by Henry F. Luepke III¹

Parties to a contract are free to stipulate to an amount certain that, in the event of breach, the non-breaching party shall recover in lieu of actual damages. The chief advantages of this stipulation are that it removes uncertainty from the transaction and, if litigation for breach of the contract ensues, will ease the burden and expense of proving the amount of damages owed.

While contractual provisions for liquidated damages were at one time disfavored in the law, that is no longer the case.² The courts are now "strongly inclined to allow parties to make their own contracts, and to carry out their intentions, even when it would result in the recovery of an amount stated as liquidated damages, upon proof of the violation of the contract, and without proof of the damages actually sustained."³ Parties generally have as much freedom to contract for liquidated damages as for any other contractual provision.⁴ Missouri courts, in particular, have recognized that "[t]he law is well-settled that parties may stipulate as to the measure of damages in the event of a breach. . . ."⁵

When a liquidated damages clause is challenged as unenforceable, the challenge almost always rests upon the claim that the clause constitutes an agreement to pay a penalty-that is, punitive damages-for breach of the contract. Punitive damages are not recoverable in contract,⁶ and parties to a contract may not circumvent that prohibition by way of a separate provision in their agreement. ⁷

Unfortunately, there is no bright line separating an enforceable liquidated damages clause from an unenforceable penalty clause.⁸ The Supreme Court of Missouri observed long ago that the task of distinguishing a valid liquidated damages clause from an invalid penalty clause can present "a much vexed question upon which courts have been unable to hold a voice even and harmonious."⁹

Nevertheless, more modern cases and the Restatement (Second) Contracts have provided better guidance as to how courts will analyze the question of enforceability. With an understanding of this analysis, parties can draft a clause for liquidated damages so as to discourage any challenge to its enforceability and, if a challenge is made, substantially increase the likelihood that the clause will be enforced.

This article reviews the law governing contractual provisions for liquidated damages in Missouri and suggests ways, both at the drafting stage and at trial, that the parties can best ensure enforcement of their contract's liquidated damages clause.

II. The Rule And Its Application

In Missouri, a provision for liquidated damages will be enforced as written so long as it does not constitute a penalty.¹⁰ "Liquidated damages clauses are valid and enforceable; penalty clauses are not."¹¹ Thus, when deciding whether to enforce a provision for liquidated damages, the court will determine whether or not the provision constitutes an agreement to pay a penalty.

In making this determination, Missouri courts apply two tests, both of which must be met before the provision will be enforced. Thus, a provision fixing an amount to be recovered for breach of the contract will be upheld if:

1. "First, the damages fixed [are] . . . .a reasonable forecast of just compensation in the event of a breach"¹²; and

2. Second, "the damages fixed [are] . . . for a harm that is incapable or very difficult of accurate estimation at the time the contract was made."¹³

A. The Sliding Scale of Proof

On their face, these two tests are at odds with one another. How is it possible to show, on the one hand, that the damage amount is very difficult if not impossible to estimate and, on the other hand, show that the forecast of that amount is nevertheless reasonable? The more it appears that the amount of harm is difficult or impossible to estimate, the less plausible it becomes that the forecast of that amount can be shown to be reasonable. By proving that one test is met, the proponent of a liquidated damages clause tends to show that the other test is not met.

The way out of this riddle is to apply the two tests, not independently, but rather on a sliding scale of proof, with each operating in inverse proportion to the other. Specifically, the more difficult it is to forecast the amount of damages, the less proof there need be to show that the liquidated amount is a reasonable estimate of actual damages. This is the approach suggested by the Restatement (Second) of Contracts and followed by Missouri courts.¹⁴ This approach avoids the apparent conflict between the two tests because, where the difficulty of forecasting the actual amount is high, the burden of showing reasonableness of the liquidated amount is low.¹⁵ In this way, the two tests complement, rather than conflict with, each other.

B. Enforceability Depends Upon the Provision's Intent

The two tests for determining the enforceability of a liquidated damages provision are to be used for the purpose of ascertaining not the compensatory or punitive effect of the provision, but rather its compensatory or punitive intent. "The intention of the parties in each case governs the construction" of a contract's liquidated damages clause.¹⁶ Thus, the goal of interpreting a liquidated damages clause is no different than the goal of interpreting any other provision of the contract, i.e., to ascertain the intent of the parties.¹⁷ If the parties intended the clause to serve as compensation for the damages likely to result from a breach, the court will uphold the clause and enforce it as written. If, on the other hand, the clause was intended to serve as punishment for a breach, the court will refuse to enforce it.

The courts recognize that, at the time parties entered into a contract and agreed to an amount of liquidated damages, they each took the risk that, in the event of breach, the actual damages would be more or less than the liquidated amount. Thus, the courts find that it is not unfair to hold the parties to the terms of their agreement, even if in light of subsequent events it becomes evident that one of the parties has made a bad bargain by agreeing to an excessively high, or an excessively low, liquidated amount.¹⁸ "Sophisticated parties have freedom of contract-even to make a bad bargain, or to relinquish fundamental rights."¹⁹ So long as the parties intended the fixed amount to compensate, rather than punish, the provision will be upheld regardless of the fact that the fixed amount turns out to be more than, or less than, the actual damages suffered.²⁰

Accordingly, except to the extent it may be probative of the parties' compensatory or punitive intent, evidence of the amount of actual damages caused by the breach generally is not relevant to the question of enforceability of a liquidated damages clause.²¹ "These rules requiring some reasonable relation between the damages agreed upon and those expected to result from the breach are not rules about actual damages."²² A valid liquidated damages clause precludes recovery for actual damages.²³ Courts uphold liquidated damages clauses in public works contracts "upon proof of a violation of the contract, and without proof of actual damages."²⁴ Similarly, in private contracts, "[t]he showing of harm or damage necessary to trigger [enforcement of] the liquidated damages clause need not be a precise dollar amount but simply a showing that some harm or damage did in fact occur."²⁵ Since the focus is on the intent, rather than the effect, of the provision, evidence of the actual damage amount is unnecessary.

C. The Intent of the Parties is to be Ascertained "as of the Time the Contract Was Made"

Both of the tests for enforceability require that they be applied to the clause from the standpoint of the parties not as of the time of breach, but as of the time the contract was made.²⁶ As previously noted, the first test is formulated in terms of the liquidated amount being a "forecast" and requires that the liquidated amount not unreasonably exceed the amount of harm that the parties "anticipated when the contract was made."²⁷ Likewise, the second test requires that "at the time the contract was made" the type of harm be one that is incapable or very difficult of accurate "estimation."²⁸

Application of the tests "as of the time the contract was made" is necessary to remain true to the goal of ascertaining the intent of the liquidated damages provision. When interpreting any contractual provision, "[t]he fundamental and cardinal rule is that the intention of the parties is to be ascertained as of the time they executed the contract."²⁹

The two tests for enforceability arise out of recognition that, if at the time of contracting, the amount of actual damages were impossible or very difficult to anticipate, then the parties likely intended to allocate the risks arising from their uncertainty by agreeing to a fixed amount of damages. Subsequent events that have eliminated the uncertainty or simplified the damage calculation are not probative of the parties' contractual intent. The fact that damages may be susceptible of accurate calculation at the time of trial, therefore, should not be relevant to the question of enforceability.

Likewise, the fact that, after breach, the non-breaching party had the opportunity to mitigate, or did mitigate, its actual damages is also irrelevant and does not detract from recovery of the full liquidated amount. If a liquidated damages clause is valid, the non-breaching party does not have a duty to mitigate damages following breach.³⁰

III. Drafting An Enforceable Provision For Liquidated Damages

When properly drafted, a contractual provision for liquidated damages establishes the amount of recovery in the event of breach, lends certainty to commercial relationships, and simplifies, if not eliminates, the often difficult task of proving actual damages at trial, thereby reducing the costs, time and inconvenience of litigation.³¹

To take advantage of these potential benefits and ensure enforceability, counsel must adhere to the foregoing legal principles when drafting a provision for liquidated damages. In particular, when drafting a liquidated damages clause, counsel should use language demonstrating that, at the time of contracting, the parties intended the liquidated amount to fully compensate, but not punish, for a breach of the contract.

A. Labels Do Matter

The simplest way to demonstrate that the intent of a provision for liquidated damages is compensatory rather than punitive is to explicitly state this intent in the clause itself. Specifically, the clause should provide that the liquidated amount to which the parties have agreed is intended as compensation and is not intended as punishment.

Conversely, the provision should not be entitled or referred to as a "penalty" or as a "forfeiture."³²

It is true that labeling a liquidated damages provision as either one for compensation or as one for a penalty is not conclusive on the issue of whether it will or will not be enforced.³³ Nevertheless, courts are generally constrained to give effect to the parties' intention as expressed by the plain terms of the contract.³⁴ Therefore, where a liquidated damages provision plainly states that its intent is to compensate rather than punish, courts will be disinclined to hold otherwise.³⁵

B. Pass the Tests of Enforceability

As stated above, when deciding whether to enforce a provision for liquidated damages, a court must ultimately decide the intent of the provision: Is it meant to compensate or punish? To resolve this question, the court will have to answer two threshold questions, i.e., 1) is the liquidated amount a reasonable forecast of just compensation in the event of a breach?; and 2) is the liquidated amount for a harm that was incapable or very difficult of accurate estimation at the time the contract was made?

Because the intent of the parties is to be ascertained from the plain language of the contract, the answers to these questions should be made explicit in the terms of the liquidated damages clause. For example, the liquidated damages clause might state explicitly that the damages to be suffered in the event of breach are incapable or very difficult of accurate estimation and, for this reason, the parties have agreed that the amount fixed by the clause is a reasonable forecast of just compensation in the event of breach.³⁶

C. Specify the Type of Breach for Which the Liquidated Amount Is Intended to Compensate

All breaches are not alike, and a liquidated damages clause should not treat them as if they were. Payment of $10,000 as liquidated damages may be justified for total failure of performance but not for a short delay in performance. Where a liquidated damages clause applies equally to multiple types of breaches, regardless of the significance or magnitude of the breach, the scope of the clause is overly broad, and a court will likely find that the intent of the provision is punitive, regardless of statements indicating a contrary intent.³⁷

The terms of the clause, therefore, should specify the types of breaches to which it applies and should clearly show that it is intended to provide compensation only for the type of breach that would result in the damages that are difficult or impossible to calculate.

D. Specify the Type of Harm for Which the Liquidated Amount Is Intended to Compensate

Even where a liquidated damages clause identifies the breaches to which it applies, the anticipated harm for which a liquidated damages clause is intended to compensate may not always be obvious to a court charged with the task of deciding the enforceability of the clause. The court will not necessarily recognize that the anticipated harm is incapable or very difficult of accurate estimation and, where that occurs, parties run the risk that the court will refuse to enforce the clause.

Parties to a liquidated damages clause, therefore, would do well to specify the types of difficult-to-quantify harm for which the clause is intended to provide compensation. Missouri law recognizes certain types of harm as inherently difficult to calculate. For instance, "[t]he general rule as to the recovery of anticipated profits of a commercial business is that they are too remote, speculative, and too dependent upon changing circumstances to warrant a judgment for their recovery."³⁸ It is no doubt for this reason that, where breach of a contract may result in a loss of profits, the contract often includes a provision for liquidated damages. In such a case, the clause should state that the liquidated amount is intended to compensate for the difficult-to-calculate loss of anticipated profits that the parties agree would result from the type of breach in question.

Similarly, Missouri courts have held that the following types of harm, among others, are difficult to calculate: damages for breach of a real estate sales contract,³⁹ damages for cancellation of a lease,⁴⁰ and damages for delay in completion of a construction project.⁴¹ When drafting a provision for liquidated damages, parties should be mindful of these and other holdings as to the inherent difficulty of proving certain types of damages and specifically state that these are the types of harm for which the liquidated damages are intended to compensate.

E. Provide a Formula For Calculating the Liquidated Amount

Although the amount of actual damages may be very difficult or impossible to calculate accurately, it is often clear that the relative magnitude of those damages, whatever the precise amount, will vary according to the timing and duration of the breach. For instance, the longer the delay in performance under a construction contract, the greater the amount of damages. The shorter the time period that remains under a service contract, the less the gross amount to be paid under the contract, and the less the amount of anticipated profits lost when a customer terminates before the expiration date. In such cases, the amount of damages is obviously greater or less depending on the circumstances, even if the precise dollar amount of those damages is not obvious at all. The liquidated damages clause should account for such variations and adjust the liquidated amount accordingly.

One way-perhaps the best way-to do so is to state the liquidated amount not as an all-purpose lump sum payment but as a formula that is tied to the nature of the breach.

For instance, in a case where the harm anticipated is that which will result from a delay in completion, the amount of harm, while incalculable, nevertheless grows with each additional day of delay. A liquidated damages clause can account for the increasing severity of the harm by providing for a certain amount to be added to the total liquidated amount with each day of delay, e.g. for each day of delay, the contractor must pay $500.⁴²

Similarly, in a case where the anticipated harm is that of a loss of anticipated profit, the amount of harm, while incalculable, will vary with the gross amount yet to be paid under the contract. The greater the gross revenues that are due under the contract, the greater the profits that would have been earned but for the breach. To account for this variance, the liquidated amount might be stated not as a sum certain, but as a percentage of the gross amount that would have been paid if the contract had not been breached. In such a case, the non-breaching party should be prepared to show that the percentage chosen bears some reasonable relationship to the amount of direct profit it anticipated earning from the unpaid gross amount.⁴³

For example, in one case, a court upheld a liquidated damages clause in a home improvement contract that provided: "Purchaser may terminate this contract any time before work is commenced or any material delivered by paying Seller an amount equal to thirty percent (30%) of the cash sale price as liquidated damages and not as [a] penalty."⁴⁴ Similarly, in another case, the court upheld a liquidated damages clause in a floor care service agreement "provid[ing] that in the event of a breach, Contractor would be entitled to '20% of one-years' gross payments to be paid by customer under th[e] contract.'"⁴⁵

Formulae such as these ensure that the liquidated amount will be adjusted according to the relative degree or magnitude of the breach. They thereby demonstrate that the amount to be recovered as liquidated damages is intended to bear some relationship to a reasonable forecast of the probable damages and, therefore, is intended to compensate, not punish, for a breach. On this basis, a liquidated damages clause will likely be enforced.⁴⁶

IV. Enforcing A Provision For Liquidated Damages At Trial

Although proper drafting of a liquidated damages clause goes a long way toward its enforceability, it may not go all the way. That point will not finally come until a trial court upholds the clause as valid. Conversely, where the liquidated damages clause at issue is not ideally drafted, all is not lost, for there still remains the opportunity to demonstrate the validity of the clause with pertinent, convincing evidence at trial.

The principles that guide what language should be used when drafting an enforceable provision for liquidated damages are the same as those that guide what evidence would be most probative when proving an enforceable provision. Chief among these principles are: 1) the court is to give effect to the intent of the parties; and 2) punitive damages are not recoverable for breach of contract.

The parties' intent is to be ascertained first and foremost from the language used in the liquidated damages clause. Where this language is not by itself conclusive, the evidence should tend to show that the intent of the provision is compensatory, not punitive. In order to show this intent, the party seeking enforcement of the clause should look to the two basic tests of enforceability and come to court prepared to show that the liquidated amount is both (i) a reasonable forecast of the anticipated harm to result from a breach of the contract, and (ii) for a harm that was impossible or very difficult to estimate at the time the contract was made.⁴⁷

A. Proof That the Amount of Harm is Impossible or Difficult to Forecast

Given the sliding-scale relationship between the two tests for enforceability, proof of the difficulty of the estimate goes a long way toward satisfying the test of reasonableness. To take full advantage of this aspect of the law, the proponent of the liquidated damages clause should concentrate its proof at trial primarily on showing the difficulty of accurately forecasting the amount of harm rather than the reasonableness of the forecast.

As mentioned above, certain types of harm are recognized as inherently difficult to calculate, e.g., a loss of anticipated profits, damages for delay, loss of customers or good will, and losses resulting from breach of a real estate sales contract, license agreement, confidentiality clause or covenant not to compete. Where possible, therefore, proof of enforceability of a liquidated damages clause should show that the parties to the contract intended the liquidated amount to compensate for a type of harm such as these and others that are recognized as inherently difficult to calculate. Regardless of the type of harm, the proof and legal argument should explain why the amount of the harm resulting from breach was difficult to accurately estimate at the time of contracting.

Showing the difficulty of an accurate estimate may also include proof that given the nature of the harm caused by the breach, it remains very difficult-even at the time of trial-to accurately calculate the non-breaching party's damages. Evidence of the difficulty of accurately calculating damages at the time of trial, however, is merely corroborative of the difficulty of forecasting damages at the time the contract was made. If the amount of damages is difficult to estimate at the time of trial, it is reasonable to argue that amount would have been even more difficult to estimate at the time of contracting.

Nonetheless, to remain faithful to the parties' intention, the court's evaluation of the difficulty of forecasting damages must depend upon the facts that existed not at the time of breach or at trial, but at the time the contract was made. Evidence of the difficulty in forecasting damages, therefore, should demonstrate that the facts at the time of contracting were such that subsequent events were unknowable and that the parties, therefore, took the risk that the actual damages resulting from a breach might be more than or less than the liquidated amount to which the parties agreed.

B. Proof That the Liquidated Amount is a Reasonable Forecast

Proving that the liquidated amount is a reasonable forecast of actual damages is likewise dependent upon the facts that existed at the time the contract was made. Proof of the amount of actual damages suffered by the non-breaching party may be relevant, but it is relevant only to the extent that it is corroborative of other evidence demonstrating the reasonableness of the forecast that the parties made at the time of contracting.

It thus follows that the enforceability of a liquidated damages clause does not depend upon proof that the liquidated amount of damages approximates the actual amount.⁴⁸ As stated above, the court will enforce the clause upon a simple showing that the non-breaching party has suffered some harm, regardless of amount,⁴⁹ and, in actions for breach of public contracts, the courts will enforce the clause without a showing of any actual harm at all.⁵⁰

Evidence that the parties specifically negotiated, or had an opportunity to modify, the liquidated amount also is a factor showing that the liquidated amount is a reasonable forecast of the potential damages from breach. Such evidence demonstrates that the liquidated damages clause was a reasonable effort by the parties to fix compensation.

C. The Court, Not the Jury, Decides

Although the enforceability of a liquidated damages clause depends upon the intent of the parties and intent is typically an issue of fact, the issue of enforceability is one of law, solely for the court to decide.⁵¹ Accordingly, the issue of enforceability will not be submitted to the jury. Instead, if the clause is found to be enforceable, the jury will be instructed to award the liquidated amount only.⁵² An award of more or less than the liquidated amount is grounds for reversal.⁵³

D. The Burden of Proof

Research to date has disclosed no reported appellate case in Missouri that has decided the question of who at trial bears the burden of proof on the issue of whether a liquidated damages clause is or is not an unenforceable penalty.

The majority of courts in other jurisdictions impose the burden of invalidating a liquidated damages clause on the party challenging its validity.⁵⁴ One such court reasoned that placing the burden on the party seeking to invalidate a liquidated damages provision was appropriate because that party had initially agreed to it.⁵⁵ Moreover, requiring the non-breaching party to bear the burden of proving the provision's enforceability would defeat one of the provision's primary benefits, i.e. that of dispensing with the need to prove actual damages at trial.⁵⁶ By defeating the primary benefit of a liquidated damages clause, such a holding would likewise defeat the parties' intent in agreeing to the clause. ⁵⁷

In view of the deference Missouri courts give to the express intent of contracting parties, it logically follows that Missouri courts would follow this rationale and apply the same rule.

V. Conclusion

With the benefit of more recent case law, the question of whether or not to enforce a liquidated damages clause should no longer be as vexing as it once was. The law governing liquidated damages clauses has developed so as to make clear that the question of enforceability is, essentially, a question of intent. At the time they agreed to the liquidated damages clause, did the parties intend to compensate for a breach or to punish for a breach? By demonstrating that, at the time of contracting, the intent was compensatory rather than punitive, counsel will ensure that a provision for liquidated damages will be upheld in the courts and enforced according to its terms.

Footnotes

¹ Henry Luepke is a partner with The Stolar Partnership, LLP, which he joined in 1991. He graduated magna cum laude from the University of Notre Dame in 1987 and graduated with honors from St. Louis University School of Law in 1991. Mr. Luepke concentrates in the areas of business and real estate litigation.

² United States v. Bethlehem Steel Co., 205 U.S. 105, 119 (1907) ("The courts at one time seemed to be quite strong in their views and would scarcely admit that there ever was a valid contract providing for liquidated damages.").

³ Id.; Sides Constr. Co. v. City of Scott City, 581 S.W.2d 443, 446-47 (Mo. App. S.D. 1979) ("in modern times, the courts have become more tolerant of . . . [liquidated damages] provisions..").

⁴ Wise v. United States, 249 U.S. 361, 365 (1919) ("There is no sound reason why persons competent and free to contract may not agree upon this subject [of liquidated damages] as fully as upon any other, or why their agreement, when fairly and understandingly entered into with a view to just compensation for the anticipated loss, should not be enforced.").

⁵ Brizendine v. Conrad, No. WD 58266, 2001 WL 339471 at *4 (Mo. App. W.D. 2001); see also Monsanto Co. v. Swann, 308 F. Supp. 2d 937, 944(E.D. Mo. 2003) ("Under Missouri law, liquidated damages provisions are generally enforceable.").

⁶ 22 Am. Jur 2d, Damages § 574 (2003) ("Punitive damages are generally not available under a contract theory.").

⁷ Luna v. Smith, 861 S.W.2d 775, 779 (Mo. App. S.D. 1993).

⁸ Burst v. R.W. Beal & Co., Inc., 771 S.W.2d 87, 90(Mo. App. E.D. 1989).

⁹Thompson v. St. Charles County, 126 S.W. 1044, 1049 (Mo. 1910).

¹⁰ See Stein v. Bruce, 366 S.W.2d 732, 735 (Mo. App. W.D. 1963) ("As distinguished from liquidated damages, a penalty is a sum inserted in a contract, not as a measure of compensation for its breach, but rather as a punishment for defaul . . .").

¹¹ Taos Constr. Co., Inc. v. Penzel Constr. Co., Inc., 750 S.W.2d 522, 525(Mo. App. E.D. 1988).

¹² Burst, 771 S.W.2d at 90; See Paragon Group, Inc. v. Ampleman , 878 S.W.2d 878, 881 (Mo. App. E.D. 1994) (citing the Restatement (First) of Contracts and the Restatement (Second) of Contracts as the sources of the Missouri rule); Grand Bissell Towers, Inc. v. Joan Gagnon Enters., Inc., 657 S.W.2d 378, 379 (Mo. App. E.D. 1983) (same); Warstler, 859 S.W.2d at 165("In Missouri, liquidated damages provisions in contracts are generally upheld by the courts provided they are reasonable and the parties agreed in good faith upon a sum as damages that would likely ensue if the contract were breached.").

¹³ Burst, 771 S.W.2d at 90.

¹⁴ Luna, 861 S.W.2d at 779("'If the difficulty of proof of loss is great, considerable latitude is allowed in the approximation of anticipated or actual harm.'") (quoting Restatement (Second) of Contracts § 356 cmt b (1979)).

¹⁵ This rule stems from a recognition of the fact that, where actual damages are inherently difficult to calculate, courts are no better at forecasting the damage amount than the parties. Courts, therefore, are loathe to substitute a judge or jury's best guess of actual damages for that to which the parties agreed. Restatement (Second) of Contracts § 356 cmt b (1979)) ("To the extent that there is uncertainty as to the harm, the estimate of the court or jury may not accord with the principle of compensation any more than does the advance estimate of the parties.").

¹⁶ Wilt v. Waterfield, 273 S.W.2d 290, 295 (Mo. 1954); Diffley v. Royal Papers, Inc., 948 S.W.2d 244, 246-47(Mo. App. E.D. 1997) ("in determining whether an agreement sets forth a penalty or liquidated damages, we look to the intention of the parties as ascertained from the contract as a whole."); Hawkins v. Foster, 897 S.W.2d 80, 85(Mo. App. S.D. 1995).

¹⁷ See Griffin Contracting Co., Inc. v. Hawkeye-Security Ins. Co., 867 S.W.2d 602, 604(Mo. App. S.D. 1993) ("The cardinal rule in the interpretation of a contract is to determine the intention of the parties and to give effect to that intention.").

¹⁸ See Southwest Engineering Co. v. United States, 341 F.2d 998, 1003 (8th Cir. 1965) (applying Missouri law) ("Each party by entering into such contractual provision [for liquidated damages] took a calculated risk and is bound by reasonable contractual provisions pertaining to liquidated damages.").

¹⁹ Purcell Tire & Rubber Co., Inc. v. Executive Beechcraft, Inc., 59 S.W.3d 505, 508(Mo. banc 2001).

²⁰ See Arnett v. Keith, 582 S.W.2d 363, 365-66(Mo. App. S.D. 1979) ("If a provision for liquidated damages is valid, the stipulated amount forms the measure of damages in case of a breach, and recovery must be for that amount, even though the actual loss may be greater or less.").

²¹ This is a departure from the approach of courts in older cases that have invalidated liquidated damages clauses based upon the notion that, regardless of the parties' intent, the effect of the clause was to award the non-breaching party more than its actual damages. See e.g. Adams v. Luckaman, 256 S.W. 103, 104(Mo. App. E.D. 1923) (courts should consider not only intent "but also the reasonableness of the forfeiture the party in default is to pay as compared to the actual loss suffered by the party not in default. . . .").

²² Taos Constr. Co., Inc., 750 S.W.2d at 526; Grand Bissell Towers, 657 S.W.2d at 379; see also Restatement (Second) Contracts § 356, cmt. b. (The amount fixed as liquidated damages is reasonable so long as it approximates the loss anticipated at the time of making the contract, "even if that amount does not approximate the actual loss.") (emphasis added).

²³ Missouri ex rel. Nixon v. Prudential Health Care Plan, Inc., Community Plan, 221 F. Supp. 2d 1016, 1018 (E.D. Mo. 2002).

²⁴ Sides Constr. Co. v. City of Scott City, 581 S.W.2d 443, 447 (Mo. App. S.D. 1979); see also Taos Constr. Co., Inc. v. Penzel Constr. Co., Inc., 750 S.W.2d at 526 ("in a public works project, the public entity may recover liquidated damages solely upon proof of a violation of the contract.").

²⁵ Grand Bissell Towers, 657 S.W.2d at 379, n. 3 (emphasis added); see Standard Improvement Co. v. DiGiovanni, 768 S.W.2d 190, 193(Mo. App. W.D. 1989) ("In order to invoke the liquidated damages clause in a contract, a plaintiff need not prove the actual dollar amount of damages caused by the defendant's breach. All that is necessary is a showing that some harm or damage has occurred.").

²⁶ Burst, 771 S.W.2d at 90; see also Luna v. Smith, 861 S.W.2d 775, 779 (Mo. App. S.D. 1993) ("If the amount fixed as damages is unreasonably large so that it exceeds what would be anticipated as the actual loss, it constitutes a penalty."); Priebe & Sons, Inc. v. United States, 332 U.S. 407, 412 (1947) ("And the fact that the damages suffered are shown to be less than the damages contracted for is not fatal. These provisions are to be judged as of the time of making the contract.").

²⁷ Burst, 771 S.W.2d at 90.

²⁸ Id.

²⁹ 11 Richard A. Lord, Williston on Contracts § 30:2 (4th ed. 1990); see also Max Stovall Constr. Co. v. Villager Homes, Inc., 754 S.W.2d 5, 9(Mo. App. E.D. 1988) (parties' intention "must be considered as of the date of the agreement.") (emphasis added); Wilson v. Edwards, 560 S.W.2d 608, 612(Mo. App. S.D. 1978) (court must "give effect to [the parties'] intention at the time it was made.").

³⁰ See Burst v. R.W. Beal & Co., Inc., 771 S.W.2d 87, 91-93 (Mo. App. E.D. 1989) (plaintiffs were entitled to full amount of liquidated damages regardless of failure to mitigate. "[T]he trial court was required to enforce the 'liquidated damages' clause as written."); see also 22 Am. Jur. 2d Damages § 538 (2003).

³¹ See Highland Inns Corp. v. American Landmark Corp., 650 S.W.2d 667, 674 (Mo. App. W.D. 1983) ("The public purpose subserved by the enforcement of [a liquidated damage] provision is to save 'the time of the courts, juries, parties and witnesses and reduce the expense of litigation.'").

³² Giomona Corp. v. Dawson, 568 S.W.2d 954, 958-59(Mo. App. S.D. 1978) ("Even if the so-called 'forfeiture clause' be treated as a provision for liquidated damages such a provision must be strictly construed against the party seeking to invoke its benefits.").

³³ See Yerxa, Andrews & Thurston v. Randazzo Macaroni Mfg. Co., 288 S.W. 20, 33(Mo. 1926) ("Neither is the name or designation given by the parties to the sum specified in the contract, nor the language or particular words used by the parties, conclusive as to whether the parties intended to provide for liquidated damages or for a penalty."); Jennings v. First Nat'l Bank of Kansas City, 30 S.W.2d 1049, 1052(Mo. App. W.D. 1930) ("the use of the words 'forfeiture,' 'forfeit and pay,' 'penalty,' and words of like character, does not conclusively establish that the sum so designated is a penalty rather than liquidated damages.").

³⁴ Parkton Ass'n v. Armstrong, 878 S.W.2d 50, 53 (Mo. App. E.D. 1994) ("[C]ourts should interpret covenants so as to give effect to the intent expressed by the plain language.").

³⁵ Diffley, 948 S.W.2d at 247 ("While the label the parties attach to a [liquidated damages] provision is not conclusive, it is a circumstance to be considered when deciding whether the provision is to be considered liquidated damages or a penalty."); see also Wilt, 273 S.W.2d at 295 (courts must not construe a contract setting "liquidated damages, to mean other than what those words purport to mean upon their face, unless the sum fixed is shown to be so disproportionate to" any reasonably contemplated damage amount as to be oppressive).

³⁶ See Brizendine v. Conrad, No. WD 58266, 2001 WL 339471 at *5 (Mo. App. W.D. 2001) (reversed on other grounds, 71 S.W.3d 587 (Mo. banc 2002) ("In addition to the parties' labeling of the provision in question as one for liquidated damages, further support for finding that paragraph 14 was intended by the parties to be a liquidated damages clause is their express recognition in paragraph 14 that 'actual damages [for breach of the agreement were] difficult, if not impossible, to ascertain,' which language has been recognized by our appellate courts as being indicative of a true liquidated damages clause.") (emphasis added); see also Luna, 861 S.W.2d at 777 (court upheld liquidated damages clause that specifically stated that the parties "agreed that actual damages would be difficult, if not impossible, to ascertain" and that "[s]uch damages shall not be construed to be a penalty.").

³⁷ Wilt, 273 S.W.2d at 295 ("To arrive at the intent of the parties, a court may consider whether the agreement contains various stipulations of various degrees of importance, the breaches of which would be easy to calculate in damages as to some and difficult as to others, in which event the sum specified would be construed as a penalty and not as liquidated damages, 'even though the parties in express terms have declared the contrary.'") (citations omitted).

³⁸ Coonis v. Rogers 429 S.W.2d 709, 714(Mo. 1968).

³⁹ Paragon Group, Inc. v. Ampleman, 878 S.W.2d 878, 881 ("Missouri courts have consistently held actual damages for breach of real estate sales contracts are uncertain and difficult to prove.").

⁴⁰ Id. ("[I]t is difficult to measure damages upon breach of a lease by the tenant").

⁴¹ Sides Constr. Co., 581 S.W.2d at 447 ("It is true that the precise amount of such damages [for delay in completion] is difficult to ascertain. That is why a liquidated damages provision in a construction contract is beneficial to both parties.").

⁴² See e.g. Intertherm, Inc. v. Structural Sys., Inc., 504 S.W.2d 64 (Mo. 1974) (upholding liquidated damages of $500 for each of 21 days of unexcused delay in the construction of a warehouse).

⁴³ See Ameristar Jet Charter, Inc. v. Dodson Int'l Parts, Inc., 155 S.W.3d 50, 55(Mo. banc 2005) ("in calculating lost profits damages, lost revenue is estimated, and overhead expenses tied to the production of that income are deducted from the estimated lost revenue.").

⁴⁴ Standard Improvement Co., 768 S.W.2d 190, 191 (Mo. App. W.D. 1989).

⁴⁵ Kuczynski v. Intensive Maint. Care, Inc., 48 S.W.3d 55, 57 (Mo. App. E.D. 2001) (the court reversed the jury's verdict for less than the liquidated amount, stated as 20% of the gross receipts).

⁴⁶ See Davis v. Tucson Arizona Boys Choir Soc'y, 669 P.2d 1005 (Ariz. Ct. App. 1983) (liquidated damages provisions are more readily upheld when the amount to be recovered bears some relation to the particular breach of contract for which they are sought); Vrgora v. Los Angeles Unified School District, 200 Cal. Rptr. 130 (Cal. Ct. App. 1984) (a provision for "liquidated damages [is] viable if it is established that at formative stages of contract . . . the amount or formula stipulated by the parties represent[s] a reasonable endeavor to ascertain," at the time of making the contract, what actual damages would ensue from the breach).

⁴⁷ Burst, 771 S.W.2d at 90.

⁴⁸ Taos Constr. Co., Inc., 750 S.W.2d at 525.

⁴⁹ Grand Bissell Towers, 657 S.W.2d at 379, n. 3.

⁵⁰ Sides Constr. Co. v. City of Scott City, 581 S.W.2d 443, 447 (Mo. App. S.D. 1979).

⁵¹ Robert Blond Meat Co. v. Eisenberg, 273 S.W.2d 297, 299(Mo. 1954) (stating that the validity of a liquidated damages clause "is a question of law").

⁵² See M.A.I. 4.09 [1980 Supplement] ("If you find the issues in favor of plaintiff, then you must award plaintiff $ ____ (insert amount)").

⁵³ See Warstler, 859 S.W.2d at 166 ("Since the validity of the liquidated damages provision is not in dispute, the stipulated amount controls as to the measure of damages and recovery is limited to that amount, even though the actual loss may be greater or less."); Kuczynski, 48 S.W.3d at 58 (in reversing jury's award of less than amount required by liquidated damages clause, the court stated: "Because the parties agreed as a provision in the contract that 20% of gross payments would be the liquidated damages amount, the jury was required to use that percentage in calculating the amount of damages. . . .").

⁵⁴ 24 Richard A. Lord, Williston on Contracts, § 65:30 ("The more widely held view appears to be that the burden is on the party seeking to invalidate a stipulated damages provision to prove that it constitutes an unenforceable penalty. . . .").

⁵⁵ Bair v. Axiom Design, 20 P.3d 388, 394(Utah 2001) ("We regard this application of the burden of proof [upon the party challenging the liquidated damages clause] as appropriate because [defendant] initially assented to the clause when it signed the contracts.").

⁵⁶ Id.

⁵⁷ Id.