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US Airlines Inc v.

Austin Travel Corp


Rule - Large percentage of total K price justifiable as liquidated damages
Facts
○ D, a travel agency used computerized reservation systems operated by P
called Apollo.
○ The K for Apollo called for liquidated damages of 80% of the remaining
monthly fees due under the K, 80% of variable charges for generation of tix and
itineraries for the month preceding termination, multiplied by the # of months
remaining in the K term, and 50% of the average monthly booking fee revenues tim
es the # of remaining months.
○ D stopped using Apollo at certain offices, and P agree to forgo its li
quidated damages provided D would continue using Apollo at its other offices for
the term of the contracts.
○ D subsequently discontinue use of Apollo completely
○ P sues for breach
Trial
○ Awarded P the coontractual liquidated damages. D appeals, claiming liq
damages clause were unenforceable penalties
Issue
○ May a liquidated damages clause be enforced even if it calls for payme
nt of 80% of the balance due under the contract?
Held
YES - judgment affirmed.
Reasoning
○ Liq damages are upheld unless the sums amount to a penalyt that are gr
ossly disproportionate to the probable loss anticipated when the K was executed
○ Liq damages must bear a reasonable proportion to the probable loss, an
d the amount of actual loss must be incapable or difficult of precise estimatio
n
○ In this case, even though the liq damages were large, they were reason
able b/c most of P's costs were fixed or determined early on in the relationship
.
○ The costs P saved by D's breach were less than 20% of the revenue, so
D received an adequate credit for those saved costs.
○ D also claims that the liq damages clauses are penalties because they
provide the same amount of damages regardless of the significance of the breach.
§ But a party may not terminate a K for a nonmaterial breach, so
by definition ANY breach that would give rise to Liq Damages would be material
○ For liq damages to arise in event of trivial breach, the K would have
to specifically say so. This K does not.