Do Colorado Courts Still Enforce Liquidated Damages Provisions?

Amanda Milgrom

Share Post:

Do Colorado courts still enforce liquidated damages provisions? When are such provisions enforceable? As a litigator, I notice this is a frequent topic of conversation among my transactional attorney friends when they are drafting contracts with no real consensus. So, what does Colorado law say?

The quick answer is yes, liquidated damages provisions are enforceable in Colorado so long as they do not constitute a “penalty.” The Court in Board of County Com’rs of Adams County v. City and County of Denver laid out the following test to determine if and when a liquidated damages clause is enforceable (i.e., when they do not constitute a penalty): (1) were the anticipated damages difficult to ascertain when the contract was entered into?; (2) did the parties mutually intend to liquidate them in advance?; and (3) was the amount of liquidated damages, at the time the contract was made, a reasonable estimate of the potential actual damages the breach would cause?[1] If the answer to all three questions is yes, then the clause is enforceable.[2]

The second question may be difficult to answer – how does a court know whether the parties intended, mutually, to liquidate the damages in advance? A court will look at a number of factors, including the contract’s subject matter and the purposes and objects it seeks to accomplish. A court may also look at the circumstances surrounding the creation.[3] Thus, it is critical that a contract that contains a liquidated damages clause be drafted to shed light on these three questions.

Another question arises when a contract offers the non-breaching party the choice between actual and liquidated damages. Colorado courts will uphold the enforceability of the liquidated damages clause [4] even in this scenario. While states are split on this question, Colorado falls on the side of enforceability. This does not mean such a provision will always be upheld – it must  still satisfy the three factors. But the choice between two types of damages will not automatically void the liquidated damages clause.

Last but not least, beware – not all states will enforce a liquidated damages clause, so be cautious when advising clients entering into contracts outside of Colorado.

[1] 40 P.3d 25, 29 (Colo. App. 2001) (citing Perino v. Jarvis, 312 P.3d 108 (Colo. 1957)).

[2] See also Ravenstar LLC v. One Ski Hill Place LLC, 405 P.3d 298 (Colo. App. 2016).

[3] Powder Horn Constructors, Inc. v. City of Florence, 754 P.2d 356 (Colo. 1988).

[4] Ravenstar LLC v. One Ski Hill Place LLC, 405 P.3d 298, 303 (Colo. App. 2016), aff’d by 401 P.3d 552 (Colo. 2017).



Amanda Milgrom represents individuals and businesses of all sizes in various litigation matters regarding employment, intellectual property, and business disputes. She practices employment law, representing employees in discrimination lawsuits and counseling employers on best practices, drafting employee handbooks, and putting together suites of employment contracts.

More Articles

Employment Law

Colorado’s FAMLI Act

In January 2024, the Colorado Paid Family And Medical Insurance (“FAMLI”) Act went into effect. It was approved by voters in 2020 and provides for up to 12 weeks of paid leave for Colorado employees who qualify. FAMLI benefits apply to those seeking parental leave, medical leave for yourself, medical leave to care for a family member, military family leave, and leave for those who have experienced domestic violence.

Read More »
Work-Life Balance

A D-Day Wake Up Call

Travel and reflection, particularly when it takes us out of our comfort zone, strengthens our ability to empathize with others, improves our self-awareness and helps us better understand our place in the world; both as humans and as lawyers. We return to our roles more informed and better able to connect with our community and serve our clients in an ever more challenging world.

Read More »
Business & Corporate Law

Navigating the SBA’s Collection Efforts on COVID-19 Loans

During the height of the COVID-19 pandemic, the Small Business Administration (SBA) launched various loan programs, such as the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program, to support businesses grappling with unprecedented economic challenges. These programs were lifelines for many, providing essential funds to keep businesses afloat. However, as we move forward, the SBA has started to collect on these loans, leading to new challenges and questions for borrowers.

Read More »