Miguel A. Diaz Rodriguez v. Learjet, Inc.
24 Kan. App. 2d 461, 946 P.2d 1010 (1997)
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Rule of Law:
Under U.C.C. § 2-718, a liquidated damages clause is enforceable if it is a reasonable estimate of anticipated or actual harm. For a 'lost volume seller,' actual harm includes the lost profit from the breached contract, regardless of whether the specific goods were resold to another buyer.
Facts:
- On August 21, 1992, Miguel A. Diaz Rodriguez (Diaz) entered into a contract with Learjet, Inc., to purchase a model 60 jet aircraft.
- The contract required a $250,000 deposit upon signing, followed by subsequent progress payments.
- The agreement contained a clause stating that if Diaz failed to make payments, Learjet could terminate the contract and retain all payments made as liquidated damages.
- Diaz paid the initial $250,000 deposit but failed to make any further payments.
- In September 1992, Diaz's supervisor informed him he no longer wanted the aircraft, and Diaz subsequently told Learjet he was canceling the purchase.
- After Diaz's breach, Learjet sold the same aircraft to another buyer, Circus Circus Enterprises, Inc.
- Learjet realized a profit of $1,887,464 on the sale to Circus, which was greater than the profit it anticipated from the sale to Diaz.
Procedural Posture:
- Diaz filed suit against Learjet in Kansas district court (trial court) to recover the $250,000 deposit.
- The district court granted summary judgment in favor of Learjet.
- Diaz (appellant) appealed to the Kansas Court of Appeals (intermediate appellate court), which reversed the summary judgment and remanded the case to the district court for further proceedings.
- On remand, the district court conducted a bench trial and again ruled in favor of Learjet, upholding the liquidated damages clause.
- Diaz (appellant) appealed the district court's decision to the Kansas Court of Appeals for a second time.
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Issue:
Is a liquidated damages clause, which allows a seller to retain a buyer's $250,000 deposit upon breach, an unenforceable penalty when the seller is a 'lost volume seller' who subsequently resold the specific goods for a greater profit?
Opinions:
Majority - Marquardt, J.
No, the liquidated damages clause is not an unenforceable penalty. Learjet qualifies as a 'lost volume seller,' and the amount retained is reasonable in light of the actual harm suffered. The court's analysis is governed by K.S.A. 84-2-718 (U.C.C. § 2-718), which permits liquidated damages that are reasonable in light of: (1) anticipated or actual harm, (2) difficulty of proving loss, and (3) difficulty of obtaining an adequate remedy. The court found that Learjet was a lost volume seller because it had the capacity to produce the plane for Diaz and a separate one for Circus Circus. Because Diaz breached, Learjet lost the profit from one entire sale, which was approximately $1.8 million. Since the actual harm (the lost profit) far exceeded the $250,000 deposit, the liquidated damages were not grossly disproportionate and thus constituted a reasonable and enforceable provision, not a penalty.
Analysis:
This decision solidifies the application of the 'lost volume seller' doctrine to the reasonableness test for liquidated damages under the U.C.C. in Kansas. It clarifies that a seller's ability to resell the exact goods for a profit does not negate its claim for damages if it can prove it had the capacity and profitability to make both sales. The ruling provides significant protection for manufacturers and other high-volume sellers, allowing them to enforce deposit-retention clauses by calculating damages based on lost overall sales volume rather than the outcome of a single resold item.
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