Liquidated Damages

Liquidated Damages

Liquidated damages are a specific type of damages that may be awarded by a court in certain cases. Liquidated damages are typically intended to punish the breaching party and deter future breaches, and are not meant to compensate the non-breaching party for actual losses.

In order for liquidated damages to be awarded, the contract between the parties must contain a provision specifying the amount of liquidated damages that will be paid in the event of a breach. The liquidated damages must also be a reasonable estimate of the actual damages that would be incurred by the non-breaching party as a result of the breach. If the court finds that the liquidated damages are unreasonably high or low, they may refuse to enforce the provision.

In some jurisdictions, even if a contract contains a valid liquidated damages clause, the court may still have discretion to award a different amount of damages if it finds that the specified amount is unjust or unfair.

Generally speaking, liquidated damages are only awarded in cases where it is difficult to determine what amount of actual damages would be incurred as a result of a breach. For example, if one party breaches a contract to purchase goods from another party, it may be difficult to determine how much money the non-breaching party would have made if the contract had been fulfilled. In such cases, liquidated damages may be used to approximate the loss suffered by the non-breaching party.