Liquidated Damages vs Damages
Damages and liquidated damages are legal terms that are often encountered when signing a contract with another party, irrespective of profession. Damages are sums of money that are mentioned in the contract, and are required to be paid to the victim in case of breach of contract by another party. A liquidated damage is included as a term in certain agreements or contracts, and this can be invoked in situations where it is difficult to ascertain actual damages. Liquidated damages are not punitive but fair in nature as they provide for payment to the party who has been at the receiving end, rather than punishing the party who has been guilty of breach of contract. There are many similarities in the two terms but there are also differences that shall be highlighted in this article.
Damages are monetary compensation to a person for the losses he has suffered either in the form of an injury or other losses. It is a general term and does not have to be included in a contract between two parties. In fact, a motorist when hit by another driver under DUI stands to be compensated for the injury he sustained and for other losses as well. If two parties sign a contract, where a party agrees to buy services of another party, either party can be made to pay damages to the other party depending upon the extent of breach of contract.
Let us see, how liquidated damages come into effect by taking up a fictitious example. Suppose a person pays up front to book a shop in a mall on lease and he has decided to sell ready made garments. Now if the mall owner suddenly decides not to give the store to the person, it is difficult to judge the losses that would accrue to the person who has yet not started to sell readymade garments. In such a scenario, there is no other alternative in front of a jury but to resort to liquidated damages that are fair in nature and sufficient to cover the losses of the person.
The concept of liquidated damages is today widely being applied by juries to compensate victims if there has been no mention of these kinds of damages in a contract.