What are Liquidated Damages?
Liquidated damages are those that result from a contract where the parties agree to pay a predetermined sum if any party fails to comply with the terms of the agreement. When the parties enter into the contract, that is, before the contract’s actual execution, they agree upon certain damages. Furthermore, once it is signed, this amount cannot be changed because it is fixed. Liquidated damages are governed under Section 74 of the Indian Contract Act 1872. A party that violates a contract owes the other party adequate recompense for the losses incurred by that party. It should be highlighted that in this case, the compensation must be an accurate pre-estimate of the loss. Both the complainant and the defendant are eligible to file claims in the case of liquidated damages under Section 74.
Key Features of Liquidated Damages:
- The Indian Contract Act 1872 addresses liquidated damages under Section 74.
- Liquidated damages are those that occur when the amount owed for a breach of contract is a true pre-estimate of the potential damages.
- When it comes to liquidated damages, the relevant question is whether the party experiencing the breach has to provide proof of real loss or harm in order to get the agreed-upon liquidated amount.
Difference between Liquidated and Unliquidated Damages
Liquidated damages and Unliquidated damages are the two kinds of damage. Liquidated damages are pre-agreed compensation for contract breaches, while Unliquidated damages are determined by courts after a breach. When a defendant breaches a contract, the damaged party is often awarded the amount necessary to put them back in the financial situation they were expecting. But the only thing that sets one type apart from the other is the method used to determine the amount payable.
Understanding the distinction between these two types of damages is crucial in contractual agreements and legal disputes.
Table of Content
- What are Liquidated Damages?
- What are Unliquidated Damages?
- Difference between Liquidated and Unliquidated Damages
- Conclusion
- Difference Between Liquidated and Unliquidated Damages- FAQs