; January 1, 1966.
KANSAS COMMENT, 1996
1. Subsection (1) states that the parties may, by agreement, fix their own remedies and measure of damages, so long as the amount is reasonable under the circumstances. Reasonableness is the only test, and the elements to be considered in determining reasonableness are the anticipated or actual harm from the breach, the difficulty of proving the amount of loss, and the feasibility of otherwise obtaining adequate relief. Kvassay v. Murray, 15 K.A.2d 426, 808 P.2d 896, rev. denied, 248 K. 996 (1991). Evaluating the propriety of a liquidated damages clause is a question of law for the court. Id. A term that fixes unreasonably large liquidated damages is void as a penalty. A term that fixes unreasonably small liquidated damages might be unconscionable under section 84-2-302.
2. Subsections (2), (3), and (4) address when a breaching buyer is entitled to restitution of a down payment or other deposit. Under subsection (2), a buyer can recover the amount of its deposit in excess of any liquidated damages or, if none, the smaller of $500 and 20% of the buyer's total performance. See Stanturf v. Quality Dodge, Inc., 3 K.A.2d 485, 596 P.2d 1247 (1979). Subsection (3) makes clear that the buyer's right to restitution is subject to offset by the amount of damages recovered by the seller. See Wendling v Puls, 227 K. 780, 610 P.2d 580 (1980).
Law Review and Bar Journal References:
"1974 Uniform Consumer Credit Code," Fred H. Miller, William D. Warren, 23 K.L.R. 619, 627, 648, 649, 650, 651 (1975).
"Recent Developments in Kansas Residential Landlord-Tenant and Eviction Law," Suzanne Carey McAllister, 55 K.L.R. 933 (2007).
CASE ANNOTATIONS
1. Section considered in remanding case arising out of aborted sale of motor vehicle to trial court to determine damages. Stanturf v. Quality Dodge, Inc., 3 Kan. App. 2d 485, 488, 596 P.2d 1247.
2. Contract enforceable where parties have admitted existence of contract and essential terms thereof. Wendling v. Puls, 227 Kan. 780, 785, 786, 787, 610 P.2d 580.
3. Issue of limitations on buyer's remedies discussed; nine factors relevant to unconscionability outlined and applied. Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 764 (1983).
4. Criteria for measuring reasonableness of liquidated damages clauses examined. Kvassay v. Murray, 15 Kan. App. 2d 426, 428, 808 P.2d 896 (1991).
5. Whether liquidated damage provision in airplane purchase agreement was reasonable examined. Aere Consulting Corp. v. Cessna Aircraft Co., 867 F. Supp. 1480, 1493 (1994).
6. Award of liquidated damages to lost volume seller in breach of contract for sale of goods held reasonable. Rodriguez v. Learjet, Inc., 24 Kan. App. 2d 461, 464, 467, 946 P.2d 1010 (1997).
7. Liquidated damages clause need only be reasonable in light of anticipated or actual damages, not both. Wahlcometroflex, Inc. v. Westar Energy, Inc., 773 F. Supp. 3d 223, 229 (10 th Cir. 2014).