Massachusetts Liquidated Damages: Enforceability Guide

Liquidated Damages in Massachusetts

Liquidated damages clauses predetermine the amount owed for specific breaches. They are common in Massachusetts construction projects, commercial real estate, biotechnology licensing agreements, and employment contracts.

Massachusetts Enforceability Standard

Massachusetts courts follow the framework established in Kelly v. Marx (1999), where the Supreme Judicial Court adopted the Restatement (Second) of Contracts approach. A liquidated damages clause is enforceable if:

• The amount is reasonable in relation to anticipated or actual harm caused by the breach
• At the time of contracting, damages were difficult to estimate accurately

The Kelly decision is notable because it allows courts to consider actual harm in addition to anticipated harm, giving Massachusetts courts the flexibility to invalidate clauses that produce grossly disproportionate results.

Key Massachusetts Considerations

• Second-look analysis — Following Kelly, Massachusetts applies a second-look test that permits courts to examine actual damages alongside anticipated damages. This means a clause that seemed reasonable at signing could still be challenged if actual damages are dramatically different
• Construction contracts — Massachusetts General Laws Chapter 30, Section 39G imposes specific requirements on liquidated damages in public construction contracts
• Residential real estate — Deposit forfeiture provisions are generally upheld when amounts are customary (typically 5% of the purchase price), though courts retain discretion to evaluate reasonableness
• Burden of proof — The party seeking to invalidate the clause bears the burden of demonstrating it constitutes a penalty

Red Flags

• Actual damages are a fraction of the stipulated amount, creating a windfall for the non-breaching party
• The clause was drafted by one party with no negotiation opportunity
• A uniform amount applies to all breaches regardless of their nature or severity
• The agreement permits recovery of both liquidated and consequential damages

When to Consult a Lawyer

Consider consulting a Massachusetts attorney if actual damages differ significantly from the liquidated amount, if the clause is in a public construction contract, or if the provision seems designed to penalize rather than compensate. The Kelly second-look framework may provide a path to challenge.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.