On January 10^th, 2022, Regina, a florist in Durango who operates a floral shop called "Blossoms and Blooms," called Darryl at Refrigeration Tech for a consultation regarding the cool room where Regina stored flowers before arranging them into bouquets, centerpieces, and other items. Regina believed that her current cool room would not be large enough to store flowers for all the customers who would likely contact her to order Valentine's Day bouquets. Regina was thus hoping to double the size of her storage facility. The construction aspect was already completed, and all that was required to gain the desired space was to knock down a wall and join two rooms together. The more complex aspect was Regina's need to modify the cooling unit to cover a room twice as large as the space she has now. It was crucial that the cool room be maintained with steady temperature and humidity so that the stored flowers had as long of a lifespan as possible.

Regina asked Darryl from Refrigeration Tech if he would be able to modify the existing cooling unit so that it performed cooling and humidity maintenance as before, but for a space twice as large. Regina provided Darryl with the architectural renderings of the space and also explained that it was crucial that the work be finished by February 4th, 2022. In preparation for Valentine's Day, Regina had already placed orders for bulk flowers totaling $2,000. The bulk flowers were scheduled to arrive on February 8th, giving Regina and her team of florist's time to prepare for Valentine's Day deliveries. Without a functioning cool room to store those flowers, Regina told Darryl that "I would lose this inventory in its entirety and be unable to fulfill the Valentine's Day orders."

Regina also told Darryl that her typical customer would reach out to her florist shop for the first time for a special occasion like Valentine's Day, and after being pleased with one bouquet, would return for birthdays, anniversaries, graduations, weddings, and any other occasion requiring flowers from her shop in Durango. Failing to promptly deliver Valentine's Day flowers would thus not only cost Regina all the revenue she would typically earn for that holiday but would negatively impact her reputation and good will with her customer base going forward.

Darryl assured Regina that Refrigeration Tech could perform the work as requested by February 4th. The two agreed upon and signed the following contract:

Refrigeration Tech will perform all necessary work upon Blossoms and Blooms cooling unit to maintain the temperature and humidity in the renovated cool room. Refrigeration Tech is in receipt of the renovation specs and will outfit the refrigerated room with a unit that offers appropriate humidity and temperature control. Blossoms and Blooms will pay Refrigeration Tech $2,500 for this work, provided that Refrigeration Tech delivers a functioning cooling unit on or before February 4, 2022. Failure to deliver a functioning cooling unit by that date will trigger liquidated damages of $5,000.

Darryl promptly began work on Regina's cooling unit, but had stretched himself too thin with other jobs and was unable to complete his modifications until February 12th. Regina allowed Darryl to complete his work, but while he worked on the cooling unit, the unit was not operational. In the absence of a functioning cooling unit, all of Regina's bulk flower orders wilted and died well before Valentine's Day. Regina reached out to other florists in Durango, but because they were also seeing a rush in orders, and secured additional inventory for their shops, they were unable to take Regina's inventory to help preserve her flowers or purchase them from her to use in their own stores. Regina was therefore unable to fill any of the shop's contracts on Valentine's Day, on which she would have profited $2,500.

Regina has refused to pay Refrigeration Tech the $2,500 price agreed to in the contract. Regina has also hired an attorney to sue Refrigeration Tech for breach of contract, asking for $5,000 in liquidated damages as stipulated in the contract. In response, Darryl and Refrigeration Tech argued that he still performed the requested work, even though it was late, and should receive some payment for services rendered. Refrigeration Tech also claimed that the $5,000 liquidated damages amount was excessive and against public policy.

In Colorado, a liquidated damages award is justified if the following conditions have been met:

A liquidated damages clause will be enforced where the court finds that the harm caused by the breach is difficult to estimate, but where the amount of liquidated damages is reasonable compensation and not disproportionate to the actual or anticipated damage. The intent of liquidated damages is simply to measure damages that are hard to prove once incurred. If the liquidated damages are disproportionate, they can, however, be declared a penalty. The clause is then void, and recovery will be limited to the actual damage that results from the breach.

The court considers two elements to determine whether a liquidated damage clause is enforceable:

1. Uncertaintywhether the harm caused by the breach is difficult to calculate.
2. Reasonablenesswhether the amount of the liquidated damages is reasonable in proportion to the actual or anticipated harm. If it is not, then it is a penalty, which is against public policy, and therefore the clause is unenforceable.

QUESTIONS:

1. When the court analyzes the liquidated damages clause in the contract, should they only take into consideration Regina's loss for the Valentine's Day sales at Blossoms and Blooms, or should they expand their analysis to include the potential loss of Blossoms and Blooms clients in the future? Keep in mind that Regina specifically mentioned that she gained customers during her Valentine's Day business to Darryl, even though she did not include it in her contract with Darryl.
2. The attorney for Refrigeration Tech argues that Darryl should be paid in full ($2,500) for his work to the cooling unit, even though he failed to finish the renovation and repair until after the deadline specified in the contract. He also argued that Regina did not do enough to mitigate the damages that she incurred as a result of Darryl's delay. Are either of the attorney's arguments likely to succeed? Explain.