Liquidated Damages vs. Unliquidated Damages: Know the Difference
By Shumaila Saeed || Published on January 21, 2024
Liquidated Damages are pre-agreed compensation for specific contract breaches, while Unliquidated Damages are not predetermined and are assessed after a breach occurs.
Key Differences
Liquidated Damages are specified in a contract as a fixed amount to be paid if a specific breach occurs, providing a clear, agreed-upon penalty. Unliquidated Damages, however, are not defined in advance and are determined by a court based on the actual loss suffered.
Shumaila Saeed
Jan 21, 2024
The purpose of Liquidated Damages is to provide certainty and avoid litigation, as the compensation amount is agreed upon beforehand. In contrast, Unliquidated Damages are subject to legal proceedings and judicial discretion, as they are assessed after the breach.
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Jan 21, 2024
Liquidated Damages must be a reasonable estimate of the anticipated loss at the time of contract formation, not a penalty. Unliquidated Damages, on the other hand, reflect the actual loss incurred, which can only be quantified after the breach.
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Jan 21, 2024
In the case of Liquidated Damages, proof of actual loss is not required as the damages are pre-determined. For Unliquidated Damages, the plaintiff must prove the extent of the loss to obtain compensation.
Shumaila Saeed
Jan 21, 2024
Liquidated Damages clauses are commonly found in commercial contracts, especially in construction and supply agreements. Unliquidated Damages are typically sought in cases where the exact nature and extent of the loss cannot be anticipated.
Shumaila Saeed
Jan 21, 2024
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Comparison Chart
Predetermination
Agreed upon in the contract
Not predetermined, assessed after the breach
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Purpose
To provide certainty and avoid litigation
To compensate for actual loss not specified in advance
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Basis of Assessment
Reasonable estimate of anticipated loss
Actual loss incurred
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Requirement of Proof
No need to prove actual loss
Need to prove the extent of loss
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Common Usage
In commercial contracts, like construction
In cases with uncertain extent of loss
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Jan 21, 2024
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Liquidated Damages and Unliquidated Damages Definitions
Liquidated Damages
Liquidated Damages are pre-determined compensation for a contract breach.
The contract included a $10,000 liquidated damages clause for delayed completion.
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Jan 05, 2024
Unliquidated Damages
Unliquidated Damages are not pre-determined and are assessed after a breach.
The court awarded unliquidated damages based on the actual loss incurred.
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Jan 05, 2024
Liquidated Damages
Liquidated Damages represent an agreed penalty for specific contractual failures.
If the supplier fails to deliver on time, they must pay liquidated damages.
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Jan 05, 2024
Unliquidated Damages
Unliquidated Damages are based on the actual loss, not a pre-agreed amount.
The actual loss from the failed contract was compensated through unliquidated damages.
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Liquidated Damages
Liquidated Damages are set to avoid disputes over the valuation of losses.
Liquidated damages were included to avoid litigation costs over breach of contract.
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Unliquidated Damages
Unliquidated Damages require proof of loss for compensation.
To claim unliquidated damages, the company had to prove its losses in court.
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Liquidated Damages
Liquidated Damages provide a pre-agreed remedy for breach of contract.
The software development agreement includes a liquidated damages clause for late delivery.
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Jan 05, 2024
Unliquidated Damages
Unliquidated Damages are determined by a court, considering the actual harm.
The judge calculated unliquidated damages considering the extent of financial harm.
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Jan 05, 2024
Liquidated Damages
Liquidated Damages are a fixed amount set during contract formation.
The construction contract specified liquidated damages for each day of delay.
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Jan 05, 2024
Unliquidated Damages
Unliquidated Damages reflect compensation for an unanticipated loss.
Unliquidated damages were claimed for the unforeseen business losses due to the breach.
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Jan 05, 2024
Repeatedly Asked Queries
What are Unliquidated Damages?
They're damages not specified in advance and determined after a breach occurs.
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Jan 21, 2024
What are Liquidated Damages?
They're predetermined damages specified in a contract for a particular breach.
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Jan 21, 2024
Is a penalty clause the same as Liquidated Damages?
No, liquidated damages must be a reasonable estimate of loss, not a penalty.
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Jan 21, 2024
When are Liquidated Damages used?
In contracts where parties wish to avoid litigation by agreeing on damages beforehand.
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Jan 21, 2024
Can Unliquidated Damages be more than the contract value?
Yes, if the actual losses incurred exceed the contract value.
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Jan 21, 2024
How are Unliquidated Damages calculated?
They are assessed based on the actual loss incurred due to the breach.
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Jan 21, 2024
Are Liquidated Damages enforceable?
Yes, if they're a reasonable estimate of anticipated loss and not punitive.
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Jan 21, 2024
What proof is needed for Unliquidated Damages?
Proof of the actual loss incurred due to the breach is required.
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Jan 21, 2024
Can Liquidated Damages be negotiated?
Yes, they can be negotiated and agreed upon during contract formation.
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Jan 21, 2024
Can Liquidated Damages be challenged?
Yes, if they're deemed to be a penalty rather than a reasonable estimate of loss.
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Jan 21, 2024
Can Liquidated Damages be more than the actual loss?
Generally, they should align with a reasonable estimate of the potential loss.
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Jan 21, 2024
Can Liquidated Damages be amended after contract signing?
Yes, but it requires agreement from all parties involved in the contract.
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Jan 21, 2024
Who decides Unliquidated Damages?
They are typically decided by a court or an arbitration panel.
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Jan 21, 2024
Do Unliquidated Damages deter contractual breaches?
They may, as the breaching party risks facing an uncertain amount of damages.
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Jan 21, 2024
Are attorney fees included in Unliquidated Damages?
They can be, depending on the court's decision and jurisdiction.
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Jan 21, 2024
Is it difficult to prove Unliquidated Damages?
It can be, as it requires detailed evidence of the actual loss incurred.
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Jan 21, 2024
What happens if Liquidated Damages are too high?
They can be challenged in court as being punitive and unenforceable.
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Jan 21, 2024
When are Unliquidated Damages preferred?
When the extent of potential loss is uncertain or difficult to estimate in advance.
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Jan 21, 2024
How do Liquidated Damages affect contract negotiation?
They provide clarity and can expedite negotiations by predetermining breach consequences.
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Jan 21, 2024
How do Unliquidated Damages impact business relationships?
Pursuing them can strain relationships, as it involves litigation and proving losses.
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Jan 21, 2024
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About Author
Written by
Shumaila SaeedShumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.
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