Tuesday, March 06, 2007, 12:32 PM

Party Challenging Liquidated Damages Provision Bears Burden

In Seven Seventeen HB Charlotte Corp. v. Shrine Bowl of the Carolinas, the COA held today that a party challenging a liquidated damages provision (a contract provision pre-determining the amount of damages in the event of a breach) bears the burden of proving that the provision is unenforceable.

In Seven Seventeen HB Charlotte, the defendant appellant argued that the plaintiff had failed to offer evidence on the amount of damages the plaintiff claimed it was entitled to. The COA indicated that the very nature of liquidated damages blunted the defendant's argument: If the liquidated damages provision were enforceable, the amount of damages to which the plaintiff would be entitled would be established by contract.

As to the enforceability of the liquidated damages provision, the COA put the burden of establishing whether a liquidated damages provision is enforceable on the party seeking to invalidate the provision. The court said "the purpose of a liquidated damages provision is to obviate the need for the nonbreaching party to prove actual damages" and "placing the burden on the party seeking to invalidate a stipulated damages provision [is] appropriate because that party . . . initially agreed to it."

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