“Reasonable” Liquidated Damages

In Lifeline, Inc. v. Poyner, the Appellate Court of Maryland affirmed the trial court’s decision to award $75,000 in liquidated damages to Christal Poyner, the seller, after Lifeline, Inc., the buyer, failed to complete the purchase of a $2.2 million commercial property.

Key terms of the agreement included:

• Lifeline paid a $75,000 deposit to an escrow agent.
• The contract, drafted by Lifeline, included a liquidated damages clause:
  • If Lifeline defaulted, Poyner’s sole remedy was to retain the deposit.
• Lifeline had a “Feasibility Period” to secure financing and walk away with the deposit refunded.
• Lifeline missed the deadline without terminating, then defaulted.

To be valid in Maryland, a liquidated damages clause must: (a) specify a clear sum; (b) represent a reasonable estimate of anticipated damages; and (c) be binding and not subject to recalculation later.

The court found the clause valid in this case because:

• The $75,000 amount was specific and agreed upon.
• It was reasonable (~3.4% of the $2.2M price), especially since Poyner testified to:
  • Lost rental opportunities,
  • Market withdrawal,
  • Ongoing property costs,
  • Lost investment income.
• The parties expressly agreed the deposit would be the sole remedy, and actual damages would be difficult to calculate.

Lifeline argued the clause was an unenforceable penalty, citing Willard Packaging Co., but the court found that Willard was distinguishable as that case lacked evidence of harm or a rational damage estimate, where the present case included ample evidence of real, even though not precisely quantifiable harm.

The court upheld the clause as a valid, enforceable liquidated damages provision, not a penalty. Lifeline breached the contract by failing to close and not terminating within the allowed timeframe, so Poyner was entitled to keep the deposit.