Liquidated Damages - April 12

Question 1

May damages for breach by either party be liquidated in the agreement? (R)

Answer 1

Yes, damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. (356)

Question 2

Is a term fixing unreasonably large liquidated damages enforceable? (R)

Answer 2

No, a term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. (356)

Question 3

Is term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond enforceable? (R)

Answer 3

A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence. (356)

Question 4

May damages for breach by either party may be liquidated in the agreement? (UCC)

Answer 4

Damages for breach by either party may be liquidated in the agreement but

(a) only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, (b) the difficulties of proof of loss, and
(c)the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. (2-718(1))

Question 5

What happens to a term fixing unreasonably large liquidated damages? (UCC)

Answer 5

A term fixing unreasonably large liquidated damages is void as a penalty. (2-718(1))

Question 6

What are the damages that may be awarded to parties? (Chinen)

Answer 6

Injunctive relief, either specific performance or a negative injunction. (Lecture on Liquidated Damages)

Question 7

What are some problems with damages? (Chinen)

Answer 7

The court can miscalculate them, they can be limited by forseeability, avoidability, and certainty. (Lecture on Liquidated Damages)

Question 8

What happens when courts miscalculate damages? (Chinen)

Answer 8

This creates the risk that a non-breaching party will be overcompensated or undercompensated if a court calculates damages. (Lecture on Liquidated Damages)

Question 9

How can parties avoid uncertainty when it comes to damages? (Chinen)

Answer 9

They can decide in advance what their damages will be when there is a breach. (Lecture on Liquidated Damages)

Question 10

What is a liquidated damage clause? (Chinen)

Answer 10

Turns damages into money based on what the parties already agreed upon. (Lecture on Liquidated Damages)

Question 11

What are some policy reasons in favor of liquidated damages clauses? (Chinen)

Answer 11

It can be helpful to know in advance what damages will be if there is a breach. (Lecture on Liquidated Damages)

Question 12

What is a policy reason against liquidated damages? (Chinen)

Answer 12

Parties would be able to enforce unfair penalties. (Lecture on Liquidated Damages)

Question 13

What does difficulties of proof of loss mean? (Chinen)

Answer 13

This means that the harder it is in this type of contract to prove losses, the more likely the clause is reasonable. (Lecture on Liquidated Damages)

Question 14

What is the economic policy behind enforcing liquidated damages clauses? (DeLong)

Answer 14

Contract remedies both allocate risks and create incentives for both performance and reliance. Because they have more information about the effects of breach, the parties to a particular transaction are in a better position to shape optimum remedies than is a judge long after the fact. They know better what actual harm will result. Liquidated damages would thus seem to be presumptively valid. (487)