People often come to the blog looking for a sample liquidated damages clause. Although I have a nice little piece explaining liquidated damages provisions and cautioning people to avoid including penalty provisions in their contracts, I haven’t provided sample language.
Liquidated damages clauses should be tailored to the specific situation — this is particularly important because courts won’t enforce penalty provisions. Thus, it’s important that (1) your clause not in fact be a penalty provision and (2) the liquidated damages clause clearly reflect an attempt to compensate the non-breaching party.
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Liquidated damages provisions can be a useful way to ensure that you have a remedy if the other party to a contract fails to live up to its end of the bargain. When things go south in a commercial relationship, proving that a breach of the contract has occurred is only half the battle; the other half is proving damages, which can often be difficult. (The third half is executing on the judgment, but that’s a subject for a different blog.) A liquidated damages clause can help solve that problem.
Liquidated damages are a stated sum of money damages (or a formula for determining the damages) that the parties stipulate to in advance. Here’s a sample liquidated damages clause. [click to continue…]