Liquidated Damages as Real-Property Transfer: Enforceability Turns on Proportionality and Difficulty of Estimation, with the Challenger Bearing the Burden

1. Introduction

Case: PTI IMP, LLC v Software Sculptures Consulting, Inc., 2026 NY Slip Op 02858 (App Div, 2d Dept May 6, 2026).
Parties: Plaintiff-respondent PTI IMP, LLC (supplier) vs. defendants-appellants Software Sculptures Consulting, Inc. d/b/a Selective Sculptures (buyer), Selective Coram, Inc. (affiliate property owner), and individual guarantors Joseph Agate and Michael Patti.
Core dispute: A long-term purchase supply agreement required minimum monthly purchases over 12 years. If the buyer failed to meet minimums over any six-month period and failed to cure as required, the agreement terminated for breach. The agreement’s “liquidated damages clause” entitled the plaintiff to acquire specified real property (held by an affiliate) and assume the mortgage if termination occurred due to the buyer’s shortfall.

Key issues on appeal:

  • Whether the clause granting the supplier the right to acquire the property (subject to the mortgage) was an enforceable liquidated damages provision or an unenforceable penalty.
  • Whether the plaintiff proved breach and entitlement to enforcement of the clause on summary judgment.
  • Procedural appellate issues: whether appeals from interlocutory orders and a warrant of eviction were properly before the Appellate Division.

2. Summary of the Opinion

The Second Department:

  • Dismissed the direct appeals from the January 11, 2021 and August 16, 2021 orders because entry of judgment terminated the right to appeal those orders directly, but reviewed their issues on the appeal from the judgment (citing Matter of Aho and CPLR 5501[a][1]).
  • Dismissed the appeal from the warrant of eviction (citing CPLR 5701).
  • Affirmed the judgment for the plaintiff, including enforcement of the liquidated damages clause via acquisition of the property subject to the mortgage.

On the merits, the court held that the defendants—who bore the burden to show the clause was a penalty—failed to make a prima facie showing that (i) actual damages were readily ascertainable when the contract was formed, or (ii) the property transfer remedy was disproportionate to probable losses. The plaintiff established breach and entitlement to the clause on summary judgment, and defendants failed to raise a triable issue of fact.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Decision)

A. Appellate procedure: interlocutory orders and review on appeal from judgment

  • Matter of Aho, 39 NY2d 241, 248 [1976]
    The court relied on this foundational rule: once a final judgment is entered, the right to take a direct appeal from prior nonfinal orders generally terminates. Those issues are instead “brought up for review” on the appeal from the judgment.
    Role here: It required dismissal of the direct appeals from the January and August 2021 orders, while still allowing review of the same issues through the judgment appeal.
  • CPLR 5501 [a] [1]
    Codifies the “brought up for review” mechanism.
    Role here: Provided the procedural vehicle for considering the interlocutory-order issues on the judgment appeal.
  • CPLR 5701
    Governs appealability as of right.
    Role here: Used to dismiss the appeal from the warrant of eviction as not properly appealable in this posture.

B. Liquidated damages vs. penalty: governing New York framework

  • Pool Doctor Mgt. Serv., Inc. v Board of Mgrs. of the Meadowlands Estates Condominium, Inc., 216 AD3d 1117, 1119 [2023]
    Quoted for the principle that enforceability of an early termination fee/liquidated damages provision vs. penalty is a question of law, considering the nature of the contract and circumstances.
    Role here: Framed the inquiry as legal (suitable for summary judgment where facts are undisputed) and specifically recognized the “early termination fee” analogy—important because this clause operated upon premature termination for breach.
  • JMD Holding Corp. v Congress Fin. Corp., 4 NY3d 373, 379-380 [2005]
    The Court of Appeals’ modern touchstone for liquidated damages: the clause is enforceable if it is a reasonable estimate at contract formation, not a penalty; and the challenger bears the burden to prove it is a penalty.
    Role here: Supplied both the substantive test and the allocation of burden that proved dispositive: defendants failed to show ascertainability of actual damages at formation or disproportionality.
  • 555 W. John St., LLC v Westbury Jeep Chrysler Dodge, Inc., 149 AD3d 796, 797 [2017]
    Quoted (via Truck Rent-A-Ctr.) for the compensatory purpose of enforceable liquidated damages as an estimate embodying “just compensation for loss.”
    Role here: Reinforced that the clause must track compensation, not punishment—central to evaluating a remedy that transfers real property.
  • Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420, 424 [1977]
    Classic articulation: liquidated damages must reflect just compensation, not serve as a penalty.
    Role here: Provided doctrinal grounding for the proportionality inquiry.
  • Colacino v Colacino, 152 AD3d 486, 487-488 [2017]
    Quoted for the enforceability test: reasonable proportion to probable loss and actual loss difficult to estimate.
    Role here: The Second Department used the same formulation to assess whether the real-property acquisition remedy was excessive; defendants’ lack of evidentiary support doomed their challenge.
  • Trustees of Columbia Univ. in the City of N.Y. v D'Agostino Supermarkets, Inc., 36 NY3d 69, 75 [2020]
    Cited for the burden rule: the party seeking to avoid liquidated damages must show it is a penalty.
    Role here: Strengthened the court’s insistence on a concrete evidentiary showing by defendants at summary judgment.

C. Summary judgment standards and breach proof

  • Ben Ciccone, Inc. v Naber Elec. Corp., 214 AD3d 936, 937 [2023] and Tuscan/Lehigh Dairies, Inc. v Beyer Farms, Inc., 136 AD3d 799, 803 [2016]
    Cited for basic contract summary judgment principles: the movant must establish the contract, breach, and damages/entitlement to relief.
    Role here: Supported the finding that plaintiff established Selective Sculptures’ failure to meet purchase minima and failure to cure per contract.
  • Ames Linen Serv., Div. of Cortland Laundry, Inc. v Katz, 8 AD3d 945, 947 [2004]
    Cited to support enforcement of liquidated damages provisions in appropriate circumstances.
    Role here: Helped link the established breach to entitlement to the specific liquidated-damages remedy.
  • Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985] and Licata v Cuzzi, 161 AD3d 844, 845 [2018]
    Standard summary judgment principles: once the movant makes a prima facie showing, the opponent must raise a triable issue of fact with admissible evidence.
    Role here: The court concluded defendants failed to meet this responsive burden against plaintiff’s prima facie case.

3.2 Legal Reasoning

A. The court treated enforceability as a legal question informed by formation-time realities

Relying on Pool Doctor Mgt. Serv., Inc. v Board of Mgrs. of the Meadowlands Estates Condominium, Inc. and JMD Holding Corp. v Congress Fin. Corp., the court reaffirmed two critical points:

  • Timing: The relevant perspective is the time of contracting—was the clause a reasonable estimate of probable loss, given the difficulty of precise estimation?
  • Nature of inquiry: The penalty vs. liquidated damages determination is “a question of law,” though informed by contract context and circumstances.

B. Burden allocation drove the result: defendants had to prove “penalty,” and they did not

The opinion’s fulcrum is the burden rule (from JMD Holding Corp. v Congress Fin. Corp. and Trustees of Columbia Univ. in the City of N.Y. v D'Agostino Supermarkets, Inc.): the party resisting liquidated damages must show it is a penalty. In practical litigation terms, that meant defendants had to produce evidence tending to show either:

  • Actual damages were readily ascertainable at contract formation (suggesting liquidated damages were unnecessary or overstated), or
  • The stipulated remedy was disproportionate to probable loss (suggesting punishment rather than compensation).

The court found defendants offered neither. Specifically, they submitted no evidence that actual damages were readily ascertainable in 2012, and no evidence that transferring the property subject to the mortgage was disproportionate to the supplier’s probable losses from early termination.

C. “Liquidated damages” may be non-monetary; the same proportionality/difficulty test applies

A salient feature of this agreement is that the liquidated remedy was not a fixed dollar sum; it was a right to acquire specified real property (subject to mortgage assumption) owned by an affiliate. The court nonetheless analyzed enforceability under orthodox liquidated-damages doctrine—asking whether the remedy reasonably approximated probable loss and whether actual loss was difficult to estimate.

The opinion thus implicitly validates that, under New York law, a liquidated damages clause can be structured as a specified performance substitute (here, a property transfer mechanism) so long as it functions as a reasonable ex ante estimate of harm rather than a coercive forfeiture.

D. Summary judgment for plaintiff: breach + enforceable clause + no triable issue

The plaintiff established (i) the agreement and its minimum purchase/cure framework; (ii) the buyer’s six-month shortfall and failure to cure as required; and (iii) entitlement to the liquidated remedy upon termination for that breach. Once that prima facie showing was made, Winegrad v New York Univ. Med. Ctr. and Licata v Cuzzi required defendants to come forward with evidence creating a factual dispute. The court held they did not.

3.3 Impact

A. Drafting and enforcement signal: real-property acquisition remedies can survive “penalty” attacks

The decision strengthens confidence—at least in the Second Department—that sophisticated commercial parties may structure liquidated damages around non-cash remedies (including acquisition of collateral-like property interests), provided the clause can be defended as a reasonable estimate of probable loss at formation and tied to termination mechanics.

B. Litigation practice: challengers must marshal formation-time evidence

The opinion is a practical reminder that conclusory “it’s a penalty” arguments are insufficient at summary judgment. A challenger should be prepared with:

  • Evidence of how damages could have been calculated precisely at formation (industry data, pricing/margin history, measurable substitution opportunities, etc.).
  • Evidence of disproportionality (e.g., property value vs. expected lost profits, mitigation opportunities, and the economic function of mortgage assumption).

C. Appellate practice: do not rely on direct appeals from interlocutory orders after judgment

The procedural holdings—dismissal under Matter of Aho with review via CPLR 5501(a)(1), and dismissal of the warrant appeal under CPLR 5701—reinforce careful appellate planning. Practitioners must frame appellate strategy around the final judgment and the proper route to review, rather than assuming every interim enforcement step is directly appealable.

4. Complex Concepts Simplified

  • Liquidated damages vs. penalty: A liquidated damages clause is an agreed-upon estimate of loss decided when the contract is signed, used when actual damages will be hard to compute later. A penalty is an amount (or remedy) designed to punish or coerce performance rather than compensate for expected loss.
  • “Reasonable proportion to probable loss”: The remedy must broadly track the kind and scale of harm the parties could reasonably anticipate if the contract ends early due to breach; it need not be perfect, but it cannot be grossly excessive.
  • “Incapable or difficult of precise estimation”: If, at signing, it would be hard to calculate future damages (e.g., long-term supply profits, market shifts, customer churn), the law is more willing to honor a negotiated liquidated-damages proxy.
  • Prima facie showing / triable issue of fact (summary judgment): The moving party must first show it is entitled to judgment as a matter of law with admissible evidence. Then the opposing party must produce evidence showing a genuine dispute that requires a trial.
  • “Brought up for review”: Even if you cannot directly appeal an earlier order after final judgment, the issues decided in that order can often still be reviewed as part of the appeal from the judgment.

5. Conclusion

PTI IMP, LLC v Software Sculptures Consulting, Inc. reinforces New York’s liquidated-damages framework in two meaningful ways. First, it applies the familiar proportionality-and-difficulty-of-estimation test to a liquidated remedy structured as a transfer of real property subject to a mortgage, signaling that non-monetary liquidated remedies can be enforceable when they function as compensation rather than forfeiture. Second, it underscores that the burden to prove “penalty” rests with the challenger, and that burden requires concrete evidence—particularly about what was knowable and measurable at the time of contracting. Procedurally, the decision also reiterates the post-judgment limits on direct appeals from prior orders under Matter of Aho and the constraints on appealing enforcement instruments such as a warrant of eviction under CPLR 5701.