Mississippi Court of Appeals Reviews Relationship Between Actual Damages for Delay and Liquidated Damages

Hovas Constr., Inc. v. Western Line Consolidated School Dist.
2012 Miss. App. LEXIS 556 (September 14, 2012)

The Board of Trustees of Western Line Consolidated School District entered into a $450,000 contract with Hovas Construction, Inc. for an addition and renovation work at the O’Bannon High School in Washington County, Mississippi. The contract required that the project achieve substantial completion by June 6, 2008 and included a project delay liquidated damages provision providing for damages of $500 per day. The project achieved substantial completion on July 15, 2008, thirty-nine days late, and the School District withheld $19,500 from Hovas as substantial completion liquidated damages. Hovas filed suit in the Circuit Court of Washington County. The Circuit Court concluded the $19,500 withheld was appropriate because the liquidated damage provision was enforceable and that the School District suffered actual damages.

The Court of Appeals affirmed the Circuit Court’s findings, but issued a majority opinion, a special concurring opinion and a dissenting opinion, each with their own view of the law of liquidated damages in Mississippi. The majority opinion disagreed with Hovas’s two arguments: that the liquidated damage provision was not enforceable and that the trial court erred in finding actual damages. First, the majority opinion concluded that where the parties consent to a liquidated damage contract provision, the provision will be enforced unless there is evidence that the amount is “excessive or oppressive” or “disproportionate to the damages that would result from a breach.” The majority concluded that Hovas failed to present any evidence that the amount of liquidated damages was “unjust or oppressive.” The court then concluded that the $19,500 in liquidated damages was “reasonable and proportionate to the overall costs of the project and does not constitute a penalty.”

Addressing Hovas’ second argument related to actual damages, the majority concluded that “the issue of actual damage does not have an impact on the amount of liquidated damaged the School District is entitled.” The majority explained that a liquidated damages provision will be enforced unless the actual damages are “readily ascertainable” or the contract does not specifically fix the amount of liquidated damages. In this case, the majority concluded that it was difficult to determine the School District’s actual damages from disruption of the school environment, therefore liquidated damages were appropriate. However, the majority did not directly address whether actual damages were a prerequisite for liquidated damages.

Judge Maxwell’s special concurring opinion addressed the issue of whether the School District needed to show actual damages to recover liquidated damages. Citing Shields v. Early, 132 Miss. 282, 95 So. 839 (1923), Judge Maxwell explained that unlike some other states, Mississippi does not require that a party suffer actual damages before it can recover liquidated damages:

But Mississippi apparently utilizes a prospective or front-end approach that instead focuses on the reasonableness of liquidated-damages clauses as of the time the contract was executed – – not in hindsight. Indeed, the Mississippi Supreme Court has explained: “Whether a sum stipulated is a penalty or liquidated damages is a question of construction ‘to be decided upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract, not at the time of the breach.’”

He concluded that it was difficult to estimate the School District’s actual damages for a delay at the time of contract formation and liquidated damages of $500 per day on a $450,000 contract was a reasonable prospective estimate of damages. Therefore, the liquidated damage assessment was enforceable.

The dissenting opinion reached a different conclusion. Citing a Mississippi construction law treatise and a Fifth Circuit opinion applying Mississippi law, the dissenting opinion concluded that the School District must show actual damages for the delay to recover liquidated damages. Despite the project finishing 39 days behind schedule, the dissenting opinion concluded that the School District suffered no damage because the project was complete before the start of the school year. Thus, the dissenting opinion believed that the School District suffered no harm for the delay and therefore the assessment of liquidated damages was unenforceable.

Jason C. Spang

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