Boone Coleman Constr., Inc. v. Vill. of Piketon

Decision Date24 February 2016
Docket NumberNo. 2014–0978.,2014–0978.
Citation50 N.E.3d 502,145 Ohio St.3d 450
Parties BOONE COLEMAN CONSTRUCTION, INC., Appellee, v. The VILLAGE OF PIKETON, Appellant.
CourtOhio Supreme Court

145 Ohio St.3d 450
50 N.E.3d 502

BOONE COLEMAN CONSTRUCTION, INC., Appellee
v.
The VILLAGE OF PIKETON, Appellant.

No. 2014–0978.

Supreme Court of Ohio.

Submitted June 9, 2015.
Decided Feb. 24, 2016.


50 N.E.3d 505

Stephen C. Rodeheffer and John A. Gambill, Portsmouth, for appellee.

Kegler Brown Hill & Ritter, L.P.A., Eric B. Travers, and Timothy A. Kelley, Columbus, for appellant.

Bricker & Eckler, L.L.P., Jack R. Rosati Jr., Columbus, and Adam F. Florey, urging reversal for amici curiae, County Commissioners Association of Ohio, Ohio Municipal League, Ohio School Boards Association, and Ohio Township Association.

O'CONNOR, C.J.

145 Ohio St.3d 450

{¶ 1} In this appeal arising from a public-road-construction contract, we consider our precedent on contractual liquidated-damages provisions. We expressly extend that precedent to public-works contracts, vacate the judgment of the court of appeals, and remand this cause to that

50 N.E.3d 506

court for reconsideration in light of our opinion.

Relevant Background

{¶ 2} In 2007, appellant, the village of Piketon, solicited bids for the “Pike Hill Roadway and Related Improvements” project. The project included the installation of a traffic light at the intersection of U.S. Route 23 and Market Street in Piketon and improvements to the roadway.

145 Ohio St.3d 451

{¶ 3} Appellee, Boone Coleman Construction, Inc., submitted the lowest bid and was hired for the project. The parties entered into a contract in which Piketon agreed to pay Boone Coleman $683,300 to complete the work. The contract expressly provided that the time for completing the project was “of the essence”1 and that the project had to be substantially completed within 120 days of the date of commencement of the project. A liquidated-damages provision made clear that Boone Coleman would pay $700 to Piketon for each day after the specified completion date that the contract was not substantially completed.

{¶ 4} The date of commencement of the project was set for July 30, 2007. Thus, the contract required that the project be substantially completed 120 days later on November 27, 2007. Piketon granted Boone Coleman's first request for an extension, which moved the completion date to May 30, 2008. But when Boone Coleman sought another extension, Piketon refused to grant it and notified Boone Coleman that it would assess the contractually specified liquidated damages of $700 per day if the project was not completed by May 30, 2008. Boone Coleman did not finish the project by then and on July 7, 2008, Piketon informed Boone Coleman that it was assessing damages of $700 per day as of May 31, 2008, until the completion of the project.

{¶ 5} Boone Coleman did not complete the project until July 2, 2009—well over a year (397 days) after the parties' extended completion date of May 30, 2008.

145 Ohio St.3d 452

{¶ 6} Boone Coleman brought suit against Piketon in the Pike County Common

50 N.E.3d 507

Pleas Court. Among other things, it alleged that Piketon had improperly failed to pay $147,477 of the contract price for the construction.2 Piketon counterclaimed for liquidated damages.

{¶ 7} Piketon moved for summary judgment. The trial court granted Piketon's motion and entered judgment in its favor, awarding Piketon $277,900 in liquidated damages.

{¶ 8} Boone Coleman appealed, asserting that the trial court erred in awarding Piketon liquidated damages. The appellate court agreed. Citing our decision in Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St.3d 27, 465 N.E.2d 392 (1984), it held, “[W]hen we view the contract as a whole in its application, we conclude the amount of damages is so manifestly unreasonable and disproportionate that it is plainly unrealistic and inequitable.” (Emphasis added.) 2014-Ohio-2377, 13 N.E.3d 1190, at ¶ 40. It concluded that because the “resulting amount [of liquidated damages] is manifestly inequitable and unrealistic, courts are justified in determining the provision to be an unenforceable penalty.” Id. at ¶ 43, citing Samson Sales at 28, 465 N.E.2d 392. It reversed that portion of the trial court's judgment and remanded for further proceedings.

{¶ 9} We granted Piketon's request for discretionary review and agreed to address two related propositions of law:

When evaluating the enforceability of a liquidated damages provision in a construction contract, the court must conduct its analysis prospectively, based on the per diem amount of the liquidated damages at the time the contract is executed, and not retrospectively, based on the total liquidated damages that ultimately accrue.
145 Ohio St.3d 453
Liquidated damages are not deemed a penalty simply because a project consists of new construction of an improvement that did not exist previously and no proof of actual damages is required to enforce liquidated damages pursuant to such a contract.

See 140 Ohio St.3d 1451, 2014-Ohio-4414, 17 N.E.3d 598.

Analysis

Standard of Review for Contractual Liquidated–Damages Provisions

{¶ 10} We review the interpretation of a contract, a question of law, de novo.

50 N.E.3d 508

Arnott v. Arnott, 132 Ohio St.3d 401, 2012-Ohio-3208, 972 N.E.2d 586, ¶ 14. Similarly, the question of whether a contract clause provides for liquidated damages or an unenforceable penalty is a question of law that we also review de novo. Lake Ridge Academy v. Carney, 66 Ohio St.3d 376, 380, 613 N.E.2d 183 (1993).

Substantive Law on Liquidated Damages

{¶ 11} Simply stated, liquidated damages are damages that the parties to a contract agree upon, or stipulate to, as the actual damages that will result from a future breach of the contract. Sheffield–King Milling Co. v. Domestic Science Baking Co., 95 Ohio St. 180, 183, 115 N.E. 1014 (1917).

{¶ 12} “ ‘The effect of a clause for stipulated damages in a contract is to substitute the amount agreed upon as liquidated damages for the actual damages resulting from breach of the contract, and thereby prevents [sic] a controversy between the parties as to the amount of damages.’ ” Dave Gustafson & Co., Inc. v. South Dakota, 83 S.D. 160, 164, 156 N.W.2d 185 (1968), quoting 22 American Jurisprudence 2d, Damages, Section 235, at 321 (1965). “ ‘If a provision is construed to be one for liquidated damages, the sum stipulated forms, in general, the measure of damages in case of a breach, and the recovery must be for that amount. No larger or smaller sum can be awarded even though the actual loss may be greater or less.’ ” Id., quoting Section 235 at 321. Put another way, “a liquidated damages clause in a contract is an advance settlement of the anticipated actual damages arising from a future breach.” Carrothers Constr. Co., L.L.C. v. S. Hutchinson, 288 Kan. 743, 754, 207 P.3d 231 (2009).

{¶ 13} The common law viewed liquidated-damages provisions “with a gimlet eye,” Dist. Cablevision Ltd. Partnership v. Bassin, 828 A.2d 714, 723 (D.C.App.2003), but that historical antipathy dissipated as parties to contracts, attorneys, and the courts recognized that such provisions serve valuable purposes.

{¶ 14} “Today the law does not look with disfavor upon ‘liquidated damages' provisions in contracts. When they are fair and reasonable attempts to fix just

145 Ohio St.3d 454

compensation for anticipated loss caused by breach of contract, they are enforced.” Priebe & Sons, Inc. v. United States, 332 U.S. 407, 411, 68 S.Ct. 123, 92 L.Ed. 32 (1947). The modern rule is “to look with candor, if not with favor” upon liquidated-damages provisions in contracts when those provisions were “deliberately entered into between parties who have equality of opportunity for understanding and insisting upon their rights.” Wise v. United States, 249 U.S. 361, 365, 39 S.Ct. 303, 63 L.Ed. 647 (1919). See also Bassin at 724, quoting Wilmington Trust Co. v. Aerovias de Mexico, S.A. de C.V., 893 F.Supp. 215, 218 (S.D.N.Y.1995) (“ ‘Relevant to this inquiry is the sophistication of the parties and whether both sides were represented by able counsel who negotiated the contract at arms length without the ability to overreach the other side’ ”).

{¶ 15} Part of the appeal of liquidated-damages provisions is that they allow the contracting parties to “protect themselves against the difficulty, uncertainty, and expenses that necessarily follow judicial proceedings when trying to ascertain damages.” Carrothers Constr. Co., 288 Kan. at 754, 207 P.3d 231. This benefit is particularly valuable when “actual damages are likely to be difficult to quantify in the event that the contract is breached.” Bassin at 723. Liquidated-damages provisions thereby “promot [e] prompt...

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