## Facts

- Samson Sales, Inc. (Samson) operated a retail store and contracted with Honeywell, Inc. (Honeywell) for a burglar alarm system.
- Under the agreement, Honeywell would install the system for $1,500 and provide monitoring/operation services for $150 per month for five years.
- The contract included a clause stating that if Honeywell failed to properly perform, its liability would be limited to $50, described in the contract as “liquidated damages and not as a penalty.”
- Samson’s store was broken into during the contract term, and the alarm allegedly did not activate.
- Samson claimed it lost approximately $68,000 in merchandise as a result of the burglary.
- Samson sued Honeywell seeking to recover its loss, asserting Honeywell’s breach of contract caused the damages.
- The trial court granted summary judgment in Samson’s favor but limited Samson’s recovery to $50 based on the contract’s limitation/liquidated-damages clause.
- Samson appealed, and the appellate court reversed, holding the $50 clause invalid as a penalty.
- Honeywell appealed to the Supreme Court of Ohio.

## Issues

1. Whether the contract clause limiting Honeywell’s liability to $50 upon failure to perform was enforceable as liquidated damages or invalid as a penalty under Ohio law.

## Decision

- The Supreme Court of Ohio reversed the court of appeals.
- The court held the $50 liquidated-damages/limitation clause was enforceable under Ohio law.
- The court reinstated the effect of the trial court’s limitation of damages to $50 (subject to the procedural posture), treating the clause as a valid contractual allocation of risk rather than a punitive penalty.

## Legal Principles

- Ohio enforces a liquidated-damages provision when: (1) damages from breach are uncertain as to amount and difficult to prove; (2) the stipulated sum is not manifestly unconscionable, unreasonable, or disproportionate to the anticipated loss; and (3) the contract language and surrounding circumstances show the parties intended the stated sum to be the damages for breach rather than a punishment.
- Labels are relevant but not controlling; courts evaluate substance, including whether the amount was set as a reasonable estimate at contracting rather than as a sanction.
- Parties may allocate commercial risk by contract, including limiting an alarm company’s exposure where the service fee is small in relation to the potential loss from a burglary.
- In alarm-service agreements, a contractual cap may function as a practical substitute for pricing the service as burglary insurance; a customer seeking full protection can obtain separate insurance rather than shifting the entire risk to the service provider for a modest fee.
- A large difference between actual loss and the stated amount does not automatically invalidate liquidated damages; the analysis focuses on uncertainty and reasonableness at the time of contracting, not hindsight based on the particular breach.

## Conclusion

Samson Sales, Inc. v. Honeywell, Inc. holds that a $50 clause limiting an alarm company’s liability for failure to perform can be enforced as liquidated damages where losses from breach are difficult to estimate at contracting and the clause reflects a negotiated allocation of risk in light of the service price, so Samson’s recovery was limited to the contract’s $50 amount rather than its claimed burglary losses.


Samson Sales, Inc. v. Honeywell, Inc., 465 N.E.2d 392 (1984)