14 | THE PRACTICAL REAL ESTATE LAWYER JULY 2019
MARK D. EISEMANN is a Member with Lewis Rice LLC, in Kansas City Missouri. His practice encompasses
all aspects of real estate development, with an emphasis in theatre, retail, oce, and medical oce leasing for
both landlords and tenants. Mark is familiar with the competing interests of developers, lenders, and occupants
in mixed use urban and suburban developments, lifestyle/entertainment centers, regional malls, power centers,
and neighborhood centers. He understands that balancing these competing interests in negotiations requires
creative solutions to fact-specic circumstances, clear and concise drafting, and an ability to understand the busi-
ness objectives of the various interested parties. AV® Preeminent™ Peer Review Rated by Martindale-Hubbell, Mark
is also listed in Chambers USA, America’s Leading Lawyers for Business under Real Estate/Missouri and is a Fellow in
the American College of Real Estate Lawyers. He was selected for inclusion in The Best Lawyers in America® in 2019.
MICHAEL P. PAPPAS is an Associate in the Kansas City oce Real Estate Department. Michael has experi-
ence advising clients in a wide variety of commercial and residential real estate transactions, including acquisi-
tions, dispositions, development, and nancing.
The purpose of this article is to inform sellers about Mis-
souri law on liquidated damages clauses and alternative
remedy clauses in commercial real estate purchase and
sale agreements.
May the seller choose specic performance instead of
liquidated damages (so that liquidated damages are
not an exclusive remedy)?
Answer: Yes, if the commercial real estate purchase
and sale agreement expressly grants the seller the
right of specic performance as an alternative remedy.
In Missouri, a seller entitled to recover under a liquidated
damages clause may not pursue specic performance
as an alternative remedy unless specic performance is
expressly reserved as an alternative remedy in the real
estate contract. Hoelscher v. Schenewerk, 804 S.W.2d
828 (1991) (Holding that where the real estate contract
clearly stated that alternative remedies, including spe-
cic performance, were available to the seller upon a
breach, the retaining of the earnest money as liqui-
dated damages became the exclusive remedy only if
so elected by the seller). However, where a real estate
contract provides for liquidated damages, but fails to
provide the seller with the ability to elect for the alter-
native remedy of specic performance, then liquidated
damages is the exclusive remedy. Warstler v. Cibrian
859 S.W.2d 162 (Mo. App. W. Dist. 1993) (Holding that
the seller was only entitled to the liquidated damages
specied in the real estate contract, because the real
estate contract did not contain language providing for
alternative remedies, such as specic performance).
May the seller choose actual damages instead of
liquidated damages (so that liquidated damages are
not an exclusive damage remedy)?
Answer: Yes, if the commercial real estate purchase
and sale agreement expressly grants the seller the
right to seek actual damages as an alternative remedy.
The rule for actual damages mirrors the rule for spe-
cic performance. If the real estate contract expressly
provides for other remedies, including actual dam-
ages, as an alternative to liquidated damages, Missouri
courts allow actual damages to be recovered in lieu of
liquidated damages. Warstler v. Cibrian, supra.
If the seller may choose liquidated or actual damages,
may it have both?
Answer: No, but any earnest money held as liquidated
damages may be applied toward payment of actual
damages.
In real estate contracts where the seller has the abil-
ity to choose between actual and liquidated dam-
ages, the seller is only entitled to recover one or the
OPTIONAL LIQUIDATED DAMAGES IN MISSOURI COMMERCIAL
REAL ESTATE PURCHASE AND SALE AGREEMENTS
OPTIONAL LIQUIDATED DAMAGES IN MISSOURI COMMERCIAL REAL ESTATE PURCHASE AND SALE AGREEMENTS
| 15
other, but not both. Missouri courts have stated several
times that liquidated and actual damages may not be
awarded as compensation for the same injuries. Twin
River Const. Co. v. Public Water Dist., 653 S.W.2d 682,
694 (Mo.App.1983), Arnett v. Keith, 582 S.W.2d 363, 365–
366 (Mo.App.1979), Germany v. Nelson, 677 S.W.2d 386,
388 (Mo. Ct. App. 1984) (Holding that the trial court’s
award of an additional $5,700 for actual damages gave
the seller a double recovery that it was not entitled to
receive). However, if the seller elects the actual dam-
ages remedy, any earnest money held may be applied
toward payment of actual damages. Hoelscher v. Sche-
newerk 804 S.W.2d 828 (Mo. Ct. App. W. Dist. 1991).
If the seller may choose liquidated damages or actual
damages, but not both, when must it decide?
Answer: Missouri courts have not yet directly
addressed this issue.
In Hoelscher v. Schenewerk, the court concluded
that the seller had not elected liquidated damages
because the seller led an action for specic perfor-
mance the day of the breach, shortly after the buyer
failed to close as scheduled. Over a year later, the seller
led an amended petition for actual damages after
the property was sold to a third party. The court then
permitted the earnest money, which had not been
returned to the buyer, to be applied toward the actual
damages awarded. While this case does not establish
a clear timeline for when the election between liqui-
dated damages and other remedies must be made, it
supports the proposition that the initial election of a
remedy other than liquidated damages must be made
proximate to the breach.
Is there an applicable statute addressing liquidated
damages clauses?
Answer: No.
There is no Missouri statute addressing liquidated
damages in commercial real estate purchase and sale
agreements.
What is the test for a valid liquidated damages clause?
Answer: Missouri courts have adopted the Restate-
ment (First) of Contracts § 339 (1932) test for determin-
ing the enforceability of a liquidated damages clause.
Missouri courts have also referenced the Restatement
(Second) of Contracts § 356 (1981) test and have stated
that the two tests mirror each other, even though the
tests, as discussed below, actually dier in two impor-
tant respects. No Missouri case has addressed the dif-
ferences between § 339 and § 356. Missouri courts
have departed from the Restatement (First) test by
also requiring the seller to prove some actual damages
to be entitled to the specied liquidated damages.
Missouri courts have not yet tied this requirement for
proof of some actual damages to the Restatement
(Second) § 356 comment b. that provides if “no loss at
all has occurred, a provision xing a substantial sum as
damages is unenforceable.”
The Restatement (First) test provides:
(1) An agreement, made in advance of breach, x-
ing the damages therefor, is not enforceable as a
contract and does not aect the damages recov-
erable for the breach, unless
(a) the amount so xed is a reasonable forecast of
just compensation for the harm that is caused by
the breach, and
(b) the harm that is caused by the breach is one
that is incapable or very dicult of accurate
estimation.
Grand Bissell Towers, Inc. v. Joan Gagnon Enterprises,
Inc., 657 S.W.2d 378, 379 (Mo. Ct. App. 1983); see also
Germany v. Nelson, 677 S.W.2d 386, 388 (Mo.App.1984);
see also Highland Inns Corp. v. Am. Landmark Corp.,
650 S.W.2d 667 (Mo. Ct. App. 1983).
The Restatement (First) test is cited by all of the rel-
evant Missouri cases determining the enforceability of
a liquidated damages clause. However, some Missouri
courts have also cited the Restatement (Second) § 356
test for additional support. Grand Bissell Towers, Inc. v.
Joan Gagnon Enterprises, Inc., 657 S.W.2d 378, 379 (Mo.
Ct. App. 1983) (Adding in a footnote that the Restate-
ment (Second) § 356 restates the test in a more suc-
cinct fashion), Paragon Group, Inc. v. Ampleman, 878
S.W.2d 878, 881 (Mo. App. E. Dist. 1994) (Citing both
the Restatement (First) and Restatement (Second) and
adding that the Restatement (Second) amended the
test, but retained the same basic analysis), Arcese v.
Daniel Schmitt & Co., 504 S.W.3d 772, 778 (Mo. App.
E. Dist. 2016) (Citing to the Restatement (First) § 339
for the test of validity, but also citing the Restatement
(Second) § 356 for additional support; stating that the
two tests “mirror” each other). Missouri courts, thus,
16 | THE PRACTICAL REAL ESTATE LAWYER JULY 2019
seem to have adopted the tests from both the Restate-
ment (First) and Restatement (Second), believing them
to be essentially the same.
The Restatement (First) and Restatement (Second) dif-
fer in two respects. First, the Restatement (First) pro-
vides for a single test of reasonableness—that “the
amount so xed is a reasonable forecast of just com-
pensation for the harm that is caused by the breach.”
The Restatement (Second) allows reasonableness
to be determined “in the light of the anticipated or
actual loss caused by the breach”—creating an either-
or proposition not in the Restatement (First). Second,
the absence of actual damages under the Restatement
(First) is generally not a defense to liquidated damages.
However, the last sentence of Restatement (Second) §
356 comment b. does take in account actual damages
(providing that if “no loss at all has occurred, a provision
xing a substantial sum as damages is unenforceable”).
Missouri courts have held that the second prong of the
Restatement (First) test—“the harm that is caused by
the breach is one that is incapable or very dicult of
accurate estimation”—is deemed satised simply by
execution of a real estate contract. At contract execu-
tion, damages for breach are always “uncertain in
amount and dicult to ascertain or prove.” Highland
Inns Corp. v. Am. Landmark Corp., 650 S.W.2d 667, 674
(Mo. Ct. App. 1983), Paragon Group, Inc. v. Ampleman,
878 S.W.2d 878 (Mo. App. E. Dist. 1994), Carmel v. Dieck-
mann, 617 S.W.2d 459, 461[4–5] (Mo. App. W. Dist. 1981),
see also Goldberg v. Charlie’s Chevrolet, Inc., 672 S.W.2d
177 (Mo. App. E. Dist. 1984). As a consequence, only
the rst prong of the Restatement (First) test needs
to be proven—that “the amount so xed is a reason-
able forecast of just compensation for the harm that is
caused by the breach.” However, Missouri court refer-
ences, without much distinction, to both the Restate-
ment (First) § 339 and the Restatement (Second) § 356
leaves open the possibility that a court basing its deci-
sion solely on the Restatement (Second) § 356 might
not reach the same conclusion as that reached under
the Restatement (First) § 339—that the “diculties of
proof of loss” is not relevant to the test.
Missouri courts also require the seller to prove some
actual damages to be entitled to the specied liq-
uidated damages. Grand Bissell Towers, Inc. v. Joan
Gagnon Enterprises, Inc., 657 S.W.2d 378 (Mo. App. E.
Dist. 1983) (Holding that the liquidated damages clause
at issue was unenforceable because no actual harm
or damage was shown by the non-breaching party),
see also Stand. Imp. Co. v. DiGiovanni, 768 S.W.2d 190,
193 (Mo. App. W. Dist. 1989) (Holding that some actual
damage was indisputably shown in an action for
breach of contract brought by a home improvement
contractor because the record reected that an esti-
mator had spent 15 to 20 hours on the contract and
the contractor had expended money to determine
title to the property, prepared and recorded a deed
of trust, obtained an appraisal, and paid other over-
head expenses in anticipation of nancing the proj-
ect). Missouri courts have not yet tied this requirement
for proof of some actual damages to the Restatement
(Second) § 356 comment b. that provides if “no loss at
all has occurred, a provision xing a substantial sum as
damages is unenforceable.”
Who has the burden of proof?
Answer: The buyer has the burden of proof if the buyer
is challenging the enforceability of the liquidated dam-
ages clause. However, the seller has the burden of
showing that the seller incurred some actual damages.
Under Missouri law, the burden of establishing that a
liquidated damages clause in a contract is a penalty,
and thus invalid, is on the party challenging the rea-
sonableness of the liquidated damages clause. Man-
ufacturers Cas. Ins. Co. v. Sho-Me Power Corp., 157 F.
Supp. 681, 684 (W.D. Mo. 1957). However, the party
attempting to enforce a liquidated damages clause
bears the burden of showing that they have incurred
some actual damage. Grand Bissell Towers, Inc. v. Joan
Gagnon Enterprises, Inc., supra (1983) (Holding that the
liquidated damages clause at issue was unenforceable
because no actual harm or damage was shown by the
non-breaching party).
As of when is reasonableness tested?
Answer: There is no Missouri case that addresses this
issue for commercial real estate purchase and sale
agreements.
One Missouri case measured reasonableness of a liqui-
dated damages clause in the context of a construction
contract at the time the contract was made. Burst v. R.W.
Beal & Co., Inc., 771 S.W.2d 87 (1989). However, because
Missouri courts also cite the Restatement (Second) of
Contracts § 356 (1981) rule, see Valentine’s, Inc. v. Ngo,
251 S.W.3d 352 (2008) (Citing Restatement (Second) of
Contracts § 356 comment b. for an explanation of how
OPTIONAL LIQUIDATED DAMAGES IN MISSOURI COMMERCIAL REAL ESTATE PURCHASE AND SALE AGREEMENTS
| 17
diculty of forecasting aects reasonableness), and
Grand Bissell Towers, Inc. v. Joan Gagnon Enterprises,
Inc., supra (Citing comment b. for the same purpose), it
would be logical, if presented with an appropriate case,
for Missouri courts to allow reasonableness to be satis-
ed either at contract execution or contract breach.
What percentage of the purchase price is likely
acceptable as liquidated damages?
Answer: Ten percent, but higher percentages may be
upheld if deemed reasonable under the circumstances.
Missouri courts have held that 10 percent of the pur-
chase price is a reasonable amount for liquidated dam-
ages in the event of a breach of contract to buy real
estate. Stein v. Bruce, 366 S.W.2d 732, 737 (Mo. App.
1963), Germany v. Nelson, 677 S.W.2d 386 (Mo. App. S.
Dist. 1984) (Stating that ten percent of the purchase
price would be a reasonable amount for liquidated
damages). It is unlikely that the 10 percent amount in
these cases serves as a hard cap on reasonable liqui-
dated damages because Missouri courts have held liq-
uidated damages in higher percentages to be enforce-
able in non-real estate contracts: 16 percent (Paragon
Group, Inc. v. Ampleman, 878 S.W.2d 878, 881 (Mo. App.
E. Dist. 1994) (where a liquidated damages clause was
16 percent of the value of the entire lease), 30 percent
(Stand. Imp. Co. v. DiGiovanni, 768 S.W.2d 190, 190 (Mo.
App. W. Dist. 1989) (where the liquidated damages
clause of a home improvement contract was equal to
30 percent of the sale price) and even 66 percent (Taos
Const. Co., Inc. v. Penzel Const. Co., Inc., 750 S.W.2d 522,
525 (Mo. App. E. Dist. 1988) (where a liquidated dam-
ages clause equaled 66 percent of the damage caused
by a subcontractor). In those cases, the courts relied
on the rules of the Restatement (Second) to determine
validity, stating that “the more dicult it is at the time
of the contract to determine the actual damages due
to a breach, we nd less weight is given to the factor
that requires the amount of liquidated damages to be a
reasonable forecast of the harm caused by the breach.”
Valentine’s, Inc. v. Ngo, 251 S.W.3d 352 (Mo. App. S. Dist.
2008) citing Restatement (Second) of Contracts § 356
comment b. (1981).
Are actual damages relevant for liquidated damages
and, in particular, will liquidated damages be allowed
when there are no actual damages?
Answer: Liquidated damages will not be allowed if
there are no actual damages. However, only minimal
actual damages need be shown for the seller to be
entitled to liquidated damages.
In Missouri, courts require proof of actual damage or
harm as a result of the breach before a liquidated dam-
ages clause can be triggered. Grand Bissell Towers, Inc.
v. Joan Gagnon Enterprises, Inc., supra. If challenged,
the seller is required to show evidence of actual dam-
ages to recover liquidated damages. Id. However, mini-
mal actual damages need be shown to be entitled to
liquidated damages, and the amount of actual dam-
ages is not relevant to whether the liquidated dam-
ages are reasonable. Id., see also Kansas City Live Block
139 Retail, LLC v. Fran’s K.C. Ltd, 504 S.W.3d 725, 732
(Mo. App. W. Dist. 2016).
Is mitigation relevant for liquidated damages?
Answer: Mitigation is likely irrelevant for liquidated
damages in commercial real estate purchase and sale
agreements because mitigation has been held irrel-
evant in a construction contract liquidated damages
case and in a real estate contract actual damages case.
In Burst v. R.W. Beal & Co., Inc., 771 S.W.2d 87, 91 (Mo.
App. E. Dist. 1989), the court held, in a construction
contract case, that as long as the liquidated damages
clause is valid, the amount stipulated becomes the
measure of damages, making the non-breaching par-
ty’s mitigation irrelevant. In Gilmartin Bros., Inc. v. Kern,
916 S.W.2d 324, 332 (Mo. App. E. Dist. 1995), a residen-
tial real estate contract between a builder/seller and a
buyer, the court held that (i) “the appropriate measure
of damages is the dierence between the contract
price and the market value of the property on the date
the sale should have been completed” and (ii) “there
is no obligation on the part of the seller … to mitigate
damages.”
Is a “shotgun” liquidated damages clause enforceable?
Answer: The presence of a “shotgun” liquidated dam-
ages clause may invalidate the entire liquidated dam-
ages clause in a commercial real estate purchase and
sale agreement. However, the only applicable Missouri
case addresses a seller breach, not a buyer breach.
A “shotgun” liquidated damages clause entitles a
party to the same stipulated amount for each breach,
whether minor or major. The only Missouri case that
addresses this issue is a case where the buyer sought
to invalidate a “shotgun” liquidated damages clause
18 | THE PRACTICAL REAL ESTATE LAWYER JULY 2019
due to a seller breach of a real estate contract. In Wilt
v. Watereld, 273 S.W.2d 290 (Mo. 1954), the court held
that the seller could not enforce a “shotgun” liquidated
damages clause against the buyer for the seller’s fail-
ure to perform because the potential damages to the
buyer for certain of the seller’s breaches was dispropor-
tionate to the stipulated liquidated damages amount.
Whether a Missouri court would reach a similar result in
a case involving a buyer breach remains an open issue.
Does a liquidated damages clause preclude recovery of
attorneys’ fees by the seller?
Answer: Likely no, if the commercial real estate pur-
chase and sale agreement expressly grants the seller
the right to attorneys’ fees as an additional remedy.
In Missouri, attorney’s fees are not recoverable as
actual damages. Any recovery of attorneys’ fees is
based solely on statute or contract. Paragon Group,
Inc. v. Ampleman, 878 S.W.2d 878 (Mo. App. E. Dist.
1994) (Holding that attorney’s fees could be recovered
in addition to liquidated damages because the lease
provided so). Thus, as long as the real estate contract
expressly provides for the recovery of attorney’s fees,
attorneys’ fees should be recoverable in addition to
liquidated damages.
