Liquidated Damages for Breach of Franchise Agreement?


Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance).

https://en.wikipedia.org/wiki/Liquidated_damages

Yes, was the answer of court in the case of Howard Johnson International, Inc. v. Manomay, LLC.  The franchise agreement, in this case, had a liquidated damage provision, which allowed the franchisor, Howard Johnson, to collect liquidated damages in the event that the franchisee breached the franchise agreement.  The franchisee breached the franchise agreement by not paying.  Howard Johnson terminated the franchise agreement and demand payment of unpaid royalties and liquidated damages. 

The court awarded the Howard Johnson the payment of unpaid royalties, attorney fees, and liquidated damages totaling $89,691.60.


[W]hen a liquidated damages clause for a commercial transaction is negotiated by parties with comparable bargaining power, the ultimate issue is whether the amount of liquidated damages is reasonable, either at the time of contract formation or the breach.

Ramada, 2018 WL 3105421, at *5

The court citing case precedent held that liquidated damages in commercial contracts negotiated by parties with comparable bargaining power are enforceable if the amount of liquidated damages is set at the time of contacting and the amount is a reasonable forecast of the harm resulting from breach.

Leave a Reply

Your email address will not be published. Required fields are marked *