Commercial Real Estate: Liquidated Damages Clause in P&S Unenforceable in NH Bankruptcy Court, in re Hooksett Landing, LLC, 2023 BNH 005
Ford, McDonald, McPartlin & Borden, P.A. v. Hooksett Landing, LLC (In re NH Highway Hotel Grp.), 2023 BNH 005 (awarding damages on default judgment for breach of purchase and
sale agreement that contemplated the assignment of debtor’s right to purchase land and certain access rights; finding that, under New Hampshire law, economic loss doctrine barred claim
for damages for negligent misrepresentation claim; and finding that liquidated damages clause in purchase and sale agreement was not enforceable). Turning to the issue of the liquidated
damages clause, the parties agree, and the P&S Agreement contemplated, at least in part, a real estate transaction (the sale of the Land and accesses rights), but is silent on how the property
would be developed. However, here the real estate transaction was between Ritchie Bros. and the Cross-Defendants, not the Cross-Claimants and the Cross-Defendants. After construing the
P&S Agreement in the context of the CrossClaimants’ and Cross-Defendant’s business relationship and in reference to the Ritchie Agreement, the Court finds that the P&S Agreement is
more properly characterized as an assignment of the right to purchase Land and certain development rights attached to the Land, as opposed to a traditional sale of real estate. Based on
the testimony given at trial and the evidence admitted into evidence, the Court does not believe that projected damages from a breach of the P&S Agreement were difficult to prove as
required to satisfy the first prong of the three-prong test used to evaluate the enforceability of liquidated damages clauses under New Hampshire law.
Here, the record shows that NH Highway was supposed to receive $400,000 for the sale of its right to purchase the Land and the related rights, and a 15% equity position in the company
(and thus, the Land, and any revenue generated from the monetization of the Land and related rights). Turning to the third prong, the Court finds that the reduction of the Cross-
Claimants’ foreseeable damages to the $30,000 deposit would be unreasonable and grossly disproportionate to the actual damages sustained, given the actual damages analysis considered
herein.
Accordingly, the Court concludes that the liquidated damages clause is not enforceable. In so concluding, the Court notes that Lopes did not offer any evidence into the record supporting
his position that the damages were difficult to ascertain or otherwise challenge the Cross-Claimants’ analysis of the liquidated damages clause and applicable law.
Under New Hampshire law, courts recognize a distinction between a valid liquidated damages clauses in contracts and what amounts to an unenforceable penalty. “In a valid [and
enforceable liquidation] clause: (1) the damages anticipated as a result of the breach are uncertain in amount or difficult to prove; (2) the parties intended to liquidate damages in advance;
and (3) the amount agreed upon is reasonable and not greatly disproportionate to the presumable loss or injury.” Holloway Automotive, 163 N.H. at 9-10, 35 A.3d at 581 (citing Orr, 157
N.H. at 514, 953 A.2d at 1193). The Supreme Court of New Hampshire has “concluded that ‘[i]n real estate transactions, projected damages from a breach are difficult to forecast because
land values fluctuate.” C & M Realty Tr., 133 N.H. at 478, 578 A.2d at 359 (quoting Bower v. Davis & Symonds Lumber Co., 119 N.H. 605, 609, 406 A.2d 119, 122 (1979) and citing
Realco Equities, Inc. v. John Hancock Mut. Life Ins. Co., 130 N.H. 345, 351, 540 A.2d 1220, 1224 (1988) (widely recognized that damages resulting from failed real estate deal
difficult to prove)).
