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Your Commercial Contract’s Damages Clause and Your Florida Breach of Contract Case

Fine-PrintIn contract law and in commercial litigation, the gap between success and failure can be as small as a single word. In the case of an electric utility and its breach of contract case, the outcome of its case hinged on three little words: “at a minimum.” The insertion of those words into its complaint meant that the damages it sought were not liquidated and it could not obtain a damages award in its default judgment case without first having a hearing on damages, the Second District Court of Appeal ruled.

The seeds of this case were sown when an electric utility inked a deal for computer hardware and software. The deal was for both the purchase and for five years of maintenance and support. In year three, though, the utility alleged that it did not receive the agreed-upon support, so it sued. As part of its complaint, the utility claimed that its “damages are at a minimum the cost of the line item Defendants failed to provide, which totaled $47,994.85 ($44,855 plus 7% tax).”

The provider did not file a response in the case and, ultimately, the matter went to the judge who entered a default judgment in favor of the utility. The trial judge also, without holding a hearing, awarded damages to the utility. The court determined that a hearing wasn’t necessary because the utility was seeking liquidated damages based on that line item in the parties’ contract.

After the entry of this judgment, the provider asked to set aside the default judgment and requested a hearing on damages. The provider argued that a hearing was required because the damages the utility sought actually were not liquidated. The trial court rejected this contention.

The provider appealed and the appeals court sided with the provider. The appeals court noted that the trial court was correct in that, if the damages sought by a plaintiff were liquidated, a hearing was not required by law. Rule 1.440(c) of the civil procedure rules says that a hearing is necessary if damages are not liquidated. The difference between the two is clear in Florida: if it requires the taking of testimony, then damages are not liquidated; if the amount of damages can be decided with finality and precision based solely on the two sides’ pleadings, then the damages are liquidated.

Here, the key to the provider’s victory was three words used by the utility. If the utility had stated in its complaint that its damages were exactly “the cost of the line item Defendants failed to provide, which totaled $47,994.85 ($44,855 plus 7% tax),” then its damages likely would have been considered to be liquidated and the provider’s appeal probably would have failed. However, when the utility included the words “at a minimum” in its pleadings, it introduced an element of uncertainty. This sentence created the possibility that, based on the pleadings, the utility’s damages were the precise amount of the line item or perhaps they were more. Just last year, the Third District ruled that when “the specific sum stated is claimed to be… the minimum amount due . . . the amount alleged is not liquidated.”

That’s what happened here and that required a hearing on damages in this case.

For your commercial contract and business litigation needs, consult the Florida commercial contract and litigation attorneys at Stok Folk + Kon. Our attorneys have been helping businesses and business people with a wide array of legal tasks for many years and are here to assist you with your needs.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

More blog posts:

Commercial Lease Agreement’s Lack of Clarity Sends South Florida Tenant and Landlord Back to Trial Court for More Hearings, Florida Business Lawyers Blog, Jan. 5, 2017

Federal Court Denies Florida Franchisor’s Arbitration Request Due to Contract Clause’s Specifics, Florida Business Lawyers Blog, Dec. 6, 2016