Pacheco v. Scoblionko
532 A.2d 1036, 1987 Me. LEXIS 831 (1987)
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Rule of Law:
A liquidated damages clause is an unenforceable penalty if it is not a reasonable forecast of damages that are difficult to estimate. The party seeking to enforce such a clause bears the burden of proving its validity.
Facts:
- Albert Pacheco had sent his son to Camp Wekeela, owned by Eric and Diane Scoblionko, for several years.
- In 1985, Pacheco paid the full camp fee of $3,100 before February 1st, as stipulated in a pre-printed contract.
- The contract included a clause stating that if a camper's withdrawal was announced on or after May 1, 1985, the entire sum paid to date would be retained by the camp as liquidated damages.
- On June 14, 1985, Pacheco learned that his son had failed a high school Spanish exam and was required to attend summer school.
- That same day, Pacheco telephoned Eric Scoblionko, informed him his son could not attend the camp, and requested a refund of the tuition.
- Scoblionko refused to refund any portion of the $3,100 fee.
Procedural Posture:
- Albert Pacheco initiated an action against Eric and Diane Scoblionko in the Superior Court, Oxford County, seeking the return of the $3,100 camp tuition.
- The Superior Court held a jury-waived trial.
- The trial court found that the liquidated damages clause was an unenforceable penalty and entered judgment in favor of Pacheco for the full amount claimed.
- The Scoblionkos, as appellants, appealed the judgment to the Supreme Judicial Court of Maine.
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Issue:
Is a contract clause requiring the forfeiture of the entire camp tuition fee upon cancellation an unenforceable penalty rather than a valid liquidated damages provision?
Opinions:
Majority - Scolnik, J.
Yes, the clause is an unenforceable penalty. For a liquidated damages provision to be valid, it must meet two requirements: the damages from the breach must be very difficult to estimate accurately, and the amount fixed must be a reasonable forecast of just compensation. Here, the Scoblionkos produced no proof of what damages were anticipated or actually sustained. The forfeiture of 100% of the contract price is an excessive sum that suggests it was not a good-faith effort to pre-estimate actual loss but rather a penalty designed for its 'in terrorem' effect to deter cancellations. The court also established that the party seeking enforcement of a liquidated damages clause bears the burden of proving its validity, as they have the most immediate access to evidence regarding the difficulty of estimation and the reasonableness of the forecast.
Analysis:
This decision solidifies the legal standard for liquidated damages in the jurisdiction, viewing clauses that mandate forfeiture of the entire contract price with high suspicion. By classifying such a provision as a penalty absent strong justification, the court strengthens consumer protection against oppressive contract terms. Critically, the case establishes a clear procedural rule by placing the burden of proof on the party seeking to enforce the liquidated damages clause, which is typically the business that drafted the contract. This allocation of burden makes it more difficult for parties to enforce punitive forfeiture clauses that are not genuinely tied to a reasonable estimate of actual damages.
