What happens if a contract is breached regarding liquidated damages?

What happens if a contract is breached regarding liquidated damages?

• A. No damages are typically owed
• B. The party may owe damages as specified
• C. The contract is rendered void immediately
• D. Only punitive damages may be assessed

Answer: (B)

When a contract is breached and includes a clause specifying liquidated damages, the party that breaches the contract may owe damages exactly as stated in that clause. Liquidated damages are predetermined amounts that the parties agree upon during the formation of the contract to serve as compensation in the event of a breach. This approach provides clarity and certainty for both parties, as it eliminates the need to prove actual damages in case of a breach. Instead, the stipulated amount is enforceable as agreed upon, assuming it is reasonable and not considered a penalty. Therefore, in cases where liquidated damages are part of the contract, the defaulting party must compensate the injured party according to the agreed terms described in the contract.

When a contract is breached and includes a clause specifying liquidated damages, the party that breaches the contract may owe damages exactly as stated in that clause. Liquidated damages are predetermined amounts that the parties agree upon during the formation of the contract to serve as compensation in the event of a breach.

This approach provides clarity and certainty for both parties, as it eliminates the need to prove actual damages in case of a breach. Instead, the stipulated amount is enforceable as agreed upon, assuming it is reasonable and not considered a penalty. Therefore, in cases where liquidated damages are part of the contract, the defaulting party must compensate the injured party according to the agreed terms described in the contract.