Barrie School v. Patch, No. 12, Sept. Term, 2006.

CourtCourt of Special Appeals of Maryland
Writing for the CourtRaker
Citation933 A.2d 382,401 Md. 496
PartiesBARRIE SCHOOL v. Andrew PATCH, et al.
Docket NumberNo. 12, Sept. Term, 2006.
Decision Date05 October 2007
933 A.2d 382
401 Md. 496
BARRIE SCHOOL
v.
Andrew PATCH, et al.
No. 12, Sept. Term, 2006.
Court of Appeals of Maryland.
October 5, 2007.

[933 A.2d 384]

Michael G. Campbell (Miller, Miller & Canby, Chtd., on brief), Rockville, for petitioner/cross-respondent.

Douglas V. Rigler, Arlington, VA, for respondents/cross-petitioners.

Argued before BELL, C.J. RAKER, WILNER*, CATHELL*, HARRELL, BATTAGLIA and GREENE, JJ.

RAKER, J.


The primary question we must decide in this case is whether a non-breaching party to a contract has a duty to mitigate damages where the contract between the parties contains a valid liquidated damages clause. We shall answer that question in the negative and hold that a non-breaching party has no duty to mitigate damages where the parties agree to a valid liquidated sum in the event of a breach.

I.

Petitioner, The Barrie School, is a private, non-profit Montessori school located in Silver Spring, Maryland. Respondents, Andrew and Pamela Patch, are parents who enrolled their daughter, Christiana, in The Barrie School for the 2004-2005 academic year. The Patch's entered into a re-enrollment agreement (the "Agreement")

933 A.2d 385

with The Barrie School that contained a specific deadline for cancelling the Agreement. The Agreement stated that if respondents withdrew their child from The Barrie School after a specific date, respondents would pay tuition for the entire academic year as liquidated damages.

The Agreement provided for a $1,000.00 non-refundable deposit and payment of the remaining tuition balance of $13,490.00 in two installments. The Agreement contained an escape clause that allowed for unilateral cancellation, provided that the head of the school received written notice by certified letter before May 31, 2004. Under § 3 of the Agreement, respondents were obligated to pay the full tuition if they failed to meet the May 31, 2004 deadline for withdrawal. Section 3 of the Agreement provided as follows:

"I understand that unless the Student is withdrawn by written notice given by certified letter, return receipt requested, and received by the Head of School prior to May 31, 2004, I am liable for and agree to pay the entire year's charges for the academic year, including expenses, as later defined, incurred by the School for collection. Withdrawal, dismissal, absences or illness of Student during the year do not release me from any portion of this obligation."

The Patch's did not cancel the Agreement on or before May 31, 2004.

On July 14, 2004, forty-four days after the withdrawal deadline noted in § 3 of the Agreement, the Patch's sent a cancellation notice via facsimile to The Barrie School's admissions office and demanded a refund of their initial deposit. Respondents refused to pay any of the remaining tuition balance to the school and enrolled Christiana in another school.

The Barrie School filed a breach of contract action against respondents in the District Court of Maryland, sitting in Montgomery County. The Barrie School sought the remaining tuition balance for the 2004-2005 academic year, plus 12% interest, and attorney's fees. In their notice of intent to defend, respondents claimed that the Agreement had been procured by fraud, that it was a contract of adhesion, that the damages constituted a penalty, that The Barrie School had a duty to mitigate any damages, and that the Agreement was unenforceable because it violated public policy and Maryland's anti-competition laws.1 Respondents also filed a counter-claim, seeking the return of their $1,000-00 deposit, interest, and attorney's fees.

The case proceeded to trial before the District Court. Charles Shayler, the Chief Financial Officer of The Barrie School, testified for petitioner; Andrew and Pamela Patch testified on their own behalf. Respondents' major argument at the close of evidence was that The Barrie School had a duty to mitigate its damages, notwithstanding the language of § 3 of the Agreement.

The District Court found that there was a valid contract between the parties, including a valid liquidated damages clause, that there was no fraud in the inducement to enter into the Agreement, and that the Agreement was not a contract of adhesion. Accordingly, the court denied respondents' counterclaim. With respect to the liquidated damages clause, the court reasoned as follows:

"I am satisfied that it is a valid liquidated damages provision, that based on the testimony of Mr. Goss, that there

933 A.2d 386

was—it would have been next to impossible to assign an exact amount as to the impact of losing one child for the school year. And that in light of that, and the fact that A, it was agreed to by the parties, this was not a contract of adhesion, certainly as I understand a contract of adhesion to be. These people could simply have walked away from this. Their lives did not—did not depend on signing this contract. And that basing one year's tuition or using one year's tuition as the measure is certainly not unreasonable and in fact, Mr. Goss' testimony was that it—probably the one year's tuition probably represented less than the actual costs of educating the child at Barrie School. Okay, so I find the contract is okay, including the liquidated damages provision."

The court next addressed respondents' argument that, notwithstanding a valid liquidated damages clause, a non-breaching party has a duty to mitigate damages. The court concluded that The Barrie School's failure to mitigate damages was fatal to its claim, reasoning as follows:

"There is obviously the issue that I was most concerned with, and that was the issue of what effect liquidated damages has on the general rule that a party in— Plaintiff in the face of a breach does have some duty to mitigate.

* * *

Even if the amount is difficult to determine, I don't see why in the world they still shouldn't do something to mitigate. And again, even if the tuition amount does not exactly hit the number, it sure comes close to it in terms of going toward making them whole.

And it's unquestionable that they did absolutely nothing whatsoever to try to fill the space for this child once they got the word in July that she was—that she was not going to be there. They—they didn't go through their old applications, they didn't put out any advertisements. They did absolutely nothing. And I understand there is the black letter rule. But I think even black letter rules are subject to some exception, and I don't see why, under the circumstances of this case, when they—even if it couldn't exactly correspond to exact amount that they would have been harmed, they— again, could have done a lot to have helped themselves out, at least to the extent of the amount they're suing for in this case. And that their failure to do so I do find to be fatal.

So for that reason I'm going to also grant a Defendants' verdict on The Barrie School as Plaintiff."

The court entered judgment in favor of respondents on The Barrie School claim.

The Barrie School noted a timely appeal to the Circuit Court for Montgomery County pursuant to Maryland Rule 7-102(b)(1).2 The question presented to the Circuit Court was as follows:

"Where the trial court finds that a private school tuition contract contains a valid liquidated damages clause, does the school have a duty to mitigate its damages by locating a new student after the parents breach the contract by with-drawing

933 A.2d 387

their child after an agreed deadline?"

Respondents noted a cross-appeal, arguing that the District Court committed error in (1) denying the fraudulent inducement claim, (2) finding that the liquidated damages clause did not constitute a penalty, and (3) denying portions of their discovery request as overly broad.

In a written opinion, the Circuit Court agreed with the District Court and held that even though the liquidated damages clause was valid and not a penalty, The Barrie School had a duty to mitigate damages. The court affirmed also the District Court holding that there was no fraud on The Barrie School's part and found that the District Court did not err in denying portions of respondents' discovery request. The Circuit Court stated as follows:

"The question is presented as to whether a party who is protected by a liquidated damages clause in a contract is excused of the normal contractual duty to mitigate its damages as a prerequisite to recovery. The court finds that such a duty does exist, notwithstanding the existence of a liquidated damages clause, and, thus, the District Court did not err as a matter of law in so finding. It is interesting to note that while no evidence of mitigation was presented, it would appear that mitigation had, in effect, already occurred when The Barrie School already enrolled more students than its budget projections called for."

We granted The Barrie School's petition for a writ of certiorari to this Court to address the following questions:

"(1) Is there a duty to mitigate damages in a breach of contract action where the trial court determines that the liquidated damages clause in the parties' contract is valid and enforceable and is not a penalty?

"(2) Is it proper for a circuit court to consider new evidence and make new factual findings in an appeal heard on the record?"

We granted also respondents' cross-petition to address the following questions:

"(1) May district and circuit courts deny discovery relating to the inducement, negotiation and formation of a contract containing a liquidated damages clause, on grounds that such discovery is `irrelevant' in light of this court's holding that a clause denominated as a liquidated damages clause, but, in fact, constituting a penalty is unenforceable?

"(2) When a contract provides an express provision that `ANY ALTERATIONS OR MODIFICATIONS TO THIS AGREEMENT WILL NOT BE ACCEPTED BY THE SCHOOL,' may a court conclude, in the absence of contrary evidence, that the contract is not a contract of adhesion?

"(3)...

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12 practice notes
  • Clark v. O'Malley, Nos. 93
    • United States
    • Maryland Court of Appeals
    • August 23, 2013
    ...agreement by the other.” Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342, 351 (2006). See Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382, 388 (2007). When such clauses in contracts “are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach......
  • Clark v. O'Malley, No. 768, September Term, 2008.
    • United States
    • Court of Special Appeals of Maryland
    • June 10, 2009
    ...of damages to be recovered by either party for a breach of the agreement by the other.'" Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382 (2007) (quoting Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342 (2006)). Accord WILLIAM J. HOLLOWAY & MICHAEL J. LEECH, EMPLOYMENT T......
  • Clark v. O'Malley, No. 93
    • United States
    • Court of Special Appeals of Maryland
    • August 23, 2013
    ...by the other." Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342, 351 (2006). See Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382, 388 (2007). When such clauses in contracts "are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach......
  • JW & JJ Entm't, LLC v. Sandler, Civil Action No. 8:13-cv-01609-AW
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Maryland)
    • September 26, 2013
    ...(1) one party's lack of meaningful choice, and (2) contractual terms that unreasonably favor the other party." Barrie Sch. v. Patch, 933 A.2d 382, 394 (Md. 2007) (citation and internal quotation marks omitted). Here, the Complaint and incorporated contracts leave no indicia of "ex......
  • Request a trial to view additional results
12 cases
  • Clark v. O'Malley, Nos. 93
    • United States
    • Maryland Court of Appeals
    • August 23, 2013
    ...agreement by the other.” Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342, 351 (2006). See Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382, 388 (2007). When such clauses in contracts “are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach......
  • Clark v. O'Malley, No. 768, September Term, 2008.
    • United States
    • Court of Special Appeals of Maryland
    • June 10, 2009
    ...of damages to be recovered by either party for a breach of the agreement by the other.'" Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382 (2007) (quoting Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342 (2006)). Accord WILLIAM J. HOLLOWAY & MICHAEL J. LEECH, EMPLOYMENT T......
  • Clark v. O'Malley, No. 93
    • United States
    • Court of Special Appeals of Maryland
    • August 23, 2013
    ...by the other." Bd. of Educ. v. Heister, 392 Md. 140, 155, 896 A.2d 342, 351 (2006). See Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382, 388 (2007). When such clauses in contracts "are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach......
  • JW & JJ Entm't, LLC v. Sandler, Civil Action No. 8:13-cv-01609-AW
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Maryland)
    • September 26, 2013
    ...(1) one party's lack of meaningful choice, and (2) contractual terms that unreasonably favor the other party." Barrie Sch. v. Patch, 933 A.2d 382, 394 (Md. 2007) (citation and internal quotation marks omitted). Here, the Complaint and incorporated contracts leave no indicia of "ex......
  • Request a trial to view additional results

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