Pacheco v. Scoblionko

Maine Law Court · Contracts

ContractsLiquidated damagesliquidated damagespenalty clauseburden of proofreasonable forecastdifficulty of estimationcontract forfeiture

Facts

Pacheco paid $3,100 before February 1, 1985 to send his son to Camp Wekeela, operated by the Scoblionkos, and received an early-payment discount. The pre-printed camp contract stated that if a refund request was received on or after May 1, the entire amount paid would be retained by the camp as liquidated damages for cancellation. On June 14, after learning his son had failed a final exam and had to attend summer school, Pacheco notified Eric Scoblionko that his son could not attend camp and requested a refund. The Scoblionkos refused to refund any portion of the fee.

Issue

Whether the contract provision allowing the camp to retain all amounts paid after a withdrawal request made on or after May 1 was an enforceable liquidated damages clause or an unenforceable penalty. The court also considered which party bears the burden of proving the validity of such a clause.

Rule

A liquidated damages provision is valid only if (1) the damages caused by the breach are very difficult to estimate accurately and (2) the amount fixed is a reasonable forecast of the amount necessary to justly compensate for the loss. The party seeking enforcement of the liquidated damages clause bears the burden of proving those requirements, although the party opposing the clause must still plead its illegality affirmatively.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Portland, Maine, Nora Bell paid Oak Harbor Arts Academy $4,800 in advance for her daughter’s six-week summer program. The enrollment contract stated that if a student withdrew after June 1, the academy could retain all sums paid as "liquidated damages." When Nora canceled in mid-June, the academy kept the entire amount but offered no trial evidence about expected losses or how the figure was chosen.

If Nora sues to recover the prepaid tuition, how should a court most likely rule on the clause’s enforceability?

Explanation. A liquidated damages clause is valid only if damages from breach are very difficult to estimate accurately and the amount fixed is a reasonable forecast of just compensation. The party seeking enforcement bears the burden of proving both elements. Here, the academy produced no evidence on either point, and retention of 100% of the contract price strongly suggests an excessive, punitive sum rather than a good-faith estimate. That makes the clause an unenforceable penalty. (Derived from Pacheco v. Scoblionko (n.d.).)