"Agreed Remedies" i.e. stipulated or liquidated damages

When talking about damages use the sentence to explain them, not the formula.

Key Topics:

What is a liquidated damages clause?: A liquidated damages clause is a contract term that specifies a predetermined amount of money (or formula) agreed to by the parties at contract formation that must be paid as damages for breach.
1. What are the benefits of a liquidated damages clause?:
  1. They are more predictable
  2. They’re more efficient because it saves time and cost in the event of a breach.
  3. It also acts as a sort of insurance against breach.
  4. Injured party does not have to prove actual damages (which can be costly, time intensive, and difficult) because they replace other damages.
2. Replaces other damages: If the liquidated damages clause if valid and enforceable, it takes the place of other damages calculations, even if actual damages end up being more or less than amount stated in the liquidated damages provision.
3. Practical Considerations (Context): If a liquidated damages clause fails, then the party must prove actual damages.
  1. If the liquidated damages clause if valid, but there are no actual damages, courts are split:
    1. Some permit recovery according to the clause
    2. But others have held that there is no actual harm, then the clause is not e nforceable.
  2. An enforceable liquidated damages clause does not necessarily prevent enforcement by specific performance.

Disputed Issue: Enforceability:

Whether the liquidated damages clause is valid and enforceable.

The Rule for our purposes is the same for the 2nd Restatement and the UCC rule.

Rule: To be valid and enforceable, a liquidated damages clause must be reasonable in the light of the anticipated or actual loss caused by teh breach and teh difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on the grounds of public policy as a penalty.

Analytic Framework for Rule:

Is it a reasonable forecast of anticipated or actual harm caused by the breach? What this is asking is if the stipulated amount is a reasonable amount for an anticipated or actual loss.
Is it difficult to estimate damages at the time of contracting?: This factor asks whether, at the time of contracting, damages were difficult to estimate.
1. The first two elements appear contradictory: The more difficult it is to prove losses at the time of K formation, the harder it is to anticipate the actual damages.
Is it so unreasonably high that it penalizes the breach? A term fixing unreasonably large liquidated damages is unenforceable on the grounds of public policy as a penalty.

Barie Patch case illustration.