Page 8 - John Hundley 2014

The panel also found that the clause failed the law’s second test: “while the $4.3 million in
liquidated damages might have been reasonable in the event that the . . . lease never occurred, it
was not reasonable for a 91-day delay in securing government permits.”

The court said it acted also because courts “invalidate[] liquidated damages
clauses where they amount to a windfall for one of the parties” and “where the
purpose of the clause is to punish nonperformance rather than estimate damages.”
Noting that the 91-day delay did not result in anything approaching $4.3 million in
damages, the court said that “[a]lthough liquidated damages may at times exceed
the amount of actual damages,” a clause providing “unreasonably large liquidated
damages is unenforceable on grounds of public policy as a penalty.”

It said these rules invalidated the clause at issue notwithstanding the sophisticated nature of the
parties to the transaction. It distinguished cases upholding clauses that stipulated a formula for
determining damages depending on how long the breach lasted. “When a contract specifies a single
sum in damages for any and all breaches even though it is apparent that all are not of the same
gravity, the specification is not a reasonable effort to estimate damages; and when in addition the
fixed sum greatly exceeds the actual damages likely to be inflicted by a minor beach, its character as
a penalty becomes unmistakable.”

Court Upholds Exculpatory Clause In Fitness Contract

A release clause exculpating a defendant from its own negligence in future
occurrences is enforceable if it puts the prospective plaintiff “on notice of the
range of dangers for which he (or she) assumes the risk of injury, enabling him
(or her) to minimize the risk by exercising a greater degree of caution,” a panel of
the Appellate Court in Chicago has held.

Cox v. US Fitness, LLC, 2013 IL App (1st) 122442, involved a fitness club
member injured through defendant’s negligent fitness instruction and use of
equipment after she signed an agreement that she “assume[d] all risks of
personal injury” associated with, among other things, equipment and fitness
advisory services.

Rejecting arguments that the exculpatory clauses should not be enforced, the court said Illinois
“permits parties to contract away liability for their own negligence,” though such clauses are “strictly
construed”. The language “should be clear, explicit and unequivocal,” the court said. The precise
occurrence that resulted in the injury “need not have been contemplated by the parties at the time of
contracting. . . . The injury must only fall within the scope of possible dangers ordinarily
accompanying the activity and, therefore, reasonably contemplated by the parties.” The court said
the clause at issue met those tests.

Brenda\SharpThinking\#110.pdf
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