Enforcement of Liquidated Damages

Abstract

This paper reviews the rules related to the enforcement of the contract liquidated-damages clause. The literature indicates that the clause will be enforced if: (1) The daily amount bears some resemblance to the actual damages that could be reasonably foreseen at the time the contract was written; and (2) the damage amount is difficult or impossible to estimate. Related to the reasonableness issue, courts will not permit the owner to use the clause to unreasonably coerce the contractor to complete the project on time or punish the contractor if he or she is late. The issue of difficulty in estimating the potential damages seems to be relatively minor. It is important that the estimates be related to the time the contract was signed. A number of cases were found where the actual damages were considerably more or less than the liquidated amount. This fact did not serve to waive enforcement of the clause. This paper discusses a number of issues related to liquidated damages and the assistance of an attorney may be needed.