under New Jersey law to preclude summary judgment in Days Inns'
Moreover, the Court finds as a matter of law that while the
bridge work and the road closure might have affected the
patronage of the facility, it had no effect upon his ability,
duty, or obligation to comply with Days Inns' quality assurance
standards as provided for in the franchise agreement. Thus, it
was not commercially impossible or impractical for Patel to have
complied with his obligations under the franchise agreement.
New Jersey courts have also recognized the doctrine of
commercial frustration. A-Leet Leasing Corp. v. Kingshead
Corp., 150 N.J. Super. 384, 397, 375 A.2d 1208, 1214 (App.Div.
1977). In New Jersey, a contract is to be considered "subject to
the implied condition that the parties shall be excused in case,
before breach, the state of things constituting the fundamental
basis of the contract ceases to exist without default of either
of the parties." Id., quoting Edwards v. Leopoldi,
20 N.J. Super. 43, 54, 89 A.2d 264, 270 (App.Div. 1952). The
doctrine, however, is not to be invoked lightly in order to
relieve a party of his contractual duties; rather, "the evidence
must be clear, convincing and adequate." Id.
Here, the commercial frustration doctrine does not relieve
Patel of his duty to comply with his obligations contained
within the franchise agreement because he was in breach of the
franchise agreement prior to the bridge construction, i.e.,
the event which Patel claims commercially frustrated his ability
to comply with and constitutes grounds to relieve him of his
contractual duties. "The application of the frustration of
purpose doctrine, as applied in New Jersey, requires, as a
threshold circumstance, that the party claiming the benefit of
the doctrine may not already be in breach of contract at the
time of the events giving rise to the application of the
doctrine." General Elec. Capital Corp. v. Charleston, 1989 WL
9363, * 7 (E.D.Pa. Feb. 6, 1989) (applying New Jersey law).
Even if the Court were to find (which it does not) that the
bridge/road work constituted grounds to relieve Patel's duties
under the franchise agreement based upon the doctrine of
commercial frustration, the doctrine would not apply because the
facility failed its first quality assurance inspection on
December 29, 1995. Pursuant to section 3 of the franchise
agreement, Patel had thirty days within which to bring the
facility within Days Inns' quality assurance standards, and if
he did not, Days Inns retained the right to terminate the
According to Patel, the bridge/road work did not commence
until June 1996, yet the facility continued to fail inspection
as late as October 1996. Therefore, Patel had breached the
franchise agreement prior to the event which allegedly
constituted grounds relieving him of his duties based upon the
doctrine of commercial frustration. As such, the doctrine of
commercial frustration is inapposite in this case. Id.
Accordingly, the Court finds that Patel's affirmative defenses
based upon the doctrines of commercial impossibility, commercial
impracticality, and commercial frustration fail as a matter of
law and are insufficient to preclude the Court from entering
summary judgment in Days Inns' favor.
2. Liquidated damages
Patel has also raised an affirmative defense regarding the
liquidated damages sought by Days Inns. Patel argues that it
would not be difficult for the Court to calculate the actual
damages sustained by Days Inns in this case. In fact, Patel
asserts that section 20 of the franchise agreement provides a
method for calculating actual damages. Moreover, Patel contends
that awarding liquidated damages in this case would be punitive
because the amount of liquidated damages which Days Inns would
receive under section 20 of the franchise agreement is much
greater than the actual damages which it has sustained and would
be entitled to under section 20 of the franchise agreement.
Patel argues that Days Inns should not be awarded liquidated
Under New Jersey law, the validity of a stipulated damages
clause is a question of law for the trial judge to decide, and
"[t]he burden of proof is upon the party challenging the
liquidated damages clause." Naporano Assocs., L.P. v. B & P
Builders, 309 N.J. Super. 166, 175, 706 A.2d 1123, 1127
(App.Div. 1998). In Metlife Capital Fin. Corp. v. Washington
Ave. Assocs. L.P., 159 N.J. 484, 493-95, 732 A.2d 493, 498-499
(N.J. 1999), the Supreme Court of New Jersey set forth the
historical view which New Jersey courts have taken towards
agreed upon liquidated damages clauses. The Supreme Court of New
Jersey concluded by explaining
that "[s]o viewed, `reasonableness' emerges as the
standard for deciding the validity of stipulated
damages clauses." Id. at 249, 645 A.2d 100.
Treating reasonableness "as the touchstone," we noted
that the difficulty in assessing damages, intention
of the parties, the actual damages sustained, and the
bargaining power of the parties all affect the
validity of a stipulated damages clause. Id. at
250-54, 645 A.2d 100. We did not, however, consider
any of those factors dispositive, and remanded the
case, leaving "to the sound discretion of the trial
court the extent to which additional proof is
necessary on the reasonableness of the clause." Id.
at 258, 645 A.2d 100.
Id. at 495, 732 A.2d at 499, quoting Wasserman's Inc. v.
Middletown, 137 N.J. 238, 645 A.2d 100 (N.J. 1994). In short,
"`[t]he overall single test of validity is whether the
[stipulated damage] clause is reasonable under the totality of
the circumstances' . . ." Metlife Capital, 159 N.J. at 494,
732 A.2d at 499, quoting Wassenaar v. Panos, 111 Wis.2d 518,
524, 331 N.W.2d 357, 361 (Wis. 1983).
In the present case, the Court finds that under the totality
of the circumstances the stipulated liquidated damages clause
contained within section 20 of the franchise agreement is valid
and enforceable and that Patel has failed to satisfy his burden
of proving otherwise. First, contrary to his argument now, Patel
acknowledged when he signed the franchise agreement that actual
damages suffered by Days Inns in the event that he breached the
franchise agreement would be difficult to calculate. Section 20
clearly provides that in the event of a breach, Patel shall pay
"Liquidated Damages, because actual damages incurred by [Days
Inns] will be difficult or impossible to ascertain. . . ."
Furthermore, C. Wayne Miller tendered unopposed testimony that
the liquidated damages provision is based upon Days Inns'
operating experience over the years. Miller testified that due
to the nature of the business, the prices for motel rooms vary
greatly from patron to patron which affects Days Inns' revenue
and recurring fees. He also testified that the facility's
condition can affect the revenue and recurring fees generated,
and thus, Days Inns has instituted a quality assurance standard
to maintain the public's good will and patronage. Based upon
Miller's affidavit, the Court finds that Days Inns' actual
damages are difficult to calculate. See Ramada Franchise Sys.
v. Motor Inn Inv. Corp., 755 F. Supp. 1570, 1578 (S.D.Ga. 1991)
(holding that the harm caused by premature termination of
franchise agreements "is of a kind that is difficult or
impossible to estimate accurately" and, thus, liquidated damages
clauses are common in franchise agreements).
Second, even if, as Patel asserts, the actual damages suffered
by Days Inns are less than the liquidated damages which it
seeks, the Court, nevertheless, believes that Days Inns is
entitled to liquidated damages. Section 20 of the franchise
agreement provides that "in no event shall the amount payable
pursuant to this Section be less than the product of $2,000.00
multiplied by the number of guest rooms in the Facility." Thus,
the Court believes that the parties intended that at a minimum,
Days Inns would receive $120,000.00 (i.e., $2,000.00 times the
60 rooms in the facility) if Patel breached the franchise
Third, the Court does not believe that the liquidated damages
clause is punitive. Again, contrary to his argument now, Patel
admitted that the liquidated damages provision was not punitive
as section 20 clearly states that the clause is not a penalty.
Fourth, because Patel breached the franchise agreement in its
third year, Days Inns lost twelve years of revenue and recurring
fees. Since Patel's breach, Days Inns has been unable to operate
or maintain a replacement facility in Lincoln, Illinois.
Fifth, although C.K. Patel stated in his affidavit that Days
Inns prepared the franchise agreement and that the terms of the
franchise agreement were not negotiated, section 22 of the
franchise agreement indicates that Ishwarlal Patel "ha[d]
received, at least 10 business days prior to execution of this
Agreement, read and understood [Days Inns'] current Uniform
Franchise Offering Circular . . . and has had ample opportunity
to consult with advisors. It [Patel] has independently
investigated the risks of the transactions contemplated
hereby. . . ." Thus, the Court does not believe that the
parties' bargaining power was so unequal as to require the Court
to disregard the stipulated liquidated damages clause.
Finally, Patel has failed to offer any proof, other than mere
argument by counsel, as a basis for setting aside the liquidated
damages provision in section 20 of the franchise agreement.
Accordingly, the Court finds that the liquidated damages clause
contained within section 20 of the franchise agreement is
reasonable, valid, and enforceable and that Days Inns in
entitled to the $120,000.00 in liquidated damages which it seeks
as a result of Patel's breach of the franchise agreement.
D. MOTION TO STRIKE
In a separate motion, Days Inns asks the Court to strike
certain portions of Patel's response to its motion for summary
judgment. Specifically, Days Inns asks the Court to strike all
of the factual allegations contained within Patel's response.
Days Inns argues that if Patel wanted the Court to consider
additional factual allegations not contained within its
statement of undisputed facts, Patel needed to file an
additional statement of undisputed facts as required by Local
Rule 7.1(D)(3). Patel did not, and therefore, Days Inns asks the
Court to strike all of his factual allegations and not to
consider those facts in ruling upon its motion for summary
Days Inn is correct that Patel should have filed an additional
statement of undisputed facts pursuant to Local Rule 7.1(D)(3).
Days Inns is also correct that the Court has the authority to
strike portions of Patel's response based upon his failure to
file a statement of undisputed facts. Waldridge v. American
Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994). However, the
Court declines Days Inns' request to do so.
Even when the Court considers all of the factual allegations
contained within Patel's response as being true (as it has
done), Days Inns is still entitled to summary judgment as a
matter of law. As the Court has explained above, the complete
closure of Lincoln Parkway is insufficient to relieve Patel of
his contractual duties under the franchise agreement based upon
the doctrines of commercial impossibility, commercial
impracticality, and/or commercial frustration. The franchise
agreement existed; Days Inns fulfilled its obligations; Patel
violated the franchise agreement; and Days Inns suffered damages
as a result of Patel's breach. Accordingly, Days Inns is
entitled to summary judgment despite Patel's improper factual
allegations, and there is no reason to strike them from the
E. RECURRING COSTS
Finally, in Count II of its Complaint, Days Inns seeks
$2,240.37 in recurring fees. Days Inns has offered a letter
dated November 26, 1997, from Russell A. Moserowitz, its Vice
President of Franchise Administration, in support of assertion
that Patel owes it $2,240.37 in recurring fees.
Although the Court has found that Patel breached the franchise
agreement, that his affirmative defenses do not relieve him of
his obligations under the franchise agreement, and that Patel
owes Days Inns $120,000.00 in liquidated damages, the Court also
finds that a genuine issue of material fact exists regarding
whether Patel owes Days Inns $2,240.37 in recurring fees. As
part of his response to Days Inns' motion for summary judgment,
Patel attached an affidavit from C.K. Patel in which C.K. Patel
testified that the recurring fees owed to Days Inns have been
paid in full.*fn3 Thus, the Court must conduct a hearing in
order to determine whether these fees are still owed by Patel to
Days Inns, whether Patel has paid the fees in full, or whether
Patel has paid the fees in part.
Ergo, Plaintiffs Motion for Summary Judgment is ALLOWED.
Accordingly, summary judgment is hereby entered in favor of
Plaintiff and against Defendant as to Counts I, II, and III of
Pursuant to sections 19 and 20 of the franchise agreement,
Plaintiff is hereby awarded $120,000.00.
However, the Court finds that a genuine issue of material fact
exists regarding the $2,240.37 in recurring fees sought by
Plaintiff. Thus, a hearing is necessary to determine whether
Defendant is entitled to the recurring fees which it seeks.
Finally, Plaintiffs Motion to Strike Portions of Defendant's
Response to Summary Judgment is DENIED.