## Facts

- A commercial lessor leased 25 specially configured milk-delivery trucks to a home milk-delivery company under a 7-year lease beginning January 15, 1970, with weekly rent and service/repair obligations on the lessor.
- The lessor financed the trucks with bank debt; the lease permitted rent adjustments tied to interest-rate fluctuations.
- The lessee had an option after 12 months to purchase the trucks for the remaining bank balance plus $100 per truck.
- The lease included a clause (Article 16) providing that, if the lease terminated early due to the lessee’s breach, the lessor would recover “liquidated” damages equal to all remaining rent minus a fixed “re-rental value” set at 50% of the remaining rent (effectively, 50% of the unpaid rent for the balance of the term).
- The clause recited reasons for the formula, including the lessor’s initial investment, uncertainty of re-renting or resale, possible idle time and losses, and offsetting savings in operating and service items.
- About three years into the term, the lessee stopped paying and claimed the lessor had breached; the lessor sued to enforce Article 16.
- After a nonjury trial, the court found the lessee to be the breaching party, upheld Article 16, and awarded approximately half of the remaining rent (about $88,677.60).
- The intermediate appellate court affirmed, and the lessee appealed to the state’s highest court.

## Issues

1. Whether Article 16’s requirement that the breaching lessee pay one-half of the remaining rent constitutes enforceable liquidated damages or an unenforceable penalty under New York law.

## Decision

- The court affirmed the judgment for the lessor.
- The court held Article 16 enforceable as a liquidated damages clause, not a penalty.
- The court concluded that, at the time of contracting, damages from a premature termination were difficult to estimate and the 50% formula was not plainly or grossly disproportionate to probable loss.
- The court rejected evaluating validity by comparing the stipulated amount to the actual loss measured after breach.

## Legal Principles

- A stipulated-damages provision is unenforceable as a penalty if the amount fixed is plainly or grossly disproportionate to the probable loss.
- A liquidated damages clause is enforceable when, at the time of contracting, (a) actual damages are difficult to ascertain, and (b) the amount stipulated is a reasonable forecast of just compensation.
- The liquidated-damages versus penalty inquiry is assessed ex ante (at contract formation), not by hindsight based on actual damages after breach.
- In an arm’s-length commercial agreement between sophisticated parties, courts will generally respect an agreed damages formula when it reasonably allocates risk and is not punitive.

## Conclusion

The court enforced the lease’s liquidated damages provision requiring payment of half the remaining rent upon the lessee’s breach, because the parties faced substantial uncertainty in measuring likely losses at formation and the agreed formula reasonably approximated probable harm rather than imposing a penalty.


Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420 (N.Y. 1977)