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Additional Payment if Work Not Completed on Time Is Not Penalty Clause
Description Appeals court held that a contract that called for an additional payment of $10,000 per acre in a land deal if a road was not completed by a specific date did not constitute an unenforceable penalty clause, but a bargained-for term of the contract.
Topic Contracts
Key Words Consideration; Penalty
C A S E   S U M M A R Y
Facts DID offered to buy 20 acres of land from Family Farm for $22,000 per acre. After months of negotiations, the parties agreed on 17.59 acres at $35,000 an acre for $615,650 total. The agreement stated that DID would build a paved road to the property and that "In the event the road is not completed by December 31, 1993, Buyer agrees to pay Seller an additional consideration the sum of $10,000.00 an acre." The road was not built by that time, so Family Farm sued DID for an additional $175,900. DID defended that the clause was an unenforceable penalty clause. The trial court held that the clause was not enforceable. Family Farm appealed.
Decision Reversed. "A contract written in clear and unambiguous language is not subject to interpretation or construction; rather, the intent of the parties must be determined from the contents of the contract, and the contract must be enforced according to its terms.... Certainly, nothing precludes the parties from creating a contract that provides for payment of additional consideration if the road is not timely completed. Consideration is sufficient to support a contract if there is any detriment to the promisee or any benefit to the promisor." The parties agreed to a price of either $45,000 per acre or $35,000 if the road was not completed by a certain date; both terms were bargained for. Family Farm is due summary judgment.
Citation James Neff Kemper Family Farm Partnership v. Dakota Industrial Development, Inc., 603 N.W.2d 463 (Ct. App., Neb., 1999)

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