Liquidated Damages (LD) : It is a contract provision that establishes a predetermined award if a party fails to perform as promised.LD can only be compensatory damages – to make the injured party whole again. If they are disproportionately large , they are unenforceable. LD are the damages that are reimbursed on a set value .
For example , say that SOS had a penalty of 1000$ per day for late delivery.If a supplier delivered material to SOS 8 days late and caused SOS to be late and have an 8000$ penalty , SOS could go after the supplier for the 8000$ - but no more.An amount higher than 8000$ would be considered punitive damages .Punitive damages that are meant to punish the offender for egregious behavior .They are not normally awarded under contract law.
Liquidated damages and penalty share a common feature that both are payable on the occurrence of a breach of contract. The parties to a contract may provide in advance the amount of compensation payable in the case of failure to perform the contract. The sum so fixed may be either liquidated damages or penalty However, the main difference then is:-
Liquidated Damages
Where the amount is fixed and genuine pre-estimate of the loss in cases of breach, it is liquidated damages.
Where the amount is fixed and genuine pre-estimate of the loss in cases of breach, it is liquidated damages.
Penalty
If the amount is fixed and is without any regard to probable loss, but is intended to frighten the party and to prevent him from committing breach it is a penalty and is not allowed.
No comments:
Post a Comment