The construction of the Benzal Bridge over the White River in rural Arkansas brought about years of litigation between Missouri Pacific Railroad Company and contractor San Ore-Gardner, the crux of which was whether the liquidated damages provision in the parties' contract was enforceable. The liquidated damages provision at issue provided that San Ore-Gardner would be liable to Missouri Pacific Railroad Company for damages in the amount of $600 per day if performance of the contract was not completed within the specified time period. Although Missouri Pacific Railroad Company did contribute to the over two year delay in completion of the Benzal Bridge Project, the evidence showed that its responsibility was far less than that of San Ore-Gardner. The Eighth Circuit held that any act contributing to the failure to meet contractual deadlines, regardless of whether the levels of the parties fault was disproportionate, prevented enforcement of the liquidated damages provision.
This note argues that the Eighth Circuit's holding is one of the worst things to happen to Arkansas construction law in the last thirty years. Not only are liquidated damage provisions a fundamental principal to freedom of contract, but liquidated damage provisions also allow courts to award an identifiable amount of damages that were bargained for by the parties and would otherwise be difficult to determine in litigation. Courts are split on the issue of enforcement of a damage provision when the party seeking enforcement contributed to the breach. Traditionally, courts would not allow enforcement in such a situation. However, modern courts follow the apportionment rule, where the court will apportion fault and enforce the damage provision in accordance with the parties' corresponding levels of fault.
The background section of this note considers the development of liquidated damage law, including the historical backgrounds which lead to parties bargaining for remedies in the event of a breach of contract, the current state of the law regarding liquidated damage provisions, and development of the apportionment rule. Next, the note considers problems faced by jurisdictions opposing the apportionment rule. In particular, the traditional rule contravenes public policy (as found in a state's constitution and statutory scheme) in states that have enacted portions of the Uniform Commercial Code and comparative fault statutes that operate comparatively to the apportionment theory. Further, not applying the apportionment rule infringes on the parties' freedom to contract and in turn prolongs litigation in ascertaining the proper award of damages. In conclusion, the note proposes that the modern approach's apportionment rule is supported by Arkansas public policy and should be expressly adopted by Arkansas courts.
David C. Jung,
Solidifying Arkansas's Liquidated Damage Law after S.O.G.-San-Ore-Gardner v. Missouri Pacific Railroad Co.: It's Not All Water Under the Bridge,
35 U. Ark. Little Rock L. Rev. 389
Available at: https://lawrepository.ualr.edu/lawreview/vol35/iss2/5