Validity of liquidated damages clause must be determined prospectively as of the time of signing, not retrospectively, as eventually applied.

The municipality awarded a bid to Boone Coleman. The contract price for the public works project was $683,300, and the contract contained a liquidated damages provision: Boone Coleman would owe $700 per day for every day the project was unfinished beyond the agreed completion date. After granting one extension, the municipality refused a second. When the completion date passed with the project unfinished, the municipality invoked the liquidated damages clause. The project was not completed for over a year past the completion date, resulting in liquidated damages in the amount of $277,900. The Ohio Supreme Court criticized the holding of the intermediate appellate court, which invalidated the damages award on the basis that it was manifestly unreasonable and inequitable when viewed in light of “the contract as a whole in its application.” The Supreme Court ruled that the proper prospective from which to judge the clause was not by comparing the ultimate award to the contract price (a full one third) but, rather, as of the time of signing ($700 per day on a $600,000 contract). Noting that liquidated damages provisions are particularly useful in public works projects because the damages are nearly impossible to quantify, the Supreme Court upheld the contract provision and ultimate award.

_{Case Law Alerts, 2^nd Quarter, April 1, 2016}

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