Recently, civil law countries have attempted to limit the scope of penalties.
This allows courts to lower the number of penalties if they decide the original penalty is too large.
Understanding the differences between liquidated damages vs.
penalty is an important part of negotiating a construction contract.
Liquidated damages clauses should be tailored to the specific situation — this is particularly important because courts won’t enforce penalty provisions.
However, while it has long been possible to enforce penalty provisions under civil codes, most courts now have the ability to limit the scope of these penalties.The second issue is if the damages listed are reasonable and in proportion to the actual harm in question.If the court cannot detect these two elements in the provision, then it will not be enforced.The purpose of a liquidated damages provision is to calculate how much one party stands to lose if the contract is breached or performance is not delivered.Courts will enforce these provisions if they decide it would be hard to estimate the harm resulting from a broken contract and the damages described in the contract are reasonable, meaning their amount is not more than the actual losses suffered.
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