Cummings Properties, LLC v. National Communications Corp., 449 Mass. 490 (2007)

In Commissioner of Ins., supra at 771, we held that where a liquidated damages clause establishes the same damages for breach of any provision within the contract, regardless of the severity of the breach (or the difficulty of calculation), it will be struck down as a penalty even for those breaches for which it would not be disproportionate. Cummings urges us to update our jurisprudence in light of the near unanimous trend toward upholding liquidated damages clauses in agreements between sophisticated parties, and to adopt a presumption against interpreting such clauses as penalties. We agree that “[t]he mie against penalty clauses, though it lingers, has come to seem rather an anachronism, especially in cases in which commercial enterprises are on both sides of the contract.” XCO Int’l, Inc., supra at 1002. See id. at 1002-1003 (collecting cases); American Multi-Cinema, Inc. v. Southroads, LLC, 119 F. Supp. 2d 1190, 1206-1207 (D. Kan. 2000), and cases cited; JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 380-381 (2005). See also 3 E.A. Farnsworth, Contracts § 12.18, at 303-304 (3d ed. 2004) (Farnsworth) (“trend favors freedom of contract through the enforcement of stipulated damage provisions as long as they do not clearly disregard the principle of compensation”); Williston, supra at § 65:27, at 339 (“An agreement for a fixed amount of damages for failure to carry out ... a property lease will generally be treated as an enforceable liquidated-damages provision, under the rules generally applicable to determining the validity of such provisions”); Restatement (Second) of Contracts § 356 comment a, at 157 (1981) (“parties to a contract may effectively provide in advance the damages that are to be payable in the event of breach as long as the provision does not disregard the principle of compensation”).