What is Liquidated And Ascertained Damages? Definition
When you sign a contract, you are agreeing to certain terms and conditions. Part of these terms may include provisions for liquidated and ascertained damages. But what exactly does this mean? In this blog post, we will explore the definition of liquidated and ascertained damages. We will also discuss how these damages are calculated and what you can do if you feel like you have been unfairly charged. So if you are wondering what liquidated and ascertained damages are, read on for more information.
What is Liquidated And Ascertained Damages?
Liquidated and ascertained damages (LADs) are contractual terms that state the amount of money that will be paid if one party breaches the contract. This type of damage is typically used in construction contracts to protect the non-breaching party from financial loss.
LADs are different from general damages, which are awarded to a plaintiff based on the harm suffered. LADs are predetermined by the parties and agreed upon in advance. If a court finds that LADs are valid, then the breaching party will be required to pay the specified amount stated in the contract.
It is important to note that LADs must be reasonable and not excessive in order to be enforceable. A court will not enforce an LAD clause if it finds that the amount is greater than what is necessary to compensate the non-breaching party for its losses.
The History of Liquidated And Ascertained Damages
The need for certainty and predictability in the performance of construction contracts has long been recognized. In order to promote these qualities, as well as other public policy objectives, the law has developed the doctrine of liquidated damages. This doctrine allows the parties to a contract to agree in advance to a sum of money that will be paid by the breaching party to the non-breaching party in the event of a breach.
The history of liquidated damages can be traced back to English common law. Early cases held that such clauses were unenforceable because they constituted a penalty. A penalty is a sum of money that is imposed as a punishment for an act or omission that is not related to the loss suffered by the victim of the breach. The common law rule was based on the principle that it is unfair to impose a penalty on someone who has breached their contractual obligations.
However, over time, courts began to recognize that there are some situations where it is difficult to estimate the actual damages that would be suffered by a party as a result of a breach. In these cases, imposing a penalty may be the only way to provide adequate compensation for the losses suffered. As a result, courts began to enforce clauses providing for liquidated damages if they were found to be reasonable and not excessive in light of the circumstances.
How are Liquidated And Ascertained Damages Used Today?
Liquidated and ascertained damages (LADs) are a type of contractual damages that are used to estimate the likely loss that might be suffered by one party as a result of the breach of contract by another party.
LADs are typically used in construction contracts, where the contractor agrees to pay the owner a sum of money if they fail to complete the work by the agreed upon date. This sum is intended to cover the costs of delays, such as lost rent or additional interest payments on loans.
While LADs can be helpful in theory, they can often lead to disputes between parties. This is because it can be difficult to accurately predict the actual losses that will be suffered as a result of a breach of contract. For this reason, LADs are often renegotiated or waived entirely before work on a project begins.
Advantages and Disadvantages of Liquidated And Ascertained Damages
When it comes to deciding what type of damages to include in a contract, the two main options are liquidated damages and ascertained damages. Both have their own advantages and disadvantages that should be considered before deciding which is right for your contract.
Advantages of Liquidated Damages:
1. They provide a clear way to calculate damages if there is a breach of contract.
2. They can act as a deterrent to breaching the contract, as the breaching party will know exactly how much they will have to pay.
3. They can save time and money by avoiding litigation.
Disadvantages of Liquidated Damages:
1. There is always the possibility that the courts will deem them to be unenforceable if they are found to be excessive or unfair.
2. They may not cover all types of losses that could be incurred from a breach of contract, meaning that the non-breaching party may still suffer some financial losses.
3. If the contract is breached, the non-breaching party may still have to go through the hassle and expense of suing to recover the damages due to them.
Advantages of Ascertained Damages:
1. They can be tailored specifically to cover all types of losses that could be incurred from a breach of contract, meaning that the non-breaching party is less likely to suffer any financial losses.
2. The amount of damages is usually agreed upon by both parties
Liquidated damages are a specific amount of money that is agreed upon by two parties as compensation for a potential loss. This type of damages is often used in construction contracts, where the contractor agrees to pay the owner a set amount of money if they fail to complete the project on time. Ascertained damages are similar, but they are typically used in situations where it is difficult to determine the exact amount of damage that has been done. In both cases, it is important to have a clear and concise agreement in place so that there is no confusion about what will happen if either party fails to uphold their end of the deal.