Damages
Contract
Contract historically has been one of the central concepts, if not the central concept, defining the legal structure of liberal Western society. A variety of developments, however, have led to uncertainty about the meaning, nature, and scope of contractual relationships. The classical definition of contract, stated in perhaps its clearest form by Oliver Wendell Holmes, Jr., in the late nineteenth century, has a considerable continuing influence on the general orientation of the legal system, even as it corresponds less and less with the way agreements are actually made and enforced.
A critique of the law of liquidated damages is important both for reasons of praxis and theory. From a practical perspective, such liquidated damages clauses are commonly found in many types of contracts, from employment to construction contracts. A number of reasons exist for the popularity of these clauses. First, because of the fears and costs associated with litigation, parties who draft such clauses do so in the hopes that they will preclude the need for litigation. At the very least, a liquidated damages clause may encourage the parties to settle before the trial phase or to provide some evidentiary value at trial. Parties have also used liquidated damages clauses as a mechanism for retaining monies that have been deposited or paid under the contract. Finally, a party concerned foremost with performance, especially a timely performance, may use such a clause in the hope that it will provide a further inducement for performance.
The idiosyncratic uniqueness of the performance can only be protected by the enforcement of the penalty. Also, the non-breaching party deprived of a specific performance remedy should not be forced into litigation in order to quantify damages. In the civil law system, where specific performance is viewed as a preferred remedy, the non-breaching party has the option of avoiding the vagaries and uncertainty of...
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