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Liquidated Damages Essay

1061 words - 5 pages

When a breach of contract occurs, there must be a remedy of damages. This is the payment in one form or the other for a breach of contract by the breaching party, to the non-breaching party. There are various kinds of remedies, which include; Compensatory damages, Punitive damages, and Liquidated damages. In the law of contract, when a breach of contract occurs, the non-breaching party has to do all he/she can in order to minimize the damages caused by the breach. However, some contracts contain provisions that specify a certain sum of money that is payable by the breaching party incase he/she fails to perform his/her duties as required by the contract signed. This sum of money paid for a ...view middle of the document...

If the clause is referred to as penalty clause in a contract it will not apply in a breach of contract, because, its enforcement will require a specific performance equitable order. Nonetheless, hours of sitting in equity will seek to achieve a fair result, other than enforcing a clause that seeks to punish or that may lead to unjust enrichment of the enforcing or the non-breaching party.
A liquidated damages clause is upheld under two conditions. The first condition is, the amount of damages acknowledged must approximate the damages likely to fall upon the party seeking compensation. Secondly, the damages to be paid must be sufficiently certain at the formation of the contrac,t that the damages clause is likely to save both parties the future difficulty of approximating damages. If the damages are uncertain, they will now become unliquidated damages. Many contracts that involve the exchange of money, and the promise of performance must have a liquidated damages provision. The purpose of this stipulation is to establish a pre-determined sum that is payable in the breach of contract as promised.
Liquidated damages have a number of advantages and disadvantages. One main contractual advantage of liquidated damages clause is that, the parties will settle on an amount they have both agreed upon mutually. It will be cheaper including the liquidated damages clause in their contract to save time, and legal fees if taken to the courts. Another advantage of the liquidated damages clause in a contract is that, it establishes a predictable cost, and this helps the parties to balance the cost that is anticipated in the case of breach of contract. It serves as a source of surety or insurance for both parties in contract and so, there will be no fear of one losing their cash or the investment in the contract. This is the reason as to why liquidated damages clause is commonly used in real estate contracts. The buyers are always guaranteed of compensation because it limits their loss. For the sellers, the buyer will deposit the money on time unless he/she wants to pay liquidated damages. The liquidated damages clause acts as...

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