FOR IMMEDIATE RELEASE 4-25-2023
CONTACT: Burt Peretsky, <peretsky@gmail.com>, 781-696-5579
In Defense of “Freedom of Contract,” NELF Urges State’s Highest Court to Enforce an Agreed-Upon Liquidated Damages Provision
BOSTON – The New England Legal Foundation (NELF – www.newenglandlegal.org) has filed an amicus, friend-of-the-court, brief urging the Massachusetts Supreme Judicial Court (SJC) to re-affirm the legitimacy of “liquidated damages” provisions in commercial contracts. These provisions allow parties to agree ahead of time on the amount to be paid if a party breaks the contract. The provisions are generally enforceable as long as a court does not find them to be a penalty.
In Cummings Properties, LLC v. Hines, the parties agreed that if the lessee defaulted on rent payments for commercial office space, all remaining rent – 56 months’ worth of rent – would be due immediately as liquidated damages. A state appeals court ruled that the provision is a penalty and not enforceable because it was not reasonable to assume that there would be zero likelihood of the space being re-let to a new tenant.
In its brief to the SJC, NELF defends such provisions on grounds of “freedom of contract” and also, more specifically, because they are a valuable means by which commercial parties may have certainty, from the time of contracting, concerning the costs of a possible future breach of their agreement. NELF noted that the amount due here was merely what was always due under the lease and thus should not be regarded as a penalty. The appeals court second-guessed the parties by looking at what actually happened after the rent default, i.e., the appearance of a new paying tenant, which is precisely the kind of unknowable future contingency that makes the use of liquidated damages so necessary to businesses, according to NELF’s brief.
As the late US Supreme Court Justice Oliver Wendell Holmes Jr. once counseled, according to the brief’s author, NELF Staff Attorney John Pagliaro, the “proper course is … not to undertake to be wiser than the parties,” but rather “in general when parties say that a sum is payable as liquidated damages they will be taken to mean what they say and will be held to their word.”
NELF therefore asked the Court to reinstate a trial court’s decision enforcing the liquidated damages provision.
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About the New England Legal Foundation
The New England Legal Foundation (NELF – www.newenglandlegal.org) is the leading non-profit public interest law firm in the region dedicated to addressing policy and constitutional concerns related to economic freedom. NELF’s ongoing mission is to champion free enterprise, property rights, limited government based on rule of law, and inclusive economic growth. NELF challenges actions by governments and special interests which would unreasonably intrude on the economic freedoms of individuals and business enterprises in New England and the nation. We believe that free enterprise is a foundational value of a democratic society and the best opportunity for people to lift themselves to prosperity.