In an article published in the Fall issue of Journal of Emerging Issues in Litigation, Laura Fraher outlines why the liquidated damages provision in a contract is a useful mechanism for mitigating risk in the event of contract breaches.
“A liquidated damage provision is an advance agreement of the damages that a party will be entitled to recover in the event of a future breach by the other party to a contract,” writes Fraher. “These provisions can be an important tool for risk allocation and mitigation between parties when entering into a contract.”
Fraher explains how to prove the liquidated damage clause is enforceable and discusses how proving damages can be difficult to determine and recover. Additionally, she discusses how the outcome of litigation over the enforceability of a liquidated damage provision will often be determined by the actions taken by the parties at the time of contract formation.
“The best way to set your client up for success in litigating any issue of contract interpretation is to advise your client as to the best way to draft, negotiate and document their contractual agreements to avoid the most commonly litigated contract interpretation issues, or at least to maximize the potential for success if one of these disputes does arise,” writes Fraher. “Many clients will understand these realities and welcome input from a seasoned commercial litigator at the contract drafting and negotiating stage if offered.”
To read the full article, please visit Journal of Emerging Issues in Litigation here.