Question 1

How should a liquidated damages clause be drafted in a contract?

Accepted Answer

Drafting best practices: clearly state that the amount is liquidated damages (not a penalty), explain why actual damages are difficult to estimate ("the parties acknowledge that the actual damages resulting from a breach would be difficult to calculate because..."), state the specific amount or formula, specify which breaches trigger liquidated damages (not all breaches should trigger the clause), state whether liquidated damages are the exclusive remedy or whether the non-breaching party can also seek specific performance or injunctive relief, and include a mutual acknowledgment that the amount is reasonable ("the parties agree that this amount is a reasonable estimate of the anticipated damages").

Question 2

What is the difference between liquidated damages and a penalty in Florida?

Accepted Answer

Distinction: a liquidated damages clause compensates for anticipated loss; a penalty punishes the breaching party. Florida courts look at: the relationship between the liquidated amount and the actual or anticipated loss (a reasonable relationship = liquidated damages; a grossly disproportionate relationship = penalty), the purpose of the clause (compensation vs. punishment), and whether the clause was negotiated at arm’s length (negotiated clauses are more likely to be enforced). If a clause is found to be a penalty: the clause is void and unenforceable, the non-breaching party must prove actual damages, and the court may award actual damages (which may be more or less than the liquidated amount).

Question 3

Can a Florida party recover more than liquidated damages if actual damages exceed the clause amount?

Accepted Answer

Recovery limits: generally, a liquidated damages clause establishes the maximum recovery for the specific breach it covers. The non-breaching party cannot recover both liquidated damages and actual damages for the same breach (that would be double recovery). However: the clause may be drafted to cover only specific types of breaches (allowing actual damages for other breaches), the clause may be drafted as a floor (minimum damages) rather than a cap, and the non-breaching party may seek specific performance or injunctive relief in addition to liquidated damages (if the clause does not explicitly make liquidated damages the sole remedy). The key is the language of the clause.

Liquidated Damages Clause: Contract

Liquidated Damages Clauses in Contracts

Drafting Best Practices

Damages vs. Penalty

Recovery Limits

Related Terms

Barnes Walker Contract Law

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