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TAL Financial Corp. v. CSC Consulting, Inc.

Massachusetts Supreme Judicial Court
844 N.E.2d 1085 (2006)


TAL Financial Corporation (TAL) (plaintiff), a finance company that specialized in extending credit to small companies, entered into a contract to lease computer hardware, telephone equipment, software, and office furniture to Onward, a start-up company engaged in website development. The agreement consisted of a master lease and three schedules listing all of the equipment along with a liquidated damages provision that allowed TAL to recover “an amount equal to the present value of all amounts to be paid by Onward” during the remaining lease term plus 18 percent of the total costs TAL expended to purchase the equipment. Thereafter, CSC Consulting, Inc. (CSC) (defendant) acquired Onward and assumed responsibility for all outstanding contracts in Onward’s name. However, CSC was not aware of the contract with TAL and, consequently, failed to pay according to the agreement and sold or discarded most of the leased equipment. Thereafter, TAL filed suit against CSC for breach of contract and argued that CSC’s failure to return the leased items constituted a default entitling TAL to liquidated damages of $112,156 which included the remaining rental payments and 18 percent of the equipment’s acquisition costs. CSC argued the liquidated damages provision constituted an unreasonable penalty and was unenforceable. The trial court agreed and held for CSC. TAL appealed.

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Holding and Reasoning (Greaney, J.)

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