Dobson Bay Club Ii Dd, LLC, a Delaware Limited Liability Company; Dobson Bay Club Iii Kd, LLC, a Delaware Limited…

Summary

The Arizona Supreme Court adopted the Restatement (Second) of Contracts approach for determining whether stipulated damages are enforceable, requiring consideration of anticipated or actual loss and the difficulty of proving that loss. Applying that standard, the Court held that a fixed 5% fee on a late balloon payment was an unenforceable penalty because it substantially duplicated other contractual charges, was grossly disproportionate to any uncompensated loss, and was not difficult to prove. Justice Bolick, dissenting, would have upheld the provision as presumptively reasonable for a sophisticated commercial transaction and would have placed greater weight on difficult-to-measure opportunity costs.