In this article you will learn about the Difference Between Liquidated and Unliquidated Damages.
What are Liquidated Damages?
In a contract, when the parties to an agreement decide to pay a stipulated amount and there is non-performance of the contract on the part of any of the parties, such damages are called liquidated damages. These damages are agreed by the parties when they join the contract, i.e. prior to the actual contract being executed. However, this amount made is fixed and no changes can be made once it is signed by them.
Liquidated damages are regulated by Section 74 of the Indian Contract Act of 1872. If there is any breach of contract by a party, the other party is eligible for reasonable compensation for any loss incurred by that party. Here, the compensation must be a genuine pre-estimate of the loss.
Liquidated Damages in a contract is a provision that determines the amount to be paid as loss or damages for the party’s breach. With these damages, there is no need to prove the actual loss because the clause specifies the estimation of loss or damages in advance.
Essentials of Liquidated Damages
- Fair and just pre-estimation of the damages.
- Estimation of the sum which the parties have agreed to compensate for the breach.
- No matter the loss amount, these damages are granted in full. Furthermore, the courts have no power to increase or decrease the amount decided by the parties.
Advantages of Liquidated Damages
- Ensures certainty to the parties.
- Provides damage recovery by removing the need for proof of loss.
- Break down the process of dispute resolution.
What are Unliquidated Damages?
Unliquidated Damages refer to the damages which are not estimated in advance for the breach of a party. The damages claimed for unforeseeable damages are unliquidated damages. These damages depend upon the actual damage or loss suffered by the aggrieved party.
Essentials of Unliquidated Damages
- Breach of contract must be there for claiming the damages.
- To ascertain whether the breach resulted in a loss.
- The burden of proof of the breach of contract and the loss suffered lies on the plaintiff.
- The amount of damages must be established with a fair degree of confidence.
- Compensation is not granted for any remote or indirect damage in breach of contract.
- Damages are payable for direct, consequential and incidental damages or losses.
- The defendant is also liable to pay for the loss of profit arising due to the breach of contract.
Types of Unliquidated Damages
- Substantial Damages
- Nominal Damages
- Exemplary Damages
Conclusion
Liquidated damages will be given to the injured party if they have the right to sue the other party for breach of contract. Furthermore, the amount must be a genuine and accurate pre-estimate of the actual harm caused by the breach of contract. On the other hand, the court has the power to decide on the proper amount of compensation where the parties are unable to agree on a particular figure. Unliquidated damages are awarded in these situations.
This article on Difference Between Liquidated and Unliquidated Damages is contributed by Dipshikha Anand. Explore more articles and resources on LawStudyPoint.com. Also, check out the Dipshikha Anand YouTube channel for helpful videos and updates.