Legal Memorandum: Liquidated Damages Clause in MN

Issue: Whether a liquidated damages clause is enforceable in Minnesota.

Area of Law: Business Organizations & Contracts
Keywords: Liquidated damages clause; Direct damages; Breach of contract
Jurisdiction: Minnesota
Cited Cases: 10 N.W.2d 273; 249 U.S. 361; 16 N.W.2d 546; 115 N.W.2d 59; 215 Minn. 340; 83 Minn. 523; 218 Minn. 477; 86 N.W. 760; 361 F.3d 465
Cited Statutes: None
Date: 05/01/2011

Under Minnesota law, a liquidated damages clause is enforceable when (1) the amount fixed by the clause is a reasonable forecast of just compensation for the harm caused by the breach, and (2) the harm is incapable or very difficult of accurate estimation.  Winthrop Resources Corp. v. Eaton Hydraulics, Inc., 361 F.3d 465, 472 (8th Cir. 2004) (citing Bellboy Seafood Corp. v. Nathanson, 410 N.W.2d 349, 352 (Minn. Ct. App. 1987)).  “Liquidated-damages clauses function best when damages include items such as goodwill and loss of profits, which can be difficult to evaluate.”  Id. at 472 (citing Meuwissen v. H.E. Westerman Lumber Co., 218 Minn. 477, 16 N.W.2d 546, 550 (1944)) accord Dean Van Horn Consulting Assocs., Inc. v. Wold, 367 N.W.2d 556, 560 (Minn. Ct. App. 1985).  The damages allowed by such a clause do not need to be close to actual injury and loss in order for the clause to be enforceable; indeed, “[i]t is not of controlling importance, where the actual damages are doubtful, speculative, and difficult of proof, that the amount stipulated is much larger than the apparent actual injury and loss.”  Winthrop Resources Corp., 361 F.2d at 472 (citing Meuwissen, 16 N.W.2d at 550 (quoting Taylor v. Times Newspaper Co., 83 Minn. 523, 86 N.W. 760, 762 (1901)); Dean Van Horn Consulting, 367 N.W.2d at 560.  Moreover, a contract provision for liquidated damages can be enforced without proving actual damages, as long as the amount stated […]

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