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Liquidateddamages
FromWikipedia,thefreeencyclopedia

Liquidateddamages(alsoreferredtoasliquidatedandascertaineddamages)aredamageswhoseamount
thepartiesdesignateduringtheformationofacontract[1]fortheinjuredpartytocollectascompensation
uponaspecificbreach(e.g.,lateperformance).[1]
Whendamagesarenotpredetermined/assessedinadvance,thentheamountrecoverableissaidtobe'at
large'(tobeagreedordeterminedbyacourtortribunalintheeventofbreach).

Contents
1Commonlaw
1.1Example
1.2Thelawappliedtobankandcreditcardcharges
2UniformCommercialCode
3Otherlegalsystems
3.1Civillaw
3.2Islamiclaw
4References
5Seealso

Commonlaw
Atcommonlaw,aliquidateddamagesclausewillnotbeenforcedifitspurposeistopunishthe
wrongdoer/partyinbreachratherthantocompensatetheinjuredparty[2](inwhichcaseitisreferredtoasa
penalorpenaltyclause).[3]Onereasonforthisisthattheenforcementofthetermwould,ineffect,require
anequitableorderofspecificperformance.However,courtssittinginequitywillseektoachieveafair
resultandwillnotenforceatermthatwillleadtotheunjustenrichmentoftheenforcingparty.[4]
Inorderforaliquidateddamagesclausetobeupheld,twoconditionsmustbemet.
First,theamountofthedamagesidentifiedmustroughlyapproximatethedamageslikelytofallupon
thepartyseekingthebenefitoftheterm.[3]
Second,thedamagesmustbesufficientlyuncertainatthetimethecontractismadethatsuchaclause
willlikelysavebothpartiesthefuturedifficultyofestimatingdamages.

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Damagesthataresufficientlyuncertainmaybereferredtoasunliquidateddamages,andmaybeso
categorizedbecausetheyarenotmathematicallycalculableoraresubjecttoacontingencywhichmakesthe
amountofdamagesuncertain.

Example
Forexample,supposeNealTownsendagreestoleaseastorefronttoRichardOdness,fromwhichRichard
intendstoselljewelry.IfNealbreachesthecontractbyrefusingtoleasethestorefrontattheappointed
time,itwillbedifficulttodeterminewhatprofitsRichardwillhavelostbecausethesuccessofnewly
createdsmallbusinessesishighlyuncertain.This,therefore,wouldbeanappropriatecircumstancefor
RichardtoinsistuponaliquidateddamagesclauseincaseNealfailstoperform.
Inthecaseofconstructioncontracts,courtshaveoccasionallyrefusedtoenforceliquidateddamages
provisions,choosingtofollowtheDoctrineofConcurrentDelaywhenbothpartieshavecontributedtothe
overalldelayoftheproject.

Thelawappliedtobankandcreditcardcharges
ThislawhasrecentlybeenofgreatinteresttoUKbankandcreditcardcustomerswhohavebeencharged
asmuchas39forasingletransactionthattookthemovertheircreditlimit.Consumersarguedthese
chargeswerewellbeyondthecostofsendingacomputerisedletter.
In2007theOfficeofFairTradinginvestigatedtheexcessivelyhighchargesbeingimposedoncustomersof
creditcardcompanies.Initsreport,theOFTconfirmedthesechargeswereunlawfulunderUKlawasthey
amountedtoapenalty.Itsaiditwouldbepreparedtoinvestigateanychargeover12,thoughthiswasnot
intendedtoindicatethat12isafairandacceptablecharge.TheOFTsaiditwouldbeuptoacourtto
determinesuchanamountbasedontheestablishedlegalprecedentthattheonlyrecoverablecostwouldbe
actualcostsincurred.
ThecreditcardcompaniesdidnotproduceevidenceoftheiractualcoststotheOFT,insteadinsistingtheir
chargesareinlinewithclearpolicyandinformationprovidedtocustomers.
Followingtheruling,manybankcustomershavemadeCountyCourtclaimsagainsttheirbanksandcredit
cardcompaniesforreturnofpenaltychargesforreturnedcheques,directdebitsandunauthorizedoverdraft
charges.Todatenobankorcreditcardcompany,saveNatWestononeoccasion,hasattendedatCourtfor
aTrial.
OFTvAbbey
In2008TheHighCourtjudgedthattermsinbankaccountcontractswerenotcapableofbeingpenal,bar
thoseapplicabletoNatWestBankcustomersbetween2001and2003.[5]

UniformCommercialCode
IntheUnitedStates,Section2718(1)oftheUniformCommercialCodeprovidesthat,incontractsforthe
saleofgoods:[6]
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Damagesforbreachbyeitherpartymaybeliquidatedintheagreementbutonlyatanamountwhich
isreasonableinthelightoftheanticipatedoractualharmcausedbythebreach,thedifficultiesof
proofofloss,andtheinconvenienceornonfeasibilityofotherwiseobtaininganadequateremedy.A
termfixingunreasonablylargeliquidateddamagesisvoidasapenalty.
Thislargelymirrorsthecommonlawrule,whichappliestoothertypesofcontractsunderthelawofmost
USstates.

Otherlegalsystems
Civillaw
Civillawsystemsgenerallyimposelesssevererestrictionsonliquidateddamages.Forexample,Article
1226oftheFrenchCivilCodeprovidesforclausepnale,avariantofliquidateddamageswhichcombines
compensatoryandcoerciveelements.Judgesmayadjustexcessivecontractpenalties,butsuchclausesare
notgenerallyvoidasamatterofFrenchlaw.[7]
Article4201oftheCivilCodeofJapanprovidesanevenfirmerbasistoupholdcontractualpenalties:[8]
1. Thepartiesmayagreeontheamountoftheliquidateddamageswithrespecttothefailuretoperform
theobligation.Insuchcase,thecourtmaynotincreaseordecreasetheamountthereof.
2. Theliquidateddamagesshallnotprecludethedemandforperformanceortheexerciseofthe
cancellationright.
3. Anypenaltyispresumedtoconstituteliquidateddamages.
IntheU.S.stateofLouisiana,whichfollowsacivillawsystem,liquidateddamagesarereferredtoas
"stipulateddamages"andmaynotbemodifiedbythecourtunlesstheyaresomanifestlyunreasonableasto
becontrarytopublicpolicy.[9]

Islamiclaw
Islamiclawprohibitsgharar(uncertainty)incontracts,andliquidateddamagesprovisionsareafavored
mechanismtoovercomeuncertaintyregardingcontractualdamages.[10]

References
1. "LiquidatedDamages"(http://legaldictionary.thefreedictionary.com/Liquidated+damages)(w).Retrieved
20121218.
2. DunlopPneumaticTyreCoLtdvNewGarage&MotorCoLtd[1914]UKHL1
(http://www.bailii.org/uk/cases/UKHL/1914/1.html)seealsoAmevUdcFinanceLtdvAustin[1986]HCA63
(1986)162CLR170AustLII(http://www.austlii.edu.au/cgibin/sinodisp/au/cases/cth/high_ct/162clr170.html?
stem=0&synonyms=0&query=~Intention%20near%20contract)
http://en.wikipedia.org/wiki/Liquidated_damages

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3. "Liquidateddamages,penaltiesandtheJustCompensationrule:Somenotesonanenforcementmodelanda
theoryofefficientbreach"(http://www.jstor.org/discover/10.2307/1121823?
uid=3738776&uid=2&uid=4&sid=21100860664611)(w).ColumbiaLawReview77.Retrieved20121219.
4. "LiquidatedDamages"(http://law.jrank.org/pages/8310/LiquidatedDamages.html)(w),AmericanLaw
Encyclopedia6,retrieved20090407
5. http://www.oft.gov.uk/news/press/2008/5508
6. "2718.LiquidationorLimitationofDamagesDeposits."(https://www.law.cornell.edu/ucc/2/2718).Legal
InformationInstitute.Retrieved17March2015.
7. Clarke,Joanne." "Clausepnale"v.liquidateddamagesanysimilarities?"
(http://kluwerconstructionblog.com/2010/02/24/%E2%80%9Cclausepenale%E2%80%9Dvliquidateddamages
anysimilarities/).KluwerConstructionBlog.Retrieved17March2015.
8. "CivilCode"(http://www.moj.go.jp/content/000056024.pdf).MinistryofJustice(Japan).Retrieved17March
2015.
9. Isom,H.Chervis."SpecificPerformance:TheImportanceofaClearLiquidatedDamageProvision"
(http://www.bakerdonelson.com/specificperformancetheimportanceofaclearliquidateddamageprovision01
032007/).BakerDonelson.Retrieved17March2015.
10. "IslamicContractLaw"(http://www.saudilegal.com/saudilaw/02_law.html).Saudilegal.Retrieved17March
2015.

seealsoEsandaFinanceCorpvPlessing(1989)166CLR131[1]andAndrewsvANZBankingGroupLtd
[2012]HCA30(6September2012)[2]

Seealso
Unspecifiedclaim
http://www.austlii.edu.au/au/cases/cth/HCA/1989/7.html
http://www.austlii.edu.au/cgibin/sinodisp/au/cases/cth/HCA/2012/30.html
Retrievedfrom"http://en.wikipedia.org/w/index.php?title=Liquidated_damages&oldid=654774370"
Categories: Contractlaw Judicialremedies
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