Understanding Liquidated Damage
By Willow Matte
12 Jan 2023
Liquidated damages are outlined in some legal contracts as an estimation of losses to one party that would otherwise be intangible or difficult to identify. This clause authorizes the payment of a certain sum in the case of a breach of contract by one of the parties.
The What and How?
When do Liquidated Damages Apply?
When a contractor commits resources to a project, they want to ensure they are getting a fair return. Project delays could result in lost profits and the inability to employ resources elsewhere.
Liquidated damages are an accurate estimation of the prospective loss due to the breach of a contract. If liquidated damages are to be upheld, they cannot be a punishment.
If liquidated damages are excessive or oppressive compared to the potential loss the owner would sustain from a late completion, they will be regarded as a penalty.
If liquidated damages are determined to be a punishment, the owner will get compensation based on its actual losses from the Court.
How to best incorporate Liquidated Damages in a contract?
Contracts sometimes include language stating that they must pay liquidated damages in the event of non-performance or breach. In theory, the number of damages should accurately foretell the losses the aggrieved party would endure in the event of such an occurrence.
This computation must be done before signing the contract. Instead of when the contractor is genuinely responsible for paying the liquidated damages, this is the case.
In light of this, the liquidated damages may not equal the losses suffered by the principal. There is no recognized process or set of prescribed criteria for calculating liquidated damages. Instead, the principal must consider their probable losses, case by instance.
When determining actual damages is challenging, liquidated damage is intended to be a fair representation of losses. Generally speaking, liquidated damage is meant to be equitable rather than harsh.
How to best incorporate Liquidated Damages in a contract?
Contracts sometimes include language stating that they must pay liquidated damages in the event of non-performance or breach. In theory, the number of damages should accurately foretell the losses the aggrieved party would endure in the event of such an occurrence.
This computation must be done before signing the contract. Instead of when the contractor is genuinely responsible for paying the liquidated damages, this is the case.
In light of this, the liquidated damages may not equal the losses suffered by the principal. There is no recognized process or set of prescribed criteria for calculating liquidated damages. Instead, the principal must consider their probable losses, case by instance.
When determining actual damages is challenging, liquidated damage is intended to be a fair representation of losses. Generally speaking, liquidated damage is meant to be equitable rather than harsh.