## Facts

- Michael Kvassay entered into a contract to sell 24,000 cases of baklava to Albert and Deana Murray.
- The agreement contemplated that the Murrays would be Kvassay’s only customer for the baklava covered by the contract.
- The contract included a liquidated damages provision stating that if the Murrays repudiated the contract or refused to accept delivery, they would owe Kvassay $5.00 for each undelivered case.
- Before contracting, Kvassay calculated his expected profit on the deal as approximately $3.55 per case after paying himself, or about $4.29 per case if he did not pay himself.
- Kvassay delivered about 3,000 cases, after which the Murrays refused to accept any additional deliveries.
- Kvassay sued for $105,000 in liquidated damages (21,000 undelivered cases × $5.00 per case).
- The trial court concluded the liquidated damages clause was void as a penalty, relying in part on evidence that Kvassay had earned only about $20,000 the previous year.

## Issues

1. Whether the contract’s $5.00-per-undelivered-case liquidated damages provision was unenforceable as an unreasonable penalty under K.S.A. 84-2-718(1).

## Decision

- Reversed and remanded.
- Held the trial court erred in declaring the liquidated damages clause void as a penalty based on Kvassay’s past annual earnings.
- Directed that enforceability must be evaluated under K.S.A. 84-2-718(1) by considering whether the amount was reasonable in light of anticipated or actual harm from breach and the difficulty of proving loss, rather than by comparing the clause to unrelated historic income.

## Legal Principles

- Under K.S.A. 84-2-718(1), a liquidated damages term is enforceable if the amount is reasonable in light of anticipated or actual harm caused by the breach, the difficulty of proving loss, and the inconvenience or infeasibility of obtaining an adequate remedy by other means.
- A liquidated damages provision is void only if it fixes an unreasonably large amount that operates as a penalty rather than a fair pre-estimate of probable loss.
- The reasonableness of a liquidated damages amount is evaluated with reference to the loss expected from the specific transaction at issue (and, where relevant, the actual harm), not by reference to the nonbreaching party’s prior-year earnings or general financial history.
- A seller’s expected profit and other hard-to-measure consequences of repudiation can be proper considerations in setting and evaluating a per-unit liquidated damages amount in a goods contract.

## Conclusion

The Kansas Court of Appeals reversed the trial court’s ruling that the $5.00-per-case clause was an unenforceable penalty, holding that K.S.A. 84-2-718(1) requires a reasonableness analysis tied to the anticipated (or actual) harm from repudiation and the difficulty of measuring damages in the transaction, not a comparison to the seller’s unrelated historical income, and remanded for further proceedings consistent with that standard.


Kvassay v. Murray, 808 P.2d 896, 15 Kan. App. 2d 426 (1991)