1. Does it matter that Learjet resold the Diaz plane?

2. Is the $250,000 reasonable?

3. Of what relevance is the fact that Learjet is a volume seller of goods?

On August 21, 1992, Miguel A. Diaz Rodriguez (Diaz) entered into a contract with Learjet to buy a Model 60 jet aircraft for $3,000,000 with a $250,000 deposit made on execution of the contract; $750,000 payment on September 18, 1992; $1,000,000 180 days before delivery of the aircraft; and the balance due on delivery of the aircraft. Diaz paid the $250,000 deposit but made no other payments.

In September 1992, Diaz said he no longer wanted the aircraft and asked for the deposit to be returned. Learjet informed Diaz that the $250,000 deposit was being retained as liquidated damages because their contract provided as follows:

Learjet may terminate this Agreement as a result of the Buyer’s failure to make any progress payment when due. If this Agreement is terminated by Learjet for any reason stipulated in the previous sentence, Learjet shall retain all payments theretofore made by the Buyer as liquidated damages and not as a penalty and the parties shall thenceforth be released from all further obligations hereunder. Such damages include, but are not limited to, loss of profit on this sale, direct and indirect costs incurred as a result of disruption in production, training expense advance and selling expenses in effecting resale of the Airplane.

After Diaz breached the contract, Circus Circus Enterprises purchased the Learjet Diaz had ordered with some changes that cost $1,326. Learjet realized a $1,887,464 profit on the sale of the aircraft to Circus Circus, which was a larger profit than Learjet had originally budgeted for the sale to Diaz.

Diaz filed suit seeking to recover the $250,000 deposit. The district court granted summary judgment to Learjet, and Diaz appealed. The case was remanded for a determination of the reasonableness of the liquidated damages. The district court upheld the $250,000 as reasonable damages, and Diaz appealed.

JUDICIAL OPINION

MARQUARDT, Presiding J.… Diaz argues that the district court erred in holding that the liquidated damages clause was reasonable and enforceable. Diaz reasons that the liquidated damages clause was unreasonably large and, therefore, void as a penalty.

A determination concerning the reasonableness and enforceability of a liquidated damages clause is a question of law subject to unlimited review by this court. Kvassay v Murray, 15 Kan.App.2d 426, 429, 808 P.2d 896, rev. denied 248 Kan. 996 (1991).

In Kvassay, this court noted that “reasonableness is the only test” for liquidated damages under the Uniform Commercial Code. This court paraphrased the three criteria for measuring the reasonableness of a liquidated damages clause provided in K.S.A. 84-2-718: “(1) anticipated or actual harm caused by breach; (2) difficulty of proving loss; and (3) difficulty of obtaining an adequate remedy.” 15 Kan.App.2d at 430, 808 P.2d 896.

A liquidated damages clause that “‘fixes damages in an amount grossly disproportionate to the harm actually sustained or likely to be sustained’” is considered a penalty and will not be enforced by the courts. If a liquidated damages clause is invalidated as a penalty, then the nonbreaching party may recover actual damages instead. The burden of proving that a liquidated damages clause is unenforceable rests with the party challenging its enforcement. Diaz argues that the district court erred in concluding that Learjet qualifies as a lost volume seller. As a lost volume seller, Learjet’s actual damages would include lost profits, notwithstanding that Circus purchased the aircraft which Diaz had contracted to buy and that Learjet made a profit on the Circus sale. The two contracts contained identical base prices, and both contracts had escalation clauses. The evidence indicates that the lost profit from the Diaz contract would have been approximately $1.8 million.

Whether a seller is a lost volume seller is a question of fact. Awarding lost profits to a lost volume seller serves the…………………..