Gary Outdoor Advertising Co. v. Sun Lodge
Arizona Supreme Court
650 P.2d 1222 (1982)
Sun Lodge (defendant) leased two advertising signs from Outdoor (plaintiff) under 36-month leases requiring Outdoor to maintain the signs and pay their taxes and insurance; the leases specified that if Lodge missed two payments, Outdoor could repossess the signs and simultaneously demand immediate payment of all remaining rent as "liquidated damages." After Lodge missed two payments, Outdoor sued for roughly 30 months of remaining rent on each sign — while also re-renting one sign to a new tenant within a month and selling both signs within six months. The trial court found the liquidated-damages clause was actually an unenforceable penalty, and Outdoor appealed.
Whether a liquidated-damages clause must reflect a reasonable estimate of the actual damages likely to result from a breach in order to be enforceable.