## Facts

- A lumber supplier contracted in writing to provide a developer with lumber and building materials for construction projects in Suffolk County, New York.
- The contract’s “terms and conditions” included an attorney-fee provision stating that if collection was turned over to an attorney, the buyer would pay a “reasonable counsel fee,” and for collection matters that fee was “agreed to be thirty (30%) per cent” of the amount due.
- The developer received and used materials but refused to pay, ceased operations, and abandoned its office.
- The supplier sued to recover the unpaid price and contractual attorney’s fees.
- The developer contested liability, asserting the goods were not of merchantable quality.

## Issues

1. Whether a commercial sales contract clause providing for “reasonable” attorney’s fees and fixing that fee at 30% of the amount recovered is enforceable under New York law and U.C.C. principles.
2. Whether such a percentage-based attorney-fee provision must be rejected as an unenforceable penalty or instead evaluated under liquidated-damages reasonableness standards.

## Decision

- The Court of Appeals reversed the Appellate Division’s order regarding attorney’s fees and remitted for further proceedings.
- The court held that a 30% attorney-fee clause is not per se unenforceable, but it must be scrutinized under liquidated-damages standards.
- The lower courts erred by substituting their own view of a “reasonable” fee without determining whether the parties’ 30% figure was a reasonable estimate (or otherwise reasonable in context) or an unreasonably large sum functioning as a penalty.
- On remittal, the fact-finder must determine, based on an appropriate record, whether the 30% provision is reasonable in light of anticipated or actual harm and collection realities.

## Legal Principles

- Commercial parties may contract for attorney-fee shifting, but courts will not enforce provisions that operate as punitive exactions rather than compensation.
- Under U.C.C. § 2-718 and related common-law doctrine, a liquidated-damages term is enforceable only if reasonable in light of anticipated or actual harm and the difficulty of proving loss; an unreasonably large amount is void as a penalty.
- A percentage-based attorney-fee clause that “liquidates” fees is analyzed using liquidated-damages reasonableness standards rather than automatically enforced or automatically disregarded.
- Reasonableness may depend on facts such as customary collection practices, the risks and difficulty of collection, and whether the provision reflects a bona fide contingent-fee type arrangement.

## Conclusion

The court required a fact-based determination of whether the contract’s 30% attorney-fee provision was a reasonable liquidated measure tied to collection harm or an unenforceable penalty, and remitted for that inquiry rather than allowing courts to rewrite the parties’ agreed percentage without applying liquidated-damages analysis.


Equitable Lumber Corp. v. IPA Land Dev. Corp., 38 N.Y.2d 516, 344 N.E.2d 391, 381 N.Y.S.2d 459 (N.Y. 1976)