NPS, Inc. v. Minihane

Supreme Judicial Court of Massachusetts · Contracts

ContractsLiquidated damagesAcceleration clausesMitigationliquidated damagespenaltyacceleration clausereasonable forecast

Facts

NPS entered into a ten-year agreement with Minihane for two luxury seats at Gillette Stadium, requiring annual payments for each season from 2002 through 2011. The agreement provided that if Minihane defaulted, NPS could terminate his rights and declare immediately due the entire unpaid balance of the license fee for the remainder of the term. Minihane paid a security deposit and $2,000 toward the first season, attended nearly all 2002 home games using the tickets, and then made no further payments. After notice, NPS accelerated the balance and sought the full unpaid amount.

Issue

Was the contract's acceleration clause requiring payment of all remaining license fees upon default an unenforceable penalty or an enforceable liquidated damages provision? If enforceable, must the court also consider whether NPS mitigated its damages?

Rule

A liquidated damages provision is generally enforceable if, at the time of contracting, actual damages from breach were difficult to ascertain and the stipulated sum was a reasonable forecast of expected damages. Courts assess reasonableness based on circumstances at contract formation, not by taking a later second look at actual damages after breach. The party challenging the clause bears the burden of showing that the amount is unreasonably and grossly disproportionate to actual damages or unconscionably excessive, and if the clause is enforceable, mitigation is irrelevant.

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In Chicago, Larkin Event Suites, LLC sold Dana Mercer a seven-year license for a private concert box at a new arena. The agreement provided that if Dana missed any annual payment, Larkin could terminate her access and accelerate all unpaid license fees for the remaining term; future resale demand for the box depended on uncertain performer lineups, competing venues, and changing corporate demand.

If Dana defaults in the first year and argues that requiring payment of all remaining fees is automatically an unenforceable penalty because it accelerates the full balance, how should a court rule?

Explanation. The majority treated an acceleration clause the same as any other liquidated damages provision, not as automatically invalid. The clause is enforceable if, at contract formation, actual damages were difficult to ascertain and the stipulated sum was a reasonable forecast of expected damages. A court does not require exact post-breach correspondence between actual loss and the accelerated amount. (Derived from NPS, Inc. v. Minihane (n.d.).)