Does a signed contract supersede common law?

I rent cars to film companies using a signed contract. The contract clearly states that “the day rate shall remain in force until the vehicle is repaired”. The insurance company paid every penny of a $43,000 repair estimate. The vehicle will be out of service for 268 days total (80 days lost while inspecting it at several different shops and waiting for them to make payment for the repairs and 168 days of actual repair). The day rate indicated in the signed contract is $3,000 a day (Ferrari). Does the contract supercede the common law for liquidating damages? I am hearing yes and no.

Asked on July 15, 2010 under Insurance Law, California

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

California law used to be written to assume that liquidated damage provisions in a contract were invalid. California changed the policy of "presumptive invalidity" to a policy of "presumptive validity" in commercial, non-consumer contracts. Currently, with certain exceptions, a provision in a contract liquidating damages for a breach is valid unless the party challenging the provision establishes that it was unreasonable under the circumstances that existed at the time the contract was made.

A liquidated damages provision is not invalid merely because it is intended to encourage a party to perform, so long as it represents a reasonable attempt to anticipate the losses to be suffered. Here, if I did my math correctly, you want $804,000.00 in liquidated damages for the car, which is more than twice the value of a new one.  I am hard pressed to say that a Judge will think that this is a reasonable amount.  I think you are hearing "yes" and "no" because you are getting opinions from those not in charge, so to speak.  Only the Judge can rule on this based upon the law and prior case law, with a little equity thrown in.  I am sure that the Judge will need to look at all the variables: why it took so long to estimate and repair, how often the vehicle was rented out at that price over the last x amount of years as well as the damages amount claimed and the price. The only way to really "know" is to sue. 


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