## Facts

- TAL Financial Corporation leased computer, software, telephone, and office furniture equipment to Onward Technologies, Inc. under a master equipment lease with three schedules and 36-month payment terms.
- The lease included a liquidated-damages provision allowing TAL, upon default, to recover the present value of all remaining payments plus 18% of TAL’s acquisition cost of the equipment.
- CSC Consulting, Inc. acquired Onward and assumed its contracts, including the lease, and initially continued making payments.
- During an office move, CSC discarded much of the leased equipment and misplaced the lease documents; CSC requested a copy from TAL.
- TAL treated CSC as in default and demanded payment under the liquidated-damages clause; CSC offered a smaller amount in settlement, which TAL rejected.
- TAL sought monetary relief under the liquidated-damages provision and did not seek return of the equipment.

## Issues

1. In a commercial contract outside the Uniform Commercial Code, which party bears the burden of proof when a liquidated-damages clause is attacked as an unenforceable penalty?
2. Was the lease’s liquidated-damages formula (remaining payments plus 18% of acquisition cost) enforceable as a reasonable forecast of damages at contract formation?
3. Were the trial court’s actual-damages calculation and attorney’s-fee award proper under the contract’s fee-shifting provision?

## Decision

- The Supreme Judicial Court held that, outside the UCC, the party seeking to avoid a liquidated-damages clause bears the burden to prove it is an unenforceable penalty.
- The court affirmed the finding that the challenged clause was an unenforceable penalty because it was grossly disproportionate to a reasonable estimate of anticipated damages at the time of contracting.
- The court affirmed the trial court’s award of $9,471 in actual contract damages.
- The court modified the judgment by reducing the attorney’s-fee award, holding the requested and awarded fees were unreasonable as a matter of law despite the contractual entitlement to “reasonable” fees.

## Legal Principles

- In Massachusetts, for real estate contracts and other commercial contracts outside the UCC, a liquidated-damages clause is presumptively enforceable, and the challenger bears the burden of proving unenforceability.
- A liquidated-damages clause is enforceable only if, at the time of contract formation, (1) actual damages were difficult to ascertain and (2) the stipulated amount was a reasonable forecast of anticipated damages.
- Massachusetts applies a primarily prospective, time-of-formation test rather than an after-the-fact recalculation based on actual damages.
- A clause operates as an unenforceable penalty when the stipulated sum is so disproportionate to anticipated damages that it cannot be viewed as a good-faith estimate.
- Contractual attorney’s-fee provisions authorize only reasonable fees; courts must reduce or deny excessive requests even when the claimant prevails on the underlying breach.

## Conclusion

The court clarified that, in non-UCC commercial cases, the party challenging liquidated damages must prove the clause is a penalty, and it held that a lease formula requiring remaining payments plus an 18% acquisition-cost add-on was unenforceable because it was grossly disproportionate to anticipated damages at formation; the actual-damages award was affirmed, but the attorney’s-fee award was reduced as unreasonable.


TAL Fin. Corp. v. CSC Consulting, Inc., 446 Mass. 422, 844 N.E.2d 1085 (2006)