{"id":891920,"date":"2017-04-06T11:59:27","date_gmt":"2017-04-06T17:59:27","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=891920"},"modified":"2022-01-13T15:08:18","modified_gmt":"2022-01-13T22:08:18","slug":"liquidated-damages-clauses-new-legal-analysis","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/liquidated-damages-clauses-new-legal-analysis\/","title":{"rendered":"Liquidated Damages Clauses: A New Legal Analysis"},"content":{"rendered":"

Kent B. Scott | Babcock, Scott & Babcock<\/a> | April 5, 2017<\/p>\n

There is a new law on the books! The Utah Supreme Court has recently changed Utah law concerning liquidated damages clauses in contracts.  The High Court\u2019s recent ruling simplifies the test used to determine whether or not a court will enforce a liquidated damages provision.<\/p>\n

Liquidated Damages Clauses<\/strong><\/p>\n

When a party breaches a contract, the law is designed to compensate the damaged party for the \u201cbenefit of his\/her bargain. The Court will restore both parties to the position they would have been in, had the contract been fully performed. The liquidated damages clause provides a method and means to calculate damages at the beginning point where the parties are making their contract.<\/p>\n

In construction contracts, liquidated damages clauses are usually created to compensate an owner when the contractor does not complete the project on time. This can sometimes be seen as an attempt to penalize the contractor, and the courts generally hold such penalties or \u201cpunitive damages clauses\u201d as unenforceable. There is however a general desire to allow both an owner and contractor to contract freely amongst themselves. It is very important that contracting parties read and understand the contract they are signing.<\/p>\n

A Change in the Law<\/strong><\/p>\n

In order to address the question as to whether or not a liquidated damages clause should be enforced, the Utah Supreme Court constructed simplified rule that now governs liquidated damage cases. In the recent decision Commercial Real Estate Inv. v. Comcast of Utah II, Inc., <\/em>the Supreme Court of Utah rejected the previous methods as they were either unnecessary or so complicated that they created contradictory decisions. Now, liquidated damages clauses are to be treated like any other contractual clause and are only unenforceable if there was evidence of mistake, fraud, duress, or unconscionability.<\/p>\n

The Future of Challenging Liquidated Damages<\/strong><\/p>\n

The Court\u2019s decision in Commercial Real Estate Inv. v. Comcast of Utah II, Inc., <\/em>has changed the way the enforceability of liquidated damages clauses can be challenged. There is now an initial presumption that liquidated damages clauses are enforceable, and it is the burden of the party challenging the clause to prove otherwise.<\/p>\n

To determine whether a liquidated damages clause is unenforceable, the court now follows a two part test. Summarized, the Court will determine:<\/p>\n