COLONIAL AT LYNNFIELD, INC. V. SLOAN
870 F.2d 761 (1st Cir. 1989)
NATURE OF THE CASE: This is a dispute over liquidated damages.
FACTS: Colonial (P) made a contract with Sloan (D) for D to buy a 49% interest in its
Hilton Inns in Massachusetts. The sale was made necessary by P's renovation and expansion
which caused a marked decrease in cash flow and profits as rooms had to be taken off line. D
agreed to pay $3,375,000 for its 49% share of the hotels. D was given time to test the
market in order to raise the monies by using a limited partnership. D was also given the
option withdraw after the specified time if it could not raise the monies. If D wanted to go
forward it must announce that intention by a Notice to Proceed. The Notice to Proceed with
subject to a $200,000 liquidated damages provision. D failed to meet the Notice to Proceed
deadline of April 2, 1981. However, D agreed to close the deal on June 1, 1981. D also
agreed that P would receive an additional $100,000 for the delay from the original deal. P
obtained a loan from EssexBank of $318,000 and assigned the agreement proceeds to the bank.
Eventually D never performed and P was forced to sell a 50% share for $3.7 million. P then
filed suit against D for the liquidated damages portion of the original contract. The trial
court found the liquidated damages clause to be reasonable. D appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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