PRESENT: All the Justices
WILLIAM E. O’BRIAN, JR., ET AL.
v. Record No. 972717 OPINION BY JUSTICE CYNTHIA D. KINSER
November 6, 1998
LANGLEY SCHOOL
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY
Benjamin N.A. Kendrick, Judge
This appeal concerns a liquidated damages clause
requiring parents to pay tuition for an entire academic
year to a school for failure to give timely notice of their
decision to withdraw their daughter from the school.
Because the circuit court entered summary judgment for the
school before permitting the parents to conduct discovery
with regard to their defense that the clause is an
unenforceable penalty, we will reverse the judgment of the
circuit court.
I.
William E. O’Brian, Jr., and Fern P. O’Brian (the
O’Brians) enrolled their daughter as a student at Langley
School (Langley) for the 1995-96 academic year. On
February 29, 1996, the O’Brians executed the “Langley
School 1996-97 Membership Agreement” (the Agreement) to
enroll their daughter in the second grade for the ensuing
academic year. Pursuant to the Agreement, they paid a
deposit in the amount of $1,055 to Langley. The O’Brians
subsequently decided to withdraw their daughter from
Langley, and, in a letter dated June 13, 1996, they
notified Langley of their decision.
In response, Langley informed the O’Brians in two
separate letters dated June 18 and June 20, 1996, that they
were obligated to pay the entire amount of the 1996-97
tuition because they had not timely notified Langley of
their decision to withdraw their daughter. Langley based
its demand on paragraphs D(1) and (4) of the Agreement.
These paragraphs state:
D. WITHDRAWALS AND REFUNDS:
1. All withdrawals MUST BE made by June 1, 1996, as
follows:
a. The withdrawal must be made in writing
stating the name and grade of the child(ren) to
be withdrawn.
b. This notice must be received by an authorized
administrative employee of the School no later
than 4:30 p.m. on June 1, 1996.
* * * *
4. IT IS UNDERSTOOD THAT THERE SHALL BE NO REFUND OF
OR RELIEF FROM ANY PORTION OF THE FULL TUITION OR
ANY OTHER OBLIGATION ACCEPTED HEREIN FOR ANY
REASON IF WRITTEN NOTICE OF WITHDRAWAL OF ANY
CHILD IS NOT RECEIVED IN ACCORDANCE WITH THE
ABOVE PROCEDURE. SINCE DAMAGE TO THE SCHOOL DUE
TO SUCH A WITHDRAWAL WOULD BE DIFFICULT TO
DETERMINE, MEMBER AGREES TO PAY AGREED-UPON
TUITION AS LIQUIDATED DAMAGES, TOGETHER WITH ANY
COURT COSTS AND/OR LEGAL FEES THE SCHOOL MAY BE
OBLIGED TO INCUR IN THE COLLECTION OF SUCH
LIQUIDATED DAMAGES IN THE EVENT OF WITHDRAWAL
AFTER JUNE 1, 1996.
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The O’Brians refused to pay the agreed-upon tuition as
liquidated damages. Consequently, Langley filed a motion
for judgment on September 4, 1996, alleging that the
O’Brians had breached the terms of the Agreement. Langley
sought judgment against the O’Brians for the tuition that
was due under the Agreement, plus late fees and attorney’s
fees.
During pretrial proceedings, the O’Brians submitted
written interrogatories to Langley. In one of the
interrogatories, the O’Brians asked Langley whether it had
made reasonable efforts to fill the spot made available by
the withdrawal of the O’Brians’ daughter. In response,
Langley stated that it “does not so contend because it has
no obligation to do so by virtue of” the Agreement.
Langley either partially answered or objected to the
remaining interrogatories. The O’Brians then filed a
motion to compel discovery, which the circuit court denied.
Thereafter, Langley moved for summary judgment. After
considering memorandum and oral argument from both parties,
the circuit court granted Langley’s motion and entered
judgment on October 3, 1997, against the O’Brians in the
amount of $9,745, plus late payment fees from June 1, 1996,
and an attorney’s fee in the amount of $8,900. The
O’Brians appeal.
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II.
The dispositive issue in this case is whether the
circuit court erred by awarding summary judgment before
permitting the O’Brians to conduct discovery with regard to
their defense that paragraph D(4) of the Agreement is not a
valid liquidated damages clause. Langley asserts that the
circuit court did not err because the O’Brians were
asserting a defense that is not legally cognizable. We do
not agree.
We have previously enunciated the test for determining
the validity of a liquidated damages clause:
[P]arties to a contract may agree in advance about the
amount to be paid as compensation for loss or injury
which may result from a breach of the contract “[w]hen
the actual damages contemplated at the time of the
agreement are uncertain and difficult to determine
with exactness and when the amount fixed is not out of
all proportion to the probable loss.”
301 Dahlgren Ltd. Partnership v. Bd. of Supervisors of King
George County, 240 Va. 200, 202-03, 396 S.E.2d 651, 653
(1990) (quoting Taylor v. Sanders, 233 Va. 73, 75, 353
S.E.2d 745, 746-47 (1987)). However, a liquidated damages
clause will be construed as an unenforceable penalty “when
the damage resulting from a breach of contract is
susceptible of definite measurement, or where the
stipulated amount would be grossly in excess of actual
damages.” Brooks v. Bankson, 248 Va. 197, 208, 445 S.E.2d
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473, 479 (1994) (citing Taylor, 233 Va. at 75, 353 S.E.2d
at 747); accord 301 Dahlgren, 240 Va. at 203, 396 S.E.2d at
653.
The fact that a party enters into a contract
containing a liquidated damages clause does not prevent
that party from later litigating the validity of the
clause. The party opposing the imposition of liquidated
damages is entitled to conduct discovery and present
relevant evidence that the damages resulting from breach of
the contract are susceptible of definite measurement or
that the stipulated damages are grossly in excess of the
actual damages suffered by the nonbreaching party. Upon
proof of either of these elements, a liquidated damages
clause becomes an unenforceable penalty. Brooks, 248 Va.
at 208, 445 S.E.2d at 479.
As the party challenging the validity of paragraph
D(4) of the Agreement, the O’Brians bear the burden of
proof on that issue. First Nat. Bank of Chicago v.
Atlantic Tele-Network Co., 946 F.2d 516, 522 (7th Cir.
1991); Little v. Rohauer, 707 P.2d 1015, 1017 (Colo. App.
1985); St. Margaret’s-McTernan School, Inc. v. Thompson,
627 A.2d 449, 451 (Conn. App. 1993); Joyce’s Submarine
Sandwiches, Inc. v. California Pub. Employees’ Retirement
Sys., 395 S.E.2d 257, 259 (Ga. App. 1990); Rodriguez v.
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Learjet, Inc., 946 P.2d 1010, 1014 (Kan. App. 1997);
Shallow Brook Assoc. v. Dube, 599 A.2d 132, 138 (N.H.
1991); Metlife Capital Fin. Corp. v. Washington Ave.
Assoc., L.P., 713 A.2d 527, 534 (N.J. Super. A.D. 1998);
P.J. Carlin Constr. Co. v. City of New York, 399 N.Y.S.2d
13, 14 (N.Y.A.D. 1977); R. Conrad Moore & Assoc., Inc. v.
Lerma, 946 S.W.2d 90, 95 (Tex. App. 1997); Young Elec. Sign
Co. v. United Standard West, Inc., 755 P.2d 162, 164 (Utah
1988); but see AT&T Info. Sys., Inc. v. Smith, 593 So.2d
673, 676 (La. App. 1991); Pacheco v. Scoblionko, 532 A.2d
1036, 1039 (Me. 1987); Story v. City of Bozeman, 856 P.2d
202, 215 (Mont. 1993); Fisher v. Schmeling, 520 N.W.2d 820,
822 (N.D. 1994); Patterson v. Anderson Motor Co., Inc., 319
S.W.2d 492, 501 (Tenn. App. 1958). We believe this
allocation of the burden of proof is appropriate since the
O’Brians initially assented to the clause when they signed
the Agreement. Moreover, the purpose of a liquidated
damages provision is to obviate the need for the
nonbreaching party to prove actual damages. This purpose
would not be served if the nonbreaching party, instead of
proving actual damages, had to show that “the damage
resulting from a breach of contract is [not] susceptible of
definite measurement” and that “the stipulated amount [is
not] grossly in excess of actual damages.” Brooks, 248 Va.
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at 208, 445 S.E.2d at 479. However, if the O’Brians are
successful in proving that paragraph D(4) is an
unenforceable penalty, Langley must then prove its actual
damages as in any breach of contract action where the
contract does not contain a liquidated damages provision.
Stony Creek Lumber Co. v. Fields & Co., 102 Va. 1, 7-8, 45
S.E. 797, 799 (1903); accord Metlife, 713 A.2d at 537;
Rodriquez, 946 P.2d at 1013-14.
In the present case, the circuit court precluded any
inquiry into the validity of the liquidated damages clause
by denying the O’Brians’ motion to compel and subsequently
awarding summary judgment before hearing any relevant
evidence on the issue. Generally, the granting or denying
of discovery is a matter within the discretion of the trial
court and will not be reversed on appeal unless “the action
taken was improvident and affected substantial rights.”
Rakes v. Fulcher, 210 Va. 542, 546, 172 S.E.2d 751, 755
(1970). However, the court’s actions here substantially
affected the O’Brians’ ability and right to litigate the
validity of the liquidated damages clause.
For these reasons, we will reverse the judgment of the
circuit court and remand this case for further proceedings
consistent with this opinion.
Reversed and remanded.
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