Michael Schweitzer gave a promissory note to Lennox Purcell in the amount of $85,000. When Schweitzer defaulted on the note, Lennox filed suit to recover the money he was owed. The parties signed a settlement agreement, according to which Schweitzer agreed to pay Purcell $38,000, along with interest at a rate of 8.5 percent over 24 months. The settlement agreement also stated that Schweitzer had to make the monthly payments at the beginning of each month, and that a late payment constituted a breach of the entire agreement that would make Schweitzer liable for the entire $85,000. In October 2011, Schweitzer was late on one of his payments, and Purcell obtained a default judgment against him for $58,829.35. Schweitzer moved to set aside the default judgment, arguing that it was an unfair penalty for making one late payment. The trial court agreed and set aside the default judgment. Affirmed. A liquidated damages clause in a contract becomes an unenforceable penalty if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. Here, the default judgment was almost $60,000, which was higher than the underlying settlement amount of $38,000. The default judgment amount bore no reasonable relationship to the damages that Purcell could have expected to suffer if Schweitzer breached the contract, because Purcell would not have recovered that much from him regardless. Further, Purcell suffered no actual damages at all, because he eventually received the late payment from Schweitzer. Thus, the trial court was correct to throw out the default judgment.

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Tags: default judgment, Lennox Purcell, Michael Schweitzer, Settlement Agreement