IV. Liquidated Damages, A. Definitions, Distinctions, and Functions, § 504 - Generally
"Liquidated damages" are a set amount of money, or a certain formula, expressly stipulated in a contract as the amount of damages to be paid by a party that breaches the agreement. Liquidated damages can also be defined as the amount which has been ascertained by judgment or by specific agreement of the parties or which are susceptible of being made certain by mathematical calculation from known factors. The amount must be stipulated and agreed upon by the parties at the time the contract is entered and compensate for injuries in the event of contract breach.
Damages are "liquidated" when the proper amount to be awarded can be determined with exactness from the cause of action as pleaded, i.e., from a pleaded agreement between the parties, by an arithmetical calculation, or by application of definite rules of law. Such clauses are permissible where they are neither unconscionable nor contrary to public policy. Parties are bound to the agreement unless it violates some principle of law.
Liquidated damages provisions allow private parties to reform the fixed concept of compensatory damages for breach of contract, by providing relief in excess, or in lieu, of compensatory damages. Thus, the provision is used as an economical alternative to time-consuming and costly litigation for the allocation of damages before a breach occurs. The provision may discourage a party from breaching a contract, but it cannot be used as a penalty.
The amount of liquidated damages, sometimes referred to as a liquidated claim or anticipatory damages, cannot be changed by the proof. Under the common law of contracts, liquidated damages reflect an ex ante agreement of the parties.
Liquidated damages clauses do not limit a nondefaulting party's remedies for a breach of contract but instead provide an agreed upon measure of damages.
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Goldblatt v. C.P. Motion, Inc., 77 So. 3d 798 (Fla. 3d DCA 2011)
AGV Sports Group, Inc. v. Protus IP Solutions, Inc., 417 Md. 386, 10 A.3d 745 (2010)
Foreign Academic & Cultural Exchange Services, Inc. v. Tripon, 394 S.C. 197, 715 S.E.2d 331, 272 Ed. Law Rep. 658 (2011)
TXU Portfolio Management Co., L.P. v. FPL Energy, LLC, 328 S.W.3d 580 (Tex. App. Dallas 2010)
, reh'g overruled, (Jan. 14, 2011) and review granted, (Feb. 17, 2012).