Liquidated damages compensate for losses due to breach of contract. They must be fair and uncertain, not punitive. Contracts may specify damages or courts may award them. Consult a lawyer to ensure adequate damages and review contracts for liquidated damages clauses.
Liquidated damages are damages that are paid for breach of contract. The damages are intended to provide fair compensation for the losses suffered as a result of the infringement. They are neither criminal nor punitive, and in fact, a liquidated damages clause in a contract will be void if it appears to be intended as a form of punishment for defaulting. The purpose of these damages is to have a clear way to compensate people when another party to a contract fails to perform their side of the deal.
Some contracts specifically include a liquidated damages clause which spells out the damages to be paid in the event of a breach. In other cases, the amount of damages is unclear, or liquidated damages are awarded by a court when one party to a contract sues another for breach of contract. It is often advisable to agree on these damages when concluding a contract so that in the event of a conflict or problem, the amount of damages is already determined.
Several characteristics must be present for damages to be considered liquidated damages. The first is that damages must be fair. If the amount appears excessive, given the actual damage suffered, it can be considered a penalty clause. Another important feature is that the damages themselves must be uncertain. If, for example, a contractor breaks a tool belonging to a customer, the damage is certain: the contractor is liable for the tool’s value. On the other hand, if the contractor overtimes the job, the damages aren’t clear, because it’s not immediately clear how much monetary damage is sustained when the overruns occur.
Damages for non-performance can be assessed whenever it is clear that one of the parties to a contract has failed to perform the duties clearly stated in the contract. As the amount can sometimes be nebulous, it is advisable to consult a lawyer when drafting the contract to ensure that any damages are adequate and discuss any breach of contract with a lawyer as soon as possible to determine the best course of action.
When signing standard contracts, people should be aware that the contract may contain a liquidated damages clause. They should familiarize themselves with the clause and the situations in which it will be triggered. If they believe the terms of the contract are unfair, they may consider requesting a review of the contract.
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