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Carrothers Construction Co., L.L.C. v. City of South Hutchinson

May 23, 2008

CARROTHERS CONSTRUCTION COMPANY, L.L.C., APPELLANT,
v.
CITY OF SOUTH HUTCHINSON, KANSAS, APPELLEE.



Appeal from Reno District Court; TIMOTHY J. CHAMBERS, judge.

SYLLABUS BY THE COURT

1. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

2. The propriety of liquidated damages is a question of law over which an appellate court's review is unlimited.

3. The interpretation and legal effect of written instruments are matters of law. The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the language of the contract without applying rules of construction.

4. The interpretation of a written contract that is free from ambiguity is a judicial function and does not require oral testimony to determine the contract's meaning. An ambiguity in a contract does not appear until two or more meanings can be construed from the contract provisions.

5. Under the plain language of the contract and the undisputed facts of this case, the district court did not err in determining the substantial and final completion dates of the contract.

6. The burden of proving that a liquidated damages clause constitutes an unenforceable penalty rests with the party challenging the provision.

7. Parties to a contract may stipulate to a set amount of damages for breach of the contract as long as the provision constitutes a liquidated damages clause and not a penalty. The distinction between a provision for liquidated damages and one for a penalty is that a penalty is to secure performance, while a liquidated damages provision is for the payment of a sum in lieu of performance.

8. There are two considerations which are given special weight in determining whether a contractual provision is for liquidated damages rather than a penalty. The first consideration is whether the stipulated amount is conscionable, i.e., that it is reasonable in view of the value of the subject matter of the contract and of the probable or presumptive loss in case of breach. The second consideration is whether the nature of the transaction is such that the amount of actual damages resulting from default would not be easily and readily determinable.

9. The reasonableness of a liquidated damages clause should be determined as of the time the contract was executed, not with the benefit of hindsight. However, to recover under a liquidated damages clause, the amount of liquidated damages must bear some reasonable relationship to the actual injury or damages caused by the breach. If such amount bears no such relationship, it is a penalty and void. To the extent that liquidated damages must bear some reasonable relationship to the actual injury or damages caused by the breach, a court's retrospective analysis of a liquidated damages clause is also appropriate.

10. Under the plain language of the contract and the undisputed facts of this case, the amount of liquidated damages under the contract was reasonable when viewed prospectively and also when viewed in relation to the actual damages caused by the breach. Furthermore, the nature of the transaction was such that the amount of actual damages resulting from default was not easily and readily determinable.

The opinion of the court was delivered by: Malone, J.

Affirmed.

Before BUSER, P.J., MALONE and McANANY, JJ.

Carrothers Construction Company, L.L.C. (Carrothers) appeals the district court's decision granting summary judgment and awarding liquidated damages in favor of the City of South Hutchinson (City). Carrothers entered into a contract with the City to construct a wastewater treatment facility, and Carrothers failed to complete the project by the deadlines set forth in the contract, triggering the liquidated damages provision. The only issue is whether the district court erred in finding the liquidated damages provision of the contract was enforceable.

On March 12, 2002, Carrothers executed a contract with the City to construct a wastewater treatment facility for $5,618,000. The contract provided Carrothers should reach substantial completion of the project by July 15, 2003, and final completion by August 14, 2003. The engineering company hired by the City, MKEC Engineering Consultants, Inc. (MKEC), assisted in drafting the contract, which included a "time is of the essence" clause and a provision for liquidated damages. An MKEC employee, David Chase, performed the calculations for the liquidated ...


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