Under the current state of the law, however, the provisions do not achieve their potential as effective dispute avoidance mechanisms because parties often turn to the courts to adjudicate validity of the provisions on a case-by-case basis.With no guarantee that their provisions will be enforced, parties may be confronted with the very uncertainty they hoped to avoid.I can’t recall ever seeing a contractor actually pay liquidated damages to an owner. They usually center around two issues: (1) whether a contract’s liquidated damages clause is enforceable and (2) how much in liquidated damages does one party owe the other.Why Have Liquidated Damages In A Construction Contract?The term ‘liquidated damages' should not be misunderstood with the term ‘penalty'.Penalty is awarded by a competent Court, in case one of the parties takes action against the other.a sum which a party to a contract agrees to pay or a deposit which he agrees to forfeit if he breaks some promise and which, having been arrived at by a good faith effort to estimate in advance the actual damage which would probably ensue the breach, are legally recoverable or retainable as agreed damages if the breach occurs." The American Law Reports annotation on liquidated damages states, "Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in light of the anticipated or actual harm caused by the breach.
So liquidated damages equals an amount of money agreed upon by both parties to a contract where in one will pay to the other upon breaking or backing out of (breaching), the agreement or if a lawsuit arises due to the breach. If these criteria are not met, a liquidated damages clause will be void.
This report is aimed to highlight provisions regarding “liquidated damages” in case of the breach of the contract and to bring about a comparative study between India and England regarding it.
Thus, before knowing what exactly liquidated damages are, it is important to understand the consequences of breach of contract and the damages awarded in case of breach.
Westcoe Realtors, Riverside California…There is a nifty little paragraph in the standard Residential Purchase Agreement (paragraph 16 for those who prefer the numerical reference) labeled LIQUIDATED DAMAGES.
It is not a long winded explanation as some other references in a standard contract, but it does affect who gets the money on deposit in case the escrow fails to close, and like the saying goes, dynamite comes in small packages…so beware to both the buyer and seller.