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Supreme Security Systems Inc. v. Aaron Medical Transportation, Inc.

A-0368-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

LIQUIDATED DAMAGES — A court cannot ignore a liquidated damages provision unless by competent, relevant, or reasonably credible evidence it determines that the damage provision is an unenforceable penalty and not a reasonable estimate of appropriate damages made at the time the contract was executed.

A security system provider contracted with an end user to lease and maintain a security system. The contract was modified several times to account for leased equipment changes with a corresponding increase in monthly usage fees. The contract, as modified, contained a liquidated damages provision. The end user moved to a new location and the service provider removed the equipment that had been installed. The end user assumed the system would be reinstalled at its new location and signed a new agreement to that effect. The new agreement was never signed by the system provider and its provider refused to re-install the system unless past due charges were paid. After the end user refused to pay the balance due, installation fees, and five years worth of monthly charges, the service provider sued.

The lower court ruled in favor of the system provider, but viewed the transaction as a loan, and not a lease. As a result, it disregarded the liquidated damages provision. It held that the system provider lent the equipment and then took it back. The court found that the equipment “didn’t really work” until well after it was installed and ruled the system provider was entitled only to a monthly fee for the time that the equipment was working at the original location prior to its removal. After giving “fair adjustment” for the value of the equipment then in the system provider’s possession, and crediting the amount already paid, the Court awarded $200 in favor of the system provider. The system provider appealed.

The Appellate Division reversed and remanded because it was not convinced that the lower court’s findings were supported by “competent, relevant or reasonably credible evidence.” It ordered the lower court to make more complete findings and then assess the system provider’s liquidated damages claim, which it determined to be the most substantial portion of its demand for damages under the contract. It held that, pursuant to the contract, the system provider was entitled to have the fact finder consider liquidated damages provision and whether it is enforceable.

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